Why are public sector efficiency savings so hard? (Part 3 – The politics)

This is the third of a series of posts. Part 1 discussed public sector processes and how difficult it can be to make them more efficient. Part 2 looked at the organisational factors which often act as obstacles to change. The picture would not be complete, though, without looking at the wider political and social context in which public sector organisations operate.

Of course, all organisations are affected by social and political factors but in the public sector, their impact is more immediate. Most obviously, changes in policy, brought about by political decisions, have to be implemented by public bodies. But the layering of big P politics on top of the small p management politics only exacerbates the ambiguities discussed in Monday’s post. In the NHS, especially, a string of government initiatives and re-organisations have eaten up resources and reduced performance levels without delivering any clear benefits.

Our political culture puts pressure on politicians to intervene. Every time a media storm leads to cries of ‘something must be done’ the something usually has to be done by public servants. For example, the measures taken after the  after the deaths of two children, Victoria Climbié and Peter Connelly, loaded massive costs onto local authorities, disrupted and destabilised services while achieving very little. When the politicians feel under pressure to intervene, costs inevitably rise.

But, even without direct government interference, the wider political climate also makes it more difficult for public sector organisations to save costs. In some sections of the media it is open season on the public sector. Such is the visceral nature of the debate that managers dare not move for fear of being subjected to accusations of ‘wasting taxpayers money’. As Esther Harris explained last summer, this leads to some perverse decisions which actually increase costs. Executives fear that investing £300k to save £10m, or even £10k to save £100k will lead to them getting beaten up for ‘profligacy’. They would therefore sooner watch their costs gradually creep up than invest money now to stop them increasing.

This toxic atmosphere has affected the way subjects are discussed in public sector organisations. Some topics have simply become undiscussable.

For example, a couple of years ago I was discussing mergers with a senior public sector manager. Drawing on my experience of private sector mergers I rattled off the dos and don’ts, interspersed with anecdotes about foul-ups I have seen in the past. The conversation continued:

“Of course you have to build the post merger performance dip into your calculations.”

“Oh, we can’t say that.”

“Well there will be a performance dip because there always is. During mergers, people devote their energy to establishing and consolidating their new positions. Even in the most commercial organisations, performance takes a knock after a merger.”

“I’m sure you are right but we can’t say that. It’s politically unacceptable to talk about performance dips.”

The organisation would therefore be unable to commit a significant part of its pre-merger planning to paper. It would have to carry on as if there would be no performance dip, then muddle through the inevitable problems this would cause.

This fear of political fallout has had an insidious effect on the culture of some public sector organisations. They operate in what I have called the ‘as-if world’. So we carry on with our merger as if all the things that have obstructed every other organisation will not happen here. As Susan Scott said, when facts are inconvenient, we often pretend not to know them. As the political penalty for saying unpalatable things becomes greater, managers retreat into the ‘as-if world’.

The effects of the as-if world can be seen at their most sharpest in some of the big public sector IT programmes. Many organisations use the traffic-light system for monitoring projects. It is not uncommon for projects to be at green for months then suddenly go red just before the end, having missed out amber altogether. This is often because the project team has chosen to ignore something significant but inconvenient and run the project as if it doesn’t exist. Eventually, reality overwhelms them and it becomes impossible to disguise the fact that the project is behind schedule and over-budget. This report on the Department for Transport’s costly IT failure describes such a scenario:

Two months after the project started, the Department knew that the initial assumptions were incorrect but did not deviate from its timetable.

Instead, they carried on as if the assumptions were correct. Completely irrational yet not untypical. The as-if world is deeply entrenched in many public sector organisations. It’s not because the people who work in these organisations are stupid; it’s because the penalties for saying things that are politically unacceptable are so high.

So much for the toxic effect of politics then. Let’s turn finally to the social context. As I noted in Part 1, because services are free at the point of consumption, demand equals cost for the public sector. Social and environmental factors such as immigration, obesity, unemployment, climate change and a population that is both increasing and aging, all fuel the demand for public services. Last year, the King’s Fund calculated that the NHS would need annual real-terms increases of 1.2 percent just to stand still. The 2020 Trust and Ernst & Young predict that current patterns of social demand will push public spending to over 50 percent of GDP by 2028. They also noted that, even as government spending is being cut, public expectations of services are rising inexorably, with wider use of technology and a better informed population helping to fuel demand.

If public services suffer from failure demand they also suffer from success demand. Every time a public organisation does something well it means that more people want it. Nowhere is this more true than in the NHS. Let’s say that eminent consultant Mr Bloggs introduces a groundbreaking new treatment. This morning he is on the sofa talking about it to Sian and Bill. By tomorrow morning hundreds of people will be demanding this treatment at several thousand pounds a go. Because demand equals cost, public sector organisations that do things well can be victims of their own success.

There are, then, political and social pressures which are pushing up the cost of public services. Public sector managers are not simply attempting to reduce costs in steady-state organisations; they are trying to do so while powerful social and political forces are pushing in the opposite direction. Against a strong current, even the best swimmers will struggle.

Making public sector processes more efficient is difficult enough but organisational, political and social factors make it even more so. Private sector organisations have to deal with similar obstacles too but not at the same level of complexity and rarely all at the same time.

The intention behind these posts is not to make excuses for people. In many cases, public sector leaders could and should have done more sooner to reduce the costs of their services. It’s not to play the role of Private Frazer either. Public sector efficiency projects are not doomed from the start; despite the potential pitfalls and hard work involved, some people do succeed.

But pretending that cost reduction is easy flies in the face of all the evidence. Improving productivity in any organisation is hard work. In the public sector it is made additionally hard by all the forces ranged against it. If we continue to discuss public sector cost reduction in an ‘as-if world’ we will get nowhere. If we act as if we can solve the problem by outsourcing back office services, as if people who have never downsized an organisation can learn to do it overnight, as if we can just make people work harder, as if getting a few private sector trouble-shooters in will slash costs or as if a huge re-organisation and a change in the way things are bought and paid for will make things cheaper, then public sector reform programmes will stall. No matter how hard you try to ignore it, reality, with all its messy complexity, eventually bites.

We know what happens when we work in an ‘as-if world’; projects end up going red. If we pretend not to know inconvenient truths and carry on regardless, public sector efficiency savings will be as elusive as ever.

Unless we are prepared to fork out the taxes for a state that spends 52% of GDP, the state will have to get a lot cheaper or stop doing many of the things we now take for granted. Without significant efficiency and productivity improvements, many of our public services will simply collapse. We need the efficiency savings now more than ever but they will not come easily. Anyone who thinks otherwise is firmly in the ‘as-if world’.

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2 Responses to Why are public sector efficiency savings so hard? (Part 3 – The politics)

  1. Pingback: Why are public sector efficiency savings so hard? (Part 3 – The politics) - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Pingback: More than Flip Chart Fairy Tales « arbitrary constant

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