The upcoming General Election, and inevitable flurry of spending cuts this will bring, are weighing heavily on public and private sector organisations. As well as cutting costs, organisations will need to improve efficiencies. Leaders in the sector are facing a tough challenge, not only in terms of budgets but also the probable backlash to job cuts, reduction in public services and the quality of those services.

Effective leadership will be a crucial success factor. Sir Brian Bender, former Permanent Secretary of BERR and Criticaleye Associate, explains: "2010 will be a test of leadership for those in public sector organisations in two respects, the pressures on the public purse and the possible implications of the General Election.  Leaders will need to identify ways of making savings. It is time to be bold, ambitious and innovative in the public sector, prioritising what really matters, being ready to cut where it matters less and, indeed, seeing whether there are any 'sacred cows' that can be slaughtered. Leaders should also identify how the outcome of the election is likely to affect their organisation and be as prepared as possible."

Many are looking to models abroad for ways that the UK can address the current challenges in the public sector. Clive Ansell, Senior Advisor to the Board, Royal Mail explains: "The recent improvements in productivity in other parts of Western Europe can be argued to be rooted in a more effective public sector and infrastructure, but the overlay in the UK is that major efficiency improvements and cost reductions in the public sector are also vital.  The challenge is to use efficiency improvements  to help deliver the effectiveness agenda, including the medium term headroom for investment, not just addressing the national deficit."

Looking at specific organisations like the NHS, the difficulty of achieving efficiency gains against a backdrop of less money is clear. As Dave Bennett, Non Executive Director, Royal Bournemouth and Christchurch Hospitals Foundation Trust explains: "The NHS has delivered greater effectiveness over the course of recent years with much improved patient experiences. In delivering this improvement, however, the focus has not been on associated cost efficiency. Unfortunately, cost transparency across the system is very poor and a demand to increase cost efficiency will probably be met by constraining the drive for yet further increased effectiveness. To counter this, one response is to force a devolved focus on cost efficiency by creating commercially oriented buyer and supplier relationships in the system."

There is also the option for greater collaboration, Yi Mien Koh, Chief Executive, Hillingdon Hospital NHS Trust explains: "To survive the recession, NHS organisations need to huddle together and work in partnership - replace duplications with more cost effective substitutions, improve efficiency by improving processes, take out waste from non value added and non clinical activity and reduce unwanted variations in cost, quality and utilisation. We also need to review current payment models and policies. Thank goodness the centre is now advocating cooperation over competition. Plurality may well be appropriate in growth but the NHS is facing contraction."

In other areas of the public sector it seems that there is also a drive towards collaboration. Jane Furniss, CEO, Independent Police Complaints Commission says: "Like any public sector organisation, we are anticipating a very challenging, post-General Election financial situation. This impacts on the current year as CEOs can't afford to continue spending without regard for future cuts but nor do we want to reduce expenditure prematurely. What we've been doing for the past two years is investing in a change programme which will improve our performance and increase our efficiency for the future. Now is also the time to be forming strategic partnerships which will help reduce costs and drive efficiency. We are already looking at opportunities with other NDPBs to combine our back-office functions to reduce costs."

Action taken by any organisation will depend on which government is in power. Martin Hall, Associate, Criticaleye explains: "'Whoever wins the General Election will need to announce credible and substantial cuts in expenditure and increases in taxation. That certainly means going to the limit in pay restraint, efficiency savings and productivity improvements.  Hopefully that will mean greater empowerment, innovation and services designed to satisfy local needs. All parties will call for 'more for less'. But the truth is that sharing the pain will not be enough. You have to search for the big money, and Government will need to slash cherished programmes and projects to keep their political priorities on track."

What's clear is that leaders in the sector will need to make radical changes to the way their organisations are run. Martin Pilgrim, former Chief Executive, London Councils and Associate, Criticaleye describes the scale of the challenge and the areas at risk: "All commentators agree that we face public spending cuts of a size that few have seen before. The scale of the task is made harder by political parties declaring 'no go' areas for cuts. Schools and front-line health services are usually cited, yet studies show that there is scope in these areas for improved productivity. Public sector pay and pensions will be under attack and, despite the blandishments of politicians, capital investment in transport, housing and school buildings will be a relatively easy target. There will also be increased involvement of the private sector and the third sector in the delivery of public services. But the reductions will need to go beyond this. What is in prospect is a model of public spending nearer to the American model. There will be a shift between public and private responsibility with means-tested safety nets for the very poorest."

Although cuts are inevitable in 2010, the uncertainty around which government will be in power and the areas of cost reduction that party will focus on are making it difficult for public sector leaders to make any firm decisions at the current time. As Stephen Karle, former Chief Executive, West Bromwich Building Society and advisor to a number of local government projects explains: "The primary concern for public sector organisations is the length of the interregnum before they can garner meaningful insights into the next Government's focal points for cost reduction programmes, the long wait for clear direction from the centre is of deep concern. It must be borne in mind that serious cost efficiency programmes are being undertaken within many public bodies and the consequences of over-zealousness already felt. Some painful value judgements lie ahead."

Despite the challenges ahead, there is light at the end of the tunnel. Implemented correctly, changes will improve organisations' efficiency and ability to provide high quality public services. Indra Morris, UK Strategy Lead for Government, Accenture takes this view on the future: "There is currently no shortage of positive developments – such as Total Place – and the energy to drive them forward. Looking ahead, the organisations best placed to succeed are those who excel in three areas. First, in increasing trust and confidence in public services of both users and taxpayers alike. Second, in being organisations which attract and retain staff who want to work - and strive - for them. Third, in being led by people adept in a changing landscape. Not least given both the pressure to deliver improved results within tighter spending limits and that the forthcoming election is already creating a new dynamic to navigate."

Our recent Public Sector CEO and NED Breakfast on 14 October 2009 bought up some interesting comments related to the topic of today's update. Also see a recent Community article, Public Sector Boards: Finding a balance in a challenging environment for greater insight into the changing role of leaders and how the external environment is impacting on public sector boards.

Please get in touch if you have any comments about the issues raised in today's Community Update.

I hope to see you soon,