Strategic management.

To be successful strategic management requires a learning organisation, that is, one which encourages managerial styles favouring proactive action which accepts risks  made and views failures as learning opportunities.  Within the public sector this style is often supported by rhetoric, but not by practice, and it is argued that public sector managers often remain “reactive” even where strategic plans are in place.  Additionally, public sector culture is one which does not easily tolerate mistakes and a ‘blame culture’ often ensues.  Changing the culture of the public sector remains one of the critical challenges in delivering effective strategic management.

Strategic Leadership

The strategic leader’s role is to “provide a unifying theme, communicate a sense of achievable ideals, serve as a source of inspiration … and become a contagious, motivating, and guiding force congruent with the corporate ethic and values.”

The leader is clearly defined in the private sector – often the President/CEO or other senior management with specific responsibility for strategy.  Responsibility is muddled in the public sector and it is recognised that the most obvious CEO alternative, the senior politician in charge of a department, “may not always be in a position to provide long-term strategic leadership,” particularly as political appointments change throughout a government’s term and when alternative governments are elected.

Responsibilities for strategic management may then fall to the heads of services, although they are often highly constrained by “demands from politicians, professionals and the public in their many forms,” making long-term decision making less of a priority than immediate operational issues.  Many political initiatives, including internal markets, managing by objectives and target setting, were marred by inherent difficulties from the outset.  One practice from the private sector - writing mission statements - did however become widespread within the public sector, with varying effectiveness.

The Labour government does appear to be tackling this issue, in particular with the policy of creating foundation hospitals.  These hospitals will be accorded more financial freedoms and have a local head who will have overall control and accountability for the hospital.  This will allow such leaders to develop their own strategies and forge a unique organisational culture that will best deliver value to service users, what private sector strategic thinking would call a “strategic business unit”.

However, they will still be subject to some imposed performance measures, and success will depend on these measuring success in terms of effectiveness of services (outcomes) rather than simply efficiency and economy.

Measuring Success

Traditionally achievement in the public sector was evaluated against set targets, often based on incrementalism (evolutionary adjustments year on year).  Such targets were often set at a relatively low level of achievement – with risk taking strongly discouraged, it was perceived better to set low targets and achieve them, than set ambitious targets and fail.

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A major difference in the understanding of strategic management emerges when considering the required outcomes that drive the strategic processes - in the private sector, the required outcome is primarily profit – a measure that can be easily measured, verified (through auditing) and comparable.  No such single measure exists within the public sector, which has a wide variety of desired outcomes, many of which conflict, be difficult to measure and verify, and have unclear accountability.

There is also the problem of identifying who the customer is within public services.  Within the private sector, the person who purchases a good generally also uses it.  In the public sector this is not so, and a variety of different levels exist, e.g. the government provides money for education authorities who provide money to schools who in turn provide services to children.  The “customer” can in this instance appear to be distorted, and the school itself can tend to become viewed as the customer rather than the children it serves.

Without a clear measurement of success the public sector has often had measures imposed upon it in the form of performance indicators.  Such indicators usually concentrate on a quantitative approach, examining elements of service which can be measured (e.g. school truancy levels, hospital waiting times).  While many such indicators are important in the measurement of economy and efficiency, they are limited in accurately appraising effectiveness, which can only be properly examined through qualitative methods.

As traditional professionalism gave way to an increased customer focus, governments began searching for ways of accurately transmitting expectations for customers.  The

Citizen’s charter (1991) was one such initiative, outlining the minimum standards citizens should expect from services, and introducing mechanisms to ensure than these were met (e.g. the Charter Mark).  Although regarded as an important first step, this was widely criticised for not noticeably improving standards.  Labour have expanded on the charter, introducing their Best Value concept, and widely expanding their feedback programmes such as creating a People’s Panel.

Managerial reward programmes based on performance indicators has also been an increasing feature within the public sector.  This is a distinctly private sector policy, and one which only leads to effective improvements if the indicators used are chosen correctly.  Those which reward short and long-term targets both in quantitative and qualitative measures, a so called “balanced scorecard” approach, tend to produce greatest improved performance.

Shifting Accountability

With the managerial impact of New Public Management, the question of accountability remains a vital issue.  The traditional model of making public sector workers accountable to politicians, who were accountable to parliament, which was ultimately accountable to the public as elections, was now considered too imprecise and unresponsive.  Best Value in particular demands that managers are highly responsive in terms of implementing practices which improve customer services and quickly eliminate those which detract from it.  This requires a structure where accountability is more closely aligned with customer wishes, and closer to the private sector model.

The role of accountability represents a critical difference between sectors.  Managers accountable to politicians, who determine their goals and salaries, are more motivated to perform to the politician’s requirements, even if they conflict with service users.  Private sector managers are painfully aware they are completely accountable to customers – ignoring this fact has proved extremely costly to many companies.  Providing structures to make public sector units solely accountable to customers remains the most important challenge for New Public Management.

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Conclusions

The extent to which strategic management is different between private and public sectors can be attributed to the struggle to achieve strategic synergy. Synergy is the process whereby all an organisation’s capabilities and resources are “linked together as a cohesive whole.”  Within the public sector, synergy is more problematic to achieve than the private sector because conflicts between stakeholders, performance measures, cultural thinking and less managerial scope for risk taking, mean conditions for closer customer orientation are difficult to accomplish.  Uncertain, unclear and potentially changing long term goals by stakeholders make environmental conditions more turbulent and subject to sharp alterations within the public sector.

Evaluating success also remains a deep difference between sectors.  While private sector performances can be examined against comparable and measurable targets such as profits, sales or production, this is not so simple in the public sector, with often conflicting performance indicators imposed. In such circumstances it is often more practical to manage for stability instead of managing for change.

Evidence suggest these elements are rapidly becoming more aligned with the private sector. The growth of technology and fundamental shifts in culture have meant that the time-lag between private sector initiatives being taken up by the public sector have been reduced.  Technology has also helped the public sector to become more responsive, and has a crucial part to play in delivering services more closely with customer wishes.

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However deep differences still remain, Best Value has yet to move emphasis completely on examination of outcomes (effectiveness) rather than efficiency and economy indicators, nor does it look likely to in the foreseeable future.  Accountability issues also continue to cause conflict with strategic views, as does the paternalistic culture which pervades a professionalised top-down management approach, again conflict with empowering middle managers with strategic implementation.  

Overall, the largest difference between private and public strategic management processes are the conflicting obligations that public services are required to adhere, in terms of evaluating performances and accountability.  Managing change, a long accepted managerial function in the private sector, is more difficult to encourage within the public sector as long as conflicts continue.

Despite improvements over the past decade, with governments increasingly accepting  the creation of Strategic Business Units such as foundation hospitals, the public sector understanding of strategic management still has major differences with the private sector.  The extent of these differences is however diminishing, with the role of technology increasingly important to both sectors in operational and strategic thinking.  Key challenges will be the extent to which public sector strategic business units are allowed, or are capable of creating and implementing, strategic management in a constantly changing environment.

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Bibliography

Books

O. E. Hughes, “Public Management and Administration, 3rd Edition”, Palgrave Macmillan, 2003.

Flynn, “Public Sector Management 4th Edition”, Financial Times/Prentice Hall, 2002

A. Rose & A. Lawton, “Public services management”, Financial Times/Prentice Hall, 1999

J. Wilson, “Managing Public Services”, Tudor, 1995

R. Common, “Managing Public Services: Competition and Decentralization”, Butterworth-Heinemann, 1992

T. Cutler & B. Waine, “Managing the Welfare State”, Berg, 1994.

L. Willcocks & J. Harrow, “Rediscovering Public Services Management”, McGraw-Hill, 1992.

J. Thompson, “Strategic Management 4th Edition”, Thompson Press, 2001

Journals

L. L. Schiavo, “Quality standards in the public sector: UK/Italy”, in Public Admin, v.78.3, 2000

Webpages

Appendix A – The Strategic Approach To Management

J. Thompson, “Strategic Management 4th Edition”, Thompson Press, 2001

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Extra Bits

Inability to generate incomes

Identification of customer

Organisational culture (bureaucratic)

Attitudes to risk taking

Management style/reduced scope of failure

Measurements of success

Varying emphasis on economy, efficiency and effectiveness

To what extent and why does the phrase strategic management mean different things in the public and private sectors?

Part 1 - Introduction

Define Strategic management in private sector

Define Strategic management in public sector

Part 2 - What are the main differences?

1 - Who provides strategic management leadership?

Clearly defined in private sector – CEO or senior management

Unclear in public sector – politicians or heads of department?

2 – Who defines success?

Private sector – CEO/shareholders

Public sector – government or consumers?

3 - Measures of success

The 3 E’s – Economy, Efficiency, Effectiveness

Economy         -         minimising costs

Efficiency        -        utilisation of resources

Effectiveness        -        performance in achieving goals

Performance indicators

What is most important? Inputs, outcomes or effectiveness?

Minimum standards, Average standards, recognition of best practice

How are minimum standards transmitted? Citizens charter?

Methods of providing rewards for performance and best practice

4 – Accountability for failure

Accountable to who?

Methods of redress

5 – Organisational Culture

strategic management encompasses “managerial style, beliefs, values, ethics, and accepted forms of behaviour in the organization, which makes strategic thinking congruent with the organizational culture”

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