UK: Private virtues of public service.

UK: Private virtues of public service. - The one-way traffic of ideas from business to the public sector has started to reverse its flow.

by Nick Hasell.
Last Updated: 31 Aug 2010

The one-way traffic of ideas from business to the public sector has started to reverse its flow.

"The trouble with the public sector", begins Elizabeth Symons, general secretary of the First Division Association (FDA) "is that we spend an awful lot of our time being obsessed with how the private sector is run. The private sector has no interest in us apart from the opportunities we provide to tender for work."

If it is a cynical view then Symons might well be forgiven her cynicism. Britain's half a million civil servants, of whom the FDA represents the most senior levels, are an increasingly beleaguered lot. For a start, their numbers have fallen by almost a quarter since the start of the '80s. More critically, their domain - and some say their ethos - has been substantially eroded by the advance of the private sector.

At the heart of these changes is a much-vaunted "quiet revolution" that, for a decade and more, has been sweeping rather noisily through the corridors of Whitehall. Layers of civil service management have been acquainted, sometimes rudely, with the rhetoric and imperatives of business. Costs have been vigorously cut, departments broken up into a series of agencies and the diktats of profitability, performance and service delivery given unprecedented importance. Now, in a further flush of reformist zeal, the work of 44,000 civil servants is to be "market-tested".

Under the programme announced last November by William Waldegrave, minister for public service and science, private firms are to be given the chance to bid for nearly £1.5 billion worth of central government work, ranging from nuclear weapon research to the macro-economic modelling currently undertaken by the Treasury. The initiative is notable for marking a fifty-fold increase in the value of contracted-out activities to the level that, as of October, they will account for one-tenth of the costs of government. Annual savings from the scheme are put at some 25%, even in the event of contracts being awarded to the existing staff. It is, says Waldegrave, one more step in bringing the marketplace "closer to the heart of government". Some, however, feel that the marketplace is already quite close enough. Critics point out that the public and private sectors are simply organised towards different ends, that the interests of their respective constituencies - the public and the individual shareholder - are invariably at odds. Stubbornly attempting to meld the two, they argue, will only endanger the core values upon which the public sector is based. At the same time there are those who welcome the introduction of market disciplines but question the relentless one-way traffic of ideas from private to public. Why, they ask, should the private sector have all the answers? Some have even gone as far as to suggest, somewhat heretically, that the public sector might teach business a thing or two.

Perhaps unsurprisingly, the scheme has most readily found advocates among its former employees. Howard Davies, for example, one-time head of the Audit Commission and now director-general of the CBI, has claimed that industry can learn from the public sector's ability to administer systems, its staff commitment and the sense of fairness that its management encourages. Sir Peter Middleton, deputy chairman of Barclays and former permanent secretary to the Treasury, has criticised the bank's recent reorganisation and compared it unfavourably with the clearer sense of strategy he found in the civil service.

Whatever the debate as to the organisational strengths of the public sector, there appears to be an emerging consensus as to the rigours of managing within it. Stephen Bampfylde, a director of executive search consultancy Saxton Bampfylde, is one of a seemingly growing number who believe that many of the most demanding appointments currently being made are those in the public sector. "The challenge of the tasks in some of the newly-created agencies are genuinely immense. Not only is there the enormous scale of the organisations concerned but, on top of all the usual complexities of management, you have those of using public money, being politically accountable and working for the public good. It's like playing a game on three dimensions instead of two."

Don Cruickshank, the first chief executive of the National Health Service in Scotland, is a relative newcomer to the game. He is also one of its greatest admirers. Cruickshank arrived in the post in 1989 after stints with McKinsey, Times Newspapers, Pearson and, latterly and perhaps most incongruously, as managing director of Richard Branson's Virgin Group. Predictably enough, his appointment was met with considerable wariness. The reception from the British Medical Association was notably cool, that from Labour's Scottish health spokesman - who described him as "an industry hatchet man and cost cutter" - more hostile. Here, it seems, was the new breed of imported public servant, one with an MBA and a sharp head for figures. "The image of the private sector, for better or for worse, is of a concern with efficiency and cost-cutting," observes Cruickshank. "It was a perfectly natural anxiety".

This, however, was not Cruickshank's first experience of public service. While still at Virgin he had served for three-and-a-half years as chairman of Wandsworth Health Authority. It was an experience he describes in terms of fascination. "I was intrigued by the difference,"

he recalls, "... by the short drive from Virgin, the media business, to the health authority across the river ... intrigued by whether I could bring skills acquired in the private sector to bear in a public organisation."

His current post, he readily admits, is something of an anomaly, part senior civil servant, part health service manager. Below him are 15 area health boards and a staff of 150,000. Above him is the Secretary of State for Scotland, who reports directly into the Cabinet. "It was this gap between the two that I was asked to fill," he explains. "Getting the combination to work was initially quite difficult."

At Virgin he was credited with restructuring a previously diverse organisation by focusing on core activities. Along the way he introduced regular board meetings, centralised head office functions, appointed a finance director and created a group treasury. At the NHS his reforms have been no less dramatic. "I arrived to find a finance department looking after £3.5 billion that didn't have a qualified accountant," he exclaims. True to type - and no doubt confirming the worst fears of his critics - he immediately appointed a finance director. A cadre of accountants swiftly followed. Once these were installed, he set about commissioning extensive research into what both patients and staff wanted from the health service. Its aim was to clarify the organisation's objectives and arrive at a shared set of values, in the process providing a suitable frame-work for delivering the Patient's Charter in Scotland. If anything, its findings only made him more aware of the complexities of his task.

"You soon come to appreciate that you're working in an organisation whose objectives are multifaceted. For a start, it's not so clear as in the private sector what the objectives are. And not only are there a large number of objectives but not all of them are capable of being quantified".

Such is the web commonly facing the public sector manager. The necessary skill, concludes Cruickshank philosophically, is "the capacity to tolerate ambiguity".

In his role as departmental "accounting officer" Cruickshank had also to learn the rigours of public scrutiny and accountability. At the apex of this system is the Public Accounts Committee (PAC), the most fearsome of the parliamentary select committees. "You've got to answer questions," he explains. "If the PAC asks about standards in accident and emergency departments I'm expected to be able to say what they are and what I'm doing about any shortfalls. To have to do that in public and in front of television cameras is a lot more demanding than anything you'd go through in the private sector."

Through his experience in the NHS Cruickshank has come to subscribe to the tenets of quality management. "It's largely true that the same processes that increase quality are often also those that reduce costs. For the most part it's a question of all the staff associating more closely with the organisation." To this end Cruickshank increased the amount spent on internal communications. "You have to take into account the constant headlines proclaiming the failings of the NHS and the effect that has on morale," he explains. "It's a real constraint on someone trying to change the culture. You have to get across the progress that's being made." He had also to contend with the public sector's comparatively low level of pay. "At present there are difficulties in rewarding people appropriately and an over-reliance on those committed to the idea of public service".

Cruickshank also speaks as one whose current salary is around one-quarter of what he earned at Virgin. He predicts, however, that the increasing devolution of decision-making power within the NHS, the opportunities offered by the new trusts and a greater attention to management development will steadily attract more people into the service. There are also signs that the salary differentials are gradually narrowing as the Government's policy of paying executives at a level sufficient to "recruit and retain" begins to take effect. Cruickshank, meanwhile, is quick to draw a parallel between the demands of managing in the newly-re-shaped public sector and the skills necessary in a private sector that increasingly looks beyond the balance sheet towards issues of ethics and corporate responsibility. "If you want someone who is able to reconcile a whole range of different objectives then go to a public sector manager to help you," he asserts. "That's what they've been doing all their life."

While there are managers like Cruickshank who come into the public sector on the premise of instituting change, there are more commonly those who have change thrust upon them. Indeed, many observers claim that public sector organisations often provide object lessons in change management to the extent in which they are routinely forced to adapt to different conditions.

Among them is Elizabeth Mellon, an assistant professor at London Business School (LBS) and former private secretary at the DTI. "One of the great strengths typically found in the public sector is that of managing in conditions of uncertainty," she explains. "While a manager in the private sector can quite justifiably say that they're subject to the vagaries of the market, those in the public sector face political sideswipes day in, day out. Not every five years with a change of government, or even with a change of minister, but every day. As a result they're extremely resilient."

Mellon might have had in mind the Board of HM Customs and Excise, which, next to the Treasury, is the most ancient of government departments. Few periods in its 300-year history, however, can compare with the succession of changes it has had to undergo in the past few years. Since 1989 several thousand staff have been relocated, the work of the department has been broken up into 30 executive units and run along the lines of a Next Steps agency, the entire administrative base has been restructured in response to the single market and now £53 million-worth of its work is to be market tested. It is what departing chairman Sir Brian Unwin laconically describes as "a series of quite major challenges". By far the greatest of these has been managing the negotiated withdrawal from European border controls to produce a customs-free trading zone. Though Unwin admits it is "far from a seamless web" he has won praise for the way in which he has shaped the department. Staff previously used for frontier policing have been re-trained and moved inland to work on VAT administration. Those that remain have shifted duties from inspection to intelligence gathering. Overall, Customs and Excise has responded with an agility that belies the popular image of a vast, lumbering bureaucracy. Unwin is also acutely aware that major organisational change has come at a time of public sector wage restraint. "One-and-a half-per-cent is not exactly calculated to raise morale," he observes.

In many ways the virtues of the public sector are very much in vogue. Companies are now urged to be responsive to change, service-driven and based on clear values. And it is the latter, say some, that most clearly mark it out as a model for others. As LBS's Elizabeth Mellon observes, "In terms of the value base that they hold, the public sector organisations are unrivalled. In this respect they will be businesses of the future."

For reprints of this article, contact Anne Oakley (071) 413 4336.

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