Moving from administration to management – lessons from the LAGeSo crisis
Transcript of the Open Lecture presentation made by Sebastian Muschter at ESMT Berlin on March 20, 2018.
Welcome and thank you for the invitation. I’m very honored. This is my second time, actually, that I’m giving a presentation in this hall. Last time was three years ago as Berlin Office Manager for McKinsey when a case study on McKinsey was taught here and they always liked to invite somebody talking about the subject.
Now, St Gallen is not a competition! If you play with the second part of your name you have no problems to expect. St Gallen is probably half as lively as Reinichendorf at night! And that is during the day of St Gallen. I spent four years there and it’s a very nice place of the world and I also learned a lot. IT is essentially what I learned there and allow me to say a little bit how I ended up at the LAGeSo role because it’s a little bit of an exception and, without overplaying my role, I think we need more exceptions like that because I think this was one of the many opportunities that a crisis like the refugee influx of 2015/16 gathers, and that is that people from the outside with experiences outside of law degrees and lifetime careers in public administration, people like that have a chance to manage in the public sector.
So, what I did was essentially got a PhD in Information Management, I worked in SAP environments, big SAP systems; I joined McKinsey; set up a mega-project management practice there; I worked with the Labour Agency in Nuremburg for 10 years and so that was, essentially, my public sector background. I learned a big transformation both on the IT side and also on the organisational side, how that can work. I don’t know how familiar you are with the German Labour Agency but it’s a pretty good case of a successful government reform.
Then, in September 2015 when the lines of outside of the LAGeSo here in Turmstrasse close to the Hauptbahnhof, when the lines were getting longer and longer, we offered out help as McKinsey back then, to the Berlin State Government, the Senate, and they were just in the process of forming a crisis task force and we were able to help them. So, I was working with this task force for a couple of months; we did some short-term relief work; helped with line management; registration management; and then the LAGeSo president was pushed aside because the organisation was in real dire straits, it was really almost falling apart and in early January the Minister called me up and said he had gotten a tip that I might be open for this challenge and he was right.
So, he called me up and said “do you want to take over as interim manager, interim president?” I talked this through with my wife; she was not happy, really not happy. She asked me “why?” I said “I think this is one of those rare constellations where, actually, I can make a real impact and it’s also a huge challenge” and I thrive on challenges. So, we had this very long conversation. I don’t think I really convinced her. It took about eight weeks, ten weeks, and then we noticed both that, yes, there can be a turnaround here, so this is not a himmelfahrtskommando, a “no-return” mission. So, she came around.
Yes, so this was probably the most intensive and probably also the most fun and the most rewarding year of my life. I did this for one year, so the entire year 2016, I had a one-year limited contract. We needed to make sure that not a single minute was lost to tender processes and official hiring processes in the public sector which can take weeks and months so that I could start right away and it was always clear I would only be there for a year and then I was out, December 2016.
I wrote a book, two copies are actually circulating so take a peek, and now I’m working for the Bertelsmann Foundation and my topic there is “scaling good ideas”; so, helping the public sector to benefit even those folks who can’t afford consulting companies like Accenture or McKinsey, help those folks also with good concepts and news they can use to make sure that the public sector is enabled on a larger scale.
Today, I want to talk about the LAGeSo crisis and talk a little bit about what I learned and what I think we can learn for Germany, overall; we are not in crisis, as you all know. If you look at all types of numbers we are doing, actually, fairly well which is a problem because structural reforms don’t happen in good times, at least not in Germany. And so, we need to actually make sure that we learn from the crisis. There is another one looming on the horizon and I’ll come to that in a couple of minutes. There is a huge opportunity and a huge crisis brewing and I’m a little concerned – that’s also the reason why I’m grabbing every speaking opportunity I can get – that we are about to miss this huge window, this huge emerging crisis to build a better machinery of government underneath. The crisis is, essentially, the looming retirement wave which gives us an opportunity to think through organizational structures with fresh eyes and try out some fresh ideas.
So, let’s start with LAGeSo. I move you back to August 2015. I don’t know if you remember that time. It was a couple of weeks before the border to Hungary was opened, before the refugee numbers coming into Germany were spiking. In Berlin, we already had, in the heat of the summer, some very bad images on TV. Refugees lining up around the block in front of a building, at Tumstrasse, the LAGeSo, which is the stage agency for health and social services; 1,300 employees back then. LaGeSo has a huge, very wide portfolio of topics they are in charge of.
For example, they do quality control for all Berlin hospitals, for all Berlin pharmacies, they are the regulator for pharmaceutical companies, for medical companies; they supervise all animal testing; they supervise genetic testing, genetic manufacturing; they also take care of 600,000 Berliners that have a handicap. So, they are allocating the official percentage of handicap that is then used for parking permits and that type of stuff. All crime victims are, essentially, managed by LAGeSo; war veterans; and so on. So, the portfolio is huge.
The number of employees dealing with refugees grew of 65 to 180 between 2011 and 2015. The number of refugees went up from 2,000 in 2011 to 79,000 registered in 2015. So, we had 40 times more refugees and three times more employees. That’s a gap that, of course, you cannot overcome with better processes.
The reason why it was so hard to increase the number of employees, Berlin, at the same time, was shrinking. Berlin Government was shrinking. After the wall came down we had about 200,000 employees in the Berlin State Government administration and that number, I don’t know if you remember, there were some famous lines of Berlin politicians "sparren bis es quietscht" so we save until we can’t save anymore. So, there was a very firm hiring freeze and there was the political goal to shrink the government by 50%. So, we wanted to come down to 100,000.
This happened in a not very strategic way. It happened, essentially, by not replacing people that retired. So, there was never the strategic question like which tasks, which government duties were strategically growing because we are a growing a city, the economy is shifting, health as an economy is becoming more and more important, shall we react, other tasks, other duties were shrinking because, for example, war veterans were dying. So, can we actually use these tasks to re-allocate people so that we actually hire where we need people and don’t replace in areas where we are shrinking anyway? Can we become more efficient; can we invest in technology like electronic files instead of paper files? So, the shrinking process would be accomplished, or accompanied by a strategic concept of how we want to build the government.
Of course, this didn’t happen. So, by the time 2015, the refugee numbers came around, the LAGeSo itself was pretty much kept stable/shrinking. We had some departments that had 30-40% missing people over time even though the number of customers had grown up and it was in this very painful context that it was almost heroic that they were able to triple the number of people dealing with the refugees. But, it was not enough.
So, by the time the refugee numbers became so high that nobody could ignore the problem anymore, by the time LaGeSo was finally allowed to hire as many people as it needed, it was too late because it takes two to three years until you have people on board that actually know what they are doing. So, there’s a very formal process of hiring and then you have, kind of, a very complex legal base that these people work on. If you print out all the laws dealing with refugees it’s probably a 40-50 centimetre-high pile of paper. So, it took us something like two years to get people to be fully enabled.
So, 79,000 people registered in Berlin. To give you a perspective, Germany was the number one country destination for refugees in 2015. The number two country was Sweden. Germany took in 1.1 million, that was the first number and then 2.5 years later the number was corrected – no 1.5 years later the number was corrected – down to 890,000, so we were missing something like 210,000 refugees in the process. Those people had moved either to Sweden and onwards or returned to their home countries or were, essentially, double-registered.
We had the same phenomenon in Berlin. We had 79,000 registered and only 55,000 of them showed up again to actually get shelter from us and money for food. So, we were missing 24,000 people. The reason for that was when this big search happened in August/September and onwards, we couldn’t check if somebody was already registered. We were looking at them and we were telling them “okay, you can stay in Berlin” or we were sending them to other states; there’s an IT system in the background that is shifting refugees around depending on which state has taken how many. And this system was, essentially, sending people away from their family or from relatives that they already had in Berlin and was sending them to Brandenburg or even further away. So, these people decided “instead of going to Brandenburg I’ll line up again and try to get registered again.” So, we were registering and registering even though we didn’t have capacity to register.
But, before we register refugees they don’t’ have anything. They don’t have a shelter, so they can’t go anywhere. So, they essentially were lining up outside of the building and the lines were getting longer and longer and longer. And the LAGeSo scrambled to register but couldn’t, in time, there were just not enough people there to do that.
So, it escalated. It became a humanitarian emergency. People were homeless; it was the summer heat; people were sick from a long refugee; pregnant people and their small kids in there; people in wheelchairs, standing, or camping outside. We were closing the campus, the courtyard every night so we’d push people out into the parks and volunteers came up and said “what are you doing with these people? They don’t have any medical supplies; they don’t have food”. It took LAGeSo a very, very long time to rise up to the challenge and start to realise we have to take care of these people even though we don’t know them yet, they’re not registered.
I always like to use two examples from the private sector to give you a little bit of a feel for this challenge; also, on an organisational level. Imagine the best private company in the world like the most flexible… let’s take somebody like Amazon. If we actually had, within four years, taken Amazon from a two billion dollar or euro company to an 80 billion company, Amazon would not be able to build enough warehouses and ship on time and hire enough people, etc. So, times 40 in four years is operationally almost impossible to manage. So, I was not surprised that the LAGeSo couldn’t handle the surge in numbers.
The second example that I’m always using. Imagine you’re a bank and you have something like 20-30 customers per day. Is anybody working in a bank? I think 30 customers per day is already a high number in 2018. So, I think that number is continuously shrinking. Anyway, imagine you have 30 people lining up in front of your counter. Then, that number goes up to 300 and then to 3,000 and then maybe to 30,000 and you realise that the line outside of your bank is actually going around the building three times. How long does it take the bank manager to actually call up the Red Cross and say “I need medical emergency supplies for the people waiting in line outside of my office building”? Typically, people are not in charge of this. The customer relationship starts the moment they come into the building and you actually say “all right; I’m here; I want to be registered.” People also in the LAGeSo took a long time to realise that the problem was theirs, even though they were legally not required to do anything, this was nowhere in their job descriptions, but it was their problem.
For me this is a very important learning, the first learning, that government is organized by legal responsibilities [Zuständigkeiten] and the problem, unfortunately, is sometimes very stubborn and decides to be larger or outside of regular responsibilities. And somebody has to take care of the problem and not say “well, my responsibility ends here or is partially elsewhere”. This is a very big learning that we need to think government back from the problem and not so much from the areas of responsibility. I think most of the dissatisfaction that citizens have with government come from this difference between problem and area of responsibility.
A lot of these are very much baked in stone. For example, we have 150 government services and government benefits for families and they’re not all handed out by the same government agency, you have some state level, some local level, some federal level, some social insurances and they’re not really well meshed and we would need to rethink how we organise 150 government benefits. I’m not even asking the question if we need 150 but at least I’m saying there’s an example in the book that’s a little bit funny – forgive me for making a joke here – let’s assume we need 150 flavours of bubble-gum; but, what we certainly do not need is 150 different machines handing out each one different flavour of bubble-gum. So, at least make sure that it’s one machine handing out.
This is also something that, in the LAGeSo world took a long time. The LAGeSo one year later was very different to the one that I came to in September because we did have, for example, a campus management that was in charge of the well-being of the refugees outside of our buildings. And so, we saw that a lot of these responsibilities enlarged and we were able to think fresh.
I think these numbers, on the outside of the building, they came into the inside of the building and were hitting a machinery, processes, that were just not up to the task, not only in registration but also in benefits management. We were, essentially, around October/November/December, not able anymore to hand out benefits even to refugees that were sitting in shelters and had to buy their own food. So, we were only giving them a bag but we were not feeding them anymore. But, we were not paying them money because we didn’t have the people in place to pay them.
So, we had a crisis – and this was pretty much on the day that I arrived – we had a crisis when some refugees were starving in their shelters. They were borrowing money from other refugees but they were, essentially, starving. And what had happened is that the department inside the LaGeSo had essentially collapsed. The pressure, the number of customers, the number of refugees per day was so high and management back then was essentially saying, “all right, there are 100 people; you deal with 100 customers; there are 200; you deal with 200; 300 and so on.” So, for an individual employee, in regular times, she or he was handling five to six cases per day, each case takes about 45 minutes to one hour. And the number went from five to six, first to eight, then to 10, then to 15 and then to 20 and then to 25. Around 20-25 people were just collapsing.
Whenever somebody was taking sick leave the other colleagues had to actually pick up the workload. So, they were actually stuck in a system where the harder they worked the more work they were getting. That led to a chain reaction that, essentially, only the most viable strongest people were still coming to work; and everybody who just… I mean, for me this was the quintessential Sisyphus work. No matter how many cases, how many cases, how many refugees you actually handle per day, they were still coming more, and more, and more. And didn’t end. And so when I took over we had 60% sick leave in that critical department. So, it was no wonder that the refugees were starving.
That was the crisis. What did we do? Some very simple things. I essentially told the Workers’ Council, “let’s start from the ground up; let’s define what can we actually do per day, realistically? So, what is the number of cases the people that are there can handle without overtaxing them? Working in the Red Zone, above the red line stops now; let’s find something realistic, target, daily capacity.” And we defined that and planned around it. So, I said “anything, any refugee that comes on top of that number, I will find a way to handle it.”
So, we essentially created stable circumstances for the people that were there and then I brought in – not me personally – we all together asked the German army for help; we asked the German Labour Agency for help; the health insurances for help; the German pension fund for help. So, we actually were giving chunks of processes to other people. We were also centralising paper files. In one weekend a private company took 17,000 paper files and put them into a central registry so that we could, essentially… we were losing two to three hours a day in finding the right files because it was somewhere, with somebody, and nobody knew anymore where the files were. So, we were able to centralise that and we were giving them to the customers, to the case worker with the customer and the translator instead of the case worker finding them.
We were able, through all these measures, to triple the capacity in about four months. We also had, now, processes where we were looking at customers, at refugees, very early and seeing if we could handle the request in three or five minutes without actually loading or bothering a case worker with that. So, this was now a fast-moving line. We had new facilities so, suddenly, we could actually work or receive refugees day-in, day-out. We had waiting zones, the Berlin ICC – I don’t know if you know it, the Congress Centre – turned into our waiting zone and now, suddenly, it started to look more like an airport than like a refugee camp in Jordania where we were receiving the refugees.
So, a lot of things changed and so now the question is, “what took so long?” What were the causes? I think the very first level I already explained; we were simply lacking manpower. But that is not the entire explanation. We were also missing strategies. So, there was no plan anywhere how the organisation should adapt if the number of refugees doubled and then doubled again and then doubled again.
Who took the time to think through the organisation and ask the big question like “what’s the refugee number we should prepare for and how what is our Plan B and Plan C when our internal people are not enough?” This question was never asked; the strategies were never created.
For me this is a big question. How can it be that an organisation is not creating strategies, thinking through the future? This for me is a big…
[28.52 response from audience – It’s Berlin]
Yeah, it’s also the public sector, I think. I have learned to my many years that a lot of public sector agencies expect the political level or ministerial level to come up with strategies. So, we wait for the laws to be written and that’s our strategy. For me the big learning is, no, that’s not enough. There are big questions that no law will ever answer. Like, for example, what’s the number of customers we should prepare for; what are the facilities we should be in; which of our processes will break first; what type of IT support do we need for the processes of the future; etc.
So, everything I would call an operational strategy will never be covered by law and so we need agencies, government agencies, to think this through by themselves without waiting for an official, top-down request. And, for that, they need (a) capacity; and, (b) competences. So, anybody here is a lawyer or has a law degree, before I keep going?
So, how does a lawyer, or how does a government executive that comes with a law degree, how do they work, typically? They essentially have a pile of books that are at law, they actually receive a paper file that is the case at hand; and they study and then write, essentially, a document, more or less a verdict. And then they pass it on to somebody to comment and review. It’s a very paper-based, one-on-one sequential process.
What does a consultant or private sector manager do? Calls a meeting, has everybody around the table; yes, some bosses but also some people from the ground, from the field, throws the problem on the table and says “how do we solve this; what would you do; what would you do; what are the reasons why are we not getting…; why are we in this mess?”
Government just doesn’t work that way. And I think this has to do with people with law degrees not used to it, they don’t learn it during their university times. It’s also discouraged because it makes you look vulnerable; you are asking questions rather than giving answers; you might even say something like “I don’t have a clue; what would you do?” Which is very, very, very uncomfortable. And so, it’s not done.
That means that in terms of crisis or whenever there’s a new problem that has not been dealt with, before, it takes a long, long time for this traditional way of working to come up with a solution. And the people on the ground are very often not heard. They don’t have a stake. And so we need to essentially have government leaders that feel comfortable with this type of working. That’s why I think it’s so important to have management experience. It doesn’t have to be a management degree but it should be people who are exposed to this type of working and who are, then, coming into the government agencies with a fresh approach.
I don’t mind if those are experienced externals that are coming in, into leadership positions like I was lucky to be able to do, or if it’s externals; yes, I’m also implying or suggesting that we need more consultants in the government for this type of working. It’s very unpopular, especially in Berlin now. If you read the newspapers and you see a politician who says “I don’t really know how to do this so I asked a consultant to help me” that’s essentially the same as saying “I’m completely incapable; I’m a complete idiot; I don’t know what I’m doing; I don’t know why I haven’t resigned yet but I’m sure you’ll ask for it very soon.”
So, it’s impossible; it’s culturally impossible to ask for help in the government, at least in Berlin; but it’s also outside of Berlin and this is also where you as a citizen and as a media consumer, where the media folks, etc., have a responsibility. We need to appreciate, we need to reward politicians who say “the world is complex; I know some things; I especially know what I want to accomplish, what I think needs to be done but I’m not the expert on how to do it. I’m not a transformation expert. I’m not somebody who knows how an organization like a big government agency should play. I don’t know how an IT strategy for an agency should look like. So, yes, I’m asking for help.
The soccer teams in Berlin have coaches. The orchestra in Berlin has a conductor. Yes, good people, good teams can have, can become even better if they allow a professional from the outside to lead them.
So, I think this is a cultural thing. And for me the root cause that there was not enough management competence and also not capacity for managing in the organization.
I think that another learning for me, the LaGeSo was a very closed shop. We were not, especially in the crisis, we were not able to listen to anybody anymore. There was opposition in the parliament; there was the municipal level, the local level, the [translate 33.57] yelling “we have refugees, homeless here”. We had the volunteers who were saying “the LAGeSo is treating the refugees like crap and they are not even listening”. We had doctors offering help; we had other government agencies offering help; and the LAGeSo was sitting there, deaf.
What had happened? Again, the management side of things, the LAGeSo was so over-taxed that it didn’t even have time to think what it needed. So, it couldn’t answer if the help that was offered was actually welcome, was helpful, was effective or was not. And if it was not helpful, then at least be nice and say “thank you; but right now we need this and this, and not that and that.” The LAGeSo was incapable of doing that.
I actually realised that we were in such a bad position when we’d just looked at the media, what was said and written about the LAGeSo, since the LAGeSo was completely over-taxed we were not present in the media and nobody was paying attention or giving us the benefit of the doubt, or we were not credible anymore to make our own case, that we were trying hard. Instead, all these externals that were trying to do something with us were actually in the press complaining that we were deaf and not doing anything of a good job.
So, I started to talk to all these people and explain to them the transformation that we were in and we didn’t, nobody from us went on TV but this changed, a lot, the dynamics because these people that were, five minutes ago, saying the LAGeSo is not getting anything done, were suddenly starting to say things like “yeah, we are seeing some things that are really improving and they are working very hard on transforming this and this.” And so the mood was a little bit shifting and that was, also, very important for the employees on the inside, that some of the extra work they were now doing was credited, was appreciated.
I also tried to find inlet’s where external ideas could come in. I called a round-table of Berlin’s digital founders, a lot of them were super-engaged in volunteer work because this was a city-wide crisis where a lot of citizens – I mean, you were probably also engaged – and so I called a round-table. From my McKinsey time I still knew a lot of founders, etc., and asked them “what should we do?” They all wanted to rip out our government computer systems and replace them with more apps and I told them “I love that; that takes about three years at the best and two years of that is the data security check-up process that we would have to go through”. Mr [36.37] is laughing because he knows what I’m talking about.
I was blatantly wrong, by the way, on this. I don’t know if you know this but during the very same time, a revolution happened in the background. From February 2016 onwards every refugee was finger-printed and we had a national database of finger prints and 100% of the refugees coming into Berlin were, actually now, checked if they were double-registered. This was a revolution because this happened within about six months, that the system was created from scratch. And this is almost impossible; this would have taken 10 years, probably one year earlier. So, this is the benefit or the beauty of the crisis.
Anyway, all these digital folks in Berlin wanted to rip out government systems and, in the end, what we came up with is “let’s reach out to refugees, where they are” which was Facebook, in languages they understand, which was Arabic. We created FAQs together with these digital folks. So, how should a refugee manage us? What should they bring; what should they not do? One of the golden rules was whenever a government person is asking you for money, he or she is not a government executive. So, you are living in a different country; we are here to give you money; you are not supposed to pay anything. So, this was one of the rules. This was spoiling our reputation. I mean, refugees were essentially talking Arabic, how crappy the processes were because people were skimming them. So, we actually had our FAQs and we teamed up with Facebook group with 100,000 Syrian refugees in Germany and we were posting these FAQs to that group. So, the refugees were, actually, better informed.
Yes, so, for me the learning is we need to open the barriers between government, private sector, this innovative power from the digital sector needs to come into the government and we need to change some rules for that, government procurement is excluding any company that’s less than 2-5 million euros in size because they are not reliable suppliers which means no start-up will ever be allowed to provide services to the government. So, there needs to be something there.
I think for me the learning is when we do let innovative ideas happen, for example, start-ups supplying ideas and solutions to the governments, yes, some of them will go bankrupt; some of these new ideas will fail; we will lose some money. Then, again, what will happen? The press will say “who was the politician who dared to actually invest 50,000 in an unproven technology from a small start-up company? He wasted tax money; he should step down tomorrow.” So, unless we change a little bit how we think about failure in the government context we can’t expect government to be more courageous and try some experiments and, for example, let start-ups help them.
So, there is something, again, where I think we all here in the room have a responsibility. If we want more flexibility, if we want more investment, we need to give government a little bit of leeway to fail. Just like in the private sector, look at the pharmaceutical company, how many billions they waste because they actually tried to develop pharmaceutical products that never make it to the market. And that’s the logic of the industry. People are penalized if they are not trying those experiments. In the government, we are 100% the opposite. So, that’s where I think we have to actually learn.
I think with that, we need more failures, we need more relaxedness from the population, from us, from the people. We need also more interest. You should all demand from your media magazines, from the newspapers, not only write about laws but also about the way these laws are actually put into practice. The public sector underneath the surface of the political stuff in the parliament, the public sector is super-exciting and we should read about it in the media. Maybe we need new journalists for that; maybe we need people from Harvard Business Review, the management, the Fortune magazine, the Business Week, the Manager magazine, maybe they should write about the government processes as well. We need to read about how government actually works.
The final one. As I said, if we want more management competence in the public sector, we probably have to invest a little bit more. So, that’s for me, where we want more expertise and that’s where we actually have to be attractive as an employer for young people and that’s the last looming crisis that I was alluding to in the beginning.
We are losing about 800,000 people to retirement in the next five to seven years. In Berlin alone it’s even more dramatic, 20,000-30,000 in the next three to four years. That’s 20% of the workforce in the next three to four years in Berlin. Where should all these young people come from that are supposed to take these low paying, boring government jobs where they’re pushing paper files around day-in, day-out, and they are supposed to do this for 40 years? This is just not the world anymore where this is possible.
So, we need to actually change a lot. We need to say, “no, we don’t want to hire paper-pushers”. We do invest in those electronic filing processes, etc. We are shifting government resources away from boring back-office to exciting front-office stuff. We want more teachers, we want more pre-care educators in the key tasks; we want more social workers; we want more integration folks in the labor agencies, etc.; and we want less people in the back-office who are just entering data.
So, we cannot replace these 800,000 one-to-one with the folks that are doing the job now. We need different skills and we should pay these people more; and we should invest and automate the back-office so that we can increase strength in the front-office so that more resources are invested for citizen service.