The Hindu Business Line : Re-leveraging the public sector unit

Public-sector organisations must organise themselves in ways that stimulate performance from within. They can be redesigned to perform more successfully, even when market forces are lacking.

TRADITIONAL public-sector organisations can be redesigned to perform more successfully, even when market forces are lacking, according to Mr Keith Leslie, a principal, and Ms Catherine Tilley, a consultant, in McKinsey's London office.

In a study titled ``Organising for effectiveness in the public sector'' published in The McKinsey Quarterly, they write: "By privatising state-owned monopolies and deregulating whole industries, governments the world over have brought market forces to bear on electricity, telecommunications, and other economic activities formerly carried out in the public sector.

This increased market pressure has, in turn, raised productivity as organisations in once-sleepy fields apply performance-enhancing tools long employed by private enterprise."

"Governments, though, are frequently less willing to privatise or deregulate activities such as law enforcement, tax collection, public administration, and, in many countries, education and health-care. Here, they understandably give precedence to social, rather than financial, objectives. As a result, public-sector organisations in difficult-to-privatise areas of the economy usually cannot discontinue expensive services, dismiss underperforming staff, seize off-shoring opportunities, or offer the high salaries needed to attract top talent from the private sector," according to the authors. However, they assert that this lack of alternatives need not lead to "indifferent performance."

Public sector organisations, according to Mr Leslie and Ms Tilley, have ample opportunity to raise their productivity. "Like companies in the private sector, they can apply innovative practices in areas such as information technology and purchasing. More broadly, they can address the causes of poor performance by redesigning themselves.

"The private sector's experience shows that organisational redesign, when done right, can dispel inertia and complacency, rejuvenate employees, and focus their minds on crucial areas for improving productivity. For public-sector bodies, it will be necessary, among other things, to rethink the central bureaucracy's roles and responsibilities, to find ways of strengthening the top team, and to separate the design and provision of services.

Dealing with the challenges confronting the public-sector, they point out that both politicians and the public pressure the government to do more for less. Public-sector organisations find it hard to comply, however, because they are insulated from the competition that fuels innovation in the private sector.

"They must, therefore, organise themselves in ways that stimulate performance from within. To that end, they will have to confront several challenges."

"First, public-sector organisations are often monopolies that administer and deliver essential services such as education, health care, law enforcement, and social welfare to entire populations. Usually large and complex, they tend to ossify and become still larger as the years pass, partly because they are reluctant to prune deadwood. The result is not only waste but also fuzzy boundaries between units and a lack of clarity in roles and responsibilities — all of which hinders performance."

Second, public-sector organisations usually have broad social objectives, such as reducing crime, that make it harder for them to rank goals than it is in the private sector, where the economic bottomline provides a natural focus. In an environment involving difficult trade-offs, public-sector executives sometimes struggle to focus on the right things and to track results.

There are many quantifiable measures of success in the public sector, but rarely a single, uncomplicated bottomline.

Third, the workforce of the public sector presents specific challenges. "Many managers and frontline staff enter public-service careers for the pleasure of helping others and the relative job security — and not for the pay, which can be fairly low. Novel management practices such as off-shoring pose political problems because they can lead to job losses at home. And the public sector tends to have a highly static workforce: Many civil servants spend their entire working lives in the same organisations, and strong unions frequently limit the freedom to hire and fire. An unchanging workforce in a rapidly changing world means that many public-sector bodies lack the skills they need.

Mr Leslie and Ms Tilley, in their paper, identify "redesign levers," tailored to the public sector — and already applied successfully in a few cases.

One lever involves strengthening the top team. Many public-sector leaders, they write, like their private-sector counterparts, actually face "savage competition for resources" and "influence with managers from other parts of the organisation.

"The result can be a lack of unity and purpose, with demoralising effects on the staff. A successful reorganisation, by contrast, requires top managers of an organisation to work together and take responsibility for developing a strategy that can turn its mission into a set of operational objectives and make it more efficient. Sharing knowledge and experience at the top is particularly necessary for dealing with issues that cut across departments, since in such cases lower-level managers are experts in their own areas but rarely have a broad understanding of the whole system."

Another lever works on the separate design and provision of services. Once organisations have strengthened the top team, they can improve their points of service delivery. In this area, mimicking or even embracing market forces helps to stimulate accountability and performance.

"The beauty of separating the design and provision of services is that government ministries can concentrate on the development of policy, while the executive agencies are free to focus solely on operations and can be more easily held accountable for their performance. In addition, an executive agency's more manageable structure makes it easier to engage the front line in change."

And, then again, the separation of roles should also be applied to a public-sector body's organisational centre, or headquarters, which plays a vital role in setting policy for the operational units and in directing their interaction. "In our experience, both private- and public-sector organisational centres tend to become bureaucratic unless they regularly review their structure. In the public sector, they tend to be large, often with huge budgets and staffs. Service-providers and operating units are often located at headquarters as part of the organisational centre, with its managers ultimately responsible for their results. Clarifying its distinctive roles is liberating for management and staff alike because everyone can focus on the most appropriate activities."

The integration of performance management is another lever. In the public sector, performance management — the setting of specific targets and indicators that measure achievement — "is often noticeable by its absence".

Many public servants believe that it is neither appropriate nor practical, because their work usually does not have financial objectives.

According to the authors, however, a public-sector organisation can realise its intended outcomes only by "analysing the essential elements of the system as a whole and the way they interact, developing a clear view of what the system is meant to achieve, and creating a scorecard with a few metrics simple enough to help managers analyse what is really happening."

"The process of setting targets and of tracking and evaluating performance against them not only compels and stimulates management and staff to do a better job but also yields continual insights into the trade-offs that any strategy requires."

Finally, as the public sector has little labour mobility, building a staff with the necessary skills will involve helping current employees learn new ones.

"A successful reorganisation calls for managers and frontline staff who have the necessary skills. In the public sector, which has very low labour mobility, building such a staff means helping current employees to learn new skills? But instead of adopting the widely practiced approach of "everybody gets to go on a training course," organisations should concentrate on helping people develop the skills they need to increase their accountability and focus.

Mr Leslie and Ms Tilley conclude: "Each of the five levers can be used individually to address specific performance challenges. But only in combination can they help public-sector bodies become focussed and accountable and effective at delivering the services the public demands at a cost it is willing to bear."