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A. INTRODUCTION – IN THE NEWS THIS WEEK
According to the BBC this week, UK Ministers are considering a £5 billion capital expenditure boost to the UK economy. Meanwhile, the week has highlighted examples of very poor value for money from Public Sector capital expenditure programmes. The Public Accounts Committee (“PAC”) published its report into the FiReControl project in which £500 million was squandered. Also the Daily Telegraph has highlighted that patient care at sixty NHS hospitals is on the “brink of financial collapse” as a result of the PFI fiasco. The Private Finance Initiative – a kind of sale & lease back of capital expenditure introduced by former Chancellor George Brown on the advice of consultants. PFI provides poor value-for-money for taxpayers but is good for PFI investors, investment bankers and consulting advisors.
This week the IMF has more forcefully recommended that the UK Government should switch to short-term fiscal stimulation, citing lower financial costs and the deteriorating global outlook. Since the Summer, I have seen more and more focus on increased capital expenditure as an important lever to increase demand (including the IMF and OECD). Capital expenditure has an important multiplier effect of more than three times, so it is potentially three times more effective than simple consumer demand stimulation. Since the beginning of the financial crisis, it is capital expenditure that has collapsed more than any other component of GDP, in both housing and non-housing housing. It would make better sense to stimulate more capital expenditure at say the expense of further Public Sector contraction.
Let’s take a look at some old horse-chestnuts highlighted by the PAC report on the FiReControl project. These included:
- Project rushed
- Poor cost & risk control
- Weak project management
- Ineffective leadership
- Massive over dependency on consultants
- Very weak contract management
- Limited accountability
- Inadequate power base to drive transition
- Weak stakeholder management
- Turn over of senior staff
B. THE CONTEXT
Individuals and small business capital expenditure has been blocked by the shortage of finance from banks. Meanwhile, large corporates are sitting on mountains of cash and are preferring the safe option of returning cash to shareholders or reducing debt, rather than investing in capital expenditure. The Public Sector has been focused on cutting costs, and Cabinet Office centralization of decision-making has made capital expenditure more difficult. It seems that the Government now recognise that Public Sector capital expenditure is a powerful tool for kick-starting growth in demand (this view has been expressed strongly by Liberal Ministers this week at their national conference).
Under the previous Labour Government, the
Office of Government Commerce (OGC which has now been subsumed into the Cabinet Office) invested very heavily in Best Practice for Projects, Procurement, Change Management etc. Consultants were engaged to draft policies and procedures for the OGC, and different consultants were engaged to monitor progress at Gateway meetings. Frequently, programme sponsors engaged consultants to help them get through the Gateway process. It is not clear whether the Cabinet Office is still promoting former OGC Best Practice as a large part of the documentation is up for policy review.
In a nutshell, in my view, OGC/Cabinet Office prescriptive Best Practices, often supported by armies of consultants and contractors, are probably one of the two reasons for the failure of Public Sector capital expenditure projects to deliver effective tax-payer value-for-money. The second reason is the skill-set and professional background of Public Sector executives (programme sponsors) and the many professionals deployed on projects and programmes.
There seems to be blind dependence on OGC/Cabinet Office prescribed standards for project and programme management. I shall focus on projects and programmes but procurement and contract management probably warrant equal focus. It is important to stress that many of the bureaucratic inefficiencies emanate from the
European Union legislation and it is probably timely to consider them as part of a wider UK reflection of the costs and benefits of membership of the EU.
I fear that most of the former OGC Best Practice guidelines should probably be scrapped as they have probably been ineffective.
Traditional
Project Management (TPM) is the collection of hard and soft methods captured in Prince2/PMBOK etc. According to advanced research in Munich, TPM is based mainly on mechanical, mono-causal, non-dynamic, linear structure and a discrete view of human nature and societies and their perceptions, knowledge and actions. It works on the basis of reductionist thinking and on the Cartesian/Newtonian concept of causality (mechanistic science). It is argued that TPM cannot solve widespread and profound modern challenges which are not predictable in a continuous, stable linear sense.
Pioneering research argues that project management needs to address new challenging processes, based on complexity of technology, innovation and human behaviour.
Public Sector executives and project/programme related professionals often do not have the wider skills & competencies to deliver large capital programmes (without excessive dependence on consultants). Obviously, the situation has become much more acute with Public Sector aggressive down-sizing and simplistic one-size fits all thinking (currently emanating from the Cabinet Office and Treasury).
D. SOLUTIONS
1. Reduced Cabinet Office Bureaucracy and Reduced Central Control
Unless the Cabinet Office becomes less prescriptive, it is likely that good money will continue to follow bad in trying to deliver large capital programmes in the Public Sector. The Cabinet Office needs to champion less bureaucracy, reduced central control and adopting genuine “lean” approaches to the Public Sector. This should include recommending to the Government the most cumbersome and bureaucratic EU legislation for renegotiation/reform but also address openly the enormous cost and inefficiency of the whole Eurocracy. Also, the next round of the Open Public Services White Paper probably needs to be much more radical.
2. Outsourcing
If the Cabinet Office cannot reform Public Sector practice to achieve the top quartile performance consistently scored by other countries, using innovation and performance improvement, then widespread outsourcing is probably the solution. Rather than achieve the next omnishambles with a large capital programme, enduring years of pain from PFIs, it is perhaps more expedient to outsource services to the Private Sector. This is radical but relatively straight-forward. It recognises that market forces and globalization will provide the most cost-effective services and be more market-oriented, responding to customer needs. Obviously there are huge political, commercial, transformational and transitional challenges. So instead of worrying about delivery of capital expenditure and getting trapped in PFI type deals, the solution would be to outsource the whole of the service delivery.
3. Deploy Independent Executives Client-Side
The first two solutions, namely reforming the Cabinet Office and outsourcing are hard to achieve really quickly and could take several years to show results. Also the Coalition Government seems to have lost its reforming zeal and appears to be backing away from confrontation with the unions.
Based upon my many years experience of both leading and advising on large capital programmes in both the Private & Public sectors, there is a third solution, namely to deploy
independent executives, operating client-side.
Independent executives have many attractive advantages over consultants. Top-tier, independent executives bring an enormous breadth of experience and capability from multiple industry sectors. They are uniquely able to deliver leadership and new challenging processes, responding pragmatically to the realities of complexity of technology, innovation and human behaviour. Independent executives are non-political, non-threatening and are able to act as natural mentors and process consultants for Public Sector employees to fast-track learning on the job.
Unfortunately, the Coalition Government via the Cabinet Office has made deployment of independent executives in the Public Sector more difficult with
Catch 22 practices.
For clarity, let’s quickly recap on the Public Sector reform life cycle:
- Outline reform agenda (manifesto, Coalition agreement)
- Outline policies (Green & White Papers)
- Define policies and provide way forward (Bills and Acts of Parliament)
- Define strategy
- Delivery
- Post implementation review
For cost effective risk mitigation on Public Sector capital programs, deploy independent executives client-side on both strategy formulation and delivery phases.
E. NEXT STEPS
The above views are very much my own personal opinions, based upon reflecting on this week’s news, plus my own knowledge, practical experience and insights on the subject.
I respect that others may have very different opinions.
Whether you agree or disagree with me, why don’t you append your views below?
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Dr Alf's Blog 
John,
Many thanks for your detailed reply.
I think that you are possibly a bit hard on Civil Servants and Consultants. They are responding to the politicians.
In my view, one of the main reasons why the Public Sector is less efficient than the Private Sector is because of the meddling of politicians.
Politicians change their views frequently, are sensitive to the media and their electorates. So interventions by politicians are frequently dys-functional, making delivery of value-for-money in the Public Sector more challenging.
Thanks
Alf
The PFI initiative straddles the political divide and has now started to cause problems in the NHS and elsewhere.
To find out why, one has to look back at who it was devised the calculations and resultant formulas that led Civil Servants and Ministers of successive Governments to believe that they were getting value for money.
The answer is Andersen Consulting (now Accenture).
This begs the question why the Civil Service mandarins came to this belief in the first place?
Was it because they lacked intelligence?
Answer no, most of our Civil Service mandarins are Oxbridge graduates of the highest calibre.
Was it because Ministers or the Prime Minister lack intelligence?
Again the answer must be no for the same reasons.
If we rule out any nefarious reasons, the explanation must be that both the Civil Servants and the Ministers took the calculations on trust, reasoning that they were accurate or that in the last analysis the taxpayer would pick up the tab and that in 5 years time the problem might well belong to someone else in an incoming Government.
It also suggests that the relationship between the Big 4 consultancies, Civil Service mandarins and Ministers is far too close, so close in fact that commonsense, care for the public purse and any effort to get good value for money is simply absent.
This in private industry would normally result in accusations of incompetence and lack of exercise of commonsense and due diligence.
In short, heads would roll and the City, in the case of a public company, would want to see the CEO replaced, which in this country most are after just 2.8 years.
In Whitehall, in my view, the culture of incompetence and belief in the efficacy of Big 4 consultants is pervasive.
If it were not, why would the Home Office be described by four successive Ministers as “not fit for purpose”. Why would the MOD have failed to complete a single purchase or project on time and to budget from the 1800’s to the present day?
Procurement
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Sir Philip Green looked at procurement at the request of the Prime Minister and found waste wherever he looked and eightfold differences in the prices of goods and services often within the same Government Department.
He discovered that this was not a recent phenomenon but a practice that had been going on for years.
This is despite Gershon, Smart Procurement and a host of failed initiatives which were designed to stop the rot but have consistently failed to produce even a fraction of the value per taxpayer pound that the Swiss and the Singaporeans have managed to achieve for years.
Decision Treeing Policies /Benchmarking
——————————————————-
When UK Civil Servants and Ministers arrive at policies, they fail to predict the likely consequences because of a complete lack of understanding of how ordinary people think and live, or of the true costs of policies in terms of their overall ramifications.
This results in them getting things wrong, again and again and again, always followed by the mantra “lessons must be learnt”, which sadly never happens.
For example, the policy of teaching children in the State sector at ages five to eighteen using a technique called “differentiation” was designed to teach mixed ability groups and save money on teachers. The result has been that the UK is producing a nation of “blockheads” (one person in seven cannot read, write or communicate and are effectively unemployable) and the UK is now forty-seventh in the world in terms of state educational standards.
Language teaching was also reduced to save money, and sports were reduced for fear of upsetting children who lost out in competitive sports.
The result is that we have the first generation of people which will probably die before their parents and we have an obesity crisis that on its own threatens the future of the NHS and impacts further down the line on Adult Social Care.
Instead of looking at the Finnish, Swedish and South Korean school systems as we are now, we had Minister after Minister “listening to the educational professionals”.
No Policy For Growth
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A county like the UK needs to trade its way out of trouble by focusing effort on export sales to countries which are growing and which would be receptive to us.
Which is our biggest export market?
Step foreward the Irish Republic, which is at best a virtually bankrupt entity overladen with debt but at worst is a vassal state effectively owned by Germany.
Currently the Government is borrowing more than ever because the UK consumer is not driving as much(Petrol consumption has fallen by £2 billion GBP since the start of the year) and because people are not spending.
What is the solution to all of these problems?
Is it to listen to Civil Servants?
No, because their failure to come up with proper solutions has got us to the present situation.
Is it to listen to Big 4 consultants to the exclusion of everyone else?
No, because they are too remote from understanding the problem and constantly come up with incorrect and ill thought out solutions.
Should the Government listen to the truly great and good?
Sometimes, but only in their areas of competence, e.g. Sir Philip Green on procurement,Lord Sugar on entrepreneurship and Sir James Dyson on innovative manufacturing.
Does this provide a solution?
No, because we are still a divided and polarised country.
Who can provide both expertise and impartiality, plus commonsense?
Answer? Executive Interim Managers (independent executives) working in multi disciplinary teams for a fraction of the costs of Big Four consultants and at much greater speed!