Public Sector Management, Financial Times/Prentice-Hall

4th edition 2002

 

Introduction

  This is a book about management in the public sector in the United Kingdom. Successive governments have restructured, reformed, privatized, reorganized and modernized public services so that managers and workers are uncertain about what will happen next and unsure about what is expected of them. This book helps anyone who is working in or studying the public sector to understand and cope with the recent changes, and places them in the context of the development of the welfare state.

What is the public sector?

  The scope of the public sector has changed since the 1980s. There has been a programme of privatization which has transferred virtually all the national­ized industries into private ownership, along with the public utilities. The privatized industries are now no different from other companies in the pri­vate sector. In the case of the utilities and telecommunications, the public sector is still involved in the industries as a regulator, especially of price movements.

In other areas, the boundary between the public and private sectors has changed as activities have remained under public control but been contracted out to companies. The policy of compulsory competitive tendering in local government transferred work on a whole range of activities to contractors. Contracting out in the National Health Service (NHS) increased the involve­ment of companies in ancillary services, such as cleaning and catering, while the Private Finance Initiative (PFI) involves the private sector in designing, building, financing and operating hospitals which are leased to the NHS, and in schools, military establishments and highways. In the Civil Service, market testing, 'strategic contracting' and partnerships have involved companies in running computer systems, security, laboratories and a whole range of activ­ities previously done by state employees. While the services carried out by these companies are still financed by taxation, and they therefore remain as public services, the ways of managing them through contracts rather than through employment contracts with individuals are different and require new skills.

As well as these transactions across the boundary between the public and private sectors there is still a large public sector in which services are provided by state employees, who number 5 million. About 20% of the economy consists of public services and a further 20% of GDP is taken up by transfers of pensions, benefits and subsidies.

 What is management?

Management in the public sector means many different things. First, there is a distinction between administration and management, the former involving the orderly arrangement of resources to follow previously defined procedures and rules, the latter involving discretion in the management of resources to achieve a set of objectives. In practice, both activities occur in public services: many activities require administration rather than management, and many managers are engaged in both. The distinction may in any case be more a matter of language than practice. After all, the most 'managerial' qualification which people take is the MBA, or Master of Business Administration.

Management, in the sense of exercising some discretion, requires that managers think and act to find the best ways of achieving some target or objective, using other people's skills. In this sense, the managers become distinct from the various professions in the public sector, such as teachers, doctors, nurses, social workers, engineers, lawyers and accountants, who use their own professional skills and knowledge to produce results. The distinction between a manager and a professional has been promoted by those who believe in management and by the professionals, who like to remain different from managers. Professionals keep their knowledge and skills within the profession and look after the resources put at their disposal using their own ideas about how to work.  

In this sense management is 'the management', or a group of people who are separate from those doing the work, whether of a professional, technical or manual kind. 'The management' has some formal authority as well as a set of activities, such as budgeting, performance measurement, setting up organizational arrangements, which they perform to direct and control the others. While such managers may previously have been technicians, workers or professionals, once they are put into a managerial position they behave as a manager.

To be able to do this, and to keep themselves in a position of authority over the others, they have to acquire a set of techniques, skills and language which give their claim to authority some legitimacy. Managers develop or learn them as a way of keeping in control. The techniques include strategic planning, budgeting, project management, marketing, personnel management, performance management, quality procedures and the whole apparatus of contracting. The language is sometimes only understood by a select few, although often there is a normal word which would be a good substitute. For example, 'delayering' would be understood by most people as sacking middle management, 'downsizing' as sacking management and workers, 'business process re‑engineering' as doing things differently, 'quality circles' as groups of workers discussing how to do things better, 'network organization' as a group of subcontractors, and 'mission statement' as understanding what they are supposed to do.  

In the public sector, politicians also claim a legitimacy to manage. After all, if they are elected to positions of authority and are held accountable for the money spent on public services, they have a right to influence how they are run. The distinction between policy and management is not always clear. Managers, as well as professionals, will have views about what are the most effective services and therefore which should be provided. At the same time, politicians will have views about the best way to manage, either from their experience or from beliefs about management which they have developed or acquired though politics.

Ideas about management are not technical and free of values. Many of the main ideas about how organizations should be run are based on beliefs about people's motivation, how they relate to each other, the use of authority, and the extent to which people can be trusted. In other words, management itself can be ideological. Indeed 'managerialism' or the pursuit of a particular set of management ideas has itself been described as an ideology.

In many cases where activities have been contracted out to the private sector, the management activity of public sector managers does not consist of directly managing resources. Rather, the task is how to specify services and make sure that contractors provide them in accordance with the specification. For many this has meant that they have to get new skills, in contract writing, negotiating and supervising another organization's work.

   

Change and the search for a mode of control

There is no doubt that the way in which the public sector is managed has changed, not only in the United Kingdom but also in other countries faced with similar issues of rising demand for and expectations of services, governments nervous of the level of public expenditure, and the development of different ways of managing in the private sector. Not all governments have approached the issue in the same way as the United Kingdom, although all have had similar aims ‑ which are to try to increase the efficiency with which public money is spent while maintaining political support.

Management was once seen as the solution to the problem that the professionals were in charge of public services and could not be brought under political control. In this version of management, the targets, incentives and controls of a top‑down approach to management, known in the 1950s as Management By Objectives, were imposed in a range of services. Ministers set big targets and sent them down though the hierarchy, where they were translated into more and more explicit individual targets.

The other problem that politicians detected in public services was that they were bureaucracies, run according to set rules and procedures and not susceptible to change. Management was one solution to this problem, asking people to be managers rather than administrators. The other solution was the market, according to a belief that competition would apply pressure on cost and quality of public services.

When neither management nor markets turned out to be the complete solution to the problems of professional rule and bureaucracy, other modes of control were sought. These included a bigger role for auditors and inspectors, greater use of collaborative working and a focus on policy outcomes.

All of these solutions have been pursued at the same time. Collaboration is required at the same time as competition. Audit and inspection of management processes and work practices are imposed at the same time as the requirement to meet efficiency targets.

 The structure of the book

This book is in two parts. Part One is concerned with the institutional, political, financial and policy environment in which managers work and how the environment affects them. Part Two deals with the main aspects of management practice in the public sector and the search for alternative modes of control. It ends with an assessment of how successful the changes have been and speculates on the future.

Chapter 1 describes the public sector, its scale and institutions. It shows that the privatization programme has made the public sector smaller by transferring nationalized industries and public utilities to private ownership but that the Civil Service, local government and the National Health Service are still recognizable and relatively stable in numbers employed and money spent. There have been changes in boundaries, functions and methods of control but the institutions themselves would be recognized as similar by someone who had seen them at any rime during the past fifty years.

Chapter 2 starts by looking back over that period at the development of the public sector. It shows that, while the Second World War and the post‑war reconstruction were very significant, many of the institutions of the welfare state had been formed before the war. While there was a long period in which no very radical change was made to the size and functions of the state,this did not mean that there was a complete consensus: there were always those who wanted to reduce the scope of the welfare state. It also argues that there was not as explicit or strong an agreement between the state, the employers and the trade unions about the economy and welfare provision as there was in other countries.

Similarly, it is possible to exaggerate the extent to which the election of the Conservative government under Margaret Thatcher in 1979 was a sudden, radical change from a previously consensual approach to these matters. While the post‑1979 government spoke of 'rolling back the frontiers of the state', the previous Labour government had started the process of trying to reduce spending and the Thatcher government concentrated mainly on privatization of nationalized industries and the sale of council houses, rather than reducing the scale of the welfare state institutions. The governments under John Major's leadership were in some ways more radical, using processes which had been established under the Thatcher governments to tighten central control over the welfare state and introducing an ideology of management that had real effect. It argues that the Blair government, despite its talk of a 'Third Way', shared many characteristics with the Conservative administrations it succeeded.

Chapter 3 deals with public expenditure. It describes where the money comes from and what it is spent on. It then makes distinctions between types of expenditure, capital and current and services and transfers, which are important in understanding how spending changes are achieved. Budgeting and spending control in the main sectors are described, together with their implications for managers. It argues that one change introduced by the Labour government is a change in the attitude towards public spending, ending a period in which the aspiration (although not the achievement) was to cut spending.

Chapter 4 is concerned with the effects of changes in social policy on management. The purpose is to identify the changes in recent years, which have meant that managers have had to change their behaviour. There were six themes apparent in the long period of Conservative rule: from equality of treatment to different treatment of different people; from universal services to selection and more rationing; the promotion of a 'mixed economy' of provision of services by public, private and voluntary sectors; some increase in choice for users of services; the development of stronger central policy control while allowing more local managerial autonomy and accountability; and changes in funding regimes towards performance or competition. The chapter asks how many of these themes the Labour government continued and whether new themes emerged, and finds an eclectic mixture of attitudes and policies.

Part Two looks at how governments and managers have changed how the public sector is run. The introduction sets out the framework of analysis, the search for modes of control to replace or supplement rule by professionals and rule by bureaucracy.

Chapter 5 examines the nature of the markets that have been put in place. It first looks at the arguments in favour of markets and shows that there are political limits to a market solution. When it describes the markets in health, local government and the Civil Service it shows that they have been used for different purposes in different places and the structures of the markets vary. In the main, markets have been used as a way of controlling costs, rather than improving consumer choice. The chapter also looks at how managers respond to the markets in which they find themselves. It argues that the degree of com­petition determines how much change managers have to make but that the minimum effect is that they have to be very clear about exactly what it is they do and how much it costs. A strong element of competition leads to uncertainty and fragmentation. The introduction of markets has also promoted the growth of public service companies, based both in the United Kingdom and elsewhere.

Chapter 6 is about the contractual relationships which have developed in the markets. It shows that just as the form of the markets varies, so do the relationships. In some cases, where contracts are essentially internal, they look more like budgets and operational plans than contracts. It looks at the elements of the contractual relationship and how they have developed in the public sector. It concludes that when we look in detail at the contractual arrangements they often reflect a hierarchical relationship rather than what we would define as a market. The Labour government recognized this, espe­cially in the NHS, and reverted to administrative control instead of a market approach. The chapter also examines the big contracts between the govern­merit and various suppliers of information and communications technology and asks why such big overspends and failures were possible.

Chapter 7 looks at the response of managers to the request that organiza­tions should collaborate more with each other. It finds that there are different degrees of collaboration and that the behaviours required vary according to how close collaboration needs to be. It concludes that it is possible to identify those factors that encourage or inhibit collaboration.

Chapter 8 looks at the use of audit and inspection as a mode of control. It shows that the role of audit and inspection has changed and that inspectors are laying down specific ways of managing. It also shows that the results of inspection vary according to sector. Some departments have greater powers to intervene in the management of their institutions than others. The ex­treme case is prisons, where the management arrangements seem to give the Home Office little control over what happens in prisons despite inspections. Schools, on the other hand, are susceptible to intervention.

In Chapter 9, the relationship between the state and the users of services is examined. It argues that people have a variety of relationships with the state, some of which are equivalent to a customer‑supplier relationship, and some which are custodial and unwelcome. People also have a relationship derived from citizenship rather than consumption. These complications make 'cus­tomer orientation' a difficult thing for managers. The chapter sets out some ideas on how a service‑user and citizen orientation might be developed.

Chapter 10 turns to performance measurement and management. Managers have increasingly been asked to account not just for the money they have spent but also how effectively they have spent it and to what result. The chapter defines economy, productive efficiency, allocative efficiency, effectiveness and equity It argues that a distinction needs to be made between measuring the effects of policy and measuring managerial effectiveness. Choices about what services to provide and for whom are often more important to the people than how efficiently they are managed. Performance measurement should be distinguished from policy evaluation.

Chapter 11 turns to the management of people. It shows that there are two main approaches: people can be told what to do in detail and controlled tightly, or they can be given autonomy to work in their own way, using their skills and knowledge. The arrangements that have been put in place in recent years have a tendency towards the former. The chapter then looks at how people are paid and finds that there is an increase in the use of personal contracts and performance‑related pay and a decrease in the use of automatic increments for everyone. Pay bargaining has been localized in the NHS and the Civil Service, although the problem of disparities caused by local bargaining in local government has caused it to turn back to national bargaining.

Chapter 12 is about managing money. It looks at the relationship between the mode of management control and the style of financial management. It shows that the national budget process is moving towards trying to generate a more effective use of the money provided and describes the recent changes in financial management and accounting.

Chapter 13 deals with two questions: Can we assess the effect of all these changes? What is likely to happen in the future? Nobody has carried out an evaluation of the managerial changes, so the answers to the first question are only indicative. However, three answers emerge: the Civil Service has not reduced running costs significantly, other than by shedding functions. Even where Civil Service staff numbers have been reduced, costs have not come down proportionately as the jobs have largely been transferred to the private sector. The NHS seems to have become more efficient, increasing hospital output by twice as much as the increase in cost, in real terms. In school education, improvement of which has recently been a government priority, we see small but discernible increases in standards.

As to the future, the chapter considers the influences on public sector management, including the macro‑ and micro‑economic conditions, political conditions and attitudes, 'events' that provoke change, and the institutional arrangements. It concludes that if managers are to influence the way in which the public sector is managed they have to understand the context in which they operate and be prepared to demonstrate that their methods work. If not, they will have their ways of working determined for them.

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