7 sector depends on the ability to face
7 CULTURAL DIFFERENCES BETWEEN THE PRIVATE AND PUBLIC SECTORS We often wish that there were more businessmen in government. That would be good for business and good for government. Yet the experience of those who are drafted into ministerial office from the business community is usually frustrating. The latest example is Digby Jones, former Director General of the Confederation of British Industry, which represents big business in the UK.In June 2007 he was appointed Minister of Trade by the British Prime Minister, Gordon Brown. He resigned in April, 2008, after less than a year in office.
Last week, he described his time as a government minister as “one of the most dehumanising and depersonalising experiences a human being can have”.Hyperbole, perhaps, but it does illustrate the huge chasm that lies between private sector attitudes and public sector culture – a gap of understanding that is getting wider: 1 The public sector is obsessed with process where the private sector’s priority is purpose; 2 In the private sector, responsibility and authority rest in the same place, in the person of the entrepreneur, but in the public sector it is usually unclear where they lie in complicated structures; 3 The public sector acknowledges little relationship between job security and performance; 4 There is a big difference in public and private sector concepts of the “work ethic” – to put it politely; 5 Survival in the private sector depends on the ability to face facts as they are, but promotion in the public sector depends on the ability to say things one knows to be total nonsense; 6 The private sector demands that the individual accepts the consequences of his actions; and 7 The public sector is all about power, but private business exists only if it gives others what they want. In the Publin report D9 On the differences between public and private sector innovation Ian Miles and Rannveig Roste argue that there are great differences between the public and private sectors as regards innovation.
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They point out that public organizations are typically the primary supplier of services and are not competing in order to maximize profits. This lack of product competition is widely held to mean a lack of incentives to improvement. However, as Miles and Roste point out, the notion that the connection between a firm’s behaviour and pecuniary reward is the central dynamic of economic rationale and he development of innovation has to be seen as too simplistic. Frost and Egri consider that there is a “rational myth of innovation” that portrays organizations as goal-directed.
One important outcome of the Publin project is that we have learned more about innovation related human behaviour in general, and that this knowledge may also be used to get a better understanding of incentives for innovation also in the private sector. We have found that public sector workers may be motivated by idealism, the joy of creating something new, an intense interest in the topic at hand, friendship and a sense of belonging, career ambitions, etc. One obvious difference between the public nd private sectors is that the public sector is not profit driven in the business sense of the term.
However, the motivations for innovation found in the public sector are probably also present in private firms, and definitely in third sector organisations. The fact that public institutions are not profit driven, should not lead us to believe that public sector employees and managers are not concerned about financial matters. As is the case within private companies, public sector units and organisations fight for funding and influence. Another factor that makes the public sector different form the private is the unit of analysis. Apart from publicly owned ompanies, most public institutions are part The Publin Post 1of a larger chain of command and control where it is harder to draw a line between the different parts of the system – and where legal frameworks provide little help in this. For instance: public agencies – like research councils or directorates of health – interact closely with ministries as well as subordinate institutions and “users”. The innovation activities in these institutions are heavily influenced by decisions made above and below in the chain of command.
The closest parallel in the private sector will be large conglomerates or multinational companies. Another important difference is that the olitical aspect is much more important in the public than in the private sector. Policy decisions normally affect companies indirectly, through laws, regulations and financial support.
The public sector is at least formally controlled by elected politicians. The intimate link between this governance dimension and funding of current expenses of the activities implies a very strong link between ownership and control on the one hand and the growth strategies of the subsidiary organizations. Just as important are the differences in management incentives.
Public managers are in general more likely to receive lower and less performance based material enefits, which may influence their willingness to take risk. It may be that the public sector – on an aggregate level – recruits fewer risk-taking entrepreneurs than the private sector relatively speaking, due to the expectations of rewards or penalties of entrepreneurial activity. Moreover, it is likely that innovative private companies are more likely to accept “failure” than public institutions. By “failure” is here meant innovation projects that do not accomplish their expected objectives.
Private companies may consider “failures” an integrated part of any risky enterprise, while the pressure to short term economizing of public funds – and not asting the public purse – may imply a critical disincentive to innovation. Overall we would then expect to see public organizations being risk-aversive relative to market-oriented firms, essentially due to the characteristics of the effective incentive system facing the two kinds of organizations. Differences between private and public sector innovation Private Sector Public Sector Organising Principles Pursuit of Profit, of Stability or of Growth of Revenues. Enactment of Public Policies.
Organisational Structures Firms of many sizes, with options for new entrants. Complex system of organisations with various (and to some extent conflicting) tasks Performance MetricsReturn on Investment Multiple performance indicators and targets Management Issues Some managers have considerable autonomy, others constrained by shareholders, corporate governance, or financial stringency. Successful managers liable to be rewarded with substantial material benefits and promotion. While there are efforts to emulate private sector management practice, mangers are typically under high levels of political scrutiny.
Successful managers likely to receive lower material benefits than comparable private sector managers. Relations with: ~ End-Users Markets may be consumer or industrial ones, and firms vary in the intimacy of their links with he end-users of their products, but typically market feedback provides the verdict on innovation. End-users are the general public, traditionally seen as citizens, though recently there have been efforts to introduce market-type principles and move to see them as customers or consumers. The Publin Post 2~ Supply Chains Most firms are parts of one or more supply chains, with larger firms tending to organise these chains. Public sector is typically dependent on private suppliers for much of its equipment, and is a very important market for many firms.
~ Employees Nature of workforce varies considerably, and relations between employees and management range from fractious to harmonious.Efforts are made in some firms to instil company loyalty and/or a customercentric approach, but employee motivations are often mainly economic ones of securing a reasonable income.. Public sector employees are typically highly unionised (economists and social scientists in the central administration and health- and social professionals as nurses, social workers, child-care workers, teachers etc in the public services). Many are also professional workers organised through professional associations.
While usual concerns about status and salary are experienced, many workers enter public service with idealistic motivations. ~ Sources of KnowledgeCompanies have considerable flexibility in sourcing innovation-related information from consultants, trade associations, and public sector researchers, but many smaller firms have limited resources to do so. Despite large resources, parts of the public sector may be constrained from using private sources of knowledge (other than those of suppliers). Public sector sources of knowledge (e. g. Universities) may be highly oriented to other parts of the public sector.
Time Horizon Short-term in many sectors, though utilities and infrastructural services may have very long horizons Short-term: policy initiated innovations need to pay off within the election period.