Cabinet Office & Treasury Score Own Goal with “Catch 22”: More Myths, Realities & Escalating Risks?

English: Francis Maude MP, Minister for the Ca...

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English: George Osborne MP, pictured speaking ...
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Regular readers of this blog will know that I have repeatedly highlighted the increasing likelihood of failure from Local Authorities relying on Shared Services programmes to achieve draconian cuts in budgets (mandated by the Coalition Government). Last week, I  cautioned against spending another £5 Billion on capital investment, citing the Government’s capacity to avoid the next omnishambles. Most of this year, I have also been leading a campaign to get the Cabinet Office to reverse its Catch 22 policy  which, in my view and that of many colleagues, is not in the national best interest. The Rt. Hon. Francis Maude MP, Minister for the Cabinet Office and Paymaster General has claimed that the Government’s Catch 22 controls over independent executives, consultants and contractors has saved circa £1 billion. Unfortunately, the reality, highlighted this week, is that the Catch 22 policy is a fatal own goal, with circa £3 billion plus of cost savings at increasing risk of delay, overspend and failing to meeting their policy objectives. The Government’s flagship welfare reform programme is just the latest casualty. Before examining welfare reform, let me highlight the likely consequences of Catch 22:

  1. Cost reduction targets by the Public Sector for innovation and processes improvement are likely to be missed, so that the swathing budget cuts will increasingly fall on front line services
  2. Opportunities to cut waste in benefits and other public services will be missed or delayed years, putting more pressure on tax payers
  3. Public Sector workers are increasingly likely to take industrial action, with its associated impact on service and quality
  4. The UK’s once proud and World beating independent executive and contingency labour sector is likely to be permanently weakened, with many top quality independent executives exiting the industry, retiring or going overseas. The same entrepreneurial independent executives could have helped the Government achieve both Public Sector Cost Reduction and Private Sector growth but sadly the opportunity is likely to be permanently lost. 

Now let’s take a closer look at this week’s news about the Government flag-ship welfare reform programme:

If the Department of Works & Pensions (“DwP”) (which represents twenty-three percent of total public spending) is seriously at risk of not achieving targeted cost reductions what chance is there for the rest of the Public Sector? DwP is often heralded as one of the best-managed departments. Unfortunately, this time DwP is also critically dependent upon HMRC to deliver a new real-time system to an extremely tight time schedule. Why didn’t implementing an enormous, cross-departmental IT programme, at the same time as savage head-count reductions, plus Catch 22 sound alarm bells? Also why were simplistic assumptions about the number of claimants with access to the internet not independently validated?

At the moment, Chancellor Osborne’s A Plan is looking increasingly at risk. It seems that the Government’s reform agenda was never properly challenged by top class professionals, like independent executives. Without independent validation of bottom-up costings and risk assessment, such an ambitious reform agenda is like a run-away train – a crash waiting to happen. Of course, the Government still has many consultants in play (despite Catch 22) but their independence, objectivity and track record gives some room for concern. Let’s take a helicopter view of the emerging scenario:

  1. Public Sector cost reduction is increasingly likely to give way to cuts in front-line services, as reality replaces myths and risks crystalize
  2. Government policies to stimulate private sector growth have been far too weak and ineffectual. The Government has consistently failed to stimulate short-term demand, especially investment, as increasingly strongly advocated by the IMF and OECD.
  3. Increasing downside risk on global growth and from the Euro crisis has meant that Plan A’s assumptions are now increasingly buried in sand.

What will Chancellor George Osborne do next? Because of his relative inexperience prior to becoming Chancellor is he perhaps unduly sensitive to changing direction?

I suppose what worries me most is the absence of joined up thinking and holistic planning across the Coalition Government – surely this is both dysfunctional and wasteful (see the Cabinet Office’s update of pan-government plans)? For clarity, let me quickly recap on what I regard as the Public Sector reform life cycle (this is quite different to Best Practice in the Private Sector, as I have previously described):

  • 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

I struggle to understand the Government’s detailed strategy, especially on introducing innovation in the Public Sector. One of the Government’s senior strategy consultants is McKinsey. By chance I noticed that McKinsey were citing Kenya and Georgia as Best Practice exemplars for innovation in government, arguing that a willingness to take bold risks can make government services better and cheaper.

The Coalition Government are, of course, taking enormous risks but I am concerned with the effectiveness or robustness of risk mitigation – this is different to the pan-government risk register sponsored by the Cabinet Office and the Treasury.

My advise to the Government is simple. For cost-effective risk mitigation on Public Sector transformation programs, deploy independent executives client-side on both strategy formulation and delivery phases.

16 responses

  1. Pingback: Dr Alf Best Twelve Blogs 2011 « Dr Alf's Blog

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  4. I’ve been following this blog and its associated discussions with some interest. If I understand the arguments correctly, there are two underlying premises to the line of reasoning:

    1. The public sector is very wasteful in its use of taxpayers’ money, and
    2. Independent interim managers could do a better job in helping reduce the waste.

    If correct, these two assertions imply that the independent interim manager is somehow “better” than the incumbent staff; that the sitting staff is the weak link in the chain. That’s a very bold and sweeping assumption indeed, so I’m going to play devil’s advocate and explore those assertions a bit further.

    The public sector in the UK employ around 6.1Mn people, representing over 20% of the UK workforce, which in June 2011 stood at 29.2 million. Barring some bias in the recruitment process, and assuming that the employment figure includes everyone between refuse collectors and Whitehall mandarins, then I think it is fair to assume that public sector employees represent a statistically valid cross section of the UK working population as a whole. This would mean that educational achievement and willingness to do a “good job” would be similar in the two groups (public and private sectors).

    Here I present another wild assumption: that about one percent of public employees have the authority and responsibility to change things… to make things happen. I confess that that is a guess, but if it is even remotely close to the mark it means that the ability to “change the way we do things” lies in the hands of around 60 thousand senior managers and leaders, with 6 million potentially pushing back and resisting change.

    If we believe the numbers bandied about by the various IM institutions, the whole population of interim managers in the UK rests somewhere between 1,000 and 10,000, so – at best, IM’s could replace one sixth of the total public sector managers with the power to change things. In truth, some of the IM fraternity already operate within the public sector (30% – 40% ??), and the changes they may have brought about have not dented the value of the wastage by that much.

    So what is my point?

    I don’t think that the problem lies with the people in the public sector, and I am not convinced that the average IM would do a significantly different/better job given the existing circumstances. That, in my view, is not the root cause of the problem.

    The root cause lies in the POLICIES and RULES under which the public sector operates. It is these policies and rules that have created the prevailing laissez faire environment and culture. The public sector has adapted to this environment, and is reluctant to change. Anyone (e.g. an IM or consultant) with a different mindset who is parachuted in will almost certainly meet resistance because a) he/she is outnumbered, and b) because the system recognises that the political imperative to which they respond will change in a couple of years, and everything will change all over again. It is a response to the BOHICA syndrome when faced with constant and sometimes conflicting change (bend over, here it comes again).

    Although thinning the ranks of the public sector will certainly help in reducing the burden on the tax payer, the most important change that the Government must bring about to achieve significant savings and sustainable transformation, is a change in the POLICIES and RULES that guide the public sector.

    • Andrew,

      Many thanks for responding to my latest blog. You make a number of sound arguments which, in principle, I endorse with the following observations:

      1. Based upon my own experience, there are many extremely well-qualified and capable people operating in the Public Sector, at every grade level. In specialist areas, the Public Sector professionals are as stronger, if not stronger, than their Private Sector equivalents. Unfortunately, recruitment restrictions and simplistic assumptions about deploying square pegs in round holes is increasingly dys-functional.

      2. Again, based upon my experience, independent interim managers are a very mixed bunch, with a wide variety in seniority, expertise & capability. Top-tier independent interim managers are more than capable of matching Big Four Consultants at a fraction of the price, and far exceeding their consulting colleagues when it comes to delivery of transformation. Unfortunately, the current Public Sector supply chain process for independent interim managers is far from ideal – too prescribed, focused on commoditization & cost minimization, rather than value-added & risk minimisation.

      3. Your point about policies and rules is “spot-on”. Public sector administration, the World over, is inherently bureaucratic. Reasons for this phenomena are complex but probably include:

      A. Absence of cohesive, over-arching strategy in the Public Sector, with far too many initiatives on the go at any one time.

      B. Public Sector employees, at all levels, have traditionally been more risk adverse than their Private Sector equivalents

      C. Far too much dependence on major consulting firms, and inability for Public Sector managers to effectively supervise the consultants to maximize value-added

      D. Enormous intervention and meddling from politicians, who are constantly changing their minds, trying to appease voters, responding to the media, surveys and focus groups.

      • Alf,

        Regarding your points A to D, I’ll contribute the following thoughts:

        A. The reason for too many initiatives may be due to the fact that politicians are judged on what they have done in office. If they only promote one change initiative and it fails, then they are deemed to have failed; if they promote many initiatives and some work, then they claim to have succeeded; even if all initiatives fail, the general public may at least say that they had a go! Hence, having many projects on the go may be seen as “a good thing” regardless of whether they are being busy fools.

        B. It’s public sector policies and a blame culture that makes the sector risk averse. Hence the need for a change of policies and not necessarily people charged with implementing them.

        C. Dependence upon major consulting firms is a natural corollary to point B.; i.e. someone to blame and, if push comes to shove, big enough to sue. For this reason, interim executives are far less likely to be chosen to lead projects simply because they do not have the financial strength or the resources to come into the “big enough to be sued” category nor, it’s probably fair to say, the reputation established over decades. In my view, that’s why interim executives have to join forces rather than insist on being lone wolves.

        D.It was ever thus. This will not change because the lifespan of a politician’s influence is relatively short, and they have to be seen to be doing things with results in the here and now. That is why they respond to pressures from the different lobby groups.

  5. Alf
    The other consequence that we are seeing is a destruction of the small / mid range consultancy supply chain with savage reductions in numbers or closures. The government will just be left with the large firms to deal with in the future and guess who will benefit from that.
    Robert Lamb

    • Robert,

      Thanks for reading my blog and commenting. I agree with your comment that as a result of the Coalition Government’s policies:

      ” we are seeing is a destruction of the small / mid range consultancy supply chain with savage reductions in numbers or closures. The government will just be left with the large firms to deal with in the future and guess who will benefit from that”

      Many small independent consultancies or interim practices are no longer viable, directly as a result of Government policy. Perhaps, a few more independent consultants and interim executives should write to their MPs pointing out that Government policy is achieving the exact opposite of stated objectives?

      Alf

  6. Alf,
    Thanks for another great blog on this subject. After reading this one I am feeling sympathy for senior line managers in government departments. It seems increasingly likely that they are also suffering from the Catch22 situation.
    Never has there been such a massive resource of Independent Executives willing to work flexibly to deliver projects; and at average rates that are the lowest that I have experienced in ten years as an Interim Manager. To be told that you are not allowed to take advantage of this bargain of the decade must be very frustrating.
    Adam

    • Adam,

      Many thanks for the kind feedback.

      I agree that the Coalition Government does not appear to be listening effectively to the professionally qualified, experienced & knowledgable views of Public Sector managers. We seem to be getting more centralization and bureaucracy – this is not best management practice. Catch 22 seems to be spreading like a cancer across Government. I have often thought about how to get the common sense message through to policy makers. Perhaps, we need a UTube video entitled “Catch 22 rides again”

      Benedict Brogan, the Deputy Editor of the Daily Telegraph commented that he’d overheard two “mandarins” speculating on the next “omni-shambles”. One wonders who is advising policy-makers?

      Given the Euro Crisis, I would expect the UK Government to be advocating a 50% cut in the “Eurocracy”, rather than accept a Tobin tax on financial transactions – the point is that the UK Public Sector is being cut by 30%+ whilst the “Eurocats” are still taking the cream….

      Alf

  7. The Coalition’s plans are not properly risk managed and they lack a coherent plan for growth. Part of this is down to the fact that they are relying on incorrect data from both Civil Servants and Big 4 consultants upon which to base their risk assessments and policies for growth. This stems, in part, from a complete lack of understanding of how benefit recipients and ordinary members of the public think and live. Another part of it ignores what “SME” business owners actually think and fails to take into account employer behaviour with regard to Eastern European migrants versus UK based school leavers and the indigenous jobless.

    RISK MANAGEMENT
    —————————-

    The first of the incorrect assumptions was that as the Public Sector was cut back, that the private sector would take up the slack and employ former public sector workers and non university graduate and graduate school leavers.

    For that to happen you need more than 3% GDP growth and you need to have employable graduates, school leavers and public sector workers.

    GDP growth since 1946 has averaged 1.4% (Source:Institute of Fiscal Studies-Andrew Dilnot). The reality is that we now have an illiteracy rate amongst state school educated people(ages 5 to 18) of 20% which renders all of those people unemployable.

    In addition, Public Sector workers have measurably poorer productivity than their Private Sector counterparts (40% versus 60% (sources The Management Consultancy Group PLC and Knox D’Arcyrespectively) making employers not want to hire them.

    Larger Times 1000 businesses and the banks are shedding labour as are mid-caps, which leaves SMEs who simply refuse to hire ex Public Sector workers and are not really interested in appointing people who are from Duncan Smith’s Welfare to Work programmes, are ex NEETS, or former Incapacity Benefit recipients dragooned into “Work Experience” placements by Emma Harrison’s A4E, Serco, Reed Employment and other welfare to work providers, selected by Lord Freud, a former City Grandee who used to work for Gordon Brown but jumped ship when he thought that David Cameron would win the election.

    It is Lord Freud’s figures and assumptions that are guiding Coalition policy in this area and sadly they are wrong and they fail to take into account:

    a) The need for faster economic growth.

    b) The fact that most employers would now rather outsource work to the Far East or employ a Pole/Eastern European migrant than they would hire a British worker.(80% of all new jobs now go to people not born in this country and the percentage is actually higher when outsourcing is factored into the equation).

    c) EC rules which allow for the free movement of goods services and people prevent any meaningful curbs on migrant numbers so point b) above cannot be addressed.

    All this is quite apart from the HMRC’s inability to process tax credits, get peoples’ taxes right or manage IT projects.

    LACK OF GROWTH STRATEGY
    ——————————————

    To have a growth strategy that works you need a number of factors to be in place which can easily be seen in countries which are successful in that area whose behaviours we could modify and emulate:

    1) A Government actually committed to making growth happen such as Germany, China, Malaysia and Singapore, rather than a laissez faire approach that imagines that it will happen by osmosis.

    2) A benign tax regime that rewards enterprise and initiative and encourages long term infrastructure investment. We have one of the least competitive tax regimes in the world, with the highest numbers of different types of tax.

    3) An education system at State level that teaches useful languages that can enable our people to compete with the best in the world and produces graduates in sufficient numbers in hard and numerate disciplines.
    This to enable the creation of adequate numbers of scientists, software engineers, inventors, manufacturing experts and technologists, rather than journalists, pundits, broadcasters, lawyers and accountants.

    Our state education system is 47th in the world and in some cases teaches useless languages such as Welsh, a language in which it is impossible to conduct export discussions.

    4) Value per taxpayer pound (We are 17th in the world) and by a margin of 3 to 1 we are worse than countries like Singapore.

    5) A functioning banking system and an adequate system of business credit.

    6) A fit population with a strong work ethic. 40% of the UK’s population suffer from vitamin D deficiency; our woman are the fattest in Western Europe; our men are the 4th fattest in Western Europe; and we are 15th in the global productivity league. 55% of Local Authority budgets are consumed by Adult Social Care recipients and the NHS which became insolvent in 2000, and then functioned on money from petroleum revenue tax is now moving towards insolvency again.(22 Trusts are reported to already be in financial difficulty).

    7) A planning regime that is pro business and that creates sufficient social housing for a workforce that needs to be mobile. A 21st century transportation system rather than one fit for the 19th.

    8) An export salesforce of sufficient size, sales skills in depth, sufficient language skills and a business community with the right export plans focused on the right markets. (Currently our biggest export market is the Irish Republic a bankrupt quasi vassal state owned by Chancellor Merkel and the Chinese Government).

    9) Self sufficiency in food and energy. (86% of our food is imported and four of our privatized utilities are foreign owned leaving us defenceless against countries with hostile foreign navies or countries bent on exploiting our energy dependence which now sits at a critical level leaving us with 6% spare generating capacity over predicted demand based on normal winters and a stable population).

    10) Efficient policing and effective law and order. Singapore has this and through it’s establishment ensured that businesses flourished,a nighttime economy existed and that tourism/foreign exchange was and is encouraged. We have none of this in our major cities and as a result we live with the negative perceptions created by rioters and student fee protesters.

    11) A focus on those people who produce more than they consume and can create employment and less emphasis on the economically useless who consume more than they produce.

    12) Creating a responsible society, whereby people look to themselves for salvation in terms of health, fitness, economic prosperity, the inculcation of moral values based on our laws and traditions and understand the difference between right and wrong.

    RISK MITIGATION
    ———————–

    Understanding and tackling each of these areas should be an urgent priority since not doing so represents in each instance a series of risks and constraints on the economic growth that is needed to transform the fortunes of the country so that public services can become affordable again.

    Since some of them will take years to implement the priority must be to create rapid export led growth so that public services can be paid for and the process of education and renewal can begin.

    Selecting these priorities should not be the province of an elitist plutocracy, Big 4 consultants too far removed from real life, Civil Service mandarins, or out-of-touch City grandees, or the “Great and the Good”.

    Politicians, the chattering classes and “do-gooders” are similarly the wrong people to make these choices unaided.

    Whatever advice they get must be leavened with commonsense and experience of real life, plus rigourous analysis and pragmatism.

    That can only come from suitably qualified Executive Interim Managers and subject matter experts guiding the politicians and decision makers at fees commensurate with the accumulated wisdom they bring to the proceedings and the benefits they would bring to the nation.

    • John,

      Many thanks for your detailed response to my lastest blog.

      I totally agree with you that the Coalition Government seems to have seems to have got their policy wrong with regard independent executives & independent consultants. Small businesses have suffered far more under the Coalition Government than Big Business & major branded consulting firms. Large companies have vast cash resources which they are returning to shareholders, rather than invest in growth. Small businesses have continued to suffer from the majors banks, in terms of rationing of facilities and penal rates of interest. Despite David Cameron’s visionary speeches, cronyism seems to be alive and well.

      Whilst I do not necessarily disagree with many of your comments, I think that many of the areas that you describe as “risks” and “risk mitigation” are perhaps for policy makers to action.

      My own focus on risk mitigation refers to the strategy and delivery phases of any Public Sector transformation programme.

      Thanks for your enthusiasm & support

      Alf

  8. Rather deprerssing Alf! Central Government specification and implementation of IT systems seems to be a manifestation of Einstein’s definition of insanity: doing the same thing over and over again and expecting different results.

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