Last week’s blog entitled “Local Authorities & Shared Services: Cost-Cutting, Myth or Reality?” generated some lively debate. Reflecting on recent political and media attention the UK Public sector, it occurred to me that perhaps there has been just a bit too much simplification, glossing over complexity and context, just to score political points.
With over twenty years experience in major multi-nationals, and over five years in the Public Sector, including Central and Local Government, plus International Agencies, I thought that it would be helpful to dispel a few myths. This week, I am going to embellish the content with my own experience. As I introduce new terminology, I try to provide the interested reader with further reading by hyperlink.
Because of the vastness and complexity of the subject, I propose to compare the Public & Private Sector organization under five core viewpoints or dimensions. It is hoped that by aggregating the perspectives some greater clarity or understanding might be offered.
- Bureaucracy & Innovation
- Administrators & Politicians
- Generalists & Specialists
- Decision-Making & Empowerment
- Strategy, Organization & Boundaries
The views are largely subjective, based upon my own experience in both Public and Private Sector organisations, plus personal insights gleaned from my own research interests.
I remember when I was in Paris, working as a Special Advisor with UNESCO, discussing organization transition challenges with a senior Russian executive. She responded that bureaucracies were the same the World over “and inherently inefficient” – from that moments on, I have broadly categorized all non-profit organizations as bureaucratic. Since UNESCO, I have been with three Central Government departments, ONS, HMRC and DEFRA – all roles were heavily involved with transition and transformation management. Let me start this analysis, by making the assumption that all public sector organizations are bureaucracies. Taking both the Oxford and Webster dictionary definitions of “Bureaucracy”, we have the following attributes:
- Government by many bureaus, administrators, and petty officials.
- The system of official rules and ways of doing things that a government or an organization has, especially when these seem to be too complicated.
- The body of officials and administrators, especially of a government or government department.
- A system of government in which there are a large number of officials who are not elected, and a country with such a system.
- Excessive multiplication of, and concentration of power in, administrative bureaus or administrators.Administration characterized by excessive red tape and routine.
Before continuing, it important to stress that the above attributes are for a “bureaucracy archetype” and do not necessarily correspond to any particular organizations.
By comparison, in the Private Sector, many of the best performing organisations are strongly Market Oriented and Market-Driven, with deeply integrated processes of product, service and process innovation. Not every successful organisation is market-oriented, there are some examples of highly focused organizations with mature products, like Citizen Watch that are more driven by Continuous Improvement, rather than Innovation.
In my book on Strategic Cost Reduction, based on detailed case studies of five leading exemplars of Best Practice, I identified two core axises, Innovation (horizontal axis) and Continuous Improvement (vertical axis), which provided a four-state model with four Cost Reduction archetypes:
1. Cost Pruning
2. Continuous Improvement
3. Radical Innovation
4. Continuous Innovation.
Hyperlink to see the Four-state model
Most Public Sector organizations are stuck in the “Dog” state of “Cost Pruning” and are unable to serious progress with either “Continuous Improvement” or “Innovation”. I shall explore “Cost Pruning” in more detail in a future blog. For now, “Cost Pruning” is the bottom, left-hand, segment of the four-state-matrix, low on both innovation and continuous improvement.
In order to keep matters simple, let us differentiate between political and non-political appointments. Political appointees, either at the National or Local Level are generally affiliated with a recognized political party. The politician is accountable for the performance of the local authority at local level, and politicians with ministerial status are responsible for performance of Central Government departments.
Non-political leaders are responsible for delivery of services and programmes, including all the day-to-day governance. The most senior non-political appointment is generally the Chief Executive at local level and a Permanent Secretary at national level. For simplicity, we shall call all non-political appointees “Administrators”.
The relationship between Administrators and Politicians is clearly complex, influenced by personalities and the strength of the political mandate. Administrators are supposedly apolitical and need to change seamlessly from one political regime to the next.
By Private Sector standards, the Politicians are constantly meddling in the day-to-day activities of the organization. At national level there are Questions in the Houses of Parliament and requests under the Freedom of Information Act.
For sure, Chief Executives of Local Authorities and Permanent Secretaries have far less delegated authority and less power than their colleagues in similar sized organizations in the private sector. John Redwood MP recently commented on the power of Ministers.
For a recent discussion of the role of Local Authority Chief Executives and his political leader, see the article by John Tizard.
GENERALISTS & SPECIALISTS
The UK Public Sector has traditionally been strong on promoting generalists. Until recently, specialists were discouraged and blocked from career development. Career advancement and fast-track opportunities went to policy specialists, with good drafting skills – delivery expertise was often subordinated.
A number of independent enquiries recognised the need for stronger professional streams. Most notably is the case of Finance, where the Treasury has been trying hard to promote higher standards, professional accreditation and the increased status of Finance in the organisation. Despite Treasury guidelines, the Finance Director in many Public Sector organisations still does not report to the Chief Executive – this reduces the power of Finance in the organization.
Although CIPFA is an excellent professional body, sadly many of its younger members are becoming disillusioned with current Public Sector leadership and will likely look to diversify their careers into the Private Sector. Most importantly, for years the Public Sector has been short of specialised professional expertise and has relied heavily on consultants and interims – some of this was to do with bureaucratic recruitment processes. Now with a Government imposed freeze on consultants and interims, Public Sector organisations are desperately trying to recycle internal people. Unfortunately, “square pegs in round holes” is dysfunctional and increases risk of failure.
If we simplistically imagine a decision-making continuum, with autocratic at one extreme and democratic at the other, most Public Sector organizations tend towards the democratic. Unfortunately, democratic and collaborative decision-making brings out the worst in a bureaucratic organization. Individual decision-makers and boards are well-practiced in minimizing personal risk-taking. As stated previously, absence of top-quality professional expertise is a barrier, and frequently decision-makers and boards look for comfort to independent views of experts and consultants. With consultants frozen out by Government decree, individual decision-makers and boards will be in highly unfamiliar and risky territory. It is expected that political leaders will quickly look to strengthen boards and chose more decisive leaders. For example, it will soon become apparent that 2011/12 budgets, prepared top-down, without proper consultation and risk assessment, will soon need revision. Political leaders will look for “heads-to-roll”.
Empowerment and related improvement programmes have become fashionable in large organisations both in the Private and Public Sectors. Whilst the literature on Empowerment, Continuous Improvement, Total Quality, Lean/Six Sigma etc. is full of success stories, these have been less prevalent in the Public Sector and Regulated Industries. Without a clear strategy, investment in improvement methodologies is not necessarily effective in the current context, with cuts looming over all discretionary spending. It is important to remember Michael Porter’s important caveat that improvement programmes are not strategic (Porter was a Harvard Strategy guru, specializing in Industrial Economics).
By comparison with top performance in the Private Sector, many functions, like Procurement and HR need radical change, probably with top-class professionals drafted in from the Private Sector. In leading Private Sector organizations, apart from very small strategic and specialist teams, these services are typically outsourced and often off-shored.
Having worked in many Public Sector organizations, I have witnessed hard-working, passionate and customer-focussed people at all levels. I have also noticed the high level of stress-related illness which I have intuitively related to the absence of timely decision-making.
With Public Sector organizations increasingly focussing on value-for-money and strategic choice, it is expected that a different type of leader will emerge, less risk-averse, more decisive and with some executive success in the Private Sector.
STRATEGY, ORGANIZATION & BOUNDARIES
Large Private Sector businesses and multi-nationals invest heavily in strategic planning. Enormous effort is directed to key choices of products (and services), markets and geographies. Leaders will frequently want to be number one or number two in their sector or will close or sell the business. Back-office services in Private Sector organisations are expected increasingly to be Best Practice, with increasing focus on Shared Services, Off-Shoring and Outsourcing. Apart from strategy, well-run Private Sector businesses and multi-nationals are opportunistic, and will buy or sell businesses given sufficiently attractive opportunity and financing.
By comparison, Public Sector organizations whether Central Government Departments or Local Authorities, do not have the same freedom of choice. The political process at both national and local level influences products (and) services, markets and geographies. Local Authority services are generally defined in Act of Parliament and are not easily improved or innovated. Political boundary decisions impact geographical reach, rather than carefully formulated strategy. Compared to leading Private Sector Businesses and Multi-nationals, the Public Sector does not have a cohesive business strategy. Strategy in the Public Sector is more a hotchpotch of political interventions.
CONCLUSION AND NEXT STEPS
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.