Joe’s Journal: On Assessing Whether the Roof Would Cave In
“No matter how well a business prevents cost inflation, it will still have to cut costs. This is because businesses are like people, and people often get sick no matter how carefully they exercise, control their diet, and avoid substance abuse. There is thus always the need for cost cutting. To start cost cutting, management usually asks: ‘How can we make this operation more efficient?’ It is the wrong question. The question should be: ‘Would the roof cave in if we stopped doing this work altogether?’ And if the answer is ‘probably not,’ one eliminates the operation.”
—Peter F. Drucker
Many of our cities and states, as well as our national government, are facing huge deficits. In fact, three California cities—San Bernardino, Mammoth Lakes and Stockton—have been forced to seek bankruptcy protection.
The leaders of these cities have been unable to allocate resources to their most effective programs and abandon other programs by answering and acting on Peter Drucker’s question, “Would the roof cave in if we stopped doing this work altogether?”
I recently returned from a business trip to New York, and remembered the sights I used to see as I traveled back and forth to the city during my years of graduate study at New York University. As our train entered the Bronx, I used to look for the University Heights Campus of NYU, which housed the undergraduate college. I was taken by the contrast between the countryside landscape of University Heights and the urban atmosphere of NYU’s campus at Washington Square, where I was a student.
My time at NYU was a time when numerous Eastern colleges and universities were experiencing deep financial problems, and NYU was no exception. The Chronicle of Higher Education noted these problems in its 1971 article “100 Institutions Reported Facing Fiscal Disaster.”
What NYU did in response was instructive and illustrates the enormous power of Drucker’s idea. In 1973, NYU President James Hester negotiated the sale of the University Heights Campus to Bronx Community College and used the funds to strengthen the Washington Square Campus. The actions were painful, and many constituents were vocal in their dissent. Yet NYU not only recovered; it went on to achieve distinction at Washington Square College, which now houses the undergraduate college.
What can we take from these lessons? It is time to adhere to Drucker’s time-tested advice; don’t try to reduce deficits merely by “drips and drabs.” Rather, abandon the less productive programs and invest in those that are likely to carry the future for our cities, colleges and universities—and our nation.