Memorandum by the Institute of Management
1.1 The Institute of Management welcomes
the opportunity to submit written evidence to the Committee as
part of its inquiry into Public Service Reform.
1.2 As you will be aware, the Institute
of Management (IM), is the largest organisation for professional
management in the UK, representing 89,000 individual members,
of whom at least 20,000 are working in the public sector, and
520 corporate members.
1.3 As set out in our Managers' Manifesto
Managing UK plc - An Agenda for Success (2001), the IM believes
there still needs to be a step change in the quality and responsiveness
of public services and greater freedom for public enterprise and
innovation. The commitment to publicly funded core services is
fully compatible with scope for greater diversity of providers,
including partnerships between public, private and voluntary sectors.
Management best practice must be shared among all sectors to increase
the efficiency and quality of the public services.
1.4 The IM's in-depth research and regular
policy surveys reflect the views of managers and leaders working
in all sectors in the UK. The IM's research reports are not usually
sector-specific but address leading management problems common
across all organisations, and therefore can provide interesting
comparison of the performance of different sectors.
1.5 The IM's latest research report "Leadership:
the challenge for all?" (published 4 December 2001), showed
clearly that the quality of leadership in UK organisations did
not receive high ratings. Over a third of all managers, and almost
half of junior managers, rate the quality of leadership in their
organisations as poor. Public sector leadership received the lowest
rating of all sectors. This is clearly an area that must be addressed
by the Committee. Other recent research reports have also revealed
some insightful findings on managerial attitudes in the public
sector, which are relevant to the questions raised in this inquiry.
1.6 Further research into public service
reform is planned for 2002, using the IM's Management Leaders
Panel. This Panel comprises over 160 leaders from all sectors
and who are able to exchange their views on management best practice
and thinking. This research will particularly focus on performance
management in the public sector, and should provide further relevant
findings for the final stages of this committee's inquiry.
1.7 For this first stage of the inquiry,
we held a small policy forum of members of the IM's Management
Leaders Panel and its Policy Advisers Network, and the responses
reflect the aggregate views of these members along with written
submissions, together with various insights from relevant IM research
1.8 In our response below, we have directly
addressed only the first cohort of questions posed in the Committee's
terms of reference for this inquiry, dated October 2001.
2. WHAT CHARACTERISES
Is there a public service ethos, and how can
it be defined? Is the concept of a public service ethos an anachronism?
How is a public service ethos different from the private (or voluntary)
sector ethos? (Questions 6, 7 and 8)
2.1 The "ethos", visions, aims
and objectives of the public services are diverse and diffuse,
and vary from department to department, agency to agency and between
the various organisations that deliver different public services.
A key differentiating factor within the public sector is whether
an organisation is delivering services direct to the public or
is providing policy or other services to the government.
2.2 It was generally felt that a "public
service ethos" is about a commitment to providing a service
for the public good, rather than for personal gain. However, the
emphasis in recent years on the importance of financial reward,
has blurred many of the traditional distinctions.
2.3 The whole distinction between what motivates
those working in the private sector and public sector is often
greatly overplayed. Indeed, recent research carried out by the
Institute of Management has shown that the motivations of public
sector managers are similar to that of their private sector equivalents
(see Question 9 below on motivation).
2.4 Key distinguishing characteristics of
the public service include:
The public sector has no freedom
of choice in the services it provides for the public, whereas
the private sector is subject to competition and only needs to
provide services where it is economic to do so. Equality of provision
is a dominant theme in the public sector that affects the private
The public sector is often serving
two masters: a political one and a functional one. In contrast,
the bottom-line and long-term sustainability are key objectives
for the private sector, although in reality day-to-day objectives
are much more diffuse and complex, as organisations need to satisfy
all their stakeholders to ensure survival. However, the private
sector is likely to have clearer lines of authority and a single
master, even if working with a flattened structure of a matrix
approach to management.
A key difference is the connection
between reaching targets and the ability to generate resources.
In the public services sector, resource allocation often depends
on spending levels and political priorities, whereas in the private
sector resources are usually only curtailed by the need to make
The relationship between risk and
reward also generates significant differences. In the private
sector, there is a considerably less risk averse culture than
in the public sector. This is because the rewards for success
are greater, and the punishments for failure are less harsh. This
stems, in part, from the differences in accountability. It is
only recently that government has started concentrating on outcomes
and achievements rather than inputs (i.e. time, money etc spent)
or outputs (i.e. number of reports produced), and this culture
is still not widely embedded.
2.5 Although there are some identifiable
differences between the public and private sector, the IM believes
that any single definition of a "public service ethos"
does not sufficiently cover the diversity of organisations in
the public sector. There may be small elements that are common
to all, but how much is there likely to be in common between the
"ethos" of an SAS soldier in Afghanistan, a filing clerk
in the Land Registry and a nurse on a geriatric ward?
3. IS A
3.1 The key differences outlined above have
several implications for service delivery:
Standards vary in all sectors from
the very good to the very bad - but in the private sector the
bad will go out of business, in the public sector they continue
to provide the same old services in the same old way.
Competition and choice has been a
spur for continuous improvement in business, particularly in the
last decade or so, whereas the public sector has mostly enjoyed
the benefits of being a monopoly supplier and a growing monopoly.
Charter Mark has been an attempt to raise standards through competition,
but it is optional and, therefore, limited, because those who
need it most are least likely to use it. So the public sector
has some need of the greater innovation business can bring.
Career development drivers in business
are more about achieving targets and results. There is anecdotal
evidence that in Government, particularly the Civil Service, it
is often felt that career success depends on writing clever policy
There are problems of measurement,
because if outcomes are not measured in a meaningful way, the
wrong attributes can be focused on.
4. WOULD THE
4.1 This would not be a welcome idea. It
was felt that any new "super" public service would be
made up of diverse bodies that would for a long time retain their
own culture and ethos. This has been seen in the difficulties
that many private sector businesses have had with takeovers and
mergers, and that is on a much smaller scale.
4.2 However, there should be a strong service
ethos throughout the public services. This could be more effectively
achieved with a single public service culture, with a joined-up
approach to service delivery and greater cross-fertilisation of
staff and ideas between different arms of government.
5. IS IT
11 AND 12)
5.1 None of the distinguishing factors of
the public service ethos as outlined above rule out the role of
the private sector in delivering public services, although they
do affect the nature of the contractual arrangements.
5.2 A clear distinction should be made between
the privatisation of public services and private sector involvement
in the delivery of public services. In the case of privatisation,
the public sector relinquishes control of that service to a private
body which takes over ownership. However, in partnerships or where
services are contracted out, the public sector remains firmly
in control of the service. The public sector sets the standards,
determines how a service will be performed and ultimately can
terminate the contract and take the service back in-house. It
also determines the ethos of the service.
5.3 Business involvement with public service
delivery is simpler and more mature where it is about direct service
contracts. More complex partnership arrangements, with risk sharing,
are much more difficult to effect and are currently immature.
5.4 It is clear in many cases that the public
sector needs to become a more sophisticated client, with more
effective and more consistent procurement processes and a clearer
idea of the transformation in services it seeks to achieve. The
Government and the public and private sectors should all work
together to develop more transparent forms of governance and accountability
models for public-private partnerships (PPPs), which strengthen
democratic accountability while protecting commercial accountability.
5.5 Many private sector and voluntary sector
organisations currently partnering the public sector have a very
strong service ethos and demonstrate a clear commitment to public
service improvement. This ethos is reflected in the philosophy
of these companies or charities and in the experience of their
people. At the same time, the majority of employees and managers
employed in public service delivery want to be able to offer the
best possible services to their customers and want to be empowered
to do this.
5.6 High quality management and leadership
generate well-motivated and well-rewarded employees who are able
to deliver the public service reforms required.
5.7 Public services can be achieved through
the engagement of any type of organisation that has the right
values, capacity and competencies. This would become more apparent
if a clearer government framework, setting down standards and
accountabilities for all public services irrespective of
who provides and manages them was established.
6. CAN LESSONS
6.1 The IM is committed to supporting the
continual learning of all managers and leaders in all sectors.
Lessons can always be learnt from comparing best practice across
different sectors and countries.
6.2 One suggestion was that there are possible
lessons to be learnt from the different attitude to public borrowing
among the UK's fellow EU members. One of the major reasons for
the invention of the Private Finance Initiative appeared to stem
from HM Treasury's specific rules about public borrowing for investment,
which limit the Government's borrowing in line with the likely
impact on the Public Sector Borrowing Requirement (PSBR). An easier
solution may be to consider adopting the Continental definition
of the PSBR and change the rule, as there was a view expressed
at the policy forum that HM Treasury rules relating to the PSBR
are a major restriction to public investment in the UK.
6.3 One member of the policy forum had run
the Hong Kong Railway in the 1980s. He explained that this was
a public enterprise, which was publicly owned but run completely
separately from the Hong Kong Government. It operated under various
sound financial parameters that were determined by Government,
for instance, revenue needed to exceed expenditure. The company
was therefore able to borrow without concerns about Treasury rules.
6.4 Furthermore, the City has been loath
to lend to public enterprises since the Mersey Dock and the Labour
Board incident in the 1960s when Government of the day let the
company go into receivership despite having given an undertaking
to underwrite the firm. The current Mayor of London's idea for
funding London Underground through raising bonds looks untenable
without a clear Government pledge to underwrite debt, which in
the present political climate looks unlikely.
6.5 It was also suggested that the UK should
look at the French system of contracts between public enterprises
and central Government. The French Government signs three-year
contracts with public enterprises and they are held to strict
terms and conditions.
6.6 Overall it was felt that any attempt
to look at international comparisons to explore the efficiency
and effectiveness of public private partnerships for service delivery
would be of value to the UK Government.
6.7 One of the largest studies on the performance
of services contracted out by the public sector to private sector
organisations was based on a survey of 7,500 public sector partnerships.
The public sector "clients" were all from three Australian
states or the Australian federal government, and the private sector
organisations providing the services included multinationals such
as IBM, Andersen Consulting, Serco and Group 4, as well as local
firms. This study was carried out by Simon Domberger and Partick
Fernandez for the London Business School (Business Strategy Review,
1999, Volume 10 Issue 4, pp 29-39).
6.8 One of the key findings of this work
demonstrated that many in the public sector find that performance
monitoring is the most difficult part of a partnership agreement
to implement. Lack of expertise in partnership management is reflected
in inability to monitor performance rigorously and effectively.
It needs to be done in a non-adversarial way, and performing this
task well requires specific skills. A lot depends on what performance
criteria are originally laid down in the agreement.
6.9 The research goes on to show that where
performance monitoring is adopted, contracts perform 38 per cent
better on average than where it is not. The results were even
starker when the effects of performance monitoring on savings
were examined. When performance monitoring is absent, savings
turn negative to the tune of 12 per cent. Where they are adopted,
savings average 12 per centa difference of 24 percentage
7. DO PRIVATE
7.1 It was generally felt that there is
no risk of the public services being undermined by private sector
involvement and there is no evidence for problems arising that
require special measures. Indeed, the greater exchange of views
and best practice between the public and private sectors benefits
7.2 It was accepted that there are already
rigorous regulations in place, particularly those that apply to
the Civil Service that deal with potential confusions over accountability
7.3 It was felt that a more concerning problem
is the need for clearer leadership within Government for reforming
the public service. The Modernising Government initiative has
now been overtaken by two competing organisations - the Delivery
Unit and the Office for Public Services Reform. There are also
many other competing initiatives and players across the public
sector. There needs to be a clearer framework for reform within
which departments, agencies and other public sector bodies can
make their own plans.
8. MANY COMPANIES
8.1 Many felt that the majority of companies
have always been aware of social and ethical issues, and that
to describe the private sector as "increasingly" aware
of these issues is not justified.
8.2 However, over the last couple of decades,
there has undoubtedly been further pressure on companies to account
directly for their environmental and social impact. Indeed, the
role of pressure groups and NGOs in bringing media attention to
companies which have acted against the environmental and social
good, has increased consumer demand for both the private and public
sectors to demonstrate their commitment to operating in an environmentally
8.3 The IM's research report Two Decades
of Management (2001) which tracked since 1980 the interests
that management should promote within the organisation, together
with other issues, showed that today's managers do now perceive
their organisations in terms of a variety of stakeholders having
a legitimate stake in the goals and objectives of their organisations.
8.4 In earlier surveys, there had been more
emphasis on the interests of owners and shareholders in the private
sector. By contrast, public sector managers were more likely to
stress the interests of managers, consumers and the public at
large. In contrast, the findings in 2001 show that for both types
of manager consumer interests are now sovereign. The emphasis
on the public at large remains strong in the public sector (89
per cent against 60 per cent for private sector managers). Moreover
managers in the public sector are also more likely than their
private sector counterparts to stress the interests of environmental
groups (65 per cent against 57 per cent).
8.5 It was particularly notable from the
findings that over time there has been a decline in the emphasis
that both private and public managers place on the interests of
owners and shareholders; indeed a wider market consciousness appears
to be evident given the focus of both private and public sector
managers on consumer interests. This movement towards an alignment
in managers views across all sectors of the need to favour a broader
balancing of stakeholder interests, does suggest that a sense
of shared values would make partnerships across all sectors easier
9. DO THE
9.1 As already mentioned, the whole distinction
between what motivates those working in the private sector and
public sector is often greatly overplayed.
9.2 Over the past four years, the IM, working
with UMIST, has carried out an annual tracking survey on managers'
motivations and morale against the current climate of organisational
change. The latest report is The Quality of Working Life2000
survey of managers' changing experiences.
9.3 This survey showed significant similarities
in the responses between public and private sector managers. Overall,
77 per cent of public and private sector managers want to "work
for an organisation that reflects their personal values and beliefs",
and only 30 per cent agree with the attitudinal statement "Good
financial rewards are the most important factor governing my choice
of work and career".
9.4 However, this survey did demonstrate
some interesting differences in response between public and private
sector managers: while 46 per cent of public sector managers would
still prefer a structured career in an organisation, this reduces
to 34 per cent of private sector managers. Private sector managers
are also more likely to want to work for themselves (45 per cent)
than their public sector counterparts (27 per cent).
9.5 Another relevant finding was the low
morale recorded, as evidenced by an analysis of job satisfaction
measures. It was notable that respondents working in the public
sector score consistently less well than other types of organisation.
It was clear that the respondents from the public sector score
worst on the following measures: downward communications, upward
communications, feedback, job security, recognition for performance
9.6 A further finding was that looking to
the future, managers in the public sector have the lowest expectations
about the future quality of their working lives, with 38 per cent
thinking that things will get worse and 22 per cent thinking that
they will get better. This is a substantial deterioration from
1999, while the relative positions of other types of business
have improved over their 1999 levels. Table 1 below demonstrates
managers' level of concern about aspects of the future.
MANAGERIAL CONCERNS ABOUT THE FUTURE
|Public/private gap %
|Being unable to progress beyond current job level
|Further organisational restructuring||25
|Eroded working terms/conditions||19
|Winning new business/customers||14
|[Source: IM/UMIST Quality of Working Life 2000]
9.7 From this report and other evidence, it certainly
appears that public sector managers are being held back by the
systems in which they operate and the low level of autonomy that
they have to bring about changes.
10. THERE IS
10.1 In general, the public appears to want high quality
public services, and is not typically worried about who delivers
10.2 The IM suggests that it would be helpful to establish
a meaningful external evaluation of public opinion by an independent
and reputable body, but not the National Audit Office or the Audit
Commission, as these organisations are already involved in measuring
the actual outcomes of delivering public services rather than
the public perceptions of the outcomes.
11. IF THERE
11.1 It was considered that there should be much greater
consistency in the regulations that apply to all sectors' involvement
in public services. There should not be special exemptions for
the voluntary sector, or for organisations where profit is not
involved. Uniform regulations, standards and performance measures
should apply to all sectors involved in delivery of public services.
11.2 Indeed, there should be greater clarity and transparency
in the regulations and frameworks that govern all PPPs or similar
partnership arrangements. These arrangements are frequently opaque
as a result of "commercial in confidence" clauses. This
can often be used by ministers or private operators to prevent
scrutiny either by the public or by Parliament or elected bodies
at a more local level.
11.3 Regardless of whether profit is involved, greater
openness would put pressure on partnering organisations whether
in the private or voluntary sector to be more competitive and
innovative. Such competition should offer the public sector a
wider cross section of potential service providers in future.
For this to happen, it essential that there is a level playing
field that applies to all potential providers from whatever sector.
12.1 In summary, there are three key areas which the
IM views as critical to reforming the public service:
12.2 Leadership: as stated at the outset (see
1.5), managers' perception of the quality of leadership in the
public sector is currently very low. In order for a step change
to take place in the reform of the public services, this is clearly
an issue that needs to be addressed.
12.3 Performance management: lack of expertise
in partnership and project management is clearly holding back
reform in the public sector. Partnership arrangements need to
be managed through output and outcome based targets, as opposed
to prescription of inputs and processes. Public sector managers
need sufficient autonomy and resources to be able to lead their
teams and manage risks effectively. They also need to be able
both to measure and to reward the performance of their teams accordingly.
12.4 Management development: a tailored and systematic
approach to developing the leadership and management skills of
both public and private sector managers engaged in partnership
delivery mechanisms is necessary. These skills should ideally
be developed in the context in which they are applied.