With the Coalition Government‘s Reform Agenda being attacked on multiple fronts, for example, Defence and Health, plus the targets set in the Spending Review looking more and more at risk, this week the blog focuses on “How to avoid a Omnishambles Recovery Programme?
This is my sixth blog which looks at the critical choices being faced in the Public Sector both at the National and Local level.
The first two articles were: UK Local Authorities and Shared Services: Cost-Cutting – Myth or Reality?, and Public Sector Performance: Catch 22 type Dilemmas.
This is now the fourth of four related blogs:
1. Cost Cutting Vs. Cost Reduction (Blog 1)
2. Business Transformation (Blog 2)
3. The Role of IT in Business Transformation (Blog 3)
4. Structural Reform, Strategy and Delivery (Blog 4)– focus of this blog
Before focusing specifically on Structural Reform, Strategy & Implementation, it is worth taking a look at this week’s major news on progress in overhauling public services. The biggest story has been the Government back-tracking on NHS reform, taking some extra time for consultation and the publication of the Health Select Committee report. The Government has published Structural Reform Progress updates for the whole of Whitehall. As of March, the Cabinet Office was late on three reform milestones and the Department of Business Information and Skills four. For this blog, the most significant was the delay of the new model for Central Government Shared Services by the Cabinet Office but they are now promising a pan-Government strategy by April – it will be interesting to see whether this is restricted to Central Government or also includes Local Authorities.
This week Lord Adonis of the Institute for Government challenged “No, prime minister, the civil service is not your nemesis“, with a wide-ranging attack highlighting the risk of achieving the cost savings. In another broadside, Benedict Brogan, the Deputy Editor of the Daily Telegraph, referred to two Permanent Secretaries comparing notes and citing “The return of the omnishambles”. We now have the Return of both “Catch 22” and the “Omnishambles”. Another five examples and I fear I shall be drawn to the headline “Return of the Magnificent Seven”!
This week, I try to link three separate challenges facing the Government and the Public Sector, focusing on both Public Sector and Private Sector Best Practice:
- Structural Reform
These are very much personal views and are still being formulated. I would very much welcome your challenge and improvement. Please publish your comments below this blog.
B. PUBLIC SERVICE REFORM
Public Service Reform is not new and has challenged politicians, with leanings to both left and right, for the last forty years. Flynn provides a very readable introduction to Public Sector Reform. Neoliberalism provides the underlying theory supporting Public Services Reform, which describes a market-driven approach to economic and social policy based on neo-classical theories of economics. Wikopedia provides another comprehensive introduction to neoliberalism and for a more intellectual and comprehensive challenge to neoliberalism see Harvey. Critically, the Coalition Government has been described as neoliberal by Kovar. This introduction is important because it fundamentally underpins the Coalition Government’s policy on reforming public services.
The HM Treasury Spending Review announcement stated “The Spending Review set a clear direction for reform, focused on shifting power away from central government to local level”. One of the major reforms announced in the Spending Review includes the following:
“Decisive action to cut the cost of central government, with a 34 per cent cut in administration budgets across the whole of Whitehall and its arm’s-length bodies, saving £5.9 billion a year by 2014-15”.
In addition to the monthly Structural Reform Progress Reports cited above, the Government’s No.10 web site provides details of all departments’ Business Plans supporting Structural Reform. The reader is recommended to take a look at some of the plans, e.g. the Cabinet Office and get a feel for robustness, independent risk assessment, bottom-up costing, and overall financial integrity to achieve saving £5.9 billion a year by 2014-15.
The Office of Fair Trading identified three key issues which are critical to making reform of public services successful:
- The importance of ensuring an open supply side in which restrictions on entry and exit from the market are minimised
- The key role active consumer choice plays in driving efficiency and innovation through competition, and
- The importance of ensuring a level playing field for providers.
In the Private Sector, of course, there is no Reform agenda. Most large businesses have a Corporate Strategy which Johnson & Scholes define as follows:
“Strategy is the direction and scope of an organisation over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet needs of markets and to fulfil stakeholder expectations.”
Key question to be answered by the Corporate Strategy are:
- Where am I going long-term?
- In which markets, products and services should I compete?
- How can I perform more effectively than my competitors?
- What resources do I need to compete effectively in terms of people, technology and assets?
- Do powerful stakeholder groups support my proposed strategy?
Another important distinction is between the overall Corporate Strategy and the Business Unit Strategy etc. – this would be equivalent to Central Government Departments, Local Authorities, NDPB’s etc.
Most large private sector organizations have a Strategic Planning Process which entails three elements:
- Strategic Analysis
- Strategic Choice
- Strategy Implementation
Strategy implementation requires three critical ingredients:
- Skilled Resources
I do not believe that the Public Sector typically has a comparable Corporate Strategy process. Key steps in the Public Sector seem to be:
- Political Manifesto
- Reform Agenda
- White Paper
- Programme of Work
Peter Gershon commented that in order to get anything done in the Public Sector, there are two critical ingredients:
- Political sponsor at Ministerial Level
- Formal programme, with effective governance
It is interesting that the Civil Service has traditionally differentiated between Business as Usual/Continuing Activities and Programmes. This has tended to reinforce the “status quo”, providing inertia which is a natural barrier to change. For years, the fast-track route in the Civil Service was policy rather than delivery.
To summarize, the Public Sector does not appear to have the same Private Sector Best Practice Strategic Management which focuses on:
- Skilled Resources to deliver the strategy without unacceptable risk levels
The Public Sector also has both Politicians and Administrators. I highlighted in an earlier blog the potential dysfunctional consequences of politicians “meddling“. Let me restate the point:
The main “Catch 22” dilemma is that the Public Sector performance will never match the Private Sector, until the politicians stop meddling! Outsourcing large elements of the Public Sector needs to be considered objectively. A coordinated approach is required to strategy, including more decisive executive leadership, customer-focused, able to grasp and operationalize concepts of simplification and innovation in organization, processes and services (products) – as well as dealing with their political masters.
Let me try to illustrate the argument. In my blog on Shared Services, I recognised that Private Sector organizations typically targeted 40% Cost Reduction before considering the potential Labour Cost Arbitrage advantage of off-shoring (where labour costs are lower). I noted that Local Authority opinion was converging on 20% being an appropriate target. I argued that if all the risks materialized then the 20% cost reduction in the business case would be wiped out. I was challenged by John Gelmini , a colleague, that 40% cost reduction was realistic in the Public Sector and highlighted a number of strategic options. For convenience, I have reproduced his argument in Appendix 1.
Whether we agree with John’s data, analysis and conclusions, is not fundamental for this blog. The point is that there would appear to be strategic opportunities that have not been identified by the Government and the Public Sector. All savings from strategic initiatives will offset comparable cuts to front-line services.
This week’s example of the National Health Service Reforms highlighted the need to engage with all stakeholders and have a common strategic view.
Many would argue that the strategic changes proposed by John should form part of a political manifesto, so there would be proper public debate and political choice. Perhaps, it would in normal circumstances take two political terms, one for flushing out the strategic options and the second for implementation? The Coalition Government argue that the urgent case for cuts is because of the huge level of debt inherited from the Labour Government. Unfortunately, both “Catch 22” and the “omnishambles” are gaining ground, whilst many of the best brains in the Public Sector are considering career options in the Private Sector. At some stage, hopefully soon, the Coalition Government will conduct an independent risk assessment and see that the cuts identified in the Spending Review will not be realized in the time scale (consideration of the political options available to the Coalition Government is beyond the scope of this blog).
Unlike the Public Sector, the Private Sector has a very long history of strategy implementation. Scholars have long been interested in the critical ingredients of successful strategy implementation, and there is a rich literature of both theory and empirical research underpinning the subject. It is very important to stress that within the Private Sector, there has been predominant interest in strategy formulation, with strategy delivery receiving far lesser attention – so even in the Private Sector, the effectiveness of strategy implementation has been mixed.
Strategy formulation is the sexy area, with many large consulting houses available to help Private Sector organizations – typical strategy consultants are aged in their early twenties with first class honours degrees from top universities. In practice, in most Private Sector organizations, implementation is subordinated, and typically handled in-house, without recourse to strategy consultants. Many Private Sector organizations have successfully turned to Professional Interims as a supplementary resource to help them with effective strategy implementation.
In the interests of brevity, within this blog, I intend to highlight the key ingredients of Best Practice in Strategy Implementation. I shall not discuss or comment on the elements but let the interested reader dig into the available evidence (cited above).
Critical ingredients in successful strategy implementation typically include:
- Effective stakeholder sponsorship
- Senior leadership to recognize (a) leadership competencies, (b) critical success factors, and (c) distinctive/core competencies
- Cultural artifacts
- Organization development
- Human factors
- Middle-management committment
- Quality initiatives
- Employee buy-in
- Performance measurement
Unfortunately, in the Public Sector, there is the belief that Peter Gershon’s minimums are enough to secure effective implementation/delivery. To restate, these are:
- Political sponsor at Ministerial Level
- Programme with effective governance
There is a widespread simplistic view in the Public Sector that effective delivery can be secured from following the prescripts of good Programme/Project Management and relying upon Gateway Reviews. I have commented in an earlier blog that the traditional approach to Project Management is being increasingly challenged and cited some pioneering German research which offers an alternative paradigm. There is an urgent need for Public Sector CEOs to embrace Best Practice in strategy formulation and strategy implementation – to serious reduce the risk of transformation failure, I would encourage them to deploy external change agents (professional interims).
It is relevent to restate the conclusions from my earlier blog on Business Transformation, namely:
Permanent Secretaries and Local Authority Chief Executives are not like their peers in the Private Sector – they typically come from a different background (often policy or Civil Servant generalists). Private Sector peers, in successful businesses have the leadership, vision, strategy and risk-profile to engage in aggressive Business Transformation. Typically in the Public Sector, a Transformation Director is appointed, who is a familiar face in the organization, rather than an accomplished Transformation specialist. This context of risk aversion, normally leads to employment of expensive consultants for both design and delivery of proposed transformation. Some Public Sector organizations have wisely deployed highly skilled independent transformation specialists “client-side”, to help them manage the suppliers and the transformation. With Cabinet Office freezes on consultants and professional interims, some Public Sector organizations are now attempting transformation activities with internal or re-cycled staff – in my view, the risks are enormous, and are likely to outweigh the benefits of the programme.
Lord Adonis recently commented:
There is danger in any major transformation too that you lose the best people. The civil service is, just like any workforce, dependent on motivation, good leadership, encouragement and a talent retention policy. Ministers have just as much a role to play here as the civil service leaders themselves.
Effective transformation is really important because the greater the savings from transformation, the lower the level of cuts from front-line services. Why are transformation activities being excluded by the Government in favour of de facto cuts to front line services? Is it the reform agenda, political will, Public Sector leadership, inertia? Is it because of the shortage of transformation specialists and champions in the Public Sector?
Perhaps, it would now be timely to reconsider the Cabinet Office’s Catch 22 type controls on consultants and interim managers? Catch 22 controls mean that some of the UK’s most talented and experienced transformation specialists are on the bench. The UK probably has the most developed interim management community in the World – surely this is a competitive advantage wasted? If the Coalition Government truly believe in neoliberalism they should remove the barriers to independent consultants and professional interims.
F. NEXT STEPS
- For sure, policy-makers need to break out of the Cost-Cutting/Product (Service) Pruning downward spiral. A vision is required for Public Services, with a cohesive strategy and well sponsored and professionally managed Transformation Programmes need to follow, with effective governance.
- For critical Business Transformation Programmes, skills shortages need early attention. Programmes will be seriously de-risked by turning to the professional interim market for transition specialists and transformation experts.
- Effective Programme governance will need to focus on the Best Practice points from Private Sector strategy implementation experience.
- There is an urgent need for politicians and Public Sector CEOs to embrace both strategy formulation and strategy implementation.
- Public Sector leaders, and possibly politicians, as well, need appropriate mentoring – again, there is an available resource with the professional interim market.
- The effectiveness of Government policy for small business and enterprise should be tracked by appropriate metrics, for example, professional interims can be tracked using industry data captured by the Interim Management Association
Transcript of John Gelmini‘s Response to an Earlier Blog:
Whilst I agree with you that local authorities lack the skill to effect radical shared service transformation, I do not agree that 40% savings are unattainable or that we should be prepared to settle for 20%.
Why do I say this?
- To begin with we have as a country far too many local authorities, far too many police forces and far too many Ambulance Trusts.
- Secondly, as Sir Philip Green was able to identify, in just one month, Government and local authority procurement is inefficient and loses taxpayers millions by dint of its lack of scale economy.
- Currently we have 350 local authorities in this country with the power to raise money and spend it.
- On top of that we have about 8700 smaller councils all of which require buildings, some staff and money.
- The UK is a postage stamp when compared with countries like France and if one looks at a French Department, the equivalent of an English County, one can see that they have 95 Departments whereas we have around 67 County Councils and a number of Unitary Authorities often overlapping County boundaries which take the total to nearly the same figure.
- Given that France is triple the size this would equate to 270 French Departments each with its own CEO, each with its own buildings, IT infrastructure and service directorates and each with its own staff.
- The argument for this UK approach is population density, yet in Scotland, Wales and Northern Ireland we have the Barnett Formula which gives every man woman and child in these Celtic fringes up to £3,500 GBP a head extra to cover the costs of delivering services to these sparsely populated places.
- We have 43 English constabularies and four successive Home Secretaries have tried to get this reduced to a more manageable 12.
- The Chief Constables aided by in the judiciary scuppered Michael Howard’s plans in this regard – the supposedly secret Ingrid Posen review into police force mergers and was leaked and rubbished.
David Blunkett was taken to court over his plans, which the judiciary said were examples of him acting “Ultra Vires”.
- Dr John Reid, who said the “Home Office was not fit for purpose”, was challenged by the Chief Constables and now Teresa May is being warned of a vast increase in crime by Chief Constables.
- Taking the councils first, there is no economic case for Districts and Boroughs to exist at all because with G-Biz style tools, it is possible to integrate these services in outsourced or jointly held shared service centres, as Suffolk is already doing in conjunction with BT Global Services.
- My own work at a 3 star county council in East Anglia suggests high levels of over-manning across the board, and in looking at Districts and Boroughs the situation is in all probability just as bad.
- In two or one star authorities (i.e. most of them), the figures are worse.
- Turning now to Unitary Authorities, these operate in the same geographical area as county councils, thus duplicating service provision in overlapping areas.
- Each police force in the UK has two call centres, one for emergency calls and dispatching, and the other 311 call centre for non emergency calls.
- A similar arrangement exists for the fire service and then there is the question of ambulance dispatching and after hours GP care.
- County and Unitary Authorities each have 2 call centres as well, one for General Enquiries and a second one for pre assessment of potential adult social care recipients.
- Given that Adult Social care represents up to 50% of most county council budgets much more could be done to use CRM (Customer Relationship Marketing) to identify, for example, obese people and at risk adults, in order to divert them away from lifestyle choices which would otherwise turn them into recipients of Adult Social Care.
- Using a combination of VOIP (Voice Over Internet Protocol), annualised hours and multi-skilling, a shared service centre, covering the work of say 4 County Councils, 4 merged police forces, 4 merged fire dispatching units and 4 county ambulance trusts ought to be possible in a greenfield site, plus staggered shifts using mobile, flexible and home working, embracing the philosophy of Project Nomad.
- A reduction of staff at lower levels would be circa 50%, whilst at higher levels where the pay is greatest circa 75% of the CEO’s and Chief Constables, Fire Chiefs and Ambulance Trust CEO’s would go under this proposal.
- IT could be “near-shored” to a lower cost location, and after hours cover would be via automated agents.
- The elimination of Districts and Boroughs would then enable the creation of county unitary authorities, which could be merged again until England had just 12 counties, 12 police services, plus two for London and just 12 shared service centres plus two for London.