15 June 2007
The public sector's experience of reorganisation is that it is never-ending and often unsuccessful. But it doesn't have to be that way, provided its leaders are willing to learn lessons from the private sector
For senior civil servants, the past few months have been dominated by changes in the machinery of government — mergers and demergers and other reshuffling of government departments. And if early indications are anything to go by, there will be no let-up once Gordon Brown steps through the door of Number 10.
'Merger and acquisition' activity is commonplace in the private sector. In fact, we are witnessing record levels of this kind of activity across Europe. But does it represent value for money for the public sector?
Previous experience is not very encouraging. Of the 28 central government departments created between 1960 and 1979, 13 had been wound up by 1981. Since 1997, the pace of upheaval has increased: of the 14 big Whitehall departments, nine have been newly created or rejigged. But in the main it has taken years before new departments operate in a really integrated way.
In the corporate world, less than half of mergers and acquisitions create value for shareholders. Usually, it's not the deal itself that is flawed but the lack of attention given by top management to post-deal implementation. The lesson here for the public sector is that well prepared mergers are more likely to succeed. Senior management needs to focus on both the short-term synergies around the deal and the longer-term opportunities to rethink the way their organisation operates.
Most government departments now face a slowdown in spending and are focusing on citizen–centric public services. In a world where there is broad consensus over public policy issues, organisational flexibility is becoming increasingly important.
We can expect to see more organisational redesign work within and across departments. The real question is not whether there should be machinery of government changes, but how senior civil servants should most effectively implement organisational changes.
Lessons can be learned from the private sector. Due diligence can be carried out on the new organisation to assess and analyse its governance, management system, finances, processes, tools and operations. The chief executive — the permanent secretary — must minimise the risks of transition and realise the value of change as soon as possible.
All this is about people, technology and money. Changes in the machinery of government affect employees on several levels and require a sustained focus in three areas.
First, the strategy, priorities, design and overall culture will change. Boundaries are redrawn, priorities alter and people often have a new boss. Their work identity has gone and the effect on their productivity should not be underestimated. The new leader must unite the organisation.
The moment of merger is a licence to 'unfreeze' behaviours and reshape employees before the waters quickly freeze over once more. Permanent secretaries need to channel these expectations into productive work across the department — not just redefining the jobs at the top.
Second, the financial underpinnings of the organisation will change. The impact of policy on budgets, assets, liabilities, contracts with suppliers and sources of money all need to be understood.
How will it be possible to demonstrate value for money, productivity and efficiency? Existing financial arrangements cannot always be immediately changed but the new organisation needs a financial footprint.
Third, the systems, processes and tools that employees and customers use every day all need to be put together. E-mail, financial reporting, HR systems, the IT network, security systems, office moves and all the minutiae that people rely on must all work.
Experience of previous machinery of government changes suggests that, too often, it takes a very long time for departments to 'recover' from a merger or demerger. But when organisations identify 'key events' and set out to change the behaviour of the leadership team, they have greater success. Over time they reach a tipping point.
A good case in point is the merger of Inland Revenue and Customs and Excise into Revenue & Customs. The innovative design was developed at remarkable speed and with a high degree of involvement and enthusiasm from management, making it one of the most successful mergers in the public sector.
Perhaps what this partly illustrates is that changing reporting lines has minimal effect in large departments. Behaviour and culture are changed by new business, financial and management processes targeted at planned outcomes.
Merely surviving machinery of government changes is a wasted opportunity. Becoming adept at frequent organisational redesign might become a core skill at the top of the civil service. It's time to get used to it.
Rebecca George and Keith Leslie are partners at business advisory firm Deloitte
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