Successful contractors seem to pay more attention to appointing staff that are more appropriately qualified for the job in hand. In both the US and Australia, this seems to explain the large savings in defence support, with the substitution of civilian personnel for highly trained (and thus more expensive) uniformed personnel.
Innovation in prison management
Much the same has been evident in the UK prison management market: contractors have been able to reduce unit costs, in part, by recruiting younger workers who are at a different stage in their professional careers. Since service standards in the privately managed prisons have not been noticeably worse than in the public sector (and in some ways have been better), this suggests that this innovation has worked.
Authority and technology
The evidence is clear that successful contract managers enjoy much greater autonomy than service managers working under a traditional public service regime. One North American study reported that contractors were much more likely than municipal agencies to make frontline supervisors responsible for hiring and firing and for the maintenance of their equipment. Cities with low costs required managers to accept responsibility for their staff, which reduced the tendency to pass the buck.
Technological innovation was a source of value for money improvements in some of the studies – a computerised inventory system in a military warehouse, or the use of CCTV cameras and electronic keys in new generation prisons. However, in the services addressed in this report, it was not mentioned as a major driver of change (although in other service areas, such as business process outsourcing, it would probably feature more prominently).
There is no doubt that in some jurisdictions at some times, cost reductions have been delivered in part through reduced terms and conditions for workers. This was particularly so in the UK in the 1980s and early 1990s under compulsory competitive tendering, although regulation and codes of practice now preclude such an approach. However, the research is clear that savings do not have to be made in this way – service redesign and better people management are capable of delivering real productivity improvements.
So, does the key to better value for money lie in detailed service redesign, increased workforce flexibility and better people management? Yes, but management theorists have been arguing that for decades. The answer lies not so much in knowing what reforms are required, as it does in understanding how to motivate public sector managers.
The answer to this does not lie in education and exhortation. If that were the answer, then governments would have worked out the value for money equation decades ago. In some cases, the answer has been found in the heroism of an outstanding public service manager, who is willing to risk his or her career in personally underwriting a change agenda. But as Edmund Burke pointed out a long time ago, the foundations of good public management cannot be laid in rare and heroic virtues.
The Institute’s analysis suggests that part of the answer lies at the competitive edge. Competition gives permission to public sector managers to innovate. It provides them with a mandate and an incentive to implement change. And it serves as a convenient conduit for the spread of new ideas across the public service sector as a whole.
Gary Sturgess is Executive Director of the Serco Institute. He is a prominent exponent of diversity and contestability in public services and played a key role in the establishment of the Public Services Strategy Board at the Confederation of British Industry (CBI) and the Services Forum of Infrastructure Partnerships Australia.
Download The Institute’s report Competitive Edge free of charge from: www.serco.com/institute
