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Wednesday, February 23, 2011

Cost-cutting by merger - time for the American states to consider it?

Gov. Walker's CEO talk, together with the pending merger of the New York Stock Exchange and the Deutsche Börse, driven partly by cost savings from combining back-office operations and information technology, has gotten me to thinking ....

What if the United States as a whole brought in a management-consulting team to advise it on ways of cutting costs? I'd bet that the first thing to catch their eye would be the U.S.'s shockingly large number of "divisions," i.e., states. Think about the waste! 50 governors, 50 state departments of this and that, 50 legislatures, and so on, all carrying out more or less the same functions. Not to mention 50 "divisions" competing with each other for resources. No company could survive with such an unwieldy, cost-magnifying structure. How can a nation do so in our increasingly competitive global economy?

Of course, a completely centralized structure (the so-called U-form) hasn't made much sense for businesses of any size since the diversification of product lines (in the 1920s) and then conglomeration (after WWII). The multi-divisional structure built on product lines or product groups has been the structure of choice ever since.

Surely our consultants' top recommendation would be to merge the 50 states into, say, 5 or 6 regional groupings. If the NYSE-DB merger is expected to yield $400 million in annual savings, imagine what the American states could save via a series of mergers that reduced their number to 5 or 6!

Gov. Walker, interested in taking the lead on this one?

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