Fundamental to a profit-maximizing business is the axiom that businesses choose what business they want to be in. In order to maximize return for shareholders, businesses must find what unique value they bring (versus their competitors) to what unique segment of the market. Business strategy is about focus and positioning—what product/service will I deliver, how will I deliver it uniquely compared to alternatives, and to whom will I deliver it. This last piece is crucial—businesses get to pick their customers! Even though it serves a huge market, Apple doesn’t make computers for everyone—it makes them for customers with a certain profile, and then markets those products with messages that resonate to those customer segments.
When an organization picks its customers, it is also implicitly picking the customers it will not target or even serve at all. This holds true for General Motors, Time Warner, or your local Italian restaurant. Businesses need to deliver something uniquely valuable to a targeted market. (This is not to say the businesses actively refuse to sell to certain people—it’s just that the very nature of their messaging and product focus, by definition, will appeal to only a subset of the market that they choose.)
Contrast this to public institutions, which don’t have the luxury of picking their customers. By design, government agencies have to serve everyone in their domain, and the likelihood that such constituents are homogenous is very slim. Take public schools, for example. A private school, by definition, gets to choose what students it serves, and by doing so, it should excel. It can effectively become a specialist in delivering a certain type of education to a certain sub-population of students. Economists refer to this phenomenon as “cherry picking.” Public schools, on the other hand, must serve all children that live within that population, and of course the needs, abilities, and respective support structures for these children will be very different. The very requirement to serve a broad, heterogeneous population inherently makes a government agency less “efficient” as compared to its private-entity counterpart. However, being less efficient does not mean it is not fulfilling its mission and purpose.
This is true because “efficiency” (in its narrowest sense) and “efficacy” are not necessarily the same thing. Particularly with government services whose missions likely involve some sort of universal delivery model, efficacy is achieved by something other than the strategy taken by an “efficient” business. For a local fire department, the most “efficient” model would be to staff the firehouse with enough firefighters so that they are deployed close to 100 percent of the time. However, because fires don’t occur in regular intervals, such efficiency would result in the fire department not getting to certain fires. No citizen wants it to be their house that is missed by the firefighters, so fire stations staff up to ensure capacity for close to the maximum perceived need, not the average forecasted need. Of course, this means that firefighters will be sitting around doing nothing for a good part of the day. But we should be OK with that, as it is much better than the alternative! So in this case, the firehouse is “efficient” with respect to accomplishing its mission, but not “efficient” in terms of a traditional business paradigm of output per person hour.
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