The Coalition Government’s Spending Review last October highlighted significant inefficiencies in the public sector resulting in a rigorous cost-cutting agenda. These austerity measures will require a new approach to the management of spending and resources.
Those in ‘industry’ often criticise their public sector counterparts for not following the example of an ‘efficient’ private sector. “However, you need to be careful about comparing the public sector with the private,” says Mark Palmer, VP Defence & Public Safety at IBM. “What government does is complex and cannot be avoided. Government is not industry.”
There is no doubt, however, that government can learn from industry. Sir Philip Green pointed this out recently in his efficiency review and, whilst it is not clear that this review alone will lead to immediate change, its recommendations may well make a significant difference.
Sir Philip said the following of the review, “The government is failing to leverage both its credit rating and its scale. The report gives a fair reflection of the inefficiency and waste of government spending, which is due mainly to very poor data and process. There is a huge opportunity that has been clearly identified both in central government and beyond, but without a clear mandate, energy, focus and commitment, this cannot be delivered. I think it is clear that the prize for the taxpayer is too big and significant not to chase.”
He made the following recommendations for creating a more efficient public sector. Government must:
• Leverage its name, its credit rating and its buying power
• Mandate centralised procurement for common categories to take advantage of this buying power and achieve best practice
• Produce accurate spend and consumption data
• Price common items at the same level for all central government departments (and make contracts available to the wider public sector)
• Affirm that thinking in the public sector need not be different to that of the private sector
“Few organisations are perfectly efficient but the public sector is in the midst of a major transformation driven by the need for such efficiency - and so the goal is to produce better public value, which means measuring costs, assessing outcomes and being open to alternative means of service delivery,” says Philip Webb, Head of Public Sector, Penna plc.
There is no lack of political pundits talking about cost cuts and how to create efficiencies, but how can this be done? We went to the Criticaleye Community to seek their views on how such efficiencies can be achieved.
Katie Davis, Executive Director, Operational Excellence, Efficiency and Reform Group, Cabinet Office says: “The Coalition Government has demonstrated a commitment to efficiency through early action, for example, by publishing departmental spending data over £25,000 on a monthly basis. Embedding transparency in the way by which the government ‘does business’ will drive up accountability and help to improve the quality of the information upon which decisions are based. It will also be critical to drive the take-up of cross-government best practice and shared services – informed by much improved performance benchmarking. Organisations such as HMRC are already demonstrating large efficiency gains through the implementation of LEAN techniques. Examples of good practice such as this must be shared with other departments.”
Commercial organisations continually look at how costs can be reduced: government must do the same, with cost cutting becoming a continuous transformation - now that they have started, it must become part of the culture. However, changing any culture is a major undertaking and there is a gap between the current status quo and the ‘Philip Green’ world. Efficiency is a significant culture change... where is the catalyst for such a change?
Deborah Loudon, Head of Government Practice Group at Saxton Bampfylde says: “Anyone who has worked there knows that there is scope for significant efficiencies in the public sector through sharing and reforming back office provision, but no one should underestimate the complexity of reforming very large businesses operating in a ministerial and political context. One of the recurrent problems with innovation in public service delivery is the failure to allow the time necessary for proper planning and trialling – long-term efficiencies often fall victim to short-term political and news considerations.”
According to Mark, the government needs to simplify, consolidate and virtualise. He says, “I always start cost-cutting, no matter whether you're talking about government, IBM or any other commercial company, with simplification. There's a very simple premise - unless you simplify, you create complexity... and complexity means cost. I think the government really needs to think about that. As with any commercial organisation that is considering new policies, projects, IT roll-outs, taxes etc, it should be kept simple.”
Instant savings can be made in the area of procurement and shared services. Sir Philip’s report pointed to the lack of consistency throughout government procurement. “We would estimate that these are savings of a billion plus across government if one took all of government's discretionary spend and applied some consistency,” says Mark.
Gavin Lewis, Finance Director, Royal Mail Estates at Royal Mail Group Ltd says: “Better procurement does offer the opportunity for immediate cost savings in the public sector. However, better resource allocation can deliver savings sooner and at a greater level than procurement initiatives - particularly given the complexity of European procurement law. The Coalition Government has already done this at a macro budget level, but it needs to be driven down to a departmental and divisional level. In the medium-term, sustainable financial improvements require proper accountability for financial decisions within the public sector.”
Tim Brown, Chief Executive of Postcomm says: “We’ve entered an extremely interesting phase in terms of procurement. There is clearly room for new delivery models and space for great innovation across the public sector. The current focus on centralised procurement has resulted in financial savings, but it is rare to discern its impact on the bottom line. The issue of which aspects of procurement should remain devolved has yet to be resolved and the role of the individual accounting officer also needs to be factored in; with limited budgetary responsibility, accountability is less clear cut and there is a risk that individual accounting officers have less flexibility and scope for innovation.”
Clive Ansell, Managing Director, Technology, Tribal Group says: “There is already a lot of activity in train in terms of simplifying, standardising and unifying central government procurement, with the focus now moving to outsourcing. However, with the challenges of statutory responsibilities, TUPE arrangements and so on, before outsourcing the emphasis should be on process improvement – not the sort that requires massive detailed work, but the immediate challenge of stopping whole programmes and reducing the creation rate of new initiatives and policies, but actually delivering the best programmes end-to-end without tinkering with them in mid-delivery.”
During his review, Sir Philip found that the information available to public sector executives was insufficient. “Unless you have good management information, you cannot see where your organisation needs to go in order to save money,” says Mark.
In order to cut costs, investment needs to be made. To do so, government needs comprehensive asset and management information in order to know where investments should be made and costs cut.
According to Sir Philip, the government does not run property as a commercial estate. Close to £25 billion is spent per year on government properties. He believes that property should be managed centrally and decisions should be made centrally.
Further to that, the days of every employee having a fixed desk are over. Creating a virtual workplace that employs collaboration tools, such as blogs, can create efficiency, but also provides an upside to employees by providing a better work/life balance.
The most important assets of any organisation are its employees - and this is not different in government. To provide effective and efficient services, civil servants must be engaged in cost cutting activities. Jane Furniss, CEO of the Independent Police Complaints Commission says: “Public service leaders need actively to engage all staff in the drive to cut costs and make savings, particularly in back office functions, and demonstrate that every pound saved helps to protect services and jobs.”
Sir Brian Bender, former Permanent Secretary at BERR and Criticaleye Associate says: “Cutting public expenditure is about far more than improving efficiency; it’s about stopping doing some things, and about doing other things differently. But improving efficiency has a role to play. The biggest single item in government’s running costs is the pay bill, so there will have to be job cuts as budgets are reduced. Leaders will need to (continue to) develop ways of using staff more efficiently, and drive up performance management to get the best out of people and to protect the ‘frontline’ as far as possible. And government needs to be a more efficient and tougher buyer, whether of property leases, IT or equipment, as Sir Philip Green has pointed out, using its consolidated weight. Achieving and sustaining these cuts over a period will require consistency of focus by ministers and senior officials.”
Please get in touch if you have any comments about the issues raised here.
I hope to see you soon.