Running a business is tough. There are myriad variables to consider and getting them right is crucial for the ongoing success of your business. You need to ensure there is a market for your product or service and that the market is not saturated; that you have sufficient capital to fund the start-up and expansion of the business; that you have the right number of staff with the right skills to operate the business; that you have a point of difference so people want to use your business in preference to competitors; that you have a marketing plan so people are aware of your business and its offerings; and the list goes on.
Local government, usually by necessity, is often involved in a range of business operations. Some councils run businesses as diverse as hairdressing studios through to medical practices and land development. In the main, the core operations of a council are to provide basic services such as water, sewerage services and roads. However, over time, communities continually turn to councils to solve a range of other problems. Hence, the number and diversity of business operations is extensive.
Take Dubbo City Council as an example. We have a number of business operations including: a Caravan Park, started in 1965 to help boost tourism accommodation availability; a child care centre, developed in 1992 to help solve a shortage problem; an airport, given to Council by the Department of Civil Aviation in 1970; the Dubbo Regional Livestock Markets (DRLM), erected in 1950 when the former Talbragar Shire Council acted upon requests from stock and station agents; the Dubbo Regional Theatre and Convention Centre (DRTCC), opened in 2010 on the back of years of public support for a tiered theatre; and land development that started in 1966 after a lack of available developed land appeared to be affecting the City’s growth.
For a Council to run a business operation, a range of other complexities are introduced that are not present in a private business operation.
The first issue that I quite often see among our residents is that, as a ratepayer, there is an expectation that use of a facility will be free or at a greatly reduced price. This logic is similar to me being a shareholder in Telstra and then telling Telstra that I shouldn’t have to pay for my phone bill. I receive numerous requests from residents who want to use a Council facility but don’t want to pay the advertised fee. Each of our business units has a manager responsible for its operation and they treat it as their business. Giving away access to the facility for free does not help that business unit run at a profit.
That brings me to another interesting concept. Profit. For a privately owned business, an essential component is profitability and one of the easiest indicators of success. For a business operation run by Council, there are wider implications that may overshadow the importance of profitability. As an example, the DRLM contributes $47.7 million in total annual output to the Dubbo economy and supports 245 full-time equivalent jobs. A question then for Council, as the owner of this business, is whether the profitability of the business is more important than the contribution it makes to the wider economy. The DRTCC has already had 156,000 visitors and participants since its opening in April 2010 with 33 per cent of all ticket sales going to people outside Dubbo, many of whom would also eat at our restaurants, stay in our motels and spend money in our shops. Once again the overall benefits to our community can outweigh the importance of the facility’s profitability. Land development becomes even trickier as a business in Council. If Council markets too aggressively or too cheaply in the market, it can dissuade other developers in our City. Is there a place for Council to be a land developer to plug holes in the market only, or to develop land to solve social housing or housing affordability issues? All of these questions are only asked because Council is the owner of the business. A private land developer typically has one objective – to sell blocks of land at a profit.
One of the items that I would find frustrating if I was the manager of a Council business is the lack of flexibility borne by the public ownership of the asset. In the private sector, the best businesses react quickly to changes in market conditions or demands. That might be in relation to a product mix, a pricing strategy, or even an advertising campaign. In a private business, typically more risk is taken and if a strategy or campaign doesn’t work, the individual owner pays for the decision with their own money. Public businesses are risk-averse simply because the managers are using public money and therefore need to be more careful with how it is used. Even worse for a manager, major decisions need to go through Council for approval and policy changes or budgets will even need to go on public display. Worse than the time all of this absorbs, it is hard to remain competitive when every major decision of a business is advertised to all competitors well in advance of the decision being made.
On the last rung of inflexibility, all Council businesses employ our staff under the Council award rather than an award specific to that industry.
Next time you see returns from a Council run business lower than you would expect, keep in mind some of the additional complexities involved in running a public-owned business.
Clr Mathew Dickerson
Mayor of the City of Dubbo