From Chapter 16 of Management, Revised Edition
Public-service institutions—such as government agencies, labor unions, churches, universities and schools, hospitals, community and charitable organizations, professional and trade associations, and the like—need to be entrepreneurial and innovative fully as much as any business does.
Indeed, they may need it more.
The rapid changes in today's society, technology, and economy are simultaneously an even greater threat to them and an even greater opportunity.
Yet public-service institutions find it far more difficult to innovate than does even the most "bureaucratic" company.
The "existing" seems to be even more of an obstacle for them.
To be sure, every service institution likes to get bigger.
In the absence of a profit test, size is the one criterion of success for a service institution, and growth a goal in itself.
And then, of course, there is always so much more that needs to be done.
But stopping what has "always been done" and doing something new are equally anathema to service institutions, or at least excruciatingly painful to them.
Most innovations in public-service institutions are imposed on them either by outsiders or by catastrophe.
The modern university, for instance, was created by a total outsider, the Prussian diplomat Wilhelm von Humboldt.
He founded the University of Berlin in 1809, when the traditional university of the seventeenth and eighteenth century had been all but completely destroyed by the French Revolution and the Napoleonic wars.
Sixty years later, the modern American university came into being, when the country's traditional colleges and universities were dying and could no longer attract students.
Similarly, all basic innovations in the military in the twentieth century, whether in structure or in strategy, have followed on ignominious malfunction or crushing defeat: the reorganization of the American army and of its strategy by a New York lawyer, Elihu Root, Teddy Roosevelt's secretary of war, after its disgraceful performance in the Spanish-American War; the reorganization, a few years later, of the British army and its strategy by Secretary of War Lord Haldane, another civilian, after the equally disgraceful performance of the British in the Boer War; and the rethinking of the German army's structure and strategy after the defeat of World War I.
And in government, one of the greatest examples of innovative thinking in recent political history, America's New Deal of 1933-1936, was triggered by a Depression so severe as to almost unravel the country's social fabric.
Critics of bureaucracy blame the resistance of public-service institutions to entrepreneurship and innovation on "timid bureaucrats," on time-servers who "have never met a payroll," or on "power-hungry politicians."
It is a very old litany—in fact, it was already hoary when Machiavelli chanted it almost 500 years ago.
The only thing that changes is who intones it.
At the beginning of the twentieth century, it was the slogan of the so-called liberals and now it is the slogan of the so-called neoconservatives.
Alas, things are not that simple, and "better people" that perennial panacea of reformists—is a mirage.
The most entrepreneurial, innovative people behave like the worst time-serving bureaucrat or power-hungry politician six months after they have taken over the management of a public-service institution, particularly if it is a government agency.
The forces that impede entrepreneurship and innovation in a public-service institution are inherent in it, integral to it, inseparable from it.
The best proof of this are the internal staff services in businesses, which are, in effect, the "public-service institutions" within business corporations.
These are typically headed by people who have come out of operations and have proven their capacity to perform in competitive markets.
And yet, the internal staff services are not notorious as innovators.
They are good at building empires—and they always want to do more of the same.
They resist abandoning anything they are doing.
But they rarely innovate once they have been established.
There are three main reasons why the existing enterprise presents so much more of an obstacle to innovation in the public-service institution than it does in the typical business enterprise.
First, the public-service institution is based on a "budget" rather than on being paid out of its results.
It is paid for its efforts and out of funds somebody else has earned, whether the taxpayer, the donors of a charitable organization, or the company for which a human resource department or the marketing services staff work.
The more efforts the public-service institution engages in, the greater its budget will be.
And "success" in the public-service institution is defined by getting a larger budget rather than obtaining results.
Any attempt to slough off activities and efforts, therefore, diminishes the public-service institution.
It causes it to lose stature and prestige.
Failure cannot be acknowledged.
Worse still, the fact that an objective has been attained cannot be admitted.
A service institution is dependent on a multitude of constituents.
In a business that sells its products on the market, one constituent, the consumer, eventually overrides all the others.
A business needs only a very small share of a small market to be successful.
Then it can satisfy the other constituents, whether they are shareholders, workers, the community, and so on.
But precisely because public-service institutions—and that includes the staff activities within a business corporation—have no "results" out of which they are being paid, any constituent, no matter how marginal, has, in effect, a veto power.
A public-service institution has to satisfy everyone; certainly, it cannot afford to alienate anyone.
The moment a service institution starts an activity, it acquires a "constituency," which then refuses to have the program abolished or even significantly modified.
But anything new is always controversial.
This means that it is opposed by existing constituencies without having formed, as yet, a constituency of its own to support it.
The most important reason, however, is that public-service institutions exist, after all, to "do good."
This means that they tend to see their mission as a moral absolute rather than as economic and subject to a cost-benefit calculus.
Economics always seeks a different allocation of the same resources to obtain a higher yield.
Everything economic is therefore relative.
In the public-service institution, there is no such thing as a higher yield.
If one is "doing good," then there is no "better."
Indeed, failure to attain objectives in the quest for a "good" only means that efforts need to be redoubled.
The forces of evil must be far more powerful than expected and need to be fought even harder.
For thousands of years the preachers of all sorts of religions have held forth against the "sins of the flesh."
Their success has been limited to say the least.
But this is no argument as far as the preachers are concerned.
It does not persuade them to devote their considerable talents to pursuits in which results may be more easily attainable.
On the contrary, it only proves that their efforts need to be redoubled.
Avoiding the "sins of the flesh" is clearly a "moral good," and thus an absolute, which does not admit to any cost-benefit calculation.
Few public-service institutions define their objectives in such absolute terms.
But even company human resource departments and manufacturing service staffs tend to see their mission as "doing good," and therefore as being moral and absolute instead of being economic and relative.
This means that public-service institutions are out to maximize rather than to optimize.
"Our mission will not be completed," asserts the head of the Crusade Against Hunger, "as long as there is one child on the earth going to bed hungry."
If he were to say, "Our mission will be completed if the largest possible number of children that can be reached through existing distribution channels get enough to eat not to be stunted," he would be booted out of office.
But if the goal is maximization, it can never be attained.
Indeed, the closer one comes to attaining one's objective, the more efforts are called for.
For, once optimization has been reached (perhaps between 75 and 80 percent of theoretical maximum), additional costs go up exponentially while additional results fall off exponentially.
The closer a public-service institution comes to attaining its objectives, therefore, the more frustrated it will be and the harder it will work on what it is already doing.
It will, however, behave exactly the same way the less it achieves.
Whether it succeeds or fails, the demand to innovate and to do something else will be resented as an attack on its basic commitment, on the very reason for its existence, and on its beliefs and values.
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