FROM OUTPUTS TO OUTCOMES

  • Paul East
State Services

WELLINGTON TOWN HALL

May I say first of all how pleased I am to once again address you as Minister of State Services. The fact that for the last year I was not your Minister, and (with a feeling of deja vue) I'm back again, is perhaps indicative of the turbulent times in which we live.

When I spoke to your last Conference a little over a year ago, public servants and politicians alike were bracing themselves for the new world of government under MMP.

We had by that stage done as much as we could to prepare ourselves for what lay ahead. We knew well enough that some things would just have to be worked out through practical experience.

In the event, the transition was remarkably smooth. Some commentators thought the government formation process took far too long but those views may I think have portrayed an inadequate appreciation of the real nature of the new political system.

Certainly the process did take far longer than we were accustomed to, but it was, after all, our first experience of formal coalition-building. And I might add that ten weeks is certainly not out of the way in the context of proportional representation systems internationally.

At the extreme end of the scale, it took nearly six months to form the present Netherlands Government. The Dutch people coped with this. They have a very mature understanding of the intricacies and the vital importance of these processes.

In time I am sure New Zealanders will develop a similar understanding - although hopefully we will never have to hold our breath for anything like as long.

One of the recurring themes, as we were making our preparations for the transition to government under MMP, was that the truly significant changes would take place at political levels - and that things ought to remain fundamentally the same so far as the bureaucracy was concerned.

I think this has proved to be the case.

There is no doubt that the political landscape and the chemistry of practical politics have altered significantly. The bureaucracy, however, continues to do what it has always done - give loyal and conscientious service to the Government of the day, while maintaining its capacities to do the same for the governments of the future.

I would like to give credit here to all those who worked to prepare the Public Service for the transition to government under MMP. I particularly wish to acknowledge the work of Don Hunn, whom the Government asked, in 1995, to stay on as State Services Commissioner, for two years longer than he expected, in order to lead that work.

There is no doubt that the preparations were thorough and thoughtful, and ultimately very effective. It was, indeed, precisely the performance to be expected from a competent, well-coordinated and very professional Public Service.

The overall message I sought to give you at last year's Conference was that leadership of the Public Service through the last few years of the twentieth century would boil down to concentration on the fundamentals of good management:

attending carefully to collective interests

concentrating on achieving quality expenditure through effective operation of the output purchasing regime

consolidating ethics in the Public Service

providing well-judged, objective, free and frank advice, and

reinforcing the accountability system.
Looking back, what I was really doing then was advising you to stick to your knitting. And that certainly was extremely important at the time.

I think it is desirable and necessary now, with the immediate challenges of the transition to government under MMP, to add some rather more long-term perspectives.

This morning I want to address the theme of this Conference - Lifting the Game - from Outputs to Outcomes - from two particular perspectives.

First I want to discuss outputs and outcomes - what the Public Service does, and to what ends.

Then I want to look at some important aspects of the way the Public Service does its business.

The move to appropriation by outputs was without doubt one of the most significant features of the State sector reforms. Instead of fussing about the details of costs of production, our attention was to become focused on the relevance and value of the actual products.

Quite properly, a great deal of effort was invested in the first few years in mastering the new technology - in making sure that outputs were properly specified, correctly priced, and so on. But within two or three years there was a sense that we might be becoming, instead of input-fixated, output-fixated.

The problem seemed to lie at first in an inability to establish a coherent overall framework for output production and purchasing. Rather than the top-down process that had been envisaged, the push was coming from beneath - with departments deciding for themselves the outcomes to which their outputs related, more or less willy-nilly.

A much-needed strategic focus began to be put in place from 1993, when the Government declared its longer-term objectives in Towards 2010. That statement was supplemented by The Next Ten Years, and then by the first comprehensive set of Strategic Result Areas for the Public Service, covering the years from 1994 to 1997. And since the end of last year the Coalition Agreement has specified the programme and objectives of the Government.

These have been significant developments.

On the face of it we appear to have closed the circle quite neatly: The Government considers and specifies its strategic objectives, Ministers purchase outputs contributing to achievement of those objectives, and at the other end of the cycle the Government reviews progress, modifies or reviews its objectives, and adjusts its purchases to suit.

But to what extent in fact are the collective efforts of the Public Service squarely focused on the major challenges before the Government and the country?

To what extent are we simply 'best-fitting' existing departmental outputs to convenient SRAs?

And to what extent are we still output-fixated?

I hope you will be considering issues such as these here today. My own impression is that we still have plenty to do, to make the system work effectively.

A first step towards this should be, I suggest, a conscious effort by senior Public Service managers to lift their eyes from individual outputs and to spend more time thinking about the Government's strategic result areas - about outcomes in other words.

The sorts of questions they might consider include:

what are the outputs that will do most to achieve the outcomes which are the concern of the department?
which organisation or combination of organisations would be the most efficient and effective suppliers of those outputs?
what does the organisation need to do to assist Ministers in making appropriate purchase decisions?
Consideration of matters such as these is likely to open up a number of interesting issues.

It should, to begin with, widen the field of inquiry beyond the existing set of departmental outputs. New or materially modified outputs may be called for. It ought to widen the pool of potential suppliers too, and it should expose areas where high levels of co-operation between suppliers is needed.

And very importantly, it ought to help break down departmental turf protection, which is, I think most Ministers would agree, one of the things that has stood in the way of our ability to direct co-ordinated inter-departmental efforts.

In some ways the preoccupation with outputs has tended to make departments more defensive, less objective than they should ideally be. Perhaps the budget round is still too often a fundamentally adversarial process, rather than the intelligent and objective interaction that the architects of our reforms intended it should become.

If that is the case it may be an issue for central agencies more than for departments.

If the budget round becomes overwhelmingly to do with expenditure control - and particularly to do with short-term expenditure control - the incentives for intelligent debate about the achievement of high-level outcomes are bound to be driven out. The incentives are far more likely to be simply to fight like mad to hang onto what you've got.

And that doesn't seem to me to be much of an advance on the old system we were so glad to leave behind us in the late 1980s.

What I am suggesting here is a distinctly different approach by departments and Central Agencies to business planning and budgeting - and to the way Ministers are advised about these matters.

It shouldn't be assumed by any department that it will keep on churning out the same suite of outputs year after year. It shouldn't be assumed by any Central Agency that its job is simply to hammer each output down to the lowest possible price.

What the Government wants is an intelligently-composed array of outputs that will combine to have the strongest possible impacts on achievement of the strategic priorities it has declared. Who supplies which outputs, and even their price, really ought to be a second set of questions.

I mentioned 'output-fixation' a few moments ago. I think 'contract-fixation' raises at least as many concerns.

What worries me is the possibility that the systems introduced to liberate departments, and to facilitate imaginative, effective, client-conscious public management, may in an insidious way be beginning to have opposite effects.

How often do you hear people and organisations saying these days, in one way or another - "It's not specifically in the contract and so it's not my concern," or - "It's not specifically in the contract and so you can't hold me accountable for it."

Perhaps you've said these things yourself.

However true they may be in particular cases, these responses as they multiply in frequency point to the emergence of what could very easily become a defensive, risk-averse, self-centred culture.

Such a culture would carry two dangers so far as the overall public management system is concerned.

One is that risky, unattractive - but nevertheless important - functions might start to fall between the cracks, or that absurd demarcation disputes might arise, of the kind that used to be endemic in the cloth-cap trade unions of old. If 'output-fixation' distracts departments from outcomes, and 'contract-fixation' encourages them to ignore everything that isn't actually specified, aren't these things very likely to happen?

The other danger is that innovation, flair and the elements of constructive risk-taking that go with them, will be extinguished.

We all know that this is not at all what the State sector reforms were about.

This brings me to the second set of issues I want to look at this morning, about the way the business of the Public Service is done.

There is no doubt that the ideas that were developed through the 1980s and early 1990s reflected some of the most innovative and bold thinking about public management issues that was taking place anywhere in the world. We rode that remarkable wave for nearly ten years.

But I have had the impression, for the last couple of years anyway, that what was seen as radical and inspirational not so long ago is becoming routine, mechanical. Professor Allen Schick made some similar observations

I think the main casualty from this is a loss of concentration on outcomes. People and organisations lose sight of the reasons why they are doing things - which is, ultimately to make significant impacts on the major public policy issues and problems of our times.

This is very evident in policy work. Ministers do not see amongst the masses of advice coming before them these days the same levels of initiative and innovation that were evident a few years ago. Too often we see the same old proposals trotted up, in slightly different guises.

There could be a number of reasons for this.

One possibility might be that the problems before us now are of a lesser magnitude than they used to be. I don't believe for a moment that is so - if anything, they are more complex, more obdurate than ever.

Another possibility could be that the Public Service no longer has a reforming edge of the quality it possessed through the 1980s and early 1990s.

And another is that, unintentionally, we have somehow made originality, flair and boldness just too darned risky.

The view may now be that risks aren't worth taking - if you try something and it doesn't work out, your name will be up in lights for all to see, you may get a public pillorying, and perhaps a career that was developing quite nicely will be in tatters.

I suspect that there is quite a bit of truth in this. And perhaps it helps to explain something about contract-fixation.

It is potentially very damaging indeed.

The plain fact is that we won't make significant impacts on major public policy issues and problems if we establish a regime under which only the very brave and the patently idiotic are prepared to push new ideas, challenge the established way of doing things, and take some carefully-calculated risks.

I am telling you today that the Government certainly does not want that sort of regime. Be in no doubt that there is a receptive market amongst Ministers for well-thought-out, practical, radically new ideas - especially those that can help break through long-standing and complex policy problems.

In my view far more good is achieved if three ideas work and one fails than if nothing is tried at all. And I fully accept that this is a two-way street. Ministers can't have it both ways - if they want innovation and flair from their Public Service they can't come down on it like a ton of bricks if, from time to time, an honest endeavour doesn't work out the way it was supposed to.

The functions, size and shape of the core Public Service itself are matters that would benefit from innovative inquiry.

The fundamental question here is not whether our arrangements fit a particular theoretical formula, but simply whether we have structures on the ground that enable us to provide the things the users of our services want and need, in the most practical and efficient ways.

Structures should, in other words, be designed principally to facilitate achievement of outcomes.

My own view is that its present size and shape are far from the optimum - and that we have too many departments for a country of this size.

Tiny sectoral policy ministries stand alongside a few still large service delivery departments. Science and Transport are modelled in one way, Justice and Social Welfare in others. A few commercial activities remain in the core - and so on.

There always seems to be tinkering going on somewhere - amalgamation here, separation there - but I am far from convinced that this is undertaken in terms of a rational overall plan.

Apart from the excessive number of departments my concerns about this ad hoccery are twofold. The first is that we might if we are not careful sooner or later find ourselves reinventing departments that we extracted from the core Public Service - with much effort and anguish - only a few years earlier.

The second concern is that continuous tinkering seems to me to be enormously debilitating. A few departments seem to have been turned over again and again.

I would like to see some rational, practical, consistent and straightforward organisational principles hammered out, agreed with Ministers, and widely endorsed. These principles should be squarely focused on building structures that will have the maximum impacts on achievement of outcomes - ahead of any organisational dogma.

I would then like to see the Service modelled in accordance with these principles as quickly as practicable, and allowed to get on with its business.

Professor Schick's view is that a strong centre is an integral part in any successfully devolved system. I agree, but I don't regard 'strong' as being synonymous with 'large'.

To some extent the scale of the resources required by the centre to carry out its functions is dictated by the quality of departmental performance. If performance is only moderate, or is patchy, quite a substantial centre will be needed to monitor, co-ordinate and lend support.

The aim should be, I suggest, to work towards a minimal centre - perhaps, ultimately, focused on appointments and co-ordination. That sort of arrangement would be possible, though, I emphasise, only if we could be confident of consistently high standards of departmental performance. If departments want Central Agencies out of their policy work, they should do a better job of it themselves. The better the system is working the greater the opportunity of reducing the size, role and intervention of Treasury and SSC.

The last topic I want to discuss this morning is ownership - investment to build the capability of the Public Service to contribute significantly to the achievement of outcomes over the longer term.

According to the reform blueprints Ministers were to wear two equally important hats in their relationships with their departments. They were to have interests as purchasers of outputs, and alongside that, they were to have another set of interests as owners - or perhaps trustees - of their departments.

I think it would be pretty widely accepted that in practice purchase interests have tended to overwhelm the ownership dimension.

Ministers and chief executives alike have normally been most concerned to see that departments deliver on their output purchase agreements. This is where the breath of accountability is most icy.

So was the original concept of the Minister with two hats realistic?

I think so, but only up to a point. The reality is that Ministers are in office for a relatively short time, and they are in office to do things - to get their Government's programme introduced and operating efficiently.

All Ministers are I am sure very conscious of the responsibilities they bear as trustees of the assets that the departments of the Public Service represent. But if you ask them which is uppermost in their minds at any time - achieving their policy priorities or working on the longer-term capabilities of their department - you shouldn't be surprised by the answer.

Ministers come and go. Governments come and go. The Public Service remains in place.

My advice to you is to continue to treat your Ministers as 'owners'. Confront them with ownership issues - don't allow them to take lightly their trusteeship responsibilities.

But take decisive initiatives to build capability yourselves - don't for goodness sake sit back waiting for busy Ministers to do this.

One area of ownership which could do with your immediate attention - and which could do with good measures of innovation and flair, too - is senior management development.

As I look around the room this morning I see many familiar faces - people who have served the Government and the public very well over a period of years. I am glad to see them.

But it does make me wonder whether we are doing enough to foster a productive interchange between the public and private sectors.

We have attracted some very good people from the private sector - usually to do particular tasks for particular periods - and each of them has made a significant impact. We have also put some of our best people out into industry and commerce - and welcomed most of them back - with beneficial results. I would like to see a great deal more of this, operating in both directions.

Management development is one of the areas that really exposes the quality of a chief executive's commitment to the concept of 'ownership'. To do it well you often have to subordinate your own immediate interests to those of your successor in office, or to the wider Public Service.

It must be particularly difficult where the organisation is not large, or where it is under extreme operational pressures. But I am sure commitment plus imagination will enable any chief executive to play a constructive part. It is most important that they do.

I have wondered from time to time why one or two departments seem to supply more than their share of people to top appointments.

Is it because these departments have traditionally invested more in senior management development? Is it because they somehow manage to attract particularly high-calibre staff in the first place? Have they perhaps been spared the succession of restructurings that quite a number of departments have experienced?

I suspect the answer is a combination of these things. Whatever it is, it needs to be exposed so as to enable more chief executives to follow suit. The pool of people able to perform strongly in chief executive and other top appointments simply must be appreciably enlarged.

Ministers look to you to take the lead in this.

New Zealand's public management system is held in high regard internationally.

I think it deserves its reputation for a number of reasons. It certainly has far higher standards of integrity than many other civil services. It certainly has a good deal less bureaucratic fat than many others - a reduction in Public Service staffing numbers from 88,000 to 33,000 in a little over a decade could hardly indicate otherwise. It has carried devolution much further than elsewhere, with good results.

It is extraordinarily open to external scrutiny. It is by and large client-directed. And it is continuously probing, analysing, seeking to improve its own performance.

But what off-shore observers probably do not see is a hardening tendency to focus on the short-term, and an increasing fascination, in a distinctly unimaginative sense, with instruments that were originally meant to liberate and to facilitate high performance.

And they may not appreciate the time and effort required to see that the instruments, processes and structures of the reformed State sector do actually contribute to achieving the outcomes specified by the Government.

Much of my address to you this morning has been about re-asserting broader and longer-term perspectives in our public management system.

If last year was a time for the Public Service to stick to its knitting, I think this year opens an era in which it must raise its sights again - recapture its flair, originality and boldness.

The theme you have chosen for this year's Conference - Raising the Game - Outputs to Outcomes - encourages me to believe that we are thinking on very much the same lines.

My address today has to a great extent been based on my thoughts and reflections during the period of a year when I was no longer your Minister. I have had a chance to mull over my experiences from when I first held the portfolio. I welcome the opportunity for these ideas to be critically examined at your conference.

I wish you well and I look forward to receiving a report on your deliberations.