Public Sector Reform, Getting the Balance Right

Signs of improvement in the global economy appear to be evaporating, with little prospect in the short term for a return to strong growth.

Europe continues to stumble, with the International Monitory Fund (IMF) conceding that recent austerity measures appear to be restricting growth prospects. The US economy is growing modestly, but faces a looming ‘fiscal cliff’ which could wipe off 4.6% from GDP, enough to plunge the economy back into recession. This coincides with a cooling economy in China, which posted growth of 7.4%, the seventh consecutive quarter in which growth rates have declined.

In combination, China, the EU and the US account for 57% of global economic output. According to Grant Thornton’s latest global business research (IBR Q3 Report)1, 80% of private sector businesses plan to maintain or even boost the level of cash they are holding, despite enormous existing levels of cash reserves.

Notwithstanding these global economic conditions, Australia’s economy appears to be weathering the storm. Early indications suggest that a Federal government return to surplus is inevitable by June 2013.

The question being asked by the private sector is simple. Why is a surplus appropriate? And what opportunity costs will it impose on the private sector?

As Australia’s economy heads into an uncertain future and the shine is wearing  off the mining boom, Australian State and Federal government agencies across the country are battening down the hatches and embarking on a range of tough reforms, specifically targeting reductions in the cost of service delivery.
Changes instigated by State governments across the nation have seen government  agencies start complex reform processes.The changes will undoubtedly require major cultural changes within the workforce, and will pose many  challenges to executive leadership.

Workforce Participation

• unemployment decreased slightly but the rounded estimate remained at 5.4%;
• number of people employed in Australia,
• increased by 10,700 to approximately 11.5 million; and
• decrease in number of hours worked, down 4.2 million to 1,622.6 million in October2.

In September the ABS released the results for its ten year study into Australia’s progress (Measures of Australia’s Progress) report, suggesting that education and employment conditions are improving:

• number of Australians holding vocational or higher education qualifications has risen by 15% to 64% over the past ten years
• productivity rates continued to decline (-0.8%) over the same period
• percentage of population under thirty years of age remains low compared to other economies, which continues to impact Australia’s productivity

Ongoing reform and government budget austerity measures across Australia will undoubtedly see a large scale exit of experienced employees from the public sector. Anecdotal evidence suggests that this attrition might be in the order of 15% to 20% of the workforce over the next two to three years.

When combined with demographic factors that project a marked aging of Australia’s population, this points to considerable workforce disruption and productivity challenges within the Australia public sector over the next ten years.

Reform priorities

Agency reform and performance optimisation are undoubtedly high on the list of priorities for most agency leadership teams. As budgets are reduced, resources will need to be reallocated and channelled towards updated priorities. In many cases, it will simply not be possible to continue service delivery using existing “business as usual” workflows.

Simplification measures across public facing customer service functions will need to focus around resource sharing between agencies, and delivering a customer focused approach aligned to governments service first philosophy.

The challenge facing agencies is managing the “old world” legacy environment while “new world” innovations are adopted and implemented. The redeployment and reskilling of existing resources and workforce will continue to be one of the key challenges and priorities facing agencies as they transition to new ways of working. Leadership will be critical in driving these reforms and repositioning government agencies to ensure a customer centric focus.

Reshaping Technology

The significant overhaul of various State government ICT strategies and policies are designed to:

• improve customer service
• data management
• procurement, and
• industry engagement

Reshaping technology solutions to align to the new service ethos will need to focus on ensuring the mistakes of the past are not repeated. Mobility and service innovation will be the key to successful technology reforms across agencies.

For example in NSW the release of the NSW government ICT strategy 2012 earlier this year provides significant opportunity for agencies such as Transport, Health, and NSW Education and Communities. By taking better advantage of private sector ICT delivery capabilities, new customer service innovations will be implemented in a more timely manner.

Talent Utilisation

The loss of critical talent is a common casualty of a reform program, but it doesn’t have to be that way. Modern ICT tools allow agencies to effectively consider alternative approaches to organisational, functional and individual roles.

Advances in mobile and telecommuting technology mean that agencies can cost effectively employ talent located anywhere in the State.

The adoption of broader and more general workforce role design principles can provide enormous improvements in flexibility. Roles can be designed to accommodate the broader capabilities and skill sets of talent within the public sector workforce without compromising on quality or risk.

The public sector workforce is a knowledge based workforce. Shortages in the availability of highly skilled and experienced talent remain a key challenge for most agencies.

It is critical that agencies proactively identify and retain key talent, especially those with broad public knowledge and leadership skills.

Furthermore the shortage in skilled workforce dictates that agencies can no longer afford the luxury of retaining “one trick ponies”, i.e.; employees with narrow skill sets that are unable to work outside a small niche. Agency leaders should consider the benefit of adopting a range of reskilling initiatives specifically designed to diversify their skill capability base.

Tracking Cost Savings

Identifying, monitoring and tracking the synergies and cost savings achieved through reforms remains a key challenge for most government agencies.

Synergy tracking involves the identification, validation and measurement of key agency indicators that will serve as guides to the agency while it is embarking on the reform process.

It is critical to have a clear understanding of the likely sources of gains before embarking on change. This will allow project priorities to be established, and allow business cases to be built for large capital works projects e.g.; ICT infrastructure changes that are needed to support the reforms.

The key is identifying an appropriate set of synergy targets tailored specifically to suit individual agency requirements and desired outcomes.

For example, the synergy targets associated with decentralisation of the Health network into local health districts will differ significantly from those in Transport or Education, which will seek to consolidate and centrally coordinate services.

Essentially synergy tracking needs to target key aspects of the agency (or agencies) core purpose and vision.
For example, a focus on improving customer or community engagement, reducing bureaucracy, and improving accountability might not be adequately measured by simply tracking cost reductions.

Agencies should also consider investments in ongoing leadership development.

It is certain that reform of State and Federal government agencies will remain a key priority for the next few years. The approach taken to leading and managing the reform process itself will ultimately determine the scale of any long term gains.