The basic difference between a service institution and a business is the way the institution is paid. Businesses are paid by satisfying customers. Service institutions are paid from a budget allocation. They aren’t paid for what the taxpayer or customer mean by results and performance. Their revenues are allocated from a revenue stream obtained by tax, levy, or tribute.
Service institutions include governments, public schools, nonprofit hospitals, and some utilities. There can also be quasi service institutions within a business, a division which is paid from an allocation for overhead. These divisions tend to exhibit the same characteristics as the more typical service institutions. (MTRP 141).
Efficiency and cost controls aren’t considered virtues, however much they are preached. The importance of a budget-based institution is measured by the size of its budget and staff. The urge to spend near the end of an accounting period in order to get a larger budget or not get a smaller one for the next accounting period results in a lot of waste (142). Being budget-based makes it more difficult to abandon what’s wrong or obsolete (145).
There are exceptions to the general behavior of service institutions, such as Bell Telephone (before its breakup) and some American universities, but I will say no more about them.
Efficiency and cost controls aren’t considered virtues, however much they are preached. The importance of a budget-based institution is measured by the size of its budget and staff. The urge to spend near the end of an accounting period in order to get a larger budget or not get a smaller one for the next accounting period results in a lot of waste (142). Being budget-based makes it more difficult to abandon what’s wrong or obsolete (145).
There are exceptions to the general behavior of service institutions, such as Bell Telephone (before its breakup) and some American universities, but I will say no more about them.
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