Will innovation deliver better and cheaper public services?

Patrick Butler asks whether the drastic spending cuts to come will be a catalyst for innovation in the public sector. As MIT’s Michael Schrage argues in the Harvard Business Review:

The surest, albeit not the nicest, way to shock teams into revisiting their innovation roots is by ruthlessly annihilating their existing relationship with money.

Annihilating their relationship with money – I can’t wait for an opportunity to use that one!

Could a bit (well, quite a lot actually) of shock and awe be just what public sector managers need to unlock their potential for innovation and creativity?

If that sounds unlikely, there is a precedent of sorts. In the late 80s and early 90s I was an HR manager in a local authority, during the period when Compulsory Competitive Tendering (CCT) forced local authorities to open up their services to competition. The conventional wisdom was that the time-serving, paper-pushing jobsworths in local government would be out-performed and out-priced by the private sector and that, within a few years, most local services would be privatised.

But that’s not what happened. True, some local council operations did lose their contracts to private bidders but many competed successfully and retained them. Not only that, some went on to win contracts to supply other public sector services and even to bid for work in the private sector. I remember one parks team winning work to maintain golf courses. At one point, I even started selling spare places on training courses to local businesses. 

The Conservative government hadn’t intended CCT to be a catalyst for the formation of council-owned businesses and eventually it put a stop to some of these wilder antics. Nevertheless during this period, many local government officers discovered a commercial streak that they didn’t know they had. Some went on to lead management buyouts and become successful business leaders during the late 90s.

As the Joseph Rowntree Foundation concluded in 1995:

[CCT] propelled authorities into a period of far-reaching change in management processes, manager behaviour and organisational culture.

But also that:

…these changes would not have come about had local authorities not been compelled by law to submit defined services to compulsory competition under strict conditions.

So public sector managers were forced to make far-reaching changes but, once they had accepted the reality, many of them rose to the challenge, not merely surviving but excelling in their new business environment. A bit of a shock did eventually change behaviour and attitudes.

It’s worth mentioning too that this all took place during a recession and two years of real-terms public spending cuts.

It’s there, though, that the similarities end.

CCT, while it was a huge culture change for local authorities, was relatively straightforward. The employees affected were usually experts in their field. All we had to do was teach them commercial skills like financial management, pricing and marketing. The task was very simple. Compete against Fred Blogg’s Building Maintenance or XYZ IT services and beat them on cost and quality. Once people understood that and gained the confidence to believe they could do it, the rest happened remarkably quickly. 

Both the and volume and the complexity of the change that will be needed over the next few years is on a different scale. Competing against a private company is one thing, managing to an impossible budget is quite another. It may be that there are some services that just can’t be delivered for the sums left in the government coffers – by any sector, public, private or voluntary.

The advocates of innovation don’t seem all that clear either. I keep reading that the financial crisis has given us an opportunity to redesign the way we deliver public services – or something like that. The RSA’s 2020 Trust, NESTA’s Radical Efficiency, and Total Place share many of the same themes: devolution, localism, building relationships with citizens, transparency, empowerment, new technology, collaboration. The language may differ sightly but the same elements cropped in the last administration’s Smarter Government report and the Conservatives’ concept of the Big Society. Both were very much in tune with the zeitgeist.

Although individual examples can be found to illustrate how some of these approaches might work, how you would apply them on a grand scale is far from clear. The general idea seems to be that if you make things transparent, give people information, build relationships, devolve power, collaborate, lob in a bit of web 2.0 technology and shake all the ingredients about, cheaper and better public services will emerge from the pot.

OK, perhaps I’m being a bit cynical but the scale of such innovation is way more complex and requires a far greater cultural shift than anything the public sector has experienced before – including CCT.

As the recent Local Government Workforce Strategy points out, even the collaboration on procurement and service delivery required by the Total Place initiatives runs counter to the prevailing culture:

Partnership and integrated working encouraged by the ‘Total Place’ approach, has major implications for the workforce involved. If these approaches are to be successful, many people in the workforce need to adopt new attitudes, take on new roles, and behave differently. Well established professional disciplines and practices will need to be reviewed and updated.

Challenging issues need to be addressed to bring together different organisational cultures and different performance management regimes, and to address any terms and conditions issues. Pooled budgets will raise issues about who employs the staff involved, and the need for careful working through of any staff transfer arrangements.

That’s a polite way of saying that there will be turf wars. As Edgar Schien told us, organisational culture rests on shared beliefs and assumptions. Shifting from a culture where status is determined by the size of a manager’s budget to one that shares, collaborates, operates across boundaries and gives away power requires a major shift in deeply rooted beliefs and assumptions.

Although Compulsory Competitive Tendering required a change in attitudes and behaviour, it still took place within a traditional command and control organisational framework. Service providers went from being hierarchical council departments to being hierarchical commercial operations. The sort of changes that NESTA and the 2020 Trust are advocating would require a major re-definition of public sector organisations. Just to bring about the necessary shift in assumptions and attitudes would require a hefty investment in development and training.

Which brings me to the other difference between now and 1990. Although public spending was tight, we still had money to invest in training and in bringing in external expertise, which meant that we were able to develop managers’ commercial skills relatively quickly. Today, with a recruitment freeze, bans on consultancy spending and the raiding of training budgets, I can’t see where the resources to make that shift will come from.

Like Patrick, I am sceptical about the level and speed of innovation that can be achieved in the public sector. However, that is not a reason to dismiss the idea out of hand. If the public sector is to maintain anything like the level of services we have become used to, it will have to do something radically different, and fast. There are certainly inefficiencies in the public sector and there are surely more effective ways of doing things. It should be possible to avoid a 25% cut in spending translating to a 25% cut in public services.

The worst outcome of these cuts would be a public sector that is 25% smaller but still just as inefficient. Actually, no, the worst outcome would be a public sector that is 25% smaller but even more inefficient, but let’s not go there, eh?

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5 Responses to Will innovation deliver better and cheaper public services?

  1. Pingback: Will innovation deliver better and cheaper public services? - Rick - HR Space

  2. In an otherwise excellent post, I fear you miss the opportunity to reflect on two things:
    1. It is quite likely that ‘innovation’ will increasingly come to be defined as (and measured as if it were) exactly the same thing as cost cutting.

    2. CCT – and subsequently Best Value – may have brought out the previously hidden entrepreneurial talents of the public sector – well they might have, if you squint very hard at the results from a certain angle. But they also created a huge and mainly unnecessary burden of constant engagement in procurement exercises which now is the major source of waste and bureaucracy in both the public and the voluntary sectors.

  3. Rick says:

    I don’t dispute either of those points Charlie.

    Yes, procurement processes have certainly become more bureaucratic since the 90s to the point where any benefits from opeining up services to competition are vanishing under the costs of the procurment apperatus.

    The innovation and cost-cutting question is an interesting one. Some of the ‘innovative’ solutions suggested might actually cost more. Sally Gainsbury makes that point in the HSJ this week. She reckons devolving NHS commissioning budgets to GPs could cost £1.2bn. http://tinyurl.com/34kv9bu (Google the headline and it gets you round the pay-wall.)

  4. Simon says:

    You make the assumption that the State (including local Government) has to do what it does now but with less money. Perhaps this time the realisation will be that we don’t need all those services?

    Allied to that is the assumption that the “voluntary sector” is really the state controlling people are willing to give up their own time and resources. Perhaps we could have a return to a true voluntary sector that isn’t controlled by the state. An end to fake charities would be a start.

  5. Rick says:

    Simon, I don’t make that assumption at all. It is almost certain that the state will have to stop doing some of the things it currently does – or at least to the extent and depth that it currently does.

    I don’t understand your second paragraph but I’m not making any assumptions about the voluntary sector’s capacity to deliver either.

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