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Tough love for a better future

    The 2015 Spending Review:
    cultural consequences

    1.         Shock and awe: essential

    The 2015 Spending Review requests that government departments set out plans for reductions to their Resource budgets.[1]  More specifically, they have been asked to model two scenarios, of 25% and 40% real term savings by 2019-20.

    At first sight the implications are breath-taking, but the large numbers arise because the cuts are concentrated on less than half of the public sector.  It excludes the protected departments, referred to as “core” public services: the NHS, Defence, and part of Education (schools funding on a per-pupil basis is protected).  The Official Development Assistance (ODA) is also protected (at 0.7% of Gross National Income).

    To be clear, the deficit has to be eliminated, not least to arrest the growth in the debt burden being bestowed on subsequent generations.  But the sanctity of the protected departments should be challenged, not least because health, education and defence are not bastions of efficiency.  Perhaps this would be the ultimate test in political leadership?

    2.         Cultural change required

    The rise and fall of nations is not determined by financial muscle, military might, technical expertise, climatic advantage or even natural resources.  Culture (moral values and behaviours) is the decisive influencing factor on progress.[2] 

    If the Chancellor is to meet his target of a balanced budget by 2019-20, kick-starting cultural change across the public sector is an essential pre-requisite.  This, rather than reform programmes imposed top-down, will lead to a more effective delivery of public services.[3]  This demands a revolution, elements of which are identified within the Spending Review, notably the promotion of innovation and greater collaboration in public services, along with more choice and competition. 

    Achieving cultural change requires a shift in the assumptions that guide behaviour, in respect of what each individual can and cannot do, and what is expected of them.  As assumptions change, individuals will develop a sense of empowerment and liberation, leading to behavioural change.  A role for management is to ensure that this cascades throughout their organisation.  Cultural change cannot be imposed.  To be self-sustaining, it has to come from within, shaped and owned by the workforce itself.  Herein lies opportunity.  

    3.         Innovation is key 

    Innovation can produce step increases in productivity, leading to the transformational, rather than incremental, improvements in service quality and cost reduction.  Unfortunately, fear of failure is a primary driver of public sector behaviour: this stymies innovation as it can be seen as too risky.  Consequently it can be very difficult to encourage the necessary risk taking for experimentation, a hesitancy reinforced by the need to take funds from the front line to finance innovative initiatives.

    4.         Implementing change

    4.1       Some tips from the top

    Many years ago the author met up with a former Cabinet Secretary to glean some tips as to how to effect change within the public sector.  The following points emerged.

    (i)         Get the data prior to making decisions: what gets measured get managed.

    (ii)        Get commitment from the very top.  It is all too easy for senior civil servants to “put their head down” and carry on as normal until the drive for reform blows over.  The only way to avoid this tendency is to make clear the drive comes from the very top.  Those not committed to reform should be encouraged to leave.

    (iii)       Strong leadership is required.  Have project leaders whose career depends on success; make them accountable and give them responsibility with decision making powers to match: i.e. let managers manage.  They should be liberated to get on with their jobs, empowered with a genuine ability to manage, free to use their common sense, innovate and take risks.  Good performers should be rewarded well and poor performers exposed to the kind of sanctions that are the norm in the private sector. 

    (iv)       Maintain consistency.  It takes time to reform large, inertial organisations, akin to turning a super-tanker around.

    (v)        Get the politicians hooked on success.  They should be persuaded to announce their plans and targets and then be held to account.  Ideally, the Cabinet should retain a serious and on-going interest in public sector effectiveness so that Permanent Secretaries believe that they are continuously being scrutinised.  A collaborative relationship between politicians and civil servants is key for effective government; it is a prerequisite for establishing a culture of change.

    (vi)       Cut off the lines of retreat to the bad old ways.  Ensure that changes in governance, structure and process are irreversible by changing the entire infrastructure, right down to how the filing is done.

    (vii)      Communicate.  Make it clear to staff where they fit into the new vision and let them know the reasoning behind the reforms.  This should help avoid resistance and encourage staff to buy in to the reform agenda.  Communication does, however, work both ways: listen to staff, and show that you appreciate them.  Use natural wastage (10%) and voluntary redundancy to reduce fear of job-cuts and resistance to idea of reform.  And, across government, wouldn’t it be wonderful if no one cared who took the credit, because then there would be no limit to what could be achieved?[4] 

    (viii)     Simplify; swim against the tide of desire to complicate.

    (ix)       Keep up the momentum.  As with all big reform drives, there will be setbacks; the important thing is to keep moving with the reform until it is complete.  It is all too easy to give in at the first sign of difficulty, but half-completed reform is usually worse than the status quo.

    (x)        Know when to bring the project to an end; the law of diminishing returns is out there.

    4.2       A few more guidelines (rules?)

    (xi)       Do not obsess with structures; eschew structural reorganisation.  The public sector has been, over the years, inundated with dramatic “top down” imperatives to change structure, process and governance.  They have not yielded the desired step changes in effectiveness.  Public servants inevitably become cynical when yet another reorganisation is announced, and it provides an excuse for a lengthy period of inactivity during implementation.

    (xii)      Embrace mavericks.  People should be encouraged to deliver evidence-based, politically unpalatable Home Truths without fear of retribution.  This typically requires “disruptive talents”, tenacious, independently minded individuals who think and act differently, innovate, challenge conventional wisdom and spot trends.  There are relatively few such people within the public sector.

    (xiii)     Politicians should acknowledge that the public sector cannot choose its customer base.  Unlike the private sector, the benefits of the 80:20 rule are not available: the most demanding (i.e. expensive) 20% cannot be ignored (unless rationing were introduced).[5]  This restricts the ability to apply some private sector techniques used to improve effectiveness.  In addition, artificial market disciplines should not be imposed where there are no real markets.

    (xiv)     Work with the media.  The media is potentially a majorbarrier to implementing change.  It has a habit of feeding in the trough of the aggrieved, focusing on negative stories found in the last 20% of the “customer experience”.  In addition, most people do not like change; in the workplace, for example, 65% of people naturally resist it, and within the public sector this figure is higher. 

    (xv)      Be realistic.  Public sector reform is notoriously hard to achieve in practice.  The scale, complexity and diversity of the public sector means that it often absorbs reform programmes with little result.  Indeed, attempting public sector reform has spawned much frustration, and probably some premature deaths.

    5.         Conclusion

    Britain has been living beyond its means for far too long.  A growing sovereign debt burden (personal debt too), combined with an ageing population and a deteriorating dependency ratio[6], leaves the Chancellor with no choice but to confront the deficit.  

    Government is in the business of catalysing change, ideally seeking better economic and social outcomes for society by enhancing our position vis-à-vis competitor nations.  But when it comes to implementation, ministers should unleash the talent and professionalism that can be found throughout the public sector.  They should take the brakes off by getting out of the way and giving more discretion to those public servants who have earned it.  Ministers should help steer the boat, not row it. 

    In parallel the Government should conduct a fundamental reappraisal of the role of the state, including identifying what it should not be doing.  The Chancellor has rightly initiated this debate.

    [1] HM Treasury; A country that lives within its means. Spending Review 2015, July 2015.

    [2] David Landes, former professor of economics and of history, Harvard University.

    [3] Although the Spending Review makes 19 references to “efficiency”, “effectiveness” is preferred.  Improved effectiveness implies delivering better services at lower cost, whereas the pursuit of efficiency gains entails offering the same services at lower cost.  Indeed, “efficiency” is often interpreted as a euphemism for “cuts”.

    [4]  "It is amazing what you can accomplish if you do not care who gets the credit."  Harry S. Truman.

    [5] Ref. the Pareto Curve

    [6] Fewer workers to support dependents (children and the retired).

    Michael trained with JP Morgan in New York and, after 21 years in investment banking, joined Towers Watson, the actuarial consultants. Subsequently he was responsible for the running of David Cameron’s Economic Competitiveness Policy Group.

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