NHS reforms are killing efficiency savings say MPs

The Commons Health Committee has confirmed what many of us predicted over a year ago; that the turmoil of the NHS restructure will kill off all hope of achieving the 4 percent annual efficiency savings demanded by the Nicholson Challenge. Its conclusion:

The reorganisation process continues to complicate the push for efficiency gains. Although it may have facilitated savings in some cases, we heard that it more often creates disruption and distraction that hinders the ability of organisations to consider truly effective ways of reforming service delivery and releasing savings.

Any major corporate upheaval leads to a performance dip, at least in the short-term. A couple of weeks ago, I came across this Roffey Park paper on the psychological contract during corporate transition. It is based on research from private sector mergers but it is equally applicable to public sector reorganisations on the scale of the NHS reforms. Andrew Lansley’s proposals will have many of the same characteristics as a corporate merger. NHS trusts are often as different from each other culturally as private companies in the same sector are. After the reforms, people will be working for new types of organisation, some of which may, eventually, not be part of the NHS at all. The sense of disruption and dislocation will be every bit as acute.

The Roffey Park paper is an interesting read anyway but Chapter 2, on the impact of mergers, is especially relevant.

People start to focus on personal issues such as whether they will have a job, where it will be, who they will work with and who will manage them. Inevitably workload increases and the balance of expectations starts to tilt unfavourably. Staff start to pick up on injustice and imbalance and attribute blame. They also compare how people are treated and watch for signs or symbols of what will be valued in the new organisation. In the language of psychological contract violation, they enter a period of ‘vigilance’.

Inevitably, therefore, some of them start to look for an escape route:

The frequently documented performance dip post merger is often attributed to bedding in new structures but Roffey Park’s prior research suggests that it is at least as much due to people dusting off CVs, applying for jobs and attending interviews. While employees are re- evaluating their own future, the share price is starting to slide.

And, of course, the people who are most likely to be able to find another job are usually the ones an organisation can least afford to lose.

Don’t forget that managers suffer from all this too, so we have worried managers trying to restructure an organisation while, at the same time, trying to manage worried staff. Is it any wonder that, when most of the organisational energy goes into managing a restructure, there is precious little left for finding and implementing efficiency savings? As the Chief Executive of one of the largest PCTs warned in December 2010, “All of us are looking inwards.” Which is what happens during major changes in any organisation. People worry about themselves so the restructure takes priority over everything else.

Many people warned the government that the far-reaching restructure was incompatible with rapid efficiency savings; the Financial Times, Manchester Business School and the right-of-centre think tank Civitas, to name a few. The Commons Health Committee’s findings suggest that they were right.

When it came to power, the government said that its priority was to reduce the public deficit by making public services more efficient. Whatever else may be claimed about the Coalition’s NHS proposals, they clearly do not answer the exam question. They are not making the NHS more efficient. If anything, by diverting time, resources and energy into a pointless restructure, they are making it less efficient than it was two years ago.

Doubtless the NHS will save money over the next few years. It will have to if the government wants to meet its budget targets. Most probably, though, this will be by what one comment in the Commons report describes as “unsophisticated attempts to reduce costs.” Otherwise known as salami-slicing, or, to put it less politely, panic-stricken slash-and-burn.

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