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In an era of tight budgets, CFOs are bringing private-sector management techniques to the public arena.
Kate O'Sullivan, CFO Magazine
March 1, 2004
No matter the business model, most executives spend their careers striving for revenue growth and profitability. but in the public sector, the definition of success is not so clear. From balancing the needs of varied constituencies to working through the political process, CFOs of public-sector organizations face hurdles their private-sector peers can only imagine. And to succeed, they must not only manage limited resources, they must also operate in the public eye.
The lack of profit motive is the key difference between public- and private-sector work, says John J. Huggins, director of economic development for the city of Denver and the co-founder and former CFO of a start-up technology company. "You don't have the one single organizing principle that you do in the private sector," he says. "Here there are at least several very legitimate goals," including responsiveness to constituents and balancing development with environmental concerns. In addition, he says, every person on the street has a right to opinions about how the city is run—opinions they are very willing "to share with you."
Chris Poinsatte, finance chief at Dallas/Fort Worth International Airport, agrees that working in the public sector means listening to multiple stakeholders. "We have so many different customers," he says, "airlines, concessionaires, environmental groups, and the cities of Dallas and Fort Worth." And balancing the airport's financial health with the needs of its different constituents—especially the public—can sometimes lead to choices that do not benefit the bottom line, says Poinsatte, who left a start-up company to become DFW's top finance executive in October 2003.
"We may put things into our infrastructure that are just amenities for passengers, even though we may not be able to calculate the financial return," he explains. One example: the airport has an "ambassador program," in which it posts staff throughout the airport to answer questions for travelers.
Another constituency that cannot be overlooked is the group of elected and appointed officials to whom public-sector CFOs often report. "You always have to be looking over your shoulder to make sure something you do isn't going to reflect badly on someone you represent," explains Bill Stringer, CFO of Portland, Oregon's regional government, Metro, and an economist who formerly worked as a consultant. Stringer reports to Metro's council, all of whom are elected officials, and to the chief operating officer.
Trying to build consensus among these various stakeholders can take time. In fact, everything—from issuing debt to recruiting to procuring office supplies—takes longer in the public sector. For example, Poinsatte says that when he needs approval for a debt issuance, "it takes about three months longer" than in the private sector. The airport's board, the airlines, and the cities of Dallas and Fort Worth all take part in the process.
A Question of Focus
Increasingly, public-sector CFOs are borrowing skills from the private sector. John Huggins says strategic planning has taken on a new importance as he tries to prioritize his many responsibilities. "There are a hundred things you could work on, and if you hope to make much progress, you need to pick just a handful and really focus on those," he says.
In Denver, for example, Mayor John Hickenlooper, who is also a former entrepreneur, has outlined the main goals of his administration. In turn, Huggins's business-development group has its own list of goals, all tied to the mayor's plan. The objectives are listed on a white board in Huggins's office. ("That's something I learned in the private sector," he says with a laugh.) Meanwhile, in Dallas, Poinsatte is also working on long-range strategic planning, analyzing the airport's performance on key measures and forecasting costs and funding needs.
To ensure that such plans are met, public-sector CFOs are instituting another private-sector technique—incentive compensation. After recently winning approval from voters, the city of Denver, for example, will soon offer performance bonuses for the first time; a commission is currently working out the details of the plan. And in Dallas, Poinsatte is designing a performance-evaluation program for his finance team. He plans to create detailed descriptions of the skills required for each job, and, after evaluating employees on each one, he will arrange targeted training to improve performance in weak spots
Despite the political and organizational challenges, these CFOs say there are a lot of perks in the public sector.
Stringer cites the tremendous variety in the job, which at Metro includes managing the finances of zoos and parks, public-transportation planning, and overseeing a waste-management service. Huggins thrives on the opportunity to change the way his home city is run by creating a culture of accountability and performance measurement, just as he did in the private sector. And Poinsatte says he not only enjoys the challenge of balancing varied constituencies, but also finds his job makes a great conversation piece. For better or worse, "everybody's got a comment about it," he says. "It's not always simple to get things done, but you get a lot of gratification."