Transitions to Competitive Government: Speed, Consensus, and Performance (Suny Series in Human Communication Processes,)

Transitions to Competitive Government

SUNY series, Human Communication Processes Donald P. Cushman and Ted J. Smith III, Editors

Transitions to Competitive Government Speed, Consensus, and Performance

Ronald B. Cullen and Donald P. Cushman

State University of New York Press

Published by State University of New York Press, Albany © 2000 State University of New York All rights reserved Printed in the United States of America

No part of this book may be used or reproduced in any manner whatsoever without written permission. No part of this book may be stored in a retrieval system or transmitted in any form or by any means including electronic, electrostatic, magnetic tape, mechanical, photocopying, recording, or otherwise without the prior permission in writing of the publisher. For information, address State University of New York Press, State University Plaza, Albany, N.Y. 12246 Production by Michael Haggett Marketing by Patrick Durocher Library of Congress Cataloging-in-Publication Data Cullen, Ronald B. Transitions to competitive government : speed, consensus, and performance / Ronald B. Cullen and Donald P. Cushman. p. cm. — (SUNY series, human communication processes) Includes bibliographical references and index. ISBN 0-7914-4657-3 (hc : alk. paper) — ISBN 0-7914-4658-1 (pb : alk. paper) 1. Competition, International. 2. International economic relations. 3. Government productivity. I. Cushman, Donald P. II. Title. III. SUNY series in human communication processes HF1414.C85 2000 354.72367—dc21 99-054267 10 9 8 7 6 5 4 3 2 1

This book is dedicated to Marie, my wife and partner in the consultancy business and life. Her commitment to research and the development of knowledge is for me an inspiration. RBC

Contents

List of Exhibits Acknowledgments

ix xiii

1 Government in Crises

1

Part 2 3 4 5

I A Vision to Guide Government Reform Lessons from Business The Management of Transitions to National Competitiveness Implementation Strategies for Competitive Government Responding to External Pressures: Value-Chain Coalignment and the Delivery of Government Services 6 Leadership Strategies for Transforming Governmental Competitiveness

31 37 55 79 105 133

Part II A Management Platform for Government Change 7 The Challenge of Transition 8 Planning and Evaluation Strategies for Competitive Government 9 Reinventing and Reengineering Government Management Systems and Values 10 Resource Management Strategies for Competitive Government 11 Governance Systems and Management Reform

169 175

Part III Benchmarking the Transition to Competitive Government 12 Managing Transitions to National Competitiveness

281 285

References Index

319 329

vii

199 229 251 271

List of Exhibits

Exhibit 1.1

The Changing Roles of Government

Exhibit 1.2

National Competitiveness—The Role of Government in Selected Countries

15

Exhibit 1.3

World Competitiveness Yearbook Factors

17

Exhibit 1.4

Benchmarking Workskills and National Competitiveness

18

Exhibit 2.1

Communication Gaps between Business and Government

39

A Comparison of Business and Government Development Cycles

42

Exhibit 2.3

Management in Business and Government

46

Exhibit 2.4

Transition from Traditional Government to Competitive Government Management

49

Performance Management Framework for the Identification of Objectives

52

Exhibit 3.1

National Competitiveness Model

57

Exhibit 3.2

Development Transition

65

Exhibit 3.3

Deregulated Transition

69

Exhibit 3.4

Regulated Transition

72

Exhibit 3.5

Devolved Transition

74

Exhibit 4.1

The Time Span and Focus of Evaluation in Business and Government 81

Exhibit 4.2

The Implementation Impact Model

84

Exhibit 4.3

Cycle Impact Model

94

Exhibit 4.4

Cycle-Based Communication Strategies

99

Exhibit 5.1

Government and Its Environment

Exhibit 2.2

Exhibit 2.5

ix

5

109

x

Exhibit 5.2

LIST

OF

EXHIBITS

A Checklist for Environmental Scanning in Government

112

Exhibit 5.3

Value-Chain for Government Activities

114

Exhibit 5.4

Value-Chain Segmentation and Cycle Time

117

Exhibit 6.1

Shifts Required to Manage and Lead Government Change in a High Response Environment

136

Exhibit 6.2

Protecting the Platform for Transition

138

Exhibit 6.3

Checklist for Mapping Transitions to National Competitiveness

139

Exhibit 6.4

Competitiveness Changes 1995–1999

140

Exhibit 6.5

The Development of Competitive Manufacturing Industry

145

Exhibit 6.6

The Development of Competitive Workskills

146

Exhibit 6.7

Access to Competitive Technology

148

Exhibit 7.1

The Performance Management Grid

179

Exhibit 7.2

Government Management Reform Agenda: Victoria, Australia, 1982–1992

190

Exhibit 8.1

Reasons Why Government Plan

201

Exhibit 8.2

Performance Improvement Planning and Evaluation Framework

209

Draft Performance Improvement Plan: Australian Taxation Office

212

Exhibit 8.4

Projected Change Impacts

215

Exhibit 8.5

Draft Performance Improvement Plan: Integration and Special Education in Victorian Schools

220

Exhibit 8.6

General SES Key Result Areas and Competencies

224

Exhibit 9.1

Performance Management Strategies/Tools for Government Transitions

232

Exhibit 9.2

Mapping Culture Shifts in Government Systems

241

Exhibit 9.3

Project Structures and Management Processes

243

Exhibit 8.3

Exhibit 10.1 Improving the Performance of Government Resource Management

253

Exhibit 10.2 Managing Government Resource Balance

256

Exhibit 10.3 Action Strategy for the Conversion to ResultsBased Budgeting

263

List of Exhibits

xi

Exhibit 10.4 Checklist for Evaluating the Effectiveness of Government Resource Management

269

Exhibit 11.1 Governance Systems and Management Boundaries

272

Exhibit 11.2 Mapping Political Systems

275

Exhibit 12.1 Mapping the Scope for Reform

303

Exhibit 12.2 Planning the Transition to Competitive Government

307

Acknowledgments

This book emerged from a collaboration with Don Cushman that started on a visit to Phillip Island, and developed in Melbourne, Hartford, Albany, Catania, and London. When we started, we did not share the feeling that “reinvention” was the complete new paradigm, that the solution to the crisis in government management was at hand. As we finished, the consensus was that the most extensive government management reform in the U.S. for decades had only solved part of the crisis. We believe that it is important to view reform as an ongoing transition from where government management currently is to where it might be in the future. It is now important to expand the reform framework and learn from and build on what has been achieved. The ideas in this book can contribute to that process. I would like to thank those politicians, colleagues, and clients who assisted me to learn about the business of government and those who helped with comments on parts of this manuscript. Thanks also to Skye who helped more than she knew and who will hopefully grow up in a world where books like this no longer need to be written. Ron Cullen August, 2000

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Chapter 1

Government in Crises

Our governments are in deep trouble today. In government after government and public system after public system, reinvention is the only option left. But the lack of a vision—a new paradigm— holds us back. —Osborne and Gaebler, Reinventing Government A global consensus has begun to emerge that management in government is something that needs to be fixed. We can see the recognition of that in the titles of recent reports on the subject: “Reinventing Government,” “Creating a Government That Works Better and Costs Less,” “The Reinventing Government Exercise: Misrepresenting the Problem, Misjudging the Consequences,” “Reinventing Government: A Fifth Year Report Card,” and “Continuing Attention Is Needed to Improve Government Performance” (Osborne and Gaebler 1993; Gore 1993; Moe 1994; Kettl 1998; Mihm 2000). While David Osborne and Ted Gaebler (1993) are only one of many analysts who have identified the crises, they advanced government reform by exploring solutions and by arguing for discontinuous change (reinvention). Symptoms of the crisis discussed by Osborne and Gaebler abound. Nations are becoming less governable as public dissatisfaction with the performance of government increases. Governments are seen to have failed to deliver noticeable benefits let alone what they promised when seeking election. A focus on old products and services has led to both a lack of response to new problems and a shortfall in government revenues. Cuts in government spending and the rationalization of functions and services associated with privatization in many nations has led to the impression that government is 1

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inefficient. Many governments seem unable to contribute to improvements in national competitiveness at a time when the private sector needs new responses from government to survive and prosper in the new global marketplace. Most attempts at reforming public administration presume that the challenge is to manage better rather than to govern differently. Attempts to transform government management without examining the causes of the crises and the ways in which external factors are changing the role of government, end up treating symptoms rather than the causes of the crises. Most attempts at reforming public sector management turn to such recent advances in private sector management as transformational leadership, empowerment, entrepreneurship, high performance teams, reengineering and continuous improvement programs and recommend their use in transforming management practices in the public sector. Our analysis suggests that one reason for the ongoing crisis in government management is that many new solutions compound the initial problem by building new barriers to performance. For example, used as a single cure, cutback management solves shortterm budget problems but often slows a government’s capacity to respond and erodes the comfort zones which allow it to govern. While attempts to transform government management using private sector management insights can add real value to government change processes, such strategies have encountered several key problems. First, most authors fail to articulate a new public sector model of government which applies to a broad range of national challenges, regions and levels of government (Callahan and Holzer 1994; Caiden 1994). Such a model or set of models is necessary to understand the causes of the crises and to appropriately guide and assess the strategic use of such private sector management tools. Second, most authors fail to indicate that the tools they recommend were only capable of being employed successfully 20 to 30 percent of the time in the private sector. In addition, in their zeal to motivate high performance improvements in the public sector, these authors fail to clearly articulate the limiting conditions for the successful use of these tools (Ventkatramm and Prescot 1990; Vessey 1991; Port, Cary, Kelly and Forrest 1992). Third, most authors fail to recognize that all governments have ongoing management systems that must not only change to improve, but must be shown how in some orderly manner to get from where they are to where they need to be. This process of transition needs to point out what needs to remain the same while other forces change in order to succeed at systematic change (Caiden 1994; Dunn 1994; Cox 1994; Elling 1994). The purpose of this book is to respond to the crisis in government management by analyzing the causes, evaluating the responses by governments, and proposing models and management tools which extend and focus current

Government in Crises

3

solutions and increase the chances of successful reform. In this chapter we examine the changing role of government, the causes of the crisis in government management and the priorities for effective solutions. First, we examine major global trends that are impacting on all aspects of life and focus on the implications for the management of nations. Second, we discuss the impact of these external pressures on the role of governments. We examine the changing role of government and the links between national competitiveness and government competitiveness in a number of countries. Third, we examine current government reforms and evaluate these against the external pressures which nations must manage. Finally we discuss the implications of this analysis for successful reform.

THE CHANGING ROLE OF GOVERNMENT This (globalization) leaves government with the daunting challenge: to figure ways to reduce their intervention in some areas and to retool and refocus their intervention in others, while preserving the public trust. It is a challenge of imagination. It requires buying into the idea of fundamental global change and taking on the task of translating that change into policies that accord with national culture, history and temperament. . . . What this means, then, is that for all the erosion of boundaries and fundamental technological change, governments still matter—and, most of all, political leadership matters. It also means that even if change in the direction of “more market” and “less state” is a persuasive global phenomenon, it does not lead to a single, common result. —Yergin and Stanislaw, The Commanding Heights Daniel Yergin and Joseph Stanislaw (1998) present a challenging analysis of the battle between “government” and the “marketplace.” Although Yergin and Stanislaw argue that the shift toward the marketplace will be the dominant force in the management of nations in the future, they also argue that government remains important and that it must find new ways to adjust its role to respond to these new (market) realities. Reform of government management is no longer a matter of fine-tuning old systems that address old ideas about performance. Fixing management in government requires both the development of new management platforms to address new realities, and it requires new assumptions about what governments can and ought to deliver. In country after country, the reform of government management is associated with a growing gap between the

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requirements of national competitiveness and the internal assumptions which governments make about their own role and achievements. Government managers have responded to the complexity and rate of change in government roles by segmenting the role of government. This narrow focus has diverted attention from three realities. First, because the roles are interconnected, a focus on part of the system can obscure important impacts on other parts of the system. Second, some roles of government are more important than others and this differs between countries. Third, both the roles of government and the strategies which governments must use to deliver these roles, are changing. Analysis of government reforms that avoids a consideration of what government needs to deliver, and what it can reasonably expect to accomplish, is bound to misunderstand, and, worse, misdirect, the changes which are underway. We describe governments and government management systems that respond more effectively to external and internal pressures than others as “competitive.” It is important to distinguish this idea from the idea that government processes can sometimes be made more efficient by exposing government processes and products to competition. While sometimes the use of competition to change internal processes and product delivery can contribute to government reform, these strategies are best seen as management tools to be applied where the situation indicates rather than as an end point or objective of reform. In our view, the primary driver of government reform is the need to add value to overall national competitiveness. We suggest that whether a particular government (or government reform program) has achieved competitiveness can be gauged by addressing three fundamental questions. Has national (or state) competitiveness increased and has government contributed value to the process? Have the social impacts of development and change been addressed effectively? Has government been able to address these issues while maintaining or increasing its overall scope to govern? In defining the role of government, there is a tendency to focus on function and processes rather then on the results these processes seek to deliver. This confusion of “means” with “ends” leads some analysts to assume that government exists to deliver traditional processes more effectively and efficiently. Such assumptions commence analysis of government management systems at the wrong level, at a level where the core roles of government and the impacts of external factors on government performance are either missed or only partially addressed. For example, many governments address the need to add value to economic performance by leveraging private and public sector resources, regulating markets, providing infrastructure and services, by addressing access to international markets and research and technology, and by ensuring that the education and training system delivers world competitive workskills. Governments can achieve performance targets in all these areas

Government in Crises

5

but still fail to deliver increases in national competitiveness. The likelihood that implementation will fail increases as the rate of change increases. The solution for government is to address performance directly. Surrogates for performance often reflect old solutions and old ways of viewing the world. The strategies which government must now employ to address these core roles and public expectations of government performance are light years removed from approaches which seemed to work well enough even a decade ago. In Exhibit 1.1. Changing Roles of Government, we define the core roles of government as adding to “competitiveness,” adding “social value,” and maintaining “governability.” Key implementation strategies for government are summarized as part of Exhibit 1.1. Our intention in starting with such generalized roles is to place the crises and the solutions in context, and to provide a framework for both evaluation Exhibit 1.1. Changing Roles of Government Implementation strategies Viable development strategy Effective macro-financial management Optimize national assets and resources

Access to multinational companies Access to overseas markets Competitive workskills and technology Competitive taxes and charges

Effective domestic markets

Competitive infrastructure Government roles

NATIONAL COMPETITIVENESS Increase net production Effective income distribution Balance impacts on current and future generations

SOCIAL VALUE

Effective access to work Competitive social infrastructure Effective equity protection and safety net services

GOVERNABILITY

Recognize diverse needs and priorities, negotiate interest group boundaries

Manage the comfort zone impacts of government programs Manage cycle dynamics to bridge gaps between expectations and delivery

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and the study of differences. This general statement of roles does not assume that differences are not important. Results and strategies that are considered successful in one nation will not necessarily meet the needs of another. Commencing our examination of government management at this generalized level allows us to explore the impact of globalization and external change on governments and government management systems. Although the three roles are different, there are major interconnections between these roles which need to be examined to understand the causes of the current crisis. For example, action to respond to changes required by the competitiveness role impact on both the social value role and the governability role. Unless a nation can fund and deliver its basic value system and unless government can govern, there is little prospect of achieving and maintaining world competitiveness. Competitiveness Governments need to work with business to increase the share of world resources available to a nation or region. The new forms of government which are evolving need to deliver world-class performance. To achieve worldclass performance, governments need to develop a world-class business and development environment; they need to deliver a world-class education system. A key mission for government is the development and support of a strong industry system supported by competitive infrastructure and the ability to access world markets competitively. Competitive government needs to be far more proactive in working with business to achieve national competitiveness than traditional models of government assume. Historically, roles were segmented; governments provided infrastructure and regulated markets and business delivered access to resources. Globalization and the growth of multinational companies means that today governments must work with business to deliver a world competitive industrial base able to access world markets. Government management reforms needed to support national competitiveness require an increased focus on results, reductions in cycle time, and changes to government financial priorities. Governments, seeking to avoid this challenge by protecting local industry from the need to be globally competitive, or by seeking to administer a shrinking but orderly world, are unlikely to deliver or maintain competitiveness. And they are likely to be find themselves increasingly unable to govern. Governments focusing on adding value to competitiveness by dismantling old systems and shortening cycle times, must manage the impact of change on the various interest groups that comprise each political system.

Government in Crises

7

Social Value Governments need to be seen to improve the short- and long-term well-being of citizens. Governments have key roles in regulating the framework within which resources are distributed within a country. Most governments use this process to address the needs of disadvantaged groups. Historically, businesses delivered employment while governments addressed income redistribution, provided safety nets, and selected services. Competitiveness was assumed to occur almost independently of the structures used to deliver social value. Today the links are all too apparent in many countries. For example, employment underpins the social structure of most nations. Additions to social value need to maximize both competitiveness and employment. A number of countries, seeking to manage these factors independently, have discovered they can no longer fund old value systems and old solutions. The pressures of global competitiveness have made employment less certain and retraining a fact of life for most workers. Governments need to address access to employment more actively than in the past. The pressures to shorten cycle time and respond strategically to industrial opportunities have threatened many of the old systems which provided some security in the sense that they were predictable and were seen to address historical needs. Governments in developed countries have found that the pressures of competition have threatened their capacity to fund old value systems. Governments today need to manage the social impacts of change and to address emerging social needs. These demands increase as governments commit to competitiveness objectives. Global pressures are altering both the overall wealth and the distribution of that wealth in most countries. In developed countries, the increasing mobility of the labor force requires new responses from governments, labor unions, and business. Developing countries face even greater transition pressures as wealth and labor costs grow and as community expectations about the benefits of increased competitiveness develop. The pressures on governments to respond to changing patterns of winners and losers in the economic system cannot be managed to restore the past or to insulate groups from the pressures of change. There is an urgent need for governments to redesign safety nets, and to think through the options to protect those disadvantaged by change. The challenge differs between countries but almost no government can expect to move into the new millennium without redesigning strategies for adding social as well as economic value. Governability Governments must manage change while at the same time maintaining the scope to govern. In suggesting that maintaining the scope to govern is a core

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government role, we reflect a reality for most governments today. We also reflect our view that government managers, by failing to manage the impact of their activities on the “comfort zone” within which the public is content to allow government to govern, have eroded the scope to govern in many countries. A number of authors have suggested that nations are becoming less governable. For example, Peter Drucker (1993) describes government as caught between the twin pressures of globalization (including extra national regionalization) and tribalization (diversity) and suggests that, from a management viewpoint, some national boundaries may no longer be viable. It is important to consider the extent to which misguided government reforms have exacerbated this situation. It is also important to identify solutions that can enhance governability. It is no coincidence that in a decade where globalization has dominated changes in the role of government, the forces of tribalization have also been unleashed in many countries. The governability mission must address the reductions in governability created by new external and internal pressures. Traditional government systems assumed that diversity could be subsumed by a focus on consensus and minimizing differences. Although successful approaches to the management of diversity respect differences and manage the impact of government action on interest groups, much of the rhetoric about reform seems to ignore this reality.

GLOBAL TRENDS ARE RESHAPING NATIONAL COMPETITIVENESS An isle is emerging that is bigger than a continent—the Interlinked Economy (ILE) of the Triad (the United States, Europe, and Japan), joined by aggressive economies such as Taiwan, Hong Kong, and Singapore. . . . It is becoming so powerful that it has swallowed most consumers and corporations, made traditional national borders almost disappear, and pushed bureaucrats, politicians, and the military toward the status of declining industries. —Kenichi Ohmae, The Borderless World Fundamental trends are altering the way in which business must operate to succeed and the way in which wealth is created and distributed between and within nations. These same trends are altering the role of government and the way in which government and business must operate to compete.

Government in Crises

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We now examine the impact of five external trends on the way in which governments are managed and on the relationship between the business and government. Globalization, competition for scarce resources, and technology development and transfer are fundamentally altering the value-chain of many industries. Technology is revolutionizing approaches to integration and control in both the business and government sectors. The need for governments to respond to increasing diversity within and between nations and the need to manage these issues under the glare of mass information, which highlights differences and inequities in the process of government, are generating new constraints on governments and on government management platforms. Globalization The traditional model for external relationships was to manage them to contribute to the domestic economy of a nation by buffering the domestic economy from undesirable external pressures. However, the capacity of nations to buffer their values and development from external influences has all but passed. This has created new external threats and opportunities. Governments can no longer respond effectively to recession or deliver economic growth and employment in isolation. Nations need to access global resources, technologies, and markets. The price for this access is the need to meet external needs and expectations. Nations are forming new external regional alliances which are seen to assist individual nations to access global markets. Competition Nations must compete externally for a share of global resources and for access to markets and technologies. The traditional model for competition conveniently separated the role of government and business: government was required to regulate markets; business and industry groups were required to operate independently to create added value. This approach has proved unable to cope with external changes; in the new global economy, government and industry need to work together to optimize the share of global resources accessed by a nation or region. Global resources are increasingly allocated by business networks such as multinationals, by international trade and investment, and by agencies such as the World Bank which seek to facilitate development. Nations that fail to respond effectively are accessing a decreasing share of these global resources. As global market forces compare the systems and regulatory regimes of nations, governments are being forced to address new external imperatives

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which impact on taxation, trade, and financial regulation. The role of government can no longer be studied separately from the rest of the economy. The way in which business and government interact is no longer fixed; it has become a key variable in new approaches to government. The boundaries between the two sectors are changing as integration between the private and public sectors becomes more critical. Government must work with the business sector to gain a share of global resources and to develop the internal resources required to exploit global markets and technologies. Technology To compete, nations must access and apply developing technologies cost effectively. The development of technology has made technology access and technology transfer, the application of new technology and advanced technological information and processes, key issues for the economic competitiveness of nations. Old technology tends to be reflected in established production values and practices; new technology requires adaptation of those values and practices to facilitate technology transfer. The traditional model for technology transfer was to develop a technology base hierarchically, starting with low technologies and leading to higher technologies and then upgrading and developing the base incrementally. These strategies are no longer effective. Pursued in the current global environment, they are a prescription for disaster and economic exploitation. To develop as part of the global economy, countries need: to recognize that many technology changes are necessarily discontinuous; to access technologies strategically at all levels; to apply and exploit technologies to produce competitive advantage; and finally, to position themselves to exploit emerging technologies. These strategies in turn require nations: to develop international alliances; to reform labor markets; to review approaches to education and training; to accept and manage technological redundancy as a cost of remaining competitive; and to develop public and private sector partnerships to access key technologies. Generic skills are no longer enough; governments must ensure that there is a strategic fit between the demand- and supply-sides of the education and training system. Diversity In addition to globalization and competition for resources and markets, governments must manage major increases in the level of diversity between nations, regions, and interest groups. This requires new approaches by governments.

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The traditional model for managing diversity was to focus on common values and consensus and to isolate and reduce anomalies. There are three problems with this approach to diversity. First, as pressures from diverse groups have increased, the prospects of consensus have reduced. Increasingly, governments have come to regard consensus as 51 percent of the whole. Second, the assumption that national consensus translates into the integration of economic and political factors at the regional and industry level is no longer valid for many countries. Third, although the management of high response situations demands devolution, the devolution of consensus issues raises new challenges for those who believe that equity requires centralized government and majority rule. Increasingly, the old search for consensus is being seen as counterproductive. Nations are learning to manage their affairs within a comfort zone within which key groups are not motivated to oppose change. This requires political systems able to recognize and negotiate needs with interest groups and an administrative system able to deliver results while managing negative impacts. Increasingly governments must manage both internal and external comfort zones and the interrelationship between these. The management challenge for governments today can be reduced to the twin challenges of meeting public expectations for real impacts rather than rhetoric while simultaneously managing within the comfort zone to accommodate diversity and maintain the scope for change. The myriad of new administrative tools developed in recent times can be seen as responses to these two challenges. The techniques reduce two new approaches to government administration: performance management, and comfort zone management. Information The traditional approach to communication was to control and shape reporting in order to reinforce established values and approaches. In the 1980s, when the political and entertainment businesses found much common ground, the objective of most government communication was to manipulate mass communications to support established priorities and values and to conceal differences and failures. Simple communicable ideas rather than prescriptions for action were the hallmarks of successful governments. Governments can no longer convince the public that their interests are synonymous with the national or even the public interest. It is difficult to convince people that they are moving ahead or even leading the world when the nightly telecasts reflect a more compelling reality. The speed and saturation of today’s mass communications combined with the Internet revolution

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have outflanked these old strategies in many countries. Information about the performance of governments is more readily available, as is information about the performance of other nations. Performance or the lack of it can no longer be hidden, and public expectations are now more demanding. The grand plans and platitudes that characterized much national planning are no longer persuasive, either to key interest groups within a country, or to external groups who increasingly require evidence of performance as a prerequisite for investment and trade.

NATIONAL COMPETITIVENESS AND THE ROLE OF GOVERNMENT While globalization of competition might appear to make the nation less important, instead it seems to make it more so. . . . While the role of government in creating and sustaining national advantage is significant, however, it is inevitably partial. —Porter, The Competitive Advantage of Nations The literature is rich in descriptions of both the symptoms and solutions to the crises in government management. However, before we consider key solutions to the crisis in government management, it is important to examine theories about the causes of the crisis. First, we consider whether the crisis is caused by internal or external factors. Second, we consider the complex interactions between the crises and responses to the crises and governability. Many prescriptions for improvement appear to presume that the causes of the government management breakdown are internal. The idea that government is too large, too expensive, and poorly managed underpins many government reform programs. If this is the case, responding to the crisis requires the rationalization of functions and the modernization of management. While new management and structures are part of the solution for many governments, they address symptoms rather than causes of the crises. Many governments have treated these systems by restructuring and changing management systems only to find that the crisis reemerges in terms of new problems. A development of these “more efficient” government solutions is the idea that the crisis has been caused by governments seeking to fund and deliver traditional roles and services when external trends are reducing the natural role of government. Kenechi Ohmae (1994) suggests that both national sovereignty and the role of government are declining. If Ohmae is correct, responding to the crisis requires cutback management to remove resources from roles which are redundant and to ensure that other ongoing roles are resourced and delivered. The response of nations and the global economy to the Asian financial

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crises have challenged two ideas central to Ohmae’s analysis: the assumption that business and unfettered market forces can increasingly meet national as well as business needs and address the core insecurities of people; and the assumption that the performance of governments is in some senses a second order issue, for it is not a critical prerequisite for national performance. A number of analysts have argued that governments remain critical to national competitiveness. These authors argue for a shift in the roles of government rather than for its gradual abolition. This argument is advanced in a major analysis of national competitiveness by Michael Porter (1990). If Porter is correct, government needs to develop a new role which works with business to deliver improvements in national competitiveness. Porter argues that this role needs to be a catalyst for change rather than a protector of existing business interests. Eisuke Sakakibara (1993) argues a similar case for national differences from a Japanese perspective. The Porter analysis is also supported by several more general studies which focus on the impact of the global markets. Yergin and Stanislaw (1998), in a cross-country analysis of the changing role of government and the marketplace, have argued that while central planning and direct service delivery by governments has declined, other government roles such as creating and maintaining markets, addressing social “safety net” issues, maintaining trust in government, and ensuring responses reflect national differences and values have become more important. George Soros (1998) in a useful study of global financial markets argues that the failure of governments to regulate these markets and to manage the impacts on nations is a major impediment to the operation of global markets. In our opinion, the case for external causes is compelling. Assuming that changing external pressures are the underlying causes of the government crises does not mean that reform can ignore internal factors and the interaction of external factors with governability. A number of authors have addressed the impact of these wider changes on governability. Drucker (1993) explores these restraints on governments in a penetrating analysis of national structures and political processes. John Kenneth Galbraith (1992) in an insightful, if depressing, examination of the politics of contentment, explores much the same problem. If these authors are correct, it follows that the solutions to the current crisis must also find new ways to manage diversity and, where these cannot be found, redefine the role of government to fit these new realities. The cause of governability problems can also be related to the failure of governments to address changes in their traditional role and to the institutionalized and centralized strategies used to manage consensus. In part, the reforms proposed by Osborne and Gaebler (1993) recognize the negative impacts of these traditional approaches. This analysis suggests that old frameworks for government management, which seek to eliminate diversity, have exacerbated the problem.

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What are the implications of this discussion of causation for our analysis of government transitions? We believe that the current crisis has been caused by the inability of traditional government roles and management to respond to new pressures for global competitiveness and by the failure of governments to manage effectively the pressures generated by entrenched interest groups which resist change and slow a nation’s capacity to respond. It follows that our analysis of the crisis in government management needs to start by examining external pressures and the strategic fit between these pressures and the role and management systems used by government. We need to move beyond the impediments to change discussed by Drucker and Galbraith and, in the process, develop management tools to manage the impacts of change. Although government reform needs to address these external changes directly, most government reform remains inwardly focused. Reform programs, which seek to put the government house in order without recognizing that the house is burning down, or is at least in the midst of a major externally induced crisis, seem bound to fail.

BENCHMARKING NATIONAL COMPETITIVENESS World competitiveness is the ability of a country or a company to, proportionally, generate more wealth than its competitors in world markets. Competitiveness combines assests and processes: (1) assets which are inherited (e.g., natural resources) or created (e.g., infrastructure); (2) processes which transform assets into economic results (e.g., manufacturing); and then (3) internationalization, which tests the formula in international markets to create world competitiveness. —The World Competitiveness Report, 1994 We have explored the changing role of governments and the external pressures that governments must address. We have suggested that a key cause of the crisis in government management is that government responses to external pressures have been inadequate. We now examine the measurement of national competitiveness and government competitiveness and address the reality that some government are responding more effectively than others. Exhibit 1.2. National Competitiveness—The Role of Government in Selected Countries compares evaluations for selected countries on the basis of national competitiveness and the contribution of governments to national competitiveness. A number of differences between countries can be identified from these data. Most countries that rank low on the contribution of government policies to competition also rank low on overall national competitiveness, for example, Indonesia, India, Korea, Columbia, Turkey, Czech Republic,

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Exhibit 1.2. National Competitiveness—The Role of Government in Selected Countries High national / government competitiveness ▼ ◆

100 ◆ Malaysia

80

Thailand

60

◆

◆ Philippines Portugal Austria ◆ ◆ Brazil ◆ Hungary ◆ Mexico ◆ ◆Israel South Africa Argentina ◆ ◆ ◆ ◆Indonesia India ◆ Greece ◆ Korea ◆ Colombia Turkey France ◆ ◆ ◆ Czech Rep. Belgium ◆ ◆ Poland ◆ Italy ◆ Russia Slovenia ◆

40

20

0 0

▼

Government competititvess index

◆Chile New Zealand ◆ Taiwan ◆ Spain ◆ Iceland ◆ China ◆

20

40

60

◆ Hong Kong Singapore ◆ Ireland ◆ Switzerland ◆ ◆ Luxembourg Australia ◆ Finland Canada ◆

USA ◆ ◆ Netherlands ◆ Denmark

◆U.K. ◆ Norway ◆ Japan

◆Germany

◆ Sweden

80

100

National competitiveness index—100 most competitive Low national / government competitiveness

Source: The World Competitiveness Yearbook (1999). Country ranks converted into a competitiveness index with 100 being the most competitive country. Note: The Yearbook ranks countries on overall country competitiveness and on a number of factors including “government.” This points on the chart are the government factor and country (national) competitiveness indices for each country.

Poland, Russia, and Slovenia. Most countries that rank high on national competitiveness also rank high on the contribution of government policies, for example, United States, Singapore, Finland, Luxembourg, Switzerland, Hong Kong, Canada, Ireland, and Australia. A number of countries rank high on government competitiveness but obtain a lower ranking for national competitiveness, for example, Iceland, Taiwan, New Zealand, Spain, Chile, Malaysia, and China. Three conclusions can be drawn from this material. First, countries vary widely in competitiveness and this is a measure of their success in exploiting the external changes discussed earlier. Second, there is a relationship between

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the approach to government and national competitiveness. While the relationship is complex, this suggests that one focus for government reform should be national competitiveness. Third, the complexity of the relationship is evidenced by the reality that competitive countries achieve this result with very different strategies and with very different approaches to the contribution and role of government and business. Any framework for competitive government needs to address these differences rather than presume there is one solution to government reform or one path to national competitiveness. Benchmarking Government Performance In responding to the external pressures discussed above, governments need to move beyond processes and maximize added value. Three assumptions are suggested to benchmark added value. First, added value for the competitiveness role is best measured in terms of increased national competitiveness. Second, the most effective measures for each of the three roles of government are relative measures which compare one country with another. Third, comparisons need to extend to the key factors which underpin each role. The World Competitveness Yearbook is a rich source of detailed comparative country data. Exhibit 1.3. World Competitiveness Yearbook Factors summarizes country rankings for the upper third of countries. Country factors rankings that are similar or higher than overall country competitiveness rankings can be assumed to drive competitiveness. For example, U.S. competitiveness is driven by all factors except governance and perhaps people. Singapore’s competitiveness is driven by infrastructure, government, management, and people. Australia’s competitiveness is driven by infrastructure, government, and perhaps people. Benchmarking Workskills and National Competitiveness We have suggested that one way in which government contributes to national competitiveness is by developing an education and training system that delivers world competitive workskills. We now illustrate the use of benchmarking to evaluate the performance of government education and training reforms in this area. A number of studies have analyzed these relationships. Paul Decker, Jennifer Rice, and Mary Moore (1997) explore a range of indicators for the U.S. education system. Hilary Steedman, Andy Green, Oliver Bertrand, Ansgar Richter, Marcus Rubin, and Klaus Weber (1997) examine the competitiveness of United Kingdom skills base. The Organization for Economic Co-operation and Development (OECD) have developed a data base and analysis which explores differences in the stocks of qualified persons in different countries and have published projections of these measures. R. B. Cullen (1998) suggests that

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National competitiveness

Avg. var. in comp. 95–99

Domestic economy

Internationalization

Government

Finance

Infrastructure

Management

Science and technology

People

Exhibit 1.3. World Competitiveness Yearbook Factors

United States

1

0.0

1

1

15

1

1

1

1

6

Singapore

2

0.0 18

2

1

9

13

4

12

4

Finland

3

4.0

4

11

10

8

2

3

6

1

Luxembourg

4

1.1

3

3

7

2

15

12

20

10

Netherlands

5

0.9

7

6

18

3

7

2

8

12

Switzerland

6

0.0

8

26

4

4

10

15

3

9

Hong Kong

7

–0.8 36

5

2

7

19

5

22

14

Denmark

8

–0.5 10

12

22

5

9

11

9

2

Germany

9

–1.0 11

7

31

6

6

18

4

20

Canada

10

0.8 12

24

12

11

8

8

13

7

Ireland

11

3.3

2

8

5

16

23

7

11

21

Australia

12

1.4 16

28

8

10

4

16

16

11

Norway

13 –0.6

9

25

20

19

3

19

17

5

Sweden

14 –0.7 27

15

39

13

5

6

6

17

0.7 26

4

19

12

17

20

14

24

16 –3.8 29

21

23

25

20

26

2

13

United Kingdom 15 Japan

Source: Rankings from The World Competitiveness Yearbook 1999, IMD: Geneva 1999. Note: Factor rankings in bold are potential strengths. Factor rankings in italics are potential weaknesses. Average variation is the average reduction in rank (increase in competitiveness) 1995–1999.

evaluating education and training reform should focus on the competitiveness of workskills and that the proportion of persons with different levels of qualification can provide a surrogate measure of workskills.

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Cullen showed that OECD education data and The World Competitiveness Yearbook competitiveness data can be combined to benchmark the performance of Australia’s nations educational and training system. Exhibit 1.4. Benchmarking Workskills and National Competitiveness repeats this analysis Exhibit 1.4. Benchmarking Workskills and National Competitiveness

100

◆

Finland ◆ ◆ Luxembourg Netherlands ◆ Denmark ◆ Ireland ◆ Australia

United States

◆

90

Switzerland ◆ ◆ ◆ Germany Canada Norway ◆ ◆ Sweden ◆ U.K. ◆ New Zealand ◆▼◆ France Austria

80 70

▼

Rank index—national competitiveness

PERCENTAGE OF WORKFORCE COMPLETING UPPER SECONDARY SCHOOLING

60 50

Spain ◆ ◆ Belgium 40 Portugal ◆ Italy ◆ ◆ Greece 30 ◆ ◆ Turkey Korea 20

◆ Hungary

◆

Poland ◆ Czech Republic

10 10

20

30

40

50

60

70

80

90

100

Rank index—ISCED 3 and above (post-compulstory) profile

100 90 80 70 60 50 40 30 20

United States Finland ◆ Luxembourg ◆ Netherlands ◆ ◆ Switzerland Denmark ◆ Canada Germany ◆ ◆ ▼ Ireland ◆ ◆ ◆ Australia Sweden ◆ U.K. Norway Austria ◆ New Zealand ◆ France ◆ ◆ ◆ Spain ◆ Belgium Portugal ◆ Hungary Italy ◆ ◆ Turkey Greece ◆ ◆ Korea ◆ ◆ Czech Republic ◆ Poland

◆

▼

Rank index—national competitiveness

PERCENTAGE OF WORKFORCE WITH DEGREE OR HIGHER

10 10

20

30

40

50

60

70

80

90

100

Rank index—ISCED 6 and above (degree) profile

Source: Adapted from R. B. Cullen, Benchmarking Australian Qualification Profiles (Brisbane, Australia: Australian National Training Authority, 1998), by inserting 1999 competitiveness and 1998 OECD qualification profile data.

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using 1998 and 1999 data. The upper chart uses workskill rankings derived from the proportion of the workforce who have completed secondary school, obtained a major trade qualification, or obtained higher level qualifications. The lower graph repeats the analysis using the proportion of the workforce with degree or higher level qualifications. These results show a strong correlation between country rankings based on qualification profiles and country competitiveness. The relationship is strongest for the secondary school and higher education profile which includes all those who complete school, a trade qualification, or a degree program. Three points should be noted in examining this analysis. First, most examinations of national education and training systems examine inputs and access. Some extend this to an examination of current flows through education and training systems. Only a few studies examine the links with competitiveness. Second, although the proportion of the workforce in different countries with defined levels of minimum educational qualifications is an imperfect measure of workskills, a number of studies suggest that these measures provide a useful comparative measure. Third, the analysis suggests that these workskill measures impact on competitiveness by differentiating countries rather than through absolute inputs to production functions. Cullen extends this by suggesting that differentiation is likely to be hierarchical with countries first being differentiated on the bases of secondary school profiles and then on the basis of higher level qualifications. Finally, to be useful, benchmarks need to shorten the cycle time between education and training decisions and outcomes in terms of competitiveness. One way to do this is to project future qualification stocks on the basis of existing education policies. OECD projections provide a sound staring point for such benchmarking. Our purpose in raising this analysis is not to explore the complex issues which underpin this analysis but to illustrate the use of available international data to benchmark government contributions to national performance. Although education and training programs are only one link that determine competitiveness, a simple examination of country differences and the impact of existing policies on future qualification can provide key options for a country to add value to workskills. The objective is not to manage a shift in qualifications in isolation but to manage a country’s profile against projected shifts for competitors. The priorities for each country are different. They depend on the existing skill base, education and training outputs, and on a study of the likely competitiveness impact of the education and training policies of competitors. • The challenge for the United States is not that other countries will pass historically high U.S. secondary school qualification profiles, but that they will catch up and neutralize a source of competitive advantage.

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The challenge for the United States is not only to ensure that as other countries match U.S. profiles, the United States maintains an advantage by improving the quality and relevance of qualification, but also that higher level profiles remain ahead of others and that retraining is responsive and competitive. • The challenge for Australia is illustrated in Exhibit 1.3. In the upper chart, Australia is more competitive than is suggested by its secondary school qualification ranking. In the lower chart Australia is less competitive than is suggested by its degree ranking. Cullen argues that the low secondary school and apprenticeship ranking is limiting the workskill benefits that Australia obtains from its university sector. The challenge is to maintain Australia’s high degree ranking as other countries accelerate performance in this area and to reverse the decline in secondary school ranking that has occurred in recent years and is forecast to continue. Australia ranks fifteen on the secondary school profile and five on the degree profile. The challenge is not only to increase the proportions of the workforce completing school and apprenticeship programs but to grow this more rapidly than other countries. • For developing countries the proportion of qualifications in the younger age groups appears to be a lead indicator for workskills. For example, the proportion of the workforce with secondary school or equivalent qualifications for younger persons in Singapore has already passed that of Australia. For older persons, the workskills challenges for Singapore are different than for Australia. • Germany has a high secondary school or equivalent profile including a strong apprenticeship system and a low but growing degree profile. Cullen suggests that the challenge for Germany is to ensure that apprenticeship programs become more responsive to new needs, while also growing degree and the higher level programs.

THE STATUS OF GOVERNMENT MANAGEMENT REFORM There are real opportunities to improve government performance, but availing ourselves of these opportunities will require very different reform strategies than those that have been tried in the past. —Downs and Larkey, The Search for Government Efficiency

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Current government management reform focuses on four strategies: • Rationalize government functions, reduce the size of government, eliminate waste, and shift functions to the business sector where this is seen as likely to improve performance or simplify government. • Reform financial management systems, focus on programs and results, and reduce expenditure. • Deregulate government by replacing traditional government structures systems and values with solutions derived from modern business management concepts and, wherever feasible, introduce government delivery systems to market forces. • Strengthen the capacity of government to focus outward rather than inward by separating strategic policy controls from operational management and by devolving services to agencies able to monitor and respond to changing customer needs. The key thrust of current responses to the crisis in government management is to presume rationalization, budget cut backs, deregulation, empowerment, and closer links with customers that will produce better and lower cost solutions. In many cases these tools do just that. In some cases they clearly fail. The gap between government promises and government delivery has widened in many countries. Implementation remains the Achilles heel of government management. Initial attempts to change tended to underestimate the problem of delivering results. Government reformers often assumed that the challenge was to deliver a legislative consensus for change. The assumptions were that the changes addressed the core problems facing government and that implementation would follow the delivery of a legislative mandate for change. Neither of these assumptions held. Many of the changes addressed narrow problems and many of the plans approved by government could not be implemented. Failure to implement is often taken as evidence that government management has failed. In part, this is a valid criticism. However, the technologies, which the traditional government management model uses to coordinate work, are often the root cause of failure. Governments deliver value through a series of sequential functions, for example, these might typically include: consensus, legislation, budget, resource acquisition, project design, project delivery, and consolidation functions. Projects tend to be coordinated through these functions using a series of queues and aggregations designed to optimize the work load of each function rather than to optimize the performance of specific

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projects. The time delay between the approval of a change and the delivery of results (implementation cycle time) is not managed directly and in times of cut backs in resources tends to increase rather than decrease. There are three reasons why lengthening implementation cycle times reduce the chances of successful implementation. First, increased cycle time improves the scope for interest groups opposed to change, to emerge, and to act. Governments, faced with major resistance to change, tend to move to restore the capacity to govern by modifying the change. In the end, the objective often becomes survival and the original objective of the change is forgotten or seriously compromised. Second, increased cycle time increases the chances that management attention and resources will be diverted to address some new crisis before results have been delivered and communicated effectively. Third, increasing cycle time increases the chances that the external environment will change reducing or eliminating the core value offered by the original solution. The failure to deliver has led to almost continuous management and personnel changes in government. These changes, combined with ongoing budget cut backs, have eroded the capacity of public administration to respond. Many governments today need to rebuild management systems and to recognize that a competitive nation requires a competitive government management system. They must do this without access to the new growth opportunities which fueled the post consolidation development of the business sector. We now examine three set of solutions to the government crisis. Cut back management addresses the need to balance the supply and demand for resources. Many governments have responded by reducing the size and impact of government. Although the process of rationalization was needed in many countries, the process in government has often been driven by budget imperatives combined with the need to remove the “dead hand of government” from business in order to let business operate. Cut back management is seldom successful in a vacuum. The process in business was driven by the need to deliver profits and to create a new base from which further development could emerge. The element which is missing from many of these government management experiments is the new mission which must be protected and nurtured as part of the process. In government, cut back is often driven by budget shortfalls and an ideological position that the solution to the government management crisis is to obscure the financial deficit problem in a flurry of short-term actions rather than to fix the underlying management deficit which caused the problem in the first place. Devolution addresses the need to provide managers with the scope to govern. Reform of management structures usually involves deregulation of traditional input controls over personnel and line item budgets and the use of business solutions to structures, systems, and management skills. However,

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these management solutions seldom focus on the prerequisites for effective implementation or the delivery of the core missions of government. While there is no doubt that the solution to the government management crisis must involve the demolition of traditional input controls over budgets and personnel, in order to devolve real management roles, there are two problems with these solutions. First, solutions which address the national interest and ensure that devolved units address this interest have been slow to evolve. Some reforms have sought to redefine roles and structures to deliver services more effectively. This usually involves a separation of policy and overall controls from the management of operational delivery systems. This is evidenced by the separations implemented by Mrs. Thatcher in the United Kingdom and the steering and rowing reforms advocated by Osborne and Gaebler. Structural solutions to the coordination of the interdependencies in the government valuechain can be effective where both the delivery agency and the relevant external interest groups are relatively self-contained. However, such approaches to the coordination of interdependencies seldom manage high response situations effectively. Second, managing the transition from traditional tightly controlled agencies to devolved deregulated agencies requires new forms of accountability for performance. These new accountabilities are often assumed rather than created as part of the change process. Two predicable outcomes follow from assuming that deregulated agencies will perform. Agencies test the limits of their new autonomy and this can create some wild explorations which need to be managed; the salary increases awarded in the newly nationalized industries in the United Kingdom are a case in point. Once the initial consensus about change erodes, or when autonomous agencies need to change, conflicts occur between autonomous operating agencies and executive government. When this occurs, the role of executive management can reduce from ensuring that the central roles of government are delivered to one of finding new ways to bring errant agencies under control. Reinventing government addresses the need to focus reform on implementation and the delivery of results. Osborne and Gaebler focus on changing government value-chains to bring parts of government activity closer to users and interest groups. This combination of deregulation and empowerment has challenged conventional notions about good government. The public has begun to see that effective government needs managers and agencies who are provided with the scope to manage. The ten themes developed by Osborne and Gaebler illustrate the nature and scope of the new-style reforms, which are being implemented in many countries: steering rather than rowing, empowering rather than serving, injecting competition into delivery, transforming rule driven government, funding outcomes not inputs, meeting the needs of

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the customer not the bureaucracy, earning rather than spending, prevention rather than cure, from hierarchy to participation and teamwork, and leveraging change through the market. These ideas have led to solutions which are a major improvement on previous attempts to improve the performance of government. As practitioners explore problems with a new found freedom to solve them, more examples will emerge. The new-style reforms provide a new focus for the grass roots delivery of many functions and services. These reforms work because they introduce new approaches to the delivery, shorten the traditional valuechain, deregulate government activities, and seek to develop new approaches to resource management, evaluation, and accountability. However, these approaches are as yet dangerously incomplete? In seeking to build on current changes and address some of the weaknesses which seem to be emerging, our analysis suggests that a number of gaps remain to be recognized and explored. Competitiveness First, new approaches to managing the links between grass roots reform and adding value to national competitiveness have not yet developed. Many of the reforms are clearly applicable to the delivery of grass roots services to customers. These new approaches need to balance short- and long-term interests and meet short-term needs within a framework of priorities which builds future wealth and manages national transitions to protect national interests. Long-Term Value Second, the links between one-off changes and long-term added value need to be further considered. The criteria for managing both performance and public expectations of performance remain vague in many of the cases explored. The assumption seems to be that performance once restored will be driven by a new focus on customers and services. This seldom occurs. An effective basis for the ongoing evaluation of change and for addressing the inevitable failures needs to be identified and implemented. Allocative Tension Third, strategies for managing allocative tension where agencies are not selffunding cannot be solved by the new micro-reform agenda. These problems are compounded by budget cut backs. While some important ideas are advanced, this is an area which can subsume governments and cause major uncertainties.

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Implementation Fourth, although the management of implementation is often as important as the solutions, current prescriptions tend to assume that deregulation and a customer focus will provide the focus to correct this problem. The need to manage the impact of change on various interest groups is only partly addressed by current reform processes. There are two problems with this assumption. The need to devolve the responsibility for managing external implementation impacts is assumed to be addressed by devolution. Where the customers are the major interest group, this is likely to occur. However, where there are different impacts on different interest groups, new tools are required to focus management on the delivery of specific impacts. In addition, the need to use devolution to reduce cycle time or the time it takes government to recognize a need and address it is not explored. Role of the Legislature Fifth, the implications of the Osborne and Gaebler prescriptions for the role of government and particularly the role of the legislature is major and requires more analysis. Unless this is also addressed as part of the reinvention process, reform will simply build new pressures and may even reduce rather than improve overall national competitiveness. The U.S. Reinvention Experiment The Clinton-Gore reforms in the U.S., the National Partnership for Reinventing Government, provide an important case study of reinvention. Expert testimony to the Senate Government Affairs Committee recently addressed the question, “Has Government Been Reinvented?” (Light 2000; Kettl 2000; Moe 2000; and Mihm 2000). The consensus seems to be that there have been both failures and successes, that reform is a “work in progress,” that developing an agency-based focus on results does not come quickly or easily, that government has little option but to continue the reform process, and that weaknesses in the reform strategy need to be defined and addressed as part of ongoing reform. In part, these weaknesses relate to the gaps in the reinvention strategy and solutions. In part, they relate to gaps in the implementation strategies used to drive the reinvention machine.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT The crisis in government is driven by external change that no nation can ignore. While reform must address these external issues, reform must also

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address the reality that traditional systems of government have broken down. There is no simple incremental solution for most government management systems; they must implement a new management base which meets the needs of all national stakeholders. If they do not, national competitiveness will suffer and the well-being of citizens, if not actually eroded, will suffer compared with nations who elect to be competitive. There are two implications of our analysis for the reform of government management. First, governments need to refocus reform from internal to external factors. Second, governments need to ensure that internal reforms deliver reduced cycle time (speed), maintain the scope to govern and address impacts on diverse interest groups (consensus), and deliver expected results (performance). The Need to Refocus Reform from Internal to External Factors The changing external environment of nations means that governments must change to maintain and increase national competitiveness. Failure to do this leads to a reduced access to world resources and a reduced standard of living within a particular country. The benchmarks for progress are relative; it is not enough for a nation to improve, it must improve relative to others. The idea that nations are managing a transition to improve competitiveness requires both a competitive business sector and a competitive government. This requires changes in the role of government and in the way in which governments manage their affairs. The idea of competitive government needs to be differentiated from current strategies to introduce competition into the delivery of government services. The benchmarks for competition in service delivery are unit costs and customer service compared with other countries and regions. The benchmarks for competitive government are: first, improvements in national competitiveness and second, whether a particular government adds more or less value to national competitiveness than others. The Need for Management Solutions which Focus on Speed, Consensus, and Performance While different nations must manage different transitions that require different contributions from government, our analysis identifies three common characteristics of competitive governments: speed, consensus, and performance. It is interesting that the concepts of speed and strategic response, which have proved so powerful in the business sector, also seem to be key to improving the performance of the government sector. However, the reasons why these concepts add value in each sector are different.

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Speed: A single management strategy which addresses each of these requirements is the management of cycle time. We define cycle time as the time which elapses between the emergence of a clear need for government action and the delivery of that action and the communication of the results to those affected. In our opinion, the failure of many government systems to manage cycle time explains many implementation crises. There are powerful reasons for managing cycle time. It makes sense to start government projects in a supportive environment rather than when they emerge from a fixed legislative and budget queue. It makes sense to complete government projects quicker and to manage implementation against time-based targets. This reduces the scope for opposition, increases the chances that implementation will be resourced and managed effectively, and targets the delivery of specific value to the public. Managing cycle time enables management to coordinate positive and negative impacts during the implementation cycle. The objective of such coordination is to maintain a net positive perception of value. This requires the arrangement of implementation impacts to deliver early benefits. It also requires negative impacts to be offset by perception of future benefits. The discount factor which the public uses to compare promises of future benefits against current costs is a function of the time delay involved and the level of public distrust of government. While increasing distrust of government is reducing the discount factor, reduced cycle time can offset this reduction. Except perhaps in times of major crisis, government management has not been noted for its speed of response or for its capacity to monitor external developments. Even where these responses involve little more than removing the maze of regulations that prevent the private sector responding, the evidence suggests that the public sector often has difficulty seeing the wood for the trees. Many of the responses to budget shortfalls actually act to extend rather than reduce cycle time. Consensus: An important characteristic of the crisis is the extent to which nations are either becoming less governable or are so constrained by diverse pressures that they settle for survival rather than added value and improved national competitiveness. While many involved in government recognize this problem, few appreciate that the way in which government continues to attempt to manage diversity is part of the problem. Traditionally, governments have focused on developing a consensus for a project at the outset. The idea of consensus involves a search for core values and shared interests. Increasingly governments are finding that initial consensus is eroded during implementation. The corrections required often address criticism by reducing project value. Our analysis suggests that the initial search for consensus is probably misguided. A more realistic approach to the management of diversity is to recognize and respect differences by negotiating the impacts on interest groups.

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The idea of consensus and enthusiasm for government changes is both counterproductive and unnecessary. In reality, government seeks to maintain a comfort zone within which interest groups and the public allow government to govern. This approach requires government to find new ways of both planning strategic priorities and managing the impacts of projects throughout the project cycle. Performance: Many changes have not delivered grass roots impacts. Many government management systems manage processes or functions and assume that long-term added value is delivered. Few processes manage shortterm impacts unless a crisis emerges which must be addressed. We argue first that the focus of reform must be to enable managers to manage performance directly, and second, that the time horizon of these evaluations must be shortened rather than extended.

A FRAMEWORK FOR EXPLORING THE TRANSITION TO COMPETITIVE GOVERNMENT In this chapter, we have examined both the causes of the current crisis in government management and the responses by governments. The role of modern government is changing and the management ideas and systems required to enable government to perform are changing. If the future could be a projection of the past, there would be no crisis. Although there would be challenges working through the over-government which occurred in many counties and in adapting to new needs, the platform from which to launch solutions would be sound and understood. But the future is not a projection of the past. Government, like business, is confronted by a major turning point where evolutionary change strategies are futile. Government managers need to “jump the curve” and build a new platform from which to launch future solutions. Building that platform requires the dismantling of many traditional systems and values. A number of authors have explored the need for discontinuous change. Nicholas Imparato and Oren Harari (1994) use the term “jumping the curve” to discuss business management strategies that respond to the need for such change by breaking historical trends to establish a new platform for growth. The challenge of developing such strategies for government management systems is a key focus of this book. There is an emerging consensus that fixing the current crisis requires new ideas about government and that these new ideas must be implemented by radically different approaches to the delivery of government activities. While specific solutions emerge from addressing specific problems, government reform also needs to address a more fundamental transition. Reform must

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dismantle old systems and replace these with new strategies and management tools which can manage the future. Governments are in the midst of a more fundamental change than many realize. They are navigating a turning point which is every bit as challenging as that confronted by business. In many respects, they are navigating with a combination of traditional tools which are clearly broken and with tools borrowed from business which only address part of the government management problem. In this chapter, we have described the new form of government management which is developing as competitive government. Many government management systems have no option but to “jump the curve.” If they hold back they will lurch from crisis to crisis. Worse, their nation’s share of global resources will be cut as governments and nations better able to exploit new global realities outperform them. Nor do governments really have the luxury of changing at their own pace. Whether they understand it or not, they are competing with other nations and governments. And some of these competitors are already off and running. Our discussion of the transition to competitive government is divided into three parts. Part 1 discusses changing ideas about government and develops a vision to guide government reform. Part 2 examines the challenge of translating these ideas into action. Almost all the core systems of government are being reinvented. The process must be coordinated and the new solution must be comprehensive. To succeed, the implications of these changes must be understood by government managers and by the communities they impact. Part 3 examines the need to translate these visions and strategies into a specific government transition to competitive government. Governments have learned to manage individual change projects. The challenge for many is to mange sequential interrelationships between these projects to maximize added value and implement a transition. This transition must respond to the external and internal pressures facing the government of a specific nation, it must chart a realistic course between the current and future performance of a government, and it must be benchmarked to enable government to navigate through turbulent seas.

Part I A Vision to Guide Government Reform

A Vision to Guide Government Reform

Big organizations, as a rule, only change significantly when certain conditions are met. First, there must be enormous external pressure. Second, there must be people inside who are strongly dissatisfied with the existing order. And third, there must be a coherent alternative embodied in a plan, a model, or a vision. —Toffler, The Adaptive Corporation In chapter 1, we argued that government is something that needs to be fixed. However, attempts to fix government by adopting strategies, tools, and evaluation procedures from the private sector have not been successful for several specific reasons. One specific reason centers on the failure of theorists to recognize that contemporary governments vary in form from centrally planned to highly autonomous. No one model or theory has been brought forward which recognizes this diversity and indicates how each government can make the changes necessary to get from where they are to where they should be. There is a growing recognition that government is facing a major turning point and that it must change its traditional technologies and processes to survive. The reality that incremental change cannot work means that governments need a new vision to guide reform. The new vision that is emerging must be extended beyond ideas to provide a coherent focus for action. We need flexible not tunnel vision, vision that can be informed rather than distorted by government differences, and vision that encompasses the range of different solutions that government management must embrace. Government management today meets two of Alvin Toffler’s three criteria for organizational change. The crisis is widely recognized and there is dissatisfaction both within government agencies and amongst those groups who seek to work with government to advance both national competitiveness and the well-being of citizens. While a vision is emerging it remains partially hidden, obscured by national differences and the need to fix a never-ending string of short-term problems. The next five chapters explore the vision which is emerging and develop frameworks which can focus the reform of government management. In chapter 33

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2, we compare business and government. Since many government reforms are driven by business values and approaches, it is important to identify gaps between business solutions and government management needs and suggests some of the preconditions for translating business solutions to government. Chapter 3 addresses the management of transitions to national competitiveness. A National Competitiveness Model (NCM) is used to differentiate national transitions, and to explore the government reforms required to support particular national transitions. Change is presented as a transition bounded by three different modes of national management. Chapter 4 suggests that the failure of government reform to deliver grass roots impacts is caused by government management systems and values and that both traditional government and transplanted business solutions fail to address this weakness. We develop solutions and suggest that government needs to manage both the short- and long-term impacts of change on each of the core roles of government. Two models are used to focus this process. The Implementation Impact Model (IIM) focuses government management on the need to manage impacts on both the added value and comfort zone dimension at the same time. This model is supported by two management approaches, performance management and comfort zone management. The Cycle Impact Model (CIM) addresses the challenge of managing the impacts of government action in a dynamic rather than a static way. The management of cycle time has major implications for the evaluation and management of government programs and for the way in which governments seek to communicate. A theory of the management of cycle dynamics is outlined and the implications for government management and communication are discussed. Chapter 5 addresses the internal changes required to enable government management to respond effectively to external processes. We extend the analysis underlying our transitions model by presenting a theory of environmental scanning, a theory of value-chain transformation, and a theory of continuous improvement to provide specific operational strategies, tools, and evaluation procedures for undertaking such a transition within four specific cycle times: a political consensus cycle, a legislative consensus cycle, an implementation cycle, and a consolidation cycle. The Value-Chain Coalignment Model (VCCM) provides a framework for adding value by reengineering government valuechains. A key objective of competitive government must be to shorten cycle time by adjusting these traditional value-chains. The value-chain of government activities is analyzed and options to shorten cycle times and focus on new implementation and evaluation priorities are discussed. We examine valuechain coalignment in action by considering the development and management through the Legislature of the Contract with America. Effective government reform requires leaders able to manage change as a transition. While government leadership shares many challenges with busi-

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ness, the context is different. In particular, government leaders, far more than their business counterparts, must seek solutions which also maintain the scope to govern by managing the impact of change on diverse interest groups. Chapter 6 explains the leadership strategies, tools, and evaluation procedures employed by two successful but different real time transitions to national competitiveness. We explore Singapore’s transition from a centrally planned to a strategically managed government. Next, we explore the U.S. government’s attempt to make a transition from a decentralized control to a strategically managed government.

Chapter 2

Lessons from Business

What can business learn from the public sector? It seems to me that it can learn a good deal about how to manage performance in complex situations where normal market forces are not effective. It can learn how to develop policies within which various issues and actions can be addressed, it can learn how to develop consensus to support decision-making and finally it can learn how to avoid taking some unnecessary risks. What can the public sector learn from business? It seems to me that it can learn how to link inputs to outputs and how to manage the delivery of outputs, it can learn how to focus on clients as a major mission of an organization rather than a source of problems. Finally, it can learn to manage risks and accept mistakes as part of that process. —Cullen, “Business Government and Change” In chapter 1, we argued that old divisions between business and government were no longer viable and that governments and business must work together to deliver transitions to national competitiveness. While traditional models of government management have broken down, attempts to fix government by adopting strategies, tools, and evaluation procedures from the business sector have often been unsuccessful. If business and government are to work together to compete with other nations, they need to remove the impediments that distort and block communications. If governments are to meet new management challenges, they must learn to access the powerful new management tools developed by global 37

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business enterprises. Learning how to transplant business solutions into the government sector requires an understanding of the differences between government and business. These differences can be translated into models and concepts that enable government managers to extend and adapt business solutions to meet government sector needs. We discuss such models and concepts in chapters 3, 4, and 5. However, before developing these ideas in detail, it is useful to examine business and government management changes and to identify the key differences which must be addressed if transplantation is to succeed. It is the purpose of this chapter to discuss business-government communications, to analyze development and management tools evolving in each sector, and to suggest strategies to enable government to use many of the new business management tools without generating the liturgy of problems which occur when the process of transplanting business management solutions to government is oversimplified.

BUSINESS GOVERNMENT COMMUNICATION Business and government often talk but seldom communicate effectively. There are major blockages to effective communication between managers in business and government that reduce the scope for each sector to learn from the other. One approach to dimensioning the communication gaps between business and government is summarized in Exhibit 2.1. Communication Gaps between Business and Government. While both groups have different priorities, Exhibit 2.1 suggests that a focus on the need to work together to increase national competitiveness can provide common ground and can lead to more effective communication. To illustrate the communication problem, we consider a business manager seeking a subsidy to establish a business and generate employment in a region. The business manager looks at maximizing returns to shareholders. Success is gaining a competitive advantage. The manager evaluates his or her competitors, identifies what is required to set up the business, sees government support programs as important, and seeks to negotiate support. To do this, the manager tends to oversell benefits and oversell the importance of the government assistance. The government manager looks to implement a government business support program. The merits of each individual application are important in the sense that the intention is to support programs which generate some regional benefits. However, there are many applications and funds are limited. The central problem is often seen as one of rationing scarce resources rather than working with business to leverage business and government funding to

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Exhibit 2.1. Communication Gaps between Business and Government Business Enterprise Competitiveness

Government National Competitiveness

Government Competitiveness

OBJECTIVES Optimize benefits for shareholders

OBJECTIVES Improve national competitiveness

OBJECTIVES Implement industry policy

IMPLEMENTATION STRATEGIES Gain a competitive advantage over other national companies and international competitors

IMPLEMENTATION STRATEGIES Gain national competitive advantage

IMPLEMENTATION STRATEGIES Add value to national competitiveness Impact of one-off decision on other claims for assistance contained Claims of government advantaging selected company with little public benefit contained Impact of failures contained

ACTIONS/IMPACTS Negotiate with government to receive assistance

ACTIONS/IMPACTS Market access Competitive products, production Competitive workskills Competitive technology Competitive management Competitive taxes Government assistance, subsidies

ACTIONS/IMPACTS Provide competitive services and infrastructure, taxation, education, and training system for all national companies in targeted industries Manage domestic allocative tensions and ensure that public benefits are seen to flow from government support for industry Negotiate with international companies offering to bring competitive strengths to the national economy Decide application for assistance from enterprises

Seek government assistance to access overseas markets

Is there a national benefit? Who benefits who pays? What are the likely impacts on other policies and companies and regions? How might the application be funded and sponsored politically?

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deliver improved performance. Assuming the proposal seems viable, the primary focus shifts to examining the policy implications of agreeing. What would be the impact on existing policies? How many other groups and businesses would claim similar treatments? How could flow on applications be refused without appearing to discriminate in favor of the current project? How might the proposal be funded? Can it be funded from hidden sources or slack in existing approved programs? If the proposal must compete with other proposals for a share of new funding, how can this be managed? How will government handle the threat this poses to other existing projects and other new projects? Who might sponsor the proposal in government? Who would be likely to oppose the proposal in government? In addition, the government manager must address the possibility of failure and the reality that this will be treated far more seriously by the media and the public than success. Finally, the government manager must examine the overall impact on comfort zones. For the government manager, the value of the project is not the dominant consideration. Even when the project has high value, these other considerations raise difficult issues which take time to resolve. The business manager seldom has time. There are markets to service, competitors to address. The business manager sees government inaction and concludes that government does not understand business, that government processes are inefficient and almost certainly wasteful. The government manager, assuming that he or she has not been desensitized, senses this frustration but sees the problem in terms of the business manager not understanding or caring about the problems government must address. To the government manager, the business manager seems impatient and only interested in achieving a gain for his or her shareholders at the possible expense of others. Although success for the government manager involves spending the allocated funds, the real focus of evaluation is usually whether program decisions are seen to have created trouble for government or attracted public criticism. A number of strategies can be used to remove or clear these blockages. First, improve communications directly; ensure that business managers, seeking access to government funding, understand the risks government takes whenever it discriminates in favor of one option over another; and make working with business to create a world competitive industrial base a key success criterion for government managers. Second, improve understanding by locating within business people who understand government and by locating within government people who understand business. Third, distance governments from the allocation process by developing autonomous entities charged with the mission of adding value to industrial competitiveness. Fourth, provide less time for negative reactions to develop and seek to match the decision cycles of business and government, by shortening government cycle time for the approval and delivery of such assistance.

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A COMPARISON OF BUSINESS AND GOVERNMENT DEVELOPMENT Regardless of how many times and how loudly those who have not tried it assert the contrary, running a government bureaucracy is not the same as running a business. —Downs and Larkey, The Search for Government Efficiency Over the last half-century, both private and public sector organizations have moved through a cycle of changes. Exhibit 2.2. A Comparison of Business and Government Development Cycles suggests that both business and government have moved through a cycle which started with bureaucratic management, and was followed by market driven expansion, which inevitably led to periods of rationalization followed by a period of consolidation and growth which focused not only on core markets and strengths but also on global trends and the actions of competitors. The similarities support those who seek to apply business solutions to government. However, government and business faced different challenges. The bureaucratic starting point is not surprising. Initially, the bureaucratic solution was the only management option which allowed business and government to harness the benefits of specialization (Morgan 1986). For government, the rule-driven predictability and contained power used by the bureaucratic model to coordinate activities, offered additional value (Imparato and Harari 1994). Both sectors experienced a growth phase which led to over extension. In the case of business organizations, growth dispersed core strengths and weakened their capacity to respond to more demanding market conditions when these occurred. In the case of government, access to revenue growth, which grew almost independent of government activity, allowed governments to purchase popularity by responding to one need after another. In the end, the mix of activities undertaken by many governments proved to be both unfundable and unmanageable. Rationalization was an inevitable consequence for both sectors. The process came a decade earlier for business because of the direct links between markets and funding. The government funding crisis was delayed as governments deferred the need to bring budgets into balance. As a consequence, when the correction finally came for government, it was somewhat deeper. In addition, many governments addressed the symptoms, the need to balance budgets, rather than the causes, the need to rationalize function and rethink the role and priorities of government in a global economy. The business rationalization cycle was keyed into regrouping around core strengths and exploiting new growth opportunities. Business after business divested unwanted business and set about exploiting new opportunities.

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Exhibit 2.2. A Comparison of Business and Government Development Cycles Development Cycle

Business Management

Government Management

Functional The early concentration expansion and was to exploit specializabureaucratization tion and economics of scale. This led to large business bureaucracies.

Government adopted bureaucratic structures and used these to coordinate the huge paper factories required to administer government policies equitably.

Market driven expansion

The focus shifted to markets and products and the devolution of management control to business units. The process of decentralization led to the growth of business conglomerates.

Growth in the tax base available to governments saw the size and role of the public sector increase massively in most countries. Governments accepted responsibility for providing many additional services. A plethora of public sector agencies emerged, each managing different groups of programs.

Rationalization

Many of these large conglomerates failed. Their value was often little more and sometimes less than the value of the operating businesses standing alone. Divestitures occurred to assist companies to reduce debts created by expansion and to focus on core businesses.

Growing demand and an erosion of the tax base forced rationalization somewhat later in the business sector. Governments in many countries dismantled large bureaucracies, eliminated the middle layers of organizations, and withdrew from non-core service areas. Some functions were exported to the private sector (privatization), some were exported to customers (customer pays), some were abandoned.

Further growth and development

Growth since the 1980s has centered on core businesses and exploiting products and technologies across international rather than national or regional markets.

Major growth has occurred in areas such as education and health, associated with contraction in other areas. Some growth has occurred in partnership with business and customers. Many public sector programs leverage public funds with business and customer funding.

Governments tended to see the crisis and the need to rationalize as a longterm diminution of their role and relevance. Governments experience difficulty abandoning areas unless there are obvious alternative sources of service. Governments experience difficulty managing the allocative tensions unleashed when a system designed to allocate growth attempts to allocate reductions.

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By failing to identify the new changes and develop new roles, many governments missed important opportunities to use cut backs to build for the future. The assumption that services could only be delivered in traditional ways led some governments to miss important opportunities to reinvent delivery structures. Managing reductions without a coherent view of the future has sapped the morale of many government managers and has led the public and business to undervalue the future role which government must play if nations are to succeed.

Management Responses Progression through this development cycle is associated with changes in management values, approaches, and tools. While the changes in business management are well documented, the changes in government management tend to be discussed in terms of each current crisis rather than in the context of the longer-term patterns of development. Breakdown of Bureaucratic Solutions Bureaucratic models of organization break down when they are required to respond to a dynamic environment. The response of such an organization to change is essentially to avoid it by insulating itself from a hostile environment. They erect buffers and blame particular cogs for the breakdown of the system. In the end, they move to more effective forms or organization. In the case of business organizations, the breakdown was simple and the solution was to move to decentralized business units which could link more effectively part of the environment. Alfred D. Chandler (1962) discussed the management by objectives solution which guided these business reforms. In the case of government organizations, the breakdown was more complex and the devolution solution proved to be more difficult to implement. Management by Objectives The movement to management by objectives (MBO) conceptualized by Peter Drucker in the 1950s (Drucker 1954) enabled business to halt the process of over specialization and focus outwards to respond to a changing external environment. There are two quite different reasons why MBO systems broke down in business. First, many MBO systems became institutionalized. Managers abdicated their strategic leadership role to hierarchical systems which distilled and segmented objectives. Rationalization forced many businesses to slash these hierarchical management systems, devolve accountability to business units, and evaluate the performance of these units strategically by setting demanding

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targets, adding new business units, and disposing of underperforming business units. Second, the structural segmentation of the environment into natural business units ceased to have long-term validity as the environment became more volatile, the hierarchical approach to objectives broke down, and success required shortened cycle times (Fombrun 1992). Even today, after business has been forced to rethink many of these approaches, the Drucker model is often the solution proposed by business to improve government management. It is important to point out that Drucker himself does not advocate these solutions as a general solution for government management. Apart from the business areas of government, which he considered should be privatized, Drucker (1989) does not conclude that simple solutions are possible. He argues that grand solutions, “salvation by society,” are no longer feasible; government leaders must cope with diversity, they must address the difficult issues of accountability and performance, should cease asking what government should do in this new environment, and ask instead what government can do. Ducker’s conclusions about government should surprise no one. MBO systems are weakest when objectives are complex and where environments are volatile and not readily segmented. The management by objectives approach presumes that performance is a function of knowing where an organization is going, of setting objectives to be met by managers, and of devolving to those managers the power to deliver. For many government organizations knowing where they are going is only part of the management challenge; they also must know how to get there, how to arrive on time, and how to manage the impacts on a wide range of interest groups. Henry Mintzberg (1996) in an interesting critique of the application of business principles to government argues that the relationship between individuals and government cannot be translated into a market with customers and suppliers. Mintzberg argues that individuals are customers, clients, citizens, and subjects. Each of these roles requires a different relationship with government. Each requires different management responses from government. He argues that business management can address some but not all of these roles. In particular, he argues that accountability is more difficult to segment and performance is more difficult to evaluate in government. While Mintzberg’s approach begs the question of what we need government for in the first place, the taxonomies he presents illustrates the dangers of applying business solutions to the sorts of government problems which we identified earlier and which this book seeks to explore. High-Response Management External pressures on both business and government are forcing organizations to shorten cycle time. Shorter cycle times require an increased focus on the

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strategic management of both external changes and internal responses. In business, the transition to high-speed management can often still occur within broad business units. In government, cycle time management must address both added value impacts and comfort zone impacts. The need to shorten cycle time is not well understood in government. Solutions which attempt to segment the management of these impacts within a cycle almost always lengthen cycle time and increase the risk of failure. The new management which is emerging in business has been described by Donald Cushman and Sarah King (1994) as “high speed management.” The new management which is emerging in government has been described as “performance management.” The term performance management avoids some of the confusion which now surround the idea of strategic management but the concepts are similar. Cullen (1983), in an early discussion of the subject, argues that deregulation in government is insufficient to deliver performance or even to agree what performance might look like. Both these management solutions are change-oriented, strategic, and focus on managing and reducing traditional cycle times. However, there are major differences in these approaches which relate to the contexts within which businesses and government must manage. New forms of accountability provided in the business sector by international markets and international benchmarks for performance have been slow to emerge in the government sector. Public administration tends to be regional or national. Comparisons between government management systems are complicated by the reality that models of government administration are often culture and political system bound. Although benchmarks and product comparison between markets are now being developed, they have seldom been used to drive public sector evaluations of performance in the way they have been used to drive business performance.

Differences between the Management Task of Business and Government There are important differences between the management mission facing government and the management mission facing business. Exhibit 2.3. Management in Business and Government presents an overview of these differences. Key differences relate to the complexity of success criteria and the three missions that most government activities must address. Business sector organizations aim to seek out and exploit market opportunities. The criteria for success in accessing these markets and in achieving overall financial results can usually be defined and linked to the management approaches and systems required for success. By comparison, the missions of the government sector are less directly linked to markets and involve success

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Exhibit 2.3. Management in Business and Government Management Variables

Private Sector

Public Sector

Governability

• Shareholder control exercised through directors and key managers

• Consensus and diversity driven, governments operate within a comfort zone and adjust implementation priorities to achieve this

Planning and Control

• Plans are a general mandate for both action and evaluation • Control focuses on profits and business results

• Plans focus on long-term government objectives • Short-term control is through detailed control of staffing budgetary and purchasing inputs. Long-term control seldom looks beyond electoral success or failure

Budgets

• A vehicle for implementation and control

• A vehicle for the negotiation of comfort zones and for demonstrating respect for diverse needs • A vehicle for managing complex allocative tensions

Communication

• Development of common values, communicating change, evaluation of results

• Defusing problems, developing support for solutions • Maintenance of comfort zones

Core Management Values

• Strategic, performance and results oriented • Key success criteria business success

• Delivery of services within the constraints generated by budgets and comfort zones. Equality of treatment • Key success criteria—complex, non-market driven success criteria, avoiding failure, maintaining support for government

GUIDE GOVERNMENT REFORM

• Complex, problem driven, internally linked, subject to ongoing adjustments as government responds to interest group pressures

TO

• Focused, opportunity driven, externally linked, hierarchical

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Goals

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criteria that are more complex than those addressed by business. The success criteria for government organizations are more complex. Measurement is often difficult. Objectives tend to span each of the three missions of government: competitiveness, social value, and governance.

MANAGEMENT SOLUTIONS FOR GOVERNMENT Who’s to say whether Osborne and Gaebler have it right (I think they mostly do). The point is that government—in America, Japan, or France—hasn’t been reinvented, and the world of commerce mostly has (though the task is far from finished). —Peters, Liberation Management To understand the new solutions which are emerging, it is useful to first examine the breakdown of the traditional government management solutions. Governments understand comfort zones and popularity. The first response to unpopularity is to buy popularity with grand projects or pork barreling. The prudent management of resources is usually a casualty in such affairs. As governments were seen to increase debt and overspend, the focus of accountability shifted to deficits on the current account. When it became important to show that budgets were responsible and under control, governments used various creative accounting solutions to shift expenditures and revenue, either off the balance sheet, or to the capital account. The very idea of capital expenditure in government requires a good deal of examination. Asset sales became a popular device, not for reducing debt, but for resourcing further expenditure. Where governments were forced to balance budgets, the various devices used to sustain expenditure became more apparent. The inability of government to increase taxes reinforced the focus on government efficiency. However, rather than focusing on reallocating existing resources, adding value, and the costs and benefits of various initiatives, many cut back exercises assume that by working harder, smarter, and less wastefully, government can deliver more services with less resources. The dynamics of evaluation cycles compounded the problem in many countries. Sometimes the public perception of failure was deferred until long after those involved knew they had failed. This led some governments to presume they could escape electoral accountability. They confused a lag in the accountability cycle with the idea that the public did not care. In other cases, short-run problems led to perceptions of failure which turned out to be false. This caused some governments to feel that adding value was not worth the effort. At the management level, evaluation tended to focus on compliance audits with occasional attempts to evaluate benefits as well as expenditure. The constant changes forced by governments, seeking to respond to new needs,

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caused a breakdown of internal systems and a loss of institutional memory. At the very time they needed to be looking outward and becoming more strategic, government managers were forced to band-aid collapsing internal systems and adjudicate on difficult downsizing decisions. Many senior managers in government structures came to define success as survival. Eventually, services were seriously eroded in many countries. In the end, the public, faced with no benefits and an increasing tax bill, revolted. Governments began the hard task of putting their houses in order, of rationalizing functions, of addressing the need to target resources. Few governments today believe they can tax their way out of trouble. Some governments may put off the day of reckoning by selling assets and resorting to various creative accounting solutions. Some governments still seek to buy support without adding real value by managing various cross subsidies and transfers. But, in the end, all must face the reality that expenditure and revenues need to balance and that government must be seen to add real value. The most effective responses have been from governments that have refocused in two important ways. First, they have focused on what is critical to add value rather than what seems to keep constituencies happy. Second, they have focused on what government can do rather than what it should do on deliverable actions and impacts rather than on grand solutions. Let us now turn to the management solutions that have added value to government and consider how these solutions relate to solutions developed by business?

Management Solutions That Have Been Applied to Government The comparison of business and government management presented in Exhibit 2.3 compares business values with traditional government management approaches. However, government management approaches are also changing. Our examination of business and government management needs to also examine the scope of these changes. The major shifts in management between the traditional, functionally driven, model, and the competitive government, performance driven, approach are summarized in Exhibit 2.4. Transition from Traditional Government to Competitive Government Management. Change means that governments can no longer manage processes, or seek to survive by being efficient and avoiding mistakes. They are expected to respond and to add value in an increasingly dynamic world. One key to successful government reform is to focus on overall performance and to measure results. Another key is to manage short-term impacts to both add value and manage impacts on various interest groups. Business management has already made this transition, government

Exhibit 2.4. Transition from Traditional Government to Competitive Government Management Traditional (Function Driven) Government Management

• Effective government is government that adds value by delivering improvements in competitiveness, social value, and governability relative to other countries. • Performance focuses on desired impacts. • Evaluation focuses on short-term impacts and relative performance.

Business / Government Roles • Government sets the business environment. The business role is to generate national competitiveness.

• Government and business need to work together to improve national competitiveness.

Resources • Government budgets and legislative mandates are used to control allocations and drive priorities. Performance is seen as a function of spending allocated resources.

• Resources are a management variable. • Performance is a function of delivering results on time and within budget.

Cycle Time Management • The management task is to fit management needs into preset cycles. The emphasis is on queuing customers to fit these preset cycles, reducing risk and increasing efficiency.

• Cycle time management is a key variable to managing the impacts of change and reducing the comfort zone tensions created by change. • Cycle-based and proactive communication • Impacts are managed as part of a delivery and communication strategy. Expectations and benefits are managed throughout the government planning and implementation cycle.

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Communication • The key communication task is to take the credit for national progress and to respond to failure by either denying or obscuring it. Where problems must be recognized, the communications task shifts to simple dramatic solutions which defer evaluation.

Lessons from Business

Effective Government • The government role is to supply services and infrastructure, fund these operations from users and taxpayers, and provide an environment where persons are treated equitably and business can develop. • Unless government is failing, it is presumed to be working. • Evaluation cycle dominated by government budget and election cycles.

Competitive (Performance Driven) Government Management

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systems have not. Traditional government system managed inputs and sometimes the input conversion process. The presumption was that the performance of the whole was a measure of the performance of all the parts. Ideas about effective government are shifting. Traditional government sought to manage through rules and funding allocations within which services are not only regulated and provided, but also society’s problems are somehow resolved by more government spending. Competitive government seeks to be a catalyst for change, to work with other parts of a society to improve national competitiveness, to address emerging social challenges, and to maintain the scope to govern. To deliver this change, business / government roles need to shift from government as a provider of support services and subsidies to government as a partner in the change process. The new challenge is how the leveraging of business and government resources and skills improve national competitiveness. The resource management challenge has shifted from raising revenue to ensuring that growth is allocated to areas of priority in order to reduce expenditure, to match global competitors, to reduce traditional expenditure levels and change priorities, and to address new social values and priorities. Allocating reductions rather than growth is a challenge for government systems which seldom cost transactions or results. The solution is to shift to resultsbased budgets and to identify the real cost of government transactions. This transition is perhaps the most demanding aspect facing governments seeking to remain competitive. Government management is shifting from fixed cycle times supported by segmented functions and queues which often extend in times of cut back to flexible cycle times supported by task-based value-chains which can be managed by agencies. The key to many of these changes is to decentralize resource management, to encourage agencies to raise revenue as well as spend it, and to use project mandates to negotiate the scope required to deliver key change results. Finally, the communication task in government needs to shift from claiming the credit for successes and obscuring the responsibility for failures to assisting government to deliver results and manage impacts in order to deliver a public perception that changes have added value. Performance Management We have discussed the changes in business management which have assisted business to respond to external change. Much of the rationalization of the 1980s can be seen as providing business organizations with a new focus not only on markets, and on changing value-chains, but also to focus on the delivery of product to market.

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The difficulties experienced by government managers in addressing these same issues flow largely from the complexity of objectives, the tendency to focus reform in government at the level of process and subunits, and because some government managers see the role of government as fixed and independent of the external changes we have discussed. We have considered the need to adapt business solution to meet the demands on government systems to manage performance and comfort zone impacts at the same time and to manage cycle times. Performance management is an approach to the management and evaluation of government activities which addresses the twin problems of complexity and the time span of evaluation which bedeviled attempts to modernize government management. The specific frameworks which can be used to focus and evaluate government performance are discussed in chapters 4, 6, and 8. Exhibit 2.5. Performance Management Framework for the Identification of Objectives outlines an approach to the planning and evaluation of a transition to competitive government which is discussed in detail in chapter 7. Three elements of this approach illustrate how government management can provide a focus for management performance and evaluation that enables government to use various business management tools successfully. Objectives First, the complexity of objectives is addressed by differentiating key objectives from support objectives or general management objectives. Where objectives are complex, the first step in providing a performance focus is to define the critical objectives which an agency or a government must achieve and to separate these from other worthwhile objectives, which exist to support the achievement of these core objectives. Cycle Impacts Second, the time span of evaluation is reduced by managing short-term cycle impacts. Performance-based planning systems translate objectives into specific short-run impacts which can be monitored and evaluated. The idea of forecasting and monitoring short-term impacts is relatively rare in government. Reform usually manages either the big picture or inputs. Evaluation Third, evaluation starts with impacts and then moves to examine the consequences for strategies and long-term objectives.

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Exhibit 2.5. Performance Management Framework for the Identification of Objectives Key Objectives: What are the core strategic objectives that must be met for the unit to be successful? How do these objectives relate to overall external changes and pressures? What specific strategies have been adopted to address these objectives? Are they likely to be effective? What are the major threats to successful implementation? What impact can be expected over one, two, and three years? In the case of national government, the three key objectives relate to the role discussed earlier: increase national competitiveness; add social value; and maintain or improve governability. Impacts include improvements in national competitiveness ranking, successful responses to specific threats and opportunities, improvements in social value measured against benchmark countries, successful responses to threats raised by change, and the avoidance of political gridlock, at least in respect to key measures. Support Objectives: What are the key support activities which the unit must address in order to meet the core objectives? What specific contribution is required? What is the likely impact on key objectives of failing to deliver the support activity? What impacts are expected over one, two, or three years? In the case of national government, the support objectives relate to the functions managed by government: business services and infrastructure; community services and infrastructure; market access and regulation; taxes and tariffs; checks and balances; workskills and access to employment; government business leverage; and resource balance. Impacts include government functions seen to be competitive relative to selected benchmark countries and seen to be supporting rather than retarding key transitions. General Management: What are the general management functions required to support effective change? What is the strategic fit between these priorities and the structures systems and staffing available to the unit? What is the agenda for change? What specific contributions are required to the delivery of core objectives? What improvements are expected over the next one, two, or three years? How will these impact the delivery of core objectives? In the case of national government, the general management functions are defined as: strategic leadership; cycle-focused management and communications; performance management; comfort zone management; and results driven resource management. Impacts include the removal of management systems which are unable to manage change, the successful introduction of specific management reforms, and the coordination of the timing of these reforms with the requirements of a particular national transition.

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High Response Management and the Role of the Legislature Ronald C. Moe (2000) argues that the emphasis on autonomy and results can conflict with the role of the legislature and the rule of law. It seems to us that, while Moe is right to identify the weakness in control and the impact on the traditional role of the legislature in the U.S. reforms, he is wrong to assume that the needs of the legislature necessarily conflict with the emphasis on impacts and results. The rhetoric about results often obscures a reduced emphasis on strategic results and a reduced accountability to both the legislature and the executive. The problem flows from attempting to use business management modes without working through ideas about performance. The conflict between the freedom to manage and deliver results and the rule of law depends on how results are defined, who defines them, and whether the interface between the legislature and the executive are treated as a battlefield or as part of the reform process. In the end, both the legislature and executive government managers are interested in defining and achieving results. Both are part of the process of managing impacts on various interest groups.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT Later chapters of this book will examine new solutions for the reform of government management in detail. The objective of this chapter is to review some of the ideas about business and government management which underpin our analysis. Several important lessons for public sector reform can be drawn from this analysis. First, while governments can learn from business, they cannot be managed as a business. Business managers are perhaps a decade ahead of government in addressing the need to rationalize and respond to new global realities. However, there are important differences between the way in which business organizations and governments manage. These differences become more important when roles are changing and government is seeking to adopt approaches and systems for the management of change which have been developed by business. Second, governments can learn from business how to move the focus of management from internal to external realities. Traditionally, government management reform addressed the internal symptoms of breakdowns by fine tuning processes, structures, and roles. Management reform needs to start with an analysis of external change and the changing role of government instead of assuming that this is either static or that it can emerge from

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a series of micro-reforms, which are usually focused on internal segmentation and structures. Third, although both sectors use plans and budgets, they use them differently. The plans and budgets developed by government do not provide the simple guides to action required to drive conventional strategic management. Attempts to convert them to this end will tend to destroy the political consensus required to support change in a complex system. Fourth, although both sectors have identified the need to devolve power, government devolution must not only address complex performance issues, but also the need to manage comfort zones and diversity. Conventional attempts to centralize the management of comfort zones and decentralize the management of service delivery presume that the fit between these systems can be maintained. The result is often a complex shared accountability which fails to add value and often creates new comfort zone tensions. In addition, the public apply different criteria of fairness to government agencies than they do to business agencies. Fifth, the techniques for managing comfort zones, including respect for differences and a focus on solutions offering specific rather than common values, are key to successful public sector management. Although these techniques are not part of most business solutions, they can often be added. Where business solutions cannot be adapted to manage complexity and comfort zones, transplantation runs a high risk of rejection. Sixth, before the government sector can benefit from new approaches to management, it must change values which have served it well enough in the past but which are now dysfunctional. Examples include the following: the idea that short-term control can focus on inputs; the assumption that narrow specialist functions, effectively performed will enable government to both manage change and address the changing role required of it; and the belief that success criteria can be driven by survival, by not making mistakes, and by massaging comfort zone issues without adding real value to the government equation. Seventh, government management reform must also adapt and build upon particular national and regional political systems. Many of these systems separate the powers of the legislature, the executive, and the judiciary. The operation of these frameworks has changed over time and can be expected to continue to adapt. These structures provide important checks and balances; they provide important links which focus relationships between interest groups and executive government. It is important to manage the impact of reform on these systems and to recognize that many of the business solutions ignore this particular reality.

Chapter 3

The Management of Transitions to National Competitiveness

My theory then highlights and reinforces the importance of differences between nations and of differences in national character. Many contemporary discussions of international competition stress global homogenization and a diminished role for nations. But, in truth, national differences are at the heart of competitive success. —Porter, The Competitive Advantage of Nations If Michael Porter is correct in emphasizing the importance of differences, and most studies of national and enterprise competitiveness support the idea, then we might expect these differences to impact on the scope and nature of competitive government in particular countries. Yet much of government reform pursues common solutions and outcomes. Such reforms presume increased competitiveness rather than assist this to occur. Even where differences are examined, they tend to be differences in political structures, values, or in the provision of support services, rather than the differences Porter sees as important to the management of national competitiveness. In chapter 1, we discussed the need for nations to respond to new global pressures by managing a transition to competitive government; we suggested that different national transitions required different contributions from government. It is the purpose of this chapter to analyze national transitions from the viewpoint of the role of government. We use a National Competitiveness Model to differentiate national transitions and examine the impact on several 55

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key management variables. We then examine several different transitions and compare the model predictions with a brief examination of actual transitions. Finally, we conclude by reviewing the implications of this analysis for the reform of government management. The idea that a nation’s affairs are managed and that this management can be evaluated does not depend on the existence of some central form of executive power. In an interesting examination of marketing nations, Philip Kotler, Somkid Jatusripitak, and Suvit Maesincee (1998) conclude that each nation needs to find strategies to manage and deliver competitiveness. They suggest that nations need to develop “a continuous self correcting process that consistently considers where a nation is heading, where it wants to be heading, and how best it can get there.” The reality for many nations is that national performance and national competitiveness is a shared responsibility. Individuals, companies, and governments work together to deliver results. Clearly, some governments have responded faster and more effectively than others. Most responses are driven by some sense of crises combined with a focus on internal impacts and values. We argue that, to be competitive, government needs to address two priorities. First, government needs to strengthen its capacity to understand the external pressures which create or at least contribute to most of the crises experienced by nations and regions. Second, government needs to develop policy and management platforms to enable a nation or region to respond competitively to these external pressures and the opportunities they provide. Whatever particular national transition is involved, a government needs strategies to address the key roles discussed in chapter 1; a competitiveness strategy, a social value strategy, and a governance strategy. Because each of these strategies is interrelated, attempts to focus governments on partial roles that leave out one or more of these strategies tend to create more problems for national performance than they solve. Most political processes work to focus government management on process, on partial impacts, and on damage control. Yet the public is learning to cut through the rhetoric and hold governments accountable for outcomes. This accountability is reinforced by the reality that governments, only too ready to claim the credit for success, have difficulty abdicating responsibility for failure. We argue that the performance of governments can be evaluated in terms of outcomes rather than processes, plans, and promises. Either a country becomes more competitive than others or it does not. Either a country manages the social impacts of change better than others or it does not. Either key interest groups are willing to provide a government with the scope to govern or they are not. As the information revolution provides information on the performance of other countries, it is becoming easier for the public and for key interest groups within each nation to make simple judgments about progress. And they are doing so.

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Exhibit 3.1. National Competitiveness Model

itio

ns

tra

In Co tern lim mpeal foc slo ited titiv us w r by ene es ss po ns e

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Regulated transition

rk ion lut ol wo vo ntr me bDe lf-co l fra rs su NT Se ntro elive omy ME o d on C t t GE ol, tha it au NA ntr MA ency s un co ici ive de Eff bject m wi ent O ste gem ion Sy a pt n e ma exc by n

gic ate gic str r m ate s Str sult term g-te Re or t- l lon Sh ntro lity co xibi fle

CO MP ET Su ITI Co b-un VE m i NE lim pe t fo SS su ited titiv cus b-u by en es nit s foc Ex us Co tern lim mpe al fo ext ited titiv cus ern by ene ss al ch an ge

HIGH RESPONSE Strategic Management

Development transition Deregulated transition

HIGH PRODUCTION Central Planning Hierarchical— government setting overall priorities and regulating delivery

HIGH AUTONOMY Devolution GOVERNMENT Flexible— government and business resources leveraged

Hierarchical— business sub-units setting priorities and government supporting business performance

In this chapter, we will examine four different transitions to competitiveness and discuss the ways in which countries have sought to develop the role of government to support such transitions.

A MANAGEMENT FOCUSED NATIONAL COMPETITIVENESS MODEL Models developed to analyze organizations can be applied to the management of regions, nations, and groups of nations. Exhibit 3.1. National Competitiveness Model presents a model which can be used to explore the differences discussed by Michael Porter in terms of different transitions to national competitiveness. The National Competitiveness Model is based on three propositions.

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• An evaluation of the management of nations and their relative competitiveness can be used to inform debates about government performance. Government needs to be evaluated in terms of whether national competitiveness is increasing and whether government explicitly has added value to that process. • Nations are managing strategic transitions to accommodate new external realities. Effective responses to current external pressures generally involve trade-offs which shift national management towards the highresponse model. • These solutions are best seen in terms of transitions within a continuum of management responses bounded by three basic modes of national management: high-production, high-autonomy, and highresponse. The Competitiveness Model framework explains differences between nations in terms of different transitions within a model bounded by three limiting modes of national management: high-response, high-autonomy, and high-production. Each transition is a function where a nation is placed in the model and where it seeks to move to. Within this overall framework, nations can begin the process of managing transitions and of optimizing their performance. And government reform must be adjusted to add value to these different transitions. These three limiting modes do not define three separate types of management but a continuum within which the management changes can be described and within which the mix of management variables must be optimized. Although this discussion presumes that variables and shifts in variables can be considered as a point on a two-dimensional model, the model also can be developed to explore other variables and to dimension more complex relationships, for example, by forecasting ranges within which variables can combine, or more properly areas where variables cannot combine. Before globalization, nations tended to evolve toward either the highautonomy or the high-production mode. The United States and Russian economies of the 1970s are good illustrations of each option. However, we argue that the external factors discussed in chapter 1 have rendered this traditional production—autonomy dichotomy ineffective. Great wealth or great production capacities no longer ensure success in a world where global pressures are daily relocating employment and value between nations and regions. Nations today need to move towards the high-response mode or surrender competitiveness. Competitive government must support a nation’s transition to the highresponse mode. Government needs to respond rapidly to external changes; it needs to act to assist businesses to compete effectively. Yet government sys-

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tems have been painfully slow to respond to even simple new needs. Responses, when they do occur, tend to be bound by past assumptions and precedents. We argue that there are powerful systemic reasons why governments have been slow to respond. Much government reform remains focused on second order issues such as efficiency, budget balancing, and accountability. Many government reforms are designed independently. This segmentation often acts to restrain rather than support competitiveness. Also, the implications of national competitiveness transitions for government differ depending on the starting point. Moving from high-production to high-response requires planning and regulation to shift from an internal focus to an external focus. Moving from high-autonomy to high-response requires an increase in strategic planning to focus national resources on external issues. Both transitions impact on the comfort zones which enable governments to govern as do attempts to postpone change which also threaten national wealth and a nation’s capacity to resource its development and value system. Four transitions are shown in Exhibit 3.1. A development transition, which seeks to build competitive production capacity and uses this as a base for managing a transition to competitiveness through high-response, is to the left and upward on Exhibit 3.1. Although each has chosen a very different government response, Japan and Singapore are examples of countries embarked on this type of transition. A deregulated transition, based on the development of competitiveness through high-response by deregulating and introducing market forces to various centrally planned economies, is to the right and upward on Exhibit 3.1. The changes in Eastern Europe are examples of this transition. Within the former eastern bloc countries, governments have chosen different responses and some countries have been far more successful than others. A regulated transition, which is based on the belief that external markets are best exploited by competitive businesses operating in a relatively regulated internal environment, is a vertical transition on Exhibit 3.1. Regulation strategies address internal market access, value system, equity issues, and are developed to accommodate differences and competition. The European community reforms are an example of this type of transition. Within this community the role of companies, nations, and governments are shifting. A devolved transition, which is based on devolution and the empowerment of subunits, is an upward transition from the high-autonomy position on Exhibit 3.1. The United States has followed this transition successfully in recent years. Preconditions for the success of this strategy include: strong and effective subunits; a degree of shared interest between those units and the national interest; and systems of values and regulation that ensure a degree of transparency and embrace competition as a non-negotiable value.

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These different transitions will be discussed later. Each presents different change issues and requires different responses from government. These different government responses require different government management tools and processes. Before we use the Competitiveness Model to examine these transitions, we will discuss the six variables which are contained in the Model and then review the assumptions that we have made to construct the model.

Management Variables Used to Map Transitions Each of the variables identified in Exhibit 3.1, differentiates one or more of the three modes of national management. Three variables, competitiveness, government, and management, differentiate all three modes of national management. The remaining three variables, “response,” “autonomy,” and “production” differentiate one mode of management from the other two. Competitiveness The competitiveness variable refers to the key strategies used by a nation to deliver competitiveness. These range from the low-cost, high-efficiency production strategies for competitiveness, which characterizes the high-production mode to the reliance on subunit performance, which characterizes the highautonomy mode to the external focus and high-response strategies, which characterizes the high-response mode. The transition from production priorities toward subunit autonomy is a well-documented transition for business seeking to respond to complexity. Increasingly highly centralized government systems are also breaking down. The challenge for government management is first to ensure that enterprises are provided with a competitive environment and second that those businesses contribute national value as well as business value. The transition from high-autonomy to high-response solutions requires a capacity for strategic interaction between business and government. This capacity is weakened by some transitions to high-autonomy management. From a management viewpoint, the difficulty with high-autonomy solutions is often to be found in the processes prescribed to deliver autonomy. Where these processes are driven by the view that the key to autonomy is uniform government responses supported by market processes, the capacity of government to address change and to manage the challenges presented by diversity can be seriously eroded. Government Government must develop three strategies to support transitions: a competitiveness strategy, a social value strategy, and a governability strategy. Any one

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of these strategies alone would present government with a relatively simple management challenge. But competitive government must manage all three together. This requires government managers able to not only manage the inherent tensions between these three strategies, but also extract synergies from the interrelationships involved. Government needs a national competitiveness strategy which is viable. The ways in which government and business interact to deliver the competitiveness strategy differ. Transition strategies range from government driven to business driven. Between these two extremes is flexible leveraging of government and business resources to add value to national competitiveness. The social impacts of change differ for each of the three modes of management. The impacts for the high-production model are often growth in employment and a focus on training. The impact of reductions in autonomy are offset by expectations of future benefits. The impacts for the high-autonomy model are the need for government to minimize the threats posed by the need to treat people and groups differently and the need to manage the threats to social value posed by change. The high-response model must manage change impacts and comfort zone impacts directly through shorter cycle times and cycle impact management. The rewards are the benefits of competitiveness. One threat with the transition to high-response management is the impact on the fragile balance of internal comfort zones which enable governments to act. A longer term threat is that attempting to maintain internal comfort zones by delaying response can cause a nation to slip down the competitiveness pole with consequential reductions in national wealth and a reduced capacity to fund the maintenance of a nation’s value system. The threats for governance are different in each mode of management. The threat for the production mode is that people will demand more autonomy and wealth than a nation can generate. The threat to the high autonomy system is that change is seen as an erosion of the comfort zone and a threat to the interests of diverse groups. Governments that attempt to ignore the threats posed by diverse interest groups are likely to further compound the problem. Governments that become so preoccupied with addressing these conflicting interests inevitably take their eyes off the main game which must be national competitiveness. Management Management refers to the way in which a nation coordinates the performance of a subunit to deliver national objectives. Management strategies range from the low-power management by self-control strategies of the high-autonomy mode to the management by exception techniques, which characterizes the high-production mode to the strategic management by results approach required to support the high-response model.

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Control options depend to a large extent on the culture of a nation and on the trust and objectives of key subunits. Government management must reflect these factors. Government can also manage these factors. In an interesting analysis of the impact of national cultures on economic performance, Francis Fukuyama (1995) agues that trust between subunits differs between cultures. He argues that high-trust countries can support the development of large-scale organization and the interaction of subunits more effectively than low-trust countries. While these cultural differences may limit the competitiveness of nations, our analysis suggests that the primary impact will be to alter the national management strategies required to be competitive. Transitions are likely to differ between high trust and low-trust countries. The role and challenge of government also differ. High-Response High-response government monitors respond to external changes. The objective is to position a nation in order to exploit external opportunities and optimize national benefits. The high-response mode focuses on generating wealth by exploiting external opportunities. In order to respond strategically and to shorten cycle times, nations must trade-off some production efficiency and some autonomy. The government focus is on flexible business government relations that support external competitiveness and on strategies to maintain comfort zones by addressing change impacts and ensuring that social as well as economic value is added as competitiveness increases. The challenge for government is first to reform old systems and reduce cycle times to remove restraints on business performance and then to move beyond this stage to add value to that performance. The flexibility required to provide strong leadership on selected issues, while providing business with the scope to address many other issues, reduces certainty about government roles and impacts. The challenge for government reform is to develop management systems which can add value while also maintaining support for change. The high-response management focus is external and strategic. Management systems need to provide short-run control without reducing the need for longer-term flexibility. Management needs to understand short-run cycle impacts on diverse groups and manage them effectively. High-Production The high-production mode seeks competitiveness through low cost production and access to markets. This involves trade-offs with both autonomy and response. Autonomy needs to be limited by the needs of production processes. Responses to external changes need to be limited to protect core production technologies and performance.

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The government role is often to set overall priorities and to regulate delivery. This often involves central planning solutions which provide a framework within which businesses and government priorities are coordinated to optimize production. The role of government is to buffer the system from external pressures and to develop a culture able to support production priorities. In order to fully exploit this mode of management, nations need to trade-off both response and autonomy. Comfort zones are usually maintained by delivering employment outcomes for the population and by ensuring that the wealth created by low-cost production benefits those who enable government to govern. The management focus is on efficiency, goals and objectives, and on management by exception. However, the objectives are almost always a mix of grand plans and a short-run internal focus on processes and functions. High-Autonomy The high-autonomy mode optimizes the autonomy of subunits and relies on these units to adapt, respond, and deliver wealth. To fully exploit this mode, nations must trade-off both efficiency and response. The high-autonomy model works spectacularly well, and the trade-offs are limited, when there is an effective fit between the priorities of subunits and of the nation. However, attempts to alter the priorities of subunits tend to be seen as eroding autonomy and are often resisted. The challenge is to gain the benefits of high-autonomy within a framework of priorities which can coordinate effective responses. The government focus is on providing infrastructure and services and providing a regulatory framework, which defines and protects autonomy. Equality of treatment between citizens and companies is usually a value which underpins the operation of high-autonomy systems. The national management focus is on deregulation and devolution and assumes that subunits will deliver. Within major business units the management focus is often highresponse and strategic. However, business units need to work within a framework which protects overall high-autonomy values.

AN ANALYSIS OF FOUR DIFFERENT TRANSITIONS The emergence of a post-industrial, knowledge-based, global economy has undermined old realities, creating wonderful opportunities and frightening problems. Government large and small, American and foreign, federal and state, have begun to respond. —Osborne and Gaebler, Reinventing Government

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A number of authors have undertaken comparative analyses of changes in national competitiveness. Unfortunately some of the more thoughtful are already out of date, bypassed by developments in Europe, by the strong recovery in U.S. competitiveness, and by the more recent global financial crises. Paul Kennedy (1987), James Laxter (1989), and George Sorros (1998) all attempt to explore the reasons for changes in national competitiveness. Michael Porter (1990) presents a more rigorous analysis of competitiveness in selected countries. While the causes of changes in global competitiveness are complex, these and other studies demonstrate three realities which we need to explore. First, there is massive change underway which means that old solutions are no longer enough to maintain national wealth and competitiveness. Second, the prerequisite for both business and government success is changing and a country that does not share in these developments will access a reducing share of future world resources. Third, the priorities for government reform must differ, because nations are embarking on different transitions to competitiveness. Four different transitions, outlined in Exhibit 3.1, are now used to explore the implications of these differences for government management.

Development Transition Development transitions are based on development models which create competitive production capacity as a base for achieving high response. The development transition, shown in Exhibit 3.1, is to the left and upwards on the model. Exhibit 3.2. Development Transition summarizes the direction of change for each variable during the first and second parts of the transition. There are two parts to this transition. They include: a transition to high-production, followed by a transition to high-response. The National Competitiveness Model can be used to make a number of predictions about this twin transition. While this transition delivers high value, it requires a shifting role for government. The danger for government management is that the tensions between competitiveness, social value, and governance strategies change as the transition succeeds. Governments and the way they manage must change as the transition proceeds. The Transition to High-Production The Competitiveness Model suggests that this part of the transition involves some reduction in autonomy and response and that they need to be supported

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Exhibit 3.2. Development Transition Variable Response Production Autonomy Competitiveness Government Management

Change – + – 0 + +

+ – 0 + – +

by an increased role for government and management. The transition to highproduction is often part of the initial wealth creation for an underdeveloped economy. Such transitions seek to exploit low labor costs or natural resources as a source of national advantage. The critical change strategies for government must address three issues. First, a production transition involves an increased role for government, increased power for managers, combined with reductions in individual autonomy The strategy is normally driven by the desire for employment and the benefits which become available to individuals. The major threat is that those benefits will not be delivered either because external companies seeking to exploit short-run market opportunities see an advantage in retaining benefits themselves, or because citizens become too greedy to forego the consumption which others in other countries enjoy. Second, government must establish the preconditions for production. The model suggests reductions in response which may need to be offset by buffering the economy from external pressures. This can also involve protecting domestic markets to subsidize initial development. In addition, high-production requires access to world-class technology management and investment. Government needs to ensure that this is achieved under conditions which benefit the nation as well the particular internal or external companies that seek to exploit new expanded production opportunities. Third, while most successful production strategies require long-term priorities, the very success of initial change generates a need for further change. Government must ensure that the nation develops a base for ongoing development once the national wealth base expands. This requires government solutions that guarantee sufficient benefits flow to the population at large to motivate participation in ongoing development. Both excessive rewards and inadequate rewards can destroy the viability of a development strategy.

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Transition to High-Response The second part of the development transition, the transition from highproduction to high-response, is critical to maintaining the benefits of production and to continuing the process of wealth creation. The Competitiveness Model suggests that the high-response part of this transition requires a reversal, or more properly a major shift in the role of government. The Model also suggests that high-response will involve some trade-off of production efficiency for response. The production to high-response transition needs to focus on external opportunities and on the flexibility to exploit them. Change strategies to support this transition need to address four issues. First, the change process is driven by the benefits of competitiveness and wealth creation. There are four major threats. Significant interest groups may opt for autonomy rather than competitiveness. Government, finding the shortterm centralized role required to develop and coordinate initial production strengths attractive, may fail to recognize that this role must change to support the transition to the high response mode. Business may conclude that production equates with competitiveness and that the management styles required to improve production can also deliver competitiveness. Finally, the process of devolution could erode the strategic focus required to ensure that a nation with limited resources can achieve world competitiveness in selected industries. Any of these threats can decrease competitiveness quite rapidly and erode the capacity of the nation to deliver the public benefits which are required to underpin ongoing development. Second, governments often coordinate priorities in the high-production mode. The move to high-response usually devolves to business units much of the responsibility for scanning the environment and responding to new needs. However, devolution will only produce long-term gains if the public interest as well as private interests are met. Third, governments need to ensure that the impacts of change and wealth creation on social value are managed effectively. Old systems of income distribution and safety nets are unlikely to prove adequate. Fourth, governance depends upon the capacity of a government to mange comfort zones. We will discuss later the complexity of these zones but clearly government must address both internal and external comfort zones. Tensions between internal and external comfort zones must be managed for the development transition to succeed. Development Transitions in Action A number of the high-growth Asian economies have chosen this development path. The initial development of high-production was based on a development

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model that buffered external forces and focused internal development, built large efficient companies with clear competitive advantages, and then used those companies to access world markets. Japanese Transition Japan has used a development model to achieve many of the characteristics of the high-production mode and then has developed high-response through networks of multinational companies. The Japanese development model has been discussed by many authors and from many viewpoints—see, for example, Robert Christopher (1983), Aron Viner (1988), Jim Powell (1989), and Eisuke Sakakibasa (1993). The Japanese transition to high-response, while progressing, is encountering difficulties. The overall competitiveness index after outperforming most nations for a decade is now in decline. The ranking for the government factor graphed in Exhibit 1.3 is relatively low and is also declining. Government in Japan has been slow to recognize and respond to threats to competitiveness and to address emerging social needs. This low ranking for government in part reflects the smaller role of government and perhaps depreciates the importance of the business government interface in the Japanese system. The Japanese transition includes some interesting and very effective government/business roles. In particular, major companies provide some of the services and comfort zone management provided by governments in other models. The large multinational companies and clusters, which must deliver high-response in the Japanese model, have encountered difficulties maintaining their momentum. While this has allowed the scope of Japanese governments to remain more focused, these structures are now coming under some pressure. Whether they can adapt to meet the needs of the high-response mode seems a critical issue for the Japanese transition. Pressures to open previously closed parts of the Japanese economy are likely to continue and place further pressures on comfort zones. Peter Drucker (1999) suggests that the Japanese system faces major problems in making the transition to self management because of the dominant role assumed by companies in providing lifetime employment which he describes as organzied immobility. Drucker argues that, in a world driven by knowledge values, companies will increasingly be unable to deliver this traditional role. Singaporean Transition Singapore’s transition presents a simpler and interesting variation on this model. We discuss the Singapore transition in more detail in chapter 6. Our analysis

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of the Singapore transition draws upon the analysis by L. Low, T. Heng, S. Wong, T. Yam, and H. Hughes (1993), and R. S. Sisoda (1992). As a modern city-state, Singapore has been able to adopt strategies not available to larger, more diverse nations. The Singapore transition relied on external multinational companies whereas the Japanese transition developed home-based multinationals. Singapore has retained a more direct government role in planning and negotiating with multinational companies. The Singapore government has developed high-response strategic leadership capacities. Singapore ranks first on the government factor graphed in Exhibit 1.3. We examine the leadership of Singapore’s transition in more detail in chapter 6. Impact of the “Asian” Financial Crises This type of transition has been attempted by many underdeveloped countries. The effectiveness of government strategies in these countries was tested by the recent financial crises which saw asset values decrease, exchange rates fall dramatically, and international investors depart. The early success of such transitions spawned many strange theories about the role of government. Governance and wealth creation was assumed to be automatic. Governments masked problems and allowed and sheltered corruption at various levels. While wealth was expanding, these weaknesses did not impact on comfort zones and governability. When the share of world wealth available to many of these countries was reduced, comfort zones were eroded, many governments moved into short-run paralysis, and some became ungovernable. In terms of out transition model, external groups forced responses from all governments. Many of the external pressures were focused through IMF prescriptions some of which had little to do with the underlying problems they sought to solve. Nevertheless the tensions between these external prescriptions and internal comfort zone issues were clear. For example, in Indonesia, the nation became ungovernable. A number of points can be made about government responses to the recent “Asian” financial crises. Notwithstanding the setback, the progress made by these countries is clear. They have increased their share of world resources and they have established a base from which to proceed. The conflicts between internal and external comfort zones, which are apparent in Indonesia and Malaysia, was intrinsic to their approach to government and might have been avoided if the requirements of the second part of the transition had been addressed earlier. While the difficulty which Indonesia is experiencing in reconciling external and internal comports zones is tragic for that country, those that see the problem as a simple reluctance to respond misunderstand the internal tensions which must be managed.

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The conflicts between external and internal comfort zones in Japan are less obvious, because the external comfort zones tend to be internalized via the Japanese multinational corporations. However, the tensions between these companies driven by world markets and the requirements of the Japanese domestic economy are growing. Restoring Japan’s competitiveness will require many reforms but most importantly it will require a new role for government that has yet to emerge. Singapore, the Asian country which focused most on managing the congruence of internal and external comfort zones has performed well throughout this crises. Singapore already meets many of the external criteria now being applied to its neighbors. Singapore has also developed a style of government which integrates national objectives with the objectives of multinational companies effectively. Finally, the analysis suggests that adopting the forms of government management that work in developed economies is no solution for many of these developing countries. The challenges facing these governments are different; government must manage a production to high-response transition; and, to succeed, government must access ongoing growth rather than simply protect a high-historical wealth base.

Deregulated Transition Deregulated transitions are based on the deregulation of various planned economies. The deregulated transition, shown in Exhibit 3.1, is to the right and upward on the model. Exhibit 3.3. Deregulated Transition summarizes the direction of change for each variable during the first and second parts of the transition. The National Competitiveness Model can be used to make a number of predictions about this type of transition. The deregulation discussed as part of the development transition can also be used to stimulate a transition for economies which have not yet developed effective production

Exhibit 3.3. Deregulated Transition Variable Response Production Autonomy Competitiveness Government Management

Change 0 0 0 0 – –

+ + – + + +

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capacities. The Competitiveness Model suggests that increases in production, response, and competitiveness will be accompanied by complex shifts in autonomy. In addition, the transition needs to be supported by complex changes in the role of government and the scope and power of management. The strategy is driven by new external and internal market forces. It assumes that business exploitation of these new opportunities will create production strengths and benefit the nation. The model suggests that the role of government is to dismantle regulations, open barriers to change, and ensure that competitive forces operate to force development. Government change strategies need to address the following issues. First, deregulation and the opening of markets needs to be motivated by expectations that consumer needs will be met, shortages will be redressed, and that employment opportunities will grow as new needs are identified and met. The major threats to such a transition are that value will not be delivered or that it will be delivered too slowly to be accepted by the bulk of the population. Second, government must manage a process of deregulation which essentially requires the creation and maintenance of a vacuum. As business is induced to fill this vacuum, government needs to support development and finally work with business to achieve long-term improvements to national competitiveness. Third, the management of short-term impacts is a particular challenge for this type of transition. Cycle time management suggests that unless value is delivered relatively quickly there will be negative impacts on comfort zones which could force a regression to regulation or to consumption funded by debt or the sale of national assets to foreigners. Fourth, government must manage fluctuating pressures on the external account and on the currency which will tend to destroy the short-term support for change. A newly deregulated economy can be expected to attempt to import goods that it is not yet able to produce. Such a nation is likely to look to produce cheap exports to offset these imports. Government needs to manage the impact of these developments on the external account without destroying the very deregulation they seek to use to fuel development. Eastern European Transitions Interesting examples of both the success and failure of this particular transition can be found in recent attempts to reform various centrally planned Eastern European nations. While these transitions are as yet incomplete, a number of authors, for example D. F. Abell (1992) and Anrej Kozminski (1995), have discussed some of the issues emerging from these transitions.

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The centrally planned economies of Eastern Europe were buffered from external forces. While central planning developed some production strengths, it generally failed to establish the preconditions for ongoing improvement and international competitiveness. The twin requirements for maintaining competitiveness—environmental scanning, and international benchmarking—were seldom developed. The focus tended to be internal. Recent transitions have opened these economies to internal and external market forces. The results have been sadly predictable. The strategies of benchmarking industry development, which the Asian model used, do not seem to have been employed. Instead, privatization programs and open markets were presumed to be the way to increase efficiency. Often, the focus on evaluation and infrastructure support that worked so well in Asia was not present. The key multinationals required to generate wealth in a high-autonomy model did not exist, and strategies to harness existing multinationals to national priorities appear to have met with only limited success. The transitions have focused on increasing autonomy without increasing production. They have dismantled many of the barriers to change which bedeviled the central planning model, but they do not appear to have improved the capacity of these nations to respond to external changes. So far, the transition seems to have moved horizontally on the model but not vertically. Whether the current crises experienced by these transitions will provide the basis to develop production and response strengths in these economies remains an open question. Some countries appear to be improving competitiveness; others look to be regressing to the old central planning models, which will reduce competitiveness over time. The role of government and the approach taken to public sector management is likely to prove critical for many of these transitions.

Regulated Transition Regulated transitions are based on regulated expansion and internal development. The regulated transition, shown in Exhibit 3.1, is upward on the model. Exhibit 3.4. Regulated Transition summarizes the direction of change for each variable during the first and second parts of the transition. The National Competitiveness Model suggests that the transition to high-response mode need not be associated with increases or decrease in autonomy provided that the production base is strong. The regulated transition increases response and competitiveness and reduces production and autonomy. The transition requires a strengthening of the role and power of management but little change in the role of government. The role of government in such transitions is to

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Exhibit 3.4. Regulated Transition Variable Response Production Autonomy Competitiveness Government Management

Change 0 – – 0 0 0

+ – – + 0 +

assist business, to coordinate market impacts, to minimize disruption to individuals and interest groups. Such a transition needs to address several issues. First, the transition is driven by the need to increase competitiveness within existing structures and regulatory frameworks. The risk is that these regulatory structures will buffer business enterprises from the pressures for change. Regulation is counterproductive if it eliminates the pressures on business for the changes required to be world competitive. In addition, the transition, by focusing inwardly on regulation may insulate the system from underlying external changes at least until competitors have exploited them. Second, while the lack of change in the role of government may remove uncertainty and provide a base from which to manage the transition, it also leaves in place many of the pressure groups most likely to resist change. In addition, the ongoing preservation of existing frameworks can complicate the task of changing the underlying focus of regulation that is required to stimulate business competitiveness. Third, the reduction in autonomy required to support this transition is likely to impact severely on comfort zones which focus on rules, regulations, and comparative internal impacts. The risk is that government will respond to pressure either too slowly or reverse the change. EC Transitions The Western European experience provides interesting examples of attempts to pursue this type of transition. The Western European transition is both diverse in the sense that different nations within the EC are embarked on different transitions, and incomplete in the sense that major changes are still underway. Many articles provide a contemporary view of these changes, see, for example, The Economist (1993) and (1994). Ole Borre and Elnore Scarebrough (1995) explore the implications of these transitions for government. The Western European experience is characterized by a tradition of central government and planning, and by attempts to maintain the more tradi-

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tional role for government. While the role of national governments is changing, many of the traditional government roles are simply shifting to the European Community (EC) level. The development strategy has been to buffer national economies from external, particularly non-EC forces and to develop consensus through central planning while reducing national barriers. Like the development transition discussed earlier, the transition sought is to the left and upwards on the model, at least at the overall EC level. There are parallels and differences with the development-based transitions discussed earlier. The aim of development is similar; however, the focus for subunit development is different. In the European model, the focus is at least in part national rather than industry-based. The issues of consensus management and comfort zone management, which must be addressed to manage such a transition, are clearly more difficult than for the various Asian development models. The model can also be applied to particular nations within the EC. Expansion of markets and competition generated by opening up internal borders offers major opportunities. Consensus at the national level tends to involve government unions and business. The United Kingdom under Mrs. Thatcher arguably severed many of these constraints and moved to a high-autonomy model. Germany and France retained a centralized model. While the German model appears to focus on a negotiated public sector—private sector interface, the French model retains more of the characteristics of the traditional government planning and regulatory model. In addition, the breakdown of barriers to the Eastern European countries represents both a major opportunity and a major threat to the transitional consensus process. There are interesting issues raised by the United Kingdom transition. The United Kingdom has a more international focus, and has sought to become competitive at the cost of employment and various social services. It has reduced the tripartite consensus model and has sought to enable companies to access Europe and the global markets.

Devolved Transition Devolved transitions are based on responses by devolved and empowered subunits. The devolved transition, shown in Exhibit 3.1, is to the right and upward along the high-autonomy—high-response boundary of the model. Exhibit 3.5. Devolved Transition summarizes the direction of change for each variable during the first and second parts of the transition. The National Competitiveness Model can be used to make a number of predictions about this transition. The transition increases response and competitiveness and decreases production and autonomy. Management of the transition requires

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Exhibit 3.5. Devolved Transition Variable Response Production Autonomy Competitiveness Government Management

Change + – – + + 0

+ – – + + +

an increased role for both government and management both within and across subunits. This transition differs from the deregulated transition discussed earlier in two important respects. Power already resides in devolved subunits. Also, the devolved transition assumes that the system has already optimized production processes around these devolved subunits. Change strategies to effect such a transition need to address four quite different issues. First, the process needs to be driven either by perceptions of crisis or expectations of rewards. For example, the idea that unless there is change the wealth base will erode is often used to build a sense of impending doom and to establish support for the short-term sacrifices required to implement change. The major threat is that significant interest groups will reject the reductions in autonomy required, paralyze the change process, and erode the long-term wealth and competitiveness of the nation. If this is allowed to occur, the erosion of wealth can be expected to threaten governability. Second, the role of government in the high-autonomy mode is to ensure that citizens are treated equitably. Within this framework, the roles of government and business are separate; business sets the development agenda while government provides services and support for various parts of the economy. The transition requires a shift in the role of government to a shared role with business to deliver strategic impacts. This requires government to differentiate between equals without creating so much uncertainty that progress cannot occur. Differentiation can be either hidden or managed to contain its impact. Where it is open, the task of government is to redraw the boundaries, to ensure that one-off decisions do not destroy values and expectations across the system. Third, government needs to ensue that other impacts of change and wealth creation on social value are managed effectively. Usually government must manage this in the face of change which is seen to be eroding traditional benefits and creating new reactivities and gaps in wealth distribution.

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Fourth, the role of management must change to support this transition. The management of subunits must change from one that addresses external opportunities within a framework which maintains internal values and structures to one that manages external change and the impact on internal structures and values. In addition, subunits must respond to new priorities between subunits required to exploit external opportunities. The risk is that business will be unable to respond leading government to increased intervention. While, intervention, which seeks to increase the pressure on subunit response is useful, governments often attempt to engineer competitiveness without recognizing that this is usually beyond their capacity to deliver. The U.S. Transition The successful attempts by the United States to reverse decreases in national competitiveness provide an interesting example of such a transition. We examine the U.S. transition in more detail in chapter 6. The strengthening competitiveness of the U.S. economy throughout the 1990s is evident from successive World Competitiveness rankings. Charles J. Fombrun (1992) presents an interesting analysis based on business competitiveness. David N. Burt and Michael F. Doyle (1993) in The American Kieretsu: A Strategic Weapon for Global Competitiveness present an interesting comparative analysis of the Japanese and U.S strategies for business success. The United States operates in a high-autonomy mode of government and has established industrial strengths. The United States fell behind in the competitiveness stakes in the 1970s and 1980s. The response has been to examine and benchmark business competition, and to develop a group of highly effective and large multinational companies. Instead of buffering their economy, the U.S. government opened it and exposed industry to major competitive pressures. The U.S. government focus has been to manage diversity and achieve political consensus at the national and regional levels. The focus for response is the multinational corporation. Government has supported the interests of these multinationals, has sought to assist them to access markets, and has acted to ensure that the domestic market is highly competitive. Government has also supported the competitiveness transition through the development of world-class infrastructure, education, and training investment, and by ensuring that U.S. corporations gain competitive advantages from various government projects. The transition to the left produced many challenges. The threats are similar to those faced by all high-autonomy organizations. Either gridlock will develop and governments will not be able to deliver needed infrastructure

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and services, or the latter will not be coordinated with industry policies and the need to access the global economy. However, recent improvements in competitiveness suggest that the transition is occurring. The U.S. government has experienced major comfort zone restraints. It is not surprising that the reform of government has become a major priority to support the current transition. The restoration of U.S. competitiveness is discussed in detail in chapter 6.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT Our examination of external factors in chapter 1 suggested that any analysis of the crisis in government must start with an analysis of the impact of global change. While examinations of government management often include a few paragraphs on the changing state of the world, there are few frameworks which address national differences or are able to link these changes to the management role of government. The National Competitiveness Model simplifies the issues implicit in national competitiveness, it provides links with key management variables, and enables us to move beyond static, homogeneous solutions not only to examine differences between nations, but also to examine change as a transition. A number of implications for the reform of government management can be drawn from this analysis. First, nations are pursuing different transitions to national competitiveness. The nature of the transition depends upon the current competitiveness, on national aspirations, and on the national capacity to coordinate the different business and government contributions required to support a particular transition. Second, different transitions generate different opportunities and challenges for each nation and for government. Theories of government management, which presume that the role of government is static or will emerge from an internal consideration focused by appropriate management and policy frameworks, are unlikely to notice, let alone respond to, these differences. It follows that those who seek to copy the success of other nations, or worse, export their own solutions to others, run a high risk of failure. Third, while the model suggests that nations need to optimize production autonomy and response, it also predicts that there must be trade-offs between the three basic modes of management. We present an analysis of government value-chains in chapter 9, which directly explores the trade-offs government must make between efficiency (production) and cycle time (response). The trade-offs between autonomy and response present particular challenges for government operating at or near the high-autonomy mode.

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Fourth, transitions to competitive government must be underpinned by a viable national competitiveness strategy which addresses not only where a nation wishes to end up, but also where it is located on the model now and how it intends to manage the transition. Fifth, some transitions are implicitly more difficult to manage than others. Nations which have choices should consider reviewing transition options to ensure the choice, for transition minimizes difficulties. For example, a decision by a developing country to optimize autonomy before developing the production strengths necessary to be competitive is likely to create a particularly difficult transition dilemma. The combined need to reduce autonomy without being in a position to deliver direct and immediate benefits creates difficult comfort zone issues. Sixth, this examination of the difficulty in managing transitions highlights the need for nations and governments to benchmark and evaluate progress. Such benchmarks are likely to be central to any attempt to evaluate the performance of government.

Chapter 4

Implementation Strategies for Competitive Government

The history of reform (in government) demonstrates nothing so much that there is often difficulty in translating praiseworthy objectives into political realities. —Downs and Larkey, The Search for Government Efficiency In chapter 1, we discussed the need to shift the focus of government management from inputs to outputs or results and suggested that implementation is the Achilles heel of government management reform. It is the purpose of this chapter to examine this problem, propose solutions, and discuss the implications of these solutions for government reform. The difficulty of shifting the focus of government management from inputs to results and of focusing on core performance should not be underestimated. Traditional government management systems often complete projects, consume resources properly, and yet produce no noticeable impacts or benefits. While this weakness may seem surprising for a system which seeks to tightly control so much of the management process, it can be explained by examining the focus of control. The weakness is less suprising when we consider the key requirements to manage change in a high response situation: managers need to manage cycle time and short-term impacts. Government systems seldom control results, almost never address short-term impacts, and are constructed to force managers to operate through a series of fixed cycles and queues. Traditional government management systems presume that outputs follow from inputs and processes. Controls focus on functions, processes, avoiding mistakes, and on almost everything but impacts and results. Increasingly, reform must also 79

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involve changes to the ways in which government management systems seek to complete and coordinate work. When government management focuses outward and commits to managing external impacts, three basic weaknesses in the way in which government management coordinates work are exposed. First, individual managers are often prevented from managing overall impacts on either customers or other interest groups, because government value-chains are based on set cycles which aggregate and queue projects thorough the value-chain. Second, government project managers are often constrained in managing comfort zone impacts over the implementation part of the cycle by traditional management systems which attempt to segment comfort zone management from implementation management by presuming that consultation can end before implementation begins. Third, managing short-term impacts on comfort zones requires managers to manage within the framework of a cycle where each stage must build upon the previous stage. Because traditional government management systems treat cycle time as an outcome of management rather than as a management variable, government managers often have no scope to manage cycle time. In this chapter, we address three management strategies/tools that can be used to short circuit these gaps in traditional government management systems. However, before we consider these tools, we examine the basic challenge the tools must address to succeed; new government management must alter the focus and time span of evaluation. A comparison of evaluation and control cycles in government and business can be used to dimension the changes required. Exhibit 4.1. The Time Span and Focus of Evaluation in Business and Government analyses the focus of control in business and government. Exhibit 4.1 divides management into three time related categories. The first category contains the missions or objectives which are pursed over several years. The second category contains the specific change strategies which are designed to move the organization from where it is now to where it wants to be in the future. The third category contains, the external impacts which occur at the boundary of the organization and its customers and other interest groups and which are important to future performance and survival. In business, the major focus is on impacts. These include sales, performance relative to competitors, margins, complaints. This short-term focus on impacts is usually tightly related to resources. Where there is a deferred link between resources and sales, business uses various projection and planning models to attempt to evaluate future benefits against current costs. In government, the focus of short-term control is the budget. However, this process does not address impacts and results. The links between resources and results

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Exhibit 4.1. The Time Span and Focus of Evaluation in Business and Government FOCUS OF CONTROL

IMPORTANCE OF EVALUATION

Low

Impacts

Implementation strategies

Objectives

THE EVALUATION OF RESULTS

BUSINESS

High

GOVERNMENT

TIME SPAN OF EVALUATION

Long cycle time

IMPORTANCE OF EVALUATION

Low

Short cycle time

THE EVALUATION OF RESOURCE INPUTS GOVERNMENT

High

BUSINESS

FOCUS OF CONTROL Annual resource budgets Longer-term financial targets

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are vague and usually nonexistent in the short term. Any focus on results is long term. Popularity often replaces added value as the prime focus. Electoral success is often seen to be a surrogate for the evaluation of results. Shifts in the focus of government evaluation from the traditional inward focus to an outward focus which addresses external impacts and from long term to short term, are central to solving the implementation problems of government. Implementation requires management strategies / tools which provide a focus on short-term impacts; it needs to provide government managers with new flexibility to manage cycle time and cycle impacts. These reforms are discussed in later chapters. Our discussion of solutions addresses three different solutions, each of which is supported by important management concepts and tools. The first strategy, to manage impacts directly, examines the two types of impacts discussed in chapter 1: competitiveness impacts and comfort zone impacts. A key tool is the Impact Management Model (IIM), which explores the interaction between impacts on both added value (competitiveness) and comfort zones at the same time. The second strategy, to manage cycle time directly, extends the idea of impact management by applying it dynamically to the various cycle stages which government projects traverse between the identification of a need for change, the delivery of results, and the communication of those results to key interest groups. We present a theory of the management of cycle dynamics in government which explains many failures and explores related management tools. We discuss three aspects of cycle time management in the government sector: the need for more flexible project timing; the need to actively manage project length; and the need to actively manage and sequence cycle impacts to reduce the risk of implantation failure. The third strategy, to develop cycle-focused communications changes the way in which governments communicate change. We examine the implication of the theory of cycle dynamics on the way in which governments communicate their plans and activities. Cycle-focused communications has the capacity not only to alter the way in which government managers see their external environment, but also to alter the way in which governments use communications.

THE DIRECT MANAGEMENT OF IMPACTS Effective national responses to external pressures involve shortening response times and strategically managing individual changes to deliver ongoing improvement in national competitiveness. Strategic management in open-ended situations must balance the tensions between the need for short-term controls

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and the need for long-term flexibility. The implementation of change requires new approaches to planning and to the management of grass roots impacts. Chapter 8 presents an approach to planning which identifies impacts and links them to longer-term results. The successful implementation of change requires new approaches to the management of grass roots impacts on both national competitiveness and on the comfort zones which provide government with the scope to implement change. Government administrative systems must manage both these types of impacts at the same time. Solutions, which focus on one type of impact, for example, electoral popularity, and ignore others are almost always counterproductive. The tools for ensuring that projects lead to operational outputs and real added value constitute performance management. The tools for ensuring that comfort zones are maintained and resistance to changes minimized constitute comfort zone management. The keys to these new approaches to management are more flexible approaches to planning, more effective management of impacts and the management of cycle times to increase the speed of many government responses. Exhibit 4.2. The Implementation Impact Model summarizes an implementation model which can be used to map implementation performance. The performance impact and comfort zone impact measures are shown on the vertical and horizontal axis of Exhibit 4.2. The comfort zone within which governments will be allowed to govern covers the indifference and support columns in the center and right of Exhibit 4.2. The performance zone within which governments can add value is defined by the high performance row at the top of the grid. Four zones identified in Exhibit 4.2, illustrate the combinations of performance and comfort zone impacts: competitive government, performance at any cost, popularity at any cost, and disaster. The model suggests that government administrators must manage both project performance and comfort zones at the same time. The objective of a government management system is assumed to be not only to manage impacts, but also to maintain projects in both the positive performance zone and in the comfort zone (competitive government zone). The model focuses on the interaction between competitiveness impacts and comfort zone impacts. This interaction is important during implementation and during the consolidation cycle when end perceptions of a government’s performance are developed. The model can be used to map the performance of different governments and to identify the likely direction of consolidation. The idea that public perceptions of performance consolidate after results have been delivered is important. The model suggests that there is a lagged relationship between

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Exhibit 4.2. The Implementation Impact Model

PERFORMANCE IMPACT Low performance 0

COMPETITIVE GOVERMNENT PERFORMANCE AT ANY COST

U.K.: Thatcher—Major (term 1) Consolidation to the right

Government seeks to implement change but fails to manage comfort zone impacts. In the short term, effectiveness may be threatened by conflicts and implementation problems. In the longer-term, the capacity to govern is likely to be eroded.

DISASTER ZONE

Failure –

Government manages both project performance and comfort zone impacts at the same time to deliver high added value. while remaining within the comfort zone

PERFORMANCE ZONE

High performance +

COMFORT ZONE

U.S.A.: Reagan—Bush Consolidation to the left

POPULARITY AT ANY COST Government seeks to trade-off performance for popularity by seeking compromise and by avoiding hard change issues. Ongoing viability eroded by lack of performance.

Unsustainable position

+ Opposition

0 Indifference COMFORT ZONE IMPACT

– Support

added value and the comfort zone which will operate to consolidate governments towards the diagonal axis. While other factors such as poor communications or the overselling of expected benefits can disturb this simple rule, the idea remains powerful and can be used to test government communication strategies for consolidation. Mapping the Overall Performance of Governments The following brief assessments of the Thatcher government in Britain and the Reagan administration in the United States illustrate the use of this model to make comparative evaluations. There are similarities between these two governments/administrations. Some of the political rhetoric was shared by

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both governments. Both were led by strong leaders, or, at least, by leaders not well known for changing their minds. Both presided over increased national competitiveness. Both left a legacy of underprivileged to be addressed by their successors. But there are also differences. The Thatcher administration clearly added value to British competitiveness by deregulating the labor market, by using privatization rather than tax increases to fund the business of government, and by leveraging off Britain’s position within the European Community. While the Thatcher years added value, they also failed to keep government in the comfort zone. In part, this was a reaction to the growing gap between the rich and poor. In part, this was a reaction to a perception that solutions were too doctrinaire; they did not address the needs of interest groups beyond those closely supporting one political party. In the end, the political rhetoric had little relationship to the causes of increased competitiveness. Worse, the government came to believe its own rhetoric. If the poll tax had not forced a change of direction, some other equally marginal idea would have. The end point of the Thatcher administration can be positioned in sector one of Exhibit 3.3. Interestingly, her successor inherited the popular recognition that the government had performed and had to do little more than address comfort zone issues more flexibly to win another term. The Reagan administration presided over a gradual restoration of U.S. competitiveness. This appears to have been driven by business more that government although government certainly contributed. Government exposed the economy to market pressures and reduced the role of the State but the shift was less dramatic than in the United Kingdom where safety nets were institutionalized. However, President Reagan understood how to maintain comfort zones. He retired popular having added less value to national competitiveness than Thatcher. The conclusion of the Reagan administration can be mapped in sector four of Exhibit 3.3. Interestingly, President Bush, Reagan’s successor, continued similar strategies but he lacked the skills to manage the complex comfort zones which underpin government in the United States as skillfully as his predecessor.

MANAGING IMPACTS ON THE VERTICAL AXIS: PERFORMANCE MANAGEMENT Management—and not, only in the business enterprise—has to be accountable for performance. But how is performance to be defined? How is it to be measured? How is it to be enforced? And to who should management be accountable? —Peter Drucker, The New Realities

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The questions raised by Peter Drucker are central to the management of modern government. It is important to realize that traditional government systems do not seek to address these questions. If government management reforms are to succeed, they must find new systems that can assist managers to focus on performance. There are entrenched problems of performance in public administration. Some of the changes in recent years have created new risks without providing the sort of value the public expected of them. Performance management is an approach to public sector management which addresses the need to for government to deliver added value. Performance management is important because it enables government managers to manage performance directly; it provides the focus needed to exploit many private sector management solutions in the public sector. The idea of performance management was discussed in chapter 2 and is developed further in chapters 7 and 8. Performance management involves four related management strategies. Deregulate Government Activities A strategy to deregulate government activities, to enable managers to deliver outputs, and to manage value-chains and cycle time more actively. Deregulation needs to occur within a context of increased accountability for results. Focus on Core Objectives A strategy to focus on the core objectives of government and to make these the center of evaluation. Where there is no focus, various second order, and support activities tend to subsume evaluation. Good housekeeping is important but it is seldom the reason why the public elect government or fund their programs. Manage Contribution to Core Objectives A strategy to ensure that the various functions of government contribute to these core objectives. A focus on deregulation and core objectives often leads managers to overlook key support and management activities and the need to reengineer such activities in order to add value to core activities. Ongoing Evaluation and Performance Improvement A strategy to commit management to the ongoing evaluation of both shortterm and long-term performance, and to a process of continuous improve-

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ment. The objective is to create a culture of evaluation, to introduce short-run evaluation, and to combine this with the idea that the failure of specific shortrun impacts does not imply the failure of a program; it simply provides feedback to enable programs to be managed differently. The evaluation process uses a three-way methodology which links broad external objectives with specific short-run impacts and facilitates ongoing evaluation. The evaluation of performance does not seek to find simple indicators that replace judgment. Instead the evaluation process uses a framework within which judgments can be evaluated and the implications of success and failure discussed.

MANAGING IMPACTS ON THE HORIZONTAL AXIS: COMFORT ZONE MANAGEMENT Traditional political leadership organized around issues, that is, around disagreements over ends. Increasingly, the task of the new political leadership will be to organize around agreement over ends, indeed to mobilize the consensus on ends. And this may be the only way to undercut the paralyzing powers of small minorities. —Drucker, 1989, The New Realities [T]he fortunate and the favored who are a majority in many developed countries . . . do not contemplate and respond to their own longer-run well being. Rather, they respond, and powerfully, to immediate comfort and contentment. This is the controlling mood. —Galbraith, The Culture of Contentment The changes which are underway are testing the internal consensus for change in many countries and in many political systems. A key element of this model of government is the need to develop and maintain the scope to govern. Both Peter Drucker and John Kenneth Galbraith identify the problem. Drucker sees the problem as the failure of political parties to deliver their traditional role which was to transmute the pressures of minorities. Galbraith sees the problem in terms of the extension of privilege to the majority of the population and to the desire of such groups to maintain their comfort zones. Whatever the cause, there can be little doubt that much of the recent government reform has either ignored governability or presumed that less government and more efficient government will somehow restore trust in governments and the right to govern.

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While Drucker suggests that the solution is to develop consensus, he also identifies the reality that high levels of consensus are becoming less and less achievable. While such a consensus may have been achievable before the impact of the various factors discussed in chapter 1, today it is only achievable in times of crises and perhaps only for smaller particularly focused nations. In chapter 1, we suggested that the solution is to shift from a focus on consensus to a focus on the maintenance of comfort zones. In chapter 2, we suggested that the need to manage comfort zones differentiates many business and government solutions. These comfort zone management strategies address directly the problems formulated by Drucker and Galbraith. The idea of comfort zone management developed in this book suggests that the pathway through the paralysis of diversity requires the management of indifference rather than commitment. The comfort zone recognizes and protects key interests to the point where those interest groups with the capacity to block change are not sufficiently motivated to do so. Two attitudes underpin the idea of a comfort zone. First, the comfort zone can be defined as a zone within which key interest groups either believe they are obtaining important benefits, or are fearful that change might erode rather than increase those benefits. Second, the comfort zone defines a zone within which key interest groups either feel that change is impossible or conclude that the trouble involved in challenging the governments right to govern is greater than the benefits they might expect from change. While it is difficult to assess the extent to which nations are intrinsically less governable than in the past, it is clear that government responses to diversity have created many of the problems evidenced today. We have discussed the inability of traditional government systems to manage comfort zone impacts in times of change. In addition, many attempts to apply business solutions to government management problems fail to address even the rudimentary requirements of comfort zone management. Governments have sought to address the growing problem of maintaining a consensus for change in various ways: some have sought the Drucker solution of developing strategic consensus; some have sought to use participative planning to alter community attitudes and protect key interests; some have used crisis management and temporary coercion; other have used nonpublic processes to support key priorities; and others have sought to remove critical projects from the public sector, either by hiding them as part of a surrogate program, or by removing them from the public sector by privatizing them. Donald P. Cushman and Phillip K. Tompkins (1980), discussing responses to cultural pluralism, suggest that there is a need to manifest respect for diversity as an antecedent to coordinated actions. They suggest that coordination does not depend upon common goals but upon “agreement on the

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principles for guiding action” in order for the parties to achieve “mutual advantage.” The factors which generate advantage for one interest group are usually different from the factors which create advantage for another. The solution is not common commitment and a uniform focus, it is to understand differences and develop processes which can negotiate impacts. The techniques for managing comfort zones, including respect for differences, a focus on solutions offering specific value rather than common value, and the management of project impacts on key interest groups, are central to successful public sector management. Particularly where governance has degenerated into a series of conflict-based negotiations, many interest groups will seek to use change impacts from one project to negotiate unrelated benefits. The task of governance structures and government managers is often to fence off one set of impacts from other essentially unrelated negotiations. Our examination of the task of managing comfort zone impacts reveals the importance of managing both impacts and the sequence of impacts created as government develops an idea and translates it into action. The impacts at one stage of the government cycle are related to the impacts in previous stages. This leads to the idea of cycle time management which offers powerful management and communication strategies for maximizing performance while minimizing negative comfort zone impacts. Our analysis does not suggest that government managers are hostage to the comfort zone but it does suggest that they must manage it more effectively. Governments can both manage the boundaries of the comfort zone directly and manage cycle impacts to improve the chances of successful implementation. Government strategies for managing comfort zone impacts vary for different stages of the government cycles.

CYCLE TIME MANAGEMENT With the world in such a rapid flux of change, government must be nimble and quick, able to adjust not only to current requirements but to the emerging requirements of future industries and society. —Dhanabalan, S., “Minister for Trade and Industry, Singapore” Many government managers see their salvation in terms of new systems and a new stability. They accept that the world is undergoing change but argue that high response is not their responsibility. Yet this solution is illusory. Buffers break down in times of rapid change. Even where government seeks to reduce its role in order to maintain a buffer, the critical requirements of government can seldom be ignored. Dhanabalan correctly points out that the

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process of change is ongoing and the challenge of maintaining a high response capacity is critical to competitive government. We use cycle time management to describe three time related management techniques which are critical to high-response management. First, cycle time management relates to selecting the timing of projects. Second, cycle time management refers to shortening the length of many projects in order to manage costs and benefits more effectively. Finally, cycle time management refers to managing the sequence of performance and comfort zone impacts throughout the government cycle in order to optimize the chances of both adding value and remaining in the comfort zone. Changing government management to actively manage cycle time offers two major advantages. First, it addresses the implementation weaknesses inherent in the traditional government management systems when rapid change is required. Second, it offers government the opportunity to adopt more effective communications strategies. A major challenge for government reform is that, although our analysis suggests that competitive government must find ways to manage the timing of projects more strategically, government systems seem unable to respond. While the response weakness inherent in traditional government management systems is predictable, some reform strategies actually lengthen cycles and further segment cycle management. The achievement of the consensus required to underpin change is becoming more difficult to develop and more difficult to sustain. The period during which consensus can be maintained is shortening. This means that the cycle time for key changes is decreasing and the management of cycle dynamics must address four different tensions. • Tensions between the need to prioritize government activities and the need to maintain a consensus for change by continuing to meet many diverse needs • Tensions between the need to obtain a legislative and budgetary mandate for projects and the need to respond flexibly to threats and opportunities • Tensions between the legislative mandate to solve a problem and the scope for managers to deliver results, including resource, workskill, and comfort zone tensions • Tensions between public expectations of change and public perceptions of results We now discuss three different strategies for managing these tensions: the strategic management of timing and cycle length; the management of cycle impacts; and the use of cycle-based communications. Each of these

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strategies uses different management tools and manages different implementation tensions.

The Strategic Management of Project Timing and Cycle Length Managing cycle timing and length addresses the tension between the identification of some need for change and the time taken to deliver results and to communicate the benefits of that change to key interest groups. Overall cycle time can be segmented into four sub-cycles which describe the basic value-chain which governments must manage, for example, consensus, legislative (and budget), implementation (delivery), and consolidation. The strategic management of overall project timing and cycle length requires managers to realign government value-chains, to reduce cycle time, to enable projects to exploit external events, and to deliver benefits before initial support erodes. Business has learned that the timing of projects is critical to their success. Speed to market is important because competitors threaten profitability. In government, the market is ignored; competition is between interest groups and with other projects. While speed and timing are also critical to success, many government processes assume that projects should start when the necessary legislative and budget approvals have been scheduled and obtained; projects should proceed at a rate determined each year by budget allocations which ignore cycle time and focus on competition for scarce resources. These assumptions are counterproductive in a high-response world and maximize the risks of failure Competitive government must find ways to manage the timing of projects more strategically, to exploit windows of opportunity as they arise, and to reduce cycle time in order to deliver results before opposition to change erodes support for implementation. There are three strategies which can be used by government managers to manage the tension between the interests of various groups and the positive and negative impacts associated with the implementation of change. Commence Change in a Positive Environment Governments and business need to work together to scan the environment and make effective judgments about the opportunity for effective change. Newly elected governments can accomplish a great deal. There are examples of governments doing this. There are examples of government building a mandate for change and failing to act on attaining power until it is too late. While the idea that timing is as critical to public sector change as to private sector

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change is compelling, many government planning, budgeting, and legislative systems are designed to make this type of response impossible. Shorten Cycle Length Shortening cycle time usually requires the reengineering of value-chains, a careful definition of projects, and a new focus on delivering impacts within agreed time frames. Many projects define total results. Targets in government need to define what will be achieved over a set period. Three factors explain why shortening cycle time increases the chance of effective implementation. Shortening cycle time leads to more effective and performance feedback and facilitates more effective comfort zone management. Shortening cycle time reduces the chances of opponents organizing opposition to the project. For many projects, the task of communicating net benefits is inversely proportional to time the public must wait to experience those benefits. The public have a relatively short time horizon, at least as far as government promises are concerned. Segment Long Cycles and Structure Cycle Break Points to Reinforce Pressures for Implementation Not all project cycles can be shortened. The third strategy is to manage change in stages which build a momentum for change. Where delays are outside of the managers control, it is important to engineer the break points to ensure they consolidate to the right on the Impact Model. Building a momentum for change is important. Maintaining and exploiting that momentum once it is established is also important.

Cycle Impact Management Cycle impact management addresses the tension between the interests of various groups and the positive and negative impacts associated with the implementation of change. The Implementation Impact Model combines the concepts of performance management and comfort zone management. The power of this approach is now enhanced by developing it to manage impacts across the change cycle. The management of cycle impacts requires government managers and systems able to not only deliver external impacts, but also to schedule these impacts on interest groups to maintain perceptions of net added value, even when negative impacts must occur.

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There are two proven techniques for stopping government initiatives. The first technique is to convince government to act at the wrong time or on the wrong premise; this weakens the consensus cycle and sets the scene for failure as government seeks to implement a proposal without the underlying initial support needed to convince interest groups to accept implementation impacts. The second technique is to emphasize the impact of costs and to delay the impact of benefits. As the program impacts negatively on different interests, its opponents gain allies, and opposition is mobilized to stop the project, or alternatively, to force concessions which reduce the initial value to the point where the project adds little or no value. Exhibit 4.3. Cycle Impact Model provides a management tool which can be used to manage cycle impacts. The Cycle Impact Model (CIM) is an extension of the Implementation Impact discussed earlier. The CIM can be used to address impacts and solutions for each cycle stage. The CIM is a management tool that reflects four realities of cycle impact management. First, impacts need to be managed throughout the project cycle to maintain each project both in the positive performance zone and in the comfort zone. Second, project support will be stronger in some stages of the cycle than others. Third, there is a need to ensure that major adjustments forced by comfort zone issues also preserve added value. Fourth, project design and implementation needs to be managed to establish the preconditions for a long-term consolidation to the right on the model. The numbers in Exhibit 4.3 divide the overall government cycle into four cycles: a consensus cycle (0–1); a legislative cycle (1–2); an implementation cycle (2–4); and a consolidation cycle (4–5). We now discuss strategies for each of these cycles. Strategies for the Consensus Cycle In managing the consensus cycle (0–1), the challenge is to build support for the changes needed to commit the reforms. Government can usually control information to focus on benefits and avoid discussion of specific negative impacts. On the other hand, history is littered with governments that have oversold solutions only to find that the public rate success a failure. It is important to balance over the project cycle expectations of benefits against the benefits likely to be delivered. Timing is often critical to launching projects and building consensus. Strategies for the Legislative and Budget Cycle In managing the legislative cycle (1–2), the challenge is to access the legislative approvals and resources required to implement change. Where key

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Exhibit 4.3. Cycle Impact Model COMFORT ZONE Legislative cycle (1–2) 2

Implementation cycle (2–4)

PERFORMANCE IMPACT Low performance 0

4

5

1

PERFORMANCE ZONE

High performance +

3

Consolidation cycle (4–5)

Consensus cycle (0–1)

Failure –

0

+ Opposition

0 Indifference COMFORT ZONE IMPACT

– Support

interest groups seem likely to stop specific projects, trade-offs and negotiations are required. The objective is to gain authorization with minimum tradeoffs and constraints. Gaining legislative approval is seldom the end of negotiations with groups opposed to change. Strategies for the Project Implementation Cycle In managing the implementation cycle (2–4), the challenge is to schedule and evaluate both positive and negative impacts in order to maintain sufficient support to complete reform projects. The first part of the implementation

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cycle (2–3) represents initial planning and action to deliver proposed project value. Perceptions of value increase as the detail is understood but opposition also increases as negative impacts, both real and imagined, are also communicated to key groups. The movement is upward and to the left on the model. Where the endpoint is outside the comfort zone governments take action to restore the comfort zone. This usually involves compromises that reduce the initial planned value. This part of the implementation cycle is shown as (3–4) in Exhibit 4.3. Managers need to manage the dynamics of project impacts either by bringing forward positive impacts or shortening cycle time in order to sell end benefits as imminent. Another challenge is to manage negative impacts. Not everyone benefits from every project, and some individuals and interest groups may be disadvantaged. Planning must address these realities, and organize timing and communication strategies to neutralize resistance. The added value of a project can diminish considerably during the delivery stage, as constituencies lobby to offset perceived disadvantages. Leadership requires the negotiation of such impacts. The challenge is to position implementation within a comfort zone which enables implementation to proceed without sacrificing results to the point where reform fails to add value. Strategies for the Consolidation Cycle In managing the consolidation cycle (4–5), the challenge is to communicate benefits, to manage the gap between public expectations and actual delivery, and to consolidate the benefits by ensuring that opponents cannot erode them too readily. Clearly this phase can move projects in various directions on the model grid. However, for the purposes of this discussion, a horizontal movement to the right is assumed. This reflects a maintenance of added value and a growing support for reform as benefits are appreciated and understood. Scheduling impacts on interest groups to maintain perceptions of net added value, even when negative impacts must occur, requires projects to be designed and resourced differently. Simple criteria of efficiency often extend cycle time rather than decrease it and they often deliver most of the bad news early in the project cycle. While this may seem efficient in a narrow sense, the cost of redesigning projects to accommodate opposition caused by mismanagement of cycle dynamics can be severe. This cost involves both the additional resources to address problems and the cost of compromises which are introduced to defuse criticism and which usually reduce the initial project value. The end point of this particular process can be depressing for those who feel that government should add value. Many completed projects are seen to have delivered no value at all, some are seen to have delivered negative value. When this occurs, the communication experts are usually called in to divert

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public attention from the idea that the government has failed, and, if possible, to present the outcome as a success.

CYCLE-FOCUSED COMMUNICATIONS The traditional notion that the project should be scheduled for maximum efficiency and the communication strategy should sell the project and address criticisms underestimates the need to integrate planning and communication strategies and to manage comfort zones. The communication function in government needs to be reengineered to support government cycles with proactive cycle-focused communication strategies which balance expectations against delivery, manage the dynamics of negative impacts, and consolidate project benefits when they are available. The traditional approach to government segments the task of adding value from the task of selling that value to various publics. Traditional objectives for communications in government have focused on: the development of a positive image using grand plans; an emphasis on consensus; and the avoidance of both the idea of and responsibility for failure. The use of polling as a diagnostic tool and as a means of supporting traditional communication strategies has become so widespread that, on occasions, the polls seem to have become more newsworthy than the policies or the politicians they seek to evaluate. Often the polls address short-term consensus issues which do not relate directly to the sort of comfort zone impacts suggested above. Often they do not address directly the issue of competitiveness and added value. A new communication strategy is required to support high-response management. In the case of project dynamics, communications strategies need to evaluate the impacts on interest groups, support the process with cycle driven communication strategies. New communications strategies not only need to address the idea of evaluation, but they also need to present departures from plan as situations to be corrected rather than signs of project failure. Communication needs to use benchmarks to dimension discontinuous change; it needs to lift overall comfort about the direction of change.

Features of a Cycle-Based Role for Communication in Government The new role for communications in government that is emerging cannot be evaluated in isolation from either the need to add value to national competitiveness or the need to maintain the scope to govern. New approaches to communications in government need to be supported by a new theory, which uses communications to add value to the performance of government by

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assisting government to evaluate performance and manage cycle dynamics effectively. Three features differentiate this new role from the traditional approach discussed above. Focus on External Benchmarks Communication needs to manage the focus on external benchmarks and realities, and to build internal consensus about added value and national competitiveness. With the notable exception of governments undertaking development transitions, such external issues are not a major focus for traditional government communications. Optimize Project Timing Communication needs to contribute proactively to decisions about the timing of projects. In the traditional model, timing is set by other government processes: for example, elections, rigid legislative and budget cycles; the need to ration resources over many projects; the need to maximize internal efficiency rather than external effectiveness; and the need to comply with the plethora of government regulatory regimes which are assumed to lead to effective government. At best, communication strategies are able to select from a smorgasbord of possibilities in order to block unpopular initiatives. Communication specialists tend to become involved when there are routine communications to conduct, when there are achievements to be packaged and sold, or when there is a problem. As cycle time reduces, the scope for communication strategies to address the timing of projects differently increases; when this occurs, new opportunities can be created and many problems can be avoided. Add Value to Project Performance Communication must now address the need to add value as well as to sell ideas; communication specialists must become involved in the scheduling of impacts as well as seeking to cosmeticize them. In order to do this communication strategies need to become involved in the implementation and consolidation stages of the government project cycle. In particular, they must be proactively involved in cycle management to ensure that the consolidation phase is to the right on the Implementation Impact Model. This requires a new attention to cycle dynamics which encompasses speed, consensus, and performance. Communication needs to focus on consolidating evaluations of government performance, rather than on the short-term packaging and sale of achievements in isolation. New approaches to the management of cycle

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dynamics enable government to balance perceptions of positive and negative impacts throughout the cycle. Successful consolidation depends on whether a project meets public expectations of net value. Traditional approaches to communication tend to oversell value and underrate negative impacts. Project implementation tends to occur independently of communications until a problem emerges; at that stage, comfort zones have usually been breached, and damage control is often the only option left. Although there have been some brilliant short-term damage control operations, they usually involve deception, the excessive use of public resources to buy support, or the erosion of the added value the project or program sought to deliver. All these strategies can lead to the sort of longterm disillusionment with government which is difficult to reverse.

Cycle-Based Communication Strategies While cycle-based communication strategies extend the role of communications in government, they also replace uniform strategies with time-based strategies which need to differ for each part of the cycle. For example, this analysis suggests that overselling initial project benefits is as much a communications problem as underselling benefits. It follows that the effectiveness of a communication strategy needs to relate to the effectiveness of the consolidation achieved at the end of the project rather than to the entertainment value of set piece inputs to the process. Exhibit 4.4. Cycle-Based Communication Strategies examines the communication context and communication strategies for each stage of the government cycle.

CYCLE TIME MANAGEMENT IN PRACTICE Three Case Studies are presented to illustrate the use the theory of cycle dynamics to explore complex real time behavior and impacts. The first deals with the U.S. Health reforms attempted by President Clinton. The second case deals with the Contract with America which is explored in more detail in chapter 5. The third case deals with the victory by John Howard in the 1996 Australian elections and compares the cycle management used by Howard to the approach taken by his predecessor in 1992.

Case One: The Clinton Health Proposals President Clinton was elected for his first term with a mandate to deliver health reform. The problem was accepted the solution was not. The cycle time to prepare a solution was long. The solution, when it was presented could not be delivered. The detailed solutions impacted on the comfort zone

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Exhibit 4.4. Cycle-Based Communication Strategies Communication Context

Communication Strategies

Consensus

• Develop initial support for change • Ensure the project moves upward and to the right on the model. If this cannot be achieved, abandon or redesign the proposal.

• Build support for change by selling benefits, using benchmarks, and the idea of maintaining competitiveness, or by developing a crisis which focuses on the costs of not changing • Segment audiences into those who benefit directly and those who do not • Do not oversell change. Longterm perceptions of success or failure tend to be based on initial expectations.

Legislative

• Develop political • Translation of initial public support for a support into legislative legislative and budget support requires communications mandate and negotiations with political • Specifics may create allies and political opponents a base for opposition • Position the proposal in the • Funding allocation public arena so that advancing usually threatens others it is seen as positive and seeking resources opposing it is seen as negative • Recognize the threats posed to other projects by funding this project. Negotiate a funding priority. If necessary, threaten the funding for other projects.

Delivery

• Communicate implementation to emphasize benefits and neutralize negatives • Adjust impact to maintain the project in the comfort zone • Protect core benefits

• Shorten cycle times and avoid delays which provide opponents with a chance to erode support • Bring forward positive impacts and defer negative impacts • Where a project moves outside the comfort zone restore the project to the comfort zone by addressing negatives • Minimize any reduction in benefits required to implement change

Consolidation

• Communicate benefits • Consolidate to the right on the model

• Manage the gap between public expectations of benefits and actual delivery. • Neutralize attempts to erode perceptions of net benefits

Cycle

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of government. The net result was a standoff between the president and the legislature. The reforms were abandoned. A number of points can be drawn from this experience. First, if the proposal had been managed differently, opponents would have been under more pressure to deliver. Second, the impact on interest groups and comfort zones was not managed particularly well. As the detail was examined, the ranks of opponents to the proposals grew. Third, the standoff can be seen as a temporary consolidation. It is interesting to consider whether the cycle at this point is seen as having added value, whether the proposals remain in the comfort zone and could be rejuvenated, and who the public credits and blames for the standoff. Our guess would be that the president gained points for identifying the problem but his solution was seen as flawed. Whether a different approach to the management of cycle impacts could have made more progress must remain an open question. The delay in moving and the lack of attention to comfort zone impacts established the preconditions for failure, at least this time around. But those who blocked the solution, although they succeeded were forced to appear negative. The alternative solutions such as they were articulated, also seemed to be flawed.

Case Two: The Republican “Contract with America” The Republican reforms of Congress were remarkable illustrations of a legislature seeking to reduce cycle time and respond to public concerns. The process is analyzed further in chapter 5. While a number of the reforms have proceeded, the revolutions foundered on the balanced budget issue. President Clinton was able to point to the negatives involved in the implementation of ideas which had great public support. The drawn out nature of the budget debate moved the project to the left on the implementation impact grid. In the end compromises occurred. The Congress achieved far less than it set out to achieve, the president was able to project an image of strength and concern. But overall the solution represented major progress for the reform agenda. In this case, the process is probably consolidating to the right on the grid. But who actually benefited from these events, the president, or his republican adversaries? Putting aside some of the short-term political impacts, the president is probably seen to have understood the comfort zone issues. On the other hand, the illustration that Congress can lead and that the gridlock, which has become a characteristic of its deliberations could be overcome, has probably led the reformers to be seen as adding value.

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An even more interesting aspect of this case is that it demonstrates how cycle time within the legislative arm of government can be shortened and how the process can add rather than subtract value from national management.

Case Three: The First Howard Election Victory in Australia In 1993, John Hewson lost an election in Australia that has been described as unlosable. He did it by presenting a manifesto for changes which was largely sensible, but which spelt out in detail many of the implications. Worse, the manifesto was produced well before the election. Hewson broke most of the imperatives that cycle theory suggests. He paid the electoral price. The government of the day attacked the negatives until they swamped the positives which as far as the electorate were concerned were in the future and obscure. In 1996, John Howard led the same party to government successfully. He confined himself to neutralizing government promises, to offering a broad agenda for improvement. He released these details very late in the election campaign. This ensured that a public who disliked the incumbent government and probably had come to regret keeping Hewson from office three years earlier, made John Howard, Prime Minister of Australia with a near record majority.

Summary While these and other examinations of actual implementation reveal many different cycle patterns, a number of general points can be identified further. While the complexities of government action and communication lead to many variations in cycle patterns, individual cases can be analyzed usefully using the Cycle Impact Model. Each stage of the cycle must be managed to maximize the chances of an end consolidation to the right in the model. Where projects must manage negative impacts or long cycle times, it is imperative that they launch with strong support in the early stages of the cycle. Where negative impacts do not exist or can be hidden during implementation or where implementation is not an issue, government should seek to undersell proposals. Where projects run outside the comfort zone, the strategy should be to move the project back into the comfort zone with minimal impacts on project value. Both the timing and scope of adjustments need to be managed. Governments are rarely able to deliver the added value they first envisage. The extent of the reductions they must accept is determined by: the effectiveness of particular reform programs; their capacity to reduce cycle time and achieve

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short-run control over change; and the threshold levels which define the comfort zone. Finally, where there can be no effective control of the entire cycle, the theory can still be used to inform communications strategies. Where the cycle is broken, the cycle impact model emphasizes the need to control the breakpoint and set up pressures which reinforce the required change.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT We suggested in chapter 1 that implementation is a major weakness for government reform. In this chapter, we have examined simple approaches to address this problem of government management. This analysis has major implications for government reform. We will discuss detailed strategies and tools which can be used to manage these issues in later chapters. First, traditional government management systems simply cannot address cycle time management or the management of cycle impacts. Second, while the idea that business management reform needs to be extended to manage comfort zone impacts was developed in chapter 2, cycle time analysis illustrates how this must occur. It is not enough to use traditional hierarchical segmentation which presumes that comfort zone issues can be managed prior to implementation. Third, solving the implementation problem in government requires management systems able to address three different priorities. Government systems need to manage short-run impacts, balance impacts on added value and comfort zones in order to deliver added value while operating within the comfort zone, and manage cycle inputs in order to maximize project support. Fourth, the IIM and the CIM presented in this chapter enables government managers to focus on impacts and manage cycle-based communications. However, for impact management to succeed other government systems need to change. Planning and evaluation solutions need to identify impacts and link these to wider objectives. We discuss how this can be achieved in chapter 8. Government managers require new strategic leadership skills to manage the adjustments required to maintain a project within the comfort zone throughout implementation. We discuss leadership in chapter 6 and we examine the need for an effective senior management system in chapter 9. The government value-chain must be reengineered to enable managers to control cycle time and management cycles. We discuss these changes in more detail in chapters 5, 8, and 9. Fifth, many of the reform solutions adopted by governments create new implementation problems not only because they do not provide managers

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with the scope to manage cycle impacts, but also because they increase rather than reduce cycle time. Although many of these solutions draw on key elements required for competitive government, they often ignore the need to manage implementation impacts. Sixth, our analysis suggests that the failure to manage cycle impacts and to use cycle-based communications has caused many unnecessary implementation breakdowns. Many implementation problems are not caused by political opponents or by vested interests opposed to change but by the way in which managers mismanage cycle dynamics. The idea that a communication strategy should manage perceptions of discounted net project value across different interest groups changes the management landscape for many government agencies. Cycle-based management, when pursued skillfully, can stimulate government management systems to manage performance instead of avoiding it and to negotiate the scope to manage performance directly rather than to blame nonperformance on restraints imposed by others.

Chapter 5 Responding to External Pressures: Value-Chain Coalignment and the Delivery of Governmental Services

The basic function of management appears to be coalignment, not merely of people in coalitions but of institutional action— of technology and task environment into a viable domain, and of organizational design and structure appropriate to it. Management, when it works well, keeps the organization at the nexus of several necessary streams of action. —Thompson, Organizations in Action (Management) has to be operational. It has to embrace the entire process. It has to be focused on results and performance across the entire economic chain. —Drucker, Management Challenges for the 21st Century Chapters 1–4 advanced four propositions about the crisis in government and its solutions. • Although the crisis in government management is externally driven, most solutions address internal symptoms rather than the underlying causes. As national barriers are dismantled, national differences and preferences are becoming more rather than less important determinates of national priorities for competitive government. • These external pressures require nations to change in order to maintain and improve their competitiveness. Although there are a number of different transitions determined by national strengths and preferences, 105

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part of the transition to competitiveness for most nations is a transition to the high-response mode of national management. The role and performance of government must change to ensure that government as well as business can respond competitively to new external priorities. • A national transition to increase competitiveness requires a government which can respond and can work with business as a catalyst for the development of world-class industry strengths. It requires government managers able to accept a shared responsibility for national performance. • Many of the solutions to the crisis in government management involve dismantling old systems of coordination and control and transplanting solutions derived from business. There are problems with these transplants: government often fails to provide the focus assumed by business; business solutions seldom provide for the ongoing management of the impacts on interest groups which government systems must address; and reforms seldom address the need to shorten cycle time. It is the purpose of this chapter to examine the internal changes required to enable government management to respond to these external pressures. New strategies to coordinate the parts of government and to link government more effectively to external changes are central to effective reform. J. D. Thompson (1967), in developing one of the few theories of organizational synthesis, addressed the need to coordinate interdependencies in order to facilitate organizational change and adaption. He saw the key to coordinating organizational interdependencies in times of rapid change as coalignment. In government systems, coalignment needs to be focused on the particular tasks and projects that deliver outputs rather than on macro-agencies and programs. Coalignment needs to be driven by new approaches to strategic leadership which use benchmarking and evaluation and by new approaches to communication. Governments can be conceptualized as importing competitiveness opportunities and threats, social needs, and interest groups pressures and exporting added value which address each of the core missions of government. The government value-chain is the sequence of functions and processes used by government to convert these inputs into outputs. The cycle of government activities outlined in chapter 4 contained four sequentially related processes or sub-cycles: consensus, legislative, implementation, and consolidation, which can be directly linked to functions in this value-chain. In this chapter, we focus on the need to manage these conversion processes differently. We present approaches to the analysis of government value-chains and discuss the need to achieve a dynamic coalignment of the functions of government which

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focus on both specific task performance and on specific environmental impacts. Three features of government value-chains block transition to highresponse government. First, government value-chains are buffered from their environment rather than sensitive to it. Second, value-chains are overspecialized and segmented, and government value-chains are coordinated through standardization and queued through standard government budget and legislative processes. Third, the lack of focus on cycle time and the focus on segments of the value-chain encourages government to start more projects than can be resourced and to balance resources by extending rather than reducing cycle time. The Value-chain Coalignment Model (VCCM) provides a framework for reengineering government value-chains to remove these blockages. The model addresses the interdependency of internal reforms, the need to achieve new functional coalignments, the need to move beyond on-off fixes, to establish a basis for continuous improvement, and the need for effective control of these processes. Effectiveness in maintaining a government’s organizational interdependencies refers to management’s ability to achieve coalignment among its internal and external resources in such a manner as to be equal to or greater than the world best benchmarks for those government activities. Coalignment is a unique form of organizational interdependence in which each of a government’s stakeholders and subunits closely articulates their needs, concerns, and potential contributions to the government’s functioning in such a manner that management can forge an appropriate value-added configuration and linkages between stakeholders and a government’s organizational performance. An appropriate value-added configuration and linkage pattern between governmental activities is one which integrates, coordinates, and controls each stakeholder’s and unit’s needs, concerns, and contributions so that outcome is mutually satisfying to all involved and optimizing to the activities of government functions as a whole. This is the essence of effective public sector management. Three theories of high response management provide the focus to enable deregulated units to address external impacts and deliver key tasks and services. Environmental scanning theory is used to locate those environmental forces which must be constrained, employed, and responded to in order to create a sustainable public consensus on a high priority governmental problem. Value-chain theory is used to identify areas across governmental processes which must be effectively coaligned in order to rapidly formulate, enact, and implement public programs. Continuous improvement theory is used to reengineer a government’s integration, coordination, and control processes in order to upgrade governmental performance.

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We illustrate the application of these ideas by examining the application of value-chain theory to legislative processes to develop and deliver the “Contract with America.” We conclude by summarizing the implications of these theories for the implementation of government reform.

ENVIRONMENTAL SCANNING THEORY An organization’s environment, perhaps more than any other factor, affects organizational strategy, structure, and performance. However, whether such changes in organizational strategy, structure and performance lead to positive or negative consequences, rests almost entirely upon the speed, accuracy, and interpretation of the information and communication regarding the significance of various environmental changes and the rapid reorientation of an organization’s strategy, structure, and resources in order to take advantage of such changes. This process is termed environmental scanning. . . . environmental scanning allows us to analyze and act on the forces external to an organization which significantly influence its internal relationships. —Cushman and King, Communication and High-Speed Management Environmental scanning can be approached by focusing on the boundary between an organization and its environment. Transactions across that boundary represent inputs and outputs of the organization and determine the impact of the organization on its environment. The complex environment facing many business organizations is often managed by a combination of devolution and segmentation into relatively simple but increasingly dynamic product/ business domains; portfolio management strategies enables business to export and import such business units in order to modify their external boundary and to exploit internal synergies. The environmental scanning task in such organizations starts by focusing structures and management in order to strengthen relationships with these domains. The boundary between government and its environment is more complex than the boundaries managed by most business organizations. Exhibit 5.1. Government and Its Environment outlines the key boundaries which government must scan and manage. At the microlevel, governments must relate to many interest groups and these interest groups are interrelated. At the macrolevel, governments must manage two boundaries. First, there is the direct government boundary which includes transactions with other government, with multinationals, and with national interest groups including busi-

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Exhibit 5.1. Government and Its Environment

GOVERNMENT Government Boundary Scanning Role In order to increase national competitiveness, government must manage direct transactions across the government boundary and indirect transactions across national boundaries Externally controlled multinational companies

Environmental domains are complex and interrelated. The nature of transactions between government and these domains differ

The Government Boundary Transactions with companies and interest groups and individual citizens Includes direct international transactions which are also part of the national boundary Interest groups

Internally controlled multinational companies

National companies

Interest groups

The National Boundary Transactions with the rest of the world Major government transactions with other nations Indirect transactions with companies that access world markets

nesses. Second, there is the national boundary. Government manages some transactions across this boundary directly but many of the management tasks spanning this national boundary are undertaken by business units. Government needs to manage these parts of the national boundary indirectly. The volatility of this environment and the interconnections between domains means that simple structural solutions to focus boundary scanning need to be augmented by other solutions. Environmental forces create both problems and opportunities for governmental organizations. In chapter 4, we observed how the management of four such environmental tensions were particularly important. The first tension is

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between the public awareness of a problem and the cycle time required to build a consensus that the problem is a high priority need requiring an immediate governmental response (consensus cycle time). The second tension is between a public consensus on government’s need to respond to a high priority problem and the cycle time it takes government to formulate an appropriate program, move it through the legislature, and achieve a budget allocation (legislative cycle time). The third tension is between the legislative mandate to solve a problem and the scope for management to actually deliver results (implementation cycle time). The gap between mandates and scope for action includes resource gaps, workskill gaps, and comfort zone gaps. The fourth tension is between public expectations of projects and public perceptions of results achieved (consolidation cycle time). The coalignment of a government’s actions within these four cycle times is the essence of effective management of governmental processes. Environmental scanning in the public sector has four roles. Scanning the National Boundary Environmental scanning must identify opportunities to add value to national competitiveness. This includes the identification of specific transitions to national competitiveness, monitoring progress, and the impacts on competitors and government. World-class benchmarking refers to the competition between nations for access to the world resource base. Governments that are inefficient, unstable, and poorly managed will increasingly be denied access to the world’s resource base both by their own taxpayers and by responsible national, regional, and multinational institutions. Those local, national, regional, and global governmental institutions which set the standard for excellence in governance will be extended increased access to such resources and an increasingly improved standard of living for its citizens. Scanning the Government Boundary Environmental scanning must locate public consensus or potential public consensus on the need for governmental action with sufficient strength to constitute a high priority mandate for change. In addition this high priority mandate must be sustainable in time throughout the life cycle of the legislative and budget processes. Real Time Rather than Sequential Scanning Environmental scanning must be dynamic and proactive rather than sequential. It must recognize that a consensus for change can quickly erode. It must recognize that many projects fail to deliver planned impacts.

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Scanning the Limits to Action Environmental scanning must also scan the limits to effective action. We discussed in chapter 2 Peter Drucker’s view that we need to consider what government can do rather than what it should do. Success or failure is increasingly related to effective scanning not only to identify implementable solutions, but also and to optimize the timing of particular changes. In nations using multiparty legislative systems, comfort zones or the lack of them are often, but not always, evidenced by political opposition to change. The complexity of environmental scanning in government is evidenced by research into such cases. David Butler and Donald Stokes (1974) in their thirty year study of high priority public consensus for governmental action in Great Britain discovered that when the public had such a high priority and had a preferred solution, both major parties tended to back governmental action and a program was implemented. When the public had such a high priority consensus and several solutions were equally supportable and one party had a large majority, that party’s solution was implemented. When no such majority existed, gridlock and inaction occurred. This study draws attention to one of the unique qualities of management in government—the need for bipartisan support or a large majority to influence governmental action. In thirty years of legislative history in Great Britain, these two criteria were met less than 30 percent of the time.

Environmental Scanning Tools The three models presented in chapters 3 and 4 (national competitiveness, impact management, and cycle time management) all focus on aspects of environmental scanning. The strategic planning and evaluation model introduced in chapter 2 and developed further in chapter 8 also focuses on managing external pressures. These tools focus on the need for external benchmarks, the need to manage the interrelationships between added value and comfort zone impacts, and the need to manage in real time impacts on added value and comfort zones, and the need to focus management strategically on core results. Exhibit 5.2. A Checklist for Environmental Scanning in Government provides a checklist that can be used to focus an evaluation of environmental scanning in particular government situations.

VALUE-CHAIN THEORY [A]n organization’s ability to continuously improve its effectiveness in managing organizational interdependence will be the critical element in successfully responding to environmental forces in the 1990s. —Rockert and Short, ITT in the 1990s

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Exhibit 5.2. A Checklist for Environmental Scanning in Government • What are the opportunities and threats to increase competitiveness, add social value, and strengthen governability? What strategies are available to exploit the opportunity or address the problem and what interest groups and political parties are associated with each solution? • Which of these options are internationally competitive? What have other governments around the world done to solve this problem? • Which of these options might obtain a legislative and budget mandate for implementation given the disposition of the legislature and the resource base of the nation, of business, and of government? • What are the diverse expectations that must be met in order to create a comfort zone for action? Which of these options are implementable in the sense that they are unlikely to attract sufficient opposition to either prevent implementation, or increase implementation costs to the point where net benefits are likely to be seriously eroded? • What are the limits to action? What cannot be done or the comfort zone will be destroyed? What is the most dangerous thing which could happen to prevent the preferred solution from being implemented? What can we do to prevent such a danger from impeding the implementation of our solution? • What are the likely impacts of the change, both during and after implementation? How might these be monitored and managed? How can a public perception of net positive benefit be maintained throughout the implementation and consolidation processes?

Whereas environmental scanning allows a manager to survey the potential outside resources for government and determine the most appropriate way to coalign those resources with ongoing governmental action, it is value-chain theory which provides a survey of a government’s internal resources and how they must be coaligned to achieve significant governmental action. To begin with, we are in need of a theoretical framework for analyzing the major functions and processes employed in organizing and managing governmental activities. In addition, this framework should highlight the within and between units coalignment activities. This is exactly what value-chain theory does. Three features of the traditional government value-chains act to lengthen cycle time and block attempts to move to high-response solutions. First, government value-chains are coordinated to fit the standard government budget and legislative cycles rather than to meet the demands of cycle time management. This leads to coordination through standardization and a series of queues. Second, government value-chains often create coordination problems because they seek to optimize efficiency, by extending cycle time, and oversegmenting value-chain functions. Third, this focus on queues and on segments rather than on outputs encourages governments to extend cycle

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time by starting more and finishing fewer projects. We now discuss each of these issues.

Coordination to Fit the Standard Government Budget and Legislative Cycles A governmental value-chain consists of different levels of analysis. Four levels are illustrated in Exhibit 5.3. Value-Chain for Government Activities. The first level contains corporate government functions; the second level contains governmental functions for implementing programs and projects; the third level contains an aggregation of governmental functions into specific governmental processes and cycles. The fourth level is the leadership level consisting of management and communication processes. In examining the corporate government level of the value-chain, note that although overall government priorities are included, the thrust of corporate government is often on regulating and coordinating activities. In examining a government’s functional unit level of the value-chain, notice the start and finish of the value-chain, which denote inputs into the public administration process and outputs from that same process. The boxes denote functional activities performed within public administration or government. In examining the process level of governmental activities, note how each process includes some functional activities unique to that process and some linking or overlapping functional activities which reside in that process. The process level in Exhibit 5.3 includes the four government sub-cycles, which were discussed earlier. The traditional government value-chain has a number of central characteristics. The value-chain is essentially sequential and assumes that a legislative and budget mandate (essentially a political task) is followed by implementation (essentially a management task). The system involves a complex sharing of accountability for performance between the legislature, executive government including the central agencies of government, agency managers, and project managers. In a static world with set structures, the complexity of these accountabilities is simplified by segmenting them. Consensus is assessed at the outset and is assumed to be independent of implementation and changing events and cycle time. The legislative cycle is seen to have succeeded when it delivers a mandate for action. Allocative tensions are seen to be resolved when each annual budget is approved. Management is responsible for implementing the mandate within the rules and regulations set up by corporate government to regulate agency behavior. These orderly solutions break down when the response times required by external changes falls below the aggregate cycle time of these government

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Exhibit 5.3. Value-Chain for Government Activities Government priorities Personnel regulations

CORPORATE GOVERNMENT

Allocative tensions Policy consistency Financial regulations Cyclical budget review Audits of performance

• Development/ authorization • Resource acquisition • Project delivery

Evaluation and revision of budget priorities: proposal/ debate/vote

Consolidation

Implementation

Budget review

Implementation

Legislative and budget

• Legislation: development/ debate/vote • Budget: priority/ debate/vote

• Benefits to users • Effective transition • Ongoing support for change

• Development/ authorization • Resource acquisition • Project delivery

GOVERNMENT PROCESSES Consensus cycle Legislative/budget cycle

Implementation cycle MANAGEMENT FUNCTIONS

Performance review/audit

Annual Budget Cycle Implementation cycle

Consolidation and review cycle Strategic leadership Cycle time management and communications Value-chain coalignment Resource and personnel management

GUIDE GOVERNMENT REFORM

Competitive needs Social value needs Interest group pressures

OUTPUTS

TO

Scheduling

INPUTS

A VISION

Consensus

GOVERNMENT FUNCTIONS

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systems. In considering the need for reform, features of the traditional government value-chain need to be considered. Budget and Legislative Cycles The value-chain is managed within annual budget and legislative cycles. The scheduling delay at the commencement and the annual review process adds to cycle time. The output of the legislative/budget cycle is a mandate for action plus a one year allocation of resources. At the end of each cycle there is a review and allocation process. Each existing project must resist pressures to cut costs in order to start new projects. Pressures for reduction can be pressures to scale down the project or pressures to slow implementation. At each review, the funding and priority for completion are reconsidered. After each review managers must revise project plans and resources and continue with implementation. Access to Resources A budget mandate is a necessary but not sufficient condition for access to resources. After obtaining a legislative/ budget mandate for action, agency managers must negotiate access to the personnel and other resources required to implement their mandate. The central agencies of government often seek to control the policy personnel and financial systems which are required to support implementation. Although policy impacts and the scheduling of proposals into the budget and legislative cycles are dealt with as part of the initial legislative budget mandate, negative impacts are often addressed through policy driven interventions by central agencies. Traditional government systems also control employment, classification levels, structures, and roles making the task of assembling a group to implement a proposal difficult and time consuming. These difficulties expand where the project requires new types of resources or growth in agency resources Government controls over other management processes, for example, purchasing or system development, also act to further delay cycle time. Evaluation Evaluation is segmented on the basis of processes and resources rather than impacts and results. Segmenting evaluation and relating it to budget reviews shifts the emphasis away from using resources to deliver outputs towards using resources to protect territory and maintain the scope to manage. At the end of the process there seems no point in reviewing final outcomes or results.

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Cycle Time Cycle time is an outcome of these processes rather than an active management variable. Cycle time is system rather than management constrained. Management of cycle time is shared between central agencies, the legislature, and project managers. The concentration of central processes on an annual cycle is a government device which aggregates decisions to manage allocative tensions and to standardize processes in order to simplify interactions between the legislature and executive government. However, this solution has a number of terminal disabilities for high-response government, for example, cycle time is extended unnecessarily, managers are prevented from managing cycle time directly, and the focus of evaluation shifts away from performance and results toward the retention and acquisition of resources. Core Management Skills Core management skills change with the value-chain. For example, management support for the traditional process involved the capacity: to articulate and develop policy; to manage communications between government and various interest groups; to access and use the legislative/budget, personnel, and financial systems of government; and, finally, to manage the delivery of programs effectively within the rules laid down for efficient (or failure proof) government. The management skills required to implement competitive government are different; for example, strategic leadership, cycle time management and communication, value-chain management, and resource management. Over Segmentation Over segmenting value-chain functions to optimize efficiency often extends cycle time. Exhibit 5.4. Value-Chain Segmentation and Cycle Time focuses on the standardization and queues used to coordinate traditional government value-chain functions. The first diagram illustrates the use of queues to coordinate the value-chain. The second diagram in Exhibit 5.4 illustrates the relationships between value-chain segmentation and costs. The third diagram shows the relationship between value-chain segmentation and cycle time. In examining Exhibit 5.4, note that each new segment introduced into a value-chain also requires an additional queue. Both total costs and cycle time are impacted by these queuing solutions. First, total costs are a function of the reductions caused by specialization and economies of scale offset by the increasing costs of coordination and control. Second, production delays (cycle time) are extremely sensitive to the segmentation because of the impact of queuing time.

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Exhibit 5.4. Value-Chain Segmentation and Cycle Time

Repeat production segments 1–x

Other projects

Production segment x

Queue 1

Input

Queue x

Production segment 1

VALUE-CHAIN / DELIVERY TECHNOLOGY

Output

Other projects

Unit cost of production High Low

Cycle time = Coordination plus production times

Total production plus coordination costs

Cost of minimizing cycle time

High

Unit cost of production High Low

COSTS AND VALUE-CHAIN SEGMENTATION

Direct production costs

Cost of coordination

Degree of segmentation / specialization

Low

CYCLE TIME AND VALUE-CHAIN REGMENTATION Total production plus production delay

Delay caused by minimizing costs

Coordination delay Production delay

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Coordination by Queues The focus on queues and on segments rather than on outputs encourages governments to extend cycle time by starting more and finishing fewer projects. While such strategies address short-term pressures on the comfort zone, they also create longer-term pressures as lack of result impacts leads groups to discount government commitments

Strategies for Reengineering Value-Chains in Order to Reduce Cycle Time This examination of values-chain theory as it applies to government suggests three propositions for government reform. First, maintaining coalignment in times of rapid change will require the active management of value-chains. This in turn requires management and communications systems that focus on strategic leadership, cycle time management, value-chain coalignment, and resource management. Second, the initial success of devolution solutions where there is a consensus about performance and priorities will be illusory unless coalignment can be maintained in the medium to long-term. Third, reengineering government value-chains requires the resolution of three at times conflicting tensions: the tension between mandates and the need for flexible actions; the tension between a project manager’s requirement to manage resources and the system wide culture and controls which underpin government personnel and financial management; and finally the tension between short-term responses and the need to build long-term solutions. We have argued that the capacity to reduce and manage cycle time is critical to competitive government. This analysis of the government valuechain demonstrates that reducing cycle time requires more than a fine tuning of government cogs; it requires a major reengineering of the value-chain. Four different reengineering strategies can be considered. Existing Value-Chain Focus the existing value-chain and reduce cycle times by modifying elements of the chain and coordinating the interrelationships between them. Government can focus on making the existing value-chain more effective by accelerating performance and evaluating impacts. Simply focusing on timing can be effective because most government management systems see timing as an output of the system. However, many government value-chains are limited by general central processes which are not directly linked to a specific project. For example, in Exhibit 5.3, the legislative and budget cycles and the budget

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review functions dominate cycle time. In addition, the resource acquisition function is often dominated by attempts to manage government wide rather than project specific impacts. Deregulation Reduce cycle time by deregulating specific functions in the value-chain and focusing these functions on project needs rather than on system needs. For example, the delays created by corporate government policy personnel and finance systems can be reduced by deregulation of the management processes. This strategy frees government managers to manage implementation but does little to address the dead hand of the legislative and budgeting systems of government. In addition, deregulation provides managers with the scope to both manage and mismanage resources. There are too many cases of empires built and garnished with resource flexibility provided by deregulation to ignore these risks. If these empires also delivered added value to the public, the excesses might be seen as a small price to pay for performance. But often the public is worse off because there are fewer funds available for services, and because they see themselves as paying for the new excesses of autonomous managers. Simplification Identify elements that are not critical to delivery and either eliminate these functions or manage them in parallel with critical functions rather than in sequence. Examples of reengineering solutions include: the use of agency and program mandates to define organizational and resource boundaries within which executive government can act; the use of project teams which cut across agency and budget boundaries; corporatize areas of government which can operate as businesses or quasi businesses to allow these entities scope to raise their own revenue and deal with their own customers; and move some functions out of the government value-chain altogether, for example, by privatizing or setting up independent tribunals or authorities to manage particular functions. Moving activities to the private sector can remove them from the political framework and from the political consensus process. Devolution Arrange government structures both within and between agencies to enable managers to directly manage value-chain interdependencies. Structures should seek to provide the scope for autonomous management of specific value-

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chains or at least seek to define agency boundaries that include the more difficult interdependencies. Where agency structures must segment interdependencies, overlapping project structures can be used to provide a management focus. Where management must be segmented across the value-chain, boundary coordination units at key interfaces can be used to manage strategic interdependencies.

Reengineering Value-Chains The traditional government value-chain assumed that “steering” (policy direction and evaluation) and “rowing” (service delivery) need to be integrated. Many current and successful strategies for government reform involve splitting the traditional value-chain. For example, separating “steering” from “rowing” (Osborne and Gaebler) focuses corporate government on performance, on legislative and resource envelops, and on adding value to markets and services rather than on delivering these directly. The Thatcher government in the United Kingdom used similar strategies to dismantle one of the most centralized bureaucracies in the Western world. First, these solutions must reengineer the corporate government valuechains to achieve three results: • A shift from detailed controls over processes to a focus on performance and results. • A shift to new strategies to manage resources which include user pays, accrual accounting, and macro-program allocations within which agencies are able to determine priorities and manage impacts. • A shift to new strategies for enabling the legislature to review and approve government activities that focus on controlling priorities and objectives rather than processes and on audits of performance rather than compliance. Second, these solutions must reengineer delivery value-chains to enable managers to manage cycle time and deliver agreed results. While there are many different solutions related to different delivery tasks, four different types of reengineering can be identified. • Project management solutions deliver parts of change programs using project management techniques. Projects are controlled by a project agreement which defines performance impacts and the resources and

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management scope required. These represent a temporary adjustment to an agencies value-chain. • Devolution of management powers to operating agencies is the solution underpinning many of Osborne and Gaebler examples. In chapter 7, we suggest that this transition requires a balance between increased accountability for results and a relaxation of detailed controls over processes. The end point is a split in the value-chain with government retaining considerable residual controls and responsibilities. • Corporatization of operating agencies involves statutory management autonomy for agencies. Often the objective is to place agencies on a business like basis. Government appointed boards are usually part of this solution. Control is through government policies and through approved business plans. • Privatization solutions remove agencies from government ownership. This represents an irreversible cutting of the old value-chain. The government’s role usually reduces to establishing a legislative charter for the privatized agency and regulating the activities of the agency to ensure that the public interest is addressed. These solution work best where external competition can be used to provide market driven accountability to complement residual government regulations.

CONTINUOUS IMPROVEMENT THEORY Fast-cycle companies map a firm’s information and communication flow so as to identify major interfaces, bottlenecks, and action impediments . . . They study competitors and superior performances . . . for helpful ideas . . . They know just where in the system compressing time will add the most value . . . Not surprisingly, these are the activities they attack first and upgrade continuously. To compress time and gain the benefits, a company has to work in and manage through small self-managed teams made up from various parts of the organization. —Bower and Hout, Fast-Cycle Capability for Competitive Power Government structures must relate to many different environmental domains; they must deliver a wide range of different project functions and impacts. Simple structures can no longer perform this role. It is often counterproductive to seek to align structures and tasks directly. Temporary organization to

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manage change projects have become a feature of government management. They work well enough. The danger is that government systems will use every respite from change to attempt to institutionalize and capture these change mechanisms. This institutionalization often produces two forms of paralysis: a general inertia caused by fixing the way in which government sees its environment; and cycle time inertia in that the new processes trade cycle time for predictability and control. We have mentioned above the illusory success which occurs when government addresses a crisis. For a period the priorities are clear and the system coaligns to deliver solutions. In this situation it is relatively simple to manage delivery and achieve impacts. But when priorities must shift, comfort zones erode and delivery fails. Coalignment is often the first casualty of this process. Often, government systems and management focus on eliminating symptoms of failure rather than on changing to provide a basis for ongoing improvement. Ongoing improvements in performance require management systems that make performance improvement a primary focus. Traditional government management systems manage inputs and processes rather than performance. Ongoing improvements in performance require government managers to move outside of the restraints produced by agency structures and roles. At the heart of a government’s use of an improved value-chain to increase both the responsiveness and performance of one or more of the government’s processes is the use of communication in small groups to continuously improve current organizational performance. Several dynamic small group coordination processes exist for improving a firm’s coalignment of cycle time and performance outcomes. These include (1) task forces, (2) legislative hearings, (3) benchmarking teams, (4) cross functional teams, (5) self-managed teams, and (6) outside linking teams. Let us briefly explore the communication dynamic of each small group process and then explore their effective use in one example from the legislative process.

The Communication Dynamic of Various Continuous Improvement Groups A task force normally involves government officials, topic experts, and community leaders in a process of constructing a public consensus and formulating legislative programs aimed at solving high priority problems. This group can be from twenty-five to several hundred, depending on the size of the problem to be solved and the interest groups needed to forge a public consensus.

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A legislative hearing normally involves a committee of the legislature investigating and building a consensus on the need either to develop new or modify old legislation. The size of the group depends upon the size of the committee or committees with jurisdiction over the legislative problem involved. Experts and representatives of interest groups are called to public or private meetings to inform the committee on what is needed in the form of legislative support. Benchmarking teams normally scan the globe for world-class governmental performance and then study how various parts of one’s own organization needs to be changed to achieve that world-class level of performance, This team then implements and monitors changes in one’s own organizational structure until it achieves comparable performance levels with the governmental process benchmarked. Cross functional teams normally are made up of various unit managers and focus on improving interunit coordination, cycle time, and performance outcomes. Such improvements are thus at the process level of the value-chain. Self-managed teams normally focus on improving within unit coordination, cycle time, and performance outcomes. Such team meetings are thus from within functional units of the value-chain. Outside linking teams normally take the form of outsourcing or privatization of governmental services. In such cases, the service may remain linked to or may be separated from the governmental value-chain. These six forms of groups activities are the central tools employed by manages to continuously improve governmental performance.

COALIGNMENT AND THE LEGISLATURE: DELIVERING THE CONTRACT WITH AMERICA We have made our choices, and now we have no place to go but forward. The rest, as they say, is history. When the 104th Congress was sworn in on January 4, 1995, we set about fulfilling the Contract. With a hundred day legislative blitz unparalleled since at least 1933, we brought every item in the Contract up for a vote, exactly as we said we would. More than that, we passed nine out of ten items, failing only to get the two-thirds vote for the term limits constitutional amendment (although that issue is far from finished). The big question is, what’s next? —Armey, Freedom Revolution

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Environmental Scanning During the winter of 1993, the Republican Party in the United States was confronted by several facts as they prepared for the upcoming legislative elections. The Democratic Party controlled the Presidency and both Houses of the legislature by what appeared to be a comfortable margin. House Minority Leader, Newt Gingrich reflected on the political environment as he saw it at the time— President Clinton’s popularity was stuck in the mid-40 percent range close to the plurality by which he won the 1992 election. His advocacy of unpopular social issues had alienated much of middle America. Tax increases had angered the small business community. His health plan had collapsed and his much heralded welfare reforms had never materialized. Support for term limits was growing at a fantastic pace. Various congressional scandals had made it clear that after forty years of power, the Democratic Party was worn out. (Gingrich 1995) The first indication that the environment was changing was the appearance of a large number of eager and attractive Republican candidates for the fall legislative election. They were young, educated, and had grown up questioning the legacy of the 1960s. They were critical of liberalism on economic and social grounds. Excellent candidates were emerging to challenge Democratic Party dominance of both houses of the Congress and of the state governorships and legislature. At that time the Democrats controlled thirty governorships and thirty-one legislatures with Republicans controlling eighteen governorships and only seven legislatures. For decades, scores of Democratic held positions had gone unopposed but now that was changing. In January of 1994, Newt Gingrich held a weekend retreat of House Republicans; they settled on a campaign strategy for the fall election, now known as the “Contract With America.” What happened at that meeting is that public opinion polls had revealed several issues on which over 60 percent of all Americans felt the U.S. government should act. Newt Gingrich describes the result— Revolutions have to be built one step at a time. The first step was to commit the party to the idea that we should run on idealistic bold reforms and be prepared to keep our word. By June we had agreed to hold a Capitol steps event in September involving ten major program statements. The ten points basically selected themselves as deeply felt desires of the American people. We knew from long experience that people were desperate for a law requiring Congress to obey the same laws as everyone else. We knew that there was overwhelming support

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for the balanced budget amendment, the line-item veto, and term limits. As the party of small businesses and family farms, we knew that litigation reform and regulatory reform were strongly supported. As conservatives and advocates of a prowork and profamily America we knew that welfare reform, a child tax credit, increased savings opportunities, and capital gains tax cuts to increase economic growth would strengthen America. Finally, as conservatives, we felt the liberals had weakened our national defense and our laws against criminals and child pornographers. We believed that these should be strengthened. It can literally be said that the Contract with America grew out of our conversations with the American people and out of our basic conservative values (Gingrich 1995). The public was fed up with governmental inaction and/or gridlock. So the Republican leadership drew up a contract with the American people that if elected they would in the first 100 days of the new legislative session bring legislation on these issues to a vote. They fully expected this legislation, if properly drawn, to pass because most Americans, both Democrats and Republicans, favored governmental action (Welch 1995). This was one of the first times in American history such a promise for governmental action on consensual issues had been proposed before an election. This action co-opted popular public issues to the Republican cause, it sidestepped divisive issues, and promised significant governmental action. In the fall 1994 legislative campaign, these issues emerged as dominant and the Republican Party took control of the House by twelve votes, the Senate by two votes, thirteen state governorships, and expanded their control over state legislators. Furthermore, prior to their self-imposed 100 day limit, all but one of the ten legislative programs, the term limits amendment, had passed and gone from the House to the Senate. Public opinion polls revealed that Newt Gingrich and the House Republicans had succeeded in imposing these issues on the Senate, the president, and the nation. It remains to be seen if the Senate will ratify and the president fail to veto these bills. However, the Contract with America has been viewed by most Americans as a test of the leadership skills of Bob Dole, the leader of the Senate Republicans, and his qualifications for president. It has also placed the president, a Democrat, in the unusual position of either supporting these very popular bills or running for reelection as an obstructionist (Dunham et al. 1995). The effective use of environmental scanning by the Republican Party, within cycle time required, led to one of the most one-sided party victories in American political history, catapulted Gingrich into speaker of the House, and provided Gingrich, Dole, and the Republican Party with a platform from

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which to challenge the Democratic president, not by mere rhetoric alone, but by legislative action on high-priority public issues. Environmental scanning requires that a government find solutions to high-priority problems by implementing the following: monitoring public attitudes and expectations, benchmarking other governmental units, learning from their performance, and by its own creativity. Value-Chain Management We have explored how Newt Gingrich and the House Republicans built a high-priority consensus during the 1994 congressional election process. This was an important step in the public consensus processes. Let us now examine how House Speaker Gingrich managed the legislative consensus development processes in the House. This involved the use of value-chain theory at the functional unit level. It involved legislative proposal hearings, legislative debates and votes, budget debates and votes, and implementing agency assignment for the legislation. Since the Republican Party in the House had promised the American people they would vote on the ten proposals which made up the Contract with America within the first one hundred days of taking office, careful planning and a great deal of work would be required to keep this promise. Jim Nussle was picked by the House Republicans to head a transition team from Democratic to Republican leadership in the House of Representatives. He was backed by a strong and aggressive team. The opening agenda of Speaker Elect of the House Newt Gingrich, was to audit the House management system, cut committee staff, and shrink the size of the House administrative units in order to make them more responsive. In retrospect, four changes in administrative procedures proved to be very important. First, several young committee chairmen were picked, disregarding the seniority system. Bob Livingston, Tom Bliley, and Henry Hyde became chairmen of Appropriations, Commerce, and Judiciary, even though they did not have seniority. In each case, Speaker Gingrich thought it would bring a higher “level of aggressiveness and risk taking needed to the position” (Gingrich 1995). Second, the committee structure of the House was streamlined with several former committees being eliminated and/ or combined. This speeded up the legislative hearing process, Gingrich reported (Gingrich 1995). David Dreier of California led the task force on this issue. He concluded that several committees were no longer necessary, while others needed to be reorganized or renamed. The Merchant Marine and Fisheries Committee, the District of Columbia Committee, and the Post Office and Civil Service Committee all disappeared. The Energy and Commerce Committee, which John Dingell had turned into an empire, lost railroads and part of its energy jurisdiction. Other committees were renamed and refocused. The Armed Services

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Committee became the National Security Committee and Government Operations became Government Reform. “Our aim was to rethink the entire size and structure of the Congress,” Gingrich stated. Third, the House rules for operating were modified to minimize delaying tactics and to emphasize collective rather than individual effort. Fourth, immediately after the Republican sweep in the November 1994 election, Gingrich set up task forces on each of the ten legislative changes found in the Contract with America so that first drafts of the legislation required to enact the contract would be ready when Congress opened in January of 1995. Since the Republican Party in the House had not held power in over forty years, none of its current members or staff had ever attempted to move legislation through the House. The Republicans did not know how the Democrats would react and if they would attempt to sabotage the legislative process. Therefore, the Republican floor tactician, whip, and rules committee chair held training sessions that rehearsed every motion and each bill step-bystep. The freshmen congressmen went through scripting and practicing sessions throughout the month of December, a month before they were to be sworn in as members of the House. Republicans played to roles of Democratic leaders and members and attempted to slow down, halt, and/or change the legislative process (Gingrich 1995). When the House actually began its session, all that preparation and training paid off. The changes in committees and rules system were passed almost as rehearsed. It was clear the Republican leadership had things under control. On January 5, the House began work on the Contract. Dick Armey, assistant to the Speaker, was chief operating officer, dealing with day-to-day work in the House, while Speaker Newt Gingrich served as chief executive and chairman of the Board focusing on long-term planning and coordination. The House has a complicated system for bringing bills to the floor. First, a subcommittee has to mark up a bill, then it is reported to the full committee. When the full committee calls a meeting, it has to give notice to the minority members. After the markup, the minority gets three full days to write a report offering dissenting views. A similar procedure then takes place in the Rules Committee. Every bill has to have a rule that sets its procedures before it comes to the House floor. The only two exceptions are when something is brought up under unanimous consent or in a process called a suspension when the House by two-thirds vote decides to suspend the rules and pass something. Passing anything through the House is a complex business and takes time (Gingrich 1995). Dick Armey outlined a path for passing the ten major bills within ninetythree days. All of this had to be accomplished with a slim twelve vote Republican majority in the House. Tom Delay, the new Whip, and Denny Hastest, his chief assistant, were in charge of delivering the votes. They believed in a policy of “growing the vote.” This means listen to everyone, Republican and

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Democrat alike, and changing the bill so as to develop a “comfort zone” where the member could support the bill. This was a good strategy but with ten items it soon became overwhelming. As the weeks went by, the members became more tired and the stakes higher. The easy votes came first and the difficult ones last. This allowed the Republicans to develop momentum but at the cost of exhaustion. Again and again, some Democrats would attempt to undermine or delay bills through procedural moves but then support the bill when it came to a vote so as not to lose support back home. The committee chair with the hardest job was Solomon, the rules committee leader, since every bill had to clear his committee. Only once in ninety-one days did he need the leadership’s help. The second hardest committee was judiciary, chaired by Henry Hyde. His committee cleared in a few short weeks two constitutional amendments, three litigation reform bills, and five crime bills. Hyde was particularly heroic in that he reported out of committee the term limits amendment which he had publicly opposed. This was an “extraordinary display of principle and courage to get those bills out of one committee in such a short time,” according to House Speaker Gingrich (Gingrich 1995). The third hardest effort came from Ways and Means chaired by Bill Arden. He produced a Welfare Reform bill that satisfied a diverse set of constituents. By the time the bill passed, public opinion polls showed 94 percent of the country favored replacing the old system with a new one. The bill insisted on a work requirement; it also called for strengthened families, reestablished male responsibility for child support, and discouraged young girls from getting pregnant outside of marriage. Gingrich and his management team analyzed and evaluated their portion of the government value-chain and then (1) restructured it in order to improve cycle time efficiency, (2) appointed key pointmen to lead the change, (3) practiced and put in place communication procedures for preventing Democratic delay, and (4) monitored carefully the between committee coordination required to meet the cycle time they promised for delivering the vote on the Contract with America. What happened? Nine of ten items passed with term limits being the only failure and then by the slimmest of margins and in the face of needing a twothirds vote within the House to pass. The entire ten item Contract with America was put to a vote within the House in ninety-one days with time to spare by a new and inexperienced House Republican majority and leadership team. Continuous Improvement In the prior section of the discussion on value-chain theory, we explored how the U.S. House of Representatives implemented the Contract with America in just ninety-one days. It is significant that all of these efforts were strongly

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supported by various types of continuous improvement programs. For example, Newt Gingrich set up ten task forces to draw up legislation and mobilize a public and legislative consensus for each of the ten commitments to the American people involved in the Contract. Benchmarking teams were established to train and allow new members to practice moving legislation through Congress. Cross-functional teams were employed to restructure House committees and the House rules systems. Legislative committee hearings were set up to modify the initial drafts of legislation and build a consensus for passage of those bills. Self-managed teams were employed to move legislation through committees within a limited time span and outside linking teams were employed to plan both the overall strategy in the House and Senate and to encompass presidential concerns into the ten legislative initiatives. In short, the efficient and judicious use of all these tools of continuous improvement were essential to the bringing of these ten legislative commitments to a vote within the first 100 days of the legislative session. As Speaker Gingrich enjoys pointing out, the Chinese word for crisis is a symbol that combines the pictographs that mean danger and opportunity (Gingrich 1995). The danger in public sector management comes less from failure than gridlock from inaction which allows problems like the American national debt to grow from a mere $9 billion to several trillions dollars. The opportunities in public sector management arises when leaders employ appropriate environmental scanning, value-chain theory, and continuous improvement programs to exercise the full power of government in responding appropriately to high-priority problems in a constructive, effective, and timely manner. Summary A number of points can be drawn from this case study. First, legislative procedures and the role of political parties are as much in need of reform as management processes. Political parties cross interest groups and can manage priorities to provide a base for action. In recent times members of parties in many countries have lost that discipline. Legislative processes are in need of review in most legislatures. However, an effective legislature requires politicians committed to action and processes which enable them to deliver decisions. Second, these reforms can be informed by a focus on cycle time. As with other government processes, the target focused attention and commitment. The need to deliver the target identified systems and procedures that were critical to the result. Third, environmental impacts must be managed in real time. The impact on public preferences of the actions taken by Republicans was to change some of those preferences. As preferences changed, the process became

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vulnerable to comfort zone issues with the scope to challenge the agenda. Broad consensus about problems and solutions represents a brief opportunity for change. But the devil is often in the detail. The need to spell out proposals in detail enables opponents to generate opposition and uncertainty. Fourth, the process was further complicated in this example because the translation into public impacts required action by executive government which was in many respects hostile to the initiatives or at least intent upon ensuing that political costs and benefits were realigned as part of the process. This emphasizes the importance of controlling the break point in the cycle. In the case, of the Contract with America, the president was forced to react and accept many of the core ideas. But in the process he assumed control of the break point. In the end the reformers appeared to be the obstructionists. But had there been no contract, there would have been no change.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT This analysis of the internal changes required to enable governments to respond to new external priorities suggests that traditional government systems are no longer an option and can often be counterproductive. The idea that external factors are driving the current crisis and that governments have been slow to respond effectively parallels the experience of many business organizations. The environment which government must manage is more complex and interconnected than the environment which business must manage. Governments need to segment the environment differently. We have introduced the idea that government must manage transitions to national competitiveness and the idea of comfort zone management to structure the interaction between government and important external groups. The traditional government approach to coalignment was to standardize processes and clarify roles and functions. Actions were processed longitudinally through the value-chain. Coalignment was managed by queuing and prioritizing each stage of the value-chain. This technology is incapable of responding to the needs of a high-response environment. Uncertainty and resource restrictions tend to lengthen rather than shorten cycle time. This suggests that incremental reform is not an option for most government agencies; it explains why reforms, which deregulate without a strong focus on cycle time and cycle management, tend to fail. The blockages created by traditional government management systems and technologies seem terminal for many parts of government. There is no choice but to “jump the curve,” abandon these traditional systems, and reinvent government. Legislatures and corporate government groups now have no

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option but to hire managers able to effect these transitions, remove the restraints that stop government systems from either succeeding or failing, and facing up to the risks and opportunities offered by change. Four issues for reform can be identified from our analysis of value-chain coalignment. First, reforms of value-chains need to also reduce cycle time and provide managers with the scope to manage cycle time and to manage comfort zone impacts. Almost all attempts at reforming government management attempt to deregulate, to free up processes and roles, and to focus on key tasks and functions. Some reforms clearly provide a strong focus for the management of cycle time and for external accountability. For example, the case studies presented in reinventing government powerfully reconfigure both value-chains and the environmental focus of specific agencies. It is not difficult to see why these changes work. But other situations are more complex and some reforms simply miss the need to provide a new focus for the management of cycle time. In such situations, reform is not only likely to fail, it could well prove to be counterproductive. The solution is to extend the reform agenda by finding alternative value-chain configurations to match new needs. Second, reforms need to focus government managers on the management of two key environmental boundaries. Government needs to directly manage its boundary and it must indirectly manage the national boundary. Devolving part of this management responsibility to operating agencies is important and requires new ways of managing relationships between steerers and rowers. The simple demarcation which suggests that comfort zone impacts can be managed hierarchically is a recipe for ongoing crisis management and the unelectability of incumbent governments. Third, the application of value-chain theory needs to recognize the fixed nature of traditional processes and the major comfort zone impacts which are unleashed when these processes are bypassed. Just as successful business organizations have learned to interact with their external environment to shape opportunities, governments must learn to interact with the groups which create the comfort zone and reposition the comfort zone itself by altering expectations and increasing acceptance of the need for change. Fourth, government reforms must move from one-off interventions to reforms which generate continuous improvement. Most government reforms lurch from crisis to crisis. Reform needs to establish the basis for continuous improvement. Change strategies for government must meet three criteria: they must be implementable; they must address current problems; and they must produce a base for addressing future problems and exploiting future opportunities. The most obvious weakness in many reforms is the lack of ongoing evaluation and benchmarking. Once the crisis is past and the public believe it is no longer an urgent issue, there are many vested interests in the government system that opt for moving on to the next issue. Four actions are

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necessary to consolidate change. First, the change must be internalized by the agency concerned. Staff and managers need to commit to building on the change and to an ongoing improvement of performance. Second, there needs to be some prediction of impacts, say one, three, and five years ahead. Third, consolidation needs to be resourced once the crisis is past. Fourth, there needs to be an effective benchmarking of the change against comparable government situations.

Chapter 6

Leadership Strategies for Transforming Governmental Competitiveness

The clarion call for more “transformational leaders” appeals to a more empowering form of management, one that recognizes firms’ basic capabilities as collective outcomes. It suggests that we need leaders with the vision to chart a strategic course through the political complexities of a divided but connected world, and the resolve to implement that vision. Leaders who do not simply motivate us to comply with directives, but mobilize our creative energies—who do not simply rely on hierarchies to induce conformity to their wishes, but inspire us to climb aboard—who do not imitate what is, but ask us to invent what could be. —Fombrun, Turning Points Change can be characterized as a response to tension. Strategic managers need to focus and use these tensions. The focus is important in a system where breakdown is seen as inefficiency rather than a consequence of external pressures and where the need for ongoing change is often seen as further evidence of failure. Government organizations react to external pressures in one of four ways: they seek to deflect the threat by focusing the blame on others; they attempt to eliminate the threat by buffering the environment; they seek to eliminate the threat by altering boundaries, for example, by privatizing; or they manage the threat by responding in various ways to neutralize or exploit it. Tension is relieved in the first three options by exporting the crisis. Tension is relieved in the fourth option by solving the crisis. 133

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Except in times of national crisis, the traditional model of government management discourages leadership; management is depersonalized and results are seen to follow from the efficient delivery of government processes. Managing transitions to national competitiveness requires a new type of government leadership which we have called “strategic leadership.” Government leaders need to manage the national boundary by being a catalyst for change in business. Government leaders must manage the government boundary by reinventing government processes and motivating government employees to commit to new roles and a new future. It is the purpose of this chapter to address the leadership of transitions to national competitiveness. First, we will discuss strategies for transition and present a checklist which can be used to commence the process of mapping performance. Second, we will examine transitions implemented by Singapore and the United States, the two most competitive nations in the world in recent years. Although each of these nations pursued different transitions, used different government and business roles to support change, and drew upon a different leadership mix, both Singapore and the United States have been spectacularly successful.

STRATEGIES FOR TRANSITION In any change there is always a future state—a place or condition one wishes to achieve, a present state—the current condition in relation to the desired state, and a transition state—the getting from the present to the desired state . . . In managing the overall change process it is always important to (1) determine the major tasks and activities of the transition period, and (2) determine structures and management mechanisms necessary to accomplish those tasks. —Beckhard and Harris, Organizational Transitions Richard Beckhard and Reuben T. Harris (1989) argue that the key to managing change lies in managing transitions not end points. Mapping progress, including the progress of competitors for world resources, is part of the management of change. Traditional government management systems are not well suited to managing change. Such systems respond to external pressures for change incrementally, cycle time is slow, responses are often segmented, and the future is assumed to be no more than a linear extension of the past. Few organizations or governments can survive with linear solutions today. The future is turbulent, uncertain, and different.

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High-response organizations manage external pressures by a combination of continuous and discontinuous changes which combine to create a transition. High-response transitions cannot be locked into some magical endpoint. They are best conceptualized as a moving platform from which to enter future transitions. The leadership, management, and communication strategies for discontinuous change are different from those require for incremental change. A number of authors have addressed these differences from the viewpoint of business management; for example, Alvin Toffler (1985) discusses adaptive leadership; Charles J. Fombrun (1992) discusses turning points; and Nicholas Imparato and Oren Harari (1994) discusses “jumping the curve.” They are all addressing the need to manage transitions which involve ongoing and in part discontinuous change.

Shifting Focus of Change and Leadership Exhibit 6.1. Shifts Required to Manage and Lead Government Change in a High-Response Environment suggests four changes required to manage change in a high-response environment. First, the focus of change shifts from being a gradual progress towards utopia to a process of transition towards a necessarily moving target. Second, the values that underpin the change shift from a process guided by a commitment to fairness and efficiency and long-term goals to a transition powered by the twin tactics of focusing and releasing pressures. Effective strategic leaders use the tension created by an immediate crisis to drive the underlying transition forward. Third, the task of protecting the results of change shifts from ensuring that the specific problems do not recur to protecting the platform from which future problems can be addressed. The half life of many government reforms is depressingly low. Once the pressure and immediate crisis are past, the results of change are threatened by reactionary forces which emerge to reverse it. Protecting the platform becomes more important when change is seen as a transition; there is no point in launching future change from a sinking platform. Fourth, the management skills required to manage change shifts from skills at using existing systems and implementing linear developments to skills at visualizing the future, mobilizing existing resources, and where necessary, severing links with the past. Exhibit 6.1 also dimensions the shifting focus of leadership required to support a transition to high-response management. The focus of management shifts from managing a structured system to conceptualizing change, repositioning government structures and resources to manage a transition to these

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Exhibit 6.1. Shifts Required to Manage and Lead Government Change in a High-Response Environment The Shifting Priorities for Change Management First, change shifts from a gradual progress toward utopia to a process of transition toward a necessarily moving target. The strategies need to be different and the focus for evaluation needs to be different.

The Shifting Focus of Leadership Managing external rather than internal boundaries Strategic visions rather than long-term missions Strategic management rather than strategic planning

Second, change shifts from a process guided by a commitment to fairness and efficiency and long-term goals to a transition powered by the twin tactics of focusing and releasing pressures

Third, the task of protecting the results of change shifts from ensuring that the specific problems do not recur to protecting the platform from which future problems can be addressed Fourth, the skills required to manage change shift from managers who are skilled at using existing systems and values to implement linear developments to strategic leaders with the skills to visualize the future, mobilize existing resources, and where necessary, sever links with the past

Managing transitions rather than end points Shortening the time span of evaluation by managing short-term benchmarks and impacts rather than long-term results Implementing irreversible change rather than incremental change Benchmarking the transition platform into the future and leveraging future benefits off it. Coaligning through shared interests rather than standardization Participating through communication and shared values Harnessing rather than containing diversity

new realities, and developing a new focus on task performance which enables government staff and external interest groups to understand and join the transition.

Strategies for Protecting the Base for Ongoing Change A weakness with many government change processes is that they fail to build a base for ongoing change by allowing the new management platform to erode. Effective transitions need to build ongoing changes on the base man-

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agement platform achieved in previous changes. Exhibit 6.2, Protecting the Platform for Transition details three strategies for the effective consolidation of change. First, ensure there is a consolidation to the left on the IIM. Second, ensure the costs of reversing changes are higher than the costs of continuing. Third, build expectations of the longer-term impact of changes to maintain pressure for ongoing performance.

Mapping Transitions to National Competitiveness Exhibit 6.3. Checklist for Mapping Transitions to National Competitiveness suggests an approach to mapping transitions which draws together material presented in earlier chapters. The checklist addresses the three core roles of government: national competitiveness, social value, and goverrnability. The last two elements included in the checklist are government charges and services and government management. In each case, we outline issues to be addressed in benchmarking change and we explore specific transition strategies. We now move to examine the application of these ideas to the two case studies discussed earlier. These studies examine the leadership of transitions to national competitiveness. In chapter 3, we contrasted the “development transition” and the “high-autonomy transition.” Singapore is an example of the former and the United States is an example of the latter.

STRATEGIC LEADERSHIP IN ACTION Competitiveness is the degree to which a country can, under free and fair market conditions, produce goods and services which meet the test of international markets, while simultaneously maintaining and expanding the real income of its people over the long term. —OECD, Annual Report—1994 The use of The World Competitiveness Yearbook to benchmark national transitions was discussed in chapter 1. We now examine the two most competitive economies in recent years: United States and Singapore. The World Competitiveness Report (Yearbook) 1995 concludes that “the United States and Singapore have further consolidated their lead in the past year as the world’s most competitive economies” (Jonguieres 1995). Exhibit 6.4. Competitiveness Changes 1995–1999 outlines shifts in both the overall competitiveness and the competitiveness factor rankings for these two countries published in The World Competitiveness Yearbook 1999.

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Exhibit 6.2. Protecting the Platform for Transition Strategy

Tactics / Issues

The first consolidation • We discussed in chapter 4 two cycle time strategy is to manage cycle management strategies to achieve a positive impacts to ensure consolidation. consolidation into the comfort (a) Manage cycle time to ensure that the net zone. perceptions of future benefits more than offset current negative impacts over the cycle. (b) Manage a balance between public expectations of project benefits with the likely reality of benefits delivered. The second strategy is to ensure that the benefits lost by reversing change are higher than the benefits gained by consolidating change, at least for key groups. There are at least three tactics for erecting this type of protective gap.

• Continuously develop new proposals to exploit the current base so that the cost of reversing change is not simply the loss of current benefits but also the loss of future benefits. • Make irreversible changes to structures and value-chains. This deters those who seek to move backward and ensures that the base for future change will be the new position. • Dismantle or neutralize negative groups by shifting their focus elsewhere; for example, by threatening unrelated benefits, offering new benefits of more value to such groups than they can derive from reversing existing changes, or by creating tensions between such groups and the beneficiaries of current changes.

The third strategy is to support consolidation with effective strategic monitoring and evaluation against the expected impacts over one, three, and five years.

• Long-term evaluation of the sort required by the third strategy presents particular problems for governments because, if it is applied rigidly almost all plans can be shown to have failed in some respects. • The solution is not to ignore failure but to manage the gap between performance and plan by learning from failure, improving performance, but also by adjusting priorities and targets to ensure they remain realistic and that planning is used as a management and communication tool rather than as a rigid guide for actions which have become inappropriate.

Exhibit 6.4 indicates that the United States owes its top ranking to top ranking in “domestic economy,” “internationalization,” “finance,” “infrastructure,” and “science and technology.” In recent years the U.S. has consolidated this position by improved its rankings for “management” and “people” and it’s ranking for “government” has declined.

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Exhibit 6.3. Checklist for Mapping Transitions to National Competitiveness NATIONAL COMPETITIVENESS Is the nation accessing an increasing share of world resources? Has it developed a world competitive industrial base? Have national resources been managed effectively? Has government assisted or impeded improvements? Benchmark changes: Has the competitiveness ranking of key industries improved over the last year? What are the key factors which explain this improvement? Have the preconditions for future improvements in competitiveness been established? Is competitiveness high compared with other comparable countries? Transition strategy: Has a viable development strategy been identified? Is it implementable? What are the immediate change priorities to support the transition? What is the strategy for optimizing production strengths? What is the strategy for optimizing the autonomy of citizens and companies within overall national structures? SOCIAL VALUE Has the well-being of citizens increased? Are resources distributed to facilitate ongoing improvements in competitiveness while also addressing the needs of disadvantage groups? Has government assisted or impeded improvements? Benchmark changes: Has social welfare performance improved over the last year? What are the immediate challenges which must be addressed over the next year? Transition strategy: What are the social impacts of the national transition? Are these being addressed effectively? GOVERNABILITY Has government maintained the scope to govern? Has government assisted or impeded governability? Benchmark changes: Is governabilty seen as less of a constraint to national performance than for competitors? Transition strategy: What are the comfort zone impacts of the national transition? Are these being addressed effectively? GOVERNMENT CHARGES AND SERVICES Are government services and functions delivered effectively? Do they support the priorities for national transitions? Are critical support functions such as infrastructure, taxation and education, and training competitive? Benchmark changes: Are government services competitive compared with other countries? Has the competitiveness improved over the last year? Transition strategy: Have government charges and services been adjusted to support the transition? What are the priorities for further adjustment? GOVERNMENT MANAGEMENT Has government developed management systems, structures, and values which meet the needs of competitive government? Benchmark changes: Performance relative to other nations. Is strategic leadership a relative strength? Is the capacity to manage cycle time a relative strength? Is resource management a relative strength? Transition strategy: Are government structures systems and leadership seen as better able to support the national transition than they are in the case of key competitors?

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Exhibit 6.4. Competitiveness Changes 1995–1999 Indicator

1999

1998

1997

1996

1995

UNITED STATES: National competitiveness Domestic economy Internationalization Government Finance Infrastructure Management Science and technology People

1 1 1 15 1 1 1 1 6

1 1 1 13 1 1 1 1 8

1 1 1 7 1 1 3 1 12

1 1 2 7 1 1 10 1 15

1 1 2 9 1 1 6 1 11

SINGAPORE: National competitiveness Domestic economy Internationalization Government Finance Infrastructure Management Science and technology People

2 18 2 1 9 13 4 12 4

2 2 2 1 10 15 2 9 1

2 3 2 1 6 11 1 8 5

2 3 1 1 3 33 4 12 8

2 3 1 1 4 29 4 7 5

Source: The World Competitiveness Yearbook 1999, IMD, Geneva, Switzerland.

Singapore owes its top ranking to a high ranking for “government,” “internationalization,” “management” and “people.” In recent years, the ranking for “infrastructure” has improved markedly. As discussed in chapter 3, Singapore has maintained competitiveness following the 1998 financial crises in Asia; however, the 1999 rankings show a deterioration in several key rankings. The report also lists weaknesses in the competitive stance of each nation. The United States has been particularly aggressive in the production of new technologies such as computers and telecommunications which are increasing worker productivity. However, this has led to massive downsizing and middle-management layoffs, combined with a rapidly growing salary differential between the best and least educated citizens. Singapore’s chief problems arise from a limited population base, its relatively small investments in R & D expenditures and its large overseas investment (The World Competitiveness Report [Yearbook], 1995). The World Competitiveness Yearbook offers us a unique insight into two of the world’s most competitive economies. The U.S. economy and the

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government management of it is an example of a high-autonomy or decentralized national management system which each day must transform environmental economic fluctuations throughout the world into a high responsive government and economy. The Singapore economy and the government management of it is an example of high-production, centrally planned national management system which each day must transform environmental economic fluctuations in the international marketplace into a high-response government and economy. Thus, they offer us a unique opportunity to observe the differential functioning of government within each system. They are in theory and in fact models of two different types of governmental leadership, two different types of transitions to high-response competitive governments.

SINGAPORE’S DEVELOPMENT TRANSITION: THROUGH HIGH PRODUCTION TO HIGH-RESPONSE In order to ride the new economic wave, there is a need to harness globalization and the information-technology revolution. We must foster an environment conducive to fresh ideas and innovation, create novel products and find innovative ways to make a living. —Gow Chock Tong, “Prime Minister, Singapore” Singapore is a city-state with an area of 244 square miles located at the tip of the Malaysian peninsula. It has a diverse population of 2.8 million people, 77 percent Chinese, 15 percent Malay, and 7 percent Indian. Singapore gained independence from Malaysia in 1965 and has already accomplished a great deal in just thirty years. First, its average income has risen from $3,072 U.S. dollars in 1960 to over $22,000 U.S. dollars in 1994. This represents a transformation from a city of small restaurant and shop owners into a major international manufacturing and service hub. Second, the overall quality of its telecommunications, seaport, and airport are considered the best in the world. Third, Singapore’s people have the highest savings rate in the world (45 percent), its labor force is rated the most productive, and it has the world’s highest proportion of technologists. Finally, Singapore’s business environment is considered the most supportive and risk free business environment in the world (Sisodia 1993). In large part, these accomplishments are the result of governmental leadership, a partnership with multinational firms, and Singapore’s success in transforming its high-production central planning economy to a high-response strategic management economy.

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Singapore’s History of Development In 1965, Singapore became independent from the Malaysian Federation. This independence disconnected Singapore, the federation’s capital city, from its hinterlands. The end of political union with Malaysia led to an outpouring of concern for the future of the city-state. This concern stemmed from Singapore’s then limited resource base of one million people, limitations of geographic space, a city about the size of Hartford, Connecticut, a high unemployment rate of 40 percent, and a limited tax base with a Singapore citizen averaging $3,000 U.S. dollars per year (Sisodia 1993). However, under the leadership of the People’s Action Party (PAP) and its senior minister Lee Kuan Yew, Singapore developed beyond anyone’s fondest expectations. How this was accomplished was both simple and elegant. When the only natural resource a nation has is its people and the only major source of income is foreign investment, then that nation has a simple task before it. The nation must develop a skilled and educated workforce, a world-class infrastructure, and a business climate that will attract major foreign investment. The People’s Action Party (PAP) government made a conscious decision to deemphasize political ideology and opt for its now unique mixture of a free market export economy with a goodly added portion of democratic socialism. Such a political philosophy operationally included a major dose of national planning, a balance between public and private ownership of the means of production, in which both are subjected to the pressures of the international marketplace, along with democratic political processes and traditional civil liberties (Argee 1994). The PAP government ruled Singapore through a series of boards. The central planning group was housed in the Economic Development Board. In the mid-1960s, the PAP party was faced with several immediate problems—the need to attract foreign capital, a lack of affordable housing, massive unemployment, and politically motivated union strife. The government established several statutory boards to deal with each of the problems. The Housing and Development Board (HDB) was established to provide affordable housing. By 1993, 86 percent of the population was living in public housing estates which were among the highest quality and lowest cost of any major city in Southeast Asia. To meet the power needs of a growing nation, the Public Utilities Board (PUB) was established which increased its production from 152 megawatts in 1960 to 6,000 megawatts by 1993. Another board, the Port of Singapore Authority (PSA), improved and modernized Singapore’s port facilities until it was considered one of the busiest and best in the world. The National Wage Council was set up to control union strife. By 1993, Singapore had the best trained, paid, most productive and strife free workforce in the world (Low et al. 1993). Finally, the government

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demonstrated a high degree of intervention in the private sector by creating government backed firms to compete with private sector firms in key segments of the economy. This was accomplished through holding companies or government linked firms, all of which were expected to compete with other private sector firms on common ground. If they became unprofitable, they were not assured of a government bail out (Low et al. 1993). This allowed Singapore to build an indigenous corporate base. Between 1975 and 1985 the Economic Development Board (EDB) began to realize that any long-term plan for the development of Singapore would involve phases where increasingly complex value added manufacturing and services would have to replace less sophisticated production if GDP was to continue to grow. So the board initiated a new set of changes aimed at creating an environment for phased economic development from less to greater value added production. First, as one new phase began, the production from the old phase would be shifted out of Singapore to Malaysia, Thailand, and Indonesia, or the ASEAN Development Triangle. Since these nations were at early stages of development, their government and the corporations needing to move could collaborate in cutting costs by migrating production to the triangle. Second, government tax, training, R & D, and equipment incentives would be used to attract targeted value added firms to Singapore in a stepwise progression. This stepwise progression would allow the labor force to keep up with the technical demands of new value added firms. Lower value added firms in turn could migrate to the ASEAN Development Triangle as still higher value added firms arrived and the workforce became even more technically sophisticated. Third, the program of joint public/private sector training centers would be increased so foreign corporations could quickly transfer high value added technology and training to Singapore’s workforce. This would be funded by a 3 percent tax on all production in Singapore. Fourth, over the next several years, secondary and post-secondary technical training would be revamped and expanded to create a higher quality workforce. This would include new vocational and technology streams from secondary through college education. Students would be assigned carefully to these streams to meet projected labor force requirements. This dramatic shift in public policy fueled a rapid expansion of wages and high value added production in Singapore and a migration of low end manufacturing to the ASEAN Development Triangle. Prudent macroeconomic policies delivered stability and double digit annual growth in GDP in the 1980s. In addition, Singapore’s foresight in infrastructure improvement by the early 1990s had created one of the world’s most efficient and inexpensive telecommunication ports for all types of business processes; along with electronic products Singapore became a major manufacturing and service sector exports country (Low et al. 1993).

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Let us direct our attention to how government leadership functioned in the Economic Development Board to facilitate these remarkable changes.

Governmental Leadership: The Economic Development Board The Economic Development Board pioneered indicative planning. Indicative planning can provide a strategic management system which unites entrepreneurs from both public and private sectors around common objectives. It emphasizes uncertainty management by providing maximum profits to corporations who undertake the risks that uncertainty imposes. Because uncertainty constantly introduces itself in the form of changes in supply and demand for world-class products and services, the only certainty is that outcomes will differ from expectations. Investment in trained people and infrastructure cannot be delayed while uncertainty about the future is resolved. Thus, governments have to be entrepreneurs by investing in training managers, workers or people, and infrastructure in advance, realizing that errors not only do not cancel out, but they accumulate. So EDB emphasized indicative planning based on rolling forecasts for change. In a moment we will see how Singapore did this. Selecting products and services to meet market demands requires that corporations be subjected to international market processes, invest in R & D, manufacturing, and marketing technology before they are sure how that investment will work out. Corporations make bets on products and services based on data from environmental scanning or customer references, competitor product development, and global economic trends in advance; they hope to maximize profits. Any country, state, or city government that can provide a supportive operating environment to aid firms in their profit maximization will be a highly desirable location from which to platform products. Singapore has done this well. Let us explore two of Singapore’s major governmental processes in this effort, for example, (1) the attracting of high value added firms to Singapore, and (2) the development of joint public/private sector technical training centers for upgrading Singapore’s workforce. The Economic Development Board prides itself in providing one step governmental support for all incentives to multinational firms. This support is targeted at high value added firms in the computer, electronics, precision tools, and petrochemical industries. These so called pioneer firms can obtain tax relief, training grants, product development grants, technology transfer grants, and automation grants. Let us explore the effects of these programs. Exhibit 6.5. The Development of Competitive Manufacturing Industry; Exhibit 6.6. The Development of Competitive Workskills; and Exhibit 6.7. Access to Competitive Technology summarize the development that occurred.

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Exhibit 6.5. The Development of Competitive Manufacturing Industry Table 1. Net Investment Commitment in Manufacturing in Singapore 1972–1999 Singapore $ millions

Total Foreign Local Local as % of Total

1972

1975

1980

1985

1990

194 156 38 19

306 246 59 19

1417 1199 218 15

1120 86 232 20

2484 2217 266 10

Table 2. Contribution of Pioneer Manufacturing to Total Manufacturing Pioneer manufacturing / Total manufacturing Percentage Average 1960s 1970s 1980s

Firms Established

Employment

Export Output

Value Added

n/a 13 12

23 43 44

25 57 59

29 53 59

Source: EDB (L. Low, T. Heng, S. Wong, T. Yam, and H. Hughes, Challenge and Response [Singapore: Times Academic Press, 1993]).

By any standard the government’s transition strategy was a success. We now discuss some key features of these developments.

The Development of Competitive Manufacturing Industry Table 1 in Exhibit 6.5 details net investment commitment in manufacturing during 1972–1990. First, note how effective Singapore was in attracting foreign investment in manufacturing and the small rates of local to foreign investment. Second, note how the amount of investment in absolute terms is exponential. Third, in 1990, of the $2,217 million investment, $1,197 was in electronics, $381 in petrochemicals, and $265 in industrial chemicals (Low et al. 1993). Table 2 explores the contribution of pioneer manufacturing to that total manufacturing export output and shows the steady increase in percentage of manufacturing employment output and value added of the pioneer firms. The value added per worker in pioneer manufacturing establishments rose from $48,000 per worker in 1973 to $76,000 in 1989 compared to $37,000 and $58,000 repeatedly for the total manufacturing sector (Low, et al., 1993). Finally, manufacturing percentage of the total export output rose from 32 percent in 1969 to 63 percent in 1989 (Low et al. 1993).

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Exhibit 6.6. The Development of Competitive Workskills Table 1. Specialist Manpower Development Programs Year of Inception

Program

Level

1986 1987 1989

IC Design Engineer Automation Engineer SMT Engineer

Postgraduate

1988 1987 1989 1989

Automation Designer Tool and Die Designer Consumer Electronic Product Designer FA-Tronics Technology

Post Diploma

1989

SMT Technician

Post ITC

1987 1990 1991

Precision Engineering (Tool and Die Making) Precision Engineering (Machine Technology) Precision Engineering (Tool and Die Making)

Advanced Craftsmen NTC-1

Table 2. Continual Upgrading Training Areas

No. of Courses

No. of Participants

Robotics/Machine Vision F/A CAD/CAM IC/PCB Design A1/Expert System CNC/Advanced Metrology Others TOTAL

100 251 68 7 347 8 781

1319 4144 705 65 2434 146 8814

Source: EDB (L. Low, T. Heng, S. Wong, T. Yam, and H. Hughes, Challenge and Response (Singapore: Times Academic Press, 1993), p. 264).

What then can we conclude regarding the effectiveness of Singapore’s attempt to attract high value added foreign manufacturing firms? The data speaks for itself. Singapore’s investment rose from 194 million in 1972 to $2,488 million in 1990. Foreign investors in 1990 accounted for 90 percent of that investment. The contribution of pioneer industries to this total, from 1960 to 1980 to total export output and value added doubled from 25 to 49 percent for the former and from 29 to 59 percent for the latter, with both outpacing the overall rise in manufacturing for the same period. In 1994 Singapore had a 47 percent average savings rate (number one in the world), a 2.5 inflation rate, a 1.9 percent employment rate, and a $2.9 billion current accounts balance.

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The Development of Competitive Workskills When a nation’s GDP rises from $3,000 U.S. dollars per person in 1960 to over $22,000 in 1994, a massive transformation must take place in that nation’s educational system in order to accomplish that task. Government planning is based on one simple premise in the manpower development area. That premise is the recognition that technical manpower is one of the crucial inputs of a modern economy. Therefore planning seeks to avoid shortages or surpluses of technical manpower in pursuit of economic growth. Thus, planners must (a) identify future requirements for skilled manpower, and (b) design an educational system to produce the manpower required. In 1989, the then minister of education outlined the proposed changes to the educational system to meet 1995–1996 workforce needs. Exhibit 6.6 summarizes key education and training initiatives. The future emphasis in the educational system is going to be on technology and less on general broad-based learning. This will help children maximize their potential and talents. The priority in the next few years should not be on expanding university education, but on providing technical, commercial, and vocational education. The goal is to have about 20 percent of the students studying academic subjects and pursuing university degrees and 70 percent studying technical, commercial, and vocational courses. The only expansion in university enrollment would be in teaching, engineering, business studies, and paramedical services. In addition, the three polytechnics will increase their student intake and their curriculum and a fourth polytechnical college will be established. Through the EDB, the government has collaborated with such countries as Japan, France, and Germany to establish specialized technical institutes. These include the Japanese Institute of Software Technology (JSIST), the German Singapore Institute in Precious Tools, and the French-Singapore Institute in Petrochemical Technology. In addition, the Vocational and Industrial Training Board (VITB) has planned to open twelve Institutes of Technical Education to provide training in engineering. These institutes will take ten thousand school leavers or about 25 percent of those who do not go on into higher academic training. In addition, the diffusion of new technologies in companies requires training and retraining to develop the analytic and problem solving skills of workers. This training will be funded by the skills development fund and the National Productivity Board in industry-based training centers to advance industry specific skills. Tables 1 and 2, Exhibit 6.5 presents a list of such projects. Finally, in 1964 the Economic Development Board established the Singapore Institute of Management (SIMS) which offers one Ph.D., eight master degrees,

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Exhibit 6.7. Access to Competitive Technology

Japanese Companies

e.g., Seiko Japax Sankyo Matsushita Mitufoyo

▼

n sig De T IC SM

CN C/ MR DNC P

CIM FMS

▼ e.g., Hewlett-Packard Prime-Computervision Autodesk Mentor-Graphics

Robotics Automation

▼

American Companies

A1 La Visi se on r

AM /C tion D la CA imu S

EDB Institutions

European Companies

e.g., Siemans Bull Asea Telemachinque Carl Zeiss

Source: EDB (Heng T. Low, S. Wong, T. Yam, and H. Hughes, Challenge and Response (Singapore: Times Academic Press, 1993), p. 263.

ten bachelor degrees, and eighteen certificate programs in business and computer sciences for those seeking continuing education. In 1993, SIMS had 4,313 students enrolled in degree programs and 7,269 enrolled in workshops and seminars (The Singapore Institute of Management 1993). In spite of this rather vast array of training offered by the government and, in conjunction with the private sector, training institutes and training

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centers, Singapore had to establish an International Manpower division whose objective was to attract skilled workers and professionals from abroad to help meet Singapore’s growing needs in knowledge and technology intensive industries. This vast array of technical training programs are some of the reasons why Singapore ranks number one in the world for the training and quality of its workforce.

Access to Competitive Technology In addition, the Economic Development Board set up several technology transfer centers. Exhibit 6.7 outlines the strategy adopted. These transformational projects facilitate technology transfer through (a) providing experts on request, (b) training of EDB’s instructors and technical staff at participating firms overseas locations, (c) assistance and program development, (d) donations and /or loans of equipment, and (e) helping upgrade a firm’s equipment

Responses to the 1998 Financial Crises The Asian financial crises and downturn tested the effectiveness of Singapore’s transition. Although growth was interrupted, 1999 saw a return to strong growth in Singapore’s economy. Singapore had already developed many of the internal reforms that other countries in the region still needed to address. In 1998, the government responded to the crises by cutting costs and taxes on business. Recovery in Singapore appears to have been driven by both internal and external factors. Prime Minister Gow Chock Tong attributed the recovery to the 1998 cost cuts, a recovery in the global electronics sector, an upturn in the Japanese economy, and to the continued strength of the U.S. economy (The Wall Street Journal 2000).

The Singapore Transition A number of conclusions can be drawn from our analysis of Singapore’s transformation from a high-production centrally planned economy to a highresponse strategically managed economy. • The People’s Action Party has had the uninterrupted support of the Singapore people for over thirty years. This has provided the government with the long-term political support necessary to plan, make mistakes, learn from these mistakes, and adjust.

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• The government has been careful to allow the pressures of the global economy to test governmental policy in a competitive marketplace and to force the refinement of those policies. • Singapore government’s success in transforming its economy from a central planning to a strategic management, from a high-production to a high-response system, has led the governments of China and Vietnam to invite Singapore’s government to develop and lead two of its free trade zones in a similar transformation. • Singapore has served as a demonstration project for the pioneer functioning of Economic Development Boards by many countries and for the development of a variety of public/private sector educational and training interfaces. • Singapore has acted as a catalyst for the development of the entire southeast Asian region. Malaysia, Indonesia, and Thailand are all benefiting from Singapore’s success. • The chief limitation to the proper functioning of Singapore’s government in the global economy is a rapid change in cycle time of the global economy. When government correctly anticipates cycle changes, development works well. When it does not and has to react to unanticipated cycle changes, the human and economic costs can be high. • Finally, the chief threat to Singapore’s government strategy is a loss of political support by the Singapore people. Singapore’s proactive longterm planning and long-term responses to changes in the global marketplace would be undermined should this trust in government be eroded.

THE UNITED STATES: DEVOLVED TRANSITION FROM HIGH-AUTONOMY TO HIGH RESPONSE Competitiveness is not unfair, but it is rough. It does change the rules of the game, and forces countries, companies, and people to adapt. And this, of course, is sometimes painful. —The World Competitiveness Report 1995 The United States government and economy is in the process of transforming itself from a high-autonomy decentralized control system into a high-response strategically managed control system. The transformation like that of Singapore has been simple and elegant. Whereas in Singapore the government led the transformation of the economy from high-production to high-response by

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responding strategically to changes in the global marketplace, in the United States of America the economy has led to the transformation of the government from a high-autonomy to a high-response by responding strategically to changes in the global marketplace (T. Roth 1995). The simplicity of the transformation comes from the fact that the U.S. economy is for the most part placed beyond the control of government and thus the 7 trillion dollar U.S. market is the largest single force acting to provide the American citizens with one of the highest per capita GDPs in the world, $25,000, and a high standard of living tied to increases in global trade. The elegance of the U.S. high-response transformation can be understood only by observing how global competition in the private sector and the transformation of private sector firms to a strategically managed high-response system has required the U.S. government to transform itself to a strategically managed high-response system able to add value to business competitiveness. First, we explore the business transition by summarizing the GE (General Electric) transition. Second, we examine the contribution of government to U.S. competitiveness. Finally, we compare the Singapore and U.S. transitions.

The Growing Global Competitiveness of Key U.S. Companies: The GE Transformation The competitiveness of several U.S. firms is legendary. Intel in computer chips, Microsoft in software, Motorola in telecommunications, Coca Cola in soft drinks, Mersk in pharmacology, MacDonald’s in fast food, are just a few of the most well known. In order to understand the transformation, the United States and global marketplace has made in U.S. firms, we shall examine General Electric’s (GE) three transformations in the past years. We have chosen GE for examination for four reasons. First, GE is a conglomerate; it competes in fourteen different industries worldwide and as such faces some of the world’s best competitors—Hitachi, Toshiba, and Mitsubishi from Japan, and Siemens and ASEA Brown, and Boveri from Europe. Second, in the last thirteen years, GE’s sales rose from $27.9 billion to $60 billion; profits before taxes rose from 2.9 billion to $8.8 billion; stock appreciation went from $31 per share to $93 per share including three stock splits with stockholder equity reaching $73–79 billion. Thus, GE became the fifth largest industrial corporation in America, the third largest in profits, and the second largest in stockholder equity (Welch 1988). Third, GE is one of only eight multinational firms to make a profit in each of the last twenty years. In addition, each of GE’s fourteen businesses are number one or two in market shares in the world with dramatic increases in productivity, quality, and response time (Hillkirk 1989). Fourth, and even more significant, over

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twenty of GE’s former top executives have become successful CEOs of such global firms as GTE, Allied Signal, Goodyear Tire, Owens-Corning, Ryland Group, General Dynamics, Wang Laboratories, Sundstrand, Rubbermaid, M/A Communications, USF&G, Zorn Industries, Clean Harbor, and Systems Computer Technology, suggesting that GE’s global adaptations are principled, systematic, and representative of the best U.S. firms, rather than a function of one firm’s unique capabilities (Cohn 1992). Let us briefly explore GE’s three transformations in the last thirteen years in response to changes in the global marketplace and draw some conclusions regarding the pressures this places on the U.S. government’s operations.

GE—Transformation 1 To the Most Competitive and Valuable Firm in the World In 1981, Jack Welch became CEO of the General Electric Corporation and anticipated GE’s first need for a transformational change. Welch recalls his thoughts: At the beginning of the decade . . . we faced a world economy that would be characterized by slower growth with stronger global competitors going after a smaller pie. In the context of that environment we had one clear-cut major competitor: Japan, Inc. . . . powerful . . . innovative . . . and moving aggressively into many of our markets. (Welch 1988) In an attempt to create and operationalize a transformational vision, Welch set two clear and simple goals for his firm and outlined the operational targets for reaching these goals (Welch 1988). To Become the Most Competitive Corporation in the World This principle is currently operationalized to mean that each of GE’s fourteen businesses should (a) invest only in products with high growth potential where GE can become the number l or 2 in market shares in the world; (b) increase productivity and quality 5 percent per year; (c) decentralize power and responsibility downward in order to make each business unit as fast and flexible as possible in responding to global competition; (d ) develop low cost, high quality, easily serviced products which are customer-oriented so as to yield increased market shares in order to fund the R & D and acquisitions necessary to remain number l or 2; (e) monitor carefully the ability of each

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business to meet productivity and financial targets; and (f ) intervene when necessary to make each business become a “win-aholic.” To Become the Nation’s Most Valuable Corporation This principle is currently operationalized to mean the “most valuable” in terms of market capitalization. This principle manifests itself in a number of specific ways at GE, for example, (a) keep earnings rising at 5 to 10 percent per year; (b) keep stock appreciation and yield at about 15 to 20 percent per year; (c) shift earning mix so 50 percent can come from a high growth area; (d ) keep supplier productivity rising at about 5 to 10 percent per year; (e) maintain exports as percent of sales at about 50 percent; and (f ) maintain management’s reputation as an entrepreneurial, agile, knowledgeable, aggressive, and effective competitor.

GE—Transformation 2 To a Boundarylessness Firm through Speed, Simplicity, and Self-Confidence In April of 1988, this first massive reengineering effort was all but complete and Welch began to anticipate the need for a second transformation in GE. Welch reflects (Welch 1988): [T]oday the world is even tougher and more crowded. Korea and Taiwan have become world-class competitors, as hungry and aggressive as Japan was in 1981. Europe is on fire with a new entrepreneurial spirit and leadership that is among the world’s best. Many of its most aggressive companies, like Electrolux and ASEA of Sweden, Philips of Holland, and Siemens and Bayer of Germany, are after our markets through acquisitions and joint ventures—just as we are going after theirs. . . . At the same time, the Japanese are more sophisticated and aggressive than ever—building servicing plants outside Japan, including dozens just over the Mexican border. By 1988, GE’s challenges were internal and even larger than in 1981. Welch reflects: We had to find a way to combine the power, resources, and reach of a big company with the hunger, the agility, the spirit, and fire of a small company. The rationale for this change was simple, that only the most productive, high quality, and rapid response firms were

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going to win in the 1990s. If you can’t produce a top quality product at the world’s lowest price and get it to market in less time than your competitors, you’re going to be out of the game. In such an environment, 5 percent annual increase in productivity and quality will not be enough; more will be needed. (Welch 1988) This transformation envisioned by Jack Welch was a boundarylessness firm. In GE’s annual report in 1988 he outlined this needed vision as one in which “. . . we knock down the walls that separate us from each other on the inside and from our key constituencies on the outside. The boundarylessness company,” he said, “will remove barriers between functions, levels, and locations. It will reach out to key suppliers to make them part of a single process” in which he added, “they and we join hands and intellects in a common purpose—satisfying customers.” Only through boundarylessness, Welch argued, could the corporation reach its goals. Welch argued that now his firm must (1) define its vision in broad, simple, and strategic terms; (2) maximize its productivity, quality, and speedto-market; and (3) be organizationally and culturally innovative, flexible, and rapid in responding to shifting customer demand for low prices, and highvalue products. He then called for GE to reorient its corporate vision to “speed, simplicity and self-confidence.” In order to operationalize this internal vision, two new goals and sets of targets were put in place. To Develop Open Communication Based on Speed, Candor, and Trust This principle is operationalized to mean sharing with all employees the corporation’s vision, goals, and values, and opening each employee up to discussion regarding his or her strengths, weaknesses, and the possibility for change. This is accomplished by (a) speaking openly and listening carefully to discussions aimed at preparing, articulating, refining, and gaining acceptance for unit visions; (b) showing candor and trust in sharing and evaluating personal and business plans; and (c) motivating employees to become more open, more self-confident, more energized individuals in generating and employing practical and technical knowledge. To Develop a Skilled, Self-Actualizing, Productive, and Aggressive Workforce Capable of Generating and Employing Practical and Technical Knowledge This principle is operationalized currently to mean GE wants not only to create an environment in which GE will be viewed as a challenging place

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to work, but also this principle will significantly enhance worker skills so that they can find another job if the company no longer needs them—a place where employees are ready to go but eager to stay. In order to actualize this goal (a) develop employee awareness that the only road to job security is increasing market shares; (b) develop employees who are more action-oriented, more risk-oriented, and more people-oriented; (c) develop employees who relentlessly pursue individual and group goals; (d) develop employee skills and performance through timely and quality education programs; (e) hold employees responsible for meeting productivity and financial targets; and (f) reward high-performance and deal effectively with low performance. Three new mechanisms were put forward to create a tension capable of meeting these new goals (1) reengineering GE’s corporate culture, (2) creation of a world-class continuous improvement program, and (3) creation of a rapid responsive communication system. By late 1988, Welch began to notice that most of his top management team and business leaders had bought into GE’s need for a transformation, but middle and line managers were still prone to fight or ignore the need to change. The mechanism put in place to alter these behaviors was a new continuous improvement program called “Workout.” Workout was designed to ensure that employees, suppliers, and customers could speak candidly to managers without fear of retribution. Thus, placing pressure on middle and line managers from above and below to change—as Welch had hoped—the process quickly exposed GE managers who did not “walk the talk.” Workout was a world-class continuous improvement program aimed at reengineering GE’s organizational processes by increasing the firm’s productivity and quality while decreasing its response time. The program included (1) a self-managed team program called a “New England Town Meeting,” (2) a cross-functional team program called “process mapping,” (3) a benchmarking “best practices” program, and (4) an aggressive outside linking program. The practical objective of workout was to get rid of thousands of bad habits accumulated since the creation of GE 112 years go. The intellectual goal was to put the leaders of each business in front of 100 or so employees, eight to ten times a year to let them know what their people think about how the company can be improved and then make the leaders respond to those changes. Ultimately we are restructuring the leader-subordinate relationship to challenge both to make GE a better place to work. It will force leaders and workers to combine in creating a vision, articulating the vision, passionately owning the vision, and relentlessly driving it to completion. (Tichy and Charon 1989)

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By the end of 1993, over seventy thousand employees participated in three-day New England Town Meetings with remarkable results. In GE’s plastic division alone, over thirty work out teams have been empowered to make changes. One team saved GE plastics $2 million by modifying one production process, another enhanced productivity fourfold, while a third reduced product delivery time 400 percent (Welch 1988). Another business, NBC, used workout to halt the use of report forms that totaled more than two million pieces of paper a year (Stewart 1993). GE Credit Services used workout to tie its cash registers directly to the mainframe, cutting the time for opening a new account from thirty minutes to ninety seconds. Similar results have been reported from workout projects in GE’s other businesses, demonstrating a remarkable company-wide reorientation of coalignment processes between worker capabilities and organizational needs. While this internal transformation of GE’s value-chain was taking place, Jack Welch also realized that some other global organizations were achieving greater productivity, quality control, flexibility, adaptability, and rapid response time than GE, even with the workout program in place. In the summer of 1988, GE began its “Best Practices Program” aimed at locating those organizations which had out performed GE in a given area, developing a case study of how they did it, and then employing these case studies as world-class benchmarks for improving GE’s performance. GE scanned the globe and located twenty-four corporations which had in some area out performed GE. They then screened out direct competitors and companies which would not be credible to GE employees. Welch then invited each corporation to come to GE to learn about its best practices and in return to allow GE to come to their companies and study their best practices. About one-half of the companies agreed. They included AMP, Ford, Hewlett Packard, Xerox, and three Japanese companies. GE sent out observers to develop case studies and ask questions. These best practices case studies have been turned into a course at Crotonville, GE’s leadership training center, and is offered to a new class of managers from each of GE’s fourteen businesses each month (Stewart 1993). Finally, as GE’s top management team reviewed the projects which had been successful from their workout programs, they noticed a difference in the types of programs which had saved up to a million dollars and those which saved one hundred million. The latter always involved changes in organizational processes which spanned the entire value-chain. They cut across departments and involved linking with suppliers and customers. All emphasized managing processes, not functions. This led GE to establish its cross-functional teamwork program aimed at mapping and then improving key organizational processes. Such process maps frequently allowed employees for the first time to see and understand organizational processes from beginning to end. They

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demonstrated also the need for a new type of manager, a process manager who could coalign an organization’s total assets. It allowed employees to spot bottlenecks, time binds, inventory shortages, and overflows. Since implementing such a cross-functional teamwork program, GE appliances has cut its sixteen-week manufacturing cycle in half, while increasing productivity 6 percent and decreasing inventory costs 20 percent. The program has cost less than $3 million to implement and has already returned profits 100 times (Stewart 1993). Next, GE put in place a rapid response communication system. This system was designed to dramatically speed up information flow to and from the market. Monday through Thursday, issues were generated by sales force employees regarding growth opportunities, competitor moves, quality problems, process delivery issues, and sent to Friday’s business town meeting. This meeting included business leaders and about sixty to seventy unit leaders. They explored and acted on each issue raised. On Friday afternoon, televeision broadcasted this meeting’s results directly to regions and plants where they were discussed in a teleconference; a game plan was set for dealing with these issues. This rapid turn around time in decision-making energizes change, overcomes resistance to change, while involving all management layers in the action plan. Where it used to take fourteen weeks to get an order, make the product, and then sell it, in some businesses GE has cut that time in half and in others by a factor four, saving billions of dollars in costs each year (Chief Executive Magazine 1992).

GE—Transformation 3 A Multipolar Multicultural Firm: The Push to Become a Major Player in the Pacific Rim Markets In 1992, Jack Welch began to reflect on the need for a third transformation in GE. He believed that the slow 3 percent projected growth rate for European, United States, and Japanese core markets over the next several years would limit GE’s growth. He believed that if GE was to remain a global leader, it must take steps to position itself in the major emerging markets of the Pacific Rim, China, India, Mexico, and Southeast Asia. Welch also believed that to remain a global leader, GE had to shift its center of gravity from the U.S. / Europe relationship to the U.S. /Pacific Rim markets. This was to be accomplished through a two-pronged strategy with specific performance targets for each (Smart et al. 1993). These markets are presently growing and will continue to grow at 8 to 12 percent per year for the next ten to twenty years. In addition, GE’s growth

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in revenue from these areas has gone from $10 billion to $20 billion in the last three years. GE Must Become a Multipolar, Multicultural Firm This principle is operationalized currently to mean that, while GE’s fourteen businesses are currently number one or two in Europe and the United States and should defend this status, they must now become number one or two in the major markets of the Pacific Rim—China, India, Mexico, and Southeast Asia. In order to actualize this goal, GE must develop (a) profit centers in each of these markets; (b) develop a multicultural pool of business leaders and employees; (c) integrate Pacific Rim nations into their R & D, manufacturing, sales, and service systems; (d ) extend GEs management system into these major markets; and (e) increase investment in GE from the region. GE Must Employ Strong Infrastructure in Technology Transfer, Management Training, and Financial Services in Order to Broadly and Deeply Penetrate These Markets In order to do this GE is (a) developing joint ventures in technology transfer with firms in the region; (b) training foreign nationals in the United States and then sending them back to Asia to head GE units; (c) exporting GEs training programs to the region; (d ) using GE financial services to fund projects in the region which use GE products; and (e) making small $10 million investments throughout the region to hedge against foreign currency fluctuations and other forms of economic instability. Thus far, the results of these strategies have been promising. GE’s reality based action training programs have taken managers from Asian cultures and trained them in management skills in the United States. Next, these managers were shipped off to the Pacific Rim’s major markets to interview old, new, and potential GE customers, competitors, and business managers. Finally, GE asked these managers to develop market penetration plans and a value-chain, reengineering plans to better position the firm’s business in the region. Similarly GE’s middle-management training programs are rotating promising multicultural leaders through different businesses and markets in Asia in order to create a truly global multipolar, multicultural leader. Strong open competition in the U.S. core market has important implications for the nation and for the firms who operate in this highly competitive environment. From the nation’s viewpoint the U.S. core market attracts more foreign investment each year ($655 billion United States, $248 billion for Japan, and $150 billion for Germany), exports more goods and services to the rest of the world ($609 billion vs. $424 billion from Germany, and $389

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billion from Japan), is larger ($7 trillion vs. $4 trillion in Japan and $2 trillion in Germany), and creates more jobs (7.5 million between 1990–1995) than any other market in the world (Aley 1995). Because of corporate adaptation to change in the highly competitive U.S. market, firms like GE, Motorola, and Intel become world-class competitors in their home market and carry that competitive stance with them when they enter other regions of the global economy. In the second quarter of 1995, U.S. productivity rose 4.8 percent (Duff 1995). The nature of open competition in the U.S. market provides the American people and American firms with strong and clear expectations about what government’s role should and must be in fostering competitiveness. Attention is now directed to what those expectations are and how the U.S. government has moved from an autonomous to a strategic management system in an attempt to meet those expectations.

The Transformation of American Government The U.S. government’s chief role in managing economic competitiveness is to minimize all constraints on open competition, to encourage the development of new technologies through research and military investments, and to intervene where necessary to assist U.S. global companies to access key markets. Seven government functions explain the value added by government to the U.S. business transition. Implementing these changes has required government to find new ways to reduce cycle time, to work with business in global markets, and to adopt high-response solutions. Prevent Price Fixing The United States Justice Department maintains a large investigative staff aimed at preventing firms operating in the United States from combining to fix the price of products and/or services. In September of 1995, the Justice Department won its biggest fine ever in a criminal case for price fixing when Dyne Nobel, the world’s largest manufacturer of commercial explosives was fined $15 million for joining ICI to fix the prices of products in the United States. Over one hundred fifty such cases have been taken to court in the last two years. Investigations are being undertaken currently in over seventy industries (Fix 1995). Prevent Combinations to Restrict Competition The Justice Department also investigates attempts by firms to enter into acquisitions or other commercial combinations which would restrict competition in

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a given industry. Several years ago AT&T was divested for this reason and more recently attempted acquisitions in the telecommunication and software industries have been halted. Every combination of firms which might limit competition is delayed until the Justice Department completes such an investigation. Remove All Subsidies to Corporations which Restrict Competition In 1996, the Republican Congress moved to eliminate $30 billion in tax breaks to businesses. This represents a significant cultural change for government; the Republican Party now sees open competition as central to economic well-being. These tax breaks are to be taken away from pharmaceutical firms, ethanol producers, and large farms and timber farms. However, tax credits will be retained for R & D investment, the hard to employ (i.e., former prisoners and the handicapped), and for corporate tuition assistance for worker’s advanced formal education (Rosato 1995). Remove Government Regulations which Restrict Competition The House of Representatives passed the latest in a series of bills aimed at revising government regulations effecting a firm’s competitive stance in the U.S. economy. This includes legislation making it harder for investors to sue firms (Henriques 1995). Limit the Access of Other Nations to the U.S. Market Because They Limit U.S. Access to Their Markets Recent negotiations between the U.S. government and the governments of Japan, Korea, Germany, and China have threatened to limit the access of these nation’s firms to the U.S. market by imposing quotas, taxes, and/or preventing product entry to the market because access to their markets were restricted by government. Most recently, the Japanese loosened import rules on auto parts in exchange for the United States dropping a proposed tax on Japanese luxury cars. Similar negotiations are now underway with Korea. The U.S. government is involved in over two hundred negotiations of this type. Negotiate Most Favored Nation Access to U.S. Markets The U.S. government can extend or remove most favored nation access to the U.S. market. Most favored nation access removes taxes and quotas on a nation or a portion of a nation’s imports into the United States. This is normally done to enhance economic development in the underdeveloped nation to which it is extended. Most favored nation status can be withdrawn if the

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nation involved fails to trade fairly (i.e., live up to copyright laws, etc.). Recent negotiations with China and Vietnam have turned on this issue. Develop and Exploit Leading Edge Technology The U.S. military and the space exploration programs have a key interest in the development of leading edge technologies and applications. Various government program budgets underpin commercial developments for many U.S. companies. What can we conclude regarding the U.S. government’s intervention in the economy in order to enhance competitiveness? First, the primary goal being employed by the U.S. government is to encourage open competition in both the United States and global economy as the acid test of corporate viability. Second, the primary strategy for obtaining that goal is the strategic managed negotiation of changes in a firm or nation’s behavior, imposing a fine on firms, the denial of acquisitions, or the specification of what part of a firm must be spun off for an acquisitions to take place without restricting competition. Third, in the U.S. government’s external efforts to open up competition in other markets, the denial of open access to the U.S. market is strategically managed in order to encourage other nations to remove barriers to their markets for U.S. firms. Fourth, in all cases, American firms bring these issues and problems to the attention of the government and in so doing create a pressure on government to react and strategically manage a negotiated solution. In addition, a solution is not considered satisfactory in its adoption until the U.S. firms consider it so. Attention is now directed to drawing some conclusions regarding the Singapore and U.S. governments’ experiences at strategically managing their nations’ global competitiveness.

A COMPARISON OF THE SINGAPORE AND U.S. TRANSITIONS The dilemma is that, if a country loses its competitiveness. it cannot afford to pay for its value system anymore. In the first stage, governments step in to soften the reality. This is what they did in the 1980s through massive public spending. Eventually, however, their level of indebtedness became such that they are confronted with the delicate alternative of either reducing the cost and scope of the value system or significantly increasing competitiveness. —Garelli, “Is Competitiveness Unfair?”

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The major problem of advanced countries and their governments is the cost of their value system. It is normal to want to maintain or raise one’s standard of living, to want higher wages, a more comprehensive health care program, better retirement, and more jobs. It is understandable to want to work less, to pay fewer taxes, and to protect the environment. But all of these values contain a price tag. They have to be paid for by government and their people. The more competitive a nation or firm the more wealth is created to pay for the value system. The more sophisticated the value system, the more competitive a country or firm has to be. Between 1980–1992, the net public debt in the United States and Western Europe doubled. This indebtedness demonstrates the large margin of error between what those nations want and what they can afford. In both regions their competitiveness cannot support their wants. They must begin to reduce their costs. In Europe the size of the public sector is three times what it is in Japan. In the United States the cost of entitlements will soon tie up over 70 percent of the government’s budget. In Asia similar problems are beginning to emerge. What can we learn from the two most competitive nations in the world about how to solve these problems? We suggest six common lessons and two important diverse lessons. We have provided a rather extended analysis of two of the world’s most competitive economies. We have observed the transformation of a central planning high-production economy toward a strategic management high-response economy. We have observed a high-autonomy economy evolve towards a strategic management high-response economy. We have also learned several important lessons from our analysis regarding the global competitiveness of nations.

Common Success Factors First, both Singapore and the United States realize that (a) access to a large core market, (b) a strong scientific and technical workforce, and (c) a private sector which can attract capital in order to provide the infrastructure necessary to increase growth and rapid technological development are the essential factors involved in long-term competitive advantage. Singapore has developed a government strategic management system which maximizes its major resources, people, and its location in southeast Asia, the most rapidly expanding market in the world. Singapore’s attempt to help Malaysia, Indonesia, Thailand, Vietnam, and China develop seeks to provide this city-state with a central role in the world’s potentially largest core market. The United States has developed a private sector strategic management system which maximizes its main resources, its manufacturing, agricultural,

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and service firms, and their location in the largest and most profitable market in the world. U.S. firms are rapidly expanding into Asia in an attempt to exploit the potentially largest and currently most rapidly expanding market in the world. Both nations are currently attracting large capital investments and both are investing heavily in telecommunication infrastructure. Singapore’s education and manpower policies are substantially stronger than those in the United States, but the base they have to draw from at this point in time is more limited. Second, both Singapore and the United States have made important advances in generating more and better paying jobs. However, in both cases, a shortage of skilled labor has developed—in Singapore because of its limited population base and in the United States because of structural weaknesses in its educational systems. In both nations, productivity is growing and so will the demand for a more skilled workforce. In both nations, the government is supporting a brain drain from abroad to fill the gap. However, as other nations improve their standards of living and pay for skilled work, this solution may not work. Jobs may migrate along with skilled workers. For example, in the United States between 1980 and 1992, manufacturing output doubled, but manufacturing jobs decreased by 10 percent. At the same time, manufacturing output and jobs in Korea, Taiwan, Singapore, and Malaysia increased by 25 percent (Smadja 1994). Third, competitiveness has added value to both economies. In Singapore, it is raising the nation’s standard of living while in the United States, increased competitiveness is required to maintain the current standard of living. Wages and disposable income in both Singapore and the United States have changed dramatically. In Singapore, GDP has risen from $3,000 U.S. in 1960 to $22,000 in 1995, while disposable income has risen 500 percent. Between 1973 and 1992, blue-collar workers in the United States have lost 15 percent of their purchasing power, while real income peaked in 1976 at $24,000 per person. Today, sixteen years later, real income is $23,000 and purchasing power remaining has decreased 15 percent. In the United States, 7.5 million jobs have been created that could push those figures upward, but a shortage of skilled labor and no effective national labor policy designed to meet those unfilled needs is pushing real wages down (Narisetti 1995). Fourth, both the government in Singapore and the private sector firms in the United States have located a successful strategic development model. Development proceeds in strategic phases. Each phase has involved the adaptations of a dramatically higher value added product output. The movement between stages is transformational while the mastery of each phase is incremental. The goal in each phase is to dominate through excellence. The observable characteristics of domination are (Vollman 1994): a dramatic growth

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of capabilities and competencies, high rates of learning, rapid increase in market shares, faster adaptation to change in the market, increased effort in all jobs, an increase in team spirit, becoming the benchmark others follow, flexibility in responsiveness, and changing the culture and rules of the game. It is remarkable when one looks at what the Singapore government interventions in the economy were and how similar they were to GE’s corporate adaptations to a changing marketplace. The catalysts were different; the moves similar. Fifth, both the effective leadership system of Singapore’s government and of U.S. corporations such as GE represent a complex team effort. What Singapore has accomplished is the result of the coordinated effort of leaders of numerous government boards. What GE has accomplished is the result of the coordinated effort of the leaders of fourteen businesses. Such a complex coordination effort requires a large number of competent leaders and an unprecedented recruitment effort. In Singapore each year the government targets the top 3 percent of students in their higher education systems for government service. GE interviews over ten thousand potential managers and hires less than 1 percent each year. Both organizations have a recruitment system which can generate a strong leadership team. The U.S. government has not had such a leadership team in the Senate, House, Presidency, or in administrative agencies. Instead in the United States, the private sector attracts the top leaders. So it may be difficult for the U.S. government to develop the critical mass of competent leaders to play a more a active role in the economy without a significant structural change. Sixth, with the growth in world trade expanding twice as fast as the growth in GDP, both Singapore and the United States have developed strong export economies to take advantage of that growth. Singapore with its 2.8 million people ranks fifteenth in the world with $48 billion in the export of manufactured goods, twelfth in the world with $18 billion in the export of commercial services, and twenty-first in the world in the export of agricultural products. The United States with 260 million people, ranks second in the world with $304 billion in the export of manufactured products, first in the world with $162 billion in services, and first in the world in agricultural products with $63 billion. If Singapore had not developed a strong export economy, it is questionable if it would have developed significantly beyond its 1965 levels. If the United States had not developed a strong export economy, the standard of living of its people would have declined substantially below its 1975 national high. The transition for Singapore from a centrally planned to a strategically managed economy and the United States from a decentralized control to a strategically managed economy was necessary to advance the effective participation of both nations in the global economy.

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Key Differences The diverse lessons we can learn from our two case studies may be even more significant. First, the contribution of government targets was different in each transition. In Singapore, the government selection of targets for operationalizing its vision of an export-based economy employs specific educational and economic goals and targets (e.g., attracting x amount of foreign investment through incentives to power industries, educate x number of computer scientists, etc.). These goals lack the normal political ideology or values which serve as a drag on government action. In the United States on the other hand, the values the American people hold in regard to individualism, or universal health care, and so forth are unmanageable as operational principles which not only create significant problems for government and debate over their implementation but also divide the nation and makes government immobile. Second, the challenge of maintaining the scope to govern was different for each transition. In Singapore, the need for strong and extended support of government by the people could undermine governmental action if it did not exist. If Singapore had two strong parties with separate vision within which each could get the power but not hold it, then the current strategic management system would be undermined. In the United States shifting political power has had a limited effect on the economy because most institutions which can effect the economy have been placed beyond political influence (i.e., the Federal Reserve Board). So governments come and go, but the economy goes on.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT The leadership, management and communications strategies for discontinuous change are different from those required for incremental change. Because leadership in government must address the complexity of the government role, the strategies are different than those likely to succeed in business. Although lack of effective strategic leadership is often a restraint to change in both business and government, the restraint is often greater in government because systems are designed to avoid leadership, management is rule driven, discretion is minimal and centralized, and the management culture is risk averse. Strategic leadership in government requires strategies which reposition government structures and resources and enables government staff and external interest groups to understand the change and join the

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transition. Strategies include: managing external rather than internal boundaries; directing strategic visions rather than long-term missions; handling strategic management rather than strategic planning; managing transitions not end points; shortening the times span of evaluation by managing short-term benchmarks and impacts rather than long-term results; implementing irreversible changes rather than incremental change; benchmarking the transition platform into the future and leveraging expectations of future benefits; coaligning value-chains through shared interests rather than standardization; participating through communication and shared values; and harnessing rather than containing diversity. Our analysis of Singapore and the United States, two nations that have managed a successful transition to national competitiveness, raises a number of implications for national leadership. First, the National Competitiveness Model predicts the relationship between government and business will differ between these two transitions. The high-autonomy transition requires business leadership. The high-production transition requires government leadership. The case studies highlight these differences. Second, our consideration of the relationship between government and national competitiveness suggests that government and business must share the role of delivering competitiveness. The Singapore success could not have occurred without the key multinational corporations who joined with the government to meet their objectives and to contribute to Singapore’s competitiveness. The U.S. success could not have occurred without governments, state and federal, moving to expose businesses to global competition and opening the U.S. market to that competition. The U.S. success could not have occurred without strategic government action to protect U.S. interests and assist U.S. companies to access global markets. Third, the need to manage transitions as a series of discontinuous changes and to protect the platform for change is evident in both transitions. In the case of Singapore, creating the base to attract investment required time and commitment. While pursuing development, the government also addressed pressing social value needs, essentially housing, education, and training, and employment. These early stages were prerequisites for the high technology strategies which are now being implemented. Although the Singapore government has generated massive support, this support needs to be seen in terms of the value which has been added to the Singapore economy over the period since independence and the resolve of the government to ensure that the benefits of development are shared with its citizens. In the case of GE, the transition clearly moved through three discontinuous changes each of which build upon the other. In the case of the U.S. government, the restrictions generated by comfort zones are ever present. The government created the

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interlinked economy since 1945. Although U.S. business, seduced by the comfort of its large domestic markets was slower than others to exploit the possibilities of the global economy, government resolve to avoid protectionism and expose business to global competition has paid off in recent years. Finally, our argument that change requires leaders able to create a vision and rearrange resources structures and systems to deliver that vision is supported by these studies of Lee Kuan Yew and Jack Welch. These leaders achieved major discontinuous change, they involved others in the process, and they developed their long-term visions as the environment changed and as their capacity to exploit new opportunities changed. Both leaders adjusted structures, systems, and values to support their particular transition. Both leaders were able to translate their vision into action. We have now reached the end of part 1 of this book. The scope of the problem has now been identified and the ideas required to underpin the changes have been presented. Part 2 will address specific strategies and tools for managing the transition to competitive government.

Part II A Management Platform for Government Change

A Management Platform for Government Change

Planning a strategic change is not enough: Much is required to get there. After all, old habits die hard. Current resource deployments constitute commitments around which employees and shareholders form work and career expectations. Previously announced goals, pay practices, recruitment systems and administrative procedures place firms on strategic trajectories that create both inertia and momentum and inhibit change. To turn away from these trajectories requires, not only skill in selecting the most promising strategic changes, but also skill in overcoming inertia and remodeling institutions. —Fombrun, Turning Points In chapter 1, we argued that responding to the current crisis in government management requires major, nonlinear, changes to the strategies structures systems and staffing of government agencies. This cannot occur unless government abandons the traditional controls and technologies which governments use to deliver value and to coordinate activities. In part 1, we presented a vision to guide government reform. We analyzed the breakdown and presented a number of models and frameworks that can be used to test the performance of government and to evaluate whether particular reforms offer value. We described the transition which government management must make as a transition from traditional rule driven government to a new form of government we described as competitive government. The difficulty with this transition is that it is a nonlinear transition requiring a major break with the past. While many partial solutions are underway, government must ensure that the transition proceeds, and that each individual change combines to create a transition from the present to an as yet uncertain future. If we are to change our vision of government, we must embark on a transition. This transition requires the reinvention and reengineering of strategies structures and systems in order to create a management platform which supports rather than impedes change. If these reforms are to support transition, 171

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they must fix the weaknesses in traditional systems while also retaining previous strengths. In part 2, we address the internal reforms required to produce such a platform for transition. The first challenge is to create a platform which can solve current problems by aligning new management strategies structures and systems with the new external realities. The second challenge is to convert on-off changes into an effective platform for transition to address future problems and exploit future opportunities. We consider detailed change strategies and management tools which can be used to replace the traditional static management platform used by governments with a platform for transition. Chapter 7 addresses the challenge of transition. We suggest that devolution and differentiation are central to future government performance. Managing the transition from a tightly controlled uniform system to a devolved and differentiated system presents three challenges for government reform. First, there is the challenge of coordinating devolution with new forms of output focused accountability. Second, there is the problem of managing a network of differentiated activities and cultures. Third, there is the challenge of maintaining some capacity to address the public interest. Chapter 8 addresses planning and evaluation strategies for competitive government. Devolution and differentiation require new approaches to the management of performance. In chapter 8, we present a strategy for shifting government planning and evaluation away from inputs and processes towards results and measurable impacts on the external environment. High-response solutions to government management require strategic thinking by government. This needs to be supported by new approaches to planning and evaluation. We examine recent criticisms of strategic planning and argue that strategic planning and evaluation in government is essentially an implementation tool; it must be developed to avoid planning inertia. We present a performance improvement planning and evaluation process and discuss its application to three quite different performance problems: the reform of a national taxation agency, the reform of services for the schooling of disabled children, and measuring the performance of senior managers. Chapter 9 presents strategies and tools for reinventing and reengineering government management systems and values. The task of facilitating change requires both the removal of the blockages created by traditional input controlled systems and the replacement of these traditional systems by new forms of coalignment which focus on the management of government performance and on holding agencies and managers accountable for results. We suggest that the role of structures needs to shift from coordinating work or distributing power to providing a focus for autonomy and accountability. We explore three change management strategies / tools. We discuss the use of a network of performance contracts as a tool for focusing change. We discuss the use of project

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teams to implement leading edge changes. Finally, we address the application of continuous improvement processes to government management. Chapter 10 addresses resource management strategies for competitive government. Most reform processes recognize the need for reform of financial management systems. Current devolution experiments and the need for governments to manage cycle time directly, present many new challenges for financial management. We focus on the need to remove inbuilt overestimates from the process, on the development of new approaches to the management of allocative tensions, and on managing transitions to results based budgeting. Chapter 11 addresses governance strategies for competitive government. The institutions which nations use to manage their affairs include an executive (both political and nonpolitical), an assembly or legislature, which can have varying powers and varying roles, and a judiciary. Many of the changes required to support national competitiveness impact on governance structures which have developed in particular countries. While governance structures must be part of the change process, they do not determine it. The competitive countries discussed earlier have different governance structures, yet they have exploited the global economy more effectively than others. The key is in managing the strategic fit between the management platform and these governance structures. In chapter 11, we examine different governance structures and consider the impact of transitions to competitive government on such structures. In particular, we examine the interface between the legislature and executive government, the ways in which interest groups access governance structures, and the interface between the political and nonpolitical arms of executive government.

Chapter 7

The Challenge of Transition

Under performance is a major issue for public administration in the 1990s. A major cause of this gap is a lack of fit between the management and support strategies of public sector organizations and the delivery strategies they seek to implement. This lack of fit can be related to the management values that managers and government apply to public sector operations. • Management values that see public sector performance in terms of increased freedom to manage have encouraged the dismantling of bureaucratic controls over finance and personnel without developing increased accountability for the delivery of services to the public. • Management values that see structure as independent of strategy have encouraged attempts to transplant partial private sector management approaches into the public sector without developing the sort of focus on performance which guides these approaches in many private sector situations. • Management values that see performance as inevitable, provided malfunctions do not occur, have encouraged public sector managers to ignore the need to define performance and manage the delivery of services to the public. . . . This diagnosis has major implications for the future performance of public administration. Lack of accountability combined with the deregulation that has occurred may well have exposed 175

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many public sector organizations to increased risks of major failure without improving their capacity to meet public expectations for improved services. —Cullen, “Public Sector Performance and Private Sector Management” Environment volatility continues to place increasing pressure on government to adjust to changing political and economic conditions. Participation in the global economy combined with an increasing incapacity to deliver grass roots value has created new pressures for government to perform. In chapter 1, we argued that the failure of governments to respond to these new pressures is the cause of the current crisis. Failure to perform is a function of not thinking through the specific transition required and of the inability of government change managers to implement the transition. We now discuss the challenge of managing a particular transition. The changes to government management that are required are major. For most nations there is no viable incremental path to the new management platform that government must develop. It is the purpose of this chapter to present a framework within which transitions to competitive government can be managed. We discuss five tensions that must in our view be managed for a transition to competitive government management systems to succeed: resource balance / allocation, accountability / devolution, deregulation / reregulation, corporate management / operating agency, and cycle impact tension. We conclude with a case study of transition to competitive government.

RESOURCE BALANCE/ALLOCATION TENSION The management crisis in government is complex in origin and delicate in its solution. Many governments must face the reality that they can no longer fund the level of government activity that developed in a less competitive world. A consistent decline in resources, shifting government priorities, and serious cutbacks in many social services are threatening the comfort zone of many government officials and citizens. Managers in a time of shrinking resources are finding a new need to locate a common ground within the political arenas of government on what programs will be accomplished and even more significant what programs will be deferred. In times of shrinking resources, a need to shift priorities creates a dilemma for many existing government programs. There is an opportunity cost associated with allocating resources to a particular program. That cost is

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essentially the cost of not undertaking or cutting other programs. Shifting priorities create tensions in the comfort zones of citizens who benefited from the older programs. If not handled in an appropriate manner, pressure will be brought on elected officials to halt or cut the flow of resources to the new priorities. Traditionally, government managers solved the problems of resource reductions by one or two well-known methods. The equal common misery rule, which assigns a flat percentage cut—say 5 percent— to all agencies, or a recruitment freeze rule, which impacts agencies differently, eliminates the need to select specific programs as winners and losers. Both strategies work well in times of temporary reductions. However, in times of continued reductions, accompanied by shifting priorities, both strategies have demonstrated high rates of failure. The long-term effect of utilizing these input-oriented strategies for resource allocation is stagnation, a deterioration in services, and a serious reduction in staff moral. This traditional approach of regulated consumption is not a viable transition option because it is under resources change. First, old priorities tend to be overresourced and new priorities tend to be underresourced. Second, slowing cycle time, and under resourcing change delays the benefits of change. Importantly, government revenues are often further eroded by the lack of competitiveness and by the need to address the symptoms of failure. The available evidence indicates that a manager’s real transition management options are to reduce programs and to alter the program priorities of government (Cullen 1983). The ability to locate and manage the nexus between a sustained reduction in resource levels, a reduction in program delivery, and shifts in fundamental government priorities without destroying a citizen’s comfort zone is in our opinion, the essence of effective public administration today. An orderly decline in governmental organizations is an organizational transition process about which management theory tells us very little. How do we motivate people in declining or terminating organizations? How do we develop organizational commitment and teamwork in a declining organization? How do we avoid organizational stagnation and paralysis? How do we manage when survival values dominate? We believe that one solution to this crisis resides in a shift from an equal pain and inputs control orientation within existing programs to a priority based outputs approach to existing programs. We term the conventional inputsoriented approach “regulated consumption.” It regulates the consumption of resources in public sector agencies by controlling the resource inputs. The overriding assumption here is that all that is done by public sector agencies is equally good and worthwhile, even if it cannot be defined, measured, and evaluated. We believe that this equal pain and input approach to public sector

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management must be replaced by an environmental change responsive management system which is priority based and outputs- or performance-oriented. But changing a government’s management system, like changing a government’s priorities, is not simply a matter of moving from one system to the other. Counter pressures make such a transition difficult; we need to be aware of the problems and pitfalls which accompany such a transition.

ACCOUNTABILITY/ DEVOLUTION TENSION Unless deregulation of the public sector is accompanied by new forms of accountability, under performance will become a longterm feature of public administration. —Cullen, “Public Sector Performance and Private Sector Management” Effective transition management requires management tools that assist managers to balance the need for devolution against the need to shift the focus of accountability from processes to results. Exhibit 7.1. The Performance Management Grid presents one such tool. Exhibit 7.1 involves two axes. The vertical axis indicates the existence of clearly defined priorities, objectives, and allocation commitments. The horizontal axis deals with the extent to which the organization is free of detailed central control over personnel and financial transactions. In public sector management, because objectives and priorities are often complex and difficult to specify, many organizations operate at the low end of the vertical axis. There is an organizational inheritance of very detailed, central controls over transactions. These detailed controls were developed in the past as an alternative to output-oriented controls; they operate to preserve equity and minimize errors. Such organizations rate low/ low on Exhibit 7.1, which defines the “regulated consumption” approach to organizations discussed earlier. This form of management ensures an orderly consumption of resources and provides scope for these resources to be consumed to produce required outputs. In a relatively benign environment, where the major output required is to maintain established functions, this model avoids the difficulty of defining outputs and measuring performance. It can survive with some difficulty in a situation of steady incremental growth. However, the “regulated consumption” approach to organizations cannot meet the twin challenges of an environment demanding substantial and ongoing changes in functions and performance, combined with a situation where available resources are declining and need to be reallocated to new high priority programs.

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High

Exhibit 7.1. The Performance Management Grid

PERFORMANCE ORIENTED

Medium

▼ FAILURE ZONE

▼

Accountability—for strategic performance

SHARED RESPONSIBILITY

UNFETTERED ENTERPRISE

Low

REGULATED CONSUMPTION

Low

Medium

High

Devolution—freedom from detailed controls over processes Note: Failure zone—high risk of under performance or administrative breakdown due to lack of strategic fit between internal controls and external accountability for performance.

When this model breaks down, bureaucratic organizations in their search to become performance-oriented, have a habit of moving to one or two quite undesirable organizational situations. The first, and perhaps the most excusable response, is that such organizations develop clear objectives and priorities. This enables such organizations to attempt to respond to their environment. However, because they remain subject to detailed central controls over financial and personnel transactions, such attempts are often fraught with difficulties. This approach to organizational change rates high / low on Exhibit 7.1 and is

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titled “shared responsibility.” Organizations which seek to operate this way for any length of time experience high levels of frustration. In the face of detailed central control for which they are not responsible, such organizations are seldom able to respond to their new objectives. The “saving grace” of this model is that responsibility for failure is shared between the managers of the organization and the managers of the central agencies of government; it can enable somewhat inexperienced managers to be supported by central agencies, and it requires a great deal of goodwill to operate for any length of time. It is insidious in its fragmentation of responsibility. It tends to encourage a management culture where managers, instead of performing, become expert at blaming others for failure. A second undesirable response to the breakdown of the “regulated consumption” approach is to release detailed controls over transactions and leave the managers to manage. It is an emotional Catch-22. Unfortunately in the process, the key questions of what they are going to manage and to what end are frequently never addressed. Detailed controls are lifted but their objectives and performance are often neither properly developed nor monitored. This approach to organizations rates low/ high on Exhibit 7.1 and is described as “unfettered enterprise.” Under these arrangements, effective organization is highly dependent on the quality of the chief executive and the existence of overall support for the functions and objectives that the chief executive elects to pursue. To move from the position of “regulated consumption” to a priority specific “performance-oriented” model in public administration is a matter of managing organizational roles to avoid the weaknesses inherent in both the “shared responsibility” and the “unfettered enterprise” options. To do this, clear priorities, objectives, and budgets need to be developed and performance output targets established. These developments need to be coordinated with the reduction of central controls over individual transactions. The end result is to create a type of public sector organization able to accept total responsibility for the delivery of agreed results. This type of organization rates high/ high on Exhibit 7.1, which defines the priority specific performanceoriented approach to organizations discussed earlier. Exhibit 7.1 can also be used to define a failure zone where there is a lack of strategic fit between internal controls and external accountability. Diagonal lines on the Performance Management Grid define a zone within which any transition is likely to fail. This failure zone is defined as that part of the grid where neither variable is sufficiently dominant to provide an effective focus for performance. Regulated failure attempts a strong focus on both inputs and outputs which does not deliver a dominant solution. Unfettered enterprise attempts no external control. The central mode compromises both deregulation and accountability in order to enable organizations to survive. While the organization may survive, it will lack any real capacity to add real value.

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The point about this failure zone is not that it defines areas in which agencies are likely to fail but that moving a government agency or bureau from regulated consumption to performance management requires a transition through this failure zone. Most government changes in recent years have moved agencies horizontally to the right on the Performance Management Grid. There is no doubt that deregulation is required to enable managers to add value to government programs. However, the lack of effective measures of accountability has led to perceptions of failure. All too often the solutions have been new structures, new managers, and new pressures for reregulation rather than solutions which develop a new focus for performance that coaligns units more effectively. For example, the short-term focus of many changes is to reduce costs in order to plug budget gaps In many cases, short-term accountability is defined in terms surviving the challenge of reduced expenditures. But in the longerterm accountability for performance requires a negotiation of performance parameters either with customers or government or both. Viable long-term change also requires an audit of existing structures systems and staffing not only to focus management accountability for delivery, but also to avoid the shared accountability option discussed above. Viable long-term change also requires managers to establish the basis for continuous improvement which includes an ongoing evaluation of performance and an ongoing drive to improve performance.

DEREGULATION / REREGULATION TENSIONS To this day whenever things go wrong, politicians respond with a blizzard of new rules. A businessman would fire the individuals responsible, but government keep the offenders on and punishing everyone else by wrapping them up in red tape. They close the barn door after the horse has escaped—locking in all the cowhands. We embrace our rules and red tape to prevent bad things from happening, of course. But those same rules prevent good things from happening. They slow government to a snail’s pace. They make it impossible to respond to rapidly changing environments. They build wasted time and effort into the very fabric of the organizations. —Osborne and Gaebler, Reinventing Government Effective transition management needs to include strategies for adding value to government by strategically reviewing the fabric of rules and simultaneously

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deregulating some areas and reregulating others. Government developed regulation in order to control services to convince the public that they were being treated fairly. Government extended the rule by regulation approach to their internal relationships. Interest groups, the legislators, and the judiciary became involved in the process. The result was a system of management that sought to respond to new problems with old solutions. There is no doubt that government structures must move toward the performance-oriented approach to management, and that this involves the demolition of many but not all rules. In this examination of regulation, we will first examine the reasons why government regulates. We will then examine the impact of these constraints on management practices and values. Finally, we will examine strategies for change which recognize that some rules add value. We will suggest that in many areas of internal control rules are simply inappropriate. In other cases, where rules act to improve customer service, we suggest that the issue is who controls the rules and are managers able to make exceptions where these are required? In other cases, we suggest that rules should be evaluated in terms of objectives impacts and performance not on the basis of doctrinaire views about whether they are intrinsically good or bad. Reasons Why Governments Regulate Governments regulate for many reasons: • To define (control) the scope of agencies to act. • To enable the legislature or interested groups to control government agencies. • To ensure agencies act fairly between individuals. • To ensure resources are used by agencies in an efficient manner. • To guarantee staff across the government service are treated equitably. • To provide a vehicle for consultation with service users and interested community groups. Most organizations use procedures and guidelines to guide the delivery of products to customers. Many extend these guidelines to address internal processes. However, in the business arena the objectives are clearer, for example, to deliver products, and to maintain market image. In government, regulations often become ends in themselves.

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The Impact of Regulatory Constraints on Government Managers and Values James Q. Wilson (1989), in a powerful analysis of the ways in which government bureaucracies work, identifies seven consequences of managing in this climate of constraint. “First, managers have a strong incentive to worry more about constraints than tasks, which means they worry more about processes than outcomes.” Wilson concludes that delivering outputs is not enough. Managers must also worry about meeting the constraints and contextual goals of the agency. For example, if the agency is required to consult, the process can become more important than tasks performance. “Second, the multiplicity of constraints on an agency enhances the power of potential interveners in the agency.” Wilson discusses the intervention of courts and appeals processes which seldom address performance and usually address procedures. He describes the organizational boundary as including all those who have a stake in the maintenance of one or more constraints over the agency. “Third, equity is more important than efficiency in the management of many government agencies.” Wilson argues that procedural rules are usually defended on the basis of equity and suggests that because equity issues are easier to judge than efficiency issues, they tend to prevail. “Fourth, the existence of so many contextual goals, like the existence of constraints on the use of resources, tends to make managers more risk averse.” Wilson argues that managers faced with a multitude of complex goals seek to reduce the risks of failure by replacing complex goals with rules and by ensuring that such rules are followed. “Fifth, standard operating procedures are developed in each agency to reduce the chance that an important contextual goal or constraint is violated.” In government bureaucracies, standard procedures are used to regulate internal behavior and also to ensure that the organization conforms to enforceable constraints imposed by external constituencies. “Sixth, public agencies will have more managers than private ones performing similar tasks.” The reason is the need to enforce external constraints. Wilson suggests that the reason why government bureaucracies are more “bureaucratic” than private ones in large part is because we—the people and our political representatives—insist that they be. “Seventh, the more contextual goals that must be served, the more discretionary authority in an agency is pushed upwards to the top.” Wilson discusses the risks inherent is empowering line operators in situations where goals are unclear. The risk is that managers will be blamed for any errors which occur.

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We have outlined these consequences of regulatory constraints in order to examine strategies for change. If we are to deregulate government, we need to examine the purposes and consequences of regulation and, where those purposes are important, we need to develop alternative solutions. Strategies for Reengineering Government Regulatory Regimes The high cost of government is caused by public and legislative demands for accountability and a rule driven control regime to stop government managers failing. Reversing this process offers major value in terms of service and reduced costs, but requires a public acceptance that the old control demands have become a greater waste of taxpayer funds than the failures they seek to eliminate. As part of any change strategy, it is important to audit rules to assess costs of compliance, external impacts such as the impact on service, the impact on business costs, cycle time, and the capacity of agencies to respond to new and existing needs. Change strategies need to examine the cost of regulation and the opportunity costs in terms of services denied. Where government moves away from delivery or introduces quasi-market forces, new forms of regulation are usually required to ensure these can continue to operate. Regulatory systems, which aim to protect the benefits of competition, are already important in the business sector and are likely to become increasingly important in government. These regulatory regimes need to be evaluated against results not process. We suggest four strategies for reengineering government regulatory regimes: • Deregulate the external controls on an agency by agreements or contracts that link autonomy to results. • Review the internal rules within an agency to devolve management closer to customers and natural business units. Sell support services where agencies lack the expertise to provide these in-house. Audit performance after the event. Rules can be converted into guidelines, workers can be encouraged to innovate, failure to follow guidelines can often be decriminalized or at least placed on a par with failure to meet customer needs. • Review external rules and use these to communicate with users. Where appropriate, introduce discretion to enable managers to respond to changing needs. Change needs to recognize that some regulations are beneficial; they decrease cycle time; they improve relations with customers; they facilitate consultation and improvement.

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• Review internal and external rules against the need to manage cycle time. Where simple rules allow rapid responses, consider retaining these as an option for managers who can work within them. The Development of Competition Policy in Australia The report of the Committee to examine “National Competition Policy” in Australia chaired by Frederick G. Hilmer (1993) illustrates the value that can be obtained by reviewing old assumptions about government roles and regulation. There are similarities and differences between the issues examined by the Hilmer Committee and the strategies discussed for the U.S. in chapter 6. The committee saw the objectives of competition policy as fostering economic growth and examined six elements: limiting the anti-competitive conduct of firms; reforming regulation; reforming the structure of public monopolies; providing third party access to facilities essential for competition; restraining monopoly pricing behaviors; and fostering competitive neutrality between government and private business when they compete. Although the report did not address the total government management challenge, it identified government blockages to national competitiveness. The committee examined the competitiveness impacts of government ownership of businesses in Australia, and of traditional regulatory regimes. The quite moderate proposals to add value to competitiveness by removing blockages and addressing new needs identified by the committee illustrates the scope that exists in most countries to make governments more competitive.

CORPORATE GOVERNMENT / OPERATING AGENCY TENSION Classical Industrial bureaucracies are pyramidal in structure, with a small control group at the top and an array of permanent, functional departments below. The Super—Industrial corporate form is more likely to consist of a slender, semi-permanent “framework” from which a variety of small, temporary “modules” are suspended. These . . . move in response to the change. They can be spun off or rearranged as required by shifts in the outside world. —Toffler, The Adaptive Corporation The business world has discovered that devolution and differences are important to managing in a high-response environment. Alvin Toffler advanced these ideas in the 1970s as part of a classic study which argued in favor of segmenting the Bell system. The benefits of devolution and moving agencies

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closer to markets will not emerge unless governments too finds ways to encourage diversity rather than conformity. The other side of the devolution coin is that the central framework must be capable of repositioning the system and realigning the missions of government. The optimal strategy structure and values required for a government agency to perform is a function of the performance required. For example, the optimal arrangements for operating schools will always differ from the optimal solution for managing prisons. In a volatile environment, agencies must obtain the flexibility to address needs and manage delivery. In part, this process involves devolution to place management discretion closer to delivery action. The process must also involve experiments to find out what works and what does not and to develop confidence amongst internal and external groups that new solutions can add value. These two processes, devolution, and the need to experiment, require differences between delivery agencies/ units. While these differences are the key to reform, they create new coordination problems for bureaucracies used to coordination by standards and rules. The rules and processes must be dismantled to allow differences to emerge. On the other hand, many agencies are funded by taxpayers who do not receive direct benefits. The opportunity costs of expanding one agency at the expense of another must be managed. Where there is competition there must be some way to encourage agencies that add value. All this requires central agencies of government able to manage diversity rather than conformity. The successful management of diversity requires a shift in the internal values of government from a belief that performance flows from internal rules and conformity to a belief that coordination can focus on performance. Strategies to Encourage Diversity • Contract with agencies the constraints that will be applied and the constraints that will not and define how performance will be measured. • Devolve evaluation closer to users through market-like mechanisms that consult users. Use these evaluations to replace the traditional focus on systems and processes. • Use strategic planning to ensure that agencies and the networks of delivery agencies address the public interest. While much of the focus will be on interagency priorities and resources, resource allocation pressures need to be minimized and performance priorities maximized. • Ensure that differences are also important within delivery agencies,. The management processes used for the personnel department must be different form the management processes used to control delivery offices

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serving the public directly. Agreements which devolve decision making to delivery agencies should also ensure that there is real devolution within those agencies. Strategies for Corporate Control How can government control diversified agencies? The key is to learn from the networks which have been created in some of the most successful global companies. There are a number of common solutions that all require an effective and powerful central framework. Evaluation and performance contracts are often the tools used to underpin central control over devolved units. The central groups in such structures have two missions, to manage corporate performance, and to assist agencies to manage agency performance. Some typical framework strategies are listed below. • • • • •

An effective evaluation of performance by both the agencies and the center A clear understanding of the preconditions for membership Some mechanism for terminating or exporting unsuccessful agencies A focus on results benchmarked against others Planning flexibility in respect of inputs and processes

CYCLE IMPACT TENSION Effective transition management requires strategies to manage impacts on a government’s comfort zone. The benefits of change often flow to the public indirectly through increases in competitiveness. The costs of change, both real and perceived, are usually significant and need to be balanced against benefits. Strategies for Managing Cycle Impacts We have discussed impact and cycle management strategies and tools in chapter 4. A number of strategies are of particular use in supporting transition management. • Reduce expectations of change, for example, by assisting the public to understand that doing nothing is not a zero cost game; inaction will lead to major future costs. • Resist the temptation to lengthen cycle time and instead shorten cycle time. This usually involves starting fewer changes and resourcing these to minimize cycle time.

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• Promote short-term benefits/ impacts and build the idea that these are part of longer-term benefits. • Neutralize uncertainties created by change, where this is possible. • Neutralize responses to any failures and wastage that occur as part of high-response operations, by accepting these as part of change, and by introducing processes to review and learn from difficulties.

STATE GOVERNMENT TRANSITION: VICTORIA, AUSTRALIA Has public administration moved forward or backwards, or has it simply engaged in a series of structural changes and senior management re-arrangements which have avoided the basic need to deliver added value to the public in terms of more effective and relevant programs at the grass roots level? Overall, it seems to me that public administration has moved forward in the sense that the old systems could not have even commenced to address the range of pressures under which public administration today must operate. But we should not delude ourselves that the changes are complete or that the attitude shifts required to develop effective program delivery have been developed. The system that has evolved is in a sense less stable and more at risk until we develop new approaches to accountability to complement the new personnel and budgetary systems. —Cullen, “Changes That Have Taken Place in the Focus of Budget Dependent Agencies” This case study evaluates a government management transition in the state of Victoria, Australia, over almost a decade. The objective is to analyze the links between government performance and government management and attempt to draw some general lessons from the successes and failures of this particular transition. In the early 1980s the state of Victoria, Australia, addressed a crisis in government management. Government performance had stagnated under a government that had been in power for many years. Various scandals had begun to erode support for the government. Within the government, reformers were seeking to change performance. Outside of the government, the opposition party began to develop coherent alternative policies. Both the government and the opposition, which increasingly saw itself as a government in waiting, saw outmoded government management systems as part of the problem.

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Australia has a federal system with a Commonwealth and State governments. Victoria is the second most populous state. The executive of the Victorian government comprises elected ministers and a chief minister (Premier) who are part of a two-house legislature (Parliament) developed along Westminster lines. Ministers are regularly accountable to Parliament. In 1980, government management in Victoria was traditional. Agencies were managed by career managers who were responsible to ministers. Although there had been important attempts to reform government personnel systems and to place government agencies under more effective review, discontinuous change was required. In 1982, a new government led by John Cain was elected with an agenda to implement both policy reforms and administrative reforms. The new government had identified the need to reform financial management and to increase political control over government agencies.

Overview of the Reform of Government Management in Victoria Exhibit 7.2. Government Management Reform Agenda: Victoria, Australia, 1982–1992, outlines the agenda to reform government management in Victoria. There were five parts to the change strategy: focus on priorities and objectives; develop a flexible and responsive senior management team; improve central agency functions; review operating agencies: and effect ongoing improvements in agency performance. The focus on priorities and objectives flowed from the new government’s policy agenda and was used to shape many of the management reforms. A new senior management team able to drive change was critical to implementing reform. At the outset, the system was undermanaged compared to other government systems in Australia and change management skills were scarce. Over the first four years, the numbers of senior managers grew by about 70 percent. Three years into the change process 70 percent of senior managers were new appointments and about 50 percent of these had been appointed from outside the existing system. The growth was benchmarked against other government services and the selection processes were upgraded in an attempt to reduce the risks involved in external appointments Structural changes reformed both central agencies and operating agencies and implemented an accountability devolution transition. The challenge was to balance demands to dismantle old controls against the cycle time required to build new accountability and management skills. By the end of the first term of the new government, the structural transitions were largely in place. In the second and third term of the government, although many of the processes required were put in place, effective ongoing evaluation at the agency level did not occur, the objective of continuous improvement was only partially achieved, and the external benchmarking required to convert one-off

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Exhibit 7.2. Government Management Reform Agenda: Victoria, Australia, 1982–1992 Focus on priorities and objectives: The new government developed strategic change priorities and managed change as a corporate project. Program budgeting was introduced and changes in structures and senior management evaluation were linked to outcomes and shifts in priorities. Develop a flexible and responsive senior management team: Senior management roles and pay were changed to enable new managers to be imported effectively into government agencies which had been traditionally closed to outside management appointments. • New approaches to executive search and selection, changes to structures to define new approaches to senior management roles, the introduction of a senior executive service and performance pay, and a training program to shift management values • Recruitment of an expanded group of senior managers and the introduction of a senior executive service which required performance contracts and performance pay. These changes are discussed further in chapter 8. Improve central agency functions: The changes in central agencies and systems were coordinated to support the idea of corporate government decision-making and to focus on providing operating agencies with the flexibility to manage combined with an increased accountability for performance. • The Premiers (Chief Ministers) Department was given the mandate to develop a major new role to coordinate strategic planning and evaluation. • The budget agency was reformed and given the role of economic planning; the development program was responsible for budgeting and management. The financial system was reformed to abolish old line item controls, move to program budgeting, and provide agencies with a greater flexibility to spend. • The personnel agency was given a mandate to decentralize the personnel system and provide executive search and consultancy services. The personnel system was reformed to devolve responsibility to operating agencies. Review operating agencies: Operating agencies were restructured using major consultancy interventions which examined the new priorities, consulted external as well as internal interest groups, and developed new structures and organizational roles. Effect ongoing improvements in agency performance: The importance of ensuring that the new and stronger management teams in operating agencies improved, corporate performance was recognized as was the need to consolidate the new changes. The strategy for consolidation was to transfer leadership responsibility from the few individuals who has introduced the change to the growing executive teams managing the new agencies using the SES mechanisms discussed earlier and to establish an ongoing process for evaluating agency and program performance. Source: Summarized from Public Service Board (1984) and R. B. Cullen, “The Victorian Senior Executive Service,” Australian Journal of Public Administration 45, no. 1 (March 1986): 60–68, 73, and chap. 8.

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reform into longer-term competitive government only occurred in isolation and ceased to be part of the central government agenda. Management Culture and Values The need to shift the management culture to support these changes was identified and discussed as part of the change process. R. B. Cullen (1985) explored the ideas used to stimulate a change in the underlying culture and values of government managers: corporate government, delegation accountability grid (the performance management grid), organizational structure following strategy, staff participation in management, a senior executive service, performance management. The Failure of Government to Evaluate its Own Performance Although the performance evaluation and pay system for senior managers was implemented effectively, government failed to develop complementary performance evaluation of agencies, of programs, or of overall performance. Once the agenda created by the need to change the programs of the previous government dissipated, the reform agenda was driven not by the need to benchmark performance, but by the need to respond to the twin pressure created by political factions and failure. In Victoria, the external audit process was one of the few parts of government that set about enhancing the public accountability of ministers. The attacks on the audit group from ministers and factions, who felt their path to government funds threatened, were reprehensible. Options for High-Response Safeguards Traditional process focused safeguards were dismantled yet new controls and counterbalances against the excessive use of executive power were slow to develop. For example, there are at least five possibilities that might add value to the Victorian government system, however, none have been implemented to date. • Expand the scope of government audit groups to involve these groups in the development of solutions as well as the identification of problems. • Require all agencies to evaluate their performance against plan. Require a regular review of all agencies against plan which is independent and able to address the effectiveness of political as well as managerial decisions in terms of cycle impacts.

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• Provide the legislature with an enhanced capacity to access information and evaluate the financial and other activities of government independently of executive government. • Change the existing processes which act to suppress whistleblowers and move to adopt some of the U.S. initiatives to protect this function. • Seek to adjust the balance between political convenience and managerial imperatives by introducing a statutory requirement on senior managers to adopt agreed codes of conduct. Senior managers are properly responsible for the advice they provide to government and for implementing government decisions. But at what point should they also be responsible for advice they decline to offer? And under what circumstances should the “Nuremberg” defense, as applied to senior government managers, fail? At what point do senior managers become responsible for opposing directions which offend public as well as government standards and interests?

The Changing Performance of Government To what extend did the management reforms assist the government to manage a successful transition? What can be learned about the management of transition from the Victorian experience? The performance cycle of the Cain government can be tracked over three terms of office. Cain Government (1982–1985): A Corporate Government The new government had a well-developed policy agenda and the resolve to reform management structures to deliver that agenda. Government was characterized by a collective resolve to add value to government performance. During this period, the policy agenda and management agenda synchronized and the government added value to all three government missions. Mark Considine (1992) comments that the government undertook major management reforms and matched these to policy reforms. By the end of the first period, considerable devolution had occurred and individual ministers had developed the power to manage agencies. Many proceeded to restaff agencies with persons who were seen to believe in governments polices and to be uncritical of the various implementation failures that were already becoming evident. Cain Government (1985–1988): A Factional Government In its second term, the government lost much of its initial strategic direction, avoided evaluation that would have identified its own mistakes, and increas-

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ingly became a government held together by growth in spending and by a focus on addressing the needs of special interest groups rather than the overall population. Premier John Cain, discussing the change which occurred, said, “The corporate spirit that had prevailed . . . during almost the whole of our first term was missing during the first few months of our second term. This was entirely due to the tensions in the party that had emerged, and was reflected by the performance of ministers in the Cabinet” (Cain 1995). The absence of corporate controls was replaced by factional controls within the governing party. Graham Hudson (1992) discussed the growth of factional groups within the Cain government. Ministers seemed accountable mostly to the factional groups; deals were done to avoid conflicts which ought to have been examined. These deals led to support an executive government level for a range of undesirable projects and proposals. To some, the government seemed to have develop a magic solution to the government budget. The supply of funds seemed inexhaustable. When reality intervened and the spending spree ended, state debt had been allowed to escalate to record levels. Cain Government (1988–1990): A Caretaker Government In the third term, the government lost confidence in its capacity to govern and became a caretaking government. Robert Murray and Kate White (1992) provided an early analysis of the “fall of the house of Cain.” There were external crises. The money which had fed the factional interests dried up. Increasingly, ministers and factions saw this period as a last opportunity to dip into the public funding trough. In some areas, nothing short of a feeding frenzy emerged. In the third term, the boom in the Australian and world economies ended with the 1988 bust. Government revenue growth slumped, a number of government agencies failed. The industry development agency losses were confirmed and expanded. The state bank failed twice and eventually had to be sold. A nonbank private sector institution failed and the government gave public assurances but only limited support. All these failures occurred in agencies which had been established with independent statutory roles, or in one case in a private sector agency. Billions had been lost by mismanagement. Although many of these losses were generated by quasi-independent bodies, government oversight was seen to have failed and the government was blamed. More importantly, from a management viewpoint, the budget ran into deficit. Whereas some governments around the world attacked spending and priorities to control this situation, the Victorian government was structurally unable to do so. A government held together by mandates to spend, driven by political factions, chose to put off solutions.

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Although Premier Cain won an election in 1988, the process of disintegration continued. Premier Cain reported that “by early 1990 we were a disunited, shambling government racked by lack of trust in each other. We had lost our collective purpose” (Cain 1995). The reformed management structures, instead of providing some stability against this disintegration, reflected the political shambles that was developing. Overspending became endemic. The lack of external value from many of the reforms, already a problem in the second term, was subsumed by short-term agendas driven by the inevitability that the government must soon be replaced. In 1990 Premier Cain, unable to bring his colleagues to accept collective responsibility in order to control expenditure, resigned. He was replaced by Premier Kirner who was in many respects a creature of the factions which had destroyed the capacity for corporate government. The Kirner Government (1990–1992) Premier Kirner cosmeticized the image of terminally wounded government. Although the expenditure base was bloated by Australian standards, the government had become addicted to spending rather than performance, and was unable to act to reduce expenditure. As the impossibility of their situation became apparent, government actions exacerbated the problem. The government borrowed to finance spending. New financial arrangements were committed. Pay deals were struck. The future was mortgaged. The run down of government finances was achieved with the assistance of the new senior management teams. Government control over management was strong enough to ensure compliance. The safeguards, which might have been put in place to protect the interest of whatever incoming government was to be elected, had either been dismantled or failed to operate. The Kennett Government’s Reversal of State Fortunes (1992–1996) In 1992, a new government headed by Premier Kennett was elected. The budget situation had deteriorated to the point where they had a ready mandate for action. The new government acted decisively and quickly in delivering one of the most effective first terms for a government seen in Australia. The Kennett government found little difficulty in cutting the budget base and correcting the underlying finances of the state, using a combination of tax increase, expenditure reductions, and asset sales. A number of points can be made about the new government’s first term. First, the initial success was set up by the previous government’s failures.

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Second, the flexible management structures that had been established were able to support the new government with very few problems. Third, in addressing these problems the government moved to reduce cycle time and to reduce expectations of government. This also acted to manage comfort zone tensions, at least in its initial term. In 1996, the Kennett government was generally seen to have been successful and was reelected for a second term. Just as the government’s first term was seen as a successful response to an external crises, the government’s second term was seen as failing to build on this success. As the financial crises receded, Kennett was increasingly seen as arrogant and insensitive to comfort zone issues. In an interesting parallel with Margaret Thatcher, he came to believe that adding value was simply a matter of continuing to pursue his own particular values and solutions. The government was increasingly criticized over perceived favoritism in its dealings with business, and showed a weak appreciation of the conflicts which can occur between private and public interests. The government moved to stifle criticism and to dismantle those with the scope to independently review its operations. In particular, Kennett moved to reduce the powers of the state auditor, one of the few remaining statutory bodies able to examine and report on the activities of executive government in Victoria. Although business continued to thrive in Victoria, in important areas such as health and education, the Kennett government was seen as failing to add value. Government outputs were not evaluated, discussion of these issues was resisted by the government, and the resources allocated to areas of government such as health and education were not benchmarked against other states. Education funded well over the Australian average in 1992, was cut to below the Australian average by 1998. Outputs from education and health were seen to fall. Over this period, regional Australia was hard hit by external factors. While no easy solutions existed for governments around Australia, the Kennett government abandoned key elements of comfort zone management by failing to manage the impact of various policies on regional Victoria and by appearing disinterested in the needs of those outside the state capital. In 1999, Kennett failed to win a third term of government, losing a close election.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT Governments have no option but to dismantle the old bureaucracies and regulatory regimes and to develop new approaches to management which focus on results and on accountability for results. Managing such changes requires

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more than the successful implementation of specific changes to structures personnel and financial systems. Individual changes need to combine to support ongoing changes and to deliver an integrated transition. Our analysis identifies five tensions that must be managed for a transition to succeed. Resource Balance /Allocation Tension Effective transition must be managed within the short- and long-term resources available to government. Where there are shortfalls in funding, these tensions often mean that the transition must be managed in times of decrement. Resource tensions often mean that governments must balance demand to resource underlying improvements in competitiveness against increasing difficulties in funding the national value systems, particularly pressures to address the impact of declining competitiveness. The Victorian experience illustrates that failure to manage resources can destroy an otherwise sound transition. Short-term funding through one-off efficiencies, the use of assets to fund current expenditure, and increasingly just borrowing, is never enough; the longer-term budget structure must also be viable; in Victoria’s case it was not. Devolution /Accountability Tension Effective transition requires a complex and dynamic balance between deregulation and the development of a new accountability for results. The case study shows that old input controls of government can be dismantled and cycle time reduced by a comprehensive change program which alters the role of central and operating agencies. The reform agenda in Victoria produced a more responsive management structure. Where this was combined with a policy agenda for change, it was able to deliver major value to the Victorian community. When corporate government failed, the new structures stagnated and some also failed. The old inertia and safeguards that would have reduced the impact of failure had been dismantled. Deregulation/Reregulation Tension The tensions between pressures for deregulation and the need to also reregulate need to be managed skillfully if the benefits of transitions are to be delivered. Most transitions must deregulate in order to reduce cycle time and costs and to provide government managers with the scope to manage. This often increases uncertainty and negatively impacts the comfort zone. While government activities and services often require new forms of strategic regulation, the purpose of regulation should be to produce defined results. Regulations

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should not be allowed to become ends in themselves. Community groups and legislatures, who have often embraced overregulation as a way of influencing “big” government, need to find new ways to influence government activities. Corporate Government /Operating Agency Tension Transitions must be managed to provide both strong operating agencies and strong central or corporate roles. The vision of strong operating groups, customer closeness, and the ability to deliver results are only part of the solution. The central role must change from custodians of the government machine, to managers of a network of service delivery providers who combine to deliver the core roles of government. Effective change requires effective corporate management by government as well as the effective delivery of devolved programs and services. In addition, change strategies need to recognize that the nature of political systems means that this direction will not always occur. It is important to ensure that when corporate focus fails, because executive government loses direction and the will to manage, collateral damage at the agency level can be contained. The case study shows that when the Cain government supplied strong corporate leadership, the new devolved management structures were able to respond and add value. However, when the government ceased to govern, the new high-response structures failed to deliver expected value. Once the initial focus for reform dissipated, the corporate capacity of the government failed. Premier Cain attributes this to the factions within the government political party which came to control ministers and the government. The process of devolution of administrative power probably enhanced this breakup. Once ministers were able to act without central controls by either their colleagues or the central government agencies, they had unfettered scope to address the needs of factions and their own predilections about good government. The reforms left major powers with agency chief executives. The expectation was that they would focus on performance and resist pressures to politicize appointments. Many effective managers succumbed to ministerial pressures. In the Victorian system, ministers have no particular management expertise. When they ceased to listen to advice about good management from career managers, many also ceased to practice it. Cycle Impact Tension Transition needs to be managed using the cycle impact and cycle-based communication tools discussed in chapter 4. Internally the impacts on devolution and accountability need to be managed. Externally, the gap between public expectations of change and the impact of benefits need to be managed.

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The case study illustrates the need to manage change as a transition using cycle time management and cycle impact management techniques. Initially the Cain governments were keen to criticize program performance and commit to improvement. In the first term some improvements were delivered and the public saw the reforms as progressive. Later, as debt increased and disasters emerged, the public grew to discount promised benefits and criticize delays in delivering promised results. In the end, the government was removed by electors and a new government, the Kennett government was elected to fix the problems created by financial mismanagement.

Chapter 8

Planning and Evaluation Strategies for Competitive Government

As part of the Government of the Future, a common sense discipline needs to be made part of the Government’s way of doing business—planning what needs to be done, watching to see that it is done, and then objectively determining whether the planned results were achieved. . . . The first element—strategic planning charts the program course to be followed. . . . The value of the discipline of strategic planning, however, cannot be realized unless fundamental changes are also made to the Federal budgeting process. . . . The second element—monitoring of performance and progress—requires highly refined management information and tracking systems throughout many Federal Agencies. . . . The third element,—the evaluation of results and outcomes—assesses how well a program met the original purpose. —Office of Management and Budget, Management of the United States Government At the beginning of 1998, . . . all federal agencies must develop 5 year strategic plans—linked, this time, to measurable outcomes. By the end of the next year every agency will be crafting detailed annual performance plans—that is, plans which describe what they intend to achieve, not plans that detail how many pencils they will buy or people they will hire. And they will have to report their successes and failures in meeting those goals. . . . The president 199

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should craft agreements with cabinet secretaries and agency heads to focus on the administrations strategy and policy objectives. —Vice President Al Gore, Creating a Government that Works Better and Costs Less The Reagan Administration’s view (OMB 1990) of the need for planning and the need to reform budget processes makes an interesting comparison with the Clinton Administration’s (Gore 1993) focus. While there are similarities there are also differences. The Reagan model sees program budgeting as central to the process; the Clinton reforms focus on the evaluation of performance by devolved agencies. The end solution requires both these perspectives: planning needs to be devolved to natural business and project groups; also the performance of these groups needs to be evaluated centrally to correct mistakes and ensure that the public interest can be addressed at each level of the process. In chapter 2, we argued that business and government approach strategic management differently. Exhibit 8.1. Reasons Why Government Plan lists a range of applications of planning in government agencies. Only the first group of reasons, which address performance management or added value, has direct parallels with business planning. Even there as we have discussed, goals are more complex and require more negotiation. The other groups of reasons identified in Exhibit 8.1, comfort zone management and political management add important dimensions to planning in government. In business plans are often a guide to action. In government, the objective of plans is seldom action. Instead, government planning processes are often used to develop consensus, to allocate resources and provide a framework for compliance, and ultimately to define rules to protect individual autonomy. Business strategic management models scan the environment for opportunities, examine what an organization would like to exploit, examine the resource and strategic base, and assesses what is feasible; then business selects a viable strategy. Once selected, that strategy is used to develop purpose driven budgets and structures. Government starts with agencies, structures, or interest groups, allocates scarce resources to these groups, and then decides how best to spend these resources. Agencies that have resources seek to lock up base funding and minimize the prospects of reallocations. Agencies that need resources seek to present their needs as more important than they really are. We have oversimplified these differences to ague that reforming government planning must change the strategic management role in government agencies from securing and spending resources to one of adding value by delivering results. Government value systems tend to presume that resources (inputs) rather than the need to respond strategically to external opportunities and threats (outputs) or the need to deliver planned results (implementation) is the constraint to action.

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Exhibit 8.1. Reasons Why Governments Plan Purpose

Discussion

PERFORMANCE MANAGEMENT—DELIVERING ADDED VALUE Provide a focus for managing Environmental scanning and benchmarking transitions to national are important emerging tools for government. competitiveness by flexibly New approaches to planning need to focus managing the strategic fit managers outward and assist them to see between external pressures and their mission as responding to new external government responses realities better than other governments Coordinate government initiatives Devolution requires flexible coordination to deliver core priorities Provide a basis for enhanced short-term control over implementation and change processes, particularly over impacts and cycle dynamics

Mission statements are very general. Detailed project plans are often very specific. New approaches to planning need to find new ways to link the general and specific aspects of planning

Provide a basis for changing internal values and for developing an internal commitment to change within government agencies

Commitment is enhanced if persons, who are part of revised programs, understand the need for the program and their contribution to overall delivery

Provide a new basis for control over the strategic direction of government agencies which enables government to dismantle old input controls

Most government managers can obtain better value from resources if they are given the flexibility to manage. Planning can define the impacts a manager expects over the implementation cycle

COMFORT Provide a basis for consultation and the development of consensus and commitment

ZONE MANAGEMENT Governments often use planning to focus consultation and to communicate to interest groups key impacts of change

Demonstrate that government recognzies the needs of groups Ratify negotiated agreements

Identify the implementation impacts on each group. Minimize unintended negative impacts

Provide a basis for managing implementation impacts on comfort zones

Impacts need to be planned and managed Strategies for managing negative impacts need to be linked to the planning process

POLITICAL MANAGEMENT Claim the high ground for vision The key to political positioning is not whether and concern for the public problems are actually solved but whether a interest government is seen as understanding issues and is willing to address solutions Allocate the blame for problems to others

Governments tend to use evaluation to blame problems on their predecessors or opponents; however, they claim the credit for successes

Respond to problems by giving the impression they are being addressed by announcing solutions

Governments gain more credibility by responding to problems than by doing the hard work required to actually address the problem

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This chapter examines how to use planning effectively in a government context. First, we examine the breakdown of conventional prescriptions for strategic planning in business and the approaches suggested to apply strategic planning to dynamic situations. Second, we outline an approach to strategic planning and evaluation in government which fits the prescriptions for dynamic planning derived from the literature on business planning. The framework presented is the Performance Improvement Planning and Evaluation system (PIPES) which has been used throughout this book to provide a focus for evaluation and action. Third, we conclude by examining three cases of strategic planning and evaluation in action. Three case studies are presented to illustrate the application of the PIPES system to different types of government situations, agency performance, program performance, and senior management performance.

DYNAMIC STRATEGIC PLANNING The reason why conventional strategic management will not work in the 1990s is that grand designs are not robust enough—they fall apart in open-ended change situations. If you cannot have a comprehensive grand design then the meaning of control alters. It is no longer monitoring against plan, that is, automatic detection of disturbance created by change, and taking corrective action determined by the plan. Instead, control becomes coherent opportunism, that is, detecting the disturbance and tentatively trying out responses before backing successful ones. —Stacey, Dynamic Strategic Management for the 1990s In times of rapid change, governments need the capacity to implement longand short-term strategies. The focus required to manage change starts with an effective strategic planning and evaluation system. In evaluating the usefulness of strategic planning solutions for government management, we will address four issues: the idea of strategic planning, the limitations of strategic planning in the business sector, the translation of strategic planning to government, and finally, the dilemma which evaluation poses for government management and the impact of this on planning.

The Idea of Strategic Planning Strategic planning is a key management tool for high-response organizations. Unfortunately many planning processes that are anything but strategic are often labeled as “strategic planning.” The idea of strategic planning involves an analysis of environmental opportunities, the definitions of strategies to exploit these, and the development of structures and programs to achieve specific outcomes. However, in practice, strategic planning has come to mean

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different things to different people. Some see strategic planning as a means of developing ideas which assist people to understand where an organization is coming from and where it is going. Some see strategic planning as a means of analyzing the big picture and focusing on the priorities important to responding to change. Others see strategic planning as a process which defines the two or three actions which must occur for an organization or a program to succeed, as a means of focusing on action and evaluation.

The Limitations of Strategic Planning in the Business Sector What are the limitations of strategic planning in the business sector and how might these impact on the use of strategic planning in the government sector? As businesses become more complex, plans become more complex. In benign environments, planning can remain introspective, seeking to coordinate all aspects of a business. The ideal of an integrated plan supported by an integrated information and control system is too mechanistic to survive in the uncertain world of business. It must be replaced by three important ideas. First, planning should be driven by external rather than internal realities; planning should scan the environment for opportunities and threats; it should assist organizations to neutralize threats and exploit opportunities. Second, planning and control should focus on a few core ideas that matter for a given competitive transition rather than everything which occurs in an organization. Third, the key to managing responses to a dynamic environment is to introduce modularity and simplify interfaces rather than to attempt to retain high levels of internal integration. However, strategic planning for business has often failed to deliver highresponse solutions. Henry Mintsberg (1994) in an important review of strategic planning warns against adopting processes such as strategic planning as a substitute for strategic thinking and management. He draws a distinction between analysis which underpins planning and implementation processes and synthesis which underpins the development of strategy. Mintsberg’s point is that, although these processes are useful tools for implementing strategic responses, they do not produce strategic thinking or priorities. Many breakdowns can be traced to ineffective strategic thinking caused by an overreliance on planning processes which all too readily produce their own inertia. Ralph D. Stacey (1990) in a powerful analysis of the impact of volatility on planning suggests that the focus of control changes. For a closed environment where outcomes are predictable, he suggests that control by analysis and the management of variance is appropriate. As the environment becomes less certain but can be contained, control breaks down but grand plans can still be used to focus control. In turbulent environments, requiring high-response times, the end goals change. Control needs to focus on specific impacts rather

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than on all the interrelated effects of these impacts. Short-term evaluation needs to find solutions that contribute. Managers have no option but to manage by trial and error. Stacey (1990) summarizes the dilemma his analysis presents for management. A point of major significance is that the form of control which is appropriate to open-ended (high-response) situations is the diametric opposite of that which is appropriate to closed change. The former is about intuitive opportunism, while the latter is about analytical planning or determinism. . . . Control becomes a balancing act between planning and opportunism, a continuing attempt to resolve the tension created by the need to apply two diametrically opposed forms of control simultaneously. If Stacey is correct, and we think he probably is, his analysis has four major implications for the way in which governments must change the way in which they plan and evaluate. First, the traditional approach which segmented short-term budget control from grand plans must be bridged. Government organizations need planning but they do not need an out-of-date road map to a future which will never exist. Second, the focus of planning must move close to the impacts it seeks to create. Trial and error cannot be centralized and institutionalized. Outputs and results cannot be planned as part of some remote program aggregation. The focus of planning and control must differ to fit the external and internal requirements confronting an agency or program. Third, planning frameworks must cease attempting to remove uncertainty and focus that uncertainty on the links between short-run impacts and longerterm missions. Planning frameworks need to focus the judgment of managers on these linkages rather than away from them. Planning must allow scanning of the environment which alters long-term missions. Fourth, the opportunism which Stacey identifies as part of dynamic planning in business also seems critical for government, but the focus may be different. Many government products and services are more stable than business services, but the problem of implementing change is more difficult. As we have discussed earlier, much of the opportunism in government involves timing: starting projects when there is support; delivering them rapidly; using the results of one change experiment to build the scope for the next.

Translation of Strategic Planning to Government Some approaches to government reform have developed an almost mystical faith in mission statements and corporate plans. Many consulting projects in government throw up the same answers; they call for corporate planning; and

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they call for a clarification of agency functions and roles to remove overlaps. Quite apart from the danger of paying consultants to convert their solutions into client problems, the planning processes which they introduced seldom do more than reflect the existing culture of the government organizations. Many attempts to reform government machinery at this general level increase rather than decrease bureaucratic conflict over territory and resources. While strategic planning can be adapted to address many of these government needs, attempts to transplant the business planning model to government without adaptation have often failed to deliver value. There are a number of simple translations of strategic planning to the government sector. First, planning can be used to draw together an overview of the way in which the parts of government must interrelate and contribute to key missions and objectives. Such plans focus on grand visions, on macroroles, on functions, and on resources. Second, planning can be associated with budgets to assist government to resolve key allocative tensions and to explain the general purpose to which government expenditure are directed. Third, planning can also be used to consult interest groups and explore the impacts of various options. Such plans should never attempt to plan action. They are exploratory, they need to outline problems, stimulate reactions and explore a range of options. The limitations of strategic planning in high-response situations identified by Stacey and Mintsberg’s criticisms are both highly relevant to government. Henry Mintsberg’s call for strategic leadership is more difficult to address because government systems have typically discouraged strategic thinking. Stacey’s call for short-run control and long-term flexibility runs counter to government values, which focus on grand plans and end points rather than short-term results. The need for experimentation and short-run evaluation is based on the need to learn by trial and error, to learn from both success and failure. In government, failure is seen as dysfunctional rather than a learning experience. The traditional government solution is to avoid short-term evaluation at all costs. For example, the Clinton-Gore reforms in the U.S. illustrate the challenge of introducing performance planning in government. These reforms have added value to the competitiveness of government in the U.S.; a number of agencies have improved customer service and reduced costs; old management values have shifted. However, the links between detailed improvements and the core performances of government are not defined for many agencies. Where there is an alignment between agency and national roles, the changes are likely to add value. Where there is no alignment, the planning process is likely to reduce value by obscuring the need for discontinuous change. Where the planning process becomes an end in itself, Minzberg’s “strategic leadership” seems likely to be one of the early casualties. Solutions such as external benchmarking and evaluation, a closer examination of the impact of agency performance on

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the competitiveness social value and governability performance of government, are not stressed as part of the future change agenda. Nancy C. Roberts (1993) discusses some of the difficulties of applying these processes to public bureaus. Her criticisms are that the need for high response threatens internal coordination, and that managers lack the authority to manage as strategically as their business counterparts. Differences in decision-making and the scope to govern between the private and public sector also creates problems. While some of the restraints raised by Roberts can be addressed as part of the reform process, others seem endemic to the functions which agencies must perform. Osborne and Gaebler (1993) suggest that strategic planning can provide a sense of purpose but argue that strategic thinking is more important than strategic planning. This combined with Mintzberg’s analysis suggests that strategic planning in government needs to guard against the assumption that the process will create the focus. There are several new and potentially high-value applications of strategic planning in the government sector. Strategic planning is being used to define mandates for action and to contract agency, program, and senior manager performance. Such plans need to focus on performance; they need to be able to identify nonperformance; and they need to define the scope for action required to enable agency managers to deliver. Also, planning which addresses short-term impacts offers the scope to also manage cycle time, to balance added value and comfort zone impacts, and to provide a basis for the short-term evaluation of impacts.

The Dilemma of Evaluation The shift to high-response requires tight short-term evaluation and a flexible ongoing longer-term evaluation. Frameworks to deliver this exist and are discussed later. The dilemma is not how to build flexible and effective strategic planning but how to use this in a political system which seldom looks beyond the next election and which sees any failure to do what a government set out to deliver as weakness or mismanagement. Four strategies can be used to address the dilemma posed by evaluation. First, ensure that evaluation is against a realistic base by managing plans to ensure they are not oversold to the point where success appears to be failure. Second, distinguish, as business does, between public plans, the detailed strategies required to implement them, and the expected impacts. Third, evaluate short-term impacts rather than overall results. Associate these evaluations with the scope for performance improvement rather than the need for remedial action. This divorces day-to-day evaluation from public perceptions of

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the success or failure of key missions. Ensure that evaluation addresses impacts on both the comfort zone and added value axis of the Implementation Impact Model. Fourth, institute a series of ongoing detailed audits which will provide useful feedback but at the same time desensitize the public to detailed evaluations. Implementation problems can seldom be identified in isolation from solutions. The scope of government audits needs to be extended to require audit groups to consult with managers and to offer realistic solutions to major problems rather than a scorecard on performance.

PERFORMANCE IMPROVEMENT PLANNING AND EVALUATION As organizations scrape off the barnacles of line item budgeting, civil service, and obsolete rules and programs, their next task is to define their mission and build around it. A ship freed of barnacles is not yet a ship on course to its destination. —Osborne and Gaebler, Reinventing Government Many public sector problems can be overcome, and many private sector management approaches become feasible in public sector organizations when they commit to direct evaluation of performance, provided evaluation encompasses cost-effective delivery of services to the public. —Cullen, “Public Sector Performance and Private Sector Management”

One planning framework that addresses government management needs is the Performance Improvement Planning and Evaluation System (PIPES). Many government reform plans focus on implementation strategies alone. While there are some general links to government missions and grass roots benefits, both are presumed to flow from reforming systems and structures. The PIPES system and similar approaches extend the planning process. Key elements of the approach are summarized in Exhibit 8.2. Performance Improvement Planning and Evaluation Framework. The system is not an integrated plan. Instead it provides a base for the strategic management of three critical planning interfaces. First, we consider, the strategic fit between the core missions and objectives of government and the major external transitions which government must address to be competitive. Second, we discuss the strategic fit between core objectives and the many support objectives and management functions which government performs. This includes the focus

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of many change programs which is to improve the strategic fit between current performance priorities and the structures systems and staffing available to resource implementation. Finally, we address the strategic fit between implementation strategies and short-term impacts and the longer-term objectives of government. The plan is action focused and change focused. This provides a basis for ongoing evaluation and control. Strategic Fit between Core Missions, Government Objectives, and Major External Transitions In the case of performance improvement for a government, the system examines implementation of the transition on the National Competitiveness Model. The core objectives are derived from the core missions of government discussed earlier. In the case of performance improvement for agencies or programs, the focus shifts to the contribution these programs must make to the overall performance of government. Core performance improvement objectives must focus on what needs to change in order to improve performance and what noticeable impact such changes are expected to make in the short term. For this reason effective plans must change as priorities shift. Strategic Fit between Core Objectives, Support Functions, and Management Functions A feature of government planning and reform is how much of reform focuses on support objectives and general management change. Interestingly this is replicated in the resource priorities for actual expenditure in many agencies. The PIPES framework outlined in Exhibit 8.2 uses strategic fit analysis to focus on the contribution these functions and support activities must make to core performance. Strategic Fit between Implementation Strategies, Short-Term Impacts, and the Longer-Term Objectives of Government Exhibit 8.2 details the three-column model used in the plan to translate general objectives into implementation strategies and impacts. This system allows the short-term control and long-term flexibility discussed by Stacey, which essentially affects the left-hand column and part of the implementation strategies with the identification of short-run impacts. Short-run impacts provide a basis for evaluating progress and for the management of implementation impacts.

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Exhibit 8.2. Performance Improvement Planning and Evaluation Framework STRATEGIC CLASSIFICATION OF OBJECTIVES / FUNCTIONS Core Strategic Objectives: Core outputs required of the organization or program. The results which, if delivered, would lead key external groups to regard it as successful. Support Objectives / Functions: Critical management initiatives required over the planning period to support the delivery of key program results. General Management Functions: Support activities of an ongoing nature are required to deliver programs. Strategic leadership: Managing the transition to national competitiveness involves the management of environmental boundaries, maintenance of comfort zones, and changing management. Cycle time management and cycle-focused communications: Cycle time management requires managing the timing, length, and implementation impacts of projects. The use of cycle-focused communications is necessary to manage implementation impacts and deliver consolidation into the comfort zone. Performance management: Performance-focused planning and evaluation. The management of interrelationships in the government value-chain by coaligning government functions and groups to deliver varying tasks and results. The management of government activities and processes as change projects with both a beginning and an end, with defined performance impacts, and a defined time frame. Implementation impact management. Comfort zone management: Maintaining and developing the scope to govern by managing diversity and by managing the impacts of change on interest groups to maintain tolerance of key changes Results based resource management: The management of resources to deliver cost effective results. STRATEGIC RELATIONSHIPS Strategic fit analysis examines the fit between management and support action strategies and program delivery objectives, both short- and long-term. This involves a review of structures, values, systems, resource management, and information systems to optimize their contribution to government performance. IMPLEMENTATION STRATEGIES AND IMPACTS Key Objective The key contribution required from a unit, functional area or program. Typical time span 2–5 yrs

Action Strategy The specific action strategies developed to deliver key objective(s) over the next 12–18 months

Impacts Verifiable Outcomes The specific outcomes and external impacts which can be scheduled and monitored to verify that action strategies are being implemented

PROCESSES Planning involves extending existing priorities from key objectives to impacts. Evaluation involves evaluating impacts and assessing the consequences for key strategies and objectives.

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The system provides a basis for shortening evaluation cycles and for a flexible ongoing evaluation of performance. Plans that do not explore impacts are difficult to evaluate. Plans that do not specify links with the core objectives of government tend to develop their own focus and agenda or worse enable participants to project different agenda onto the reforms. The three-column implementation impact model facilitates the processes of planning and evaluation. Planning, using this framework, is a left to right process with a major focus on implementation and external fit issues, evaluation is a right to left process with a major focus on short-run impacts, an evaluation of the implications for strategies, and the achievement of longerterm objectives. The links between impacts and strategies and objectives are flexible. The system is designed to focus judgments about these linkages rather than replace the need for such judgment. We will now illustrate the application of the PIPES framework to three quite different government management situations.

PIPES APPLIED TO A NATIONAL TAXATION OFFICE UNDERGOING MAJOR CHANGE In our experience, most large bureaucratic organizations implementing large scale changes have difficulty developing strategic management perspectives. While the Australian Taxation Office has successfully implemented a number of major projects it has not yet translated this experience into its general management approach. In our view, the key to maintaining the change momentum and to focusing the effort of managers is to rapidly develop these values. A number of our findings are designed to ensure that this occurs. We see performance improvement planning as a process which forces and reinforces these characteristics. —Cullen, Cortese, and Georgiou, Report of a Program Effectiveness Review of the Australian Taxation Office In the early 1980s, the Australian tax system was in crisis. Tax statutes had become noncompetitive. Many legal and some illegal practices had grown to the point where the national taxation base was threatened. The agency responsible for collecting tax, the Australian Taxation Office (ATO) was focused on the processing requirements of a rapidly failing system. More importantly, public exposure of various problems had led to a lack of confidence in the equity of the tax system and in the capacity of the tax collection agency to perform.

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There were three elements to the government’s strategy to respond to the crises. First, a program of ongoing legislative reform was commenced. Second, major computer systems were developed to expand the ATO’s capacity to trace income. Third, the value-chain was reengineered from one of processing and checking before assessing tax liabilities and paying refunds to a system of self-assessment where individuals and companies assessed their own liability and these assessments were audited selectively after the event. The strategy required the development of major systems able to crosscheck revenues. Major work place reform was required to adjust to the major alterations to the value-chain required to accommodate self-assessment and to build the new skills required to undertake more complex audits. The strategy was dependent on the tax office’s capacity to communicate with taxpayers differently and their capacity to develop a network of informed tax advisers, paid by taxpayers, who could undertake much of the checking traditionally undertaken in the office. Internally, by 1986, there were change projects underway in most parts of the ATO. Although most of the individual changes were well-conceptualized, the capacity of senior management to coordinate change impacts was strained, and individuals were suffering from change overload. Externally, the public and politicians were growing uneasy at the lack of observable results. In 1985, the government auditor examined the performance of the tax collecting system and found that some of the benefits of change were not evident at the grass roots of the system. The audit team had no difficulty finding uncollected tax in various areas and questioned the reform program and its management. The government responded to these criticisms by commissioning an independent review of the change program in the tax collecting agency. The results of the review were published by the government and made available to legislators. The review prepared a draft performance improvement plan for the ATO and used this to underpin findings that the change process was sound but that there was scope to improve the management of cycle impacts both internal and external to the organization. We will use a summary of the PIPES plan prepared for this project to illustrate the application of performance improvement planning to a large-scale operational change process, to explore the value that can be added to detailed change projects by developing an overall strategic plan, and to illustrate the value of cycle time management and communications tools in a large-scale change process. Exhibit 8.3. Draft Performance Improvement Plan: Australian Taxation Office (1987) summarizes the PIPES plan produced by the review team. Exhibit 8.3 illustrates a number of features of performance improvement planning.

Exhibit 8.3. Draft Performance Improvement Plan: Australian Taxation Office (1987) Key Objective

Action Strategies

Verifiable Outcome / Impact

Program Delivery—(1) Deliver the government’s revenue program within the overall level of resources allocated

Implement changes to revenue programs Reduce backlogs Expand the audit program Reallocate resources

Program Delivery—(2) Improve the effectiveness of the tax system and tax administration through a program of legislative reform and education which can meet the needs of the government, the tax office, taxpayers, and their advisors

Advise government of changes Effective legislative program Improve international tax analysis and advice Liaise with other sections of the tax office Attract, retain, and develop key professional staff

Implement self-assessment, meet revenue targets Increase assessments from audit Reallocate and retrain staff as a result of self-assessment Timely and relevant advice Meet legislative change targets Meet immediate priorities Improved consultation with staff and practitioners Address staff shortfalls in this key area

Program Delivery—(3) Manage the impact of the tax system on the community to ensure they understand their responsibilities Clarify the administration of tax law to minimize uncertainties Program Delivery—(4) Resolve disputes in a timely and effective manner; conduct efficient and independent reviews; resolve impediments to revenue collection

Increase focus on community impacts Upgrade public enquiry services Strengthen advisory services, and the interface between practitioners and the tax office

Reduced criticism by the public and practitioners Improved quality of advice Reduced complaints

Improve quality of decisions at objections stage Analyze the scope to reduce disputes by improving administrative processes Establish improved priorities for disputes resolution Reduce backlogs Recover outstanding revenues

Reduced rate of appeals Improved taxpayer attitudes to the disputes processes Reduced levels of impeded debt Reduced levels of outstanding revenue

(continued)

Exhibit 8.3. Draft Performance Improvement Plan: Australian Taxation Office (1987) (Cont.) Key Objective Program Delivery—(5) Increase taxpayer compliance and the amount of revenue collected

Action Strategies Increased assessment targets for different groups of taxpayers Strengthen audit capacity Develop the use of audit teams Improve case selection techniques Monitor compliance and taxpayer behavior

Verifiable Outcome / Impact Meet targets Increase audit skills

Measure improved compliance

Program Support Strategic Systems Organization

Strategic: overcome overloads by developing a more strategic and key results driven approach to planning and management Systems: provide systems support to meet the short- and long-term change program Organization: support the change program by introducing compatible, flexible organization structures, and work arrangements

General Management

External relations Corporate management Personnel management Planning and resource management

Note: Summary of Plan in R. B. Cullen, D. J. Cortese, B. Georgiou, Report of a Program Effectiveness Renew of the Australian Taxation Office (Canberra. Australian Publishing Service, 1987), p. 54–66.

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External Fit between Reform Policies and the External Change Priorities The program delivery objectives reflected the major organizational units within the agency. Each of these units had a change agenda. The plan can be used to focus on the coordination of these changes and to identify strategic issues that must be managed to deliver planned external responses. The key objectives were: to collect tax revenue; to reform tax legislation in order to block loopholes and simplify administration; to manage the impact of change on the community; to improve the system for resolving disputes; to improve the effectiveness of revenue collection including debt collection, the issue of tax assessments, and the development of systems to support the revenue collection programs; to increase taxpayer compliance and revenue collections by developing new approaches to audit. Clearly the program delivery strategies are interrelated. The increased compliance objective is dependent on all of the earlier objectives. Traditional government planning and project systems tend to segment these changes and treat interrelationships as secondary issues. Unless these systems become strategic and manage external relationships actively, the risk is that individual changes will be completed without achieving the overall impacts required. The Fit between Core Objectives and Support Objectives The plan separates results into delivery support and general management objectives and the management of the last two categories to add value to program delivery. Two support objectives are identified in Exhibit 8.3: to develop strategic management skills required to coordinate the change process; and, to develop the major systems required to ensure that revenue gaps could be plugged cost effectively by tracing revenues to individuals taxpayers. While the need to develop more effective strategic management skills and the need to manage key interrelationships between system changes and other changes within the ATO were generally understood, the plan provides a focus for the evaluation and management of these requirements. The general management objectives identified in the plan are: (a) to manage the external impacts of change by improving external relations; (b) to develop a new corporate culture and values to underpin the changes; (c) to develop the new human resource skills and job redesign required to support the change program; and, (d ) to manage resources to deliver these results. Management reforms often subsume the external results they were developed to facilitate. The separation of these objectives in the plan provides a focus to mange these changes against overall change objectives. For example, the need to strengthen human resource management functions in order to support these changes and enable the system to deliver proposed revenue impacts on time was identified from this analysis.

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Exhibit 8.4. Projected Change Impacts End of First Year • Adopted Performance Plans linked to budgets. Scheduled key actions and outcomes. • Produced simple five-year projection of revenue and costs, discussed these with department of finance in order to develop a basis for ongoing resource management. • Listed major change programs in critical order of importance; decided whether selected programs can be deferred. • Introduced simple resource management, reporting from the commencement of year 1. • Identified target areas for job design and associated training. End of Second Year • Developed successfully the audit program in order to meet the second year targets; built on this base for further development. • Reduced outstanding tax through improved recovery initiatives, appeals, and objective initiatives. • Addressed key issues raised in the audit. Completed organization project, including: professional structures, extended the use of teams, improved the balance of activities across segments. • Developed and met milestones for longer-term systems program. • Implemented, in consultation with staff, a number of system enhancements that immediately benefit the staff who are engaged in day-to-day operations. • Extensive implementation of job redesign in target areas. • Concentrated senior manager’s accountability for key outcomes and priorities. Performance against PIPs evaluated; managers held responsible for results achieved. • Planning strengthened and simplified. Deferred some current developments. Planning and resource management key issue driven. • Improved additional areas where compliance can be cost effectively in the shortterm are identified and scheduled the areas for action. End of Year Three • Developed higher level audit skills, approached, recruited, and developed key staff to expand this activity. • Implemented taxpayer service initiatives: achieved planned external impacts from this program. • Developed clear user capacity to drive new system developments. Clear evidence of user priorities in plans and schedules for systems development programs. • Established an effective and strong focus for both personnel management and resources management. A clear understanding across the organization of the roles and contribution required of both these functions. • Planning and resource management improved to support the adoption of a strategic focus by the ATO. Source: Adapted from R. B. Cullen, D. J. Cortese, B. Georgiou, Report of a Program Effectiveness Review of the Australian Taxation Office (Canberra. Australian Government Publishing Service, 1987), p. 71.

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The Strategic Fit between Implementation Strategies and Short-Term and Longer-Term Objectives The plan links objectives to strategies to impacts moving from left to right in Exhibit 8.3. Most change strategies commence with a general view of objectives, a focus on strategies, and little focus on the immediate (within one year impacts). The planning framework links these elements and enables the links between individual change strategies and overall objectives to be examined; it enables cycle impact management to be developed. The impacts in the right-hand column of the plan provide a basis for examining implementation impacts and cycle time issues. Many of the change programs extended beyond one year. Traditional planning processes did not focus on immediate impacts. The translation into immediate impacts enables various impact management tools to be used and enable various short-run coordination issues to be explored. Internally, the focus on short-run impacts identified key interdependencies. The review addressed the need to communicate cycle impacts to a wider audience, notably the government audit group and legislators interested to evaluate the change process. Exhibit 8.4. Projected Change Impacts presented a summary of the changes projected for the ATO in one, three, and five years. Externally, the audit problem reflected a failure to manage cycle expectations. Essentially because the timing of impacts was not part of the communication agenda, the basis for evaluation was weakened and unrealistic expectations about change developed. The case illustrates the importance of managing cycle time and cycle impacts. Cycle-based management and communications are important. Selling end solutions to a public whose evaluation cycle is growing ever shorter, is a prescription for failure. The ATO could easily have published Exhibit 8.4 at the commencement of the change process. Had this occurred, much of the unease about the change process might have diminished. In addition, the public would have been placed in a position to evaluate progress against the ATOs own assessment of likely impacts.

PIPES APPLIED TO PROGRAMS FOR THE EDUCATION OF CHILDREN WITH DISABILITIES IN A PUBLIC SCHOOL SYSTEM The objective of developing education for students with disabilities in regular schools as a viable option for many parents has been achieved. . . . There is now an established system and an acceptance in schools and among parents of the value of regular

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schooling for students with disabilities. . . . The potential to develop special schools as part of the overall policy has not been adequately addressed. There is a need to recognize the shifting role and priorities of these schools and to define strategies for their future development. . . . . In our opinion, . . . the lack of co-ordination and the focus on process rather than outcomes, are best overcome by developing a strategic plan covering boh regular and special school options. —Cullen and Brown, Integration and Special Education in Victoran Schools Our next example of strategic planning in action examines the use of the PIPES framework to review overall strategies for reform and to identify and remove a number of implementation blockages. The case examines the management of reforms to expand the schooling options available for children with disabilities in the public school system in one state of Australia (Victoria). We start by discussing the underlying problem which reformers set out to solve. School students with disabilities were traditionally streamed into special schools resourced to meet their special needs. The streaming and the special schools tended to focus on particular medical disabilities. In recent years, there has been a trend for countries to review options for the education of disabled children and to resource options which enable some such students to be educated in a regular school, assisted by specialist support services. This option is described as the “‘integration” or “regular schooling” option. The state of Victoria led Australian developments in this field. Reforms in the Victorian school system aimed to make access to regular school an option for all children with disabilities. Initial resistance was high. By any standards the change was highly successful. The change strategy is summarized below. • To declare that all parents had a choice; if they chose a regular school, the school must enroll the handicapped child. • To establish a series of committees to allocate funding and support services to each child on the basis of availability and need. • To lobby for additional resources as additional students transferred to or were identified in the regular school system. • To argue against any form of classification of students and to promote regular school options as offering high-value to all students.

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The regular schooling option grew and the budget to support it grew. Advocates saw this as proving that regular schooling could meet all needs. The impact of the success of this program on special schools was largely ignored. These schools continued to grow but the students enrolled were now those with greater levels of disability. Special schools sought to reposition their programs in order to meet the needs of different groups of students; this was resisted by those who saw the success of integration as making special schooling irrelevant. Advocates of the regular school option sought to sell this as the only progressive option for all students. Special schools instead of being seen as part of the solution for disabled students were seen as resisting change and consuming resources better allocated to regular school options. The success of the strategy created new problems which were not recognized by those working within the frameworks which had been established to manage the initial change. The first problem was related to resourcing and delays. The lack of assessment and evaluation made it very difficult not only to manage numbers, but also to ensure that the available resources were targeted to those needing assistance. The committee structure dealt with needs on a case-by-case basis. While this is a highly effective approach for a small pilot change program, it is a senseless approach for an established program facing ongoing pressures to expand. The value-chain meant that students were often enrolled and the additional resources were provided later. This placed students and schools in an impossible position. It placed the committees in an unnecessarily powerful position. The procedures for allocating resources through committees proved cumbersome and, more importantly, caused delays. Students were enrolled without resources and the consultative processes were then seen to add value by acquiring these resources. Second, freedom of choice became freedom to select the regular schooling option. This combined with the lack of assessment and evaluation led to a failure to recognize the need to also develop special school options. Advocates of the regular schooling options grew to feel that once the option worked for some students it should work for all. The strategy to phase out special schools seemed to be to contain and then reduce the funding for special schools, to reduce their capacity to add value by fencing off collaboration between special schools and regular schools, and to oppose the distribution of information about special school options to parents. Third, advocates of the “integration” option failed to see or understand the need for ongoing performance improvement. For example, even when the audit report quite correctly identified major problems with the program, these could not be communicated effectively to those involved. The value of a number of constructive suggestions for change was in danger of being lost.

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External Criticisms In 1992, the state auditor tabled a devastating report of the program. The audit report suggested there was no control of the effectiveness of the program. Far from transferring students from special schools, the program had increased the total numbers of students identified as disabled, and initiatives to provide specialist support had failed to deliver. The government response was to criticize the audit report and suggest that the auditor did not understand the issues involved. It was a classic case of government attempting to shoot the messenger. The government commissioned an independent review of the programs. This review (Cullen and Brown 1992) used the performance management framework to evaluate program performance and to assist participants to refocus on the educational needs of students. The review supported many of the audit criticisms and laid out a plan for improvement. Exhibit 8.5. Draft Performance Improvement Plan: Integration and Special Education in Victorian Schools presents a summary of the plan presented in the report of the review. Program Delivery: The Preconditions for Effective Choice This planning framework had different objectives to the PIPES plan prepared to strengthen strategic focus for the ATO discussed earlier. In this case, the plan was used to assist participants in these systems to understand the need to see both regular and special school options as part of an overall solution for children with disabilities. Although the program delivery statements seem obvious, they broke new ground for many of these involved who had come to support particular solutions on a somewhat doctrinaire basis. The policy of student choice had become a one way choice—to attend a regular school. There was no evaluation of educational outcomes because this was seen to type particular students. There was considerable resistance to producing advice to parents that laid out the various regular and special school options. The first strategy in the plan attacked this blockage head on. The review included a draft information sheet that combined details of all available programs. The idea that schooling in special schools was more costly than resourcing programs for similar students in regular schools was disproved by unit costs included in the Cullen/Brown report. The resource management issue was not to save resources by transferring students between special and regular schools but to allocate resources against student’s needs quickly and more effectively.

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Exhibit 8.5. Draft Performance Improvement Plan: Integration and Special Education in Victorian Schools Objectives

Implementation Strategies

KEY OBJECTIVES To meet the educational needs of all students with disabilities by allowing such students to attend either a regular or a special school

• Develop the policy of parent choice by providing balanced information about the various options • Reduce the isolation between the regular and special school systems, ensuring that both systems develop to meet maximized benefits to students • Secure the resources needed to fund these programs, and plan allocations to ensure that scarce resources are allocated to students most in need

To develop and expand the Integration Program to ensure that students wishing to be educated in a regular school environment are supported

• Consolidate management procedures to build on the strengths of the existing system, reduce delays, and ensure that the needs of individual students are paramount • Develop educational evaluation for all students • Resource students to ensure that they not only access the regular school system but also obtain educational benefits • Streamline resource allocation procedures and reduce delays. Ensure that resource differences between regions and groups of students relate to assessed educational needs, not distortions in the allocation process process.

To identify the changing needs of students involved in special schools, and to ensure these schools are able to develop to meet these needs

• Develop three-year strategies for each special school, and adjust roles to maximize student benefits • Develop curriculum in special schools in relation to student needs • Draw special schools closer into districts and regions • Remove barriers between special schools and regular schools

PROGRAM SUPPORT Educational Evaluation

• Develop procedures to set educational objectives for each student, and monitor outcomes. Where possible, ensure that these measures relate to criteria developed for all students • Develop an eligibility test for access to different levels of resourcing

Planning and Information

• Introduce three-year forward planning. Streamline resource allocation processes to deliver resources more responsively to students within broadly assessed levels of need. Review and audit allocations, and ensure that differences, between institutions, regions, and students are based on assessed needs. • Develop a central statistical collection and financial reporting system to enable effective monitoring of these programs

GENERAL MANAGEMENT Human Resources

• Address the staffing and training needs of teachers and support staff involved in both programs • Ensure that teachers can access senior professional assistance, when they need it to assess the needs of particular students with disabilities

Program Management

• Develop a stronger central management focus for these programs • Develop advisory structures to enable it to report on both programs; transfer operational functions to management, where this is appropriate

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Program Support: Value-Chain Reengineering to Focus on Eligibility and Cycle Time The program support objectives in Exhibit 8.5 were each critical to changing the culture that had developed around the two competing program solutions for children with disabilities in Victoria. The strategy of using an eligibility test to evaluate the educational needs of each student and of linking this to resource allocations challenged the idea that evaluation worked against the interests of students. First, this evaluation focused on educational needs. Second, the evaluation of needs at enrollment can be augmented by an evaluation of educational outcomes delivered for each student. Finally the use of an eligibility test enabled resources to be provided on enrollment without the delays involved in committees and comparative assessments. The planning and information strategies sought to replace ad hoc budget decisions with longer-term planning, to monitor the size of the program, and to ensure that special funding allocations are effectively distributed between schools, regions, and students. General Management: Teaching Skills, Program Management, and New Advisory Roles The general management objectives also raised important program needs. First, there was a need to develop skilled teaching resources and to draw on the strengths of both regular schools and special schools to do this. Second, there was a need to enable managers to manage this program across both special schools and regular schools, and to develop a new role to enable advisory structures to contribute and add value.

PIPES APPLIED TO IMPLEMENTING A PERFORMANCE FOCUSED SENIOR EXECUTIVE SERVICE How does a leader channel diversity into solidarity, creating a team dedicated to fulfilling that common purpose? How does a leader help ensure that the organization will live the purpose, that people will own it? The answers lie in an organizing principle that is simple to understand but that requires great courage to implement: Ensure that those who live the values and ideas of the organization are the most rewarded and the most satisfied . . . the organizing principle is that not everyone should be equally rewarded and satisfied. The organizing principle insists on nothing less than the strategic management of job satisfaction and dissatisfaction. —Imparato and Harari, Jumping the Curve

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Where the transition to competitive government involves a transition from a traditional government system with entrenched bureaucratic values, there is no option but to develop a new style of leadership which is strategic and which focuses on performance. Developing such a management team, requires the sorts of reforms we have discussed. Reinforcing the new rather than the old culture of government management requires a system which alters traditional reward systems and which manages both satisfaction and dissatisfaction to reinforce the transition to performance evaluation. Pay can be a powerful tool for making this particular “jump.” In chapter 7, we discussed the crisis faced by the government of Victoria, Australia, and the transformation undertaken during the 1980s. The Public Service Board, the government personnel agency, developed a comprehensive program of reform. Although the reforms were driven by deregulation of the personnel system, they addressed agency structures and performance, the role of central (or staff) agencies, and the role of government managers. Central to the reform program was the recruitment development and motivation of a new type of government manager able to make the strategic contributions within changing structures and project teams. In 1982, Victoria introduced the first Senior Executive Service (SES) in Australia. The introduction of this system corresponded with major changes in strategies and structures introduced a new government. The Annual Report of the Victorian Public Service Board (1983) outlined the reasons for this change. The SES was introduced to increase the mobility of senior staff, to improve the capacity of the Public (government) Service, to recruit externally without offering excessively high-base salary levels, and to develop more performance-oriented attitudes amongst senior managers in the Public Service. . . . Performance pay is central to the SES concept. Performance is assessed by reference to the performance of agree objectives. Executives and their supervisors negotiate objectives and assess achievement. Senior Executive Service as Introduced in Victoria Cullen (1986) described the features of the senior executive service system as introduced in Victoria. • A formal system of position classification was able to grade positions onto bands based on work value measures. The classification system compared position across agencies for the first time on the basis of transparent and relatively objective measures.

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• A salary structure for the SES bands used overlapping pay ranges. This provided the scope for performance pay; it provided flexibility to recruit externally without disturbing established relativities, and it broke the direct link between pay and status which underpinned the traditional system. • A performance improvement planning and evaluation system, defined the key performance required of a manager over the next year, was used as the basis for evaluation and the allocation of each manager to a performance pay level. • A total remuneration approach to salary determination was based on modern salary practices and facilitated comparisons with business sector salaries. • An upgraded approach to executive selection was designed to select the best senior managers for particular assignments and to facilitate reassignments to meet new needs. • A legislative base, which provided for term appointments, gave government increased powers over appointments and differentiated between career appointments and political appointments. Three values were identified as required to drive the new SES system. First, improved program delivery and service to the public comes from improving management in public sector agencies. Second, evaluating the results of change and improvement initiatives is critical to ensuring that real improvements in value are delivered to the public. Third, effective service to the public requires a senior management system which actively seeks to maximize the contribution of each senior manager. The Performance Plan An application of the PIPES framework to address the general competencies required of SES managers in included as Exhibit 8.6. General SES Key Result Areas and Competencies. The Exhibit 8.6 was used to translate core management roles required of the new SES into competencies that could be assessed and developed. Each senior manager agreed a PIPES plan for his or her specific area. The resultant network of performance agreements were examined to ensure that they reflected overall change priorities for the agency. This approach enabled new structures and staff to coordinate their activities in a high-response setting.

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Exhibit 8.6. General SES Key Result Areas and Competencies Key Result Area

Competencies

PROGRAM DELIVERY The development and delivery of major projects or programs which are of strategic importance to the organization and are the primary responsibility of this particular manager

• The capacity to provide authoritative advice and leadership in some program or project area of significance to the organization • The capacity to develop, analyze, and assess policy issues and options within the overall context of government policies, priorities, and relevant external factors • The capacity to assess the feasibility of proposed projects and programs and to develop additional options where necessary • The capacity to plan and manage the delivery of specific projects or programs • The capacity to monitor and control the delivery of a number of projects or programs through both formal and informal means • The capacity to identify, diagnose, and address various problems that occur • The capacity to evaluate both the technical and nontechnical outcomes of a project or program

PROGRAM SUPPORT Advice to Government The management of part of the relationship between an agency and government

• The capacity to understand political sensitivities and the external environment and to relate these to the governments priorities and to ongoing operational actions within the agency (comfort zone impacts) • The capacity to manage the provision of timely and relevant briefings and advice for government • The capacity to manage the preparation of replies to correspondence to government and to questions raised by the Legislature

PROGRAM SUPPORT Management of Relations External to the Agency Manage relationships between the agency and its clients, other agencies and community groups

• The capacity to represent the agency effectively before a variety of people including senior managers from other agencies • The capacity to relate effectively with other bodies with which the agency needs to work • The capacity to ensure that reports and other communications reflect the approved programs and policies of the agency

(continued)

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Exhibit 8.6. General SES Key Result Areas and Competencies (Cont.) Key Result Area

Competencies

GENERAL MANAGEMENT— Corporate Management Be an effective manager of the senior management team within an agency particular manager

• The capacity to contribute to overall agency perspectives on corporate issues outside the direct responsibility of the manager • The capacity to ensure that individual decisions are consistent with the corporate policies and priorities of the agency • The capacity to assist colleagues to achieve results for which they have primary responsibility • The capacity to work with colleagues to achieve results where these require a joint contribution

GENERAL MANAGEMENT— Personnel Management The management of human resources of the organization to enable it to deliver approved projects or programs effectively

• The capacity to manage staff effectively and to achieve agreed results • The capacity to consult with staff to develop a work environment which meets staff needs and in which the staff is used effectively • The capacity to understand and use the personnel system to recruit, promote, and organize staff effectively • The capacity to ensure that the personnel system operates on the basis of merit and that government EEO policies and programs are implemented effectively • The capacity to develop the management potential of staff to provide for the future needs of an agency and the public employment

GENERAL MANAGEMENT— Resource Management The management of all human, financial, and physical resources available to the manager to deliver priority program results efficiently and effectively

• The capacity to understand and use the budget system of government to ensure that resource needs are considered and proper priorities addressed • The capacity to adapt targets and programs to match the resources allocated to deliver them, to monitor and manage resources, to deliver agreed programs and projects within agreed budgets • The capacity to identify, diagnose, and address resource issues that affect program delivery • The capacity to identify areas of low priority in the areas under the managers direct control, to identify resources for reallocation, and to introduce improvements to ensure that available resources are used effectively

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The three-column model was simplified by using a common framework of objectives for all positions. The focus was on the strategies (or key result areas) each manager would use to deliver defined results, and on the impacts (verifiable performance standards) which were expected over the next twelve months. Performance Pay as a Tool for Government Reform The PIPES system was linked to annual performance evaluations and to the introduction of the first performance pay system for government managers in Australia. The system, including the PIPES framework, was later adopted by a number of other governments in Australia. The assessment of performance requires two levels of assessment: program performance, and the extent to which the individual manger contributed to that performance. The overall performance rating did not translate directly into pay. The ratings were normalized for each agency to ensure that increase in bonuses were offset by reductions. This case study demonstrates a characteristic of many government reforms. New systems can either be an effective focus for change, or a new means of entrenching the very values they seek to dislodge. Which outcome occurs is determined by the visions and leadership which drives the change process, and by whether other managers understand and adopt that vision. Benefits from Performance Pay in Government There are at least six benefits which performance pay systems offer government managers. The gap between these benefits and the simple notion that managers are motivated by money alone illustrates the dangers of translating simplistic tools and assumptions into government management systems. First, performance pay stops the traditional classification system acting to ratchet all managers up on the basis of the performance of a few. Second, performance pay encourages managers to negotiate, to clarify their role, and to contribute instead of attempting to distill this from an examination of job descriptions, structures, and recruitment sale literature. Third, performance pay systems validate agency and program performance evaluation by personalizing it, by forcing short-run evaluation, and by encouraging managers to see evaluation as a learning experience and an opportunity to improve performance. Fourth, performance pay systems force senior managers to address the links between task performance and their own performance. Managers are often reluctant to accept responsibility for difficult results, because they see variables beyond their control which can block performance. The link between senior manager performance and task performance needs to consider the importance of the task, the degree of difficulty of the task, and the degree

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of assistance provided to achieve the task. Evaluations which address these issues have the capacity to add value to the operation of many senior management teams. Fifth, while many performance pay systems are subverted to seek small increases for many managers, the proper operation of these systems should recognize outstanding performance and identify obvious failures. These two characteristics were seen as anomalies by the traditional system with its uniform standards of performance. Sixth, performance pay systems validate staffing action to correct failure. In the traditional system, these actions were often seen as the product of intrigues and power plays rather than of the need to perform. Seventh, performance pays system provides a valid external rationale for increases (and decreases) in public sector salaries. Eight, performance pay systems reward high-performing managers better than traditional systems. Threats from Performance Pay in Government First, performance pay systems can produce their own upward pressures on all senior salaries. Sometimes this is fueled by the old peer equality pressures. Sometimes it is fueled by competition to retain staff. The solution is to ensure that performance pay is a fixed sum game with agencies being required to offset high-performance payments with lower performance payments. Paul C. Light (2000) comments that the U.S. performance pay system seems to be running out of control following reinvention. This suggests that the new focus on agency performance has not been translated into senior structures and priorities. Second, governments often respond to funding shortages by capping salaries and abandoning performance payments. However, freezing performance pay also freezes many of the reforms identified above. The net cost to government performance may well outweigh the short-term bonus savings. Third, politically elected or appointed managers may use the system to reward political loyalty and favors rather than task performance. While there are elements of this in most senior government staffing strategies, when these processes are seen to replace performance as the underlying criteria for pay, the benefits of the system are also eroded. Worse, politicians can expect not only loyalty and commitment, but also an absence of constructive criticism as senior managers shift their role to that of agents of government rather than managers of task performance for government. Fourth, performance pay systems can be used to provide a new way to focus on failure rather than performance. They can be used to identify scapegoats for nonperformance and to insulate others from the consequences of group failures.

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IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT The management platform for government change must dismantle traditional controls, convert managers of processes into managers of results, and build a culture which can use systems and not be driven by them. A key change strategy is the development of a network of performance contracts which are strategic and change-oriented and which can be used to negotiate the autonomy to manage government performance. These performance contracts need to link agencies, programs, and managers; they need to encompass the complexity of government roles without becoming subsumed in that complexity. A new approach to planning and evaluation is central to implementing reform. Dynamic strategic planning can be used to provide a focus for the management of government services and programs. The PIPES framework presents one such solution. The case studies illustrate the need to manage expectations and monitor change. The Australian Taxation Office reforms appeared to underestimate the effort to implement changes in grass roots culture and systems. The programs for the schooling of handicapped children in Victoria was a victim of its own success. More dynamic planning and management could have avoided the conflicts which occurred. The PIPES framework was used to assist those involved to broaden thinking and to build on the success of changes that had occurred. The senior executive service tool addressed a key need in most government systems undergoing rapid change. The system worked well and cost very little, more than had across the board pay raises been introduced to meet the management shortage. However, the unwillingness of government to address agency and program performance eroded some of the overall benefits gained from the new system and opened the door to politicization of the SES. There are two threats to the introduction of dynamic planning and evaluation system in government. The first threat is that the system will adapt to the planning process and subsume it; plans become bland, issues are avoided, and the prospect of negative evaluation is avoided. The second threat is that plans will become static as was the case with education failing to recognize the need to build the change process through an ongoing improvement process. The idea of describing the impact over one, two, and three years, which was discussed in the tax office study, is one approach to extending evaluation. In each of the cases presented, the PIPES framework was used to focus and communicate the results of more detailed evaluations. Only the results were presented in the case studies. Those who seek to use this framework for evaluation needed to support the process by effective issue analysis, which identifies key issues, evidences them, considers causation, and evaluates options for change.

Chapter 9 Reinventing and Reengineering Government Management Systems and Values

In Washington, debate rarely focuses on the performance deficit. Our leaders spend most of their time debating policy issues. But if the vehicle designed to carry out policy is broken, new policies won’t take us anywhere. . . . Our federal government is filled with good people trapped in bad systems: budget systems, personnel systems, procurement systems, financial management systems, information systems. . . . From the 1930s to the 1960s we built large, top down, centralized bureaucracies to do the public’s business. They were patterned after the corporate structures of their age. . . . And in today’s world of rapid change, lightening-quick information technologies, tough global competition, and demanding customers, top down bureaucracies—public or private—don’t work very well. Saturn isn’t run the way General Motors was. Intel isn’t run the way IBM was. —Vice President Al Gore, Creating Government That Works Better and Costs Less Implementing the transition to competitive government requires more than the new focus created by dynamic strategic planning and evaluation, it requires the dismantling of traditional controls and values and the creation of a new focus on performance. Cullen (1995) evaluated a number of public sector changes in Australia and concluded that the fit between management and the core performance 229

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strategies of agencies involved in major changes is often not addressed or managed. It does not take an elaborate analysis to test whether a particular government reform program is on track. Simple questions can be used to commence a diagnosis. Has the public noticed any improvements in services? If not, when are they expected to appear? Are delivery units able to contract performance? Can they manage comfort zones and cycle time? Do the managers of delivery units see central systems as reflecting the priorities of delivery units, or are they seen as imposing a new conformity? Are performance management values developing in the culture of agencies? For example, how does the system cope with both performance and failure? Is the system able to build on each new crisis to exploit change, or is the process essentially locked into damage control and survival values? Traditional government bureaucracies were controlled by four major entrenched systems. Interestingly, none of these systems focused directly on results or outputs. • A policy and regulatory system that sought to build an integrated web of policies and regulations to guide action • A technology system which coordinated the work of government by segmenting value-chains and by managing transactions through a series of fixed cycles and queues • A budget system that sought to manage allocative tensions, provide a mandate for action, and control expenditure in detail • A personnel management system that standardized structures and sought to prescribe and depersonalize work roles, in order to prevent failure These systems were driven by four ideas about management: the idea that development could be incremental; fairness, rather than performance, should be the focus of government management; success requires rules to ensure predictable treatment; and, finally, the inefficiencies associated with failure can be avoided by rules designed to identify and require compliance with “best practice management processes” which were seen to be independent of the task required. None of these ideas can survive the transition to high-response management. A misplaced belief that the past can be revisited, that these ideas will somehow reemerge triumphant, has caused many otherwise useful changes to collapse. There are two prerequisites for the implementation of specific transitions. First, before ideas like cycle time management, performance planning, and evaluation can be translated into action, management structures and systems need to be altered to connect government managers to these new management

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tools and to remove system blockages to response. Second, new systems need to protect against the twin forces of reversion and inertia that often emerge to erode the benefit of particular reforms. The management and system strategies and tools available to support a particular transition to competitive government are outlined in Exhibit 9.1. Performance Management Strategies / Tools for Government Transitions. Valuechains need to be shortened by reengineering the core technologies used by many government systems. Conventional structures and regulatory regimes must change to high-response solutions. Personnel and resource management systems must change to focus not only on new needs and on results, but also to shift core organizational values. Finally, new structures and systems need a new focus on change management and on building a management platform for ongoing improvement. It is the purpose of this chapter to discuss each of these changes, to identify common difficulties, and to outline effective solutions and change management tools.

HIGH RESPONSE MANAGEMENT STRUCTURES FOR GOVERNMENT The challenge is to develop dynamic and motivated {governmental} organizations in the face of changing services and reduced real resources. The immediate reaction of many managers is to resort to crisis management, to centralize control, to demand performance. The usual outcome is an increasingly stagnant organization. The enlightened response to this situation is to structure the scope within which individuals can be given the flexibility to meet creatively these new challenges, while still ensuring the viability of the organization. We hear a good deal about authority structures in organizational theory and very little about the structure of autonomy within large-scale organizations. Yet, in my view, the latter concept is far more relevant. —Cullen, “Managing in Times of Constraint” [The] corporate environment has changed so swiftly and fundamentally in the past two decades that structures designed for success in an industrial environment are almost by definition inappropriate today. The task of the business leader or the corporate strategist is to identify obsolete structures and change them before they damage the corporation. —Toffler, The Adaptive Corporation

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Exhibit 9.1. Performance Management Strategies/Tools for Government Transitions Personnel / resource management strategies / tools Performance-focused personnel management (Ch. 9) Performance-based organization values (Ch. 9) Results-based resource management (Ch. 10)

Legislature

Corporate Government Central Agencies of Government

Mega Agencies Major Program Clusters

Operating Agencies / Associated Bodies Project teams

Users of government services / Interest groups / Comfort zone domains

Structural strategies / tools Strategy / performance driven structures Flexible delivery units able to manage performance, comfort zone impacts, and cycle time directly Reduced role for central and macroprogram agencies Performance agreements / contracts Project management

Performance driven change management

Structural boundaries / units Performance-focused personnel, resource management, and values

High-response production technologies (vaqlue-chain management)

Technology/value-chain strategies / tools Value-chain reengineering (Ch. 5) Structural coordination (Ch. 9) Cycle time management (Ch. 4–5)

Change management strategies / tools Transition management (Ch. 3) Dynamic strategic planning (Ch. 8) Performance and comfort zone management (Ch. 4) Cycle impact and cycle time mangement (Ch. 4) Cycle-based communication (Ch. 4) Performance agreements / contracts (Ch. 8, 9) Project teams (Ch. 5, 9) Continuous improvement systems (Ch. 5, 9)

The idea that structure must follow strategy is well-established. It follows that as the environment forces ongoing changes in the strategies of government and business agencies, structural changes and resource changes must follow. Traditional government structures and resource management systems commence with structures (or “fiefdoms”) move to resource allocations, and then address the detailed delivery of results. In many respects, the challenge of

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building high-response structures for government is the challenge of reversing these processes and values. The key to developing high-response structures is to focus on the boundaries that deliver clear performance and comfort zone impacts and then ensure that these units can manage cycle impacts directly. Two links are important: structures must provide a focus for strategic planning and evaluation; and structures must provide a basis for value-chain reengineering and for valuechain coalignment. The most frequent flaws in government restructures are: first, to assume that this can occur by focusing on aggregate clusters of programs and operating units; and, second, to assume that the central requirements for empires, for order, and for control, are more important than grass roots performance. A challenge in developing high-response structures in government is that the key units and boundaries often overlap and change as responses change. Structures that address program delivery boundaries must often address different comfort zone boundaries. The focus for managing cycle time effectively is often fragmented in government structures and value-chains. Devolution often halts far short of persons and units actually in a position to deliver. These challenges not only explain the constant reorganization in government, but they also explain the widespread use of project structures to bypass constraints and manage key changes. A key performance management tool is the development of a network of performance contracts or agreements. We discussed these briefly in chapter 8. Performance agreements are a useful way of coordinating and communicating change priorities for any given organization structure. The Importance of Focusing Reform on the Performance of Delivery Agencies Most devolution experiments in government work from the top down. They end up providing a strategic fit with the needs of the legislature and corporate government and often sacrifice the fit required to deliver services. By starting at the base of the traditional organizational pyramid rather than the top, performance focused structures also redefine the role of other levels of government. The key delivery role is through operating agencies, bureaus, or project teams. These are the structures that deliver end results. This is the level of organization where there must be an effective strategic fit between: • strategy, structure, workskills and organizational culture • devolution and accountability for results • devolution and comfort zone management • devolution and technology and cycle time management

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Mega-Agencies and Grass Root Impacts Mega-agencies are usually created to manage major groups of programs. Although they have important roles as part of central government, they need to transform their management role. Mega-agencies must resist the temptation to become another arm of the government regulatory and control system. The management model has already been developed by GE and others. The mega-agencies of government must transform themselves into a role not unlike the corporate role in the dynamic business organizations. They must accept responsibility for the performance of delivery units while devolving the responsibility for performance to those units. The devolution of delivery responsibility to delivery units enables megaagencies to add value to the government system by addressing five roles. • Refocus budget allocative tensions into groups with generally shared interests and an improved understanding of diverse needs. • Manage relationships with central agencies, executive government, and the legislature to create the autonomy required by delivery units. • Negotiate and evaluate performance agreements with delivery agency/ units. Ensure that effective solutions are benchmarked for others to follow, and that improvement interventions occur where these are required either because delivery units have failed, or to deliver ongoing improvements. • Assist delivery agencies/units to enter into service agreements to enable delivery agency managers to access a range of services required for effective performance. Central or Staff Agencies and System Performance The corporate government level includes the chief executive and key executives with the responsibility for managing executive government. It also includes the central (or staff) agencies of government. Typically these include budget and management agencies, personnel agencies, and agencies responsible for coordinating government activities and performance. There have been many attempts to change central agency roles and structures. It is important that the roles of central agencies are developed together. Key differences, for example, between strategic planning, evaluation, and financial management should not be subsumed in such structure. It is important that the agencies involved are coordinated and evaluated in terms of their contribution to both corporate performance and the performance of operating agencies.

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The Legislature and System Reform The role of legislatures is different in different national systems. However, generally this role includes oversight of the executive, approval of budgets and key programs, the review of rules and regulations, and various devices to ensure that the executive operates to address the priorities of citizens. In most systems, the devolution and accountability transition has implications for the roles of the legislators. In many cases, reform cannot proceed without such changes occurring. In most systems, the changes offer scope to strengthen the performance of these legislatures. However, strategies for managing these transitions need to address country differences. We examine these issues in more detail in chapter 11. We now consider each of the management strategies shown as vertical boxes in Exhibit 9.1. Each of these strategies/tools needs to be applied across and within particular structural frameworks.

HIGH-RESPONSE PRODUCTION TECHNOLOGIES FOR GOVERNMENT There are real limits to the efficiency and effectiveness that any government can achieve. These limits arise from the nature of the problems that governments are obliged to address, from the constraints that governments must honor in attempting to solve the problems, from the large scale of many government organizations, and from the intentionally adversarial character of government processes. —Downs and Larkey, The Search for Government Efficiency Indeed one could say that firms become lethargic and bureaucratic when the practices, systems, and controls in place take on a life of their own, divorced from the business problems they were designed to address. —Fombrun, Turning Points C. W. Downs and P. D. Larkey illustrate the challenge of government reform. Charles J. Fombrun, discussing the challenge facing business, makes the point that reform of these internal value-chains is essential. The solution is to remove some of the restraints imposed on government systems and to reengineer government value-chains and production technologies in order to link these to performance strategies while also reducing cycle time. Only when governments alter the basic technologies they use to coordinate and control work, can ideas about reform be translated into a new reality.

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In chapter 5, we discussed the management of value-chains through the restraints of fixed government budget cycles and the use of structures that oversegment value-chains and associated transaction management processes. Our analysis concluded that these solutions lengthen rather than shorten cycle time. We suggested strategies for shortening cycle time by reengineering value-chains to remove some of the external restraints, enabling reduced use of segmentation and queues. Managers pressed to reduce costs using traditional value-chains focus on queues and optimizing unit costs. We demonstrate in chapter 5 these responses nearly always increase cycle time. Increased cycle length and cycle time are almost terminal disabilities for an organization seeking to move to high-response management. The more effective response is to alter the technology, to remove the need to manage some of the interdependencies or to automate the management of particular interdependencies, to track particular actions through the value-chain directly without the use of queues. The objective is to find a technology which can optimize both costs and cycle time or, at least, reduce the gap between the two. Project structures clearly reengineer the traditional value-chains and can be used to deliver high-response management solutions. The delivery of school services to a disabled children project discussed in chapter 8 provides another example. An important sign that the experiment was encountering difficulties was a lengthening cycle time between the enrollment of a child in the system and the delivery of resources to a particular school to meet special needs. The value-chain had six elements: (1) the school enrolls students; (2) the school defines additional resources required in order to support the education of students; (3) allocations for resources are queued for consideration by regional advisory committees; (4) initial resources are allocated across all needs when they have been analyzed; (5) when aggregate budgets are proved inadequate, supplementary budget allocations are sought; and (6) when supplementary allocations are provided, they are allocated to students with unmet needs. The operation of this value-chain maximized total resources, probably maximized the equity in their distribution between students and increased the importance of advisory bodies by locating them in a central segment of the value-chain. This solution also lengthened cycle time and placed major stress on particular schools and students by enrolling students well in advance of the delivery of resources. In addition, because educational outcomes and needs were not addressed in the value-chain, some students received less value than they might have been led to expect. The solution was to assess educational needs at enrollment and to provide access to resources directly on the basis of these assessments. The resulting budget requirement to support this solution needs to be flexible but can be audited against performance. The process shortens cycle time and increases accountability. In addition the reengineered value-chain

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allows volunteers to advise on performance and on the operation of the system instead of attempting to manage part of the value-chain directly.

PERFORMANCE FOCUSED PERSONNEL, RESOURCE MANAGEMENT, AND ORGANIZATIONAL VALUES FOR GOVERNMENT The central problem in designing government personnel systems has always been that of creating a bureaucracy that responds to the legitimate management initiatives of elected officials but in which professional competence rather than political or personal loyalty is the primary criterion of selection, promotion, and advancement. Because the balance between responsiveness is so delicate, the history of personnel system reform in the United States and elsewhere oscillates between the twin perils of “spoils systems” in which politics is everything and highly insulated civil service bureaucracies, in which incompetence is protected by law. —Downs and Larkey, The Search for Government Efficiency In radically changing environments, then, the structural tools that managers rely on call for them to build interfirm networks; prune bureaucracy; decentralize decisions; improve two-way communication up, down, and laterally; reunite personnel and work lives; encourage participation; and expose sheltered units to competition. —Fombrun, Turning Points The role of personnel management is to attract, retain, and motivate the staff required to deliver key results, to match the skills of staff to the tasks to be performed, and to do this cost effectively by minimizing the long-term costs to government of personnel resources. The need to alter personnel systems and organizational values has been discussed. In this section, we examine specific solutions and threats. The need to reform resource management is central to shortening cycle time and developing more flexible structures. The solution is to move to results-based budgeting focused on operating units. Because of its importance, we discuss this particular reform in chapter 10.

Improving the Performance of Personnel Management What should be the objectives of personnel reform? What strategies can be used to change personnel systems and effect the culture shift required to

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support ongoing change in government systems? Let us focus on three objectives that personnel systems need to deliver to support government reform. Recruit, Develop, and Motivate Key Managers First, the system must recruit, develop, and motivate strategic managers able to change government systems and manage the delivery of results. Senior management selection needs to change to focus on key priorities and emphasize strategic management skills rather than system knowledge and the capacity to avoid mistakes. Often these skills involve change management and project management skills. Managers with these skills will usually lack the detailed systems and program knowledge developed within particular agencies. Senior management teams need to work together to deliver change. Key positions need to be opened to a wider range of managers. One test of a competitive personnel system is whether business managers can be imported successfully. The traditional skill development system was a series of external and internal formal qualifications together with structured on the job skill development regulated by work-based hierarchies. The system operated to develop system skills and identify those who made mistakes. The management hierarchy depended on these shared values and experiences. Newer structures cannot make these assumptions. The gradual promotion and development process offered by the traditional hierarchies have become redundant. The assumption that senior managers understand the system they are managing has been replaced with a system where they are expected to contribute skills to some change program and work with others to change operating systems. Old development paths and old success criteria have disappeared. Managers today are required to address change projects. They cannot receive the protection and oversight provided by traditional structures. Although they will make mistakes, they will also make major contributions. They must work as team members to achieve task objectives. Regular performance appraisal highlights the need for particular skills particularly if they do not exist. Organizations are more likely to accept the need to import skills when their performance depends upon new skills. Project structures offer major opportunities for staff to share skills and develop new skills. However, within project teams there needs to be an understanding of the skills required. Performance reviews will identify skill gaps or skill building opportunities for most staff. It is important that government personnel functions offer staff opportunities to bridge these gaps. Dismantle Traditional Personnel Rules and Processes Second, the personnel system must dismantle personnel rules and processes developed to support traditional government management and develop a per-

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sonnel system which focuses on performance improvement, using the skills of staff more effectively, and on staffing which adds value to both individual and team performance. In order to use new staff skills to add value, personnel systems must abandon attempts to prescribe work roles in detail and learn to use more flexible roles. A prerequisite to more flexible work roles is a personnel system able to break the nexus between functions, work value, and levels. There are a variety of strategies for increasing the flexibility of work roles in government organizations: (a) move away from specific job descriptions to generic descriptions, which define bands of skills required rather than specific duties to be performed; (b) use performance contracts to define the outputs required of a person and of a team; (c) break the tight nexus between duties performed, pay, and status, which has enmeshed many government agencies by moving to broad-banded pay ranges; and (d) introduce performance and results-based pay systems. It is important that performance contracts reflect real performance priorities each year. For example, a senior manager might be required to introduce a major discontinuous change. Having done this, the next priority might be to reduce costs and consolidate the group. The best way to provide this change in leadership might be to recruit balanced managers able to deliver a range of very different roles. But another way is to change managers to draw on narrower, but nevertheless high levels of competency. Increasingly, government organizations are doing this. The structure remains the same. The longer-term objectives remain but the immediate priorities and strategies for change shift over time and so do the qualities required to manage the change process. Senior level performance contracts are only a start to the process of focusing individuals in an organization away from rule driven personnel systems towards performance driven systems. Once agencies and senior managers have performance contracts, performance thinking must be translated to other levels of the organization. Individual work groups can develop performance improvement contracts. Within teams, individual performance can be assessed in terms of team contribution. Team performance presents major problems for the traditional government culture. In terms of traditional job design, it means that some people who do not have the skills to perform the whole job role can combine as part of a team. In the traditional system this is inequitable. Some members of the team are “carrying” others. This is a strangely bureaucratic concept but it must be addressed. The question is not does an individual have the entire range of skills required to conduct a function but whether they add value to a particular work team.

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Change Organizational Values and Culture Third, the system must change the underlying organizational culture to focus on change and performance, preventing the traumas which occur if change is forced upon structures supported by traditional values. Changing organizational culture requires changes to systems structures and staffing. It usually requires external pressures for change. And it requires leaders able to conceptualize a new reality and link individual changes to new values which can explain new management priorities and behavior. The Victorian changes discussed earlier are one example of such a strategy. The objective of culture shift is to change key attitudes so that the uncertainty created by new priorities is reduced and managers are able to predict new priorities and responses. Value shifts which can be used to audit the extent of change are detailed in Exhibit 9.2. Mapping Culture Shifts in Government Systems.

PERFORMANCE DRIVEN CHANGE MANAGEMENT TOOLS FOR GOVERNMENT Forming a project team was the most frequently cited method for implementing funded legislative mandates. Such teams attempt to set and implement priorities, objectives, and performance measures by establishing goals, defining roles, developing rules, and coordinating and evaluating functions. —Wolff, “Managers at Work” The capacity to erect and manage the nexus between reductions in resource levels, reductions in program delivery, in times of continuing resource constraint is critical to the ongoing viability of public administration in times of decrement. —Cullen, “Managing in Times of Financial Constraint” When the challenge of developing a viable external transition has been addressed and the structures and systems required to implement reform have been introduced, a government management system has developed the prerequisites for successful one off change. But the reality for most systems is a series one changes. Competitive government needs to develop a management platform that not only implements particular changes, but also provides a new base from which to manage future change. Transforming one off changes into a high-response system capable of ongoing change requires tools that address two related threats. First, the threats of reversion to restore old values and priorities once the immediate

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Exhibit 9.2. Mapping Culture Shifts in Government Systems VALUE SHIFT Away from management values that see performance in terms of not failing toward values that focus in the need to actually succeed: Management values that see performance as inevitable have ignored the need to define performance and to manage the delivery of services to the public. Away from a focus on failure toward a focus on meeting changing needs: Management values, which see change as a response to failure rather than a response to new external priorities, maximize the trauma of change. Away from unfettered freedom toward how managers use flexibility, whether they deliver agreed results: “Devolution at any cost” solutions have encouraged the dismantling of traditional controls without developing increased accountability for results. Toward accepting that structures and systems are management variables to be used to deliver performance rather than a fixed framework within which performance is defined: “Business management” solutions have sought to transplant business solutions into the government sector without developing the focus on performance required to guide these approaches. Away from prescribed roles toward discretionary roles that use skills and optimize value for the organization: Bureaucratic job design, which separate work roles from the skills and capacities of persons in positions, have underemphasized the importance of the discretionary component of work roles. Away from consensus and legislative cycles as dominant determinates of success toward values that see impact management and implementation and critical: Management values, which see legislative and budget approvals as a mandate to implement without managing comfort zone impacts, often find the mandate evaporates as interest groups block or alter changes. Away from values that see cycle times as fixed toward values that see cycle time as a key management variable: Management values, which see cycle time as a given and presume that implementation follows from regulated consumption, miss the opportunity to manage cycle times and impacts. Away from remedial communications toward a focus on using communications to manage cycle timing and to manage the gap between public expectations of change and the benefits actually delivered: Management values, which see success in terms of completing programs, and communicate this to interest groups, often find the gap between their concept of success and the communities expectations of them is large.

change crisis is seen to have passed. Second, the threat that in seeking to consolidate new arrangements systems will introduce new inertia against ongoing change.

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Three key management tools can be used to build ongoing change and improvement skills into government systems. The first is the use of a network of performance contracts. Contracts ensure that broad changes can be translated into structures rapidly. The second is the use of project teams to manage critical changes. Project teams can shorten cycle time and because they are short-lived they can avoid some of the institutional inertia that is created when organizational units develop and own particular changes. In chapter 5, we discussed continuous improvement processes and the needs to maintain the effectiveness of government structures.

Project Management Strategies for High-Response Change Exhibit 9.3. Project Structures and Management Processes illustrates how project boundaries can be defined to include comfort zone management and cycle time management issues which tend to be segmented hierarchically in other structures. Special project teams often offer more scope for devolution, especially when steering committees can be formed to address other interests. A project is a series of planned activities to achieve defined objectives. A project approach is used when beginning and ending activities can be clearly identified. A project mobilizes resources to achieve specified results. A project management team attempts to precisely specify the goals, means, and outcomes of a given funded legislative mandate. Project management teams normally involve three specific processes and employ several welldeveloped tools within each process. Exhibit 9.3 suggests that all projects unfold in stages. First, a project team must be assembled consisting of a leader and members drawn from all the existing units or agencies involved and any new mandates required to implement the funded legislative mandate. Second, a project involves a planning process. This begins with a needs assessment, followed by a problem/ solution analysis on how to provide the mandated services. Then a logical framework is developed of inputs to the project, outputs to be created, priorities and objectives to be met, means of measurement for each of these, and the assumptions involved in each stage of the program. A budget is drafted which includes personnel, equipment, overhead, and so forth. Finally, an executive summary is developed which summarizes the results from the use of the above mentioned tools. Third, a project involves an implementation process. In the implementation process, a GANT chart is employed which not only defines functions, but also sequences and provides timelines for each function in the project. A responsibility chart is then employed to determine who will perform each function and the type of monitoring required. A PERT chart is employed to monitor ongoing functions, processes, and timelines and to reveal which

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Internal Interest Groups

Agency Structures

Steering Committee

PROJECT TEAM

External Interest Groups

Exhibit 9.3. Project Structures and Management Processes

▼

Planning Tools

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PROJECT MANAGEMENT PROCESS

Implementation

Evaluation

Tools

Tools

1. Needs Assessment

1. GANT Chart

1. Within Tools

2. Problems / Solutions Analysis 3. Logical Framework

2. Responsibility Chart

2. Between Tools

3. Logical Framework

4. Budget

4. PERT Chart

5. Executive Summary

5. CPM Method

3. External a. Cost / Benefit b. Infrastructure c. Capabilities

▼

▼

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Monitoring Process

functions must be performed in what sequences to meet deadlines. Then a Critical Path Model is developed to locate the existence of slack time in personnel, resources, and so forth, for use in case of problems and to determine how they might be shifted around to minimize the effects of problems in meeting performance targets and deadlines. Fourth, a monitoring and evaluation process is employed to see that functions are performed in an adequate and timely manner, budget targets and performance targets are met, and the costs involved are worth the benefits gained. In addition, evaluation requires that the appropriate infrastructure is in place and working, and staff capabilities are maintained and updated as required within time and budget limitations. Finally, one measures the quality and quantity of service provided and the satisfactions with these services.

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Agencies and governmental units are established and maintained through project management and the levels and quality of services provided are measured and improved within a project framework. This top down, funded legislative mandated project management team, planning, implementation, and evaluating framework is the most commonly used means for developing and implementing new programs. However, sometimes new programs are mandated with no new funds, programs are downsized based on diminishing funds, or agency heads seek to improve a unit’s performance with minimal funding. Then project management gives way to continuous improvement programs.

Continuous Improvement Strategies for Ongoing Change In chapter 5, we discussed the importance of building continuous improvement systems into government management. In chapter 6, we discussed the application of these ideas to the GE transformation led by Jack Welch. In this section, we developed the use of these ideas to reeingineer government performance. Continuous improvement programs serve three functions. First, they attempt to improve an organization’s productivity, quality, and response time. Second, they place management, workers, and teams in a system of interrelationships which are creative, motivating, priority based, objectives-oriented, and competitive in performance outcomes. Third, such systems reduce the cost of ongoing programs and improve the organization’s performance levels in measurable and rewardable ways (Cushman and King 1995). After a decade of research by universities, consulting firms, and organizational training divisions, we can conclude that organizations are having very limited success with continuous improvement programs. Studies conducted across national and geographic boundaries indicate that 70 percent of all such attempts fail to meet organizational expectations and that most continuous improvement programs are discontinued within two years (The Economist, 15 January 1994). It is equally shocking to realize that 70 percent of such programs fail to meet the expectations of the organizations which started them. Many successful governmental organizations in the world report that continuous improvement programs are the primary reason for their organization’s success. Only recently have we began to understand how the structure and functions of unsuccessful and successful governmental continuous improvement programs differ (Obloj, Cushman and Kozminski 1995). First, there are major differences in successful and unsuccessful organizations in the learning ability and levels of training provided to employees. In Singapore, the top 1 percent of college graduates go into public service; in the United States the top 20 percent of college graduates go into the private

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sector. There are major skills and abilities to learn differences between these two groups. Second, successful organizations had a full array of continuous improvement tools available to managers and employees (i.e., self-managed, crossfunctional, benchmarking, and outside linking teams) and provided specific training in the most successful versions of each type of program while unsuccessful organizations did not. Third, successful governmental organizations modified continuous improvement tools to fit the unique hierarchical management systems they employed, while motivating performance through competitive peer pressure and institutionalizing inhouse learning from the organization’s most successful units. Thus, let us explore: first, one model of a successful continuous program, and second, outline several examples of its effective implementation. One Successful Model of a Government Continuous Improvement Program The main goal of a continuous improvement program is to adjust governmental priorities, strategies, and structures to changing environmental demands. The theory of continuous improvement is primarily drawn from practical knowledge and empirical research. The theoretical framework is established by answering the following key questions. • What demands do a government’s citizens place on governmental services? • How are these demands to be prioritized and funded? • What are the world-class standards for meeting these priorities? • What areas must government improve to develop these world-class levels of performance? • Which tools and applications can our government best employ in meeting these world-class performance levels? Let us examine one world-class continuous improvement system and how it not only minimizes the pitfalls of failed continuous improvement systems, but also maximizes the motivation, performance, and learning tools of successful continuous improvement programs, while adapting governmental administration to the changing needs of its citizens. This continuous improvement program is called “contract management” and it proceeds in seven stages. First, the president/ chief executive and/or governmental ministers in conjunction with the legislature recognize the changing needs of its citizenry and

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draw up legislation with no funding or a cut in funding to meet that need, or an agency head seeks to improve his or her unit’s performance with limited funding. In so doing, they functionally prioritized the solution of these problems and set expected performance outcomes (i.e., to reduce unemployment 10 percent by increasing participation in existing on the job training programs). Second, the head of the governmental agency involved with the new mandate and lack of adequate funding in hand, overviews his/her current organization and provides a new set of priorities and performance level for his/ her staff (i.e., we must expand the current participant levels of our on the job training programs by 20 percent, because only 50 percent of on-the-job trainees get permanent jobs. That improvement will in turn reduce unemployment by 10 percent. No new funding is available for this effort). Third, the heads of each job training program calls his or her staff together and forms multiple teams within each unit to draw up and prepare projects for meeting these needs. Each team is given training in self-managed, cross-functional, benchmarking, and outside linking teamwork, but also given the freedom to propose alternative solutions to this problem. One team decides to benchmark the Singapore government and Japanese governments on the job training programs in order to obtain a solution. Another team employs cross-functional teamwork including successful and unsuccessful jobholders from existing programs. A third team places on the job program trainees and employers in a self-managed team to solve the problem. All are asked to explain what before and after measures will be employed to demonstrate at least a 10 percent increase in new permanent employment levels for each proposal with no new funds. These proposals are then reviewed by the head manager of each existing program and either accepted or revised based on at least four criteria: (1) are the plans appropriately given no new resources; (2) are the teams staff appropriately trained to implement this program, or do they need and can we provide the appropriate training; (3) does the solution being provided exceed one unit’s span of control and if so can we proceed and how; and (4) does the program show promise of meeting the target? Fourth, each team, implementing their plan, must provide before and after measures of their results in meeting the proposed targets. The benchmarking team implements their program and has achieved a 20 percent increase in job placement. The cross-functional team implements their proposal and gets a 10 percent increase in job placement. The self-managed team implements their solution and gets a 5 percent job placement, and so forth. A five-page report is prepared on the success and problems involved in each solution. Fifth, the head of the job training programs then subjects each report to peer review. Each team is asked to rank order, based on effectiveness, all the

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reports excluding their own. Peer review is undertaken for three reasons. It allows each team to learn from all the other teams. Peer review is always the most informed and most critical evaluation which can be provided, because all workers are knowledgeable and involved in the same task. The rank ordering of team performance creates a competition and learning environment for all teams which provides high motivation in the next attempt to continuously improve. Sixth, the peer reviews on each team are then made public and can but do not need to be included in each individual’s annual performance appraisal. Such an inclusion creates three important performance outcomes. It provides a measure of an individual’s team effort. It provides an across individuals evaluation of performance not directly tied to one’s supervisor. It provides increased pressure to improve performance in the next try based on peer perceptions. Seventh, one begins this process all over again with either the same or new set of priorities and targets. Normally, such cycles in government are three to six months in time. Such continuous improvement programs have several unique features which enhance governmental performance. Note that on future attempts to improve, most teams will attempt to far exceed the targets set in order to gain peer approval. This process creates a culture in which change, top-down and or bottom up, is readily accepted because it is initiated so frequently from the bottom up. While removing the manager’s individual responsibility for evaluating success or failure, it makes management an integral part of the team process. It allows each team to set its measures of performance with management approval thus allowing for consensual measures of performance. Finally, multiple teams at work in each agency or unit have an additive and sometimes even a multiplicative effect on organizational motivation, learning, and performance, subsequently lifting productivity, quality, and response time.

An Outline of Several Examples of Successful Project Management and Continuous Improvement Implementations Successful improvement programs have been used in (1) the Malaysian Ministry of Education to reengineer its technical education system by benchmarking the Singapore, German, and American technical educational systems (MTDI 1996); (2) the Egyptian Ministry of Agriculture to privatize agricultural programs in the upper Nile, by employing cross-functional teams to develop marketing, sales, and distribution functions for their organizations (MTDI 1996); (3) in Poland by the Ministry of Commerce to create medium and

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small-sized food service businesses run by women through project management teams (MTDI 1996); (4) in Asia, Africa, and Latin America by USAID and UNDP to provide project management training for over two hundred government officials; (5) the Australian Victorian Public Service to establish a senior executive service and contract management system, employing performance outputs-oriented project management which substantially improved governmental performance (Cullen 1986); and (6) Australian national and state governments in order to reengineer and consolidate its institutions of higher learning through outside linking programs among colleges and universities (Office of Higher Education 1992). Recently, two important global institutions have set up research centers which publish benchmarking studies of global and national governmental continuous improvement efforts. First, IMD located in Switzerland publishes annually The World Competitiveness Yearbook (earlier versions were titled Report); it evaluates about fifty of the world’s government’s performances and provides an economic climate conducive to private sector growth. This report evaluates and ranks orders and governmental performance in regard to infrastructure development, labor force performance, taxes, and governmental management based on the attractiveness of each nation for global private investment. Individual strengths and weaknesses of each nation are provided and serve as international benchmarks for world-class governmental performance. Second, two members of the public sector consulting group, David Osborne and Ted Gaebler, published a book entitled Reinventing Government (1993). This book includes detailed presentations of over one hundred innovative governmental programs which were successful and thus can serve as benchmarks of administrative excellence. These two sources of benchmarking excellence can serve as international standards for improving excellence in competitiveness. They create executive, legislative, and citizen pressure to reinvent and reengineer government, and provide more efficient programs which can deliver better services to one’s citizens. Dr. Stephanie Garelli, Director of the World Competitiveness Project (Garelli 1994), put the issue clearly: The problem of advanced industrialized nations, and especially in Europe (the Americas and Asia), is precisely the cost of their value system. It is absolutely acceptable to desire a more comprehensive health, unemployment or pension system. It is understandable to wish to work less, to have more leisure, to pay fewer taxes and to protect the environment. However, there is a price to pay. For a country, the value system is like the overhead costs in a company. They have to be paid in priority at the beginning of each budget year. Competitiveness should provide the necessary wealth creation to pay for the value

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system a country has chosen. The more sophisticated the system, the more competitive the country has to be. The dilemma is that, if a country loses its competitiveness, then it cannot afford to pay for its value system anymore. In a first stage, governments step in to soften the reality. This is what they did in the 1980s through massive public spending. Eventually, however, their level of indebtedness becomes such that they are confronted with the delicate alternative of either reducing the cost and the scope of the value system, or significantly increasing competitiveness. To be competitive, a government must shift to an output performance-oriented management system, effectively employ project management and continuous improvement programs, and be evaluated against the best governments and most effective programs in the world, or lose its competitiveness and modify its value systems to fit within its diminishing resources for implementing that value system.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT In this chapter, we build on the transition management and impact management tools discussed earlier. Three performance improvement tools can be used to implement transitions to high-response management: performance contracts to focus the activities of high-response organizations; project teams to lead change and enable managers to manage cycle time directly; and continuous improvement functions to commit new structures to ongoing strategic change. Although the general framework of the changes required to build a new government management platform have been discussed in earlier chapters, this chapter demonstrates various systemic dangers, which those who attempt government management reform must address. First, there is a danger that devolution will segment existing central powers, and enhance the power of megaagencies and their leaders, without impacting on delivery units. Second, there is a danger that the new solutions will allow flexibility between megaagencies but will continue to impose uniform solutions on delivery units. Third, there is a danger new structures will be implemented without the management skills or systems required to control and lead them. Fourth, there is a danger that the new management platform will be seen as a static alternative to the traditional platform it replaces. The new platform must change to support an ongoing transition. Where changes do not occur, government systems face ongoing interventions and discontinuous changes. In the end, such interventions are wasteful of resources, sap the morale of public sector managers, and stretch the credibility of a public waiting for some signs that the Goliath has at least turned. How

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might the change process be protected from these dangers? The answer is to evaluate the reforms in the same way the reformers argue that agency management should be evaluated, in other words, focus on noticeable changes in results. While it is necessary to also monitor surrogates like system changes, for example, strategic plans, and financial deregulation, the end evaluation is not whether these are implemented or whether the government power base has shifted, the test is whether all this has generated noticeable improvements in national competitiveness and in service to the public. Osborne and Gaebler present a powerful model for moving beyond systemic reform. They focus on best practice examples, on pilot changes, and on experiments leading to improved performance. The strength of Osborne and Gaebler’s work is that it benchmarks examples of best practice. The reform proposals developed by the National Performance Review are extensive, but are they enough to overcome the problems identified? The danger implicit in the implementation of these ideas in the U.S. government are: cycle time will stretch rather than shrink; the system will impose its own uniformity; the central political controls will not be altered to enable units to deliver value; and collectively the system will be unable to alter internal funding priorities fast enough to respond to new opportunities rather than deficits. The need to strengthen the implementation strategy in the U.S. is becoming apparent. Mission overlaps and fragmentation are widespread (Mihm 2000). Middle level jobs have proliferated and job design remains bureaucratic (Light 2000). The continuous improvement process seems to be addressing second and third order problems. J. Christopher Mihm, arguing the need for ongoing reform, concludes that focusing delivery agencies on results does not come quickly or easily. Donald F. Kettl (2000), reviewing progress, suggests that, while much has been achieved, two key deficits remain: “government’s performance deficit—the gap between government’s goals and its results—and its confidence deficit—citizens’ trust in its ability to get its job done.” We argue that performance-based structures, value-chains, and personnel and resource management systems are required to implement particular transitions to competitive government reform. Change management needs to protect the system from the twin threats of reversion and inertia by ensuring that oneoff changes are irreversible and, by building into each, change processes that commit the system to ongoing evaluation and improvement.

Chapter 10

Resource Management Strategies for Competitive Government

Normal government budgets encourage managers to waste money. If they don’t spend their entire budget by the end of the fiscal year, three things happen: they lose the money they have saved; they get less next year; and the budget director scolds them for requesting too much last year. . . . Most managers work in government to make some positive impact on their community. That opportunity is available only to the degree that they can get control over resources. . . . Results oriented organizations find they ultimately need to develop budget systems that fund outcomes not inputs. —Osborne and Gaebler, Reinventing Government Most government crises involve a budget deficit which government is unable to manage effectively. The crisis can be triggered by overspending or by an erosion of the revenue base caused by a lack of competitiveness, or simply by a failure to respond to changing revenue realities. Attempts to make government more responsive without removing blockages caused by traditional resource management systems encounter two terminal problems. First, key reform priorities are subsumed by an ongoing series of budget and related comfort zone crises. Second, resource inertia negates attempts to shorten cycle time and often introduces new delays. The need to implement major changes while also reducing overall expenditure creates particular problems for government. Government seeking to address new priorities must find ways to cutback expenditure on old priorities. In particular, government has little option but to focus on programs that 251

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create new wealth and employment. The impact of these changes on comfort zones must be managed skillfully. Each reduction disenfranchises some interest group or other and provides a focus for those who wish to erode the scope of government to govern. Responding to this crisis requires government to reinvent and reengineer the way in which they allocate and manage resources. Most government budgets are input not output driven. Most government budgets focus on accessing resources and allocating resources between competing needs. Most forward financial projections are little more than bids designed by agencies to access new funds and protect existing funding. It is not therefore surprising that attempts to reform government management must address the need to manage resources differently. This section discusses the changes to resource management required to support a transition to high-response government. We discuss the need to manage an emerging fit between the sources and applications of funds, and we discuss the need for budgets which focus on results, on costs, and on prices rather than on inputs such as staffing numbers and line items of expenditure. Finally, we present an action plan for a transition to results focused budgets.

Strategies for Improving Government Resource Management The role of budgets in government differs from the role of budgets in business. The role of budgets in government is: (a) to access funds frorm various sources; (b) to regulate access to those funds; (c) to manage the tensions created by the need to allocate funds between competing needs; (d ) to ratify the negotiations required to achieve political and public support for government; and, (e) to provide a basis for compliance auditing, which essentially seeks to ensure that funds are spent for the purposes allocated. Many attempts to reform government resource management systems address only part of the resource management problem. For example, initiatives like program budgeting, while they certainly reshape reporting and allocative tensions, are unlikely to solve the problem of ongoing government deficits; they seldom shift the emphasis of resource management towards the sort of grass roots results the public expect from government. Strategies which enable government resource systems to support the transition to high response government are outlined in Exhibit 10.1. Improving the Performance of Government Resource Management. We will now examine each of these objectives, managing resource balance, and, shifting to results-based budgeting, in more detail.

Exhibit 10.1. Improving the Performance of Government Resource Management

Resource Balance Manage government activities to balance available and required resources without diverting government focus away from the delivery of key performance objectives

• Extend the financial planning horizon to coordinate growth in revenues and expenditure to ensure an emerging balance and to minimize short-term disruption caused by short-run cuts and the long-term disruption caused by excessive debt • Manage the revenue base to raise funds with competitive impacts • Manage the expenditure base—ensure that funding projections accurately reflect real needs and priorities • Restructure budgets to reduce allocative tensions

Results-Based Resource Management Move the focus for accountability away from detailed line item and associated input measures towards an evaluation of total real expenditures against results

• Change traditional resource management systems to provide managers with the scope to manage overall resources to produce agreed results and the scope to treat cycle time as a management variable • Focus budgets on results by linking budgets to performance plans, expanding project management of funds, expanding transaction and output linked funding, and reducing general overhead expenditures • Evaluate expenditure against planned budgets and results

Impacts or Verification Outcomes • Balance government budgets • Increase the lead time available to managers to vary resources

• Competitive revenue impacts growing revenue base • Reduce systemic pressure which increase costs, extend cycle times, and minimize evaluation • Reduced budget allocative tensions • New approaches to legislative mandates • Managers able to reallocate within defined levels to manage delivery priorities and to opitimize cycle management • Budgets driven by future rather than past priorities. Increased proportion of budget linked to specific results • Increased proportion of budget available for reallocation each year • Effective variance reporting as part of the budget cycle

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MANAGING RESOURCE BALANCE Faced with budget cuts in a short period of time, politicians will initially choose to do one or more of the following: • Freeze all hiring, promotions, and periodic cost-of-living pay increases. • Mandate across-the-board percentage cuts leaving the means to the discretion of functional managers. • Eliminate whole departments or programs. The adoption of these broad-stroke tactics rather than the careful implementation of detailed efficiency improvements is a function of the bureaucratic and political realities of government. —Downs and Larkey, The Search for Government Efficiency Managing resource balance is important to government for two reasons. First, if emerging resource gaps are not controlled, performance is disrupted by the inevitable short term cuts. Second, market signals, which act to coalign expenditure and results in business systems, are of limited value in coaligning government systems, where the distance between those who pay and those who receive the benefits of spending is often vast. This enables governments to spend large amounts of money without generating comparable real benefits. One function of budgeting is to allocate resources to produce cost effective added value. Another is to manage allocative tensions by responding in a measured way to various interest groups. These two functions often generate opposing tensions. As we have discussed in chapter 4, added value is often related to cycle time. While we have also suggested that cycle time can be used to manage comfort zones, governments often attempt to manage comfort zones by extending cycle time and starting as many projects as possible. The rationale for this strategy is that, in general, governments gain more popularity from starting projects than from finishing them. Governments can easily trade project starts for cycle time. The more projects they commence, the longer each will take to complete. The weakness in this strategy is that lengthening cycle time reduces both actual added value and public perceptions of value. As the focus shifts to results and performance, government needs to target resources, reduce the number of projects they commit, and manage impacts to obtain positive comfort zone impacts. We have discussed in previous chapters approaches to identifying priorities and managing positive

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comfort zone impacts. Budget reform must also address the new allocative pressures which targeting and extending the budget planning horizon places on budget systems. Unless these pressures are managed effectively, they will impact directly on the comfort zone by making government more difficult. Exhibit 10.1 outlines three strategies for managing resource balance: extend the planning horizon, manage the revenue base; manage the expenditure base; and restructure budgets to manage allocative tensions more effectively.

Extend the Planning Horizon The first requirement for resource balance is to extend the planning horizon in order to manage and contain emerging gaps. The key to effective resource management reform is to establish a basis for the long term viability of government which does not depend on overspending. Exhibit 10.2. Managing Government Resource Balance outlines the elements which must be managed to balance resources. The first point to make about the process is that resources always balance after the event. If the process is not planned, the usual balancing items will be borrowing or funds provided by creditors. The resource balance must manage the sources and application of funds to achieve an emerging resource balance. When government fails to plan these elements and deficits blowout during the year, they have only two options: they must arrange emergency sources of funding usually through borrowing or delaying payments to creditors; and they must freeze or reduce expenditure immediately. Expenditure freezes are best implemented by intervening to control inputs; for example, by freezing or cutting staffing and halting purchasing. While these devices are effective crisis management tools which deliver a short-run control, the impacts on programs, agencies, and results are indiscriminate. Even where governments manage to develop short term fixes to budget shortfalls, many governments find that they lurch from one such problem to another.

Manage the Revenue Base The revenue base of government needs to be adjusted and it needs to address changing expenditure patterns and needs. Exhibit 10.2 identifies four sources of revenue: activity linked revenue, for example, service-based charges, general revenue from taxes and charges not specifically levied on the users of particular services, asset sales, and borrowing.

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Exhibit 10.2. Managing Government Resource Balance RESULTS

TAXES AND CHARGES

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FORECAST ACTIVITY MEASURES Capital Projects Change Projects Transactions—User Funded Transactions—General Funds Other Programs

RESOURCE INPUTS Staffing Purchases

Price/Unit Costs per Activity Measure

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Direct User Fees

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STRATEGIES FOR ACHIEVING RESOURCE BALANCE Increase supply Increase user charges / increase general taxes and charges / asset sales / reduce working capital. Decrease expenditure Reduce activity forecasts / alter activity mix / reduce unit prices / increase savings targets / increase efficiency.

RESOURCE UTILIZATION Required / Available Resources

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RESOURCE SOURCES

Borrowings Asset Sales

Changes in Working Capital

GOVERNMENT CHANGE

RESOURCE APPLICATIONS

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The capacity of government to raise revenue is increasingly limited by public perceptions that they are not receiving value for taxes they already pay and by globalization and the difficulty which individual governments face in sustaining uncompetitive tax structures. The scope for government to increase general taxes and charges is increasingly limited to the impact of growth and inflation on tax scales. In addition, there are growing pressures for tax reduction in many countries. For many governments, the major options to raise additional revenue are to sell assets, to expand activity linked charges (user pays), and to introduce special, one off, levies to address issue of major national concern. These solutions address specific concerns and fall short of the old solution which delivered to government an ongoing license to spend.

Manage the Expenditure Base The expenditure base of government needs to be managed to match emerging sources of funds and to reflect a realistic assessment of needs and priorities. The strategies available to reduce expenditure depend on the time available. Where the time available is short, the crisis management tactics discussed earlier must be used. Managers have little scope to protect core priorities or even to ensure that the cuts do not create an ongoing succession of crises as service delivery breaks down. Where a longer time period is available, managers can dimension the real need for cuts; they can manage the impact on results strategically. There are several proven strategies available to support crisis driven reductions. Controls such as staffing-level freezes or even constraints, bans on new purchase contracts, and even centrally managed redundancy programs are the most effective way to prevent governments from spending in the short term. The strategy stops managers’ spending, and the savings simply appear in expenditure budgets were they fall. The distribution of reductions is driven by the need to stop spending not the need to reallocated internal priorities Averaging reductions across all agencies on some form of pro rata or equal common misery rule reduces budgets but erodes the scope for all areas of government to perform. A variation is the forced savings or sinking lid schemes where managers know there will be an enforced savings each year. Auditing programs, to identify areas where reductions must fall and identify new initiatives which must be funded and impose a macrobudget strategy on agencies, may appear to be the least wasteful approach, but the cycle time required is somewhat longer and the comfort zone pressures from interest groups can be more difficult to manage. Managing the emerging expenditure base requires government to address three realities. First, there is major scope to reduce most government budgets

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without reducing core activity levels. Second, the way to implement cuts without reducing impacts is to avoid input controls and to devolve to managers the scope to manage value-chains and introduce discontinuous change. Third, the actual operating changes required to deliver given reductions are less than suggested by forward plans. Most planning bases are inflated by planning systems used by managers to protect the real base from review and the impact of cuts. The most effective solution is to change the budget planning methodology to eliminate such overestimates. Where this cannot occur, it is important that operational managers work off more realistic measures. The Scope for Cost Reductions Most experts who have examine government expenditures see scope for major cost reductions and major service improvement. Many government managers claim they have been cut to the bone, and there is no further scope to cut resources without eroding services. The evidence which is available supports both viewpoints. There are cases of dramatic cuts with service improvement. There are cases of dramatic service improvement without budget increases. And there are examples of cuts eroding service to the public and the capacity of government agencies and systems to respond to future needs. Three factors which explain the scope to cut government expenditure. First, governments tend to fund new projects and growth but seldom reduce resources when projects are completed or transaction levels reduce. In addition, governments tend to overfund activities that are becoming less important and underfund initiatives that meet new needs. Often it is far more difficult and takes far more time to close down a failure than it takes to start a new project. There is usually obvious scope to reallocate base resources and, except early in the term of new administrations, there is seldom much commitment to do this. Second, government tends to focus the majority of resources on support and management activities rather than on service delivery. This is particularly evident where activity levels are decreasing. In many areas simply requiring two-thirds of resources to be directly linked to core outcomes requires in excess of a 10 percent to 15 percent shift in expenditure profiles. An effective audit of expenditure will not only improve future control by linking resources to results, but it can be expected to identify savings of at least half of the profile shift. Third, the overregulation of government inputs provides control at a considerable cost. Government managers indicate quite clearly that deregulation which provides them with the flexibility to manage resources will achieve savings. Many managers see these costs as worth 5 percent to 10 percent of budget outlays. Putting these elements together, it is easy to see why savings are readily achievable in many agencies. However, there are several prerequisites for

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implementing such savings without eroding services: managers must be convinced that these savings are achievable; the core outcomes to be protected must be agreed; implementation must be devolved to managers with the flexibility to negotiate and manage implementation impacts; and, finally, those managers must be provided with assurances that performance will not be penalized in future budgets. The Need for Realistic Forward Expenditure Projections There are inbuilt factors which inflate budget projections for government expenditures. The traditional control mechanism is to cut back plans as part of the budget process. A superior strategy is to eliminate the planning inflation before attempting such adjustments. Traditional government budget systems do not start with the actual expenditures the previous year. Instead, they start with a modified budget base which is an attempt to forecast the cost of continuing all current activities for a full year plus growth required to implement policy initiative previously agreed, less an arbitrary assessment of savings achievable. In times of growth, this approach to budgeting has the advantage of fully funding past commitments and of focusing allocation pressures on the growth component of the budget. In times of cutback, the approach is destructive because it tends to overstate the real reductions which must be made and maximizes the threat to all the interest groups who feel they have an interest in protecting some part of the budget base. There are five specific weaknesses in the traditional approach to projecting future expenditure needs. First, while it is important to adjust budgets to reflect realistic cost increases, it is a mistake to fund agencies who agree excessive increases or who create major additional costs by effecting promotions without offsetting savings. Second, while government accounting systems can measure what was actually spent the previous year, attempts to project the full year expenditure from a current monthly expenditure base are almost always flawed. For example, expenditure varies within a year. Staff join the organization and staff also leave. Staff are promoted but some staff who leave and are replaced at lower level positions. Forecasting, methodologies seldom address these factors effectively. Third, by funding inputs, the traditional approaches shift the focus away from the scope to reduce budgets where activities are reducing. Although many budget processes focus on areas of growing transactions, the real scope for savings in both direct expenditure and overheads is usually in areas of reducing transactions. The scope to make automatic adjustments to the base for changes in activity levels is considerable. In the case of reduced transaction levels budgets should seek to remove full unit costs. In the case of growth,

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government should seek to fund this at marginal cost. The benefits are not simply that the base is more realistic, the major benefit is the impact on comfort zones. Many reductions become invisible. Fourth, the focus on additional funding for new initiatives is seldom balanced by a realistic assessment of the reductions (or savings) available because previous initiatives have been completed. Government expenditures usually comprise a mix of core activities and services and one-off projects to deliver particular changes and benefits. The core activities need to be linked to core activity load and productivity assumptions over time. Project activities need to be evaluated against project plans that are one off in nature. A major weakness in the design of government budget frameworks is that they focus on global budgets which mix up these two activities. The effect of many planning systems is to lock project expenditure into the global base. Although it may be necessary to complete a project to earn these funds, the real bonus for an agency is that, after this is completed, the funds keep rolling in forever, or until they need to be used to absorb some “arbitrary” cut. Fifth, incremental approaches to resource allocation fail to manage resource reductions. Attempts to lock in a budget base which meets existing commitments and focus the allocation on new initiatives, work effectively in times of growth. However, the incremental policy approach runs into serious trouble when it seeks to allocate decreases in resources. In cutback situations, the base cannot be protected, the funding shortfall is overstated, and the impact of cuts is maximized. In addition, incremental systems, especially when combined with ineffective evaluation of outcomes against plan, tend to reward inefficient managers who overspend by leaving at least some of the overexpenditure in the base for the next year. There are many options for reducing these weaknesses. One attractive solution which can eliminate many of these weaknesses and refocus many government management tasks is to move to results-based budgets. When government learns to view budgets as a means of purchasing added value, in terms of transactions or projects, and when managers define their task as delivering these results within a defined resource envelope negotiated on the basis of volumes and prices, the budget debate shifts from a focus on protecting inputs to a focus on producing outputs and onto the price of those outputs. Specific strategies for managing a transition from the traditional budget system to a results-based budget system are discussed later.

Manage Allocative Tensions The issue is not simply about budgeting to resource what is to be done. Government budgets must also plan what will not be done. While there are

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many options which increase budget flexibility and increase the scope for government managers to manage, they all impact on comfort zones. Reform of budgets which do not refocus the allocative tensions which government must manage almost always fail once the immediate crisis has passed. The traditional budget system manages allocative tensions by fixing the budget cycle and focusing allocation on new growth. There are two compelling reasons why this simple solution must change. First, as discussed above, the process of cutback management requires an extension of the planning cycle. Second, the need to devolve management and to provide managers with the flexibility to manage cycle time and cycle impacts means that commitments cannot be queued continuously through a centralized annual budget cycle. Government approaches to resource management must now address wider tensions unleashed by cutbacks and rapid change. They do this by segmenting the old tensions into at least three levels and by devolving the management of implementation of overall decisions to managers with an understanding of the options and the power to vary detailed priorities and manage impacts. The first level of tension is the overall allocation to each result area. Result areas are usually defined in terms of major programs or megaagencies. The second level of tension is the allocation within that result area to an agency, bureau, project, or special purpose program. In part, these tensions focus on the relative worth of outputs and the weighting which should be used to allocate between agencies and activities. The third level of tension is cycle time tension. Participants compete to start programs and to obtain the benefits. The temptation for many governments is to start too many projects and finish them too slowly. While this may appear responsive, it actually slows down cycle time and creates uncertainties about the delivery of benefits. Strategies to manage this are discussed below.

RESULTS BASED RESOURCE MANAGEMENT Streamlining the Budget Process (an action plan) • The president should begin the budget process with an executive budget resolution, setting broad policy priorities and allocating funds by function for each agency. • Institute biennial budgets and appropriations. • OMB departments and agencies will minimize budget restrictions such as apportionment and allotments. • OMB and agencies will stop using full-time equivalent ceilings, managing and budgeting instead with ceilings on operating costs to control spending.

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• Minimize congressional restrictions such as line items and earmarks and eliminate FTE floors. • Allow agencies to roll over 50 percent of what they do not spend on internal operations during a fiscal year. —Vice President Al Gore, Creating a Government That Works Better and Costs Less Although they are far from solving the issues of results-based budgets, the current U.S. reforms call for an extensive dismantling of the traditional systems and a serious attempt to combine devolution with a focus on results to drive a new approach to financial management. The second key objective in Exhibit 10.1 is to manage resources to deliver results. Shifting the focus of financial management from “gatherer, custodian and dispenser of funds” to “ensuring that funds add value and deliver priority results” is a major challenge for government systems. Results focused resource management needs to shift the government role from input allocations to the purchase of services. The idea of government budgets as a vehicle for purchasing services fits well with questions about added value and the cost of services. There are many reasons why the shift to results focused budgets is so demanding. First, government systems seldom address results or evaluate them in the short term. Second, government systems seldom fully cost services transactions or projects. Instead, they measure direct costs and sometimes simply incremental costs (the additional costs which cannot be met from existing allocation). Third, the source of funding is often remote from those who receive the benefits. Fourth, the delivery of results is often decentralized and managed separately from the centralized financial budgeting process. While there has been much discussion of the need to move to resultsbased budgets for government agencies, strategies to achieve this are more difficult to find. In this section, we identify a number of key issues which must be addressed and then present a strategy for reform.

Managing the Transition to Results-Based Budgets Exhibit 10.3. Action Strategy for the Conversion to Results-Based Budgeting details a strategy for moving to results-based budgeting. Develop the Links between Activity Levels and Expenditure The first two strategies develop the link between activity levels and expenditure outlined in Exhibit 10.2.

Exhibit 10.3. Action Strategy for the Conversion to Results-Based Budgeting

Develop links between activity levels and expenditure (1) Measure real expenditure in the year. Categorize base funding in terms of result categories

Measure accrued expenditure. Categories: capital expenditure— project expenditure—transaction linked program expenditure— fixed program expenditure

(2) Link these categories to activity measures to explain actual funding levels

Activity measures yield average transaction or project costs. Project and capital commitments that extend beyond a single year require assumptions about commitments carried in and out of the year.

Conduct a value audit of base expenditure (3) Review activity costs against assessment of value and alternative sources of service

Benchmark areas of expenditure and value against the costs of other governments and of purchasing services from business

Project future expenditure on basis of expected future value (4) Use amended activity costs plus forecasts of changes in activity levels to forecast future budget requirements. Include discretionary component to enable managers to respond within a year.

The projection needs to allow for planned savings, projected price increases. Changes in project expenditures need to be decided against project priorities. Changes in transaction expenditures need to be measured against transaction volumes. All budgets should include a discretionary component of at least 5 percent.

(5) Balance the match between value projections and available funding

Balanced achieved by altering savings targets and varying activities

Fit future value projections to resource projections (6) Balance the fit between projected value of results and projected input costs by adjusting priorities

Reduce input resources to deliver estimated value or to create savings. Priorities: target direct resources—reduce overheads— eliminate noncritical projects

Audit results against plan (7) Audit results against planning expenditures and added value

Actual compared with planned expenditures requires an analysis of variance. Audits of added value need to link PIPES plans and project plans to expenditure.

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Results-based financial budgets require some version of accrued expenditure. While the difference between accrued expenditure and cash must be managed by the system, the primary focus of expenditure budgeting and evaluation needs to be expenditure related to the period, not simply the bills that were booked or paid. The payoffs from managing cash more effectively in government are considerable. The traditional solution is to centralize this function and to float on the commitments of agencies. A better solution is to focus on real expenditure commitments and decentralize working capital management to operational agencies. One strategy is to change agency expenditure for working capital drawdowns. Similar benefits can be derived from projects by crediting project budgets with planned holding costs and charging project funding against project budgets until the project is completed and funding returned for reallocation. The suggested classifications, capital, projects, user resourced transactions, other transactions and fixed expenditure identify activities which can be subjected to different allocation and control regimes. The result of these stages is an explanation of base funding in terms of activities and unit costs. An important element of the strategy is to expand the component of agency budgets managed as projects. Project allocations are one-off allocations for the life of a project. They are exempt from macrosavings reviews but not necessarily for a review of progress against plan. Project managers are provided with flexibility to manage timing and impacts within overall spending envelopes and profiles. The implementation of this strategy provides project managers with increased scope to manage; it provides new scope to commit new projects as projects are completed. While it might be argued that traditional budget tools provided this scope through arbitrary cuts, this approach has the advantage that does not require arbitrary cuts at all. Conduct a Value Audit of Base Expenditure The third strategy is a value audit of the base. The idea is to consider unit costs and value against various benchmarks. The full costs of government outcomes often provide a useful basis for an examination of value and for a consideration of alternative delivery options. The outputs of the value audit are proposals to increase total value by changes to delivery strategies, to unit costs, or to the mix of activity levels provided. Many reform programs require governments to tender or outsource services. While these strategies are more successful in some areas than others, they provide an important shift in the focus of managers. They require managers to identify full internal costs; they focus management on the twin issues of value and price.

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Project Future Expenditure on the Basis of Expected Future Value The fourth and fifth strategies project future expenditure needs and bring these into balance with projected sources of funding, using the various balancing options discussed earlier. These value projections need to define a resource envelope within which operational managers can manage cycle impacts. A key objective is to break the nexus between the budget cycle and the response cycle available to managers. Fit Future Value Projections to Resource Projections The sixth strategy is to devolve to operational managers the scope to manage actual input costs against the value derived from particular results. Operational managers need to target available input resources, reduce overheads, and eliminate low priority activities in order to deliver this balance. This presents an interesting contrast with the traditional budget process which cuts inputs resources and then leaves the manager to attempt to produce planned activity levels. Audit Results against Plan The seventh strategy is also an essential input to each successive budget cycle. The strategy requires a comparison of performance against plan combined with action to ensure that managers who perform are rewarded and managers who fail to perform are not.

Resource Management Reform and Cycle Time Management There are three reasons why resource management reform is central to the transition to competitive government. First, the reforms make better use of available resource. Second, reform allows government to manage allocative tensions more effectively. Third, reform is necessary to break the nexus between budget cycles and project delivery cycles to allow managers to shorten cycle times? Where planning systems and strategic leadership develop the scope to scan the environment and develop flexible strategic priorities, it is important that these not be marginalized by the budget system. There needs to be an ongoing review of core priorities, not on the basis of old and new but on the basis of current and future needs. Meeting emerging needs requires budgets that do nor commit 110 percent of available resources and which involve an ex post facto review by external experts of the relevance and performance of each agency and program. Responding to changing external pressures, requires government to anticipate selected needs and change to the budget base to ensure it is focused

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on current and emerging priorities rather than on past priorities. New administrations seem relatively able to do this. However, the older a government grows the harder it finds this process of closing down its own failures or of recognizing that priorities, which seemed sensible a few years ago, are no longer relevant. How can the transition to results-based budgets break the nexus between budget cycles and project delivery cycles to allow managers to shorten cycle times? Results-based budgets meet two key needs of high-response management, First the system enables base priorities to be aligned with future and emerging needs more rapidly. Second, the system provides a new flexibility for operating managers to manage inputs and cycle time. These flexibilities can be extended by exploring a number of business-government comparisons. More Responsive Base Funding Priorities The focus on outputs and the value analysis assists planners to identify slack resources or areas which offer declining value. The focus on activities enables new priorities to be identified and inserted in the budget cycle. Shifting base priorities more responsively assists operational managers to manage cycle time. In the traditional system, managers who understood the need for change were forced to battle endlessly to find the organizational slack, in terms of spare inputs, to respond. The results-based transition described in Exhibit 10.3 provides these managers with a more direct management of these resources. Devolving the Resources to Manage Cycle Time and Cycle Impacts In addition to changing base funding priorities, high-response government needs to break the nexus between the legislative and budget cycles of government and the project commitment and delivery cycles required to respond to new realities. There are three strategies which can assist government to reduce cycle time: (1) increasing the discretionary component of budgets; (2) managing selected change projects separately with dedicated funding, and freedom from internal controls combined with an enhanced evaluation; and (3) moving selected functions beyond the direct control of government using either autonomous agencies, or privatized agencies to deliver key changes. All these solutions recognize that attempts to shorten cycle times for all government activities would probably be counterproductive. The answer is to find solutions which allow key change projects to be resourced, delivered, and evaluated differently. The need for discretionary expenditure is clear. Many government budgets are not just fully committed, they are overcommitted. This might work in a

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static world inhabited by very gifted planners. In the real world, fully committed budgets represent a straitjacket within which change managers must seek to operate. This overcommitment is explained by the belief that funds that are not committed will be lost in cutback situations and by the difficulty managers find in allocating cutbacks. Agency and program managers usually maintain their own hidden reserves of resources. They need to be assisted to budget minimum levels of discretionary resources; they need to be evaluated in terms of the effectiveness with which they used such resources. The need to provide operational managers with increased scope to manage cycle time was discussed above. This flexibility can be increased by a number of devices which require flexible bridging funding but which increase accountability for results. • The idea of charging for working capital and project capital can be associated with increased flexibility to manage timing. • The idea of results-based funding is often focused by paying part or all of grants when services are delivered. Although agencies would require working capital funding to shift to such an arrangements, it can be an effective strategy. For example, paying for part of education places when students enroll and paying part of the funding when they complete their schooling is a logical way to shift market forces in these notoriously input driven areas of government. • Finally, there is the issue of who owns savings. Osborne and Gaebler are correct is suggesting that the traditional system persecutes performers. We need to ensure that the new financial management systems, which are evolving, do not repeat this mistake. If a manager can deliver agreed results at less than the agreed value budget, the system should encourage this to occur. Whether this is achieved by increased project allocations, by performance bonuses, or by allowing agencies to report a surplus instead of underspending needs to be examined.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT While reform of financial management alone will not solve the crisis in government management, it is a prerequisite for effective change. While there is support for providing additional management flexibility within budgets and for a move to focus on results rather than inputs, the difficulty of effecting such transactions are often underestimated.

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In this section, we have suggested that there needs to be a much more effective audit of budget performance against plan, there needs to be a value audit of base expenditure, and the task of managing inputs should be devolved to operating managers. Some would argue that this is the thrust of many budget reforms. We disagree. Exhibit 10.4. Checklist for Evaluating the Effectiveness of Government Resource Management presents a checklist for evaluating some of the issues we have raised. Most audits fail to address the impact of price and volume shifts on differences. Most fail to discuss the impact of changes in working capital (i.e., not paying creditors or paying them early) on performance. Few systems manage an emerging balance and those that do fail to focus on balancing via transactions and price adjustments. While a number of innovative arrangements have developed in recent years to assist managers to manage, few provide the flexibility which we suggest is required. The failure of resource management reforms in the U.S. to achieve the ambitious objectives set for these reforms seems likely to restrain the future transition to competitive government unless the blockages can be removed (Light 2000). Linking budgets to results remains important. Changing resource management to facilitate the reengineering of government value-chains and the development of new linkages with the legislature seem critical to the success of the U.S. transition. The objective of budget balance has been achieved. Some limited but important steps have been taken to reengineer value-chains to free managers from the tyranny of preset cycle times. The pressures in most government resource management systems to over-budget and under-evaluate remain part of the system. Although performance plans are said to have informed the budget process, the budget remains largely driven by historical, input-focused, base funding allocations rather than base funding linked to results. The scope to add value to government competitiveness by reducing and reallocating expenditures has only been partially unlocked by the reform process to date. In summary, budgeting reform has not yet developed to the point where devolution or accountability are adequate. One reason why these gaps remain is that budget reformers approach the issue as a system reform of the existing system and the existing value-chain. The real solutions require a reengineering of these value-chains. Many reforms assume that the path to reform is to superimpose results and outputs measures on existing input focused systems and then allow flexibility across detailed inputs. The real solution requires a discontinuous shift from inputs to outputs.

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Exhibit 10.4. Checklist for Evaluating the Effectiveness of Government Resource Management • Is the revenue base able to generate future revenue growth? Is there an emerging balance between revenue and expenditure plans? • Are taxes and charges competitive with other nations? Is the impact on taxes and charges competitive for domestic producers seeking to export and for domestic producers seeking to compete with imports? • Is there effective audit of actual revenues and expenditures against plan? What was the difference between last year’s expenditure and plan? To what extent is this difference explained by price and volume shifts? How were the results presented? • Is there an effective evaluation of the results achieved? To what extend were planned results delivered? Where plans involve leverage between government and business, does evaluation encompass the total outcomes or does government focus only on it’s own expenditure? • Is base expenditure linked to activities? Is there an audit of the value of expenditure? On what basis is this conducted? Does it address all expenditures or new initiative expenditures? What are the unit costs of services and transactions? How do these compare with other governments, and with this government over time? • Are underlying productivity improvements at least keeping pace with national productivity measures? Where large capital investments are funded to improve productivity have the improvements been budgeted and delivered? • What proportion of expenditure is directly attributable to the delivery of results? What actions are in place to reallocate resources towards direct expenditure on results? • What proportion of expenditure is project based? Are full commitments approved and included in annual budgets? Are these commitments removed at the conclusion of each project? Are project management and evaluation processes effective? • What is the level of capital expenditure? What component of capital expenditure produces real future benefits? Have these been identified and evaluated? • Is macro forward planning effective in shaping future priorities or is budgeting essentially an arbitrary adjustment to the sum of many bids for funds? • Does the annual budge cycle reflect overall strategic priorities, ensure the overall liquidity of government, enable agency managers to manage? What parts of the budget cycle have been devolved to agency managers? What proportion of budgets is available to managers to resource responses within the year? Are these managers able to manage the fit between value budgets and prescribed inputs? Does the budget process provide the flexibility for managers to manage cycle time within overall resource envelopes?

Chapter 11

Governance Systems and Management Reform

The greatest mistake citizens can make when they complain of “the bureaucracy” is to suppose that their frustrations arise simply out of management problems; they do not—they arise out of governance problems. —Wilson, Bureaucracy Governments have evolved different solutions to the challenge of national governance. These solutions are evolving; they also reflect different historical backgrounds and different social values. Many analyses of government management are based in one particular political system. There are three difficulties with focusing an analysis of government management in this way. First, the approach limits the generality of any conclusion reached. Second, the analytical frameworks tend to be country specific which limits the scope to learn from other systems. Third, the focus on a specific governance system tends to mask the reality that national transition requires changes in both the roles of executive government and the role of the other elements of the government system, particularly the legislature and its relationship with the executive, and the roles of interest groups and political parties. Although some studies of political systems also address comparative analysis, most do not focus on the management implications of particular political structures, or on the need to coordinate changes in both management and political structures as part of the transition to competitive government. In this book, we have focused on the core role of government, whatever the structure, on the external pressures which government must respond to, 271

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and on the management required to deliver these roles effectively in times of rapid change. We have cautioned against process-driven solutions and have argued that differences between nations and within nations must be managed. The elements which interact to determine the way in which nations are governed are outlined in Exhibit 11.1. Governance Systems and Management Boundaries. For most of this book we have addressed management as it impacts on executive government. Where interaction with the legislature is an issue, for example, in managing cycle time, we have expanded our analysis to address the interaction between the legislature and the executive using typical relationships. The objectives of governance systems are similar to the objectives of government which were discussed earlier. If the objectives of competitiveness Exhibit 11.1. Governance Systems and Management Boundaries

LEGISLATURE / ASSEMBLY

A—The legislative / executive boundary

Judiciary Tribunals

POLITICAL EXECUTIVE Ombudsmen B—The political / nonpolitical boundary

NONPOLITICAL EXECUTIVE

C—The comfort zone boundary

Interest groups Customers Electors

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added value and governability are delivered more effectively than for comparable governments, then the governance system is effective. If they are not, then the governance system needs to be reviewed. Usually, the solution involves improving the performance of executive government. This often involves adjustment to other parts of the governance system. There are four roles which the governance system needs to perform effectively. First, the governance system provides for an examination of and contribution to the priorities of government by elected representatives. Second, the governance system contains a series of checks and balances While it is important for there to be an effective review of the performance of executive government, checks and balances are only part of the solution. Where checks expose the system to risks of failure, they may need to be augmented. Where they are paralyzing the system, they may need to be modified to focus on outcomes rather than processes. Third, the governance system determines the way in which selected interest groups interact with government. In particular, the legislature provides a focus for interest group pressures on government. The legal system is increasingly used to develop the power of particular interest groups or to constrain the power of executive government. The difficulty for competitive government is not that there is review but that it introduces delays and forces management to remove and centralize discretion. Fourth, the way in which the executive branch coordinates it’s political and nonpolitical parts is critical to the provision of strategic leadership and to the devolution of executive functions closer to the users of government services. In recent years, there has been a shift to convert the role of the nonpolitical part of the executive branch from providing independent advice to government, to a role in which it becomes no more than an agent of the government of the day. In this chapter, we examine the impact of different systems on the capacity of government to deliver core roles and to manage the transition to national competitiveness. We suggest that governance systems are yet another variable which will change as nations not only become more competitive, but as they require government management to become more competitive. We present an overview of the variables which need to be managed and the issues which government management must address. First, we consider a typology of government systems in order to identify key performance measures and key management issues which flow from different structures. Second, we examine the three boundaries identified in Exhibit 11.1: (1) the relationship between the executive and the legislature; (2) the boundary between political and nonpolitical parts of the executive; and (3) the boundary between the

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governance system and the various interest groups which define the comfort zone, enabling government to govern. Finally, we discuss the implications of this analysis for the transition to competitive government.

AN OVERVIEW OF SYSTEM DIFFERENCES There are between 150 and 200 sovereign states in the world today, the number varying according to how the word sovereign is defined. Each has its own unique ethnic and social composition and it’s a own unique history. The interplay of these, and other factors has created in turn, unique system of government. There will be similarities between different systems but, in the final analysis, each is distinctively unique. [We] describe these systems and try to relate them to the social and economic forces which, over the years, have fashioned them. At the same time, we have identified particular features which are common to all, or most, of them and have classified them in order to make an objective comparison. —Derbyshire and Derbyshire, Political Systems of the World Exhibit 11.2. Mapping Political Systems presents brief summary classifications used by J. Denis Derbyshire and Ian Derbyshire in Chambers’ Political Systems of the World. Exhibit 11.2 leads to the identification of many different clusters of variables. The key issues for managing the fit between government management and the system of government are the role of executive government, the role of the legislature, and the way in which government seeks to address the needs of pressure groups. We will focus on two elements of the classification system, the role of the executive and the role of the assembly (legislature) in order to draw out key differences between some of the government systems we have discussed earlier.

CHANGING RELATIONSHIPS BETWEEN EXECUTIVE GOVERNMENT AND ELECTED LEGISLATURES /ASSEMBLIES Few public-sector executives possess the administrative discretion of their private sector counterparts. Just as presidents are continually frustrated by having to share power with two houses of congress and the judiciary, public administrators at every level find their powers strictly circumscribed. —Downs and Larkey, The Search for Government Efficiency

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Exhibit 11.2. Mapping Political Systems Variable

Categories

Background

Constitution

Separation or fusion of powers, executive, legislature (assembly), judiciary Unitary or federal state

The separation of powers is a check on the growing power of executive government

Ideology

Liberal democracy Emergency democracy Communism National socialism Authoritarian nationalism Military nationalism Absolutism

Executive Government

Parliamentary executive Limited presidential executive Communist executive Unlimited presidential executive Military executive Absolute executive Political nonpolitical executive

Assemblies

Number of chambers membership, size

Elections and Voters

Executive choice / Assembly choice / Minimum age / Compulsory

Political Parties

The nature and scope of political parties relates to the type of ideology and other variables. Political parties and ideologies / Political parties and pressure groups / Political parties and the electoral system / Political parties and the legal environment

Assemblies / legislature roles vary. Legitimizing politics / Represent the peoples’ views / National debating forum / Reactive: supervising scrutinizing the role of the executive

Nations seek to respond to diversity and pressure groups in different ways. Monism: discourage pressure groups Pluralism: respect and respond to pressure groups Corporatism: enmesh pressure groups into executive government

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The Role of the Executive The Parliamentary Executive This form of executive government involves an executive drawn from the legislature. The executive is generally accountable to the parliament. Most parliamentary systems provide for the parliament to remove the executive. The Japanese, United Kingdom, Australia, and Singapore are examples of this form of executive. The successful operation of this form of executive requires party discipline, and the capacity to combine elected executives with professional managers either drawn from a nonpolitical executive or from outside sources. The Limited Presidential Executive This form of executive provides for an elected president separated from the legislature. The power of executive government is intentionally limited by the legislature. The United States is an example of this form of executive. The president serves for a fixed term and can appoint executives to manage government. This system is less dependent on party unity. The system requires a balance between the legislative and executive roles. Failure to maintain such a balance can lead to absolute executive power or alternatively to gridlock. Other forms of executives include the unlimited presidential and military executives.

The Role of the Legislature Closely related to the role of the executive is the role of the legislature or assembly. The roles of the legislature, the method of electing the legislature, and the number of chambers differ between systems. The role of legislatures includes legitimizing polices developed by the executive, representing the views of electors, providing a vehicle for national debate, and scrutinizing the role and performance of the executive. Of the systems studied all have two chambers except Singapore. The Japanese and Singapore systems are characterized by long dominance of particular political parties. Parties able to achieve such dominance build strong links with special interest groups, particularly those which are critical to national competitiveness. The United States, United Kingdom, and Australian systems are adversarial systems with strong governing and opposition groups in the legislature. The existence of a strong opposition in the legislature provides an opportunity for

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groups who feel disenchanted with government decisions to focus their discontent into the political process. The U.S. legislature has developed separately from the executive. The capacity of the U.S. legislature to scrutinize the executive and review performance and advance alternative solution is high. The committee systems are a more effective means of examining agency performance than the systems of ministerial accountability used in the parliamentary systems. The devolution of comfort zone management is constrained by the legislature except where the system is consensual rather than adversarial. The parliamentary executive system provides for real time scrutiny which tends to centralize comfort zone management. On the other hand, the use of party structures often limits scrutiny. The limited presidential system has developed more effective scrutiny processes. The U.S. committee structures are markedly more effective than those which characterize parliamentary models. On the other hand, the constraints built into the U.S. system limit its capacity to respond and increase the pressure to find alternative delivery mechanisms where responses are critical and need to be rapid. All political governance systems need to be developed to facilitate the reengineering of cycle time by removing the legislature from action paths and strengthening its capacity to map general priorities and scrutinize actual performance.

CHANGING RELATIONSHIPS BETWEEN THE GOVERNANCE SYSTEM AND DIVERSE INTEREST GROUPS The great fear of the eighteenth-century political thinkers—for example, the framers of the American Constitution—was the fear of “factions,” special interest groups with a tendency to make their own interest or issue a “moral imperative” to which everything else is subordinated. The brilliant answer to this fear was the party. . . . The party transcended faction. . . . Today, parties are in tatters everyplace. The ideologies that enabled European parties to bring together disparate factions into one organization to gain control power have lost most of their integrating power. . . . Governments have become this powerless against the onslaught of special interest groups, have indeed become powerless to govern—to make decisions and to enforce them. —Drucker, Post-Capitalist Society

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The way in which government responds to pressure groups is an important variable. The typology discusses monism which is to oppose pressure groups on the basis that they threaten effective government and reduce the rights of others. Pluralism respects differences and sees pressure groups as enfranchising individuals by providing them with the capacity to influence executive decisions. Corporatization is a response where powerful pressure groups combine with government to manage the nation on behalf of all. Derbyshire and Derbyshire suggest that this disenfranchises individuals. From a management viewpoint, it can also extend cycle time and institutionalize part of the comfort zone. Examples are European governments such as Germany or Sweden where agreements between labor business and government set the framework within which the nation operates. Traditional government systems sought to centralize these responses to pressure groups, using the political executive and the legislature. Implementation follows sequentially from the negotiated decisions reached by these bodies. In a rapidly changing world, these processes have failed to deliver value. On the management side, individual needs are subsumed in general policies, rules, and budgets. On the interest groups side, the need to combine in order to produce the power to deal effectively with executive government has forced the development of a parallel bureaucracy which is as capable of losing individual needs as the government management system it seeks to confront. The answer on both sides of the equation is to devolve decision-making to those who understand the issues and the options. The way to force devolution is to effect the management devolution first. Interest groups will tend to deal where they feel they can be effective. Perhaps the ultimate centralization is the corporatist approach discussed earlier. In these models, big government, big business, and big labor unions come together to negotiate a consensus which is then imposed on all. Interestingly, these economies have been less able to respond to global pressures that decentralized economies, which have been able to resist or dismantle the huge social infrastructures, which formed part of the negotiations which corporatism made viable.

CHANGING RELATIONSHIPS BETWEEN THE POLITICAL AND NONPOLITICAL PARTS OF EXECUTIVE GOVERNMENT The central problem in designing government personnel systems has always been that of creating a bureaucracy that responds to the legitimate management initiatives of elected officials but in which professional competence rather than political or personal

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loyalty is the primary criterion of selection, promotion, and advancement. Because the balance between responsiveness is so delicate, the history of personnel system reform in the United States and elsewhere oscillates between the twin perils of “spoils systems” in which politics is everything and highly insulated civil service bureaucracies, in which incompetence is protected by law. —Downs and Larkey, The Search for Government Efficiency The ways in which the political and nonpolitical arms of executive government interact are critical to the performance of different models of government. In the U.S. system, the effect of politicization of the executive arm of government is to increase the burden on the many other checks and balances created by the Congress and the judiciary. While the U.S. system has many such mechanisms, the effect is to increase regulation and decrease the scope for devolution. In the parliamentary executive systems, the politicization of the executive arm increases the risks of executive excesses. These systems typically have fewer checks and balances than the U.S. system. The two main checks are the Parliament itself which is able to question ministers and debate issues, and the existence of an independent nonpolitical executive corp which can provide a counter to executive excesses. Increasingly governments have politicized these systems. Part of the current reform process is the dismantling of the nonpolitical part of the executive on the grounds that it has acted to protect its own entrenched interests. While that is probably accurate, like most reforms the process can go too far. We have discussed the Victorian experience. This is paralleled in many other parliamentary executive systems. As these systems fail, there is a good chance that the controls which the U.S. system has developed will be imported to contain the scope of parliamentary executives to act. Alternatively the breakdown of the party system may itself increase the power of the legislature to scrutinize the performance of the executive in these systems. As the power of the legislature increase in these systems, they will need to reinvent and reengineer their internal processes to become more informed and more effective. There is a danger that this will prevent the devolution which is required to meet community needs.

IMPLICATIONS FOR THE REFORM OF GOVERNMENT MANAGEMENT What are the implications of this analysis for the development of effective governance systems?

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First, if governments are to devolve power, reduce expenditure, and reallocate priorities, they have little option but to reduce the cost of regulation and review processes imposed upon agencies. This can only occur if there is a negotiation with the legislature and perhaps the judicial arms to reinvent relationships. This does not mean that the important role of the legislature in oversighting the activities of executive government should diminish but, in many cases, strategies need to alter. Second, governance systems must either accommodate diversity, or have it grow around them. The danger of holding on to central controls too long is that the public will come to see the governance system itself as the problem. Accommodating devolution means that the legislature must agree to the processes for reviewing both overall priorities and actual performance. Third, the scrutiny role of the legislature needs to be developed and redefined. The U.S. committee systems offer value. There are isolated audits and reviews which offer value. Effective government audit functions need to be nurtured as part of most reforms. However, such functions are hard to find; when they are discovered, they tend to be driven by a few individuals. When those individuals leave office, so does the constructive thrust of the audit function. Fourth, the politicization of executive government is probably a necessary reality today. However, sources of independent advice need to be fostered, particularly in parliamentary executive systems where political managers are often not managers at all. The answer is to develop rules about tenure, performance, and changes of government that are part of the culture and are understood. Also there needs to be statutory appointments with a responsibility to offer advice. Finally review and advisory functions might be further distanced from government by privatizing them and by internationalizing them. Fifth, the intrusion of the judiciary in administrative processes needs to be reviewed to evaluate its impact on administration. The judiciary, of course, have an important role in ensuring that the legislature and the executive behaves constitutionally. However, the combination of the judicial system and the rules and case law, which drives many bureaucracies, seems a prescription for low-value solutions. One answer is to create specialized tribunals able to assess these issues independently from the viewpoint of the public interest rather than the legal fabric which has been developed to depersonalize government. The solution for different nations will differ. As a start, the oversighting role of the legislature might address improvements in service to the public rather than the fabric of rules and criteria which currently focus their considerations. Second, these reviews not only might address the cost of regulation and review, but also consider the opportunity cost they represent in times of declining budgets.

Part III Benchmarking the Transition to Competitive Government

Benchmarking the Transition to Competitive Government

Managing change in complex organizations is like steering a sailboat in turbulent water and stormy winds. If you’re on course to some destination and the wind is blowing at gale force, you have to make a number of critical choices. . . . The true sailor, knowing these choices, works with the wind. This feel for steering an organization is the salient character of the effective executive manager of change. . . . To keep the course, several essentials must be provided: • A clear destination or vision; • Landmarks, or intermediate checkpoints; • Accurate detailed maps, or scenarios; • A clear knowledge of the capacity of the boat of the organization; • The ability to get the best performance out of the boat or organization. —Beckhard and Harris, Organizational Transitions Transitions to competitive government necessarily traverse turbulent seas. One-off changes need to be converted into a transition. Pressures and responses must be managed to maintain both the momentum and direction of change. The Clinton-Gore reforms in the United States provide an example of the challenges. The budget summarizes the administration’s view of progress (OMB 1999). Testimony to the Senate Government Affairs Committee evaluates what has been achieved (Light 2000; Kettl 2000; Moe 2000; and Mihm 2000). High-value agency changes have occurred. Performance planning has developed. Regulations have been dismantled and personnel management has been devolved. Customer impacts have been examined. At least the rhetoric of continuous improvement has been adopted. However, there are danger signs. The strategic links between specific improvements and the competitiveness, social value and governability objec283

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tives of government are seldom defined. Planned impacts on customer attitudes have been slow to change (Lueck 2000). Is ongoing performance planning driven by strategic thinking or is it degenerating into a process with a life of its own? Agencies have adopted the language of reform (as they do with each successive reform), but beneath all this, does life go on as usual or have agencies really “jumped the curve”? Has the limited scope of budget reform constrained the value added by the reforms? The impacts of reforms on “implementation,” “cycle time,” and “comfort zones” need to be audited. Unless the impacts on the legislature are included in the process, the benefits will be eroded. Mapping the U.S. transition requires an examination of external pressures, including competitiveness, social and governability impacts, a review of implementation strategies, and an audit of government structures and systems to ensure they are focused to deliver planned impacts. At least five opportunities to strengthen the reinvention process are suggested by such analysis. First, the change process needs to become more strategic, some changes offer more value than others and need to proceed. Evaluations of reinvention tend to ignore the government’s key contribution to the improvements in U.S. competitiveness and wealth. Second, critical gaps in the reform agenda, for example resource management and the legislature, need to be addressed. Third, over-layered and narrow structures need to be reengineered to focus on external instead of internal pressures. Fourth, new tools such as cycle impact managements and cycle-based communications need to be introduced to manage the performance and confidence deficits identified by Kettl (2000). Fifth, the continuous improvement process started with the reinvention laboratories needs to be strengthened and protected from the inertia that tends to capture most change processes in government. The challenge for governments embarked on the transition to competitive government, including the U.S. system, is to build on what has been achieved, to continue to evaluate results, to guard against the forces that act to subsume change processes and reduce value. The ideas presented in this book present a comprehensive agenda for the transition to competitive government. In part 3, we address the need to manage the transition. We address two questions. First, how can the ideas and management tools presented in this book be used to map the situation of a particular country? Second, how can the reader evaluate the effectiveness of particular government reforms? We present a checklist which can be used to map the performance of particular governments and to identify gaps in particular reforms. Finally, we present a performance improvement plan for competitive government which can be used to evaluate the strategic fit between national needs and government policies, structures, and programs.

Chapter 12

Managing Transitions to National Competitiveness

The next decade will make unprecedented demands on political courage, political imagination, political innovation, political leadership. They will demand high government competence. The demands will be external ones as well as internal ones. Externally, there is a need for new thinking and radical innovations in several areas. . . . Internally, there is an equally demanding and equally urgent need to make government effective again. . . . Government therefore has to regain a modicum of performance capacity, it has to be turned around. . . . To turn around any institution—whether a business, a labor union, a university, a hospital, or a government—requires always the same three steps: (1) Abandonment of the things that do not work, the things that have never worked; the things that have outlived their usefulness and their capacity to contribute; (2) Concentration on the things that do work, the things that produce results, the things that improve the organization’s capacity to perform; and (3) Analysis of the half successes, half failures. A turnaround requires abandoning whatever does not perform and doing more of whatever does perform. —Drucker, Post-Capitalist Society This book set out to analyze the crises in government, draw on the new solutions that are emerging in country after country, and present a framework 285

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which can be used to manage different transitions to national competitiveness. We have illustrated key aspects of the analysis with examples drawn from very different governments facing very different competitiveness challenges. A strength of the approach we have presented is that it is not culture bound and it is not political system bound. The similarities and differences which can be identified provide a rich input to the development of a new model of government management. A characteristic of the literature on government reform is that most ideas have been recycled several times and many good ideas are discarded as governments chase each new solution. One of the signs that current theories are deficient is the inability of these theories to move forward through each new reform instead of simply recycling ideas and throwing out good ideas along with bad ideas. Our analysis draws upon a number of high-value solutions which are already well-known. Our objective is to highlight the need for an integrated mix of solutions, to suggest some preconditions for success which offer scope to reduce the risk of failure, and, hopefully, to encourage the early assessment of the value of new ideas and solutions, by enabling these to be seen in a wider context than is often the case. Where there are major gaps in current solutions, we have presented new solutions or suggested the development of existing ideas. It is the purpose of this chapter to review our analysis and to address the challenge of applying these ideas to the needs of specific nations and governments. First, we present an overview of the ideas presented and the implications for the development of theories of government management. Second, we suggest approaches to the audit and diagnosis of particular government reforms. Our objective is to assist the reader to explore the application of the ideas presented in specific situations. We address the task of mapping the status quo, exploring the priorities for change, and addressing the fit between these changes and government management and systems. Third, we use the dynamic strategic planning tool discussed in chapter 8 to manage the transition to competitive government. The plan is not a rigid solution; it is a framework of issues and options which need to match the external imperatives for change with the base resources and priorities of each nation. This approach to planning highlights the need for integrated solutions. It can be used to highlight the gaps in current reforms. It can be used to benchmark the change process.

OVERVIEW OF KEY IDEAS Government in Crises The crisis in government is driven by external change that no nation can ignore. While reform must address these external issues, reform must also

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address the reality that traditional systems of government have broken down. There is no simple incremental solution for most government management systems; they must implement a new management base which meets the needs of all national stakeholders. If they do not, national competitiveness will suffer and the well-being of citizens, if not actually eroded, will suffer compared with nations who elect to be competitive. There are two implications of our analysis for the reform of government management. First, governments need to refocus reform from internal to external factors. Second, governments need to ensure that internal reforms deliver reduced cycle time (speed), maintain the scope to govern and address impacts on diverse interest groups (consensus), and deliver expected results (performance). Need to Refocus Reform from Internal to External Factors The changing external environment of nations means that governments must change to maintain and increase national competitiveness. Failure to do this leads to a reduced access to world resources and a reduced standard of living within a particular country. The benchmarks for progress are relative; it is not enough for a nation to improve, it must improve relative to others. The idea that nations are managing a transition to improve competitiveness requires both a competitive business sector and a competitive government. This requires changes in the role of government and in the way in which governments manage their affairs. The idea of competitive government needs to be differentiated from current strategies to introduce competition into the delivery of government services. The benchmarks for competition in service delivery are unit costs and customer service compared with other countries and regions. The benchmarks for competitive government are: first, improvements in national competitiveness and second, whether a particular government adds more or less value to national competitiveness than others. Need for Management Solutions which Focus on Speed, Consensus, and Performance While different nations must manage different transitions that require different contributions from government, our analysis identifies three common characteristics of competitive governments: speed, consensus, and performance. It is interesting that the concepts of speed and strategic response which have proved so powerful in the business sector also seem to be key to improving the performance of the government sector. However, the reasons why these concepts add value in each sector are different.

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Speed. A single management strategy which addresses each of these requirements is the management of cycle time. We define cycle time as the time which elapses between the emergence of a clear need for government action, the delivery of that action, and the communication of the results to those affected. In our opinion, the failure of many government systems to manage cycle time explains many implementation crises. There are powerful reasons for managing cycle time. It makes sense to start government projects in a supportive environment rather than when they emerge from a fixed legislative and budget queue. It makes sense to complete government projects quicker and to manage implementation against time-based targets. This reduces the scope for opposition, increases the chances that implementation will be resourced and managed effectively, and targets the delivery of specific value to the public. Managing cycle time enables management to coordinate positive and negative impacts during the implementation cycle. The objective of such coordination is to maintain a net positive perception of value. This requires the arrangement of implementation impacts to deliver early benefits. It also requires negative impacts to be offset by perception of future benefits. The discount factor which the public uses to compare promises of future benefits against current costs is not only a function of the time delay involved, but also the level of public distrust of government. While increasing distrust of government is reducing the discount factor, reduced cycle time can offset this reduction. Except perhaps in times of major crisis, government management has not been noted for its speed of response or for its capacity to monitor external developments. Even where these responses involve little more than removing the maze of regulations that prevent the private sector responding, the evidence suggests that the public sector often has difficulty seeing the wood for the trees. Many of the responses to budget shortfalls actually act to extend rather than reduce cycle time. Consensus. An important characteristic of the crisis is the extent to which nations are either becoming less governable or are so constrained by diverse pressures that they settle for survival rather than added value and improved national competitiveness. While many involved in government recognize this problem, few appreciate that the way in which government continues to attempt to manage diversity is part of the problem. Traditionally, governments have focused on developing a consensus for a project at the outset. The idea of consensus involves a search for core values and shared interests. Increasingly governments are finding that initial consensus is eroded during implementation. The corrections required often addresses criticism by reducing project value. Our analysis suggests that the initial search for consensus is probably misguided. A more realistic approach to the management of diversity is to recognize and respect differences by negotiating the impacts on interest groups.

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The idea of consensus and enthusiasm for government changes is both counterproductive and unnecessary. In reality, government seeks to maintain a comfort zone within which interest groups and the public allow government to govern. This approach requires government to find new ways of both planning strategic priorities and managing the impacts of projects throughout the project cycle. Performance. Many changes have not delivered grass roots impacts. Many government management systems manage processes or functions and assume that long-term added value is delivered. Few processes manage shortterm impacts unless a crisis emerges which must be addressed. We argue first that the focus of reform must be to enable managers to manage performance directly, and second, that the time horizon of these evaluations must be shortened rather than extended.

Lessons from Business Governments in crises often look to business solutions for salvation. Many of these solutions fail. While some business solutions simply address the wrong problem, many business solutions can be adapted to add value to government reform. While government managers can no longer afford the luxury of rejecting business experience, they cannot afford the costs of transplanting business solutions into situations where they are likely to be rejected. Our examination of the ideas that underpin business and government management identifies important issues for public sector reform. First, while governments can learn from business, they cannot be managed as a business. Business managers are perhaps a decade ahead of government in addressing the need to rationalize and respond to new global realities. However, there are important differences between the way in which business organizations and governments manage. These differences become more important when roles are changing and government is seeking to adopt approaches and systems for the management of change which have been developed by business. Second, governments can learn from business how to move beyond management reform which treats the symptoms of breakdowns toward reform and which changes their structure role and contribution. Management reform needs to start with an analysis of external change and the changing role of government instead of assuming that this is either static or can emerge from a series of micro-reforms which are usually focused on internal segmentation and structures. Third, although both sectors use plans and budgets, they use them differently. The plans and budgets developed by government do not provide the simple guides to action required to drive conventional strategic management.

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Attempts to convert them to this end will tend to destroy the political consensus required to support change in a complex system. Fourth, although both sectors have identified the need to devolve power, government devolution must address complex performance issues and also the need to manage comfort zones and diversity. Conventional attempts to centralize the management of comfort zones and decentralize the management of service delivery presume that the fit between these systems can be maintained. The result is often a complex shared accountability which fails to add value and often creates new comfort zone tensions. In addition, the public applies different criteria of fairness to government agencies than they do to business agencies. Fifth, the techniques for managing comfort zones, including respect for differences and a focus on solutions, offering specific rather than common values, are key to successful public sector management. Although these techniques are not part of most business solutions, they can often be added. Where business solutions cannot be adapted to manage complexity and comfort zones, transplantation runs a high risk of rejection. Sixth, before the government sector can benefit from new approaches to management, it must change values which have served it well enough in the past but which are now dysfunctional. Examples include the following: the idea that short-term control can focus on inputs; the assumption that narrow specialist functions, effectively performed, will enable government to manage, change, and address the changing role required of it; and the belief that success criteria can be driven by survival, by not making mistakes, and by massaging comfort zone issues without adding real value to the government equation. Seventh, government management reform must also adapt and build upon particular national and regional political systems. Many of these systems separate the powers of the legislature, the executive, and the judiciary. The operation of these frameworks has changed over time and can be expected to continue to adapt. These structures provide important checks and balances; they provide important links which focus relationships between interest groups and executive government. It is important to manage the impact of reform on these systems and to recognize that many of the business solutions ignore this particular reality.

The Management of Transitions to National Competitiveness Our examination of external factors suggests that any analysis of the crisis in government must start with an analysis of the impact of global change. While examinations of government management often include a few paragraphs on the changing state of the world, there are few frameworks which address

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national differences, or are able to link these changes to the management role of government. The National Competitiveness Model simplifies the issues implicit in national competitiveness. It provides links with key management variables and enables us to move beyond static, homogeneous, solutions not only to examine differences between nations, but also to examine change as a transition. A number of implications for the reform of government management can be drawn from this analysis. First, nations are pursuing different transitions to national competitiveness. The nature of the transition depends upon the current competitiveness, on national aspirations, and on the national capacity to coordinate the different business and government contributions required to support a particular transition. Second, different transitions generate different opportunities and challenges for each nation and for government. Theories of government management, which presume that the role of government is static or will emerge from an internal consideration focused by appropriate management and policy frameworks, are unlikely to notice, let alone respond to, these differences. It follows that those who seek to copy the success of other nations, or worse, export their own solutions to others, run a high risk of failure. Third, while the model suggests that nations need to optimize production autonomy and response, it also predicts that there must be trade-offs between the three basic modes of management. Fourth, transitions to competitive government must be underpinned by a viable national competitiveness strategy which addresses not only where a nation wishes to end up but where it is located on the model now and how it intends to manage the transition. Fifth, some transitions are implicitly more difficult to manage than others. Nations which have choices should consider reviewing transition options to ensure the choice for transition minimizes difficulties. For example, a decision by a developing country to optimize autonomy before developing the production strengths necessary to be competitive is likely to create a particularly difficult transition dilemma. The combined need to reduce autonomy without being in a position to deliver direct and immediate benefits creates difficult comfort zone issues. Sixth, this examination of the difficulty in managing transitions highlights the need for nations and government to benchmark and evaluate progress. Such benchmarks are likely to be central to any attempt to evaluate the performance of government.

Implementation Strategies for Competitive Government Implementation is a major weakness for government reform because government systems assume that results will occur instead of managing the

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implementation process to ensure that they actually are delivered. Our analysis of these of implementation weaknesses raises a number of issues for the management of transitions to competitive government. First, traditional government management systems simply cannot address cycle time management or the management of cycle impacts. Second, cycle time analysis illustrates how business management solutions can be extended to manage comfort zone impacts. It is not enough to use traditional hierarchical segmentation which presumes that comfort zone issues can be managed prior to implementation. Third, solving the implementation problem in government requires management systems able to address three different priorities. Government systems need to manage short-run impacts, balance impacts on added value and comfort zones in order to deliver added value while operating within the comfort zone, and manage cycle inputs to maximize project support. Fourth, the implementation impact model (IIM) and the cycle impact model (CIM) discussed in chapter 4, provide tools that can be used to enable government managers to focus on impacts and to manage cycle-based communications. However, for impact management to succeed, other government systems need to change. Planning and evaluation solutions need to identify impacts and link these to wider objectives (chapter 8). Government managers require new strategic leadership skills to manage the adjustments required to maintain a project within the comfort zone throughout implementation (chapter 6). The government value-chain must be reengineered to enable managers to control cycle time and management cycles (chapters 5 and 9). Fifth, many of the reform solutions adopted by governments create new implementation problems not only because they do not provide managers with the scope to manage cycle impacts but because they also increase rather than reduce cycle time. Although many of these solutions draw on key elements required for competitive government, they often ignore the need to manage implementation impacts. Sixth, our analysis suggests that the failure to manage cycle impacts and to use cycle-based communications has caused many unnecessary implementation breakdowns. Many implementation problems are not caused by political opponents or by vested interests opposed to change but by the way in which managers mismanage cycle dynamics. The idea that a communication strategy should manage perceptions of discounted net project value across different interest groups changes the management landscape for many government agencies. Cycle-based management, when pursued skillfully, can stimulate government management systems not only to manage performance instead of avoiding it, but also to negotiate the scope by managing performance rather than blaming nonperformance on others.

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Responding to External Pressures: Value-Chain Coalignment and the Delivery of Governmental Services The reason why responding to the current crisis is so difficult for many governments and the reason why the changes to the government management platform need to be so extensive are explained by an examination of the core technologies which government management systems use to coordinate and perform work. The traditional government approach to coalignment was to standardize processes and clarify roles and functions. Actions were processed longitudinally through the value-chain. Coalignment was managed by queuing and prioritizing each stage of the value-chain. This technology is incapable of responding to the needs of a high-response environment. Uncertainty and resource restrictions tend to lengthen rather than shorten cycle time. This suggests that incremental reform is not an option for most government agencies; it explains why reforms, which deregulate without a strong focus on cycle time and cycle management, tend to fail. The blockages created by traditional government management systems and technologies seem terminal for many parts of government. There is no choice but to “jump the curve,” abandon these traditional systems and reinvent government. Legislatures and corporate government groups now have no option but to hire managers able to effect these transitions, remove the restraints that stop government systems from either succeeding or failing; they must face up to the risks and opportunities offered by change. Four issues for reform can be identified from our analysis of value-chain coalignment. First, reforms of value-chains need to reduce cycle time, provide managers with the scope to manage cycle time, and manage comfort zone impacts. Almost all attempts at reforming government management attempt to deregulate, to free up processes and roles, and to focus these on tasks and functions. Some reforms clearly provide a strong focus for the management of cycle time and for external accountability. For example, the case studies presented in reinventing government powerfully reconfigure both valuechains and the environmental focus of specific agencies. It is not difficult to see why these changes work. But other situations are more complex and some reforms simply miss the need to provide a new focus for the management of cycle time. In such situations, reform is not only likely to fail, it could well prove to be counterproductive. The solution is to extend the reform agenda by finding alternative value-chain configurations to match these new needs. Second, reforms need to focus government managers on the management of two key environmental boundaries. Government needs to directly manage its boundary, and it must indirectly manage the national boundary. Devolving

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part of this management responsibility to operating agencies is important; it requires new ways of managing relationships between “steerers” and “rowers.” The simple demarcation, which suggests that comfort zone impacts can be managed hierarchically, is a recipe for ongoing crisis management and the nonelectability of incumbent governments. Third, the application of value-chain theory needs to recognize the fixed nature of traditional processes and the major comfort zone impacts which are unleashed when these processes are by-passed. Just as successful business organizations have learned to interact with their external environment to shape opportunities, governments must learn to interact with the groups which create the comfort zone and reposition the comfort zone itself by altering expectations and increasing acceptance of the need for change. Fourth, government reforms must learn to move from one off interventions to reforms which generate continuous improvement. Most government reforms lurch from crisis to crisis. Reform needs to establish the basis for continuous improvement. Change strategies for government must meet three criteria: they must be implementable; they must address current problems; and they must produce a base for addressing future problems and exploiting future opportunities. The most obvious weakness in many reforms is the lack of ongoing evaluation and benchmarking. Once the crisis is past and the public believe it is no longer an urgent issue, there are many vested interests in the government system that opt for moving on to the next issue. Four actions are necessary to consolidate change. First, the change must be internalized by the agency concerned. Staff and managers need to commit to building on the change and to an ongoing improvement of performance. Second, there needs to be some prediction of impacts, say one, three, and five years ahead. Third, consolidation needs to be resourced once the crisis is past. Fourth, there needs to be an effective benchmarking of the change against comparable government situations.

Leadership Strategies for Transforming Governmental Competitiveness The leadership, management, and communications strategies for discontinuous change are different from those required for incremental change. Because leadership in government must address the complexity of the government role, the strategies are different than those likely to succeed in business. Although lack of effective strategic leadership is often a restraint to change in both business and government, the restraint is often greater in government because systems are designed to avoid leadership, management is rule driven, discretion is minimal and centralized, and the management

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culture is risk averse. Strategic leadership in government requires strategies which reposition government structures and resources and enables government staff and external interest groups to understand the change and join the transition. Strategies include: managing external rather than internal boundaries; implementing strategic visions rather than long-term missions; addressing strategic management rather than strategic planning; managing transitions not end points; shortening the times span of evaluation by managing shortterm benchmarks and impacts rather than long-term results; implementing irreversible changes rather than incremental change; benchmarking the transition platform into the future and leveraging expectations of future benefits; coaligning value-chains through shared interests rather than standardization; participating through communication and shared values; and harnessing rather than containing diversity. Our analysis of Singapore and the United States, two nations that have managed a successful transition to national competitiveness, raise a number of implications for national leadership. First, the National Competitiveness Model predicts that the relationship between government and business will differ between these two transitions. Second, our consideration of the relationship between government and national competitiveness suggests that government and business must share the role of delivering competitiveness. The Singapore success could not have occurred without the key multinational corporations who joined with the government to meet their objectives and contributed to Singapore’s competitiveness. The U.S. success could not have occurred without strategic government action to protect U.S. interests and assist U.S. companies to access global markets. Third, the need to manage transitions as a series of discontinuous changes and to protect the platform for change is evident in both transitions. In the case of Singapore, creating the base to attract investment, required time and commitment. While pursuing development, the government also addressed pressing social value needs, essentially housing, education, training, and employment. These early stages were prerequisites for the high technology strategies which are now being implemented. Although the Singapore government has generated massive support, this support needs to be seen in terms of the value which has been added to the Singapore economy over the period since independence and the resolve of the government to ensure that the benefits of development are shared with its citizens. In the case of GE, the transition clearly moved through three discontinuous changes each of which build upon the other. In the case of the U.S. government the restrictions generated by comfort zones are ever present. The government created the interlinked economy since 1945. Although U.S. business, seduced by the comfort of its large domestic markets was slower than others to exploit the

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possibilities of the global economy, government resolve to avoid protectionism and expose business to global competition has paid off in recent years. Finally, our argument that change requires leaders able to create a vision, rearrange resources structures and systems in order to deliver that vision is supported by these studies of Lee Kuan Yew and Jack Welch. These leaders achieved major discontinuous change. They involved others in the process, and they developed their long-term visions as the environment changed, and as their capacity to exploit new opportunities changed. Both leaders adjusted structures, systems, and values to support their particular transition. Both leaders were able to translate their vision into action.

The Challenge of Transition Governments have no option but to dismantle the old bureaucracies and regulatory regimes and develop new approaches to management which focus on results and on accountability for results. Managing such changes requires more than the successful implementation of specific changes to structures personnel and financial systems. Individual changes need not only to combine and support ongoing changes, but also to deliver an integrated transition. Our analysis identifies five tensions that must be managed for a transition to succeed. Resource Balance /Allocation Tension Effective transition must be managed within the short- and long-term resources available to government. Where there are shortfalls in funding, these tensions often mean that the transition must be managed in times of decrement. Resource tensions often mean that governments must balance demand to resource underlying improvements in competitiveness against increasing difficulties in funding the national value systems, particularly pressures to address the impact of declining competitiveness. Our examination of reform strategies implemented over almost a decade in a state government in Australia (Victoria) illustrates that failure to manage resources can destroy an otherwise sound transition. Short-term funding through one-off efficiencies, the use of assets to fund current expenditure, and increasingly just borrowing, is never enough; the longer-term budget structure must also be viable; in Victoria’s case it was not. Devolution/Accountability Tension Effective transition requires a complex and dynamic balance between deregulation and the development of a new accountability for results. The case study shows that old input controls of government can be dismantled and cycle time

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reduced by a comprehensive change program which alters the role of central and operating agencies. The reform agenda in Victoria produced a more responsive management structure. Where this was combined with a policy agenda for change, it was able to deliver major value to the Victorian community. When corporate government failed, the new structures stagnated and some also failed. The old inertia and safeguards that would have reduced the impact of failure had been dismantled. Deregulation/Reregulation Tension The tensions between pressures for deregulation and the need to also reregulate need to be managed skillfully if the benefits of transitions are to be delivered. Most transitions must deregulate in order to reduce cycle time and costs and to provide government managers with the right to manage. This often increases uncertainty and negatively impacts the comfort zone. While government activities and services often require new forms of strategic regulation, the purpose of regulation should be to produce defined results. Regulations should not be allowed to become ends in themselves. Community groups and legislatures who have often embrace overregulation as a way of influencing “big” government, need to find new ways to influence government activities. Corporate Government/Operating Agency Tension Transitions must be managed to provide both strong operating agencies and strong central or corporate roles. The vision of strong operating groups, close to customers, able to deliver results is only part of the solution. The central role must change from custodians of the government machine, to managers of a network of service delivery providers who combine to deliver the core roles of government. Effective change requires effective corporate management by government as well as the effective delivery of devolved programs and services. In addition, change strategies need to recognize that the nature of political systems means that this direction will not always occur. It is important to ensure that when corporate focus fails, because executive government loses direction and the will to manage, collateral damage at the agency level can be contained. Our Victorian analysis shows that when the Cain government supplied strong corporate leadership, the new devolved management structures were able to respond and add value. However, when the government ceased to govern, the new high-response structures failed to deliver expected value. We suggest that devolution of administrative power enhanced this breakup. Once ministers were able to act without central controls by either their colleagues

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or the central government agencies, they had unfettered scope to address the needs of factions and their own predilections about good government. The management reforms in Victoria left major powers with agency chief executives. The expectation was that they would focus on performance and resist pressures to politicize appointments. Many effective managers succumbed to ministerial pressures. In the Victorian system, ministers have no particular management expertise. When they ceased to listen to advice about good management from career managers, many also ceased to practice it. Cycle Impact Tension Transition needs to be managed using the cycle impact and cycle-based communication tools discussed in chapter 4. Internally the impacts on devolution and accountability need to be managed. Externally, the gap between public expectations of change and the impact of benefits need to be managed. The case study illustrates the need to manage change as a transition using cycle time management and cycle impact management techniques. Initially, the Cain governments were keen to criticize program performance and commit to improvement. In the first term some improvements were delivered and the public saw the reforms as progressive. Later, as debt increased and disasters emerged, the public grew to discount promised benefits and criticize delays in delivering promised results. In the end, the government was removed by electors and a new government (Kennett) was elected to fix the problems created by financial mismanagement.

Planning and Evaluation Strategies for Competitive Government The management platform for government change must dismantle traditional controls, convert managers of processes into managers of results, and build a culture which can use systems and not be driven by them. A key change strategy is the development of a network of performance contracts which are strategic and change-oriented and which can be used to negotiate the autonomy to manage government performance. These performance contracts need to link agencies, programs, and managers; they need to encompass the complexity of government roles without becoming subsumed in that complexity. A new approach to planning and evaluation is central to implementing reform. Dynamic strategic planning can be used to provide a focus for the management of government services and programs. The PIPES framework presents one such solution. We illustrated the application of the PIPES system to an agency, a program, and to senior managers.

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There are two threats to the introduction of dynamic planning and evaluation system in government. The first threat is that the system will adapt to the planning process and subsume it; that plans become bland, issues are avoided, and the prospect of negative evaluation is avoided. The second threat is that plans will become static as was the case with education failing to recognize the need to build the change process through an ongoing improvement process.

Reinventing and Reengineering Government Management Systems and Values Building a new management platform for government requires a new approach to structures, systems, workskills, and values. Three performance improvement tools can be used to implement transitions: performance contracts to focus the activities of high-response organizations; project teams to lead change and enable managers to manage cycle time directly; and continuous improvement functions to commit new structures to ongoing strategic change. We identify various systemic dangers which those who attempt government management reform must address. First, there is a danger that devolution will segment existing central powers, and enhance the power of megaagencies and their leaders, without impacting on delivery units. Second, there is a danger that the new solutions will allow flexibility between megaagencies but will continue to impose uniform solutions on delivery units. Third, there is a danger that new structures will be implemented without the management skills or systems required to control and lead them. Fourth, there is a danger that the new management platform will be seen as a static alternative to the traditional platform it replaces. The new platform must change to support an ongoing transition. Where these changes do not occur, government systems face ongoing interventions and discontinuous changes. In the end such interventions are wasteful of resources, sap the morale of public sector managers, and stretch the credibility of a public waiting for some signs that the Goliath has at least turned. How might the change process be protected from these dangers? The answer is to evaluate the reforms in the same way the reformers argue that agency management should be evaluated. In other words, focus on noticeable changes in results. Osborne and Gaebler present a powerful model for moving beyond systemic reform. They focus on best practice examples, on pilot changes, on experiments that lead to improved performance. The strength of Osborne and Gaebler’s work is that it benchmarks examples of best practice. The reform

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proposals developed by the National Performance Review are extensive. However, are they enough to overcome the problems identified? The danger implicit in the implementation of these ideas in the U.S. government are: cycle time will stretch rather than shrink; the system will impose its own uniformity; the central political controls will not be altered to enable units to deliver value; and collectively the system will be unable to alter internal funding priorities fast enough to respond to new opportunities rather than deficits. We discuss the growing evidence that the U.S. reforms need to build on what has been achieved by closing gaps in both the original reinvention strategies and in the processes and priorities developed to implement reform. We argue that performance-based structures, value-chains, and personnel and resource management systems are required to implement particular transitions to competitive government reform. Change management needs to protect the system from the twin threats of reversion and inertia by ensuring that one-off changes are irreversible and, by building into each, change processes that commit the system to ongoing evaluation and improvement.

Resource Management Strategies for Competitive Government Reform of financial management is a prerequisite for effective change. While there is support for providing additional management flexibility within budgets and for a move to focus on results rather than inputs, the difficulties of effecting such transactions are often overlooked. Our analysis of resource management has suggested a need for a much more effective audit of budget performance against plan, there needs to be a value audit of base expenditure, and the task of managing inputs should be devolved to operating managers. Most government systems have not yet developed budgeting to the point where devolution or accountability are adequate. One reason why these gaps remain is that budget reformers approach the issue as a system reform of the existing system and the existing value-chain. The real solutions require a reengineering of these value-chains. Many reforms assume that the path to reform is to superimpose results and output measures on existing input focused systems and then allow flexibility across detailed inputs. The real solution requires a discontinuous shift from inputs to outputs.

Governance Systems and Management Boundaries Executive government neither exists in isolation nor operates in isolation. Executive government needs to be seen as part of a national governance

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system which includes a legislature or assembly and the judiciary. The ways in which these elements of the governance system interact have probably created part of the current crisis. Certainly attempts to reform one part of the governance system independently of the other parts create tensions and reactions which are dysfunctional. While governance systems differ between nations, there are some common challenges they must all address if nations are to compete and address the many new issues which only governments can address and which citizens expect government to address. First, if governments are to devolve power, reduce expenditure, and reallocate priorities, they have little option but to reduce the cost of regulation and review processes imposed upon agencies. This can only occur if there is a negotiation with the legislature and perhaps the judicial arms to reinvent relationships. This does not mean that the important role of the legislature in oversighting the activities of executive government should diminish but, in many cases, the strategies need to alter. Second, governance systems must accommodate diversity or have it grow around them. The danger of holding on to central controls too long is that the public will come to see the governance system itself as the problem. Accommodating devolution means the legislature must agree to the environment for operation review, overall priorities, and review performance. Third, the scrutiny role of the legislature needs to be developed and redefined. The solution for different nations will differ. As a start, the oversighting role of the legislature might address improvements in service to the public rather than the fabric of rules and criteria which currently focus their considerations. Second, these reviews might address the cost of regulation, review, and consider the opportunity cost they represent in times of declining budgets. The U.S. Committee systems offer value for systems that do not have powerful review functions. Effective government audit functions are critical and need to be nurtured as part of the reform process. Fourth, the politicization of executive government is probably a necessary reality today. However, sources of independent advice needs to be fostered, particularly in parliamentary executive systems where political managers are often not managers at all. The answer is to develop rules about tenure, performance, and changes of government that are part of the culture and are understood. Also, there needs to be statutory appointments with a responsibility to offer advice. Finally, review and advisory functions might be further distanced from government by privatizing them and by internationalizing them. Fifth, the intrusion of the judiciary in administrative processes needs to be reviewed to evaluate its impact on administration. The judiciary, of course, has an important role in ensuring that both the legislature and the executive behaves constitutionally. However, the combination of the judicial system, the rules, and case law, which drives many bureaucracies, is a prescription for low value solutions. One answer is to create specialized tribunals able to

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assess these issues independently from the viewpoint of the public interest rather than the legal fabric which has been developed to depersonalize government.

MAPPING THE CRISIS: MANAGEMENT DIAGNOSTICS, TREATMENT PRIORITIES, BENCHMARKS FOR RECOVERY The analysis we have presented focuses on total solutions. In the real world, governments, facing a crisis, need a game plan for action. That game plan should assist governments to understand the causes of the problem, should focus available resources to create changes which reinforce each other, and should set realistic recovery objectives. The first step is to examine the external pressures and competitiveness. How well has the country performed in the past? What is required to improve the position in future? Having defined a transition which is competitive, the next step is to examine the implementation plans in order to test the fit between these priorities and the transition strategy. There is no point in proceeding unless the transition is competitive and there is a reasonable fit between these external needs and the strategies of the government. The next step is to examine government structures, systems, costs, and revenues to test the fit between these and the implementation strategies. Major blockages to change need to be removed. New frameworks need to be developed to focus on the end point of the various changes. Systems which are not blockages and which do not require change to respond should be left. Key changes should be project managed. Finally, the reform program needs to be managed as a cycle. The order of changes needs to be considered, the impacts need to be examined, the communication strategies need to be outlined. We have provided a number of checklists in previous chapters to raise questions which can assist the reader to examine the scope to apply particular solutions to specific government situations. Exhibit 12.1. Mapping the Scope for Reform presents a framework for applying these ideas to a specific government system. and evaluating the priorities for reform. The checklist can be used in several ways. First, it can be applied to a single country and scored as, say “+1” if there is reasonable agreement that the statement applies, “0” if uncertain, and “–1” where the statement does not apply to that particular country. Any net score of less zero suggests a terminal crises; a positive net score up to say half of the maximum suggests that the basic solutions for competitive government are not in place. A net score

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Exhibit 12.1. Mapping the Scope for Reform NATIONAL COMPETITIVENESS • Is competitiveness high compared with other comparable countries? Have the preconditions for future improvements in competitiveness been established? • Has government developed a competitive industrial base? Is the nation accessing an increasing share of world resources? Has access to overseas markets increased? • Does macrofinancial management support a transition to national competitiveness? • Have national resources been managed effectively? Has government managed relationships with domestic and overseas controlled multinational companies to use these relationships to add value to national competitiveness and wealth? • Is there effective leverage between business and government? How is this achieved? Transition strategy. Has a viable development strategy been identified? Is it implementable? What are the immediate change priorities to support the transition? What is the strategy for moving to high-response mode? What is the strategy for optimizing production strengths? What is the strategy for optimizing the autonomy of citizens and companies within overall national structures? Benchmarks. National competitiveness ranking improved over the last year. Competitiveness ranking of key industries improved over the last year. SOCIAL VALUE • Has the well-being of citizens increased? Has government assisted improvements? • Have the training and industry development strategies been established to deliver ongoing access to employment? • Has government responded to the needs of citizens disadvantaged by change? Is the system of safety net service for citizens who fail to achieve minimum access to services through other systems adequate in terms of benchmark countries? • Can consumers access basic services such as health transport power and water at world competitive costs? • Are systems of appeal and review adequate to protect citizens against discrimination? Transition strategy. Are the social impacts of the national transition being addressed effectively? How are the constraints between the cost of nation’s value system and the funding available to support it being managed? Are funds being targeted to those most in need? What are the immediate challenges which must be addressed over the next year? Are these likely to be addressed? Benchmarks. Social value maintained or improved compared with benchmark countries. Social value performance improved over the last year. GOVERNABILITY • Has government both added value and maintained the scope to govern? Is governability less of a constraint to national performance than for competitors? Transition strategy. What are the comfort zone impacts of the national transition? Are these being addressed effectively? Who are the key interest groups with a capacity to halt change? How are the needs of these groups being managed by government? Benchmarks. Governability compared with benchmark countries.

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Exhibit 12.1. Mapping the Scope for Reform (Cont.) GOVERNMENT CHARGES AND SERVICES • Are government services competitive compared with other countries? Are government services and functions delivered effectively? Do they support the priorities for national transitions? Transition strategy. Are government charges and services been managed to support the transition to competitive government? What are the priorities for further adjustment? Benchmark changes. Government services competitive compared with benchmark countries. Competitiveness improved over the last year. More Detailed Analysis Business services and infrastructure. Do business services and infrastructure support key development priorities? Are these provisions shared between government and business? Community services and infrastructure. Do community services and infrastructure meet emerging needs? What are the immediate priorities? Have existing resources been targeted away from old needs to meet new needs? Market access and regulation. Are domestic markets competitive? Do local consumers obtain value? Are local producers exposed to competition while at the same time being protected fro unfair competition? Taxes and tariffs. Are taxes and tariffs internationally competitive and domestically equitable? Are current services being funded without transferring a burden to future generations? Checks and balances. Is there an effective system of checks and balances which ensures that individuals are treated equitably without destroying the need for a national focus on results and performance? Is there an effective balance between regulation and performance? Has the cost of compliance increased or decreased for business, for government agencies? Support functions. Are critical support functions such as infrastructure, taxation, education, and training competitive? Government business leverage. Is there effective government business leverage? Does government focus on the end outcomes of these programs? Are they effective in stimulating business or are subsidies being used to cushion business from new market realities? Workskills and access to employment. Does the nation have internationally competitive workskills? Do these skills match emerging industry priorities? Resource balance. Has government established an effective macromanagement system to maintain an emerging resource balance and focus agencies on operating within realistic resource envelopes and priorities?

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Exhibit 12.1. Mapping the Scope for Reform (Cont.) GOVERNMENT MANAGEMENT • Is there a strategic fit between the changing role of government and the structures, systems, workskills, and values in government agencies? Has the gap closed or opened in the last year? Transition strategy. Are government structures systems and leadership seen as better able to support the national transition than they are in the case of key competitors? If these have a competitive edge, what is the likely lead time before competitors respond? How can leadership be maintained? Benchmark changes. Government performance compare with benchmark nations. More Detailed Analysis Strategic leadership. Is strategic leadership a relative strength? Does strategic leadership drive planning evaluation and coalignment processes? Cycle time management. Has the capacity to manage cycle time and cycle-based communication strengthened? Have value-chains been reengineered to reduce government response times? Is cycle time management a strength (or a weakness) compared to benchmark countries? Performance management. Has the system moved to the performance-oriented form of management by a combination of devolution and a strengthening of accountability for results? Is planning and evaluation dynamic? Is there a shortterm focus on control? Is there a longer-term focus on the flexibility to meet external needs? Are structures flexible and performance-focused? Are these supported by performance contracts which focus on short-run priorities and the scope to deliver these? Are project structures seen as effective tools for the management and coordination of change? Has boundary scanning improved? Has the process been devolved to delivery agencies? Have value-chains been reengineered to reduce cycle time and enable managers to manage cycle time? Has value-chain management improved over the last year? Has the focus of coalignment shifted from the traditional standardization and rules to a focus on results and the use of temporary structures? Is continuous improvement working? Do agencies harness and develop the skills of employees by encouraging innovation and added value? Is this supported by ongoing and effective training? To what extent is a performance focused culture developing in agencies? What are the responses to change, to failure, to the need for flexible teams and projects? Comfort zone management. Does government add value to various stakeholders? Does it demonstrate an understanding of the different priorities of interest groups and does it seek to protect these as part of change management? Has government managed the gap between public expectations of change and delivery effectively? Are completed changes seen as successful and is consolidation improving the scope to govern? Results based financial management. Is resource management a relative strength? Does it support or impede devolution? Are the links between strategic planning and resource management effective? Has the focus of budgets shifted from inputs to results? Has financial management been devolved to enable managers to manage cycle time and deliver results?

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above this suggests that the transition to competitive government is underway. An analysis of the scores by segments can be used to map the areas of major concern. The checklist can also be used to compare a country’s performance with one or more benchmark countries. This requires a ranking of evaluations across countries. Where this ranking is limited by a lack of knowledge about benchmark countries, we hope the reader is motivated to seek that knowledge. Where there is sufficient knowledge to complete the ranking, the answers provide a valuable map of the successes and failures of a particular government. The advantage of relative evaluations is that they avoid unrealistic ideas and standards. If some other government is performing better and this is obvious, then it is difficult for a government to argue that they are doing well, they are different, and they cannot improve. Where there is a desire to improve the next step is often the sort of benchmarking exercises we discussed earlier. These projects work best when they are charged with specific national competitiveness objectives, with improving government rather than gathering ideas, discovering that governments around the world are in trouble, or discovering that some of what any government is doing is bound to be effective.

IMPLEMENTING THE TRANSITION TO COMPETITIVE GOVERNMENT In chapter 7, we argued the case for more effective strategic planning and suggested dynamic strategic planning as a tool to manage the fit with external pressures. Exhibit 12.2. Planning the Transition to Competitive Government presents a generalized performance improvement plan for a national transition to competitiveness. While the plan needs to be adapted to particular national needs, it provides a useful summary of the issues identified earlier and the way in which they interact. Core Strategic Priorities The first two sheets of Exhibit 12.2 analyze the core strategic objectives in terms of the three core missions of government discussed in chapter 1. We have discussed the reality that these objectives differ between nations and that these differences shape the role and functions of government. We presented an overview of different transitions in chapter 3, and we examined in more detail the transitions being managed by Singapore and the U.S. in chapter 6.

Exhibit 12.2. Planning the Transition to Competitive Government Key Objectives

Impacts or Verifiable Outcomes

Action Strategy for Implementation • Produce a development strategy which supports a specific national transition, addresses the behavior of competitors, national strengths and weaknesses, and national needs and aspirations • Deliver macrofinancial management which supports development and is competitive against world benchmarks • Manage national assets and resources to optimize national returns • Negotiate relationships with major multinational companies which deliver cost effective global business access • Regulate the domestic markets to optimize competition and minimize costs to consumers • Manage systems of taxes and subsides to raise required revenue while encouraging priority business investment and development • Facilitate access to overseas markets • Ensure access to world competitive workskills and world competitive research and technology • Provide infrastructure and services which assist business to be competitive

Improvement in the national competitiveness ranking Preconditions for future improvements in competitiveness established Competitiveness high compared with selected benchmark countries

(continued on next five pages)

Managing Transitions to National Competitiveness

CORE STRATEGIC OBJECTIVES National Competitiveness Increase the share of world resources available to the nation • Access an increasing share of world resources • Manage national resources effectively • Build a world competitive industry • Build a world competitive industry base

307

Exhibit 12.2. Planning the Transition to Competitive Government (Cont.) Key Objectives

Action Strategy for Implementation

Social Value • Increase wealth available for distribution within the economy Improve both the short- • Ensure that systems of income distribution, including taxes, benefits and and long-term wellmarkets, support both improvements in competitiveness, and the delivery being of citizens of equitable access to national resources • Manage the impact of spending and debt on current and future generations • Ensure that the laborforce and workskill development system delivers access to work and meets emerging community and business needs • Provide social infrastructure which meets the diversity of national needs while also facilitating long-term improvements in national competitiveness and wealth • Ensure that consumers can access, at world competitive costs, basic community services, including education, health, transport, power, water, and security services • Provide appeal and review processes to protect individual rights, encourage equity, and discourage discrimination. Provide safety net services Governability Develop and maintain the scope to govern

• Recognize diverse needs and priorities. Negotiate boundaries which address the needs of key influence groups • Manage comfort zone impacts to ensure that governability does not become a major constraint on the transition to competitive government • Manage cycle dynamics to integrate government communications to position government implementation within the comfort zone required for effective government

Impacts or Verifiable Outcomes Additional social value provided to citizens Preconditions for future improvements in social value established Social value comparable with selected benchmark countries

Governability seen as less of a constraint on key strategic changes and on the overall national transition to increased competitiveness than it is for key competitors

Exhibit 12.2. Planning the Transition to Competitive Government (Cont.) Key Objectives

Action Strategy for Implementation

Impacts or Verifiable Outcomes

SUPPORT OBJECTIVES Manage traditional • Ensure that for each support area the links with key program priorities government functions are identified in order that priorities are not distorted by focusing and services to on support functions in isolation and that provision is competitive support key objectives relative to benchmark countries • Avoid the tendency for functions to become ends in themselves

Government functions support core national objectives Government functions competitive relative to selected international benchmarks

Business services and infrastructure

• Ensure the provision of business services and infrastructure which supports key strategic priorities and is competitive with services provided by other countries

Community services and infrastructure

• Provide cost effective (to users) infrastructure which addresses key needs and which is comparable to benefits delivered by comparable countries. Ensure that benefits are seen to improve over time

Markets access and regulation

• Ensure that domestic markets serve the needs of both producers and consumers. Manage external competition to avoid unfair competition, facilitate the growth of domestic production, and avoid the development of high-cost domestic production

Exhibit 12.2. Planning the Transition to Competitive Government (Cont.) Key Objectives

Action Strategy for Implementation

Taxes and tariffs

• Deliver a taxation and tariff regime which is internationally competitive in its impact on business, manages opportunities for external arbitraging of the domestic taxation system, redistributes income to meet agreed social objectives and, funds competitive levels of government services and activities

Checks and balances

• Develop systems of regulation review and sanctions that enable the various stakeholders in a nation to feel they are treated equitably. Ensure that these systems do not create gridlocks and reduce national competitiveness

Government business leverage

• Develop a government business interface which supports a world competitive industry base as well as the need for the internal regulation of business • Avoid the anticompetitiveness impact of government subsidies by leveraging government and business expenditure to maximize impacts on external competitiveness

Workskills and access to employment

• Ensure that education, training systems, and business combine to produce world competitive work skills for each industry and enterprise • Ensure that industry priorities as well as access and education, and training priorities drive the development of workskills • Ensure that those who seek work are provided with access to the core skills required to enable them to contribute to changing business needs • Ensure that both highly talented individuals and those with limited potential fully develop their capacities and workskills and are not blocked by access restrictions designed to regulate the development of average skills and capacities

Resource balance

Manage government activities to balance available and required resources by: • extending the planning horizon to manage an emerging balance • managing the revenue base • managing the expenditure base to reflect real needs and priorities • managing allocative tensions by changing the budget process to use devolved structures more effectively

Exhibit 12.2. Planning the Transition to Competitive Government (Cont.) Key Objectives

Action Strategy for Implementation

Impacts or Verifiable Outcomes

GENERAL MANAGEMENT Develop performance focused management systems, structures, values

• Manage the strategic fit between the changing role and priorities of government and government systems, structures, workskills, and values

Strategic leadership

• Define and communicate the key elements of a national transition to competitiveness • Manage the impact of change on both competitiveness and governability • Leadership which drives other performance and planning systems to ensure they implement agreed priorities rather than coordinate the outputs from such systems • Change government culture structures and systems to make national competitiveness a key mission or government

Cycle focused management and communications

• Reengineer government value-chains to enable government to manage cycle time • Improvement implementation performance by managing cycle impacts to deliver added value and maintain government within the comfort zone which enables government to manage change • Change government communication strategies to focus these on implementation cycles and make communications and management implementation strategies proactive rather than sequential

Results-based resource management

• Shift the traditional budget driven focus for government managers towards a system in which budgets are driven by agreements to deliver specific results which are linked to overall strategic planning priorities of government • Change traditional resource management systems to provide managers with the scope to manage overall resources to produce agreed results and the scope to treat cycle time as a management variable

Structures, systems, and values that are blocking change, identified and blockages removed

312

Exhibit 12.2. Planning the Transition to Competitive Government (Cont.) Action Strategy for Implementation

COMPETITIVE GOVERNMENT

• Manage government change to add value to different national stakeholders and ensure that the nation can manage the changes required to increase national competitiveness while also ensuring that the diverse interest of stakeholders are recognized and least partially addressed so that the nation remains governable • Replace the strategies of consensus and homogeneous values and priorities with a respect for diversity and a negotiated solution which adds value to diverse groups • Negotiate change impacts to manage the impact on diverse groups while also ensuring that national needs and interests can be addressed effectively • Recognize the uncertainties generated by change and develop alternative safeguards which meet the needs of interest groups and legislatures for accountability and for the checks and balances required to assure the rights of citizens

TO

Comfort zone management

TRANSITION

• Introduce planning and evaluation systems which are strategic change-oriented and evaluative. Introduce new forms of accountability for both long- and short-term performance at all levels of government • Coordinate the transition to performance management by balancing the need for deregulation with the need for new forms of accountability • Introduce performance-focused management structures which focus accountability and enable managers to manage cycle impacts and cycle time • Introduce high-response technologies by reengineering value-chains to achieve task-based coalignment and which also provide a focus for continuous improvement • Introduce performance-based personnel management with flexible workroles, a focus on individual and team performance, and a performance-focused culture • Develop systems solutions which inform decision-making, underpin flexible work scheduling, and support but do not predetermine performance evaluation • Replace traditional system of internal regulation with performance-based systems, structures and workskills

THE

Performance management

BENCHMARKING

Key Objectives

Managing Transitions to National Competitiveness

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• The government’s role in developing core industrial strengths depends on the strengths of existing companies, their capacity to access international markets, and the overall wealth of the country and its capacity to compete. • The task of adding social value depends again on the production and wealth base of the country. As discussed in chapter 6, Singapore adds value by increasing the wealth of its citizens. The United States, starting from a much higher base, needs to work to maintain value and address the negative impacts of change. • The task of governability is a function of history, of the particular political structures used by a country, and of the way in which government manages comfort zones and diversity. While these core objectives are different, because they require different actions, strategies, and generate different impacts, they are also interrelated. Governments that pursue competitiveness without also pursuing clear strategies to add social value soon discover that their capacity to govern is eroded. Governments that pursue governability without also developing competitiveness will find their support base disappears. Governments that pursue social value and leave competitiveness to others will find themselves bankrupt, or replaced by others who are prepared to take the difficult decisions required to cut back social value to levels which the country can afford. The action strategies outlined in Exhibit 12.2 for core strategic objectives flows from our earlier discussions. The impacts or outcomes which might be used to evaluate progress are action-based and compare performance relative to other counties. Support Objectives The support objectives are summarized in sheets 3–4 of Exhibit 12.2. We have discussed a number of these support objectives in earlier chapters. The point to draw out here is that these objectives need to be managed to support the delivery of the core objectives discussed above. Many reforms address these areas as objectives in their own right. Resource limitations have eroded the capacity of many governments to provide and even maintain infrastructure in recent years. While avoiding such expenditure is a short-term solution to resource balance, it often creates major long-term impacts by eroding competitiveness and social value. More importantly, once these assets are run down, the recovery cycle is long and expensive.

314

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THE

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Some governments have moved to shift the burden of specific infrastructure provision to business and to users. The deregulation of markets has been a feature of the response to globalization by many countries. Most deregulation has focused on the high cost to business of various regulatory regimes, on the high cost of the government structures established to regulate, and on the cost to users. The need for reregulation, which is now becoming evident in many cases, does not mean that the process had no value. Deregulation has added value to many markets. The new forms of reregulation which are emerging seek to prevent excesses without destroying that value. Most nations have been slow to adapt old taxation and tariff regimes. Most changes are incremental and many simply set up the need for consequential changes. Nations that have not conducted a competitiveness audit of these regimes should consider doing so. The need for new forms of checks and balances has been identified in many countries. Those that bring forward such reforms instead of responding to each new crisis will find that many of the crises can be avoided. The need for government business leverage is now well understood. There are many successful examples. There are also many government managers who see their role as protecting government from attempts by business to gain an advantage from government rather than assisting business to help government gain national advantages. Access to employment is a key concern of most governments today. Many governments manage their involvement with education to maximize access by young persons rather than to develop a competitive skill base. We have discussed some of the issues involved in working with business to focus on the development of relevant workskills. We have discussed the issue of resource balance in detail in chapter 8. We have included this as a support objective, because, if this objective is not met, governments must move to crisis mode and cut back expenditure. While cutbacks can be achieved, the key objective identified above are usually casualties of the process. General Management Although management reform is critical to delivering competitive government, successful reform needs to be prioritized and focused on the delivery needs of projects which address key objectives. We have identified five elements of general management reform which we see as providing a useful framework for implementing and evaluating change.

Managing Transitions to National Competitiveness

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We have discussed the need for a new approach to leadership which we have called “strategic leadership” in chapter 6. The importance of this priority is that traditional government discourages such leadership. There is no point in implementing reforms which depend on strategic thinking and strategic leadership unless there are strategies in place to find, develop, and reward strategic leaders differently. In chapter 4, we discussed the need to manage cycle time and to use cyclefocused communications. In chapters 5 and 9, we examine some of the difficulties in changing systems to enable this occur. Delivering this reform is important to the success of change, it is also a key which places many other reforms in focus and can be a catalyst for reengineering value-chains effectively. We deal with the changes involved in implementing performance management in chapter 9. The elements in the plan summarize the framework presented there. The need to manage comfort zones is a central theme of this book. It is a major difference between management solutions which work for government and business. It is the rationale for managing cycle impacts. It suggests that traditional systems and approaches have compounded the problems implicit in managing diversity. The action strategies focus on the need to manage both added value and comfort zones, on the need to discard the old consensus solutions, on the need to manage cycle impacts, and on the need to manage the destabilization caused by change and by introducing new safeguards. Finally, we address the need for performance-focused resource management. This is discussed in detail in chapter 10.

CONCLUSION There are many reasons to be optimistic about government reform. Governments in many nations seem to be addressing the need for fundamental change and they seem to have learned not to oversell these changes. However, too many citizens have despaired of government reform. The reality is that nations need competitive government. In a global and increasingly competitive world, nations that wish to maintain and improve their values system, provide employment for future generations, and address the critical new issues created by change, need more effective government. While there are many functions which governments need no longer perform, and many functions government performs badly, effective government remains critical to both national competitiveness and the capacity to maintain the social value system of a nation. Without maintaining and improving national

316

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THE

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competitiveness, many nations can no longer afford to fund their existing value system. The way in which changes have been introduced, the failures, the lack of a vision for the future which builds on the achievements of the past, has led many government managers also to despair. The sad reality is that too many government managers today do not recommend a career in government to their children or to anyone else. But the future seems to us to be less bleak. For those in the midst of government change simply seeking to understand the process and fit the next solution to the last, we hope they will find the frameworks we have presented interesting. For those who are motivated to explore, expand, and where necessary correct the ideas we have discussed, the scope to create a more competitive government seems vast. There are functions which only government has the legitimacy to perform, there are functions which government can perform far more effectively than business, there are functions which government and business should work together to deliver, and there are functions which would be more effective if transferred to the business sector. We should identify these and manage them effectively. But that process should be used to focus the mission of government managers not to conclude they have no mission or that their mission has somehow become peripheral to the fate of nations. Writing this book has drawn us to examine many changes. More progress is being made than is generally realized. We need a new paradigm for government. We need frameworks for drawing together isolated but successful examples of reform. These are emerging and we hope that the ideas presented in this book contribute to those new perspectives. But, even more importantly, we need to reverse the pessimism which like a fog is obscuring the progress which is occurring. Three ideas might help to disburse the fog. First, we need to see the failure of government as a failure of governance, not the inefficiency of government managers. Nations face new pressures and reduced resources. All governments must reduce some services in order to provide others. Often, reductions in services are not a sign of failure, they are a sign that government is responding to new competitive realities. Second, we need to understand that many of the inefficiencies of government systems are imposed by public values and by legislatures who would not think of imposing such restraints on business or even on a contract for the supply of government services. Third, if we agree that governments must be evaluated on the basis of their results, we need to practice what we preach. When the media invite us to grow exited about the number of potplants in government offices, we should ask instead why we fund the offices in the first place. We should focus away from

Managing Transitions to National Competitiveness

317

perfecting potplants towards whether the agency is meeting our needs more or less effectively. And we should contemplate that in the end we all pay for the special costs of counting potplants and writing reports about them. We need to take up Peter Drucker’s challenge to identify successes as well as failures in government and refocus our reward systems for governments and government managers in order to recognize success where it occurs. Finally, we need to discard the idea that we no longer need government. We may need less government than in the past. We may need a different government that we did in the past. But today, more than ever before, we need effective government. Competitive government will not only add value to nations that pursue it, but it will add value to managers who chose to work in government. The new competitive global environment is already rewarding nations with governments able to address new priorities and governments who work with business to improve national competitiveness.

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Index

allocative tensions, 260–261 Armey, Richard K., 123 Asian financial crises, 68–69, 149 Australian Tax Office, 210–216

Clinton health proposals, cycle impacts, 98–100 comfort zone management consensus strategies, 27 cycle impact tension, 187–188 and governability, 7–8, 10–11, 27 impact management, 87–98 planning, 201 transition, competitive government, 303, 305, 308, 312 competition policy, Australia, 185 competitive government governance systems, 279–280 idea of, 4, 26–28 implementation strategies, 79–82, 102–103, 105–108, 130–132 leadership, 133–137, 165–167 management systems, 229–250 planning and evaluation, 199–228 resource management, 251–269 transition to, 283–284, 306–315 competitiveness role of government, 6 continuous improvement examples, 247–249 group dynamics, 122–123 model, 244–247 theory of, 121–123

Beckhard, Richard, and Reubin T. Harris, 134, 283 benchmarking government performance, 16 national competitiveness, 14–20 national workskills, 16–20 transitions, competitive government, 283–284, 307–312 Bower, J., and T. Hout, 121 bureaucratic solutions, breakdown of, 43 business and government, 37–54 communication, 38–40 development, comparison, 41–47 government management, 47–52 management differences, 45–47 Butler, David, and Donald Stokes, 111 Cain, John, 192–194 change management tools, 240–247 Clinton-Gore management reforms, 25, 250, 262, 268, 283–284

329

330

Contract with America, 100–101, 123–130 cost reductions, scope for, 258–259 Cullen, R.B., 18, 37, 45, 175–176, 177, 178, 188, 190, 207, 229, 231, 240, 248 Cullen, R. B., and N. F. Brown, 217, 219 Cullen, R. B., D. J. Cortese, and B. Gerorgiou, 210 culture, shifts, 241 Cushman, Donald P., and S. S. King, 45, 108, 244 Cushman, Donald P., and Phillip K. Tompkins, 88 cut back management solutions, 22 cycle-based communication 96–99 cycle impact model, 92–96 consensus cycle, 93 consolidation cycle, 95–96 implementation cycle, 94–95 legislative and budget cycle, 93– 94 cycle time management cycle-focused communications, 96–98 cycle impact tension, 187–188 cycle impacts, 93–96 elements of, 89–91 project timing and cycle length, 91–92 speed, 26–27 time span of evaluation, 81 Derbyshire, J. Denis and Ian Derbyshire, 274 devolution solutions, 22–23 Dhanabalam, S., 89

INDEX

Downes, G., and P. Larkey, 20, 41, 79, 235, 237, 254, 274, 279 Drucker, P., 8, 13, 43, 44, 67, 85, 87, 105, 277, 285 dynamic strategic planning, 202– 207 Eastern European deregulated transition, 70–71 education of children with disabilities, 216–221 environmental scanning theory, 108– 111 government boundary, 110 limits to action, 111 real time scanning, 110–111 tools, checklist, 111–112 European Community regulated transition, 72–73 executive governments and legislatures, 274–275 expenditure base, management of, 257–260 external pressures, responding to, 105–108 Fombrun, Charles, J., 44, 75, 133, 171, 235, 237 forward expenditure projections, 259–260 Fukuyama, Francis, 62 Galbraith, John Kenneth, 13, 87 Garelli, Stephannie, 161, 248 General Electric, transformation, 151–161 Gingrich, N., 124–128

Index

global trends, impact on government, 8–12 competition, 9 diversity, 10–11 globalization, 9 information, 11–12 technology, 10 Gore, Al, 1, 200, 229, 262 governability role of government, 7–8 governance systems and management boundaries, 271–284 interest groups, 277–278 political and nonpolitical executive, 278–279 system differences, 274–275 government and its environment, 109 government management reform, status of, 20–25 government management, reinventing, 229–250 government performance, benchmarking of, 16 government reform, scope for, 302– 306 management diagnostics, 302 mapping the crisis, 303–306 Gow Chock Tong, 141, 149

331

implementation impact model, 82–89 implementation strategies, 79–98 cycle time management, 89–96 cycle-focused communications, 96–98 impact management, 82–89 implementing the transition to competitive government, 306– 315 core strategic priorities, 306, 313 general management, 314–315 support objectives, 313–314 Japan, development transition, 67 Kettl, Donald, F., 1, 25, 250, 283, 284 Kotler, Phillip, Somkid Jatusripital, and Suvit Maesincee, 56

health proposals, Clinton, 98–100 high-response management, 44–45 Hilmer, Frederick G., 185 Howard, first election victory, 101

leadership, strategic comparison of Singapore and U.S., 161–165 protecting the base for ongoing change, 136–138 shifting focus of leadership, 134– 137 Singapore, transition, 141–150 U.S., transition, 150–161 Light, Paul, C., 250, 268 Low, L., T. Heng, S. Wong, T. Yam, and H. Hughes, 68, 142, 143, 145, 146, 148 Lueck, Sarah, 283

impact management, 82–83 Imparato, Nicholas, and Oren Harari, 28, 41, 221

management by objectives, 43–44 management solutions for government, 47–52

332

mapping frameworks, checklists culture shifts, 241 environmental scanning, 112 national competitiveness, 139 performance management, 52 political systems, 275 resource management, 269 scope for reform, 303–305 Mihm, J., Christopher, 1, 250, 283 Mintzberg, Henry, 44, 203 Moe, Ronald C., 1, 53, 283 national competitiveness benchmarking of, 14–20 checklist, 139 and global trends, 8–12 mapping transitions, 137 model, 57–76 and the role of government, 12– 14 transitions to, 55–57 national competitiveness model, 57– 63 competitiveness, 60 government, 60–61 high-production, 62–63 high-response, 62 high-autonomy, 63 management, 61–62 national competitiveness transitions deregulated transition, 69–71 development transition 64–69 devolved transition, 73–76 regulated transition, 70–73 Office of Management and Budget, 199, 283 Ohmae, Kenichi, 8, 12

INDEX

Osborne, David, and Ted Gaebler, 1, 13, 23, 63, 181, 206, 207, 248, 251 overview of key ideas, 285–302 governance systems, 301–302 government in crises, 286–289 implementation strategies, 291–292 leadership strategies, 294–296 lessons from business, 289–290 planning and evaluation, 298–299 reengineering systems and values, 299–300 resource management, 300 the challenge of transition, 296– 298 transitions to national competitiveness, 290–291 value-chain coalignment, 293–294 performance management government performance, 27–28 grid, 179 impact management, 85–87 management tools, 232 outline, 45, 50–52 transition, competitive government, 305, 312 performance improvement planning and evaluation (PIPES), 207– 210 performance pay, 226–228 Peters, Tom, 47 planning and evaluation, 199–228 Porter, Michael, 12, 13, 55, 64 project management, 242–244 Reagan-Bush impacts, 84–85 reengineering value-chains, 118–121

Index

regulation and government management impact on managers and values, 183–184 reasons for, 182 reengineering, 184–185 reinventing government, 23–25 Clinton-Gore management reforms, 25, 53, 227, 250, 262, 268, 283– 284 gaps in the reinvention agenda, 24– 25 resource management, 251–269 extend the planning horizon, 255 impacts on cycle time, 265–267 improving resource management, 252–253 resource balance, 254–261 revenue base, 255–257 transition to results based, 261–267 results based resource management, 261–267 role of government, changing, 3–8 competitiveness role, 6 governability role, 7–8 impact of global change, 8–12 social value role, 7 Roberts, Nancy C., 206 Rockert, J., and J. Short, 111 Sakakibara, Eisuke, 13, 67 senior executive service, 221–228 performance pay, 226–228 performance plan, 223–226 Singapore, transition to national competitiveness comparison with U.S. transition, 161–165

333

competitive manufacturing industry, 145–146 competitive workskills, 147–149 competitive technology, 149 competitiveness changes, 137–141 devolved competitiveness transition, 67–68 history of development, 141–144 response to the financial crises, 149 Sisodia R. S., 68, 141, 142 social value role of government, 7 Sorros, George, 13, 64 Stacey, Ralph D., 202, 203, 204 structures, for high-response government, 231–235 central or staff agencies, 234 delivery agencies, 233 legislature and system reform, 235 mega agencies, 234 Thatcher-Major impacts, 84–85 Thompson, J. D., 105, 106 Tichy, N. M., and P. Charon, 155 Toffler, Alvin, 33, 231 transition to results based resource management, 261–267 transition to competitive government, 175–195 accountability/devolution tension, 178–181 corporate/operating agency tension, 185–187 cycle impact tension, 187–188 deregulation/reregulation tension, 181–185 deregulation/reregulation tension, 181–185

334

resource balance/allocation tension, 176–178 Victoria, government management, 188–195 transitions to national competitiveness, 305–317 United States transition to national competitiveness 150–161 American government transformation, 159–161 comparison with Singapore’s transition, 161–165 competitiveness changes, 137–141 devolved competitiveness transition, 75–76 G.E. transformation, 151–161 value-chain for government activities access to resources, 115 budget and legislative cycles, 115 core management skills, 116

INDEX

cycle time, 116, 118–121 evaluation, 115 over segmentation, 116 reengineering, 118–121 value-chain theory, 111–118 Victorian government, management transition, 188–195 Welch, Jack, 125, 151–159 Wilson, James Q., 271, 183, 184 Wolff, M., 240 workskills and national competitiveness, 16–20 World Competitiveness Yearbook competitiveness factors, 17 competitiveness changes, 137, 140 government and competitiveness, 15 impact of competitiveness, 150 workskills and competitiveness, 18