Sunday, December 5, 2004

Organizing for Effectiveness in the Public Sector

I read an article in the November 2004 issue of the Mckinsey Quarterly on Organizing for Effectiveness in the Public Sector. It is an interesting article relevant to the issues we are facing. If you are concerned with the problem on the effectiveness of the government and wish to know a possible way out, you are recommended to go to www.mckinseyquarterly.com to have a look.

The article is written by Keith Leslie and Catherine Tilley of Mckinsey mainly based on the UK scenario, but the problem is seen everywhere, in particular in Hong Kong. It explains that market forces and private sector practices are not suitable for some types of public services for which social objectives are more important than financial objectives. As a result, these public organizations cannot discontinue expensive services, dismiss underperforming staff, seize offshore opportunities, or offer high salaries to attract top talent. It is also hard to inject a sense of momentum into large and complex organizations which are insulated from competition and have mixed, non-financial missions.

The authors point out the challenges facing such public organizations.

First, they are often monopolies that administer and deliver essential services to the entire population. Being large and complex, they tend to ossify and to 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. We see many examples in Hong Kong where large departments keep on delivering services and applying regulations which are out-dated. The responsibilities across departments, or the irresponsibilities that arise have created much confusion.

Second, they usually have broad social objectives that make it harder to rank goals than in the private sector, where the economic bottom line provides a natural focus. In an environment involving difficult trade-offs, public-sector executives sometimes find it difficult 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 bottom line. We often hear about such excuses being used when departments are accused of being unable to economize.

Third, the workforce of the public sector presents specific challenges. Many managers and frontline staff enter public-service careers for serving the community and the relative job security. Novel management practices such as contracting-out pose political problems because they can lead to job losses. The public sector tends to have a highly static workforce: many civil servants spend their entire working lives in the same organizations. An unchanging workforce in a rapidly changing world means that many public-sector bodies lack the skills they need. Notwithstanding the effort of our government in voluntary retirements and freezing recruitment, the effect on a large workforce delivering out-dated services is still minimal.

The article proposes five ways to re-organize and re-design public organizations. It claims that the organizational-design ideas can help reduce managerial complications and focus staff on doing the right things in the most efficient way.

1. Strengthen the top team

The problem starts at the top level. The first reorganization is the strengthening of the top team by making them work together and take responsibility for developing strategies, mission and objectives. A top team competing internally for resources is not effective. It is important to establish collective responsibility for issues, and in particular decisions about the allocation of resources. The top team needs to play its leadership role in setting and communicating priorities. This is something seriously lacking in our government. Our resource allocation mechanism induces short-sighted competition at the expense of long term goals. Members of the top team vying for their own interest has proven to create barriers, making cross-team cooperation difficult.

2. Separate the design and provision of services

The article advocates that the public sector's role should increasingly focus on the design of the system in the delivery of services, i.e. to be its architect, instead of being the end-to-end owner. On the actual provision of services, market forces can help stimulate accountability and performance. Some European governments have concluded that while they should continue to finance and specify the costs and levels of certain services, it may be appropriate for others to deliver them. Private companies, foundations, and public-private partnerships now compete with public-sector organizations for state funds to build and run hospitals, kindergartens, nursing homes, prisons, and schools. Our government also tries to move in this direction, though in a slow pace and with some difficulties.

3. Define the role of organizational centre

The role of the organizational centre, or headquarters, should be clearly defined. It should play a vital role in setting policy for the operational units and in directing their interaction. The authors note that headquarters of public organizations tend to be very large, often with huge budgets and staffs. Clarifying its distinctive roles is liberating for management and staff alike because everyone can focus on the most appropriate activities. The most effective way to redesign a head office is to retain only "shaping" and "safeguarding" activities.

This proposal leads me to think about the setting of our government, where bureaux are often criticized of having blurred responsibilities of politics and policies, and at the same time, trespassing on the operations of departments. A more effective and efficient structure for the bureaux is to turn them into purely political centres staffed only by politically appointed heads and deputy heads. All civil servants, including permanent secretaries, should work in departments. Departments should play the role of policy setting and safeguarding at the headquarters level, while the responsibility for provision of services should be delegated to operational divisions. The nucleus of the government comprising bureaux should only support the top political layer in the political arena. This would allow them to direct their full attention to political accountability, while departments would focus on doing the right things and doing them effectively in the provision of public services.

4. Integrate performance management

This is two-fold, both the performance management of the organizations and their staff. The Efficiency Unit has tried a system to monitor the performance of organizations in terms of key results areas and activities, i.e. not just financial performance. Such attempt died a natural death. I think the intention is very good but it does not have the whole-hearted support of bureaux and departments. Furthermore, a quantitative performance management system is not suitable for the public sector. The article's proposal that performance metrics should be simplified and each top public officer should be accountable to a few of the metrics is a good approach.

The major difference between managing performance in the public and private sectors is that bonuses are more common in the latter. Some suggests that performance-related bonuses aren't particularly effective in the public sector, partly because it can't afford to make them high enough to provide a real incentive. However, the authors suggest that performance-management systems can motivate employees even without a financial "carrot", for example, by identifying top performers, who can then get more interesting career opportunities. Furthermore, merely discussing performance can motivate employees by showing them that what they do matters.

5. Learn new skills

All successful organizations require managers and frontline staff to 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," organizations should concentrate on helping people develop the skills they need to increase their accountability and focus. This is a very valid observation, and is especially relevant to the EO Grade. In this fast changing world, new knowledge is required for new tasks. But in the stable civil service with good job security, we cannot easily refresh our knowledge and skills by introducing them externally at a fast pace. We need to continuously professionalize the Grade by professionalizing members of the grade. The criticism of "everybody gets to go on a training course" is really a hit on the nail head. We need structured training development plan for individual officers with the target of meeting the need of the Grade and more importantly the career of the officers. We need to have the vision of the way ahead instead of getting everyone trained on all fronts.

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