By Gill Hunter
25 September 2009
With a spending squeeze looming, public sector leaders should take the initiative now to ensure any changes are on their terms. Gill Hunter advises on the best way to go about it
The dominant theme in public finance for the past six months has been that deep cuts are coming and that the public sector had better be ready. With government debt growing faster than expected and the window before the next Spending Review rapidly closing, public sector leaders can no longer afford to put off their preparations.
Some initial steps have already been taken, of course: the Treasury’s Operational Efficiency Programme, published alongside this year’s Budget, recommended various ways to make some £15bn worth of efficiency savings. But even if these could be realised, they would not be enough to tame a public sector debt that now totals almost £800bn.
The good news is that the government recognises this. The Treasury was forecasting difficult times even before the latest public sector borrowing statistics were published, which showed total borrowing to have exceeded £800bn by August, a peacetime record. It also found that borrowing in the first four months of this financial year was as high as the total for 2005/06.
The bad news is that the Treasury’s forecast – published in April’s Budget – makes very stark reading. It predicted that public borrowing would rise to almost 80% of national income over the next five years. The Treasury didn’t look beyond 2013/14 – even in its recently leaked figures – but the Institute for Fiscal Studies has forecast that total debt will not fall back to below 40% of gross domestic product until the 2030s.
On the plus side, the cost of servicing this debt will not be as high as it could be, due to historically low interest rates. However, the Treasury has indicated that it will still need to find an additional £44bn between now and 2013 to cover costs, with further savings likely to be needed after that. And while the rest of the economy might soon start returning to growth, any release of pressure on the private sector will only make it easier for the government to start cutting spending.
All this means that whichever party wins the next election, the question is not whether the belt gets tightened, but which notch it gets pulled to. This presents public sector leaders with a clear choice. They can either wait for the cuts to happen, and hope that their organisation gets off lightly, or take pre-emptive action to ensure they meet the squeeze on their own terms.
Survival in a climate like this means doing two things. The first is for organisations to take a strategic look at themselves and to optimise their plans so that they provide as much value as possible. The second is to look at how they can work with other organisations to share resources and improve services at the same time as finding efficiencies.
Holding a strategic review can sound like a luxury when urgent action is needed. But, done properly and supported by a commitment to action, it can act as a powerful catalyst for change.
There are two reasons for this. First, it can help leaders to understand how their overall strategic vision needs to adapt so that it remains relevant to shifting political and fiscal priorities.
Second, when coupled with a comprehensive portfolio management approach – in which an organisation’s programme spending is managed as a whole rather than as discrete budgets – it can help organisations prioritise their use of increasingly limited resources by focusing on activities that provide the greatest value in the shortest time. And, with the scale of savings required unlikely to be produced by greater efficiency alone, some very tough choices will need to be made.
Doing this kind of review now – when there is less pressure for immediate savings – gives public sector leaders space to clarify their vision and priorities. It also allows them to act in a measured and constructive way – accelerating aspects of their programme portfolio to provide future savings, and cancelling or ‘putting on ice’ programmes that might prove unaffordable in the longer term.
A vital part of this review is identifying how best to manage any slowing down – or cancellation – of programme activity. Good management disciplines can help here: benefits can be captured even if programmes haven’t been completed. Organisations might still be able to get a return on programmes that close part-way through if they are clear about the benefits that could be generated from work already done.
Just as strategic reviews might seem a distraction in hard times, so can thinking about partnerships. But strong partnerships can be a highly effective way of providing more with less – something that both the Budget and the Operational Efficiency Programme recognised.
Thanks to the experiments in joined-up government over the past decade, there is growing evidence of what makes collaborative relationships effective. Success depends on getting the model right, and doing this means having clarity of purpose. Some partnerships exist primarily to produce savings – such as the Collaborative Procurement Hubs in the NHS. Others – such as collaboration between police forces on regional issues – exist to improve services.
Each objective will require a different approach to governance, operating practices and performance management, and getting any one of these wrong can mean soured relationships and value destroyed. Being clear about what each organisation wants from the collaboration – and building that into the operating approach – is therefore crucial to avoiding these kinds of problems.
But clarity on its own can’t make collaboration a success. Partnerships are ultimately relationships, needing commitment and energy from the leadership team if they are to thrive. This need not be a bad thing: it just depends on those involved having the will to make it succeed. And it makes it easier to navigate the difficult issues, since a common purpose and shared commitment can go a long way to helping organisations find solutions to their problems.
Any investment public sector leaders make in building working relationships at the start of a collaborative partnership – in both formal and informal settings – will therefore pay substantial dividends in the longer term.
With a financial winter on its way, the warmer times enjoyed by the public sector for the past decade or so are fast coming to an end. At a national level, it is clear that the stores are empty and high levels of borrowing will be the norm for some time to come. But, for individual public sector leaders, there is still a chance to build up reserves – through a focus on benefits, value-driven plans, and robust and fruitful relationships – to see them through the lean years ahead. All it needs is a willingness to take that bold action.
Gill Hunter is director of innovation and strategy at Avail consulting
25 September 2009
With a spending squeeze looming, public sector leaders should take the initiative now to ensure any changes are on their terms. Gill Hunter advises on the best way to go about it
The dominant theme in public finance for the past six months has been that deep cuts are coming and that the public sector had better be ready. With government debt growing faster than expected and the window before the next Spending Review rapidly closing, public sector leaders can no longer afford to put off their preparations.
Some initial steps have already been taken, of course: the Treasury’s Operational Efficiency Programme, published alongside this year’s Budget, recommended various ways to make some £15bn worth of efficiency savings. But even if these could be realised, they would not be enough to tame a public sector debt that now totals almost £800bn.
The good news is that the government recognises this. The Treasury was forecasting difficult times even before the latest public sector borrowing statistics were published, which showed total borrowing to have exceeded £800bn by August, a peacetime record. It also found that borrowing in the first four months of this financial year was as high as the total for 2005/06.
The bad news is that the Treasury’s forecast – published in April’s Budget – makes very stark reading. It predicted that public borrowing would rise to almost 80% of national income over the next five years. The Treasury didn’t look beyond 2013/14 – even in its recently leaked figures – but the Institute for Fiscal Studies has forecast that total debt will not fall back to below 40% of gross domestic product until the 2030s.
On the plus side, the cost of servicing this debt will not be as high as it could be, due to historically low interest rates. However, the Treasury has indicated that it will still need to find an additional £44bn between now and 2013 to cover costs, with further savings likely to be needed after that. And while the rest of the economy might soon start returning to growth, any release of pressure on the private sector will only make it easier for the government to start cutting spending.
All this means that whichever party wins the next election, the question is not whether the belt gets tightened, but which notch it gets pulled to. This presents public sector leaders with a clear choice. They can either wait for the cuts to happen, and hope that their organisation gets off lightly, or take pre-emptive action to ensure they meet the squeeze on their own terms.
Survival in a climate like this means doing two things. The first is for organisations to take a strategic look at themselves and to optimise their plans so that they provide as much value as possible. The second is to look at how they can work with other organisations to share resources and improve services at the same time as finding efficiencies.
Holding a strategic review can sound like a luxury when urgent action is needed. But, done properly and supported by a commitment to action, it can act as a powerful catalyst for change.
There are two reasons for this. First, it can help leaders to understand how their overall strategic vision needs to adapt so that it remains relevant to shifting political and fiscal priorities.
Second, when coupled with a comprehensive portfolio management approach – in which an organisation’s programme spending is managed as a whole rather than as discrete budgets – it can help organisations prioritise their use of increasingly limited resources by focusing on activities that provide the greatest value in the shortest time. And, with the scale of savings required unlikely to be produced by greater efficiency alone, some very tough choices will need to be made.
Doing this kind of review now – when there is less pressure for immediate savings – gives public sector leaders space to clarify their vision and priorities. It also allows them to act in a measured and constructive way – accelerating aspects of their programme portfolio to provide future savings, and cancelling or ‘putting on ice’ programmes that might prove unaffordable in the longer term.
A vital part of this review is identifying how best to manage any slowing down – or cancellation – of programme activity. Good management disciplines can help here: benefits can be captured even if programmes haven’t been completed. Organisations might still be able to get a return on programmes that close part-way through if they are clear about the benefits that could be generated from work already done.
Just as strategic reviews might seem a distraction in hard times, so can thinking about partnerships. But strong partnerships can be a highly effective way of providing more with less – something that both the Budget and the Operational Efficiency Programme recognised.
Thanks to the experiments in joined-up government over the past decade, there is growing evidence of what makes collaborative relationships effective. Success depends on getting the model right, and doing this means having clarity of purpose. Some partnerships exist primarily to produce savings – such as the Collaborative Procurement Hubs in the NHS. Others – such as collaboration between police forces on regional issues – exist to improve services.
Each objective will require a different approach to governance, operating practices and performance management, and getting any one of these wrong can mean soured relationships and value destroyed. Being clear about what each organisation wants from the collaboration – and building that into the operating approach – is therefore crucial to avoiding these kinds of problems.
But clarity on its own can’t make collaboration a success. Partnerships are ultimately relationships, needing commitment and energy from the leadership team if they are to thrive. This need not be a bad thing: it just depends on those involved having the will to make it succeed. And it makes it easier to navigate the difficult issues, since a common purpose and shared commitment can go a long way to helping organisations find solutions to their problems.
Any investment public sector leaders make in building working relationships at the start of a collaborative partnership – in both formal and informal settings – will therefore pay substantial dividends in the longer term.
With a financial winter on its way, the warmer times enjoyed by the public sector for the past decade or so are fast coming to an end. At a national level, it is clear that the stores are empty and high levels of borrowing will be the norm for some time to come. But, for individual public sector leaders, there is still a chance to build up reserves – through a focus on benefits, value-driven plans, and robust and fruitful relationships – to see them through the lean years ahead. All it needs is a willingness to take that bold action.
Gill Hunter is director of innovation and strategy at Avail consulting
