Transitions

to
Competitive Government
SUNY series, Human Communication Processes
Donald P. Cushman and Ted J. Smith III, Editors
 Transitions to
Competitive
Government
Speed, Consensus, and Performance

Ronald B. Cullen
and
Donald P. Cushman

State University of New York Press

Published by
State University of New York Press, Albany

© 2000 State University of New York

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Library of Congress Cataloging-in-Publication Data

Cullen, Ronald B.
Transitions to competitive government : speed, consensus, and performance /
Ronald B. Cullen and Donald P. Cushman.
p. cm. — (SUNY series, human communication processes)
Includes bibliographical references and index.
ISBN 0-7914-4657-3 (hc : alk. paper) — ISBN 0-7914-4658-1 (pb : alk. paper)
1. Competition, International. 2. International economic relations.
3. Government productivity. I. Cushman, Donald P. II. Title. III. SUNY
series in human communication processes
HF1414.C85 2000
354.72367—dc21 99-054267

10 9 8 7 6 5 4 3 2 1
 This book is dedicated to Marie,
my wife and partner
in the consultancy business and life.
Her commitment to research and the
development of knowledge is for me an inspiration.

RBC
 Contents

List of Exhibits ix
Acknowledgments xiii
1 Government in Crises 1
Part
I A Vision to Guide Government Reform 31
2 Lessons from Business 37
3 The Management of Transitions to National Competitiveness 55
4 Implementation Strategies for Competitive Government 79
5 Responding to External Pressures: Value-Chain Coalignment
and the Delivery of Government Services 105
6 Leadership Strategies for Transforming Governmental
Competitiveness 133
Part II A Management Platform for Government Change 169
7 The Challenge of Transition 175
8 Planning and Evaluation Strategies for Competitive
Government 199
9 Reinventing and Reengineering Government Management
Systems and Values 229
10 Resource Management Strategies for Competitive Government 251
11 Governance Systems and Management Reform 271
Part III Benchmarking the Transition to Competitive Government 281
12 Managing Transitions to National Competitiveness 285
References 319
Index 329

vii
 List of Exhibits

Exhibit 1.1 The Changing Roles of Government 5

Exhibit 1.2 National Competitiveness—The Role of
Government in Selected Countries 15
Exhibit 1.3 World Competitiveness Yearbook Factors 17
Exhibit 1.4 Benchmarking Workskills and National Competitiveness 18
Exhibit 2.1 Communication Gaps between Business and
Government 39
Exhibit 2.2 A Comparison of Business and Government
Development Cycles 42
Exhibit 2.3 Management in Business and Government 46
Exhibit 2.4 Transition from Traditional Government
to Competitive Government Management 49
Exhibit 2.5 Performance Management Framework for the
Identification of Objectives 52
Exhibit 3.1 National Competitiveness Model 57
Exhibit 3.2 Development Transition 65
Exhibit 3.3 Deregulated Transition 69
Exhibit 3.4 Regulated Transition 72
Exhibit 3.5 Devolved Transition 74
Exhibit 4.1 The Time Span and Focus of Evaluation in Business and
Government 81
Exhibit 4.2 The Implementation Impact Model 84
Exhibit 4.3 Cycle Impact Model 94
Exhibit 4.4 Cycle-Based Communication Strategies 99
Exhibit 5.1 Government and Its Environment 109

ix
x LIST OF EXHIBITS

Exhibit 5.2 A Checklist for Environmental Scanning in

Government 112
Exhibit 5.3 Value-Chain for Government Activities 114
Exhibit 5.4 Value-Chain Segmentation and Cycle Time 117
Exhibit 6.1 Shifts Required to Manage and Lead Government
Change in a High Response Environment 136
Exhibit 6.2 Protecting the Platform for Transition 138
Exhibit 6.3 Checklist for Mapping Transitions to National
Competitiveness 139
Exhibit 6.4 Competitiveness Changes 1995–1999 140
Exhibit 6.5 The Development of Competitive Manufacturing
Industry 145
Exhibit 6.6 The Development of Competitive Workskills 146
Exhibit 6.7 Access to Competitive Technology 148
Exhibit 7.1 The Performance Management Grid 179
Exhibit 7.2 Government Management Reform Agenda: Victoria,
Australia, 1982–1992 190
Exhibit 8.1 Reasons Why Government Plan 201
Exhibit 8.2 Performance Improvement Planning and Evaluation
Framework 209
Exhibit 8.3 Draft Performance Improvement Plan: Australian
Taxation Office 212
Exhibit 8.4 Projected Change Impacts 215
Exhibit 8.5 Draft Performance Improvement Plan: Integration
and Special Education in Victorian Schools 220
Exhibit 8.6 General SES Key Result Areas and Competencies 224
Exhibit 9.1 Performance Management Strategies/Tools for
Government Transitions 232
Exhibit 9.2 Mapping Culture Shifts in Government Systems 241
Exhibit 9.3 Project Structures and Management Processes 243
Exhibit 10.1 Improving the Performance of Government Resource
Management 253
Exhibit 10.2 Managing Government Resource Balance 256
Exhibit 10.3 Action Strategy for the Conversion to Results-
Based Budgeting 263
 List of Exhibits xi

Exhibit 10.4 Checklist for Evaluating the Effectiveness of

Government Resource Management 269
Exhibit 11.1 Governance Systems and Management Boundaries 272
Exhibit 11.2 Mapping Political Systems 275
Exhibit 12.1 Mapping the Scope for Reform 303
Exhibit 12.2 Planning the Transition to Competitive Government 307
 Acknowledgments

This book emerged from a collaboration with Don Cushman that started on
a visit to Phillip Island, and developed in Melbourne, Hartford, Albany, Catania,
and London. When we started, we did not share the feeling that “reinvention”
was the complete new paradigm, that the solution to the crisis in government
management was at hand. As we finished, the consensus was that the most
extensive government management reform in the U.S. for decades had only
solved part of the crisis. We believe that it is important to view reform as an
ongoing transition from where government management currently is to where
it might be in the future. It is now important to expand the reform framework
and learn from and build on what has been achieved. The ideas in this book
can contribute to that process.
I would like to thank those politicians, colleagues, and clients who as-
sisted me to learn about the business of government and those who helped
with comments on parts of this manuscript. Thanks also to Skye who helped
more than she knew and who will hopefully grow up in a world where books
like this no longer need to be written.

Ron Cullen
August, 2000

xiii
 Transitions
to
Competitive Government
 Chapter 1

Government in Crises

Our governments are in deep trouble today. In government after

government and public system after public system, reinvention is
the only option left. But the lack of a vision—a new paradigm—
holds us back.
—Osborne and Gaebler, Reinventing Government

A global consensus has begun to emerge that management in government is

something that needs to be fixed. We can see the recognition of that in the
titles of recent reports on the subject: “Reinventing Government,” “Creating
a Government That Works Better and Costs Less,” “The Reinventing Govern-
ment Exercise: Misrepresenting the Problem, Misjudging the Consequences,”
“Reinventing Government: A Fifth Year Report Card,” and “Continuing At-
tention Is Needed to Improve Government Performance” (Osborne and Gaebler
1993; Gore 1993; Moe 1994; Kettl 1998; Mihm 2000).
While David Osborne and Ted Gaebler (1993) are only one of many
analysts who have identified the crises, they advanced government reform by
exploring solutions and by arguing for discontinuous change (reinvention).
Symptoms of the crisis discussed by Osborne and Gaebler abound. Nations
are becoming less governable as public dissatisfaction with the performance
of government increases. Governments are seen to have failed to deliver
noticeable benefits let alone what they promised when seeking election. A
focus on old products and services has led to both a lack of response to new
problems and a shortfall in government revenues. Cuts in government spend-
ing and the rationalization of functions and services associated with
privatization in many nations has led to the impression that government is

1
2 GOVERNMENT IN CRISES

inefficient. Many governments seem unable to contribute to improvements in

national competitiveness at a time when the private sector needs new responses
from government to survive and prosper in the new global marketplace.
Most attempts at reforming public administration presume that the chal-
lenge is to manage better rather than to govern differently. Attempts to trans-
form government management without examining the causes of the crises and
the ways in which external factors are changing the role of government, end
up treating symptoms rather than the causes of the crises.
Most attempts at reforming public sector management turn to such recent
advances in private sector management as transformational leadership, em-
powerment, entrepreneurship, high performance teams, reengineering and
continuous improvement programs and recommend their use in transforming
management practices in the public sector. Our analysis suggests that one
reason for the ongoing crisis in government management is that many new
solutions compound the initial problem by building new barriers to perfor-
mance. For example, used as a single cure, cutback management solves short-
term budget problems but often slows a government’s capacity to respond and
erodes the comfort zones which allow it to govern.
While attempts to transform government management using private sec-
tor management insights can add real value to government change processes,
such strategies have encountered several key problems. First, most authors
fail to articulate a new public sector model of government which applies to
a broad range of national challenges, regions and levels of government
(Callahan and Holzer 1994; Caiden 1994). Such a model or set of models is
necessary to understand the causes of the crises and to appropriately guide
and assess the strategic use of such private sector management tools. Second,
most authors fail to indicate that the tools they recommend were only capable
of being employed successfully 20 to 30 percent of the time in the private
sector. In addition, in their zeal to motivate high performance improvements
in the public sector, these authors fail to clearly articulate the limiting con-
ditions for the successful use of these tools (Ventkatramm and Prescot 1990;
Vessey 1991; Port, Cary, Kelly and Forrest 1992). Third, most authors fail to
recognize that all governments have ongoing management systems that must
not only change to improve, but must be shown how in some orderly manner
to get from where they are to where they need to be. This process of transi-
tion needs to point out what needs to remain the same while other forces
change in order to succeed at systematic change (Caiden 1994; Dunn 1994;
Cox 1994; Elling 1994).
The purpose of this book is to respond to the crisis in government man-
agement by analyzing the causes, evaluating the responses by governments,
and proposing models and management tools which extend and focus current
 Government in Crises 3

solutions and increase the chances of successful reform. In this chapter we

examine the changing role of government, the causes of the crisis in govern-
ment management and the priorities for effective solutions. First, we examine
major global trends that are impacting on all aspects of life and focus on the
implications for the management of nations. Second, we discuss the impact
of these external pressures on the role of governments. We examine the chang-
ing role of government and the links between national competitiveness and
government competitiveness in a number of countries. Third, we examine
current government reforms and evaluate these against the external pressures
which nations must manage. Finally we discuss the implications of this analysis
for successful reform.

THE CHANGING ROLE OF GOVERNMENT

This (globalization) leaves government with the daunting challenge:
to figure ways to reduce their intervention in some areas and to
retool and refocus their intervention in others, while preserving the
public trust. It is a challenge of imagination. It requires buying
into the idea of fundamental global change and taking on the task
of translating that change into policies that accord with national
culture, history and temperament. . . . What this means, then, is that
for all the erosion of boundaries and fundamental technological
change, governments still matter—and, most of all, political
leadership matters. It also means that even if change in the
direction of “more market” and “less state” is a persuasive global
phenomenon, it does not lead to a single, common result.
—Yergin and Stanislaw, The Commanding Heights

Daniel Yergin and Joseph Stanislaw (1998) present a challenging analysis of

the battle between “government” and the “marketplace.” Although Yergin and
Stanislaw argue that the shift toward the marketplace will be the dominant
force in the management of nations in the future, they also argue that gov-
ernment remains important and that it must find new ways to adjust its role
to respond to these new (market) realities.
Reform of government management is no longer a matter of fine-tuning
old systems that address old ideas about performance. Fixing management in
government requires both the development of new management platforms to
address new realities, and it requires new assumptions about what govern-
ments can and ought to deliver. In country after country, the reform of
government management is associated with a growing gap between the
4 GOVERNMENT IN CRISES

requirements of national competitiveness and the internal assumptions which

governments make about their own role and achievements.
Government managers have responded to the complexity and rate of
change in government roles by segmenting the role of government. This
narrow focus has diverted attention from three realities. First, because the
roles are interconnected, a focus on part of the system can obscure important
impacts on other parts of the system. Second, some roles of government are
more important than others and this differs between countries. Third, both the
roles of government and the strategies which governments must use to deliver
these roles, are changing. Analysis of government reforms that avoids a con-
sideration of what government needs to deliver, and what it can reasonably
expect to accomplish, is bound to misunderstand, and, worse, misdirect, the
changes which are underway.
We describe governments and government management systems that
respond more effectively to external and internal pressures than others as
“competitive.” It is important to distinguish this idea from the idea that gov-
ernment processes can sometimes be made more efficient by exposing gov-
ernment processes and products to competition. While sometimes the use of
competition to change internal processes and product delivery can contribute
to government reform, these strategies are best seen as management tools to
be applied where the situation indicates rather than as an end point or objec-
tive of reform. In our view, the primary driver of government reform is the
need to add value to overall national competitiveness. We suggest that whether
a particular government (or government reform program) has achieved com-
petitiveness can be gauged by addressing three fundamental questions. Has
national (or state) competitiveness increased and has government contributed
value to the process? Have the social impacts of development and change
been addressed effectively? Has government been able to address these issues
while maintaining or increasing its overall scope to govern?
In defining the role of government, there is a tendency to focus on func-
tion and processes rather then on the results these processes seek to deliver.
This confusion of “means” with “ends” leads some analysts to assume that
government exists to deliver traditional processes more effectively and
efficiently. Such assumptions commence analysis of government management
systems at the wrong level, at a level where the core roles of government and
the impacts of external factors on government performance are either missed
or only partially addressed. For example, many governments address the need
to add value to economic performance by leveraging private and public sector
resources, regulating markets, providing infrastructure and services, by ad-
dressing access to international markets and research and technology, and by
ensuring that the education and training system delivers world competitive
workskills. Governments can achieve performance targets in all these areas
 Government in Crises 5

but still fail to deliver increases in national competitiveness. The likelihood that
implementation will fail increases as the rate of change increases. The solution
for government is to address performance directly. Surrogates for performance
often reflect old solutions and old ways of viewing the world. The strategies
which government must now employ to address these core roles and public
expectations of government performance are light years removed from ap-
proaches which seemed to work well enough even a decade ago.
In Exhibit 1.1. Changing Roles of Government, we define the core roles
of government as adding to “competitiveness,” adding “social value,” and
maintaining “governability.” Key implementation strategies for government
are summarized as part of Exhibit 1.1.
Our intention in starting with such generalized roles is to place the crises
and the solutions in context, and to provide a framework for both evaluation

Exhibit 1.1. Changing Roles of Government

Implementation strategies
Viable Access to
development strategy multinational companies
Effective macro-financial Access to overseas markets
management Competitive workskills and
Optimize national assets and technology
resources
Competitive taxes and charges
Effective domestic markets
Competitive infrastructure

Government roles

NATIONAL
COMPETITIVENESS
Increase net
production Recognize diverse
needs and priorities,
Effective income negotiate interest
distribution SOCIAL GOVERNABILITY group boundaries
Balance impacts on VALUE
current and future
generations Manage the comfort
Effective access zone impacts of
to work government programs

Competitive social
infrastructure Manage cycle dynamics to
Effective equity protection bridge gaps between expectations
and safety net services and delivery
6 GOVERNMENT IN CRISES

and the study of differences. This general statement of roles does not assume
that differences are not important. Results and strategies that are considered
successful in one nation will not necessarily meet the needs of another. Com-
mencing our examination of government management at this generalized level
allows us to explore the impact of globalization and external change on
governments and government management systems. Although the three roles
are different, there are major interconnections between these roles which
need to be examined to understand the causes of the current crisis. For ex-
ample, action to respond to changes required by the competitiveness role
impact on both the social value role and the governability role. Unless a
nation can fund and deliver its basic value system and unless government
can govern, there is little prospect of achieving and maintaining world
competitiveness.

Competitiveness

Governments need to work with business to increase the share of world

resources available to a nation or region. The new forms of government
which are evolving need to deliver world-class performance. To achieve world-
class performance, governments need to develop a world-class business and
development environment; they need to deliver a world-class education sys-
tem. A key mission for government is the development and support of a
strong industry system supported by competitive infrastructure and the ability
to access world markets competitively. Competitive government needs to be
far more proactive in working with business to achieve national competitive-
ness than traditional models of government assume.
Historically, roles were segmented; governments provided infrastructure
and regulated markets and business delivered access to resources. Globaliza-
tion and the growth of multinational companies means that today govern-
ments must work with business to deliver a world competitive industrial base
able to access world markets.
Government management reforms needed to support national competi-
tiveness require an increased focus on results, reductions in cycle time, and
changes to government financial priorities. Governments, seeking to avoid
this challenge by protecting local industry from the need to be globally com-
petitive, or by seeking to administer a shrinking but orderly world, are un-
likely to deliver or maintain competitiveness. And they are likely to be find
themselves increasingly unable to govern. Governments focusing on adding
value to competitiveness by dismantling old systems and shortening cycle
times, must manage the impact of change on the various interest groups that
comprise each political system.
 Government in Crises 7

Social Value
Governments need to be seen to improve the short- and long-term well-being
of citizens. Governments have key roles in regulating the framework within
which resources are distributed within a country. Most governments use this
process to address the needs of disadvantaged groups.
Historically, businesses delivered employment while governments addressed
income redistribution, provided safety nets, and selected services. Competitive-
ness was assumed to occur almost independently of the structures used to
deliver social value. Today the links are all too apparent in many countries. For
example, employment underpins the social structure of most nations. Additions
to social value need to maximize both competitiveness and employment. A
number of countries, seeking to manage these factors independently, have dis-
covered they can no longer fund old value systems and old solutions.
The pressures of global competitiveness have made employment less cer-
tain and retraining a fact of life for most workers. Governments need to address
access to employment more actively than in the past. The pressures to shorten
cycle time and respond strategically to industrial opportunities have threatened
many of the old systems which provided some security in the sense that they
were predictable and were seen to address historical needs. Governments in
developed countries have found that the pressures of competition have threat-
ened their capacity to fund old value systems. Governments today need to
manage the social impacts of change and to address emerging social needs.
These demands increase as governments commit to competitiveness objectives.
Global pressures are altering both the overall wealth and the distribution
of that wealth in most countries. In developed countries, the increasing mo-
bility of the labor force requires new responses from governments, labor
unions, and business. Developing countries face even greater transition pres-
sures as wealth and labor costs grow and as community expectations about
the benefits of increased competitiveness develop.
The pressures on governments to respond to changing patterns of win-
ners and losers in the economic system cannot be managed to restore the past
or to insulate groups from the pressures of change. There is an urgent need
for governments to redesign safety nets, and to think through the options to
protect those disadvantaged by change. The challenge differs between coun-
tries but almost no government can expect to move into the new millennium
without redesigning strategies for adding social as well as economic value.

Governability
Governments must manage change while at the same time maintaining the
scope to govern. In suggesting that maintaining the scope to govern is a core
8 GOVERNMENT IN CRISES

government role, we reflect a reality for most governments today. We also

reflect our view that government managers, by failing to manage the impact
of their activities on the “comfort zone” within which the public is content
to allow government to govern, have eroded the scope to govern in many
countries.
A number of authors have suggested that nations are becoming less
governable. For example, Peter Drucker (1993) describes government as caught
between the twin pressures of globalization (including extra national region-
alization) and tribalization (diversity) and suggests that, from a management
viewpoint, some national boundaries may no longer be viable. It is important
to consider the extent to which misguided government reforms have exacer-
bated this situation. It is also important to identify solutions that can enhance
governability.
It is no coincidence that in a decade where globalization has dominated
changes in the role of government, the forces of tribalization have also been
unleashed in many countries. The governability mission must address the
reductions in governability created by new external and internal pressures.
Traditional government systems assumed that diversity could be subsumed by
a focus on consensus and minimizing differences. Although successful ap-
proaches to the management of diversity respect differences and manage the
impact of government action on interest groups, much of the rhetoric about
reform seems to ignore this reality.

GLOBAL TRENDS ARE RESHAPING

NATIONAL COMPETITIVENESS
An isle is emerging that is bigger than a continent—the
Interlinked Economy (ILE) of the Triad (the United States,
Europe, and Japan), joined by aggressive economies such as
Taiwan, Hong Kong, and Singapore. . . . It is becoming so power-
ful that it has swallowed most consumers and corporations, made
traditional national borders almost disappear, and pushed
bureaucrats, politicians, and the military toward the status of
declining industries.
—Kenichi Ohmae, The Borderless World

Fundamental trends are altering the way in which business must operate to
succeed and the way in which wealth is created and distributed between and
within nations. These same trends are altering the role of government and the
way in which government and business must operate to compete.
 Government in Crises 9

We now examine the impact of five external trends on the way in which
governments are managed and on the relationship between the business and
government. Globalization, competition for scarce resources, and technology
development and transfer are fundamentally altering the value-chain of many
industries. Technology is revolutionizing approaches to integration and con-
trol in both the business and government sectors. The need for governments
to respond to increasing diversity within and between nations and the need to
manage these issues under the glare of mass information, which highlights
differences and inequities in the process of government, are generating new
constraints on governments and on government management platforms.

Globalization
The traditional model for external relationships was to manage them to con-
tribute to the domestic economy of a nation by buffering the domestic economy
from undesirable external pressures. However, the capacity of nations to buffer
their values and development from external influences has all but passed. This
has created new external threats and opportunities. Governments can no longer
respond effectively to recession or deliver economic growth and employment
in isolation. Nations need to access global resources, technologies, and
markets. The price for this access is the need to meet external needs and
expectations.
Nations are forming new external regional alliances which are seen to
assist individual nations to access global markets.

Competition
Nations must compete externally for a share of global resources and for
access to markets and technologies. The traditional model for competition
conveniently separated the role of government and business: government was
required to regulate markets; business and industry groups were required to
operate independently to create added value. This approach has proved un-
able to cope with external changes; in the new global economy, government
and industry need to work together to optimize the share of global resources
accessed by a nation or region.
Global resources are increasingly allocated by business networks such as
multinationals, by international trade and investment, and by agencies such as
the World Bank which seek to facilitate development. Nations that fail to
respond effectively are accessing a decreasing share of these global resources.
As global market forces compare the systems and regulatory regimes of
nations, governments are being forced to address new external imperatives
10 GOVERNMENT IN CRISES

which impact on taxation, trade, and financial regulation. The role of govern-
ment can no longer be studied separately from the rest of the economy. The
way in which business and government interact is no longer fixed; it has
become a key variable in new approaches to government. The boundaries
between the two sectors are changing as integration between the private and
public sectors becomes more critical. Government must work with the busi-
ness sector to gain a share of global resources and to develop the internal
resources required to exploit global markets and technologies.

Technology
To compete, nations must access and apply developing technologies cost
effectively. The development of technology has made technology access and
technology transfer, the application of new technology and advanced techno-
logical information and processes, key issues for the economic competitive-
ness of nations.
Old technology tends to be reflected in established production values and
practices; new technology requires adaptation of those values and practices to
facilitate technology transfer. The traditional model for technology transfer
was to develop a technology base hierarchically, starting with low technolo-
gies and leading to higher technologies and then upgrading and developing
the base incrementally. These strategies are no longer effective. Pursued in
the current global environment, they are a prescription for disaster and eco-
nomic exploitation.
To develop as part of the global economy, countries need: to recognize
that many technology changes are necessarily discontinuous; to access tech-
nologies strategically at all levels; to apply and exploit technologies to pro-
duce competitive advantage; and finally, to position themselves to exploit
emerging technologies.
These strategies in turn require nations: to develop international alli-
ances; to reform labor markets; to review approaches to education and train-
ing; to accept and manage technological redundancy as a cost of remaining
competitive; and to develop public and private sector partnerships to access
key technologies. Generic skills are no longer enough; governments must
ensure that there is a strategic fit between the demand- and supply-sides of
the education and training system.

Diversity
In addition to globalization and competition for resources and markets, govern-
ments must manage major increases in the level of diversity between nations,
regions, and interest groups. This requires new approaches by governments.
 Government in Crises 11

The traditional model for managing diversity was to focus on common

values and consensus and to isolate and reduce anomalies. There are three
problems with this approach to diversity. First, as pressures from diverse
groups have increased, the prospects of consensus have reduced. Increasingly,
governments have come to regard consensus as 51 percent of the whole.
Second, the assumption that national consensus translates into the integration
of economic and political factors at the regional and industry level is no
longer valid for many countries. Third, although the management of high
response situations demands devolution, the devolution of consensus issues
raises new challenges for those who believe that equity requires centralized
government and majority rule.
Increasingly, the old search for consensus is being seen as counterpro-
ductive. Nations are learning to manage their affairs within a comfort zone
within which key groups are not motivated to oppose change. This requires
political systems able to recognize and negotiate needs with interest groups
and an administrative system able to deliver results while managing negative
impacts. Increasingly governments must manage both internal and external
comfort zones and the interrelationship between these.
The management challenge for governments today can be reduced to the
twin challenges of meeting public expectations for real impacts rather
than rhetoric while simultaneously managing within the comfort zone to
accommodate diversity and maintain the scope for change. The myriad of
new administrative tools developed in recent times can be seen as responses
to these two challenges. The techniques reduce two new approaches to
government administration: performance management, and comfort zone
management.

Information

The traditional approach to communication was to control and shape report-

ing in order to reinforce established values and approaches. In the 1980s,
when the political and entertainment businesses found much common ground,
the objective of most government communication was to manipulate mass
communications to support established priorities and values and to conceal
differences and failures. Simple communicable ideas rather than prescriptions
for action were the hallmarks of successful governments.
Governments can no longer convince the public that their interests are
synonymous with the national or even the public interest. It is difficult to
convince people that they are moving ahead or even leading the world when
the nightly telecasts reflect a more compelling reality. The speed and satura-
tion of today’s mass communications combined with the Internet revolution
12 GOVERNMENT IN CRISES

have outflanked these old strategies in many countries. Information about the
performance of governments is more readily available, as is information about
the performance of other nations.
Performance or the lack of it can no longer be hidden, and public expec-
tations are now more demanding. The grand plans and platitudes that char-
acterized much national planning are no longer persuasive, either to key
interest groups within a country, or to external groups who increasingly re-
quire evidence of performance as a prerequisite for investment and trade.

NATIONAL COMPETITIVENESS AND

THE ROLE OF GOVERNMENT

While globalization of competition might appear to make the

nation less important, instead it seems to make it more so. . . .
While the role of government in creating and sustaining national
advantage is significant, however, it is inevitably partial.
—Porter, The Competitive Advantage of Nations

The literature is rich in descriptions of both the symptoms and solutions to

the crises in government management. However, before we consider key
solutions to the crisis in government management, it is important to examine
theories about the causes of the crisis. First, we consider whether the crisis
is caused by internal or external factors. Second, we consider the complex
interactions between the crises and responses to the crises and governability.
Many prescriptions for improvement appear to presume that the causes
of the government management breakdown are internal. The idea that govern-
ment is too large, too expensive, and poorly managed underpins many gov-
ernment reform programs. If this is the case, responding to the crisis requires
the rationalization of functions and the modernization of management. While
new management and structures are part of the solution for many govern-
ments, they address symptoms rather than causes of the crises. Many govern-
ments have treated these systems by restructuring and changing management
systems only to find that the crisis reemerges in terms of new problems.
A development of these “more efficient” government solutions is the idea
that the crisis has been caused by governments seeking to fund and deliver
traditional roles and services when external trends are reducing the natural role
of government. Kenechi Ohmae (1994) suggests that both national sovereignty
and the role of government are declining. If Ohmae is correct, responding to
the crisis requires cutback management to remove resources from roles which
are redundant and to ensure that other ongoing roles are resourced and deliv-
ered. The response of nations and the global economy to the Asian financial
 Government in Crises 13

crises have challenged two ideas central to Ohmae’s analysis: the assumption
that business and unfettered market forces can increasingly meet national as
well as business needs and address the core insecurities of people; and the
assumption that the performance of governments is in some senses a second
order issue, for it is not a critical prerequisite for national performance.
A number of analysts have argued that governments remain critical to
national competitiveness. These authors argue for a shift in the roles of gov-
ernment rather than for its gradual abolition. This argument is advanced in a
major analysis of national competitiveness by Michael Porter (1990). If Porter
is correct, government needs to develop a new role which works with busi-
ness to deliver improvements in national competitiveness. Porter argues that
this role needs to be a catalyst for change rather than a protector of existing
business interests. Eisuke Sakakibara (1993) argues a similar case for national
differences from a Japanese perspective. The Porter analysis is also supported
by several more general studies which focus on the impact of the global
markets. Yergin and Stanislaw (1998), in a cross-country analysis of the
changing role of government and the marketplace, have argued that while
central planning and direct service delivery by governments has declined,
other government roles such as creating and maintaining markets, addressing
social “safety net” issues, maintaining trust in government, and ensuring re-
sponses reflect national differences and values have become more important.
George Soros (1998) in a useful study of global financial markets argues that
the failure of governments to regulate these markets and to manage the im-
pacts on nations is a major impediment to the operation of global markets.
In our opinion, the case for external causes is compelling. Assuming that
changing external pressures are the underlying causes of the government crises
does not mean that reform can ignore internal factors and the interaction of
external factors with governability. A number of authors have addressed the
impact of these wider changes on governability. Drucker (1993) explores these
restraints on governments in a penetrating analysis of national structures and
political processes. John Kenneth Galbraith (1992) in an insightful, if depress-
ing, examination of the politics of contentment, explores much the same prob-
lem. If these authors are correct, it follows that the solutions to the current crisis
must also find new ways to manage diversity and, where these cannot be found,
redefine the role of government to fit these new realities.
The cause of governability problems can also be related to the failure of
governments to address changes in their traditional role and to the institution-
alized and centralized strategies used to manage consensus. In part, the re-
forms proposed by Osborne and Gaebler (1993) recognize the negative impacts
of these traditional approaches. This analysis suggests that old frameworks
for government management, which seek to eliminate diversity, have exacer-
bated the problem.
14 GOVERNMENT IN CRISES

What are the implications of this discussion of causation for our analysis
of government transitions? We believe that the current crisis has been caused
by the inability of traditional government roles and management to respond
to new pressures for global competitiveness and by the failure of governments
to manage effectively the pressures generated by entrenched interest groups
which resist change and slow a nation’s capacity to respond.
It follows that our analysis of the crisis in government management
needs to start by examining external pressures and the strategic fit between
these pressures and the role and management systems used by government.
We need to move beyond the impediments to change discussed by Drucker
and Galbraith and, in the process, develop management tools to manage the
impacts of change. Although government reform needs to address these ex-
ternal changes directly, most government reform remains inwardly focused.
Reform programs, which seek to put the government house in order without
recognizing that the house is burning down, or is at least in the midst of a
major externally induced crisis, seem bound to fail.

BENCHMARKING NATIONAL COMPETITIVENESS

World competitiveness is the ability of a country or a company

to, proportionally, generate more wealth than its competitors in
world markets. Competitiveness combines assests and processes:
(1) assets which are inherited (e.g., natural resources) or created
(e.g., infrastructure); (2) processes which transform assets into
economic results (e.g., manufacturing); and then (3) international-
ization, which tests the formula in international markets to create
world competitiveness.
—The World Competitiveness Report, 1994

We have explored the changing role of governments and the external pres-
sures that governments must address. We have suggested that a key cause of
the crisis in government management is that government responses to exter-
nal pressures have been inadequate. We now examine the measurement of
national competitiveness and government competitiveness and address the
reality that some government are responding more effectively than others.
Exhibit 1.2. National Competitiveness—The Role of Government in Se-
lected Countries compares evaluations for selected countries on the basis of
national competitiveness and the contribution of governments to national
competitiveness. A number of differences between countries can be identified
from these data. Most countries that rank low on the contribution of govern-
ment policies to competition also rank low on overall national competitive-
ness, for example, Indonesia, India, Korea, Columbia, Turkey, Czech Republic,
 Government in Crises 15

Exhibit 1.2. National Competitiveness—The Role of Government in

Selected Countries

High national / government

competitiveness
100
▼ ◆
◆
◆ Malaysia Hong Kong Singapore
◆
Ireland ◆ Switzerland
◆Chile
◆
◆ Luxembourg
New Zealand ◆ Australia ◆
Government competititvess index

80
Taiwan ◆ Canada ◆
Finland
Spain ◆ Iceland ◆
China USA ◆
◆
◆
◆
Thailand ◆U.K.
60 ◆ Netherlands
◆ Philippines Norway
◆ Denmark
◆ Japan
Portugal Austria ◆
Brazil ◆
◆ Hungary
◆
Mexico ◆
40 ◆Israel
South Africa Argentina ◆ ◆Germany
◆
◆
◆Indonesia India
◆ Korea ◆ Greece
20 ◆ Colombia
◆ Sweden
Turkey France ◆
◆
◆ Czech Rep.
◆ Poland Belgium ◆
◆ Russia ◆ Italy
0 ▼ ◆ Slovenia

0 20 40 60 80 100
National competitiveness index—100 most competitive
Low national / government
competitiveness

Source: The World Competitiveness Yearbook (1999). Country ranks converted into a competi-
tiveness index with 100 being the most competitive country.
Note: The Yearbook ranks countries on overall country competitiveness and on a number of
factors including “government.” This points on the chart are the government factor and country
(national) competitiveness indices for each country.

Poland, Russia, and Slovenia. Most countries that rank high on national com-
petitiveness also rank high on the contribution of government policies, for
example, United States, Singapore, Finland, Luxembourg, Switzerland, Hong
Kong, Canada, Ireland, and Australia.
A number of countries rank high on government competitiveness but
obtain a lower ranking for national competitiveness, for example, Iceland,
Taiwan, New Zealand, Spain, Chile, Malaysia, and China.
Three conclusions can be drawn from this material. First, countries vary
widely in competitiveness and this is a measure of their success in exploiting
the external changes discussed earlier. Second, there is a relationship between
16 GOVERNMENT IN CRISES

the approach to government and national competitiveness. While the relation-

ship is complex, this suggests that one focus for government reform should
be national competitiveness. Third, the complexity of the relationship is evi-
denced by the reality that competitive countries achieve this result with very
different strategies and with very different approaches to the contribution and
role of government and business. Any framework for competitive government
needs to address these differences rather than presume there is one solution
to government reform or one path to national competitiveness.

Benchmarking Government Performance

In responding to the external pressures discussed above, governments need to
move beyond processes and maximize added value. Three assumptions are
suggested to benchmark added value. First, added value for the competitive-
ness role is best measured in terms of increased national competitiveness.
Second, the most effective measures for each of the three roles of government
are relative measures which compare one country with another. Third, com-
parisons need to extend to the key factors which underpin each role.
The World Competitveness Yearbook is a rich source of detailed com-
parative country data. Exhibit 1.3. World Competitiveness Yearbook Factors
summarizes country rankings for the upper third of countries. Country factors
rankings that are similar or higher than overall country competitiveness rankings
can be assumed to drive competitiveness. For example, U.S. competitiveness
is driven by all factors except governance and perhaps people. Singapore’s
competitiveness is driven by infrastructure, government, management, and
people. Australia’s competitiveness is driven by infrastructure, government,
and perhaps people.

Benchmarking Workskills and National Competitiveness

We have suggested that one way in which government contributes to national
competitiveness is by developing an education and training system that deliv-
ers world competitive workskills. We now illustrate the use of benchmarking
to evaluate the performance of government education and training reforms in
this area.
A number of studies have analyzed these relationships. Paul Decker, Jen-
nifer Rice, and Mary Moore (1997) explore a range of indicators for the U.S.
education system. Hilary Steedman, Andy Green, Oliver Bertrand, Ansgar
Richter, Marcus Rubin, and Klaus Weber (1997) examine the competitiveness
of United Kingdom skills base. The Organization for Economic Co-operation
and Development (OECD) have developed a data base and analysis which
explores differences in the stocks of qualified persons in different countries and
have published projections of these measures. R. B. Cullen (1998) suggests that
 Government in Crises 17

Exhibit 1.3. World Competitiveness Yearbook Factors

Avg. var. in comp. 95–99

National competitiveness

Science and technology

Domestic economy

Internationalization

Infrastructure

Management
Government

Finance

People
United States 1 0.0 1 1 15 1 1 1 1 6
Singapore 2 0.0 18 2 1 9 13 4 12 4
Finland 3 4.0 4 11 10 8 2 3 6 1
Luxembourg 4 1.1 3 3 7 2 15 12 20 10
Netherlands 5 0.9 7 6 18 3 7 2 8 12
Switzerland 6 0.0 8 26 4 4 10 15 3 9
Hong Kong 7 –0.8 36 5 2 7 19 5 22 14
Denmark 8 –0.5 10 12 22 5 9 11 9 2
Germany 9 –1.0 11 7 31 6 6 18 4 20
Canada 10 0.8 12 24 12 11 8 8 13 7
Ireland 11 3.3 2 8 5 16 23 7 11 21
Australia 12 1.4 16 28 8 10 4 16 16 11
Norway 13 –0.6 9 25 20 19 3 19 17 5
Sweden 14 –0.7 27 15 39 13 5 6 6 17
United Kingdom 15 0.7 26 4 19 12 17 20 14 24
Japan 16 –3.8 29 21 23 25 20 26 2 13

Source: Rankings from The World Competitiveness Yearbook 1999, IMD: Geneva 1999.
Note: Factor rankings in bold are potential strengths. Factor rankings in italics are potential
weaknesses. Average variation is the average reduction in rank (increase in competitiveness)
1995–1999.

evaluating education and training reform should focus on the competitiveness

of workskills and that the proportion of persons with different levels of
qualification can provide a surrogate measure of workskills.
18 GOVERNMENT IN CRISES

Cullen showed that OECD education data and The World Competitive-
ness Yearbook competitiveness data can be combined to benchmark the per-
formance of Australia’s nations educational and training system. Exhibit 1.4.
Benchmarking Workskills and National Competitiveness repeats this analysis

Exhibit 1.4. Benchmarking Workskills and National Competitiveness

PERCENTAGE OF WORKFORCE COMPLETING UPPER SECONDARY
SCHOOLING
100 ◆
Rank index—national competitiveness

◆ Finland ◆ United States

90 Luxembourg ◆
Netherlands ◆ Switzerland ◆
80 Denmark ◆
◆ Germany
◆ Canada
70 Ireland ◆ Australia
Norway ◆
▼
◆
60 Sweden ◆ U.K.
◆
New Zealand ◆▼◆
50 Spain ◆ France Austria
◆
40 Portugal ◆ Belgium ◆ Hungary
Italy ◆
◆ Greece
30 ◆
Turkey ◆
20 Korea ◆
Poland ◆ Czech Republic
10
10 20 30 40 50 60 70 80 90 100
Rank index—ISCED 3 and above (post-compulstory) profile

PERCENTAGE OF WORKFORCE WITH DEGREE OR HIGHER

100 ◆
Rank index—national competitiveness

Finland ◆ United States

90 Luxembourg ◆ Netherlands ◆
Switzerland ◆ ▼
Denmark ◆ Canada
80 Germany ◆
◆
Ireland ◆ ▼
◆
70 ◆ Australia
Austria Sweden ◆ U.K. Norway
60 New Zealand ◆
◆
France ◆
50 ◆
◆ Spain
◆ Belgium
40 Portugal ◆ Hungary
◆ Italy
◆
30 Turkey Greece ◆
◆
◆ Czech Republic
Korea ◆
20 ◆ Poland
10
10 20 30 40 50 60 70 80 90 100
Rank index—ISCED 6 and above (degree) profile

Source: Adapted from R. B. Cullen, Benchmarking Australian Qualification Profiles (Brisbane,

Australia: Australian National Training Authority, 1998), by inserting 1999 competitiveness and
1998 OECD qualification profile data.
 Government in Crises 19

using 1998 and 1999 data. The upper chart uses workskill rankings derived
from the proportion of the workforce who have completed secondary school,
obtained a major trade qualification, or obtained higher level qualifications.
The lower graph repeats the analysis using the proportion of the workforce
with degree or higher level qualifications. These results show a strong corre-
lation between country rankings based on qualification profiles and country
competitiveness. The relationship is strongest for the secondary school and
higher education profile which includes all those who complete school, a
trade qualification, or a degree program.
Three points should be noted in examining this analysis. First, most
examinations of national education and training systems examine inputs and
access. Some extend this to an examination of current flows through educa-
tion and training systems. Only a few studies examine the links with competi-
tiveness. Second, although the proportion of the workforce in different countries
with defined levels of minimum educational qualifications is an imperfect
measure of workskills, a number of studies suggest that these measures pro-
vide a useful comparative measure. Third, the analysis suggests that these
workskill measures impact on competitiveness by differentiating countries
rather than through absolute inputs to production functions. Cullen extends
this by suggesting that differentiation is likely to be hierarchical with coun-
tries first being differentiated on the bases of secondary school profiles and
then on the basis of higher level qualifications. Finally, to be useful, bench-
marks need to shorten the cycle time between education and training deci-
sions and outcomes in terms of competitiveness. One way to do this is to
project future qualification stocks on the basis of existing education policies.
OECD projections provide a sound staring point for such benchmarking.
Our purpose in raising this analysis is not to explore the complex issues
which underpin this analysis but to illustrate the use of available international
data to benchmark government contributions to national performance. Al-
though education and training programs are only one link that determine
competitiveness, a simple examination of country differences and the impact
of existing policies on future qualification can provide key options for a
country to add value to workskills.
The objective is not to manage a shift in qualifications in isolation but to
manage a country’s profile against projected shifts for competitors. The pri-
orities for each country are different. They depend on the existing skill base,
education and training outputs, and on a study of the likely competitiveness
impact of the education and training policies of competitors.

• The challenge for the United States is not that other countries will pass
historically high U.S. secondary school qualification profiles, but that
they will catch up and neutralize a source of competitive advantage.
20 GOVERNMENT IN CRISES

The challenge for the United States is not only to ensure that as other
countries match U.S. profiles, the United States maintains an advan-
tage by improving the quality and relevance of qualification, but also
that higher level profiles remain ahead of others and that retraining is
responsive and competitive.

• The challenge for Australia is illustrated in Exhibit 1.3. In the upper

chart, Australia is more competitive than is suggested by its secondary
school qualification ranking. In the lower chart Australia is less competi-
tive than is suggested by its degree ranking. Cullen argues that the low
secondary school and apprenticeship ranking is limiting the workskill
benefits that Australia obtains from its university sector. The challenge
is to maintain Australia’s high degree ranking as other countries accel-
erate performance in this area and to reverse the decline in secondary
school ranking that has occurred in recent years and is forecast to con-
tinue. Australia ranks fifteen on the secondary school profile and five on
the degree profile. The challenge is not only to increase the proportions
of the workforce completing school and apprenticeship programs but to
grow this more rapidly than other countries.

• For developing countries the proportion of qualifications in the younger

age groups appears to be a lead indicator for workskills. For example,
the proportion of the workforce with secondary school or equivalent
qualifications for younger persons in Singapore has already passed that
of Australia. For older persons, the workskills challenges for Singapore
are different than for Australia.

• Germany has a high secondary school or equivalent profile including

a strong apprenticeship system and a low but growing degree profile.
Cullen suggests that the challenge for Germany is to ensure that ap-
prenticeship programs become more responsive to new needs, while
also growing degree and the higher level programs.

THE STATUS OF GOVERNMENT

MANAGEMENT REFORM

There are real opportunities to improve government performance,

but availing ourselves of these opportunities will require very
different reform strategies than those that have been tried in the
past.
—Downs and Larkey, The Search for Government Efficiency
 Government in Crises 21

Current government management reform focuses on four strategies:

• Rationalize government functions, reduce the size of government, elimi-

nate waste, and shift functions to the business sector where this is seen
as likely to improve performance or simplify government.
• Reform financial management systems, focus on programs and results,
and reduce expenditure.
• Deregulate government by replacing traditional government structures
systems and values with solutions derived from modern business man-
agement concepts and, wherever feasible, introduce government deliv-
ery systems to market forces.
• Strengthen the capacity of government to focus outward rather than
inward by separating strategic policy controls from operational man-
agement and by devolving services to agencies able to monitor and
respond to changing customer needs.

The key thrust of current responses to the crisis in government manage-

ment is to presume rationalization, budget cut backs, deregulation, empower-
ment, and closer links with customers that will produce better and lower cost
solutions. In many cases these tools do just that. In some cases they clearly
fail.
The gap between government promises and government delivery has
widened in many countries. Implementation remains the Achilles heel of
government management. Initial attempts to change tended to underestimate
the problem of delivering results. Government reformers often assumed that
the challenge was to deliver a legislative consensus for change. The assump-
tions were that the changes addressed the core problems facing government
and that implementation would follow the delivery of a legislative mandate
for change. Neither of these assumptions held. Many of the changes ad-
dressed narrow problems and many of the plans approved by government
could not be implemented.
Failure to implement is often taken as evidence that government manage-
ment has failed. In part, this is a valid criticism. However, the technologies,
which the traditional government management model uses to coordinate work,
are often the root cause of failure. Governments deliver value through a series
of sequential functions, for example, these might typically include: consen-
sus, legislation, budget, resource acquisition, project design, project delivery,
and consolidation functions. Projects tend to be coordinated through these
functions using a series of queues and aggregations designed to optimize the
work load of each function rather than to optimize the performance of specific
22 GOVERNMENT IN CRISES

projects. The time delay between the approval of a change and the delivery
of results (implementation cycle time) is not managed directly and in times
of cut backs in resources tends to increase rather than decrease.
There are three reasons why lengthening implementation cycle times
reduce the chances of successful implementation. First, increased cycle time
improves the scope for interest groups opposed to change, to emerge, and to
act. Governments, faced with major resistance to change, tend to move to
restore the capacity to govern by modifying the change. In the end, the
objective often becomes survival and the original objective of the change is
forgotten or seriously compromised. Second, increased cycle time increases
the chances that management attention and resources will be diverted to
address some new crisis before results have been delivered and communi-
cated effectively. Third, increasing cycle time increases the chances that the
external environment will change reducing or eliminating the core value of-
fered by the original solution.
The failure to deliver has led to almost continuous management and per-
sonnel changes in government. These changes, combined with ongoing budget
cut backs, have eroded the capacity of public administration to respond. Many
governments today need to rebuild management systems and to recognize that
a competitive nation requires a competitive government management system.
They must do this without access to the new growth opportunities which fueled
the post consolidation development of the business sector.
We now examine three set of solutions to the government crisis.
Cut back management addresses the need to balance the supply and
demand for resources. Many governments have responded by reducing the
size and impact of government. Although the process of rationalization was
needed in many countries, the process in government has often been driven
by budget imperatives combined with the need to remove the “dead hand of
government” from business in order to let business operate.
Cut back management is seldom successful in a vacuum. The process in
business was driven by the need to deliver profits and to create a new base
from which further development could emerge. The element which is missing
from many of these government management experiments is the new mission
which must be protected and nurtured as part of the process. In government,
cut back is often driven by budget shortfalls and an ideological position that
the solution to the government management crisis is to obscure the financial
deficit problem in a flurry of short-term actions rather than to fix the under-
lying management deficit which caused the problem in the first place.
Devolution addresses the need to provide managers with the scope to
govern. Reform of management structures usually involves deregulation of
traditional input controls over personnel and line item budgets and the use of
business solutions to structures, systems, and management skills. However,
 Government in Crises 23

these management solutions seldom focus on the prerequisites for effective

implementation or the delivery of the core missions of government.
While there is no doubt that the solution to the government management
crisis must involve the demolition of traditional input controls over budgets
and personnel, in order to devolve real management roles, there are two
problems with these solutions.
First, solutions which address the national interest and ensure that de-
volved units address this interest have been slow to evolve. Some reforms
have sought to redefine roles and structures to deliver services more effec-
tively. This usually involves a separation of policy and overall controls from
the management of operational delivery systems. This is evidenced by the
separations implemented by Mrs. Thatcher in the United Kingdom and the
steering and rowing reforms advocated by Osborne and Gaebler. Structural
solutions to the coordination of the interdependencies in the government value-
chain can be effective where both the delivery agency and the relevant exter-
nal interest groups are relatively self-contained. However, such approaches to
the coordination of interdependencies seldom manage high response situa-
tions effectively.
Second, managing the transition from traditional tightly controlled agen-
cies to devolved deregulated agencies requires new forms of accountability
for performance. These new accountabilities are often assumed rather than
created as part of the change process. Two predicable outcomes follow from
assuming that deregulated agencies will perform. Agencies test the limits of
their new autonomy and this can create some wild explorations which need
to be managed; the salary increases awarded in the newly nationalized indus-
tries in the United Kingdom are a case in point. Once the initial consensus
about change erodes, or when autonomous agencies need to change, conflicts
occur between autonomous operating agencies and executive government.
When this occurs, the role of executive management can reduce from ensur-
ing that the central roles of government are delivered to one of finding new
ways to bring errant agencies under control.
Reinventing government addresses the need to focus reform on imple-
mentation and the delivery of results. Osborne and Gaebler focus on changing
government value-chains to bring parts of government activity closer to users
and interest groups. This combination of deregulation and empowerment has
challenged conventional notions about good government. The public has begun
to see that effective government needs managers and agencies who are pro-
vided with the scope to manage. The ten themes developed by Osborne and
Gaebler illustrate the nature and scope of the new-style reforms, which are
being implemented in many countries: steering rather than rowing, empow-
ering rather than serving, injecting competition into delivery, transforming
rule driven government, funding outcomes not inputs, meeting the needs of
24 GOVERNMENT IN CRISES

the customer not the bureaucracy, earning rather than spending, prevention
rather than cure, from hierarchy to participation and teamwork, and leverag-
ing change through the market.
These ideas have led to solutions which are a major improvement on
previous attempts to improve the performance of government. As practitio-
ners explore problems with a new found freedom to solve them, more ex-
amples will emerge. The new-style reforms provide a new focus for the grass
roots delivery of many functions and services. These reforms work because
they introduce new approaches to the delivery, shorten the traditional value-
chain, deregulate government activities, and seek to develop new approaches
to resource management, evaluation, and accountability.
However, these approaches are as yet dangerously incomplete? In seek-
ing to build on current changes and address some of the weaknesses which
seem to be emerging, our analysis suggests that a number of gaps remain to
be recognized and explored.

Competitiveness
First, new approaches to managing the links between grass roots reform and
adding value to national competitiveness have not yet developed. Many of the
reforms are clearly applicable to the delivery of grass roots services to cus-
tomers. These new approaches need to balance short- and long-term interests
and meet short-term needs within a framework of priorities which builds
future wealth and manages national transitions to protect national interests.

Long-Term Value
Second, the links between one-off changes and long-term added value need
to be further considered. The criteria for managing both performance and
public expectations of performance remain vague in many of the cases ex-
plored. The assumption seems to be that performance once restored will be
driven by a new focus on customers and services. This seldom occurs. An
effective basis for the ongoing evaluation of change and for addressing the
inevitable failures needs to be identified and implemented.

Allocative Tension
Third, strategies for managing allocative tension where agencies are not self-
funding cannot be solved by the new micro-reform agenda. These problems
are compounded by budget cut backs. While some important ideas are ad-
vanced, this is an area which can subsume governments and cause major
uncertainties.
 Government in Crises 25

Implementation
Fourth, although the management of implementation is often as important as
the solutions, current prescriptions tend to assume that deregulation and a
customer focus will provide the focus to correct this problem. The need to
manage the impact of change on various interest groups is only partly ad-
dressed by current reform processes. There are two problems with this as-
sumption. The need to devolve the responsibility for managing external
implementation impacts is assumed to be addressed by devolution. Where the
customers are the major interest group, this is likely to occur. However, where
there are different impacts on different interest groups, new tools are required
to focus management on the delivery of specific impacts. In addition, the
need to use devolution to reduce cycle time or the time it takes government
to recognize a need and address it is not explored.

Role of the Legislature

Fifth, the implications of the Osborne and Gaebler prescriptions for the role
of government and particularly the role of the legislature is major and re-
quires more analysis. Unless this is also addressed as part of the reinvention
process, reform will simply build new pressures and may even reduce rather
than improve overall national competitiveness.

The U.S. Reinvention Experiment

The Clinton-Gore reforms in the U.S., the National Partnership for Reinvent-
ing Government, provide an important case study of reinvention. Expert tes-
timony to the Senate Government Affairs Committee recently addressed the
question, “Has Government Been Reinvented?” (Light 2000; Kettl 2000; Moe
2000; and Mihm 2000). The consensus seems to be that there have been both
failures and successes, that reform is a “work in progress,” that developing an
agency-based focus on results does not come quickly or easily, that govern-
ment has little option but to continue the reform process, and that weaknesses
in the reform strategy need to be defined and addressed as part of ongoing
reform. In part, these weaknesses relate to the gaps in the reinvention strategy
and solutions. In part, they relate to gaps in the implementation strategies
used to drive the reinvention machine.

IMPLICATIONS FOR THE REFORM OF

GOVERNMENT MANAGEMENT
The crisis in government is driven by external change that no nation can
ignore. While reform must address these external issues, reform must also
26 GOVERNMENT IN CRISES

address the reality that traditional systems of government have broken down.
There is no simple incremental solution for most government management
systems; they must implement a new management base which meets the
needs of all national stakeholders. If they do not, national competitiveness
will suffer and the well-being of citizens, if not actually eroded, will suffer
compared with nations who elect to be competitive.
There are two implications of our analysis for the reform of government
management. First, governments need to refocus reform from internal to
external factors. Second, governments need to ensure that internal reforms
deliver reduced cycle time (speed), maintain the scope to govern and address
impacts on diverse interest groups (consensus), and deliver expected results
(performance).

The Need to Refocus Reform from Internal to External Factors

The changing external environment of nations means that governments must
change to maintain and increase national competitiveness. Failure to do this
leads to a reduced access to world resources and a reduced standard of living
within a particular country. The benchmarks for progress are relative; it is not
enough for a nation to improve, it must improve relative to others. The idea
that nations are managing a transition to improve competitiveness requires
both a competitive business sector and a competitive government. This re-
quires changes in the role of government and in the way in which govern-
ments manage their affairs.
The idea of competitive government needs to be differentiated from current
strategies to introduce competition into the delivery of government services.
The benchmarks for competition in service delivery are unit costs and cus-
tomer service compared with other countries and regions. The benchmarks
for competitive government are: first, improvements in national competitive-
ness and second, whether a particular government adds more or less value to
national competitiveness than others.

The Need for Management Solutions which Focus on Speed, Consensus,

and Performance
While different nations must manage different transitions that require differ-
ent contributions from government, our analysis identifies three common
characteristics of competitive governments: speed, consensus, and performance.
It is interesting that the concepts of speed and strategic response, which have
proved so powerful in the business sector, also seem to be key to improving
the performance of the government sector. However, the reasons why these
concepts add value in each sector are different.
 Government in Crises 27

Speed: A single management strategy which addresses each of these re-

quirements is the management of cycle time. We define cycle time as the time
which elapses between the emergence of a clear need for government action
and the delivery of that action and the communication of the results to those
affected. In our opinion, the failure of many government systems to manage
cycle time explains many implementation crises. There are powerful reasons
for managing cycle time. It makes sense to start government projects in a
supportive environment rather than when they emerge from a fixed legislative
and budget queue. It makes sense to complete government projects quicker and
to manage implementation against time-based targets. This reduces the scope
for opposition, increases the chances that implementation will be resourced and
managed effectively, and targets the delivery of specific value to the public.
Managing cycle time enables management to coordinate positive and
negative impacts during the implementation cycle. The objective of such
coordination is to maintain a net positive perception of value. This requires
the arrangement of implementation impacts to deliver early benefits. It also
requires negative impacts to be offset by perception of future benefits. The
discount factor which the public uses to compare promises of future benefits
against current costs is a function of the time delay involved and the level of
public distrust of government. While increasing distrust of government is
reducing the discount factor, reduced cycle time can offset this reduction.
Except perhaps in times of major crisis, government management has not
been noted for its speed of response or for its capacity to monitor external
developments. Even where these responses involve little more than removing
the maze of regulations that prevent the private sector responding, the evi-
dence suggests that the public sector often has difficulty seeing the wood for
the trees. Many of the responses to budget shortfalls actually act to extend
rather than reduce cycle time.
Consensus: An important characteristic of the crisis is the extent to
which nations are either becoming less governable or are so constrained by
diverse pressures that they settle for survival rather than added value and
improved national competitiveness. While many involved in government rec-
ognize this problem, few appreciate that the way in which government con-
tinues to attempt to manage diversity is part of the problem. Traditionally,
governments have focused on developing a consensus for a project at the
outset. The idea of consensus involves a search for core values and shared
interests. Increasingly governments are finding that initial consensus is eroded
during implementation. The corrections required often address criticism by
reducing project value.
Our analysis suggests that the initial search for consensus is probably
misguided. A more realistic approach to the management of diversity is to
recognize and respect differences by negotiating the impacts on interest groups.
28 GOVERNMENT IN CRISES

The idea of consensus and enthusiasm for government changes is both coun-
terproductive and unnecessary. In reality, government seeks to maintain a
comfort zone within which interest groups and the public allow government
to govern. This approach requires government to find new ways of both
planning strategic priorities and managing the impacts of projects throughout
the project cycle.
Performance: Many changes have not delivered grass roots impacts.
Many government management systems manage processes or functions and
assume that long-term added value is delivered. Few processes manage short-
term impacts unless a crisis emerges which must be addressed. We argue first
that the focus of reform must be to enable managers to manage performance
directly, and second, that the time horizon of these evaluations must be short-
ened rather than extended.

A FRAMEWORK FOR EXPLORING THE TRANSITION

TO COMPETITIVE GOVERNMENT
In this chapter, we have examined both the causes of the current crisis in
government management and the responses by governments. The role of
modern government is changing and the management ideas and systems re-
quired to enable government to perform are changing.
If the future could be a projection of the past, there would be no crisis.
Although there would be challenges working through the over-government
which occurred in many counties and in adapting to new needs, the platform
from which to launch solutions would be sound and understood. But the
future is not a projection of the past. Government, like business, is confronted
by a major turning point where evolutionary change strategies are futile.
Government managers need to “jump the curve” and build a new platform
from which to launch future solutions. Building that platform requires the
dismantling of many traditional systems and values. A number of authors
have explored the need for discontinuous change. Nicholas Imparato and
Oren Harari (1994) use the term “jumping the curve” to discuss business
management strategies that respond to the need for such change by breaking
historical trends to establish a new platform for growth. The challenge of
developing such strategies for government management systems is a key
focus of this book.
There is an emerging consensus that fixing the current crisis requires new
ideas about government and that these new ideas must be implemented by
radically different approaches to the delivery of government activities. While
specific solutions emerge from addressing specific problems, government
reform also needs to address a more fundamental transition. Reform must
 Government in Crises 29

dismantle old systems and replace these with new strategies and management
tools which can manage the future.
Governments are in the midst of a more fundamental change than many
realize. They are navigating a turning point which is every bit as challenging
as that confronted by business. In many respects, they are navigating with a
combination of traditional tools which are clearly broken and with tools
borrowed from business which only address part of the government manage-
ment problem.
In this chapter, we have described the new form of government manage-
ment which is developing as competitive government. Many government
management systems have no option but to “jump the curve.” If they hold
back they will lurch from crisis to crisis. Worse, their nation’s share of global
resources will be cut as governments and nations better able to exploit new
global realities outperform them. Nor do governments really have the luxury
of changing at their own pace. Whether they understand it or not, they are
competing with other nations and governments. And some of these competi-
tors are already off and running.
Our discussion of the transition to competitive government is divided
into three parts. Part 1 discusses changing ideas about government and devel-
ops a vision to guide government reform.
Part 2 examines the challenge of translating these ideas into action. Al-
most all the core systems of government are being reinvented. The process
must be coordinated and the new solution must be comprehensive. To suc-
ceed, the implications of these changes must be understood by government
managers and by the communities they impact.
Part 3 examines the need to translate these visions and strategies into a
specific government transition to competitive government. Governments have
learned to manage individual change projects. The challenge for many is to
mange sequential interrelationships between these projects to maximize added
value and implement a transition. This transition must respond to the external
and internal pressures facing the government of a specific nation, it must
chart a realistic course between the current and future performance of a
government, and it must be benchmarked to enable government to navigate
through turbulent seas.
 Part I

A Vision to Guide Government Reform

 A Vision to Guide Government Reform

Big organizations, as a rule, only change significantly when

certain conditions are met. First, there must be enormous external
pressure. Second, there must be people inside who are strongly
dissatisfied with the existing order. And third, there must be a
coherent alternative embodied in a plan, a model, or a vision.
—Toffler, The Adaptive Corporation

In chapter 1, we argued that government is something that needs to be fixed.

However, attempts to fix government by adopting strategies, tools, and evalu-
ation procedures from the private sector have not been successful for several
specific reasons. One specific reason centers on the failure of theorists to
recognize that contemporary governments vary in form from centrally planned
to highly autonomous. No one model or theory has been brought forward
which recognizes this diversity and indicates how each government can make
the changes necessary to get from where they are to where they should be.
There is a growing recognition that government is facing a major turning
point and that it must change its traditional technologies and processes to
survive. The reality that incremental change cannot work means that govern-
ments need a new vision to guide reform. The new vision that is emerging
must be extended beyond ideas to provide a coherent focus for action. We
need flexible not tunnel vision, vision that can be informed rather than dis-
torted by government differences, and vision that encompasses the range of
different solutions that government management must embrace. Government
management today meets two of Alvin Toffler’s three criteria for organizational
change. The crisis is widely recognized and there is dissatisfaction both within
government agencies and amongst those groups who seek to work with govern-
ment to advance both national competitiveness and the well-being of citizens.
While a vision is emerging it remains partially hidden, obscured by national
differences and the need to fix a never-ending string of short-term problems.
The next five chapters explore the vision which is emerging and develop
frameworks which can focus the reform of government management. In chapter

33
34 A VISION TO GUIDE GOVERNMENT REFORM

2, we compare business and government. Since many government reforms are

driven by business values and approaches, it is important to identify gaps
between business solutions and government management needs and suggests
some of the preconditions for translating business solutions to government.
Chapter 3 addresses the management of transitions to national competi-
tiveness. A National Competitiveness Model (NCM) is used to differentiate
national transitions, and to explore the government reforms required to sup-
port particular national transitions. Change is presented as a transition bounded
by three different modes of national management.
Chapter 4 suggests that the failure of government reform to deliver grass
roots impacts is caused by government management systems and values and
that both traditional government and transplanted business solutions fail to
address this weakness. We develop solutions and suggest that government
needs to manage both the short- and long-term impacts of change on each of
the core roles of government. Two models are used to focus this process. The
Implementation Impact Model (IIM) focuses government management on the
need to manage impacts on both the added value and comfort zone dimension
at the same time. This model is supported by two management approaches,
performance management and comfort zone management. The Cycle Impact
Model (CIM) addresses the challenge of managing the impacts of govern-
ment action in a dynamic rather than a static way. The management of cycle
time has major implications for the evaluation and management of govern-
ment programs and for the way in which governments seek to communicate.
A theory of the management of cycle dynamics is outlined and the implica-
tions for government management and communication are discussed.
Chapter 5 addresses the internal changes required to enable government
management to respond effectively to external processes. We extend the analy-
sis underlying our transitions model by presenting a theory of environmental
scanning, a theory of value-chain transformation, and a theory of continuous
improvement to provide specific operational strategies, tools, and evaluation
procedures for undertaking such a transition within four specific cycle times:
a political consensus cycle, a legislative consensus cycle, an implementation
cycle, and a consolidation cycle. The Value-Chain Coalignment Model (VCCM)
provides a framework for adding value by reengineering government value-
chains. A key objective of competitive government must be to shorten cycle
time by adjusting these traditional value-chains. The value-chain of govern-
ment activities is analyzed and options to shorten cycle times and focus on
new implementation and evaluation priorities are discussed. We examine value-
chain coalignment in action by considering the development and management
through the Legislature of the Contract with America.
Effective government reform requires leaders able to manage change as
a transition. While government leadership shares many challenges with busi-
 A Vision to Guide Government Reform 35

ness, the context is different. In particular, government leaders, far more than
their business counterparts, must seek solutions which also maintain the scope
to govern by managing the impact of change on diverse interest groups.
Chapter 6 explains the leadership strategies, tools, and evaluation procedures
employed by two successful but different real time transitions to national
competitiveness. We explore Singapore’s transition from a centrally planned
to a strategically managed government. Next, we explore the U.S. government’s
attempt to make a transition from a decentralized control to a strategically
managed government.
 Chapter 2

Lessons from Business

What can business learn from the public sector? It seems to me

that it can learn a good deal about how to manage performance
in complex situations where normal market forces are not
effective. It can learn how to develop policies within which
various issues and actions can be addressed, it can learn how to
develop consensus to support decision-making and finally it can
learn how to avoid taking some unnecessary risks.
What can the public sector learn from business? It seems to
me that it can learn how to link inputs to outputs and how to
manage the delivery of outputs, it can learn how to focus on
clients as a major mission of an organization rather than a
source of problems. Finally, it can learn to manage risks and
accept mistakes as part of that process.
—Cullen, “Business Government and Change”

In chapter 1, we argued that old divisions between business and government

were no longer viable and that governments and business must work together
to deliver transitions to national competitiveness. While traditional models of
government management have broken down, attempts to fix government by
adopting strategies, tools, and evaluation procedures from the business sector
have often been unsuccessful.
If business and government are to work together to compete with other
nations, they need to remove the impediments that distort and block commu-
nications. If governments are to meet new management challenges, they must
learn to access the powerful new management tools developed by global

37
38 A VISION TO GUIDE GOVERNMENT REFORM

business enterprises. Learning how to transplant business solutions into the

government sector requires an understanding of the differences between gov-
ernment and business. These differences can be translated into models and
concepts that enable government managers to extend and adapt business
solutions to meet government sector needs. We discuss such models and
concepts in chapters 3, 4, and 5. However, before developing these ideas in
detail, it is useful to examine business and government management changes
and to identify the key differences which must be addressed if transplantation
is to succeed.
It is the purpose of this chapter to discuss business-government commu-
nications, to analyze development and management tools evolving in each
sector, and to suggest strategies to enable government to use many of the new
business management tools without generating the liturgy of problems which
occur when the process of transplanting business management solutions to
government is oversimplified.

BUSINESS GOVERNMENT COMMUNICATION

Business and government often talk but seldom communicate effectively.

There are major blockages to effective communication between managers in
business and government that reduce the scope for each sector to learn from
the other.
One approach to dimensioning the communication gaps between busi-
ness and government is summarized in Exhibit 2.1. Communication Gaps
between Business and Government. While both groups have different priori-
ties, Exhibit 2.1 suggests that a focus on the need to work together to increase
national competitiveness can provide common ground and can lead to more
effective communication. To illustrate the communication problem, we con-
sider a business manager seeking a subsidy to establish a business and gen-
erate employment in a region. The business manager looks at maximizing
returns to shareholders. Success is gaining a competitive advantage. The
manager evaluates his or her competitors, identifies what is required to set up
the business, sees government support programs as important, and seeks to
negotiate support. To do this, the manager tends to oversell benefits and
oversell the importance of the government assistance.
The government manager looks to implement a government business
support program. The merits of each individual application are important in
the sense that the intention is to support programs which generate some
regional benefits. However, there are many applications and funds are limited.
The central problem is often seen as one of rationing scarce resources rather
than working with business to leverage business and government funding to
 Lessons from Business 39

Exhibit 2.1. Communication Gaps between Business and Government

Business Government
Enterprise National Government
Competitiveness Competitiveness Competitiveness
OBJECTIVES OBJECTIVES OBJECTIVES
Optimize benefits for Improve national Implement industry policy
shareholders competitiveness
IMPLEMENTATION IMPLEMENTATION IMPLEMENTATION
STRATEGIES STRATEGIES STRATEGIES
Gain a competitive Gain national Add value to national
advantage over other competitive advantage competitiveness
national companies Impact of one-off decision on
and international other claims for assistance
competitors contained
Claims of government
advantaging selected company
with little public benefit
contained
Impact of failures contained

ACTIONS/IMPACTS ACTIONS/IMPACTS ACTIONS/IMPACTS

Negotiate with Market access Provide competitive services
government to receive Competitive products, and infrastructure, taxation,
assistance production education, and training system
Competitive workskills for all national companies in
Seek government targeted industries
assistance to access Competitive technology
Manage domestic allocative
overseas markets Competitive tensions and ensure that
management public benefits are seen to
Competitive taxes flow from government support
Government assistance, for industry
subsidies Negotiate with international
companies offering to bring
competitive strengths to the
national economy
Decide application for
assistance from enterprises

Is there a national benefit?

Who benefits who pays?
What are the likely impacts
on other policies and
companies and regions?
How might the application be
funded and sponsored
politically?
40 A VISION TO GUIDE GOVERNMENT REFORM

deliver improved performance. Assuming the proposal seems viable, the pri-
mary focus shifts to examining the policy implications of agreeing. What
would be the impact on existing policies? How many other groups and busi-
nesses would claim similar treatments? How could flow on applications be
refused without appearing to discriminate in favor of the current project?
How might the proposal be funded? Can it be funded from hidden sources or
slack in existing approved programs? If the proposal must compete with other
proposals for a share of new funding, how can this be managed? How will
government handle the threat this poses to other existing projects and other new
projects? Who might sponsor the proposal in government? Who would be
likely to oppose the proposal in government? In addition, the government
manager must address the possibility of failure and the reality that this will be
treated far more seriously by the media and the public than success. Finally, the
government manager must examine the overall impact on comfort zones.
For the government manager, the value of the project is not the dominant
consideration. Even when the project has high value, these other consider-
ations raise difficult issues which take time to resolve. The business manager
seldom has time. There are markets to service, competitors to address. The
business manager sees government inaction and concludes that government
does not understand business, that government processes are inefficient and
almost certainly wasteful. The government manager, assuming that he or she
has not been desensitized, senses this frustration but sees the problem in
terms of the business manager not understanding or caring about the prob-
lems government must address.
To the government manager, the business manager seems impatient and
only interested in achieving a gain for his or her shareholders at the possible
expense of others. Although success for the government manager involves
spending the allocated funds, the real focus of evaluation is usually whether
program decisions are seen to have created trouble for government or at-
tracted public criticism.
A number of strategies can be used to remove or clear these blockages.
First, improve communications directly; ensure that business managers, seek-
ing access to government funding, understand the risks government takes
whenever it discriminates in favor of one option over another; and make
working with business to create a world competitive industrial base a key
success criterion for government managers. Second, improve understanding
by locating within business people who understand government and by locat-
ing within government people who understand business. Third, distance gov-
ernments from the allocation process by developing autonomous entities
charged with the mission of adding value to industrial competitiveness. Fourth,
provide less time for negative reactions to develop and seek to match the
decision cycles of business and government, by shortening government cycle
time for the approval and delivery of such assistance.
 Lessons from Business 41

A COMPARISON OF BUSINESS
AND GOVERNMENT DEVELOPMENT
Regardless of how many times and how loudly those who have
not tried it assert the contrary, running a government bureau-
cracy is not the same as running a business.
—Downs and Larkey, The Search for Government Efficiency

Over the last half-century, both private and public sector organizations have
moved through a cycle of changes. Exhibit 2.2. A Comparison of Business
and Government Development Cycles suggests that both business and gov-
ernment have moved through a cycle which started with bureaucratic man-
agement, and was followed by market driven expansion, which inevitably led
to periods of rationalization followed by a period of consolidation and growth
which focused not only on core markets and strengths but also on global
trends and the actions of competitors. The similarities support those who seek
to apply business solutions to government. However, government and busi-
ness faced different challenges.
The bureaucratic starting point is not surprising. Initially, the bureau-
cratic solution was the only management option which allowed business and
government to harness the benefits of specialization (Morgan 1986). For gov-
ernment, the rule-driven predictability and contained power used by the bu-
reaucratic model to coordinate activities, offered additional value (Imparato
and Harari 1994).
Both sectors experienced a growth phase which led to over extension. In
the case of business organizations, growth dispersed core strengths and weak-
ened their capacity to respond to more demanding market conditions when
these occurred. In the case of government, access to revenue growth, which
grew almost independent of government activity, allowed governments to
purchase popularity by responding to one need after another. In the end, the
mix of activities undertaken by many governments proved to be both
unfundable and unmanageable.
Rationalization was an inevitable consequence for both sectors. The pro-
cess came a decade earlier for business because of the direct links between
markets and funding. The government funding crisis was delayed as govern-
ments deferred the need to bring budgets into balance. As a consequence,
when the correction finally came for government, it was somewhat deeper. In
addition, many governments addressed the symptoms, the need to balance
budgets, rather than the causes, the need to rationalize function and rethink
the role and priorities of government in a global economy.
The business rationalization cycle was keyed into regrouping around core
strengths and exploiting new growth opportunities. Business after business
divested unwanted business and set about exploiting new opportunities.
42 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 2.2. A Comparison of Business and Government Development

Cycles
Development Business Government
Cycle Management Management
Functional The early concentration Government adopted bureaucratic
expansion and was to exploit specializa- structures and used these to
bureaucratization tion and economics of coordinate the huge paper factories
scale. This led to large required to administer government
business bureaucracies. policies equitably.
Market driven The focus shifted to Growth in the tax base available to
expansion markets and products governments saw the size and role
and the devolution of of the public sector increase
management control to massively in most countries.
business units. The Governments accepted
process of responsibility for providing many
decentralization led to the additional services. A plethora of
growth of business public sector agencies emerged,
conglomerates. each managing different groups of
programs.
Rationalization Many of these large Growing demand and an erosion
conglomerates failed. of the tax base forced
Their value was often rationalization somewhat later in
little more and sometimes the business sector. Governments
less than the value of the in many countries dismantled
operating businesses large bureaucracies, eliminated the
standing alone. middle layers of organizations, and
Divestitures occurred to withdrew from non-core service
assist companies to areas. Some functions were
reduce debts created by exported to the private sector
expansion and to focus (privatization), some were exported
on core businesses. to customers (customer pays),
some were abandoned.
Further growth Growth since the 1980s Major growth has occurred in areas
and has centered on core such as education and health,
development businesses and exploiting associated with contraction in
products and other areas. Some growth has
technologies across occurred in partnership with
international rather than business and customers. Many
national or regional public sector programs leverage
markets. public funds with business and
customer funding.

Governments tended to see the crisis and the need to rationalize as a long-
term diminution of their role and relevance. Governments experience difficulty
abandoning areas unless there are obvious alternative sources of service. Gov-
ernments experience difficulty managing the allocative tensions unleashed when
a system designed to allocate growth attempts to allocate reductions.
 Lessons from Business 43

By failing to identify the new changes and develop new roles, many
governments missed important opportunities to use cut backs to build for the
future. The assumption that services could only be delivered in traditional
ways led some governments to miss important opportunities to reinvent de-
livery structures. Managing reductions without a coherent view of the future
has sapped the morale of many government managers and has led the public
and business to undervalue the future role which government must play if
nations are to succeed.

Management Responses

Progression through this development cycle is associated with changes in

management values, approaches, and tools. While the changes in business
management are well documented, the changes in government management
tend to be discussed in terms of each current crisis rather than in the context
of the longer-term patterns of development.

Breakdown of Bureaucratic Solutions

Bureaucratic models of organization break down when they are required to
respond to a dynamic environment. The response of such an organization to
change is essentially to avoid it by insulating itself from a hostile environ-
ment. They erect buffers and blame particular cogs for the breakdown of the
system. In the end, they move to more effective forms or organization.
In the case of business organizations, the breakdown was simple and the
solution was to move to decentralized business units which could link more
effectively part of the environment. Alfred D. Chandler (1962) discussed the
management by objectives solution which guided these business reforms. In
the case of government organizations, the breakdown was more complex and
the devolution solution proved to be more difficult to implement.

Management by Objectives
The movement to management by objectives (MBO) conceptualized by Peter
Drucker in the 1950s (Drucker 1954) enabled business to halt the process of
over specialization and focus outwards to respond to a changing external envi-
ronment. There are two quite different reasons why MBO systems broke down
in business. First, many MBO systems became institutionalized. Managers
abdicated their strategic leadership role to hierarchical systems which distilled
and segmented objectives. Rationalization forced many businesses to slash these
hierarchical management systems, devolve accountability to business units, and
evaluate the performance of these units strategically by setting demanding
44 A VISION TO GUIDE GOVERNMENT REFORM

targets, adding new business units, and disposing of underperforming busi-

ness units. Second, the structural segmentation of the environment into natu-
ral business units ceased to have long-term validity as the environment became
more volatile, the hierarchical approach to objectives broke down, and suc-
cess required shortened cycle times (Fombrun 1992).
Even today, after business has been forced to rethink many of these
approaches, the Drucker model is often the solution proposed by business
to improve government management. It is important to point out that Drucker
himself does not advocate these solutions as a general solution for govern-
ment management. Apart from the business areas of government, which he
considered should be privatized, Drucker (1989) does not conclude that simple
solutions are possible. He argues that grand solutions, “salvation by soci-
ety,” are no longer feasible; government leaders must cope with diversity,
they must address the difficult issues of accountability and performance,
should cease asking what government should do in this new environment,
and ask instead what government can do. Ducker’s conclusions about gov-
ernment should surprise no one. MBO systems are weakest when objectives
are complex and where environments are volatile and not readily segmented.
The management by objectives approach presumes that performance is a
function of knowing where an organization is going, of setting objectives to
be met by managers, and of devolving to those managers the power to deliver.
For many government organizations knowing where they are going is only
part of the management challenge; they also must know how to get there, how
to arrive on time, and how to manage the impacts on a wide range of interest
groups.
Henry Mintzberg (1996) in an interesting critique of the application of
business principles to government argues that the relationship between indi-
viduals and government cannot be translated into a market with customers
and suppliers. Mintzberg argues that individuals are customers, clients, citi-
zens, and subjects. Each of these roles requires a different relationship with
government. Each requires different management responses from government.
He argues that business management can address some but not all of these
roles. In particular, he argues that accountability is more difficult to segment
and performance is more difficult to evaluate in government. While Mintzberg’s
approach begs the question of what we need government for in the first place,
the taxonomies he presents illustrates the dangers of applying business solu-
tions to the sorts of government problems which we identified earlier and
which this book seeks to explore.

High-Response Management
External pressures on both business and government are forcing organizations
to shorten cycle time. Shorter cycle times require an increased focus on the
 Lessons from Business 45

strategic management of both external changes and internal responses. In

business, the transition to high-speed management can often still occur within
broad business units. In government, cycle time management must address
both added value impacts and comfort zone impacts. The need to shorten
cycle time is not well understood in government. Solutions which attempt to
segment the management of these impacts within a cycle almost always
lengthen cycle time and increase the risk of failure.
The new management which is emerging in business has been described
by Donald Cushman and Sarah King (1994) as “high speed management.”
The new management which is emerging in government has been described
as “performance management.” The term performance management avoids
some of the confusion which now surround the idea of strategic management
but the concepts are similar. Cullen (1983), in an early discussion of the
subject, argues that deregulation in government is insufficient to deliver per-
formance or even to agree what performance might look like. Both these
management solutions are change-oriented, strategic, and focus on managing
and reducing traditional cycle times. However, there are major differences in
these approaches which relate to the contexts within which businesses and
government must manage.
New forms of accountability provided in the business sector by interna-
tional markets and international benchmarks for performance have been slow
to emerge in the government sector. Public administration tends to be re-
gional or national. Comparisons between government management systems
are complicated by the reality that models of government administration are
often culture and political system bound. Although benchmarks and product
comparison between markets are now being developed, they have seldom
been used to drive public sector evaluations of performance in the way they
have been used to drive business performance.

Differences between the Management Task

of Business and Government

There are important differences between the management mission facing

government and the management mission facing business. Exhibit 2.3. Man-
agement in Business and Government presents an overview of these differ-
ences. Key differences relate to the complexity of success criteria and the
three missions that most government activities must address.
Business sector organizations aim to seek out and exploit market oppor-
tunities. The criteria for success in accessing these markets and in achieving
overall financial results can usually be defined and linked to the management
approaches and systems required for success. By comparison, the missions of
the government sector are less directly linked to markets and involve success
 46
Exhibit 2.3. Management in Business and Government
Management
Variables Private Sector Public Sector

A VISION
Goals • Focused, opportunity driven, • Complex, problem driven, internally linked, subject to ongoing
externally linked, hierarchical adjustments as government responds to interest group pressures
Governability • Shareholder control exercised • Consensus and diversity driven, governments operate within a comfort
through directors and key managers zone and adjust implementation priorities to achieve this

TO
Planning and • Plans are a general mandate for • Plans focus on long-term government objectives

GUIDE GOVERNMENT REFORM

Control both action and evaluation • Short-term control is through detailed control of staffing budgetary and
• Control focuses on profits and purchasing inputs. Long-term control seldom looks beyond electoral
business results success or failure
Budgets • A vehicle for implementation • A vehicle for the negotiation of comfort zones and for demonstrating
and control respect for diverse needs
• A vehicle for managing complex allocative tensions
Communication • Development of common values, • Defusing problems, developing support for solutions
communicating change, • Maintenance of comfort zones
evaluation of results
Core • Strategic, performance and results • Delivery of services within the constraints generated by budgets and
Management oriented comfort zones. Equality of treatment
Values • Key success criteria business • Key success criteria—complex, non-market driven success criteria,
success avoiding failure, maintaining support for government
 Lessons from Business 47

criteria that are more complex than those addressed by business. The success
criteria for government organizations are more complex. Measurement is often
difficult. Objectives tend to span each of the three missions of government:
competitiveness, social value, and governance.

MANAGEMENT SOLUTIONS FOR GOVERNMENT

Who’s to say whether Osborne and Gaebler have it right (I think
they mostly do). The point is that government—in America,
Japan, or France—hasn’t been reinvented, and the world of
commerce mostly has (though the task is far from finished).
—Peters, Liberation Management
To understand the new solutions which are emerging, it is useful to first
examine the breakdown of the traditional government management solutions.
Governments understand comfort zones and popularity. The first response to
unpopularity is to buy popularity with grand projects or pork barreling. The
prudent management of resources is usually a casualty in such affairs.
As governments were seen to increase debt and overspend, the focus of
accountability shifted to deficits on the current account. When it became
important to show that budgets were responsible and under control, govern-
ments used various creative accounting solutions to shift expenditures and
revenue, either off the balance sheet, or to the capital account. The very idea
of capital expenditure in government requires a good deal of examination.
Asset sales became a popular device, not for reducing debt, but for resourcing
further expenditure. Where governments were forced to balance budgets, the
various devices used to sustain expenditure became more apparent. The in-
ability of government to increase taxes reinforced the focus on government
efficiency. However, rather than focusing on reallocating existing resources,
adding value, and the costs and benefits of various initiatives, many cut back
exercises assume that by working harder, smarter, and less wastefully, gov-
ernment can deliver more services with less resources.
The dynamics of evaluation cycles compounded the problem in many coun-
tries. Sometimes the public perception of failure was deferred until long after
those involved knew they had failed. This led some governments to presume they
could escape electoral accountability. They confused a lag in the accountability
cycle with the idea that the public did not care. In other cases, short-run prob-
lems led to perceptions of failure which turned out to be false. This caused
some governments to feel that adding value was not worth the effort.
At the management level, evaluation tended to focus on compliance audits
with occasional attempts to evaluate benefits as well as expenditure. The
constant changes forced by governments, seeking to respond to new needs,
48 A VISION TO GUIDE GOVERNMENT REFORM

caused a breakdown of internal systems and a loss of institutional memory.

At the very time they needed to be looking outward and becoming more
strategic, government managers were forced to band-aid collapsing internal
systems and adjudicate on difficult downsizing decisions. Many senior man-
agers in government structures came to define success as survival.
Eventually, services were seriously eroded in many countries. In the end,
the public, faced with no benefits and an increasing tax bill, revolted. Gov-
ernments began the hard task of putting their houses in order, of rationalizing
functions, of addressing the need to target resources.
Few governments today believe they can tax their way out of trouble.
Some governments may put off the day of reckoning by selling assets and
resorting to various creative accounting solutions. Some governments still
seek to buy support without adding real value by managing various cross
subsidies and transfers. But, in the end, all must face the reality that expen-
diture and revenues need to balance and that government must be seen to add
real value. The most effective responses have been from governments that
have refocused in two important ways. First, they have focused on what is
critical to add value rather than what seems to keep constituencies happy.
Second, they have focused on what government can do rather than what it
should do on deliverable actions and impacts rather than on grand solutions.
Let us now turn to the management solutions that have added value to
government and consider how these solutions relate to solutions developed by
business?

Management Solutions That Have Been Applied to Government

The comparison of business and government management presented in Ex-

hibit 2.3 compares business values with traditional government management
approaches. However, government management approaches are also chang-
ing. Our examination of business and government management needs to also
examine the scope of these changes.
The major shifts in management between the traditional, functionally
driven, model, and the competitive government, performance driven, approach
are summarized in Exhibit 2.4. Transition from Traditional Government to
Competitive Government Management. Change means that governments can
no longer manage processes, or seek to survive by being efficient and avoid-
ing mistakes. They are expected to respond and to add value in an increas-
ingly dynamic world. One key to successful government reform is to focus
on overall performance and to measure results. Another key is to manage
short-term impacts to both add value and manage impacts on various interest
groups. Business management has already made this transition, government
Exhibit 2.4. Transition from Traditional Government to Competitive Government Management
Traditional (Function Driven) Government Competitive (Performance Driven) Government
Management Management
Effective Government
• The government role is to supply services and infrastructure, • Effective government is government that adds value by
fund these operations from users and taxpayers, and provide delivering improvements in competitiveness, social value, and
an environment where persons are treated equitably and governability relative to other countries.
business can develop. • Performance focuses on desired impacts.
• Unless government is failing, it is presumed to be working. • Evaluation focuses on short-term impacts and relative
• Evaluation cycle dominated by government budget and performance.

Lessons from Business

election cycles.
Business / Government Roles
• Government sets the business environment. The business • Government and business need to work together to improve
role is to generate national competitiveness. national competitiveness.
Resources
• Government budgets and legislative mandates are used to • Resources are a management variable.
control allocations and drive priorities. Performance is seen • Performance is a function of delivering results on time and
as a function of spending allocated resources. within budget.
Cycle Time Management
• The management task is to fit management needs into preset • Cycle time management is a key variable to managing the
cycles. The emphasis is on queuing customers to fit these impacts of change and reducing the comfort zone tensions
preset cycles, reducing risk and increasing efficiency. created by change.
Communication
• The key communication task is to take the credit for national • Cycle-based and proactive communication
progress and to respond to failure by either denying or • Impacts are managed as part of a delivery and communication
obscuring it. Where problems must be recognized, the strategy. Expectations and benefits are managed throughout
communications task shifts to simple dramatic solutions the government planning and implementation cycle.

49
which defer evaluation.
50 A VISION TO GUIDE GOVERNMENT REFORM

systems have not. Traditional government system managed inputs and some-
times the input conversion process. The presumption was that the perfor-
mance of the whole was a measure of the performance of all the parts.
Ideas about effective government are shifting. Traditional government
sought to manage through rules and funding allocations within which ser-
vices are not only regulated and provided, but also society’s problems are
somehow resolved by more government spending. Competitive government
seeks to be a catalyst for change, to work with other parts of a society to
improve national competitiveness, to address emerging social challenges, and
to maintain the scope to govern.
To deliver this change, business / government roles need to shift from gov-
ernment as a provider of support services and subsidies to government as a
partner in the change process. The new challenge is how the leveraging of busi-
ness and government resources and skills improve national competitiveness.
The resource management challenge has shifted from raising revenue to
ensuring that growth is allocated to areas of priority in order to reduce expen-
diture, to match global competitors, to reduce traditional expenditure levels
and change priorities, and to address new social values and priorities. Allo-
cating reductions rather than growth is a challenge for government systems
which seldom cost transactions or results. The solution is to shift to results-
based budgets and to identify the real cost of government transactions. This
transition is perhaps the most demanding aspect facing governments seeking
to remain competitive.
Government management is shifting from fixed cycle times supported by
segmented functions and queues which often extend in times of cut back to
flexible cycle times supported by task-based value-chains which can be man-
aged by agencies. The key to many of these changes is to decentralize re-
source management, to encourage agencies to raise revenue as well as spend
it, and to use project mandates to negotiate the scope required to deliver key
change results.
Finally, the communication task in government needs to shift from claim-
ing the credit for successes and obscuring the responsibility for failures to
assisting government to deliver results and manage impacts in order to deliver
a public perception that changes have added value.

Performance Management
We have discussed the changes in business management which have assisted
business to respond to external change. Much of the rationalization of the
1980s can be seen as providing business organizations with a new focus not
only on markets, and on changing value-chains, but also to focus on the
delivery of product to market.
 Lessons from Business 51

The difficulties experienced by government managers in addressing these

same issues flow largely from the complexity of objectives, the tendency to
focus reform in government at the level of process and subunits, and because
some government managers see the role of government as fixed and indepen-
dent of the external changes we have discussed.
We have considered the need to adapt business solution to meet the
demands on government systems to manage performance and comfort zone
impacts at the same time and to manage cycle times. Performance manage-
ment is an approach to the management and evaluation of government activi-
ties which addresses the twin problems of complexity and the time span of
evaluation which bedeviled attempts to modernize government management.
The specific frameworks which can be used to focus and evaluate gov-
ernment performance are discussed in chapters 4, 6, and 8. Exhibit 2.5. Per-
formance Management Framework for the Identification of Objectives outlines
an approach to the planning and evaluation of a transition to competitive
government which is discussed in detail in chapter 7. Three elements of this
approach illustrate how government management can provide a focus for
management performance and evaluation that enables government to use
various business management tools successfully.

Objectives

First, the complexity of objectives is addressed by differentiating key objec-

tives from support objectives or general management objectives. Where ob-
jectives are complex, the first step in providing a performance focus is to
define the critical objectives which an agency or a government must achieve
and to separate these from other worthwhile objectives, which exist to support
the achievement of these core objectives.

Cycle Impacts
Second, the time span of evaluation is reduced by managing short-term cycle
impacts. Performance-based planning systems translate objectives into specific
short-run impacts which can be monitored and evaluated. The idea of fore-
casting and monitoring short-term impacts is relatively rare in government.
Reform usually manages either the big picture or inputs.

Evaluation
Third, evaluation starts with impacts and then moves to examine the conse-
quences for strategies and long-term objectives.
52 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 2.5. Performance Management Framework for the

Identification of Objectives
Key Objectives:
What are the core strategic objectives that must be met for the unit to be successful?
How do these objectives relate to overall external changes and pressures?
What specific strategies have been adopted to address these objectives? Are they
likely to be effective?
What are the major threats to successful implementation?
What impact can be expected over one, two, and three years?
In the case of national government, the three key objectives relate to the role
discussed earlier: increase national competitiveness; add social value; and maintain
or improve governability.
Impacts include improvements in national competitiveness ranking, successful re-
sponses to specific threats and opportunities, improvements in social value measured
against benchmark countries, successful responses to threats raised by change, and the
avoidance of political gridlock, at least in respect to key measures.

Support Objectives:
What are the key support activities which the unit must address in order to meet the
core objectives?
What specific contribution is required? What is the likely impact on key objectives of
failing to deliver the support activity?
What impacts are expected over one, two, or three years?
In the case of national government, the support objectives relate to the functions
managed by government: business services and infrastructure; community services
and infrastructure; market access and regulation; taxes and tariffs; checks and bal-
ances; workskills and access to employment; government business leverage; and re-
source balance.
Impacts include government functions seen to be competitive relative to selected
benchmark countries and seen to be supporting rather than retarding key transitions.

General Management:
What are the general management functions required to support effective change?
What is the strategic fit between these priorities and the structures systems and staffing
available to the unit?
What is the agenda for change?
What specific contributions are required to the delivery of core objectives?
What improvements are expected over the next one, two, or three years?
How will these impact the delivery of core objectives?
In the case of national government, the general management functions are defined
as: strategic leadership; cycle-focused management and communications; performance
management; comfort zone management; and results driven resource management.
Impacts include the removal of management systems which are unable to manage
change, the successful introduction of specific management reforms, and the coordi-
nation of the timing of these reforms with the requirements of a particular national
transition.
 Lessons from Business 53

High Response Management and the Role of the Legislature

Ronald C. Moe (2000) argues that the emphasis on autonomy and results can
conflict with the role of the legislature and the rule of law. It seems to us that,
while Moe is right to identify the weakness in control and the impact on the
traditional role of the legislature in the U.S. reforms, he is wrong to assume
that the needs of the legislature necessarily conflict with the emphasis on
impacts and results. The rhetoric about results often obscures a reduced
emphasis on strategic results and a reduced accountability to both the legis-
lature and the executive. The problem flows from attempting to use business
management modes without working through ideas about performance.
The conflict between the freedom to manage and deliver results and the
rule of law depends on how results are defined, who defines them, and whether
the interface between the legislature and the executive are treated as a battle-
field or as part of the reform process. In the end, both the legislature and
executive government managers are interested in defining and achieving results.
Both are part of the process of managing impacts on various interest groups.

IMPLICATIONS FOR THE REFORM

OF GOVERNMENT MANAGEMENT

Later chapters of this book will examine new solutions for the reform of
government management in detail. The objective of this chapter is to review
some of the ideas about business and government management which under-
pin our analysis. Several important lessons for public sector reform can be
drawn from this analysis.
First, while governments can learn from business, they cannot be man-
aged as a business. Business managers are perhaps a decade ahead of govern-
ment in addressing the need to rationalize and respond to new global realities.
However, there are important differences between the way in which business
organizations and governments manage. These differences become more
important when roles are changing and government is seeking to adopt ap-
proaches and systems for the management of change which have been devel-
oped by business.
Second, governments can learn from business how to move the focus
of management from internal to external realities. Traditionally, government
management reform addressed the internal symptoms of breakdowns by
fine tuning processes, structures, and roles. Management reform needs to
start with an analysis of external change and the changing role of govern-
ment instead of assuming that this is either static or that it can emerge from
54 A VISION TO GUIDE GOVERNMENT REFORM

a series of micro-reforms, which are usually focused on internal segmenta-

tion and structures.
Third, although both sectors use plans and budgets, they use them differ-
ently. The plans and budgets developed by government do not provide the
simple guides to action required to drive conventional strategic management.
Attempts to convert them to this end will tend to destroy the political consen-
sus required to support change in a complex system.
Fourth, although both sectors have identified the need to devolve power,
government devolution must not only address complex performance issues,
but also the need to manage comfort zones and diversity. Conventional at-
tempts to centralize the management of comfort zones and decentralize the
management of service delivery presume that the fit between these systems
can be maintained. The result is often a complex shared accountability which
fails to add value and often creates new comfort zone tensions. In addition,
the public apply different criteria of fairness to government agencies than
they do to business agencies.
Fifth, the techniques for managing comfort zones, including respect for
differences and a focus on solutions offering specific rather than common
values, are key to successful public sector management. Although these tech-
niques are not part of most business solutions, they can often be added.
Where business solutions cannot be adapted to manage complexity and com-
fort zones, transplantation runs a high risk of rejection.
Sixth, before the government sector can benefit from new approaches to
management, it must change values which have served it well enough in the
past but which are now dysfunctional. Examples include the following: the
idea that short-term control can focus on inputs; the assumption that narrow
specialist functions, effectively performed will enable government to both
manage change and address the changing role required of it; and the belief
that success criteria can be driven by survival, by not making mistakes, and
by massaging comfort zone issues without adding real value to the govern-
ment equation.
Seventh, government management reform must also adapt and build upon
particular national and regional political systems. Many of these systems
separate the powers of the legislature, the executive, and the judiciary. The
operation of these frameworks has changed over time and can be expected to
continue to adapt. These structures provide important checks and balances;
they provide important links which focus relationships between interest groups
and executive government. It is important to manage the impact of reform on
these systems and to recognize that many of the business solutions ignore this
particular reality.
 Chapter 3

The Management of Transitions to

National Competitiveness

My theory then highlights and reinforces the importance of

differences between nations and of differences in national charac-
ter. Many contemporary discussions of international competition
stress global homogenization and a diminished role for nations.
But, in truth, national differences are at the heart of competitive
success.
—Porter, The Competitive Advantage of Nations

If Michael Porter is correct in emphasizing the importance of differences,

and most studies of national and enterprise competitiveness support the
idea, then we might expect these differences to impact on the scope and
nature of competitive government in particular countries. Yet much of gov-
ernment reform pursues common solutions and outcomes. Such reforms
presume increased competitiveness rather than assist this to occur. Even
where differences are examined, they tend to be differences in political
structures, values, or in the provision of support services, rather than
the differences Porter sees as important to the management of national
competitiveness.
In chapter 1, we discussed the need for nations to respond to new global
pressures by managing a transition to competitive government; we suggested
that different national transitions required different contributions from gov-
ernment. It is the purpose of this chapter to analyze national transitions from
the viewpoint of the role of government. We use a National Competitiveness
Model to differentiate national transitions and examine the impact on several

55
56 A VISION TO GUIDE GOVERNMENT REFORM

key management variables. We then examine several different transitions and

compare the model predictions with a brief examination of actual transitions.
Finally, we conclude by reviewing the implications of this analysis for the
reform of government management.
The idea that a nation’s affairs are managed and that this management
can be evaluated does not depend on the existence of some central form of
executive power. In an interesting examination of marketing nations, Philip
Kotler, Somkid Jatusripitak, and Suvit Maesincee (1998) conclude that each
nation needs to find strategies to manage and deliver competitiveness. They
suggest that nations need to develop “a continuous self correcting process that
consistently considers where a nation is heading, where it wants to be head-
ing, and how best it can get there.” The reality for many nations is that
national performance and national competitiveness is a shared responsibility.
Individuals, companies, and governments work together to deliver results.
Clearly, some governments have responded faster and more effectively
than others. Most responses are driven by some sense of crises combined with
a focus on internal impacts and values. We argue that, to be competitive,
government needs to address two priorities. First, government needs to
strengthen its capacity to understand the external pressures which create or at
least contribute to most of the crises experienced by nations and regions.
Second, government needs to develop policy and management platforms to
enable a nation or region to respond competitively to these external pressures
and the opportunities they provide.
Whatever particular national transition is involved, a government needs
strategies to address the key roles discussed in chapter 1; a competitiveness
strategy, a social value strategy, and a governance strategy. Because each of
these strategies is interrelated, attempts to focus governments on partial roles
that leave out one or more of these strategies tend to create more problems
for national performance than they solve.
Most political processes work to focus government management on pro-
cess, on partial impacts, and on damage control. Yet the public is learning to
cut through the rhetoric and hold governments accountable for outcomes.
This accountability is reinforced by the reality that governments, only too
ready to claim the credit for success, have difficulty abdicating responsibility
for failure. We argue that the performance of governments can be evaluated
in terms of outcomes rather than processes, plans, and promises. Either a
country becomes more competitive than others or it does not. Either a country
manages the social impacts of change better than others or it does not. Either
key interest groups are willing to provide a government with the scope to
govern or they are not. As the information revolution provides information on
the performance of other countries, it is becoming easier for the public and
for key interest groups within each nation to make simple judgments about
progress. And they are doing so.
 The Management of Transitions to National Competitiveness 57

Exhibit 3.1. National Competitiveness Model

HIGH RESPONSE
Strategic Management

ss

Str sult term g-te

ext ited titiv cus

Re or t- l lon
ern by ene

Sh ntro lity
ge

ate s
co xibi
lim mpe al fo

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ch
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Ex

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SS

ate
NE

gic
VE

MA ency s
s
su ited titiv cus

Eff bject m wi ent

es
ITI

O ste gem ion

NA
b-u by en

Sy a pt

ici ive de
ET
lim pe t fo

ma exc
us

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foc
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nit
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lve

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Regulated transition

ol, tha it au
itio
ss

De lf-co l fra rs su
Se ntro elive omy
slo ited titiv us
w r by ene

vo ntr me b-
lim mpeal foc

o d on
e

lut ol wo
un
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ion
po
Co tern

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t
In

Development transition

Deregulated transition rk

HIGH PRODUCTION HIGH AUTONOMY

Central Planning Devolution
GOVERNMENT
Hierarchical— Flexible— Hierarchical—
government setting government and business sub-units
overall priorities and business resources setting priorities
regulating delivery leveraged and government
supporting
business performance

In this chapter, we will examine four different transitions to competitive-

ness and discuss the ways in which countries have sought to develop the role
of government to support such transitions.

A MANAGEMENT FOCUSED NATIONAL

COMPETITIVENESS MODEL
Models developed to analyze organizations can be applied to the management
of regions, nations, and groups of nations. Exhibit 3.1. National Competitive-
ness Model presents a model which can be used to explore the differences
discussed by Michael Porter in terms of different transitions to national
competitiveness. The National Competitiveness Model is based on three
propositions.
58 A VISION TO GUIDE GOVERNMENT REFORM

• An evaluation of the management of nations and their relative com-

petitiveness can be used to inform debates about government perfor-
mance. Government needs to be evaluated in terms of whether national
competitiveness is increasing and whether government explicitly has
added value to that process.
• Nations are managing strategic transitions to accommodate new exter-
nal realities. Effective responses to current external pressures generally
involve trade-offs which shift national management towards the high-
response model.
• These solutions are best seen in terms of transitions within a con-
tinuum of management responses bounded by three basic modes of
national management: high-production, high-autonomy, and high-
response.

The Competitiveness Model framework explains differences between

nations in terms of different transitions within a model bounded by three
limiting modes of national management: high-response, high-autonomy, and
high-production. Each transition is a function where a nation is placed in the
model and where it seeks to move to. Within this overall framework, nations
can begin the process of managing transitions and of optimizing their perfor-
mance. And government reform must be adjusted to add value to these dif-
ferent transitions.
These three limiting modes do not define three separate types of manage-
ment but a continuum within which the management changes can be de-
scribed and within which the mix of management variables must be optimized.
Although this discussion presumes that variables and shifts in variables can
be considered as a point on a two-dimensional model, the model also can be
developed to explore other variables and to dimension more complex rela-
tionships, for example, by forecasting ranges within which variables can com-
bine, or more properly areas where variables cannot combine.
Before globalization, nations tended to evolve toward either the high-
autonomy or the high-production mode. The United States and Russian econo-
mies of the 1970s are good illustrations of each option. However, we argue that
the external factors discussed in chapter 1 have rendered this traditional produc-
tion—autonomy dichotomy ineffective. Great wealth or great production ca-
pacities no longer ensure success in a world where global pressures are daily
relocating employment and value between nations and regions. Nations today
need to move towards the high-response mode or surrender competitiveness.
Competitive government must support a nation’s transition to the high-
response mode. Government needs to respond rapidly to external changes; it
needs to act to assist businesses to compete effectively. Yet government sys-
 The Management of Transitions to National Competitiveness 59

tems have been painfully slow to respond to even simple new needs. Re-
sponses, when they do occur, tend to be bound by past assumptions and
precedents.
We argue that there are powerful systemic reasons why governments
have been slow to respond. Much government reform remains focused on
second order issues such as efficiency, budget balancing, and accountability.
Many government reforms are designed independently. This segmentation
often acts to restrain rather than support competitiveness.
Also, the implications of national competitiveness transitions for govern-
ment differ depending on the starting point. Moving from high-production to
high-response requires planning and regulation to shift from an internal focus
to an external focus. Moving from high-autonomy to high-response requires
an increase in strategic planning to focus national resources on external is-
sues. Both transitions impact on the comfort zones which enable governments
to govern as do attempts to postpone change which also threaten national
wealth and a nation’s capacity to resource its development and value system.
Four transitions are shown in Exhibit 3.1.
A development transition, which seeks to build competitive production
capacity and uses this as a base for managing a transition to competitiveness
through high-response, is to the left and upward on Exhibit 3.1. Although
each has chosen a very different government response, Japan and Singapore
are examples of countries embarked on this type of transition.
A deregulated transition, based on the development of competitiveness
through high-response by deregulating and introducing market forces to vari-
ous centrally planned economies, is to the right and upward on Exhibit 3.1.
The changes in Eastern Europe are examples of this transition. Within the
former eastern bloc countries, governments have chosen different responses
and some countries have been far more successful than others.
A regulated transition, which is based on the belief that external mar-
kets are best exploited by competitive businesses operating in a relatively
regulated internal environment, is a vertical transition on Exhibit 3.1. Regu-
lation strategies address internal market access, value system, equity issues,
and are developed to accommodate differences and competition. The Euro-
pean community reforms are an example of this type of transition. Within this
community the role of companies, nations, and governments are shifting.
A devolved transition, which is based on devolution and the empower-
ment of subunits, is an upward transition from the high-autonomy position on
Exhibit 3.1. The United States has followed this transition successfully in
recent years. Preconditions for the success of this strategy include: strong and
effective subunits; a degree of shared interest between those units and the
national interest; and systems of values and regulation that ensure a degree
of transparency and embrace competition as a non-negotiable value.
60 A VISION TO GUIDE GOVERNMENT REFORM

These different transitions will be discussed later. Each presents different

change issues and requires different responses from government. These dif-
ferent government responses require different government management tools
and processes.
Before we use the Competitiveness Model to examine these transitions,
we will discuss the six variables which are contained in the Model and then
review the assumptions that we have made to construct the model.

Management Variables Used to Map Transitions

Each of the variables identified in Exhibit 3.1, differentiates one or more of
the three modes of national management. Three variables, competitiveness,
government, and management, differentiate all three modes of national man-
agement. The remaining three variables, “response,” “autonomy,” and “pro-
duction” differentiate one mode of management from the other two.

Competitiveness
The competitiveness variable refers to the key strategies used by a nation to
deliver competitiveness. These range from the low-cost, high-efficiency pro-
duction strategies for competitiveness, which characterizes the high-production
mode to the reliance on subunit performance, which characterizes the high-
autonomy mode to the external focus and high-response strategies, which
characterizes the high-response mode.
The transition from production priorities toward subunit autonomy is a
well-documented transition for business seeking to respond to complexity.
Increasingly highly centralized government systems are also breaking down.
The challenge for government management is first to ensure that enterprises
are provided with a competitive environment and second that those busi-
nesses contribute national value as well as business value.
The transition from high-autonomy to high-response solutions requires a
capacity for strategic interaction between business and government. This
capacity is weakened by some transitions to high-autonomy management.
From a management viewpoint, the difficulty with high-autonomy solutions
is often to be found in the processes prescribed to deliver autonomy. Where
these processes are driven by the view that the key to autonomy is uniform
government responses supported by market processes, the capacity of govern-
ment to address change and to manage the challenges presented by diversity
can be seriously eroded.

Government
Government must develop three strategies to support transitions: a competi-
tiveness strategy, a social value strategy, and a governability strategy. Any one
 The Management of Transitions to National Competitiveness 61

of these strategies alone would present government with a relatively simple

management challenge. But competitive government must manage all three
together. This requires government managers able to not only manage the
inherent tensions between these three strategies, but also extract synergies
from the interrelationships involved.
Government needs a national competitiveness strategy which is viable.
The ways in which government and business interact to deliver the competi-
tiveness strategy differ. Transition strategies range from government driven to
business driven. Between these two extremes is flexible leveraging of govern-
ment and business resources to add value to national competitiveness.
The social impacts of change differ for each of the three modes of
management. The impacts for the high-production model are often growth in
employment and a focus on training. The impact of reductions in autonomy
are offset by expectations of future benefits. The impacts for the high-autonomy
model are the need for government to minimize the threats posed by the need
to treat people and groups differently and the need to manage the threats to
social value posed by change. The high-response model must manage change
impacts and comfort zone impacts directly through shorter cycle times and
cycle impact management. The rewards are the benefits of competitiveness.
One threat with the transition to high-response management is the impact on
the fragile balance of internal comfort zones which enable governments to
act. A longer term threat is that attempting to maintain internal comfort zones
by delaying response can cause a nation to slip down the competitiveness
pole with consequential reductions in national wealth and a reduced capacity
to fund the maintenance of a nation’s value system.
The threats for governance are different in each mode of management.
The threat for the production mode is that people will demand more au-
tonomy and wealth than a nation can generate. The threat to the high au-
tonomy system is that change is seen as an erosion of the comfort zone and
a threat to the interests of diverse groups. Governments that attempt to ignore
the threats posed by diverse interest groups are likely to further compound the
problem. Governments that become so preoccupied with addressing these
conflicting interests inevitably take their eyes off the main game which must
be national competitiveness.

Management
Management refers to the way in which a nation coordinates the performance
of a subunit to deliver national objectives. Management strategies range from
the low-power management by self-control strategies of the high-autonomy
mode to the management by exception techniques, which characterizes the
high-production mode to the strategic management by results approach re-
quired to support the high-response model.
62 A VISION TO GUIDE GOVERNMENT REFORM

Control options depend to a large extent on the culture of a nation and

on the trust and objectives of key subunits. Government management must
reflect these factors. Government can also manage these factors. In an inter-
esting analysis of the impact of national cultures on economic performance,
Francis Fukuyama (1995) agues that trust between subunits differs between
cultures. He argues that high-trust countries can support the development of
large-scale organization and the interaction of subunits more effectively than
low-trust countries. While these cultural differences may limit the competi-
tiveness of nations, our analysis suggests that the primary impact will be to
alter the national management strategies required to be competitive. Transi-
tions are likely to differ between high trust and low-trust countries. The role
and challenge of government also differ.

High-Response
High-response government monitors respond to external changes. The objec-
tive is to position a nation in order to exploit external opportunities and
optimize national benefits. The high-response mode focuses on generating
wealth by exploiting external opportunities. In order to respond strategically
and to shorten cycle times, nations must trade-off some production efficiency
and some autonomy.
The government focus is on flexible business government relations that
support external competitiveness and on strategies to maintain comfort zones
by addressing change impacts and ensuring that social as well as economic
value is added as competitiveness increases.
The challenge for government is first to reform old systems and reduce
cycle times to remove restraints on business performance and then to move
beyond this stage to add value to that performance. The flexibility required to
provide strong leadership on selected issues, while providing business with the
scope to address many other issues, reduces certainty about government roles
and impacts. The challenge for government reform is to develop management
systems which can add value while also maintaining support for change.
The high-response management focus is external and strategic. Manage-
ment systems need to provide short-run control without reducing the need for
longer-term flexibility. Management needs to understand short-run cycle
impacts on diverse groups and manage them effectively.

High-Production
The high-production mode seeks competitiveness through low cost produc-
tion and access to markets. This involves trade-offs with both autonomy and
response. Autonomy needs to be limited by the needs of production processes.
Responses to external changes need to be limited to protect core production
technologies and performance.
 The Management of Transitions to National Competitiveness 63

The government role is often to set overall priorities and to regulate

delivery. This often involves central planning solutions which provide a frame-
work within which businesses and government priorities are coordinated to
optimize production.
The role of government is to buffer the system from external pressures and
to develop a culture able to support production priorities. In order to fully exploit
this mode of management, nations need to trade-off both response and autonomy.
Comfort zones are usually maintained by delivering employment out-
comes for the population and by ensuring that the wealth created by low-cost
production benefits those who enable government to govern.
The management focus is on efficiency, goals and objectives, and on
management by exception. However, the objectives are almost always a mix
of grand plans and a short-run internal focus on processes and functions.

High-Autonomy
The high-autonomy mode optimizes the autonomy of subunits and relies on
these units to adapt, respond, and deliver wealth. To fully exploit this mode,
nations must trade-off both efficiency and response.
The high-autonomy model works spectacularly well, and the trade-offs
are limited, when there is an effective fit between the priorities of subunits
and of the nation. However, attempts to alter the priorities of subunits tend to
be seen as eroding autonomy and are often resisted. The challenge is to gain
the benefits of high-autonomy within a framework of priorities which can
coordinate effective responses.
The government focus is on providing infrastructure and services and
providing a regulatory framework, which defines and protects autonomy.
Equality of treatment between citizens and companies is usually a value
which underpins the operation of high-autonomy systems. The national man-
agement focus is on deregulation and devolution and assumes that subunits
will deliver. Within major business units the management focus is often high-
response and strategic. However, business units need to work within a frame-
work which protects overall high-autonomy values.

AN ANALYSIS OF FOUR DIFFERENT TRANSITIONS

The emergence of a post-industrial, knowledge-based, global

economy has undermined old realities, creating wonderful
opportunities and frightening problems. Government large and
small, American and foreign, federal and state, have begun to
respond.
—Osborne and Gaebler, Reinventing Government
64 A VISION TO GUIDE GOVERNMENT REFORM

A number of authors have undertaken comparative analyses of changes in

national competitiveness. Unfortunately some of the more thoughtful are al-
ready out of date, bypassed by developments in Europe, by the strong recov-
ery in U.S. competitiveness, and by the more recent global financial crises.
Paul Kennedy (1987), James Laxter (1989), and George Sorros (1998) all
attempt to explore the reasons for changes in national competitiveness. Michael
Porter (1990) presents a more rigorous analysis of competitiveness in selected
countries.
While the causes of changes in global competitiveness are complex,
these and other studies demonstrate three realities which we need to ex-
plore. First, there is massive change underway which means that old solu-
tions are no longer enough to maintain national wealth and competitiveness.
Second, the prerequisite for both business and government success is chang-
ing and a country that does not share in these developments will access a
reducing share of future world resources. Third, the priorities for govern-
ment reform must differ, because nations are embarking on different tran-
sitions to competitiveness. Four different transitions, outlined in Exhibit
3.1, are now used to explore the implications of these differences for gov-
ernment management.

Development Transition

Development transitions are based on development models which create com-

petitive production capacity as a base for achieving high response. The devel-
opment transition, shown in Exhibit 3.1, is to the left and upwards on the
model. Exhibit 3.2. Development Transition summarizes the direction of change
for each variable during the first and second parts of the transition. There are
two parts to this transition. They include: a transition to high-production,
followed by a transition to high-response. The National Competitiveness Model
can be used to make a number of predictions about this twin transition. While
this transition delivers high value, it requires a shifting role for government.
The danger for government management is that the tensions between com-
petitiveness, social value, and governance strategies change as the transition
succeeds. Governments and the way they manage must change as the transi-
tion proceeds.

The Transition to High-Production

The Competitiveness Model suggests that this part of the transition involves
some reduction in autonomy and response and that they need to be supported
 The Management of Transitions to National Competitiveness 65

Exhibit 3.2. Development Transition

Variable Change
Response – +
Production + –
Autonomy – 0
Competitiveness 0 +
Government + –
Management + +

by an increased role for government and management. The transition to high-

production is often part of the initial wealth creation for an underdeveloped
economy. Such transitions seek to exploit low labor costs or natural resources
as a source of national advantage. The critical change strategies for govern-
ment must address three issues.
First, a production transition involves an increased role for government,
increased power for managers, combined with reductions in individual au-
tonomy The strategy is normally driven by the desire for employment and the
benefits which become available to individuals. The major threat is that those
benefits will not be delivered either because external companies seeking to
exploit short-run market opportunities see an advantage in retaining benefits
themselves, or because citizens become too greedy to forego the consumption
which others in other countries enjoy.
Second, government must establish the preconditions for production. The
model suggests reductions in response which may need to be offset by buff-
ering the economy from external pressures. This can also involve protecting
domestic markets to subsidize initial development. In addition, high-production
requires access to world-class technology management and investment. Gov-
ernment needs to ensure that this is achieved under conditions which benefit
the nation as well the particular internal or external companies that seek to
exploit new expanded production opportunities.
Third, while most successful production strategies require long-term pri-
orities, the very success of initial change generates a need for further change.
Government must ensure that the nation develops a base for ongoing develop-
ment once the national wealth base expands. This requires government solu-
tions that guarantee sufficient benefits flow to the population at large to motivate
participation in ongoing development. Both excessive rewards and inadequate
rewards can destroy the viability of a development strategy.
66 A VISION TO GUIDE GOVERNMENT REFORM

Transition to High-Response
The second part of the development transition, the transition from high-
production to high-response, is critical to maintaining the benefits of produc-
tion and to continuing the process of wealth creation. The Competitiveness
Model suggests that the high-response part of this transition requires a rever-
sal, or more properly a major shift in the role of government. The Model also
suggests that high-response will involve some trade-off of production efficiency
for response. The production to high-response transition needs to focus on
external opportunities and on the flexibility to exploit them. Change strategies
to support this transition need to address four issues.
First, the change process is driven by the benefits of competitiveness and
wealth creation. There are four major threats. Significant interest groups may
opt for autonomy rather than competitiveness. Government, finding the short-
term centralized role required to develop and coordinate initial production
strengths attractive, may fail to recognize that this role must change to sup-
port the transition to the high response mode. Business may conclude that
production equates with competitiveness and that the management styles
required to improve production can also deliver competitiveness. Finally, the
process of devolution could erode the strategic focus required to ensure that
a nation with limited resources can achieve world competitiveness in selected
industries. Any of these threats can decrease competitiveness quite rapidly
and erode the capacity of the nation to deliver the public benefits which are
required to underpin ongoing development.
Second, governments often coordinate priorities in the high-production
mode. The move to high-response usually devolves to business units much of
the responsibility for scanning the environment and responding to new needs.
However, devolution will only produce long-term gains if the public interest
as well as private interests are met.
Third, governments need to ensure that the impacts of change and wealth
creation on social value are managed effectively. Old systems of income
distribution and safety nets are unlikely to prove adequate.
Fourth, governance depends upon the capacity of a government to mange
comfort zones. We will discuss later the complexity of these zones but clearly
government must address both internal and external comfort zones. Tensions
between internal and external comfort zones must be managed for the devel-
opment transition to succeed.

Development Transitions in Action

A number of the high-growth Asian economies have chosen this development
path. The initial development of high-production was based on a development
 The Management of Transitions to National Competitiveness 67

model that buffered external forces and focused internal development, built
large efficient companies with clear competitive advantages, and then used
those companies to access world markets.

Japanese Transition
Japan has used a development model to achieve many of the characteristics
of the high-production mode and then has developed high-response through
networks of multinational companies. The Japanese development model has
been discussed by many authors and from many viewpoints—see, for ex-
ample, Robert Christopher (1983), Aron Viner (1988), Jim Powell (1989), and
Eisuke Sakakibasa (1993).
The Japanese transition to high-response, while progressing, is encoun-
tering difficulties. The overall competitiveness index after outperforming most
nations for a decade is now in decline.
The ranking for the government factor graphed in Exhibit 1.3 is rela-
tively low and is also declining. Government in Japan has been slow to
recognize and respond to threats to competitiveness and to address emerging
social needs. This low ranking for government in part reflects the smaller role
of government and perhaps depreciates the importance of the business gov-
ernment interface in the Japanese system.
The Japanese transition includes some interesting and very effective
government/business roles. In particular, major companies provide some of
the services and comfort zone management provided by governments in other
models. The large multinational companies and clusters, which must deliver
high-response in the Japanese model, have encountered difficulties maintain-
ing their momentum. While this has allowed the scope of Japanese govern-
ments to remain more focused, these structures are now coming under some
pressure. Whether they can adapt to meet the needs of the high-response
mode seems a critical issue for the Japanese transition. Pressures to open
previously closed parts of the Japanese economy are likely to continue and
place further pressures on comfort zones. Peter Drucker (1999) suggests that
the Japanese system faces major problems in making the transition to self
management because of the dominant role assumed by companies in provid-
ing lifetime employment which he describes as organzied immobility. Drucker
argues that, in a world driven by knowledge values, companies will increas-
ingly be unable to deliver this traditional role.

Singaporean Transition
Singapore’s transition presents a simpler and interesting variation on this model.
We discuss the Singapore transition in more detail in chapter 6. Our analysis
68 A VISION TO GUIDE GOVERNMENT REFORM

of the Singapore transition draws upon the analysis by L. Low, T. Heng, S.

Wong, T. Yam, and H. Hughes (1993), and R. S. Sisoda (1992). As a modern
city-state, Singapore has been able to adopt strategies not available to larger,
more diverse nations. The Singapore transition relied on external multinational
companies whereas the Japanese transition developed home-based multination-
als. Singapore has retained a more direct government role in planning and
negotiating with multinational companies. The Singapore government has de-
veloped high-response strategic leadership capacities. Singapore ranks first on
the government factor graphed in Exhibit 1.3. We examine the leadership of
Singapore’s transition in more detail in chapter 6.

Impact of the “Asian” Financial Crises

This type of transition has been attempted by many underdeveloped coun-
tries. The effectiveness of government strategies in these countries was tested
by the recent financial crises which saw asset values decrease, exchange rates
fall dramatically, and international investors depart.
The early success of such transitions spawned many strange theories
about the role of government. Governance and wealth creation was assumed
to be automatic. Governments masked problems and allowed and sheltered
corruption at various levels. While wealth was expanding, these weaknesses
did not impact on comfort zones and governability. When the share of world
wealth available to many of these countries was reduced, comfort zones were
eroded, many governments moved into short-run paralysis, and some became
ungovernable.
In terms of out transition model, external groups forced responses from
all governments. Many of the external pressures were focused through IMF
prescriptions some of which had little to do with the underlying problems
they sought to solve. Nevertheless the tensions between these external pre-
scriptions and internal comfort zone issues were clear. For example, in Indo-
nesia, the nation became ungovernable.
A number of points can be made about government responses to the
recent “Asian” financial crises. Notwithstanding the setback, the progress
made by these countries is clear. They have increased their share of world
resources and they have established a base from which to proceed.
The conflicts between internal and external comfort zones, which are
apparent in Indonesia and Malaysia, was intrinsic to their approach to gov-
ernment and might have been avoided if the requirements of the second part
of the transition had been addressed earlier. While the difficulty which Indo-
nesia is experiencing in reconciling external and internal comports zones is
tragic for that country, those that see the problem as a simple reluctance to
respond misunderstand the internal tensions which must be managed.
 The Management of Transitions to National Competitiveness 69

The conflicts between external and internal comfort zones in Japan are
less obvious, because the external comfort zones tend to be internalized via
the Japanese multinational corporations. However, the tensions between these
companies driven by world markets and the requirements of the Japanese
domestic economy are growing. Restoring Japan’s competitiveness will re-
quire many reforms but most importantly it will require a new role for gov-
ernment that has yet to emerge.
Singapore, the Asian country which focused most on managing the con-
gruence of internal and external comfort zones has performed well through-
out this crises. Singapore already meets many of the external criteria now
being applied to its neighbors. Singapore has also developed a style of gov-
ernment which integrates national objectives with the objectives of multina-
tional companies effectively.
Finally, the analysis suggests that adopting the forms of government
management that work in developed economies is no solution for many of
these developing countries. The challenges facing these governments are dif-
ferent; government must manage a production to high-response transition;
and, to succeed, government must access ongoing growth rather than simply
protect a high-historical wealth base.

Deregulated Transition

Deregulated transitions are based on the deregulation of various planned

economies. The deregulated transition, shown in Exhibit 3.1, is to the right
and upward on the model. Exhibit 3.3. Deregulated Transition summarizes
the direction of change for each variable during the first and second parts of
the transition. The National Competitiveness Model can be used to make a
number of predictions about this type of transition. The deregulation dis-
cussed as part of the development transition can also be used to stimulate a
transition for economies which have not yet developed effective production

Exhibit 3.3. Deregulated Transition

Variable Change
Response 0 +
Production 0 +
Autonomy 0 –
Competitiveness 0 +
Government – +
Management – +
70 A VISION TO GUIDE GOVERNMENT REFORM

capacities. The Competitiveness Model suggests that increases in production,

response, and competitiveness will be accompanied by complex shifts in
autonomy. In addition, the transition needs to be supported by complex changes
in the role of government and the scope and power of management.
The strategy is driven by new external and internal market forces. It
assumes that business exploitation of these new opportunities will create
production strengths and benefit the nation. The model suggests that the role
of government is to dismantle regulations, open barriers to change, and en-
sure that competitive forces operate to force development. Government change
strategies need to address the following issues.
First, deregulation and the opening of markets needs to be motivated by
expectations that consumer needs will be met, shortages will be redressed,
and that employment opportunities will grow as new needs are identified and
met. The major threats to such a transition are that value will not be delivered
or that it will be delivered too slowly to be accepted by the bulk of the
population.
Second, government must manage a process of deregulation which es-
sentially requires the creation and maintenance of a vacuum. As business is
induced to fill this vacuum, government needs to support development and
finally work with business to achieve long-term improvements to national
competitiveness.
Third, the management of short-term impacts is a particular challenge for
this type of transition. Cycle time management suggests that unless value is
delivered relatively quickly there will be negative impacts on comfort zones
which could force a regression to regulation or to consumption funded by
debt or the sale of national assets to foreigners.
Fourth, government must manage fluctuating pressures on the external
account and on the currency which will tend to destroy the short-term support
for change. A newly deregulated economy can be expected to attempt to
import goods that it is not yet able to produce. Such a nation is likely to look
to produce cheap exports to offset these imports. Government needs to man-
age the impact of these developments on the external account without de-
stroying the very deregulation they seek to use to fuel development.

Eastern European Transitions

Interesting examples of both the success and failure of this particular transi-
tion can be found in recent attempts to reform various centrally planned
Eastern European nations. While these transitions are as yet incomplete, a
number of authors, for example D. F. Abell (1992) and Anrej Kozminski
(1995), have discussed some of the issues emerging from these transitions.
 The Management of Transitions to National Competitiveness 71

The centrally planned economies of Eastern Europe were buffered from

external forces. While central planning developed some production strengths,
it generally failed to establish the preconditions for ongoing improvement and
international competitiveness. The twin requirements for maintaining com-
petitiveness—environmental scanning, and international benchmarking—were
seldom developed. The focus tended to be internal.
Recent transitions have opened these economies to internal and external
market forces. The results have been sadly predictable. The strategies of
benchmarking industry development, which the Asian model used, do not
seem to have been employed. Instead, privatization programs and open mar-
kets were presumed to be the way to increase efficiency. Often, the focus on
evaluation and infrastructure support that worked so well in Asia was not
present. The key multinationals required to generate wealth in a high-autonomy
model did not exist, and strategies to harness existing multinationals to na-
tional priorities appear to have met with only limited success.
The transitions have focused on increasing autonomy without increasing
production. They have dismantled many of the barriers to change which
bedeviled the central planning model, but they do not appear to have im-
proved the capacity of these nations to respond to external changes. So far,
the transition seems to have moved horizontally on the model but not verti-
cally. Whether the current crises experienced by these transitions will provide
the basis to develop production and response strengths in these economies
remains an open question. Some countries appear to be improving competi-
tiveness; others look to be regressing to the old central planning models,
which will reduce competitiveness over time. The role of government and the
approach taken to public sector management is likely to prove critical for
many of these transitions.

Regulated Transition

Regulated transitions are based on regulated expansion and internal develop-

ment. The regulated transition, shown in Exhibit 3.1, is upward on the model.
Exhibit 3.4. Regulated Transition summarizes the direction of change for
each variable during the first and second parts of the transition. The National
Competitiveness Model suggests that the transition to high-response mode
need not be associated with increases or decrease in autonomy provided that
the production base is strong. The regulated transition increases response and
competitiveness and reduces production and autonomy. The transition re-
quires a strengthening of the role and power of management but little change
in the role of government. The role of government in such transitions is to
72 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 3.4. Regulated Transition

Variable Change
Response 0 +
Production – –
Autonomy – –
Competitiveness 0 +
Government 0 0
Management 0 +

assist business, to coordinate market impacts, to minimize disruption to indi-

viduals and interest groups. Such a transition needs to address several issues.
First, the transition is driven by the need to increase competitiveness
within existing structures and regulatory frameworks. The risk is that these
regulatory structures will buffer business enterprises from the pressures for
change. Regulation is counterproductive if it eliminates the pressures on
business for the changes required to be world competitive. In addition, the
transition, by focusing inwardly on regulation may insulate the system from
underlying external changes at least until competitors have exploited them.
Second, while the lack of change in the role of government may remove
uncertainty and provide a base from which to manage the transition, it also
leaves in place many of the pressure groups most likely to resist change. In
addition, the ongoing preservation of existing frameworks can complicate the
task of changing the underlying focus of regulation that is required to stimu-
late business competitiveness.
Third, the reduction in autonomy required to support this transition is
likely to impact severely on comfort zones which focus on rules, regulations,
and comparative internal impacts. The risk is that government will respond to
pressure either too slowly or reverse the change.

EC Transitions
The Western European experience provides interesting examples of attempts to
pursue this type of transition. The Western European transition is both diverse
in the sense that different nations within the EC are embarked on different
transitions, and incomplete in the sense that major changes are still underway.
Many articles provide a contemporary view of these changes, see, for example,
The Economist (1993) and (1994). Ole Borre and Elnore Scarebrough (1995)
explore the implications of these transitions for government.
The Western European experience is characterized by a tradition of cen-
tral government and planning, and by attempts to maintain the more tradi-
 The Management of Transitions to National Competitiveness 73

tional role for government. While the role of national governments is chang-
ing, many of the traditional government roles are simply shifting to the Eu-
ropean Community (EC) level. The development strategy has been to buffer
national economies from external, particularly non-EC forces and to develop
consensus through central planning while reducing national barriers. Like the
development transition discussed earlier, the transition sought is to the left
and upwards on the model, at least at the overall EC level.
There are parallels and differences with the development-based transi-
tions discussed earlier. The aim of development is similar; however, the focus
for subunit development is different. In the European model, the focus is at
least in part national rather than industry-based. The issues of consensus
management and comfort zone management, which must be addressed to
manage such a transition, are clearly more difficult than for the various Asian
development models.
The model can also be applied to particular nations within the EC. Ex-
pansion of markets and competition generated by opening up internal borders
offers major opportunities. Consensus at the national level tends to involve
government unions and business. The United Kingdom under Mrs. Thatcher
arguably severed many of these constraints and moved to a high-autonomy
model. Germany and France retained a centralized model. While the German
model appears to focus on a negotiated public sector—private sector inter-
face, the French model retains more of the characteristics of the traditional
government planning and regulatory model. In addition, the breakdown of
barriers to the Eastern European countries represents both a major opportu-
nity and a major threat to the transitional consensus process.
There are interesting issues raised by the United Kingdom transition. The
United Kingdom has a more international focus, and has sought to become
competitive at the cost of employment and various social services. It has
reduced the tripartite consensus model and has sought to enable companies
to access Europe and the global markets.

Devolved Transition

Devolved transitions are based on responses by devolved and empowered

subunits. The devolved transition, shown in Exhibit 3.1, is to the right and
upward along the high-autonomy—high-response boundary of the model.
Exhibit 3.5. Devolved Transition summarizes the direction of change for each
variable during the first and second parts of the transition. The National
Competitiveness Model can be used to make a number of predictions about
this transition. The transition increases response and competitiveness and
decreases production and autonomy. Management of the transition requires
74 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 3.5. Devolved Transition

Variable Change
Response + +
Production – –
Autonomy – –
Competitiveness + +
Government + +
Management 0 +

an increased role for both government and management both within and
across subunits.
This transition differs from the deregulated transition discussed earlier in
two important respects. Power already resides in devolved subunits. Also, the
devolved transition assumes that the system has already optimized production
processes around these devolved subunits. Change strategies to effect such a
transition need to address four quite different issues.
First, the process needs to be driven either by perceptions of crisis or
expectations of rewards. For example, the idea that unless there is change the
wealth base will erode is often used to build a sense of impending doom and
to establish support for the short-term sacrifices required to implement change.
The major threat is that significant interest groups will reject the reductions
in autonomy required, paralyze the change process, and erode the long-term
wealth and competitiveness of the nation. If this is allowed to occur, the
erosion of wealth can be expected to threaten governability.
Second, the role of government in the high-autonomy mode is to ensure
that citizens are treated equitably. Within this framework, the roles of govern-
ment and business are separate; business sets the development agenda while
government provides services and support for various parts of the economy.
The transition requires a shift in the role of government to a shared role with
business to deliver strategic impacts. This requires government to differenti-
ate between equals without creating so much uncertainty that progress cannot
occur. Differentiation can be either hidden or managed to contain its impact.
Where it is open, the task of government is to redraw the boundaries, to
ensure that one-off decisions do not destroy values and expectations across
the system.
Third, government needs to ensue that other impacts of change and wealth
creation on social value are managed effectively. Usually government must
manage this in the face of change which is seen to be eroding traditional
benefits and creating new reactivities and gaps in wealth distribution.
 The Management of Transitions to National Competitiveness 75

Fourth, the role of management must change to support this transition.

The management of subunits must change from one that addresses external
opportunities within a framework which maintains internal values and struc-
tures to one that manages external change and the impact on internal struc-
tures and values. In addition, subunits must respond to new priorities between
subunits required to exploit external opportunities. The risk is that business
will be unable to respond leading government to increased intervention. While,
intervention, which seeks to increase the pressure on subunit response is
useful, governments often attempt to engineer competitiveness without recog-
nizing that this is usually beyond their capacity to deliver.

The U.S. Transition

The successful attempts by the United States to reverse decreases in national
competitiveness provide an interesting example of such a transition. We ex-
amine the U.S. transition in more detail in chapter 6. The strengthening
competitiveness of the U.S. economy throughout the 1990s is evident from
successive World Competitiveness rankings. Charles J. Fombrun (1992) pre-
sents an interesting analysis based on business competitiveness. David N.
Burt and Michael F. Doyle (1993) in The American Kieretsu: A Strategic
Weapon for Global Competitiveness present an interesting comparative analy-
sis of the Japanese and U.S strategies for business success.
The United States operates in a high-autonomy mode of government and
has established industrial strengths.
The United States fell behind in the competitiveness stakes in the 1970s
and 1980s. The response has been to examine and benchmark business com-
petition, and to develop a group of highly effective and large multinational
companies. Instead of buffering their economy, the U.S. government opened
it and exposed industry to major competitive pressures.
The U.S. government focus has been to manage diversity and achieve
political consensus at the national and regional levels. The focus for response
is the multinational corporation. Government has supported the interests of
these multinationals, has sought to assist them to access markets, and has
acted to ensure that the domestic market is highly competitive. Government
has also supported the competitiveness transition through the development of
world-class infrastructure, education, and training investment, and by ensur-
ing that U.S. corporations gain competitive advantages from various govern-
ment projects.
The transition to the left produced many challenges. The threats are
similar to those faced by all high-autonomy organizations. Either gridlock
will develop and governments will not be able to deliver needed infrastructure
76 A VISION TO GUIDE GOVERNMENT REFORM

and services, or the latter will not be coordinated with industry policies and
the need to access the global economy. However, recent improvements in
competitiveness suggest that the transition is occurring. The U.S. government
has experienced major comfort zone restraints. It is not surprising that the
reform of government has become a major priority to support the current
transition. The restoration of U.S. competitiveness is discussed in detail in
chapter 6.

IMPLICATIONS FOR THE REFORM

OF GOVERNMENT MANAGEMENT
Our examination of external factors in chapter 1 suggested that any analysis
of the crisis in government must start with an analysis of the impact of global
change. While examinations of government management often include a few
paragraphs on the changing state of the world, there are few frameworks
which address national differences or are able to link these changes to the
management role of government. The National Competitiveness Model
simplifies the issues implicit in national competitiveness, it provides links
with key management variables, and enables us to move beyond static, homo-
geneous solutions not only to examine differences between nations, but also
to examine change as a transition. A number of implications for the reform
of government management can be drawn from this analysis.
First, nations are pursuing different transitions to national competitive-
ness. The nature of the transition depends upon the current competitiveness,
on national aspirations, and on the national capacity to coordinate the differ-
ent business and government contributions required to support a particular
transition.
Second, different transitions generate different opportunities and chal-
lenges for each nation and for government. Theories of government manage-
ment, which presume that the role of government is static or will emerge
from an internal consideration focused by appropriate management and policy
frameworks, are unlikely to notice, let alone respond to, these differences. It
follows that those who seek to copy the success of other nations, or worse,
export their own solutions to others, run a high risk of failure.
Third, while the model suggests that nations need to optimize production
autonomy and response, it also predicts that there must be trade-offs between
the three basic modes of management. We present an analysis of government
value-chains in chapter 9, which directly explores the trade-offs government
must make between efficiency (production) and cycle time (response). The
trade-offs between autonomy and response present particular challenges for
government operating at or near the high-autonomy mode.
 The Management of Transitions to National Competitiveness 77

Fourth, transitions to competitive government must be underpinned by a

viable national competitiveness strategy which addresses not only where a
nation wishes to end up, but also where it is located on the model now and
how it intends to manage the transition.
Fifth, some transitions are implicitly more difficult to manage than oth-
ers. Nations which have choices should consider reviewing transition options
to ensure the choice, for transition minimizes difficulties. For example, a
decision by a developing country to optimize autonomy before developing the
production strengths necessary to be competitive is likely to create a particu-
larly difficult transition dilemma. The combined need to reduce autonomy
without being in a position to deliver direct and immediate benefits creates
difficult comfort zone issues.
Sixth, this examination of the difficulty in managing transitions high-
lights the need for nations and governments to benchmark and evaluate
progress. Such benchmarks are likely to be central to any attempt to evaluate
the performance of government.
 Chapter 4

Implementation Strategies for

Competitive Government

The history of reform (in government) demonstrates nothing so

much that there is often difficulty in translating praiseworthy
objectives into political realities.
—Downs and Larkey, The Search for Government Efficiency

In chapter 1, we discussed the need to shift the focus of government manage-

ment from inputs to outputs or results and suggested that implementation is
the Achilles heel of government management reform. It is the purpose of this
chapter to examine this problem, propose solutions, and discuss the implica-
tions of these solutions for government reform.
The difficulty of shifting the focus of government management from
inputs to results and of focusing on core performance should not be under-
estimated. Traditional government management systems often complete
projects, consume resources properly, and yet produce no noticeable impacts
or benefits. While this weakness may seem surprising for a system which
seeks to tightly control so much of the management process, it can be ex-
plained by examining the focus of control.
The weakness is less suprising when we consider the key requirements
to manage change in a high response situation: managers need to manage
cycle time and short-term impacts. Government systems seldom control re-
sults, almost never address short-term impacts, and are constructed to force
managers to operate through a series of fixed cycles and queues. Traditional
government management systems presume that outputs follow from inputs
and processes. Controls focus on functions, processes, avoiding mistakes, and
on almost everything but impacts and results. Increasingly, reform must also

79
80 A VISION TO GUIDE GOVERNMENT REFORM

involve changes to the ways in which government management systems seek

to complete and coordinate work.
When government management focuses outward and commits to manag-
ing external impacts, three basic weaknesses in the way in which government
management coordinates work are exposed. First, individual managers are
often prevented from managing overall impacts on either customers or other
interest groups, because government value-chains are based on set cycles
which aggregate and queue projects thorough the value-chain. Second, gov-
ernment project managers are often constrained in managing comfort zone
impacts over the implementation part of the cycle by traditional management
systems which attempt to segment comfort zone management from imple-
mentation management by presuming that consultation can end before imple-
mentation begins. Third, managing short-term impacts on comfort zones
requires managers to manage within the framework of a cycle where each
stage must build upon the previous stage. Because traditional government
management systems treat cycle time as an outcome of management rather
than as a management variable, government managers often have no scope to
manage cycle time.
In this chapter, we address three management strategies/tools that can be
used to short circuit these gaps in traditional government management sys-
tems. However, before we consider these tools, we examine the basic chal-
lenge the tools must address to succeed; new government management must
alter the focus and time span of evaluation.
A comparison of evaluation and control cycles in government and busi-
ness can be used to dimension the changes required. Exhibit 4.1. The Time
Span and Focus of Evaluation in Business and Government analyses the
focus of control in business and government. Exhibit 4.1 divides management
into three time related categories. The first category contains the missions or
objectives which are pursed over several years. The second category contains
the specific change strategies which are designed to move the organization
from where it is now to where it wants to be in the future. The third category
contains, the external impacts which occur at the boundary of the organiza-
tion and its customers and other interest groups and which are important to
future performance and survival.
In business, the major focus is on impacts. These include sales, perfor-
mance relative to competitors, margins, complaints. This short-term focus on
impacts is usually tightly related to resources. Where there is a deferred link
between resources and sales, business uses various projection and planning
models to attempt to evaluate future benefits against current costs. In govern-
ment, the focus of short-term control is the budget. However, this process
does not address impacts and results. The links between resources and results
 Implementation Strategies for Competitive Government 81

Exhibit 4.1. The Time Span and Focus of Evaluation in Business and
Government

FOCUS OF CONTROL

Impacts Implementation strategies Objectives

Low

THE EVALUATION OF RESULTS

IMPORTANCE OF EVALUATION

BUSINESS
GOVERNMENT
High

Short cycle time TIME SPAN OF EVALUATION Long cycle time

Low
IMPORTANCE OF EVALUATION

THE EVALUATION OF RESOURCE INPUTS

GOVERNMENT

BUSINESS
High

FOCUS OF CONTROL
Annual resource budgets Longer-term financial targets
82 A VISION TO GUIDE GOVERNMENT REFORM

are vague and usually nonexistent in the short term. Any focus on results is
long term. Popularity often replaces added value as the prime focus. Electoral
success is often seen to be a surrogate for the evaluation of results.
Shifts in the focus of government evaluation from the traditional inward
focus to an outward focus which addresses external impacts and from long
term to short term, are central to solving the implementation problems of
government. Implementation requires management strategies / tools which pro-
vide a focus on short-term impacts; it needs to provide government managers
with new flexibility to manage cycle time and cycle impacts. These reforms
are discussed in later chapters.
Our discussion of solutions addresses three different solutions, each of
which is supported by important management concepts and tools.
The first strategy, to manage impacts directly, examines the two types
of impacts discussed in chapter 1: competitiveness impacts and comfort zone
impacts. A key tool is the Impact Management Model (IIM), which explores
the interaction between impacts on both added value (competitiveness) and
comfort zones at the same time.
The second strategy, to manage cycle time directly, extends the idea of
impact management by applying it dynamically to the various cycle stages
which government projects traverse between the identification of a need for
change, the delivery of results, and the communication of those results to key
interest groups. We present a theory of the management of cycle dynamics in
government which explains many failures and explores related management
tools. We discuss three aspects of cycle time management in the government
sector: the need for more flexible project timing; the need to actively manage
project length; and the need to actively manage and sequence cycle impacts
to reduce the risk of implantation failure.
The third strategy, to develop cycle-focused communications changes
the way in which governments communicate change. We examine the impli-
cation of the theory of cycle dynamics on the way in which governments
communicate their plans and activities. Cycle-focused communications has
the capacity not only to alter the way in which government managers see their
external environment, but also to alter the way in which governments use
communications.

THE DIRECT MANAGEMENT OF IMPACTS

Effective national responses to external pressures involve shortening response

times and strategically managing individual changes to deliver ongoing im-
provement in national competitiveness. Strategic management in open-ended
situations must balance the tensions between the need for short-term controls
 Implementation Strategies for Competitive Government 83

and the need for long-term flexibility. The implementation of change requires
new approaches to planning and to the management of grass roots impacts.
Chapter 8 presents an approach to planning which identifies impacts and links
them to longer-term results.
The successful implementation of change requires new approaches to the
management of grass roots impacts on both national competitiveness and on
the comfort zones which provide government with the scope to implement
change. Government administrative systems must manage both these types of
impacts at the same time. Solutions, which focus on one type of impact, for
example, electoral popularity, and ignore others are almost always counter-
productive.
The tools for ensuring that projects lead to operational outputs and real
added value constitute performance management. The tools for ensuring that
comfort zones are maintained and resistance to changes minimized constitute
comfort zone management. The keys to these new approaches to management
are more flexible approaches to planning, more effective management of
impacts and the management of cycle times to increase the speed of many
government responses.
Exhibit 4.2. The Implementation Impact Model summarizes an implemen-
tation model which can be used to map implementation performance. The
performance impact and comfort zone impact measures are shown on the ver-
tical and horizontal axis of Exhibit 4.2. The comfort zone within which gov-
ernments will be allowed to govern covers the indifference and support columns
in the center and right of Exhibit 4.2. The performance zone within which
governments can add value is defined by the high performance row at the top
of the grid.
Four zones identified in Exhibit 4.2, illustrate the combinations of per-
formance and comfort zone impacts: competitive government, performance at
any cost, popularity at any cost, and disaster. The model suggests that gov-
ernment administrators must manage both project performance and comfort
zones at the same time. The objective of a government management system
is assumed to be not only to manage impacts, but also to maintain projects
in both the positive performance zone and in the comfort zone (competitive
government zone).
The model focuses on the interaction between competitiveness impacts
and comfort zone impacts. This interaction is important during implementa-
tion and during the consolidation cycle when end perceptions of a government’s
performance are developed.
The model can be used to map the performance of different governments
and to identify the likely direction of consolidation. The idea that public
perceptions of performance consolidate after results have been delivered is
important. The model suggests that there is a lagged relationship between
84 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 4.2. The Implementation Impact Model

COMFORT ZONE
High performance

COMPETITIVE GOVERMNENT

PERFORMANCE
Government manages both project performance
PERFORMANCE and comfort zone impacts at the same time to
AT ANY COST deliver high added value. while remaining
+

ZONE
within the comfort zone

U.K.: Thatcher—Major (term 1)

Consolidation to the right

Government seeks
PERFORMANCE IMPACT

to implement change
but fails to manage
Low performance

comfort zone
impacts. In the short
term, effectiveness
may be threatened by
0

conflicts and U.S.A.: Reagan—Bush

implementation Consolidation to the left
problems. In the
longer-term, the
capacity to govern is
likely to be eroded.

DISASTER POPULARITY AT ANY COST

ZONE
Government seeks to trade-off performance
for popularity by seeking compromise and
by avoiding hard change issues. Ongoing
Failure

viability eroded by lack of performance.

–

Unsustainable
position

+ 0 –
Opposition Indifference Support
COMFORT ZONE IMPACT

added value and the comfort zone which will operate to consolidate govern-
ments towards the diagonal axis. While other factors such as poor communi-
cations or the overselling of expected benefits can disturb this simple rule, the
idea remains powerful and can be used to test government communication
strategies for consolidation.

Mapping the Overall Performance of Governments

The following brief assessments of the Thatcher government in Britain and
the Reagan administration in the United States illustrate the use of this model
to make comparative evaluations. There are similarities between these two
governments/administrations. Some of the political rhetoric was shared by
 Implementation Strategies for Competitive Government 85

both governments. Both were led by strong leaders, or, at least, by leaders not
well known for changing their minds. Both presided over increased national
competitiveness. Both left a legacy of underprivileged to be addressed by
their successors.
But there are also differences. The Thatcher administration clearly added
value to British competitiveness by deregulating the labor market, by using
privatization rather than tax increases to fund the business of government, and
by leveraging off Britain’s position within the European Community. While
the Thatcher years added value, they also failed to keep government in the
comfort zone. In part, this was a reaction to the growing gap between the rich
and poor. In part, this was a reaction to a perception that solutions were too
doctrinaire; they did not address the needs of interest groups beyond those
closely supporting one political party. In the end, the political rhetoric had
little relationship to the causes of increased competitiveness. Worse, the gov-
ernment came to believe its own rhetoric. If the poll tax had not forced a
change of direction, some other equally marginal idea would have. The end
point of the Thatcher administration can be positioned in sector one of Ex-
hibit 3.3. Interestingly, her successor inherited the popular recognition that
the government had performed and had to do little more than address comfort
zone issues more flexibly to win another term.
The Reagan administration presided over a gradual restoration of U.S.
competitiveness. This appears to have been driven by business more that
government although government certainly contributed. Government exposed
the economy to market pressures and reduced the role of the State but the
shift was less dramatic than in the United Kingdom where safety nets were
institutionalized. However, President Reagan understood how to maintain
comfort zones. He retired popular having added less value to national com-
petitiveness than Thatcher. The conclusion of the Reagan administration can
be mapped in sector four of Exhibit 3.3. Interestingly, President Bush, Reagan’s
successor, continued similar strategies but he lacked the skills to manage the
complex comfort zones which underpin government in the United States as
skillfully as his predecessor.

MANAGING IMPACTS ON THE VERTICAL AXIS:

PERFORMANCE MANAGEMENT

Management—and not, only in the business enterprise—has to be

accountable for performance. But how is performance to be
defined? How is it to be measured? How is it to be enforced?
And to who should management be accountable?
—Peter Drucker, The New Realities
86 A VISION TO GUIDE GOVERNMENT REFORM

The questions raised by Peter Drucker are central to the management of

modern government. It is important to realize that traditional government
systems do not seek to address these questions. If government management
reforms are to succeed, they must find new systems that can assist managers
to focus on performance.
There are entrenched problems of performance in public administration.
Some of the changes in recent years have created new risks without providing
the sort of value the public expected of them. Performance management is an
approach to public sector management which addresses the need to for gov-
ernment to deliver added value.
Performance management is important because it enables government
managers to manage performance directly; it provides the focus needed to
exploit many private sector management solutions in the public sector. The
idea of performance management was discussed in chapter 2 and is developed
further in chapters 7 and 8. Performance management involves four related
management strategies.

Deregulate Government Activities

A strategy to deregulate government activities, to enable managers to deliver
outputs, and to manage value-chains and cycle time more actively. Deregula-
tion needs to occur within a context of increased accountability for results.

Focus on Core Objectives

A strategy to focus on the core objectives of government and to make these
the center of evaluation. Where there is no focus, various second order, and
support activities tend to subsume evaluation. Good housekeeping is impor-
tant but it is seldom the reason why the public elect government or fund their
programs.

Manage Contribution to Core Objectives

A strategy to ensure that the various functions of government contribute to
these core objectives. A focus on deregulation and core objectives often leads
managers to overlook key support and management activities and the need to
reengineer such activities in order to add value to core activities.

Ongoing Evaluation and Performance Improvement

A strategy to commit management to the ongoing evaluation of both short-
term and long-term performance, and to a process of continuous improve-
 Implementation Strategies for Competitive Government 87

ment. The objective is to create a culture of evaluation, to introduce short-run

evaluation, and to combine this with the idea that the failure of specific short-
run impacts does not imply the failure of a program; it simply provides
feedback to enable programs to be managed differently. The evaluation pro-
cess uses a three-way methodology which links broad external objectives
with specific short-run impacts and facilitates ongoing evaluation. The evalu-
ation of performance does not seek to find simple indicators that replace
judgment. Instead the evaluation process uses a framework within which
judgments can be evaluated and the implications of success and failure
discussed.

MANAGING IMPACTS ON THE HORIZONTAL AXIS:

COMFORT ZONE MANAGEMENT
Traditional political leadership organized around issues, that is,
around disagreements over ends. Increasingly, the task of the new
political leadership will be to organize around agreement over
ends, indeed to mobilize the consensus on ends. And this may be
the only way to undercut the paralyzing powers of small
minorities.
—Drucker, 1989, The New Realities

[T]he fortunate and the favored who are a majority in many

developed countries . . . do not contemplate and respond to their
own longer-run well being. Rather, they respond, and powerfully,
to immediate comfort and contentment. This is the controlling
mood.
—Galbraith, The Culture of Contentment

The changes which are underway are testing the internal consensus for change
in many countries and in many political systems. A key element of this model
of government is the need to develop and maintain the scope to govern. Both
Peter Drucker and John Kenneth Galbraith identify the problem. Drucker sees
the problem as the failure of political parties to deliver their traditional role
which was to transmute the pressures of minorities. Galbraith sees the prob-
lem in terms of the extension of privilege to the majority of the population
and to the desire of such groups to maintain their comfort zones. Whatever
the cause, there can be little doubt that much of the recent government reform
has either ignored governability or presumed that less government and more
efficient government will somehow restore trust in governments and the right
to govern.
88 A VISION TO GUIDE GOVERNMENT REFORM

While Drucker suggests that the solution is to develop consensus, he also

identifies the reality that high levels of consensus are becoming less and less
achievable. While such a consensus may have been achievable before the
impact of the various factors discussed in chapter 1, today it is only achiev-
able in times of crises and perhaps only for smaller particularly focused
nations.
In chapter 1, we suggested that the solution is to shift from a focus on
consensus to a focus on the maintenance of comfort zones. In chapter 2, we
suggested that the need to manage comfort zones differentiates many busi-
ness and government solutions. These comfort zone management strategies
address directly the problems formulated by Drucker and Galbraith.
The idea of comfort zone management developed in this book suggests
that the pathway through the paralysis of diversity requires the management
of indifference rather than commitment. The comfort zone recognizes and
protects key interests to the point where those interest groups with the capac-
ity to block change are not sufficiently motivated to do so. Two attitudes
underpin the idea of a comfort zone. First, the comfort zone can be defined
as a zone within which key interest groups either believe they are obtaining
important benefits, or are fearful that change might erode rather than increase
those benefits. Second, the comfort zone defines a zone within which key
interest groups either feel that change is impossible or conclude that the
trouble involved in challenging the governments right to govern is greater
than the benefits they might expect from change.
While it is difficult to assess the extent to which nations are intrinsically
less governable than in the past, it is clear that government responses to
diversity have created many of the problems evidenced today. We have dis-
cussed the inability of traditional government systems to manage comfort
zone impacts in times of change. In addition, many attempts to apply business
solutions to government management problems fail to address even the rudi-
mentary requirements of comfort zone management.
Governments have sought to address the growing problem of maintaining
a consensus for change in various ways: some have sought the Drucker solution
of developing strategic consensus; some have sought to use participative plan-
ning to alter community attitudes and protect key interests; some have used
crisis management and temporary coercion; other have used nonpublic pro-
cesses to support key priorities; and others have sought to remove critical
projects from the public sector, either by hiding them as part of a surrogate
program, or by removing them from the public sector by privatizing them.
Donald P. Cushman and Phillip K. Tompkins (1980), discussing responses
to cultural pluralism, suggest that there is a need to manifest respect for
diversity as an antecedent to coordinated actions. They suggest that coordi-
nation does not depend upon common goals but upon “agreement on the
 Implementation Strategies for Competitive Government 89

principles for guiding action” in order for the parties to achieve “mutual
advantage.” The factors which generate advantage for one interest group are
usually different from the factors which create advantage for another. The
solution is not common commitment and a uniform focus, it is to understand
differences and develop processes which can negotiate impacts.
The techniques for managing comfort zones, including respect for differ-
ences, a focus on solutions offering specific value rather than common value,
and the management of project impacts on key interest groups, are central to
successful public sector management. Particularly where governance has
degenerated into a series of conflict-based negotiations, many interest groups
will seek to use change impacts from one project to negotiate unrelated benefits.
The task of governance structures and government managers is often to fence
off one set of impacts from other essentially unrelated negotiations.
Our examination of the task of managing comfort zone impacts reveals
the importance of managing both impacts and the sequence of impacts cre-
ated as government develops an idea and translates it into action. The impacts
at one stage of the government cycle are related to the impacts in previous
stages. This leads to the idea of cycle time management which offers pow-
erful management and communication strategies for maximizing performance
while minimizing negative comfort zone impacts.
Our analysis does not suggest that government managers are hostage to
the comfort zone but it does suggest that they must manage it more effec-
tively. Governments can both manage the boundaries of the comfort zone
directly and manage cycle impacts to improve the chances of successful
implementation. Government strategies for managing comfort zone impacts
vary for different stages of the government cycles.

CYCLE TIME MANAGEMENT

With the world in such a rapid flux of change, government must
be nimble and quick, able to adjust not only to current require-
ments but to the emerging requirements of future industries and
society.
—Dhanabalan, S., “Minister for Trade and Industry, Singapore”

Many government managers see their salvation in terms of new systems and
a new stability. They accept that the world is undergoing change but argue
that high response is not their responsibility. Yet this solution is illusory.
Buffers break down in times of rapid change. Even where government seeks
to reduce its role in order to maintain a buffer, the critical requirements of
government can seldom be ignored. Dhanabalan correctly points out that the
90 A VISION TO GUIDE GOVERNMENT REFORM

process of change is ongoing and the challenge of maintaining a high response

capacity is critical to competitive government.
We use cycle time management to describe three time related manage-
ment techniques which are critical to high-response management. First, cycle
time management relates to selecting the timing of projects. Second, cycle
time management refers to shortening the length of many projects in order to
manage costs and benefits more effectively. Finally, cycle time management
refers to managing the sequence of performance and comfort zone impacts
throughout the government cycle in order to optimize the chances of both
adding value and remaining in the comfort zone.
Changing government management to actively manage cycle time offers
two major advantages. First, it addresses the implementation weaknesses
inherent in the traditional government management systems when rapid change
is required. Second, it offers government the opportunity to adopt more ef-
fective communications strategies.
A major challenge for government reform is that, although our analysis
suggests that competitive government must find ways to manage the timing
of projects more strategically, government systems seem unable to respond.
While the response weakness inherent in traditional government management
systems is predictable, some reform strategies actually lengthen cycles and
further segment cycle management.
The achievement of the consensus required to underpin change is becom-
ing more difficult to develop and more difficult to sustain. The period during
which consensus can be maintained is shortening. This means that the cycle
time for key changes is decreasing and the management of cycle dynamics
must address four different tensions.

• Tensions between the need to prioritize government activities and the

need to maintain a consensus for change by continuing to meet many
diverse needs
• Tensions between the need to obtain a legislative and budgetary mandate
for projects and the need to respond flexibly to threats and opportunities
• Tensions between the legislative mandate to solve a problem and the
scope for managers to deliver results, including resource, workskill,
and comfort zone tensions
• Tensions between public expectations of change and public percep-
tions of results

We now discuss three different strategies for managing these tensions:

the strategic management of timing and cycle length; the management of
cycle impacts; and the use of cycle-based communications. Each of these
 Implementation Strategies for Competitive Government 91

strategies uses different management tools and manages different implemen-

tation tensions.

The Strategic Management of Project Timing and Cycle Length

Managing cycle timing and length addresses the tension between the
identification of some need for change and the time taken to deliver results
and to communicate the benefits of that change to key interest groups. Over-
all cycle time can be segmented into four sub-cycles which describe the
basic value-chain which governments must manage, for example, consen-
sus, legislative (and budget), implementation (delivery), and consolidation.
The strategic management of overall project timing and cycle length
requires managers to realign government value-chains, to reduce cycle time,
to enable projects to exploit external events, and to deliver benefits before
initial support erodes.
Business has learned that the timing of projects is critical to their suc-
cess. Speed to market is important because competitors threaten profitability.
In government, the market is ignored; competition is between interest groups
and with other projects. While speed and timing are also critical to success,
many government processes assume that projects should start when the nec-
essary legislative and budget approvals have been scheduled and obtained;
projects should proceed at a rate determined each year by budget allocations
which ignore cycle time and focus on competition for scarce resources. These
assumptions are counterproductive in a high-response world and maximize
the risks of failure
Competitive government must find ways to manage the timing of projects
more strategically, to exploit windows of opportunity as they arise, and to
reduce cycle time in order to deliver results before opposition to change
erodes support for implementation.
There are three strategies which can be used by government managers to
manage the tension between the interests of various groups and the positive
and negative impacts associated with the implementation of change.

Commence Change in a Positive Environment

Governments and business need to work together to scan the environment and
make effective judgments about the opportunity for effective change. Newly
elected governments can accomplish a great deal. There are examples of
governments doing this. There are examples of government building a man-
date for change and failing to act on attaining power until it is too late. While
the idea that timing is as critical to public sector change as to private sector
92 A VISION TO GUIDE GOVERNMENT REFORM

change is compelling, many government planning, budgeting, and legislative

systems are designed to make this type of response impossible.

Shorten Cycle Length

Shortening cycle time usually requires the reengineering of value-chains, a
careful definition of projects, and a new focus on delivering impacts within
agreed time frames. Many projects define total results. Targets in government
need to define what will be achieved over a set period. Three factors explain
why shortening cycle time increases the chance of effective implementation.
Shortening cycle time leads to more effective and performance feedback and
facilitates more effective comfort zone management. Shortening cycle time
reduces the chances of opponents organizing opposition to the project. For
many projects, the task of communicating net benefits is inversely propor-
tional to time the public must wait to experience those benefits. The public
have a relatively short time horizon, at least as far as government promises
are concerned.

Segment Long Cycles and Structure Cycle Break Points to Reinforce

Pressures for Implementation

Not all project cycles can be shortened. The third strategy is to manage
change in stages which build a momentum for change. Where delays are
outside of the managers control, it is important to engineer the break points
to ensure they consolidate to the right on the Impact Model. Building a
momentum for change is important. Maintaining and exploiting that momen-
tum once it is established is also important.

Cycle Impact Management

Cycle impact management addresses the tension between the interests of

various groups and the positive and negative impacts associated with the
implementation of change. The Implementation Impact Model combines
the concepts of performance management and comfort zone management.
The power of this approach is now enhanced by developing it to manage
impacts across the change cycle.
The management of cycle impacts requires government managers and
systems able to not only deliver external impacts, but also to schedule these
impacts on interest groups to maintain perceptions of net added value, even
when negative impacts must occur.
 Implementation Strategies for Competitive Government 93

There are two proven techniques for stopping government initiatives. The
first technique is to convince government to act at the wrong time or on the
wrong premise; this weakens the consensus cycle and sets the scene for
failure as government seeks to implement a proposal without the underlying
initial support needed to convince interest groups to accept implementation
impacts. The second technique is to emphasize the impact of costs and to
delay the impact of benefits. As the program impacts negatively on different
interests, its opponents gain allies, and opposition is mobilized to stop the
project, or alternatively, to force concessions which reduce the initial value to
the point where the project adds little or no value.
Exhibit 4.3. Cycle Impact Model provides a management tool which can
be used to manage cycle impacts. The Cycle Impact Model (CIM) is an
extension of the Implementation Impact discussed earlier. The CIM can be
used to address impacts and solutions for each cycle stage. The CIM is a
management tool that reflects four realities of cycle impact management.
First, impacts need to be managed throughout the project cycle to maintain
each project both in the positive performance zone and in the comfort zone.
Second, project support will be stronger in some stages of the cycle than
others. Third, there is a need to ensure that major adjustments forced by
comfort zone issues also preserve added value. Fourth, project design and
implementation needs to be managed to establish the preconditions for a
long-term consolidation to the right on the model.
The numbers in Exhibit 4.3 divide the overall government cycle into four
cycles: a consensus cycle (0–1); a legislative cycle (1–2); an implementation
cycle (2–4); and a consolidation cycle (4–5). We now discuss strategies for
each of these cycles.

Strategies for the Consensus Cycle

In managing the consensus cycle (0–1), the challenge is to build support for
the changes needed to commit the reforms. Government can usually control
information to focus on benefits and avoid discussion of specific negative
impacts. On the other hand, history is littered with governments that have
oversold solutions only to find that the public rate success a failure. It is
important to balance over the project cycle expectations of benefits against
the benefits likely to be delivered. Timing is often critical to launching projects
and building consensus.

Strategies for the Legislative and Budget Cycle

In managing the legislative cycle (1–2), the challenge is to access the legis-
lative approvals and resources required to implement change. Where key
94 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 4.3. Cycle Impact Model

COMFORT ZONE

3 Legislative cycle (1–2)

High performance

PERFORMANCE
2

ZONE
Implementation
+

cycle (2–4)

4 1
5
PERFORMANCE IMPACT

Consolidation cycle (4–5)

Low performance
0

Consensus cycle (0–1)

0
Failure
–

+ 0 –
Opposition Indifference Support
COMFORT ZONE IMPACT

interest groups seem likely to stop specific projects, trade-offs and negotia-
tions are required. The objective is to gain authorization with minimum trade-
offs and constraints. Gaining legislative approval is seldom the end of
negotiations with groups opposed to change.

Strategies for the Project Implementation Cycle

In managing the implementation cycle (2–4), the challenge is to schedule
and evaluate both positive and negative impacts in order to maintain sufficient
support to complete reform projects. The first part of the implementation
 Implementation Strategies for Competitive Government 95

cycle (2–3) represents initial planning and action to deliver proposed project
value. Perceptions of value increase as the detail is understood but opposition
also increases as negative impacts, both real and imagined, are also commu-
nicated to key groups. The movement is upward and to the left on the model.
Where the endpoint is outside the comfort zone governments take action to
restore the comfort zone. This usually involves compromises that reduce the
initial planned value. This part of the implementation cycle is shown as
(3–4) in Exhibit 4.3.
Managers need to manage the dynamics of project impacts either by
bringing forward positive impacts or shortening cycle time in order to sell end
benefits as imminent. Another challenge is to manage negative impacts. Not
everyone benefits from every project, and some individuals and interest groups
may be disadvantaged. Planning must address these realities, and organize
timing and communication strategies to neutralize resistance.
The added value of a project can diminish considerably during the deliv-
ery stage, as constituencies lobby to offset perceived disadvantages. Leader-
ship requires the negotiation of such impacts. The challenge is to position
implementation within a comfort zone which enables implementation to pro-
ceed without sacrificing results to the point where reform fails to add value.

Strategies for the Consolidation Cycle

In managing the consolidation cycle (4–5), the challenge is to communicate
benefits, to manage the gap between public expectations and actual delivery,
and to consolidate the benefits by ensuring that opponents cannot erode them
too readily. Clearly this phase can move projects in various directions on the
model grid. However, for the purposes of this discussion, a horizontal move-
ment to the right is assumed. This reflects a maintenance of added value and
a growing support for reform as benefits are appreciated and understood.
Scheduling impacts on interest groups to maintain perceptions of net added
value, even when negative impacts must occur, requires projects to be designed
and resourced differently. Simple criteria of efficiency often extend cycle time
rather than decrease it and they often deliver most of the bad news early in the
project cycle. While this may seem efficient in a narrow sense, the cost of
redesigning projects to accommodate opposition caused by mismanagement of
cycle dynamics can be severe. This cost involves both the additional resources
to address problems and the cost of compromises which are introduced to
defuse criticism and which usually reduce the initial project value.
The end point of this particular process can be depressing for those who
feel that government should add value. Many completed projects are seen to
have delivered no value at all, some are seen to have delivered negative value.
When this occurs, the communication experts are usually called in to divert
96 A VISION TO GUIDE GOVERNMENT REFORM

public attention from the idea that the government has failed, and, if possible,
to present the outcome as a success.

CYCLE-FOCUSED COMMUNICATIONS
The traditional notion that the project should be scheduled for maximum
efficiency and the communication strategy should sell the project and address
criticisms underestimates the need to integrate planning and communication
strategies and to manage comfort zones. The communication function in
government needs to be reengineered to support government cycles with
proactive cycle-focused communication strategies which balance expectations
against delivery, manage the dynamics of negative impacts, and consolidate
project benefits when they are available.
The traditional approach to government segments the task of adding
value from the task of selling that value to various publics. Traditional objec-
tives for communications in government have focused on: the development of
a positive image using grand plans; an emphasis on consensus; and the avoid-
ance of both the idea of and responsibility for failure. The use of polling as
a diagnostic tool and as a means of supporting traditional communication
strategies has become so widespread that, on occasions, the polls seem to
have become more newsworthy than the policies or the politicians they seek
to evaluate. Often the polls address short-term consensus issues which do not
relate directly to the sort of comfort zone impacts suggested above. Often
they do not address directly the issue of competitiveness and added value.
A new communication strategy is required to support high-response
management. In the case of project dynamics, communications strategies need
to evaluate the impacts on interest groups, support the process with cycle
driven communication strategies. New communications strategies not only
need to address the idea of evaluation, but they also need to present depar-
tures from plan as situations to be corrected rather than signs of project
failure. Communication needs to use benchmarks to dimension discontinuous
change; it needs to lift overall comfort about the direction of change.

Features of a Cycle-Based Role for Communication in Government

The new role for communications in government that is emerging cannot be

evaluated in isolation from either the need to add value to national competi-
tiveness or the need to maintain the scope to govern. New approaches to
communications in government need to be supported by a new theory, which
uses communications to add value to the performance of government by
 Implementation Strategies for Competitive Government 97

assisting government to evaluate performance and manage cycle dynamics

effectively. Three features differentiate this new role from the traditional
approach discussed above.

Focus on External Benchmarks

Communication needs to manage the focus on external benchmarks and re-
alities, and to build internal consensus about added value and national com-
petitiveness. With the notable exception of governments undertaking
development transitions, such external issues are not a major focus for tradi-
tional government communications.

Optimize Project Timing

Communication needs to contribute proactively to decisions about the timing
of projects. In the traditional model, timing is set by other government pro-
cesses: for example, elections, rigid legislative and budget cycles; the need to
ration resources over many projects; the need to maximize internal efficiency
rather than external effectiveness; and the need to comply with the plethora
of government regulatory regimes which are assumed to lead to effective
government. At best, communication strategies are able to select from a
smorgasbord of possibilities in order to block unpopular initiatives. Commu-
nication specialists tend to become involved when there are routine commu-
nications to conduct, when there are achievements to be packaged and sold,
or when there is a problem. As cycle time reduces, the scope for communi-
cation strategies to address the timing of projects differently increases; when
this occurs, new opportunities can be created and many problems can be
avoided.

Add Value to Project Performance

Communication must now address the need to add value as well as to sell
ideas; communication specialists must become involved in the scheduling of
impacts as well as seeking to cosmeticize them. In order to do this commu-
nication strategies need to become involved in the implementation and con-
solidation stages of the government project cycle. In particular, they must be
proactively involved in cycle management to ensure that the consolidation
phase is to the right on the Implementation Impact Model. This requires a
new attention to cycle dynamics which encompasses speed, consensus, and
performance. Communication needs to focus on consolidating evaluations of
government performance, rather than on the short-term packaging and sale of
achievements in isolation. New approaches to the management of cycle
98 A VISION TO GUIDE GOVERNMENT REFORM

dynamics enable government to balance perceptions of positive and negative

impacts throughout the cycle.
Successful consolidation depends on whether a project meets public
expectations of net value. Traditional approaches to communication tend to
oversell value and underrate negative impacts. Project implementation tends
to occur independently of communications until a problem emerges; at that
stage, comfort zones have usually been breached, and damage control is often
the only option left. Although there have been some brilliant short-term damage
control operations, they usually involve deception, the excessive use of public
resources to buy support, or the erosion of the added value the project or
program sought to deliver. All these strategies can lead to the sort of long-
term disillusionment with government which is difficult to reverse.

Cycle-Based Communication Strategies

While cycle-based communication strategies extend the role of communica-
tions in government, they also replace uniform strategies with time-based
strategies which need to differ for each part of the cycle. For example, this
analysis suggests that overselling initial project benefits is as much a commu-
nications problem as underselling benefits. It follows that the effectiveness of
a communication strategy needs to relate to the effectiveness of the consoli-
dation achieved at the end of the project rather than to the entertainment value
of set piece inputs to the process. Exhibit 4.4. Cycle-Based Communication
Strategies examines the communication context and communication strate-
gies for each stage of the government cycle.

CYCLE TIME MANAGEMENT IN PRACTICE

Three Case Studies are presented to illustrate the use the theory of cycle
dynamics to explore complex real time behavior and impacts. The first deals
with the U.S. Health reforms attempted by President Clinton. The second
case deals with the Contract with America which is explored in more detail
in chapter 5. The third case deals with the victory by John Howard in the
1996 Australian elections and compares the cycle management used by Howard
to the approach taken by his predecessor in 1992.

Case One: The Clinton Health Proposals

President Clinton was elected for his first term with a mandate to deliver
health reform. The problem was accepted the solution was not. The cycle
time to prepare a solution was long. The solution, when it was presented
could not be delivered. The detailed solutions impacted on the comfort zone
 Implementation Strategies for Competitive Government 99

Exhibit 4.4. Cycle-Based Communication Strategies

Communication Communication
Cycle Context Strategies
Consensus • Develop initial support • Build support for change by
for change selling benefits, using
• Ensure the project benchmarks, and the idea of
moves upward and to maintaining competitiveness, or
the right on the model. by developing a crisis which
If this cannot be focuses on the costs of not
achieved, abandon or changing
redesign the proposal. • Segment audiences into those
who benefit directly and those
who do not
• Do not oversell change. Long-
term perceptions of success or
failure tend to be based on
initial expectations.
Legislative • Develop political • Translation of initial public
support for a support into legislative
legislative and budget support requires communications
mandate and negotiations with political
• Specifics may create allies and political opponents
a base for opposition • Position the proposal in the
• Funding allocation public arena so that advancing
usually threatens others it is seen as positive and
seeking resources opposing it is seen as negative
• Recognize the threats posed to
other projects by funding this
project. Negotiate a funding
priority. If necessary, threaten
the funding for other projects.
Delivery • Communicate • Shorten cycle times and avoid
implementation to delays which provide opponents
emphasize benefits with a chance to erode support
and neutralize • Bring forward positive impacts
negatives and defer negative impacts
• Adjust impact to • Where a project moves outside
maintain the project in the comfort zone restore the
the comfort zone project to the comfort zone by
• Protect core benefits addressing negatives
• Minimize any reduction in benefits
required to implement change
Consolidation • Communicate • Manage the gap between public
benefits expectations of benefits and
• Consolidate to the actual delivery.
right on the model • Neutralize attempts to erode
perceptions of net benefits
100 A VISION TO GUIDE GOVERNMENT REFORM

of government. The net result was a standoff between the president and the
legislature. The reforms were abandoned.
A number of points can be drawn from this experience. First, if the
proposal had been managed differently, opponents would have been under
more pressure to deliver. Second, the impact on interest groups and comfort
zones was not managed particularly well. As the detail was examined, the
ranks of opponents to the proposals grew. Third, the standoff can be seen as
a temporary consolidation.
It is interesting to consider whether the cycle at this point is seen as
having added value, whether the proposals remain in the comfort zone and
could be rejuvenated, and who the public credits and blames for the standoff.
Our guess would be that the president gained points for identifying the prob-
lem but his solution was seen as flawed. Whether a different approach to the
management of cycle impacts could have made more progress must remain
an open question. The delay in moving and the lack of attention to comfort
zone impacts established the preconditions for failure, at least this time around.
But those who blocked the solution, although they succeeded were forced to
appear negative. The alternative solutions such as they were articulated, also
seemed to be flawed.

Case Two: The Republican “Contract with America”

The Republican reforms of Congress were remarkable illustrations of a leg-

islature seeking to reduce cycle time and respond to public concerns.
The process is analyzed further in chapter 5. While a number of the
reforms have proceeded, the revolutions foundered on the balanced budget
issue. President Clinton was able to point to the negatives involved in the
implementation of ideas which had great public support. The drawn out na-
ture of the budget debate moved the project to the left on the implementation
impact grid. In the end compromises occurred. The Congress achieved far
less than it set out to achieve, the president was able to project an image of
strength and concern. But overall the solution represented major progress for
the reform agenda.
In this case, the process is probably consolidating to the right on the grid.
But who actually benefited from these events, the president, or his republican
adversaries? Putting aside some of the short-term political impacts, the presi-
dent is probably seen to have understood the comfort zone issues. On the
other hand, the illustration that Congress can lead and that the gridlock,
which has become a characteristic of its deliberations could be overcome, has
probably led the reformers to be seen as adding value.
 Implementation Strategies for Competitive Government 101

An even more interesting aspect of this case is that it demonstrates how

cycle time within the legislative arm of government can be shortened and how
the process can add rather than subtract value from national management.

Case Three: The First Howard Election Victory in Australia

In 1993, John Hewson lost an election in Australia that has been described as
unlosable. He did it by presenting a manifesto for changes which was largely
sensible, but which spelt out in detail many of the implications. Worse, the
manifesto was produced well before the election. Hewson broke most of the
imperatives that cycle theory suggests. He paid the electoral price. The govern-
ment of the day attacked the negatives until they swamped the positives which
as far as the electorate were concerned were in the future and obscure.
In 1996, John Howard led the same party to government successfully. He
confined himself to neutralizing government promises, to offering a broad agenda
for improvement. He released these details very late in the election campaign.
This ensured that a public who disliked the incumbent government and prob-
ably had come to regret keeping Hewson from office three years earlier, made
John Howard, Prime Minister of Australia with a near record majority.

Summary

While these and other examinations of actual implementation reveal many

different cycle patterns, a number of general points can be identified further.
While the complexities of government action and communication lead to
many variations in cycle patterns, individual cases can be analyzed usefully
using the Cycle Impact Model.
Each stage of the cycle must be managed to maximize the chances of an
end consolidation to the right in the model. Where projects must manage
negative impacts or long cycle times, it is imperative that they launch with
strong support in the early stages of the cycle. Where negative impacts do not
exist or can be hidden during implementation or where implementation is not
an issue, government should seek to undersell proposals.
Where projects run outside the comfort zone, the strategy should be to
move the project back into the comfort zone with minimal impacts on project
value. Both the timing and scope of adjustments need to be managed. Gov-
ernments are rarely able to deliver the added value they first envisage. The
extent of the reductions they must accept is determined by: the effectiveness
of particular reform programs; their capacity to reduce cycle time and achieve
102 A VISION TO GUIDE GOVERNMENT REFORM

short-run control over change; and the threshold levels which define the comfort
zone.
Finally, where there can be no effective control of the entire cycle, the
theory can still be used to inform communications strategies. Where the cycle
is broken, the cycle impact model emphasizes the need to control the breakpoint
and set up pressures which reinforce the required change.

IMPLICATIONS FOR THE REFORM

OF GOVERNMENT MANAGEMENT

We suggested in chapter 1 that implementation is a major weakness for gov-

ernment reform. In this chapter, we have examined simple approaches to
address this problem of government management. This analysis has major
implications for government reform. We will discuss detailed strategies and
tools which can be used to manage these issues in later chapters.
First, traditional government management systems simply cannot address
cycle time management or the management of cycle impacts.
Second, while the idea that business management reform needs to be
extended to manage comfort zone impacts was developed in chapter 2, cycle
time analysis illustrates how this must occur. It is not enough to use tradi-
tional hierarchical segmentation which presumes that comfort zone issues can
be managed prior to implementation.
Third, solving the implementation problem in government requires man-
agement systems able to address three different priorities. Government sys-
tems need to manage short-run impacts, balance impacts on added value and
comfort zones in order to deliver added value while operating within the
comfort zone, and manage cycle inputs in order to maximize project support.
Fourth, the IIM and the CIM presented in this chapter enables govern-
ment managers to focus on impacts and manage cycle-based communica-
tions. However, for impact management to succeed other government systems
need to change. Planning and evaluation solutions need to identify impacts
and link these to wider objectives. We discuss how this can be achieved in
chapter 8. Government managers require new strategic leadership skills to
manage the adjustments required to maintain a project within the comfort
zone throughout implementation. We discuss leadership in chapter 6 and we
examine the need for an effective senior management system in chapter 9.
The government value-chain must be reengineered to enable managers to
control cycle time and management cycles. We discuss these changes in more
detail in chapters 5, 8, and 9.
Fifth, many of the reform solutions adopted by governments create new
implementation problems not only because they do not provide managers
 Implementation Strategies for Competitive Government 103

with the scope to manage cycle impacts, but also because they increase rather
than reduce cycle time. Although many of these solutions draw on key ele-
ments required for competitive government, they often ignore the need to
manage implementation impacts.
Sixth, our analysis suggests that the failure to manage cycle impacts and
to use cycle-based communications has caused many unnecessary implemen-
tation breakdowns. Many implementation problems are not caused by politi-
cal opponents or by vested interests opposed to change but by the way in
which managers mismanage cycle dynamics. The idea that a communication
strategy should manage perceptions of discounted net project value across
different interest groups changes the management landscape for many gov-
ernment agencies. Cycle-based management, when pursued skillfully, can
stimulate government management systems to manage performance instead
of avoiding it and to negotiate the scope to manage performance directly
rather than to blame nonperformance on restraints imposed by others.
 Chapter 5

Responding to External Pressures:

Value-Chain Coalignment and the
Delivery of Governmental Services

The basic function of management appears to be coalignment, not

merely of people in coalitions but of institutional action— of
technology and task environment into a viable domain, and of
organizational design and structure appropriate to it. Manage-
ment, when it works well, keeps the organization at the nexus of
several necessary streams of action.
—Thompson, Organizations in Action

(Management) has to be operational. It has to embrace the entire

process. It has to be focused on results and performance across
the entire economic chain.
—Drucker, Management Challenges for the 21st Century

Chapters 1–4 advanced four propositions about the crisis in government and
its solutions.

• Although the crisis in government management is externally driven,

most solutions address internal symptoms rather than the underlying
causes. As national barriers are dismantled, national differences and
preferences are becoming more rather than less important determinates
of national priorities for competitive government.
• These external pressures require nations to change in order to maintain
and improve their competitiveness. Although there are a number of
different transitions determined by national strengths and preferences,

105
106 A VISION TO GUIDE GOVERNMENT REFORM

part of the transition to competitiveness for most nations is a transition

to the high-response mode of national management. The role and per-
formance of government must change to ensure that government as
well as business can respond competitively to new external priorities.
• A national transition to increase competitiveness requires a govern-
ment which can respond and can work with business as a catalyst for
the development of world-class industry strengths. It requires govern-
ment managers able to accept a shared responsibility for national
performance.
• Many of the solutions to the crisis in government management involve
dismantling old systems of coordination and control and transplanting
solutions derived from business. There are problems with these trans-
plants: government often fails to provide the focus assumed by busi-
ness; business solutions seldom provide for the ongoing management
of the impacts on interest groups which government systems must
address; and reforms seldom address the need to shorten cycle time.

It is the purpose of this chapter to examine the internal changes required

to enable government management to respond to these external pressures.
New strategies to coordinate the parts of government and to link government
more effectively to external changes are central to effective reform.
J. D. Thompson (1967), in developing one of the few theories of organiza-
tional synthesis, addressed the need to coordinate interdependencies in order
to facilitate organizational change and adaption. He saw the key to coordinat-
ing organizational interdependencies in times of rapid change as coalignment.
In government systems, coalignment needs to be focused on the particular
tasks and projects that deliver outputs rather than on macro-agencies and
programs. Coalignment needs to be driven by new approaches to strategic
leadership which use benchmarking and evaluation and by new approaches to
communication.
Governments can be conceptualized as importing competitiveness oppor-
tunities and threats, social needs, and interest groups pressures and exporting
added value which address each of the core missions of government. The
government value-chain is the sequence of functions and processes used by
government to convert these inputs into outputs. The cycle of government
activities outlined in chapter 4 contained four sequentially related processes
or sub-cycles: consensus, legislative, implementation, and consolidation, which
can be directly linked to functions in this value-chain. In this chapter, we
focus on the need to manage these conversion processes differently. We present
approaches to the analysis of government value-chains and discuss the need
to achieve a dynamic coalignment of the functions of government which
 Responding to External Pressures 107

focus on both specific task performance and on specific environmental

impacts.
Three features of government value-chains block transition to high-
response government. First, government value-chains are buffered from their
environment rather than sensitive to it. Second, value-chains are overspecialized
and segmented, and government value-chains are coordinated through standard-
ization and queued through standard government budget and legislative pro-
cesses. Third, the lack of focus on cycle time and the focus on segments of the
value-chain encourages government to start more projects than can be resourced
and to balance resources by extending rather than reducing cycle time.
The Value-chain Coalignment Model (VCCM) provides a framework for
reengineering government value-chains to remove these blockages. The model
addresses the interdependency of internal reforms, the need to achieve new
functional coalignments, the need to move beyond on-off fixes, to establish
a basis for continuous improvement, and the need for effective control of
these processes.
Effectiveness in maintaining a government’s organizational interdepen-
dencies refers to management’s ability to achieve coalignment among its
internal and external resources in such a manner as to be equal to or greater
than the world best benchmarks for those government activities. Coalignment
is a unique form of organizational interdependence in which each of a
government’s stakeholders and subunits closely articulates their needs, con-
cerns, and potential contributions to the government’s functioning in such a
manner that management can forge an appropriate value-added configuration
and linkages between stakeholders and a government’s organizational perfor-
mance. An appropriate value-added configuration and linkage pattern be-
tween governmental activities is one which integrates, coordinates, and controls
each stakeholder’s and unit’s needs, concerns, and contributions so that out-
come is mutually satisfying to all involved and optimizing to the activities of
government functions as a whole. This is the essence of effective public
sector management.
Three theories of high response management provide the focus to enable
deregulated units to address external impacts and deliver key tasks and services.
Environmental scanning theory is used to locate those environmental
forces which must be constrained, employed, and responded to in order to
create a sustainable public consensus on a high priority governmental problem.
Value-chain theory is used to identify areas across governmental pro-
cesses which must be effectively coaligned in order to rapidly formulate,
enact, and implement public programs.
Continuous improvement theory is used to reengineer a government’s
integration, coordination, and control processes in order to upgrade govern-
mental performance.
108 A VISION TO GUIDE GOVERNMENT REFORM

We illustrate the application of these ideas by examining the application

of value-chain theory to legislative processes to develop and deliver the
“Contract with America.” We conclude by summarizing the implications of
these theories for the implementation of government reform.

ENVIRONMENTAL SCANNING THEORY

An organization’s environment, perhaps more than any other

factor, affects organizational strategy, structure, and performance.
However, whether such changes in organizational strategy,
structure and performance lead to positive or negative conse-
quences, rests almost entirely upon the speed, accuracy, and
interpretation of the information and communication regarding
the significance of various environmental changes and the rapid
reorientation of an organization’s strategy, structure, and re-
sources in order to take advantage of such changes. This process
is termed environmental scanning. . . . environmental scanning
allows us to analyze and act on the forces external to an organi-
zation which significantly influence its internal relationships.
—Cushman and King,
Communication and High-Speed Management

Environmental scanning can be approached by focusing on the boundary

between an organization and its environment. Transactions across that bound-
ary represent inputs and outputs of the organization and determine the impact
of the organization on its environment. The complex environment facing
many business organizations is often managed by a combination of devolu-
tion and segmentation into relatively simple but increasingly dynamic product/
business domains; portfolio management strategies enables business to export
and import such business units in order to modify their external boundary and
to exploit internal synergies. The environmental scanning task in such orga-
nizations starts by focusing structures and management in order to strengthen
relationships with these domains.
The boundary between government and its environment is more complex
than the boundaries managed by most business organizations. Exhibit 5.1.
Government and Its Environment outlines the key boundaries which govern-
ment must scan and manage. At the microlevel, governments must relate to
many interest groups and these interest groups are interrelated. At the
macrolevel, governments must manage two boundaries. First, there is the
direct government boundary which includes transactions with other govern-
ment, with multinationals, and with national interest groups including busi-
 Responding to External Pressures 109

Exhibit 5.1. Government and Its Environment

GOVERNMENT

Government Boundary Scanning Role

In order to increase national
competitiveness, government must
manage direct transactions across
the government boundary and indirect
transactions across national boundaries
Externally controlled Environmental domains are complex
multinational and interrelated. The nature of
companies transactions between government and
these domains differ

The Government Boundary

Transactions with companies and
interest groups and individual citizens
Includes direct international
transactions which are also part of the
national boundary
Internally controlled Interest
multinational groups
companies

Interest
National groups
companies

The National Boundary

Transactions with the rest of the world
Major government transactions with other nations
Indirect transactions with companies that access
world markets

nesses. Second, there is the national boundary. Government manages some

transactions across this boundary directly but many of the management tasks
spanning this national boundary are undertaken by business units. Govern-
ment needs to manage these parts of the national boundary indirectly. The
volatility of this environment and the interconnections between domains means
that simple structural solutions to focus boundary scanning need to be aug-
mented by other solutions.
Environmental forces create both problems and opportunities for govern-
mental organizations. In chapter 4, we observed how the management of four
such environmental tensions were particularly important. The first tension is
110 A VISION TO GUIDE GOVERNMENT REFORM

between the public awareness of a problem and the cycle time required to
build a consensus that the problem is a high priority need requiring an im-
mediate governmental response (consensus cycle time). The second tension is
between a public consensus on government’s need to respond to a high pri-
ority problem and the cycle time it takes government to formulate an appro-
priate program, move it through the legislature, and achieve a budget allocation
(legislative cycle time). The third tension is between the legislative mandate
to solve a problem and the scope for management to actually deliver results
(implementation cycle time). The gap between mandates and scope for action
includes resource gaps, workskill gaps, and comfort zone gaps. The fourth
tension is between public expectations of projects and public perceptions of
results achieved (consolidation cycle time). The coalignment of a government’s
actions within these four cycle times is the essence of effective management
of governmental processes.
Environmental scanning in the public sector has four roles.

Scanning the National Boundary

Environmental scanning must identify opportunities to add value to national
competitiveness. This includes the identification of specific transitions to
national competitiveness, monitoring progress, and the impacts on competi-
tors and government. World-class benchmarking refers to the competition
between nations for access to the world resource base. Governments that are
inefficient, unstable, and poorly managed will increasingly be denied access
to the world’s resource base both by their own taxpayers and by responsible
national, regional, and multinational institutions. Those local, national, re-
gional, and global governmental institutions which set the standard for excel-
lence in governance will be extended increased access to such resources and
an increasingly improved standard of living for its citizens.

Scanning the Government Boundary

Environmental scanning must locate public consensus or potential public
consensus on the need for governmental action with sufficient strength to
constitute a high priority mandate for change. In addition this high priority
mandate must be sustainable in time throughout the life cycle of the legisla-
tive and budget processes.

Real Time Rather than Sequential Scanning

Environmental scanning must be dynamic and proactive rather than sequen-
tial. It must recognize that a consensus for change can quickly erode. It must
recognize that many projects fail to deliver planned impacts.
 Responding to External Pressures 111

Scanning the Limits to Action

Environmental scanning must also scan the limits to effective action. We
discussed in chapter 2 Peter Drucker’s view that we need to consider what
government can do rather than what it should do. Success or failure is in-
creasingly related to effective scanning not only to identify implementable
solutions, but also and to optimize the timing of particular changes.
In nations using multiparty legislative systems, comfort zones or the lack of
them are often, but not always, evidenced by political opposition to change. The
complexity of environmental scanning in government is evidenced by research
into such cases. David Butler and Donald Stokes (1974) in their thirty year study
of high priority public consensus for governmental action in Great Britain discov-
ered that when the public had such a high priority and had a preferred solution,
both major parties tended to back governmental action and a program was imple-
mented. When the public had such a high priority consensus and several solutions
were equally supportable and one party had a large majority, that party’s solution
was implemented. When no such majority existed, gridlock and inaction oc-
curred. This study draws attention to one of the unique qualities of management
in government—the need for bipartisan support or a large majority to influence
governmental action. In thirty years of legislative history in Great Britain, these
two criteria were met less than 30 percent of the time.

Environmental Scanning Tools

The three models presented in chapters 3 and 4 (national competitiveness,
impact management, and cycle time management) all focus on aspects of
environmental scanning. The strategic planning and evaluation model intro-
duced in chapter 2 and developed further in chapter 8 also focuses on man-
aging external pressures.
These tools focus on the need for external benchmarks, the need to
manage the interrelationships between added value and comfort zone im-
pacts, and the need to manage in real time impacts on added value and
comfort zones, and the need to focus management strategically on core re-
sults. Exhibit 5.2. A Checklist for Environmental Scanning in Government
provides a checklist that can be used to focus an evaluation of environmental
scanning in particular government situations.

VALUE-CHAIN THEORY
[A]n organization’s ability to continuously improve its effectiveness in
managing organizational interdependence will be the critical element
in successfully responding to environmental forces in the 1990s.
—Rockert and Short, ITT in the 1990s
112 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 5.2. A Checklist for Environmental Scanning in Government

• What are the opportunities and threats to increase competitiveness, add social
value, and strengthen governability? What strategies are available to exploit the
opportunity or address the problem and what interest groups and political parties
are associated with each solution?
• Which of these options are internationally competitive? What have other
governments around the world done to solve this problem?
• Which of these options might obtain a legislative and budget mandate for
implementation given the disposition of the legislature and the resource base of
the nation, of business, and of government?
• What are the diverse expectations that must be met in order to create a comfort
zone for action? Which of these options are implementable in the sense that
they are unlikely to attract sufficient opposition to either prevent
implementation, or increase implementation costs to the point where net benefits
are likely to be seriously eroded?
• What are the limits to action? What cannot be done or the comfort zone will be
destroyed? What is the most dangerous thing which could happen to prevent the
preferred solution from being implemented? What can we do to prevent such a
danger from impeding the implementation of our solution?
• What are the likely impacts of the change, both during and after implementation?
How might these be monitored and managed? How can a public perception of net
positive benefit be maintained throughout the implementation and consolidation
processes?

Whereas environmental scanning allows a manager to survey the potential

outside resources for government and determine the most appropriate way to
coalign those resources with ongoing governmental action, it is value-chain
theory which provides a survey of a government’s internal resources and how
they must be coaligned to achieve significant governmental action. To begin
with, we are in need of a theoretical framework for analyzing the major
functions and processes employed in organizing and managing governmental
activities. In addition, this framework should highlight the within and between
units coalignment activities. This is exactly what value-chain theory does.
Three features of the traditional government value-chains act to lengthen
cycle time and block attempts to move to high-response solutions. First,
government value-chains are coordinated to fit the standard government
budget and legislative cycles rather than to meet the demands of cycle time
management. This leads to coordination through standardization and a se-
ries of queues. Second, government value-chains often create coordination
problems because they seek to optimize efficiency, by extending cycle time,
and oversegmenting value-chain functions. Third, this focus on queues and
on segments rather than on outputs encourages governments to extend cycle
 Responding to External Pressures 113

time by starting more and finishing fewer projects. We now discuss each of
these issues.

Coordination to Fit the Standard Government

Budget and Legislative Cycles

A governmental value-chain consists of different levels of analysis. Four

levels are illustrated in Exhibit 5.3. Value-Chain for Government Activities.
The first level contains corporate government functions; the second level
contains governmental functions for implementing programs and projects; the
third level contains an aggregation of governmental functions into specific
governmental processes and cycles. The fourth level is the leadership level
consisting of management and communication processes.
In examining the corporate government level of the value-chain, note that
although overall government priorities are included, the thrust of corporate
government is often on regulating and coordinating activities. In examining a
government’s functional unit level of the value-chain, notice the start and finish
of the value-chain, which denote inputs into the public administration process
and outputs from that same process. The boxes denote functional activities
performed within public administration or government. In examining the pro-
cess level of governmental activities, note how each process includes some
functional activities unique to that process and some linking or overlapping
functional activities which reside in that process. The process level in Exhibit
5.3 includes the four government sub-cycles, which were discussed earlier.
The traditional government value-chain has a number of central charac-
teristics. The value-chain is essentially sequential and assumes that a legisla-
tive and budget mandate (essentially a political task) is followed by
implementation (essentially a management task). The system involves a com-
plex sharing of accountability for performance between the legislature, execu-
tive government including the central agencies of government, agency
managers, and project managers.
In a static world with set structures, the complexity of these accountabili-
ties is simplified by segmenting them. Consensus is assessed at the outset and
is assumed to be independent of implementation and changing events and
cycle time. The legislative cycle is seen to have succeeded when it delivers
a mandate for action. Allocative tensions are seen to be resolved when each
annual budget is approved. Management is responsible for implementing the
mandate within the rules and regulations set up by corporate government to
regulate agency behavior.
These orderly solutions break down when the response times required by
external changes falls below the aggregate cycle time of these government
 114
Exhibit 5.3. Value-Chain for Government Activities
Government priorities Allocative tensions Policy consistency Financial regulations
CORPORATE
Personnel regulations Cyclical budget review Audits of performance
GOVERNMENT
GOVERNMENT FUNCTIONS

Implementation

Implementation
Budget review

Consolidation
and budget

A VISION
Consensus

Scheduling

Legislative
INPUTS OUTPUTS

TO
GUIDE GOVERNMENT REFORM
• Benefits to
Competitive
• Legislation: • Development/ Evaluation • Development/ users
needs
development/ authorization and revision authorization • Effective
Social value
debate/vote • Resource of budget • Resource transition
needs
• Budget: acquisition priorities: acquisition • Ongoing
Interest group priority/ • Project delivery proposal/ • Project delivery support for
pressures debate/vote debate/vote change

GOVERNMENT PROCESSES
Consensus cycle Performance
Annual Budget
Legislative/budget cycle Cycle review/audit

Implementation cycle Implementation cycle

Consolidation and review cycle

MANAGEMENT FUNCTIONS
Strategic leadership
Cycle time management and communications
Value-chain coalignment
Resource and personnel management
 Responding to External Pressures 115

systems. In considering the need for reform, features of the traditional gov-
ernment value-chain need to be considered.

Budget and Legislative Cycles

The value-chain is managed within annual budget and legislative cycles. The
scheduling delay at the commencement and the annual review process adds
to cycle time. The output of the legislative/budget cycle is a mandate for
action plus a one year allocation of resources. At the end of each cycle there
is a review and allocation process. Each existing project must resist pressures
to cut costs in order to start new projects. Pressures for reduction can be
pressures to scale down the project or pressures to slow implementation. At
each review, the funding and priority for completion are reconsidered. After
each review managers must revise project plans and resources and continue
with implementation.

Access to Resources
A budget mandate is a necessary but not sufficient condition for access to
resources. After obtaining a legislative/ budget mandate for action, agency
managers must negotiate access to the personnel and other resources required
to implement their mandate. The central agencies of government often seek
to control the policy personnel and financial systems which are required to
support implementation. Although policy impacts and the scheduling of pro-
posals into the budget and legislative cycles are dealt with as part of the initial
legislative budget mandate, negative impacts are often addressed through policy
driven interventions by central agencies.
Traditional government systems also control employment, classification
levels, structures, and roles making the task of assembling a group to imple-
ment a proposal difficult and time consuming. These difficulties expand where
the project requires new types of resources or growth in agency resources
Government controls over other management processes, for example, pur-
chasing or system development, also act to further delay cycle time.

Evaluation
Evaluation is segmented on the basis of processes and resources rather than
impacts and results. Segmenting evaluation and relating it to budget reviews
shifts the emphasis away from using resources to deliver outputs towards
using resources to protect territory and maintain the scope to manage. At the
end of the process there seems no point in reviewing final outcomes or results.
116 A VISION TO GUIDE GOVERNMENT REFORM

Cycle Time
Cycle time is an outcome of these processes rather than an active manage-
ment variable. Cycle time is system rather than management constrained.
Management of cycle time is shared between central agencies, the legislature,
and project managers. The concentration of central processes on an annual
cycle is a government device which aggregates decisions to manage allocative
tensions and to standardize processes in order to simplify interactions be-
tween the legislature and executive government. However, this solution has a
number of terminal disabilities for high-response government, for example,
cycle time is extended unnecessarily, managers are prevented from managing
cycle time directly, and the focus of evaluation shifts away from performance
and results toward the retention and acquisition of resources.

Core Management Skills

Core management skills change with the value-chain. For example, manage-
ment support for the traditional process involved the capacity: to articulate
and develop policy; to manage communications between government and
various interest groups; to access and use the legislative/budget, personnel,
and financial systems of government; and, finally, to manage the delivery of
programs effectively within the rules laid down for efficient (or failure proof)
government. The management skills required to implement competitive gov-
ernment are different; for example, strategic leadership, cycle time manage-
ment and communication, value-chain management, and resource management.

Over Segmentation
Over segmenting value-chain functions to optimize efficiency often extends
cycle time. Exhibit 5.4. Value-Chain Segmentation and Cycle Time focuses
on the standardization and queues used to coordinate traditional government
value-chain functions. The first diagram illustrates the use of queues to co-
ordinate the value-chain. The second diagram in Exhibit 5.4 illustrates the
relationships between value-chain segmentation and costs. The third diagram
shows the relationship between value-chain segmentation and cycle time.
In examining Exhibit 5.4, note that each new segment introduced into a
value-chain also requires an additional queue. Both total costs and cycle time
are impacted by these queuing solutions. First, total costs are a function of
the reductions caused by specialization and economies of scale offset by the
increasing costs of coordination and control. Second, production delays (cycle
time) are extremely sensitive to the segmentation because of the impact of
queuing time.
 Responding to External Pressures 117

Exhibit 5.4. Value-Chain Segmentation and Cycle Time

VALUE-CHAIN / DELIVERY TECHNOLOGY

Production
segment x
Production
segment 1
Input Output

Queue x
Queue 1

Repeat
production
segments 1–x

Other projects Other projects

Cycle time = Coordination plus production times

High

COSTS AND VALUE-CHAIN

Unit cost of production

SEGMENTATION
Direct
production
costs Total production plus
coordination costs

Cost of Cost of
minimizing coordination
cycle time
Low

High Degree of segmentation / specialization Low

High

CYCLE TIME AND

Unit cost of production

VALUE-CHAIN REGMENTATION
Total production plus
production delay Coordination
delay

Production
Delay caused delay
by minimizing
costs
Low
118 A VISION TO GUIDE GOVERNMENT REFORM

Coordination by Queues
The focus on queues and on segments rather than on outputs encourages
governments to extend cycle time by starting more and finishing fewer projects.
While such strategies address short-term pressures on the comfort zone, they
also create longer-term pressures as lack of result impacts leads groups to
discount government commitments

Strategies for Reengineering Value-Chains in

Order to Reduce Cycle Time

This examination of values-chain theory as it applies to government suggests

three propositions for government reform. First, maintaining coalignment in
times of rapid change will require the active management of value-chains. This
in turn requires management and communications systems that focus on stra-
tegic leadership, cycle time management, value-chain coalignment, and resource
management. Second, the initial success of devolution solutions where there is
a consensus about performance and priorities will be illusory unless coalignment
can be maintained in the medium to long-term. Third, reengineering govern-
ment value-chains requires the resolution of three at times conflicting tensions:
the tension between mandates and the need for flexible actions; the tension
between a project manager’s requirement to manage resources and the system
wide culture and controls which underpin government personnel and financial
management; and finally the tension between short-term responses and the need
to build long-term solutions.
We have argued that the capacity to reduce and manage cycle time is
critical to competitive government. This analysis of the government value-
chain demonstrates that reducing cycle time requires more than a fine tuning
of government cogs; it requires a major reengineering of the value-chain.
Four different reengineering strategies can be considered.

Existing Value-Chain
Focus the existing value-chain and reduce cycle times by modifying elements
of the chain and coordinating the interrelationships between them. Govern-
ment can focus on making the existing value-chain more effective by accel-
erating performance and evaluating impacts. Simply focusing on timing can
be effective because most government management systems see timing as an
output of the system. However, many government value-chains are limited by
general central processes which are not directly linked to a specific project.
For example, in Exhibit 5.3, the legislative and budget cycles and the budget
 Responding to External Pressures 119

review functions dominate cycle time. In addition, the resource acquisition

function is often dominated by attempts to manage government wide rather
than project specific impacts.

Deregulation
Reduce cycle time by deregulating specific functions in the value-chain and
focusing these functions on project needs rather than on system needs. For
example, the delays created by corporate government policy personnel and
finance systems can be reduced by deregulation of the management pro-
cesses. This strategy frees government managers to manage implementation
but does little to address the dead hand of the legislative and budgeting
systems of government. In addition, deregulation provides managers with the
scope to both manage and mismanage resources. There are too many cases
of empires built and garnished with resource flexibility provided by deregu-
lation to ignore these risks. If these empires also delivered added value to the
public, the excesses might be seen as a small price to pay for performance.
But often the public is worse off because there are fewer funds available for
services, and because they see themselves as paying for the new excesses of
autonomous managers.

Simplification
Identify elements that are not critical to delivery and either eliminate these
functions or manage them in parallel with critical functions rather than in
sequence. Examples of reengineering solutions include: the use of agency and
program mandates to define organizational and resource boundaries within
which executive government can act; the use of project teams which cut
across agency and budget boundaries; corporatize areas of government which
can operate as businesses or quasi businesses to allow these entities scope to
raise their own revenue and deal with their own customers; and move some
functions out of the government value-chain altogether, for example, by priva-
tizing or setting up independent tribunals or authorities to manage particular
functions. Moving activities to the private sector can remove them from the
political framework and from the political consensus process.

Devolution
Arrange government structures both within and between agencies to enable
managers to directly manage value-chain interdependencies. Structures should
seek to provide the scope for autonomous management of specific value-
120 A VISION TO GUIDE GOVERNMENT REFORM

chains or at least seek to define agency boundaries that include the more
difficult interdependencies. Where agency structures must segment interde-
pendencies, overlapping project structures can be used to provide a manage-
ment focus. Where management must be segmented across the value-chain,
boundary coordination units at key interfaces can be used to manage strategic
interdependencies.

Reengineering Value-Chains

The traditional government value-chain assumed that “steering” (policy direc-

tion and evaluation) and “rowing” (service delivery) need to be integrated.
Many current and successful strategies for government reform involve split-
ting the traditional value-chain. For example, separating “steering” from “row-
ing” (Osborne and Gaebler) focuses corporate government on performance,
on legislative and resource envelops, and on adding value to markets and
services rather than on delivering these directly. The Thatcher government in
the United Kingdom used similar strategies to dismantle one of the most
centralized bureaucracies in the Western world.
First, these solutions must reengineer the corporate government value-
chains to achieve three results:

• A shift from detailed controls over processes to a focus on perfor-

mance and results.
• A shift to new strategies to manage resources which include user pays,
accrual accounting, and macro-program allocations within which agen-
cies are able to determine priorities and manage impacts.
• A shift to new strategies for enabling the legislature to review and
approve government activities that focus on controlling priorities and
objectives rather than processes and on audits of performance rather
than compliance.

Second, these solutions must reengineer delivery value-chains to enable

managers to manage cycle time and deliver agreed results. While there are
many different solutions related to different delivery tasks, four different
types of reengineering can be identified.

• Project management solutions deliver parts of change programs using

project management techniques. Projects are controlled by a project
agreement which defines performance impacts and the resources and
 Responding to External Pressures 121

management scope required. These represent a temporary adjustment

to an agencies value-chain.
• Devolution of management powers to operating agencies is the solution
underpinning many of Osborne and Gaebler examples. In chapter 7, we
suggest that this transition requires a balance between increased ac-
countability for results and a relaxation of detailed controls over pro-
cesses. The end point is a split in the value-chain with government
retaining considerable residual controls and responsibilities.
• Corporatization of operating agencies involves statutory management
autonomy for agencies. Often the objective is to place agencies on a
business like basis. Government appointed boards are usually part of
this solution. Control is through government policies and through ap-
proved business plans.
• Privatization solutions remove agencies from government ownership.
This represents an irreversible cutting of the old value-chain. The
government’s role usually reduces to establishing a legislative charter
for the privatized agency and regulating the activities of the agency to
ensure that the public interest is addressed. These solution work best
where external competition can be used to provide market driven
accountability to complement residual government regulations.

CONTINUOUS IMPROVEMENT THEORY

Fast-cycle companies map a firm’s information and communica-
tion flow so as to identify major interfaces, bottlenecks, and
action impediments . . . They study competitors and superior
performances . . . for helpful ideas . . . They know just where in the
system compressing time will add the most value . . . Not surpris-
ingly, these are the activities they attack first and upgrade
continuously. To compress time and gain the benefits, a company
has to work in and manage through small self-managed teams
made up from various parts of the organization.
—Bower and Hout,
Fast-Cycle Capability for Competitive Power

Government structures must relate to many different environmental domains;

they must deliver a wide range of different project functions and impacts.
Simple structures can no longer perform this role. It is often counterproduc-
tive to seek to align structures and tasks directly. Temporary organization to
122 A VISION TO GUIDE GOVERNMENT REFORM

manage change projects have become a feature of government management.

They work well enough. The danger is that government systems will use
every respite from change to attempt to institutionalize and capture these
change mechanisms. This institutionalization often produces two forms of
paralysis: a general inertia caused by fixing the way in which government
sees its environment; and cycle time inertia in that the new processes trade
cycle time for predictability and control.
We have mentioned above the illusory success which occurs when gov-
ernment addresses a crisis. For a period the priorities are clear and the system
coaligns to deliver solutions. In this situation it is relatively simple to manage
delivery and achieve impacts. But when priorities must shift, comfort zones
erode and delivery fails. Coalignment is often the first casualty of this pro-
cess. Often, government systems and management focus on eliminating symp-
toms of failure rather than on changing to provide a basis for ongoing
improvement.
Ongoing improvements in performance require management systems that
make performance improvement a primary focus. Traditional government
management systems manage inputs and processes rather than performance.
Ongoing improvements in performance require government managers to
move outside of the restraints produced by agency structures and roles. At the
heart of a government’s use of an improved value-chain to increase both the
responsiveness and performance of one or more of the government’s pro-
cesses is the use of communication in small groups to continuously improve
current organizational performance. Several dynamic small group coordina-
tion processes exist for improving a firm’s coalignment of cycle time and
performance outcomes. These include (1) task forces, (2) legislative hearings,
(3) benchmarking teams, (4) cross functional teams, (5) self-managed teams,
and (6) outside linking teams. Let us briefly explore the communication
dynamic of each small group process and then explore their effective use in
one example from the legislative process.

The Communication Dynamic of

Various Continuous Improvement Groups

A task force normally involves government officials, topic experts, and com-
munity leaders in a process of constructing a public consensus and formulat-
ing legislative programs aimed at solving high priority problems. This group
can be from twenty-five to several hundred, depending on the size of the
problem to be solved and the interest groups needed to forge a public
consensus.
 Responding to External Pressures 123

A legislative hearing normally involves a committee of the legislature

investigating and building a consensus on the need either to develop new or
modify old legislation. The size of the group depends upon the size of the
committee or committees with jurisdiction over the legislative problem in-
volved. Experts and representatives of interest groups are called to public or
private meetings to inform the committee on what is needed in the form of
legislative support.
Benchmarking teams normally scan the globe for world-class govern-
mental performance and then study how various parts of one’s own organi-
zation needs to be changed to achieve that world-class level of performance,
This team then implements and monitors changes in one’s own organizational
structure until it achieves comparable performance levels with the govern-
mental process benchmarked.
Cross functional teams normally are made up of various unit manag-
ers and focus on improving interunit coordination, cycle time, and perfor-
mance outcomes. Such improvements are thus at the process level of the
value-chain.
Self-managed teams normally focus on improving within unit coordina-
tion, cycle time, and performance outcomes. Such team meetings are thus
from within functional units of the value-chain.
Outside linking teams normally take the form of outsourcing or
privatization of governmental services. In such cases, the service may remain
linked to or may be separated from the governmental value-chain.
These six forms of groups activities are the central tools employed by
manages to continuously improve governmental performance.

COALIGNMENT AND THE LEGISLATURE:

DELIVERING THE CONTRACT WITH AMERICA
We have made our choices, and now we have no place to go
but forward. The rest, as they say, is history. When the 104th
Congress was sworn in on January 4, 1995, we set about
fulfilling the Contract. With a hundred day legislative blitz
unparalleled since at least 1933, we brought every item
in the Contract up for a vote, exactly as we said we would.
More than that, we passed nine out of ten items, failing only to
get the two-thirds vote for the term limits constitutional
amendment (although that issue is far from finished). The big
question is, what’s next?
—Armey, Freedom Revolution
124 A VISION TO GUIDE GOVERNMENT REFORM

Environmental Scanning
During the winter of 1993, the Republican Party in the United States was
confronted by several facts as they prepared for the upcoming legislative
elections. The Democratic Party controlled the Presidency and both Houses
of the legislature by what appeared to be a comfortable margin. House Mi-
nority Leader, Newt Gingrich reflected on the political environment as he saw
it at the time—

President Clinton’s popularity was stuck in the mid-40 percent range

close to the plurality by which he won the 1992 election. His advo-
cacy of unpopular social issues had alienated much of middle America.
Tax increases had angered the small business community. His health
plan had collapsed and his much heralded welfare reforms had never
materialized. Support for term limits was growing at a fantastic pace.
Various congressional scandals had made it clear that after forty
years of power, the Democratic Party was worn out. (Gingrich 1995)

The first indication that the environment was changing was the appear-
ance of a large number of eager and attractive Republican candidates for the
fall legislative election. They were young, educated, and had grown up ques-
tioning the legacy of the 1960s. They were critical of liberalism on economic
and social grounds. Excellent candidates were emerging to challenge Demo-
cratic Party dominance of both houses of the Congress and of the state gov-
ernorships and legislature. At that time the Democrats controlled thirty
governorships and thirty-one legislatures with Republicans controlling eigh-
teen governorships and only seven legislatures. For decades, scores of Demo-
cratic held positions had gone unopposed but now that was changing.
In January of 1994, Newt Gingrich held a weekend retreat of House
Republicans; they settled on a campaign strategy for the fall election, now
known as the “Contract With America.” What happened at that meeting is that
public opinion polls had revealed several issues on which over 60 percent of
all Americans felt the U.S. government should act. Newt Gingrich describes
the result—

Revolutions have to be built one step at a time. The first step was to
commit the party to the idea that we should run on idealistic bold
reforms and be prepared to keep our word. By June we had agreed to
hold a Capitol steps event in September involving ten major program
statements. The ten points basically selected themselves as deeply felt
desires of the American people. We knew from long experience that
people were desperate for a law requiring Congress to obey the same
laws as everyone else. We knew that there was overwhelming support
 Responding to External Pressures 125

for the balanced budget amendment, the line-item veto, and term lim-
its. As the party of small businesses and family farms, we knew that
litigation reform and regulatory reform were strongly supported. As
conservatives and advocates of a prowork and profamily America we
knew that welfare reform, a child tax credit, increased savings oppor-
tunities, and capital gains tax cuts to increase economic growth would
strengthen America. Finally, as conservatives, we felt the liberals had
weakened our national defense and our laws against criminals and
child pornographers. We believed that these should be strengthened. It
can literally be said that the Contract with America grew out of our
conversations with the American people and out of our basic conser-
vative values (Gingrich 1995).

The public was fed up with governmental inaction and/or gridlock. So

the Republican leadership drew up a contract with the American people that
if elected they would in the first 100 days of the new legislative session bring
legislation on these issues to a vote. They fully expected this legislation, if
properly drawn, to pass because most Americans, both Democrats and Re-
publicans, favored governmental action (Welch 1995).
This was one of the first times in American history such a promise for
governmental action on consensual issues had been proposed before an elec-
tion. This action co-opted popular public issues to the Republican cause, it
sidestepped divisive issues, and promised significant governmental action. In
the fall 1994 legislative campaign, these issues emerged as dominant and the
Republican Party took control of the House by twelve votes, the Senate by
two votes, thirteen state governorships, and expanded their control over state
legislators.
Furthermore, prior to their self-imposed 100 day limit, all but one of the
ten legislative programs, the term limits amendment, had passed and gone
from the House to the Senate. Public opinion polls revealed that Newt Gingrich
and the House Republicans had succeeded in imposing these issues on the
Senate, the president, and the nation. It remains to be seen if the Senate will
ratify and the president fail to veto these bills. However, the Contract with
America has been viewed by most Americans as a test of the leadership skills
of Bob Dole, the leader of the Senate Republicans, and his qualifications for
president. It has also placed the president, a Democrat, in the unusual position
of either supporting these very popular bills or running for reelection as an
obstructionist (Dunham et al. 1995).
The effective use of environmental scanning by the Republican Party,
within cycle time required, led to one of the most one-sided party victories
in American political history, catapulted Gingrich into speaker of the House,
and provided Gingrich, Dole, and the Republican Party with a platform from
126 A VISION TO GUIDE GOVERNMENT REFORM

which to challenge the Democratic president, not by mere rhetoric alone, but
by legislative action on high-priority public issues. Environmental scanning
requires that a government find solutions to high-priority problems by imple-
menting the following: monitoring public attitudes and expectations, bench-
marking other governmental units, learning from their performance, and by
its own creativity.

Value-Chain Management
We have explored how Newt Gingrich and the House Republicans built a
high-priority consensus during the 1994 congressional election process. This
was an important step in the public consensus processes. Let us now examine
how House Speaker Gingrich managed the legislative consensus development
processes in the House. This involved the use of value-chain theory at the
functional unit level. It involved legislative proposal hearings, legislative de-
bates and votes, budget debates and votes, and implementing agency assign-
ment for the legislation.
Since the Republican Party in the House had promised the American
people they would vote on the ten proposals which made up the Contract with
America within the first one hundred days of taking office, careful planning
and a great deal of work would be required to keep this promise. Jim Nussle
was picked by the House Republicans to head a transition team from Demo-
cratic to Republican leadership in the House of Representatives. He was
backed by a strong and aggressive team. The opening agenda of Speaker
Elect of the House Newt Gingrich, was to audit the House management
system, cut committee staff, and shrink the size of the House administrative
units in order to make them more responsive. In retrospect, four changes in
administrative procedures proved to be very important. First, several young
committee chairmen were picked, disregarding the seniority system. Bob
Livingston, Tom Bliley, and Henry Hyde became chairmen of Appropriations,
Commerce, and Judiciary, even though they did not have seniority. In each
case, Speaker Gingrich thought it would bring a higher “level of aggressive-
ness and risk taking needed to the position” (Gingrich 1995). Second, the
committee structure of the House was streamlined with several former com-
mittees being eliminated and/ or combined. This speeded up the legislative
hearing process, Gingrich reported (Gingrich 1995).
David Dreier of California led the task force on this issue. He concluded
that several committees were no longer necessary, while others needed to be
reorganized or renamed. The Merchant Marine and Fisheries Committee, the
District of Columbia Committee, and the Post Office and Civil Service Com-
mittee all disappeared. The Energy and Commerce Committee, which John
Dingell had turned into an empire, lost railroads and part of its energy juris-
diction. Other committees were renamed and refocused. The Armed Services
 Responding to External Pressures 127

Committee became the National Security Committee and Government Opera-

tions became Government Reform. “Our aim was to rethink the entire size
and structure of the Congress,” Gingrich stated.
Third, the House rules for operating were modified to minimize delaying
tactics and to emphasize collective rather than individual effort. Fourth, im-
mediately after the Republican sweep in the November 1994 election, Gingrich
set up task forces on each of the ten legislative changes found in the Contract
with America so that first drafts of the legislation required to enact the con-
tract would be ready when Congress opened in January of 1995.
Since the Republican Party in the House had not held power in over forty
years, none of its current members or staff had ever attempted to move
legislation through the House. The Republicans did not know how the Demo-
crats would react and if they would attempt to sabotage the legislative pro-
cess. Therefore, the Republican floor tactician, whip, and rules committee
chair held training sessions that rehearsed every motion and each bill step-by-
step. The freshmen congressmen went through scripting and practicing ses-
sions throughout the month of December, a month before they were to be
sworn in as members of the House. Republicans played to roles of Demo-
cratic leaders and members and attempted to slow down, halt, and/or change
the legislative process (Gingrich 1995).
When the House actually began its session, all that preparation and train-
ing paid off. The changes in committees and rules system were passed almost
as rehearsed. It was clear the Republican leadership had things under control.
On January 5, the House began work on the Contract. Dick Armey, assistant
to the Speaker, was chief operating officer, dealing with day-to-day work in
the House, while Speaker Newt Gingrich served as chief executive and chair-
man of the Board focusing on long-term planning and coordination.
The House has a complicated system for bringing bills to the floor. First,
a subcommittee has to mark up a bill, then it is reported to the full committee.
When the full committee calls a meeting, it has to give notice to the minority
members. After the markup, the minority gets three full days to write a report
offering dissenting views. A similar procedure then takes place in the Rules
Committee. Every bill has to have a rule that sets its procedures before it
comes to the House floor. The only two exceptions are when something is
brought up under unanimous consent or in a process called a suspension
when the House by two-thirds vote decides to suspend the rules and pass
something. Passing anything through the House is a complex business and
takes time (Gingrich 1995).
Dick Armey outlined a path for passing the ten major bills within ninety-
three days. All of this had to be accomplished with a slim twelve vote Re-
publican majority in the House. Tom Delay, the new Whip, and Denny Hastest,
his chief assistant, were in charge of delivering the votes. They believed in
a policy of “growing the vote.” This means listen to everyone, Republican and
128 A VISION TO GUIDE GOVERNMENT REFORM

Democrat alike, and changing the bill so as to develop a “comfort zone”

where the member could support the bill. This was a good strategy but with
ten items it soon became overwhelming. As the weeks went by, the members
became more tired and the stakes higher. The easy votes came first and the
difficult ones last. This allowed the Republicans to develop momentum but at
the cost of exhaustion.
Again and again, some Democrats would attempt to undermine or delay
bills through procedural moves but then support the bill when it came to a
vote so as not to lose support back home. The committee chair with the
hardest job was Solomon, the rules committee leader, since every bill had to
clear his committee. Only once in ninety-one days did he need the leadership’s
help. The second hardest committee was judiciary, chaired by Henry Hyde.
His committee cleared in a few short weeks two constitutional amendments,
three litigation reform bills, and five crime bills. Hyde was particularly heroic
in that he reported out of committee the term limits amendment which he had
publicly opposed. This was an “extraordinary display of principle and cour-
age to get those bills out of one committee in such a short time,” according
to House Speaker Gingrich (Gingrich 1995).
The third hardest effort came from Ways and Means chaired by Bill
Arden. He produced a Welfare Reform bill that satisfied a diverse set of
constituents. By the time the bill passed, public opinion polls showed 94
percent of the country favored replacing the old system with a new one. The
bill insisted on a work requirement; it also called for strengthened families,
reestablished male responsibility for child support, and discouraged young
girls from getting pregnant outside of marriage.
Gingrich and his management team analyzed and evaluated their portion
of the government value-chain and then (1) restructured it in order to improve
cycle time efficiency, (2) appointed key pointmen to lead the change,
(3) practiced and put in place communication procedures for preventing Demo-
cratic delay, and (4) monitored carefully the between committee coordination
required to meet the cycle time they promised for delivering the vote on the
Contract with America.
What happened? Nine of ten items passed with term limits being the only
failure and then by the slimmest of margins and in the face of needing a two-
thirds vote within the House to pass. The entire ten item Contract with America
was put to a vote within the House in ninety-one days with time to spare by
a new and inexperienced House Republican majority and leadership team.

Continuous Improvement
In the prior section of the discussion on value-chain theory, we explored how
the U.S. House of Representatives implemented the Contract with America in
just ninety-one days. It is significant that all of these efforts were strongly
 Responding to External Pressures 129

supported by various types of continuous improvement programs. For ex-

ample, Newt Gingrich set up ten task forces to draw up legislation and mobilize
a public and legislative consensus for each of the ten commitments to the
American people involved in the Contract.
Benchmarking teams were established to train and allow new members
to practice moving legislation through Congress. Cross-functional teams were
employed to restructure House committees and the House rules systems.
Legislative committee hearings were set up to modify the initial drafts of
legislation and build a consensus for passage of those bills. Self-managed
teams were employed to move legislation through committees within a lim-
ited time span and outside linking teams were employed to plan both the
overall strategy in the House and Senate and to encompass presidential con-
cerns into the ten legislative initiatives. In short, the efficient and judicious
use of all these tools of continuous improvement were essential to the bring-
ing of these ten legislative commitments to a vote within the first 100 days
of the legislative session.
As Speaker Gingrich enjoys pointing out, the Chinese word for crisis is
a symbol that combines the pictographs that mean danger and opportunity
(Gingrich 1995). The danger in public sector management comes less from
failure than gridlock from inaction which allows problems like the American
national debt to grow from a mere $9 billion to several trillions dollars. The
opportunities in public sector management arises when leaders employ appro-
priate environmental scanning, value-chain theory, and continuous improve-
ment programs to exercise the full power of government in responding
appropriately to high-priority problems in a constructive, effective, and timely
manner.

Summary
A number of points can be drawn from this case study. First, legislative proce-
dures and the role of political parties are as much in need of reform as manage-
ment processes. Political parties cross interest groups and can manage priorities
to provide a base for action. In recent times members of parties in many countries
have lost that discipline. Legislative processes are in need of review in most
legislatures. However, an effective legislature requires politicians committed to
action and processes which enable them to deliver decisions.
Second, these reforms can be informed by a focus on cycle time. As with
other government processes, the target focused attention and commitment.
The need to deliver the target identified systems and procedures that were
critical to the result.
Third, environmental impacts must be managed in real time. The impact
on public preferences of the actions taken by Republicans was to change
some of those preferences. As preferences changed, the process became
130 A VISION TO GUIDE GOVERNMENT REFORM

vulnerable to comfort zone issues with the scope to challenge the agenda.
Broad consensus about problems and solutions represents a brief opportunity
for change. But the devil is often in the detail. The need to spell out proposals
in detail enables opponents to generate opposition and uncertainty.
Fourth, the process was further complicated in this example because the
translation into public impacts required action by executive government which
was in many respects hostile to the initiatives or at least intent upon ensuing
that political costs and benefits were realigned as part of the process. This
emphasizes the importance of controlling the break point in the cycle. In the
case, of the Contract with America, the president was forced to react and
accept many of the core ideas. But in the process he assumed control of the
break point. In the end the reformers appeared to be the obstructionists. But
had there been no contract, there would have been no change.

IMPLICATIONS FOR THE REFORM OF

GOVERNMENT MANAGEMENT
This analysis of the internal changes required to enable governments to re-
spond to new external priorities suggests that traditional government systems
are no longer an option and can often be counterproductive.
The idea that external factors are driving the current crisis and that gov-
ernments have been slow to respond effectively parallels the experience of
many business organizations. The environment which government must man-
age is more complex and interconnected than the environment which business
must manage. Governments need to segment the environment differently. We
have introduced the idea that government must manage transitions to national
competitiveness and the idea of comfort zone management to structure the
interaction between government and important external groups.
The traditional government approach to coalignment was to standardize
processes and clarify roles and functions. Actions were processed longitudi-
nally through the value-chain. Coalignment was managed by queuing and
prioritizing each stage of the value-chain. This technology is incapable of
responding to the needs of a high-response environment. Uncertainty and
resource restrictions tend to lengthen rather than shorten cycle time. This
suggests that incremental reform is not an option for most government agen-
cies; it explains why reforms, which deregulate without a strong focus on
cycle time and cycle management, tend to fail.
The blockages created by traditional government management systems
and technologies seem terminal for many parts of government. There is no
choice but to “jump the curve,” abandon these traditional systems, and rein-
vent government. Legislatures and corporate government groups now have no
 Responding to External Pressures 131

option but to hire managers able to effect these transitions, remove the re-
straints that stop government systems from either succeeding or failing, and
facing up to the risks and opportunities offered by change.
Four issues for reform can be identified from our analysis of value-chain
coalignment. First, reforms of value-chains need to also reduce cycle time
and provide managers with the scope to manage cycle time and to manage
comfort zone impacts. Almost all attempts at reforming government manage-
ment attempt to deregulate, to free up processes and roles, and to focus on
key tasks and functions. Some reforms clearly provide a strong focus for the
management of cycle time and for external accountability. For example, the
case studies presented in reinventing government powerfully reconfigure both
value-chains and the environmental focus of specific agencies. It is not difficult
to see why these changes work. But other situations are more complex and
some reforms simply miss the need to provide a new focus for the manage-
ment of cycle time. In such situations, reform is not only likely to fail, it
could well prove to be counterproductive. The solution is to extend the reform
agenda by finding alternative value-chain configurations to match new needs.
Second, reforms need to focus government managers on the management
of two key environmental boundaries. Government needs to directly manage
its boundary and it must indirectly manage the national boundary. Devolving
part of this management responsibility to operating agencies is important and
requires new ways of managing relationships between steerers and rowers.
The simple demarcation which suggests that comfort zone impacts can be
managed hierarchically is a recipe for ongoing crisis management and the
unelectability of incumbent governments.
Third, the application of value-chain theory needs to recognize the fixed
nature of traditional processes and the major comfort zone impacts which are
unleashed when these processes are bypassed. Just as successful business
organizations have learned to interact with their external environment to shape
opportunities, governments must learn to interact with the groups which cre-
ate the comfort zone and reposition the comfort zone itself by altering expec-
tations and increasing acceptance of the need for change.
Fourth, government reforms must move from one-off interventions to
reforms which generate continuous improvement. Most government reforms
lurch from crisis to crisis. Reform needs to establish the basis for continuous
improvement. Change strategies for government must meet three criteria:
they must be implementable; they must address current problems; and they
must produce a base for addressing future problems and exploiting future
opportunities. The most obvious weakness in many reforms is the lack of
ongoing evaluation and benchmarking. Once the crisis is past and the public
believe it is no longer an urgent issue, there are many vested interests in the
government system that opt for moving on to the next issue. Four actions are
132 A VISION TO GUIDE GOVERNMENT REFORM

necessary to consolidate change. First, the change must be internalized by the

agency concerned. Staff and managers need to commit to building on the
change and to an ongoing improvement of performance. Second, there needs
to be some prediction of impacts, say one, three, and five years ahead. Third,
consolidation needs to be resourced once the crisis is past. Fourth, there needs
to be an effective benchmarking of the change against comparable govern-
ment situations.
 Chapter 6

Leadership Strategies for Transforming

Governmental Competitiveness

The clarion call for more “transformational leaders” appeals to

a more empowering form of management, one that recognizes
firms’ basic capabilities as collective outcomes. It suggests that
we need leaders with the vision to chart a strategic course
through the political complexities of a divided but connected
world, and the resolve to implement that vision. Leaders who do
not simply motivate us to comply with directives, but mobilize our
creative energies—who do not simply rely on hierarchies to
induce conformity to their wishes, but inspire us to climb
aboard—who do not imitate what is, but ask us to invent what
could be.
—Fombrun, Turning Points

Change can be characterized as a response to tension. Strategic managers

need to focus and use these tensions. The focus is important in a system
where breakdown is seen as inefficiency rather than a consequence of exter-
nal pressures and where the need for ongoing change is often seen as further
evidence of failure. Government organizations react to external pressures in
one of four ways: they seek to deflect the threat by focusing the blame on
others; they attempt to eliminate the threat by buffering the environment; they
seek to eliminate the threat by altering boundaries, for example, by privatiz-
ing; or they manage the threat by responding in various ways to neutralize or
exploit it. Tension is relieved in the first three options by exporting the crisis.
Tension is relieved in the fourth option by solving the crisis.

133
134 A VISION TO GUIDE GOVERNMENT REFORM

Except in times of national crisis, the traditional model of government

management discourages leadership; management is depersonalized and re-
sults are seen to follow from the efficient delivery of government processes.
Managing transitions to national competitiveness requires a new type of gov-
ernment leadership which we have called “strategic leadership.” Government
leaders need to manage the national boundary by being a catalyst for change
in business. Government leaders must manage the government boundary by
reinventing government processes and motivating government employees to
commit to new roles and a new future.
It is the purpose of this chapter to address the leadership of transitions
to national competitiveness. First, we will discuss strategies for transition and
present a checklist which can be used to commence the process of mapping
performance. Second, we will examine transitions implemented by Singapore
and the United States, the two most competitive nations in the world in recent
years. Although each of these nations pursued different transitions, used dif-
ferent government and business roles to support change, and drew upon a
different leadership mix, both Singapore and the United States have been
spectacularly successful.

STRATEGIES FOR TRANSITION

In any change there is always a future state—a place or condi-

tion one wishes to achieve, a present state—the current condition
in relation to the desired state, and a transition state—the getting
from the present to the desired state . . . In managing the overall
change process it is always important to (1) determine the major
tasks and activities of the transition period, and (2) determine
structures and management mechanisms necessary to accomplish
those tasks.
—Beckhard and Harris, Organizational Transitions

Richard Beckhard and Reuben T. Harris (1989) argue that the key to manag-
ing change lies in managing transitions not end points. Mapping progress,
including the progress of competitors for world resources, is part of the
management of change.
Traditional government management systems are not well suited to
managing change. Such systems respond to external pressures for change
incrementally, cycle time is slow, responses are often segmented, and the
future is assumed to be no more than a linear extension of the past. Few
organizations or governments can survive with linear solutions today. The
future is turbulent, uncertain, and different.
 Leadership Strategies 135

High-response organizations manage external pressures by a combina-

tion of continuous and discontinuous changes which combine to create a
transition. High-response transitions cannot be locked into some magical end-
point. They are best conceptualized as a moving platform from which to enter
future transitions. The leadership, management, and communication strate-
gies for discontinuous change are different from those require for incremental
change. A number of authors have addressed these differences from the view-
point of business management; for example, Alvin Toffler (1985) discusses
adaptive leadership; Charles J. Fombrun (1992) discusses turning points; and
Nicholas Imparato and Oren Harari (1994) discusses “jumping the curve.”
They are all addressing the need to manage transitions which involve ongoing
and in part discontinuous change.

Shifting Focus of Change and Leadership

Exhibit 6.1. Shifts Required to Manage and Lead Government Change in a

High-Response Environment suggests four changes required to manage change
in a high-response environment.
First, the focus of change shifts from being a gradual progress towards
utopia to a process of transition towards a necessarily moving target.
Second, the values that underpin the change shift from a process guided
by a commitment to fairness and efficiency and long-term goals to a transi-
tion powered by the twin tactics of focusing and releasing pressures. Effective
strategic leaders use the tension created by an immediate crisis to drive the
underlying transition forward.
Third, the task of protecting the results of change shifts from ensuring
that the specific problems do not recur to protecting the platform from which
future problems can be addressed. The half life of many government reforms
is depressingly low. Once the pressure and immediate crisis are past, the
results of change are threatened by reactionary forces which emerge to re-
verse it. Protecting the platform becomes more important when change is
seen as a transition; there is no point in launching future change from a
sinking platform.
Fourth, the management skills required to manage change shifts from
skills at using existing systems and implementing linear developments to
skills at visualizing the future, mobilizing existing resources, and where nec-
essary, severing links with the past.
Exhibit 6.1 also dimensions the shifting focus of leadership required to
support a transition to high-response management. The focus of management
shifts from managing a structured system to conceptualizing change, reposi-
tioning government structures and resources to manage a transition to these
136 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 6.1. Shifts Required to Manage and Lead Government

Change in a High-Response Environment
The Shifting Priorities for Change
Management The Shifting Focus of Leadership
First, change shifts from a gradual Managing external rather than internal
progress toward utopia to a process of boundaries
transition toward a necessarily moving
target. The strategies need to be Strategic visions rather than long-term
different and the focus for evaluation missions
needs to be different.
Strategic management rather than
strategic planning
Second, change shifts from a process Managing transitions rather than end
guided by a commitment to fairness points
and efficiency and long-term goals to a
transition powered by the twin tactics Shortening the time span of evaluation
of focusing and releasing pressures by managing short-term benchmarks
and impacts rather than long-term
results
Third, the task of protecting the results Implementing irreversible change rather
of change shifts from ensuring that the than incremental change
specific problems do not recur to
protecting the platform from which Benchmarking the transition platform
future problems can be addressed into the future and leveraging future
benefits off it.
Fourth, the skills required to manage Coaligning through shared interests
change shift from managers who are rather than standardization
skilled at using existing systems and
values to implement linear developments Participating through communication
to strategic leaders with the skills to and shared values
visualize the future, mobilize existing
resources, and where necessary, sever Harnessing rather than containing
links with the past diversity

new realities, and developing a new focus on task performance which enables
government staff and external interest groups to understand and join the transition.

Strategies for Protecting the Base for Ongoing Change

A weakness with many government change processes is that they fail to build
a base for ongoing change by allowing the new management platform to
erode. Effective transitions need to build ongoing changes on the base man-
 Leadership Strategies 137

agement platform achieved in previous changes. Exhibit 6.2, Protecting the

Platform for Transition details three strategies for the effective consolidation
of change. First, ensure there is a consolidation to the left on the IIM. Second,
ensure the costs of reversing changes are higher than the costs of continuing.
Third, build expectations of the longer-term impact of changes to maintain
pressure for ongoing performance.

Mapping Transitions to National Competitiveness

Exhibit 6.3. Checklist for Mapping Transitions to National Competitiveness

suggests an approach to mapping transitions which draws together material
presented in earlier chapters. The checklist addresses the three core roles of
government: national competitiveness, social value, and goverrnability. The
last two elements included in the checklist are government charges and ser-
vices and government management. In each case, we outline issues to be
addressed in benchmarking change and we explore specific transition strategies.
We now move to examine the application of these ideas to the two case
studies discussed earlier. These studies examine the leadership of transitions
to national competitiveness. In chapter 3, we contrasted the “development
transition” and the “high-autonomy transition.” Singapore is an example of
the former and the United States is an example of the latter.

STRATEGIC LEADERSHIP IN ACTION

Competitiveness is the degree to which a country can, under free

and fair market conditions, produce goods and services which
meet the test of international markets, while simultaneously
maintaining and expanding the real income of its people over the
long term.
—OECD, Annual Report—1994

The use of The World Competitiveness Yearbook to benchmark national tran-

sitions was discussed in chapter 1. We now examine the two most competitive
economies in recent years: United States and Singapore. The World Competi-
tiveness Report (Yearbook) 1995 concludes that “the United States and
Singapore have further consolidated their lead in the past year as the world’s
most competitive economies” (Jonguieres 1995). Exhibit 6.4. Competitive-
ness Changes 1995–1999 outlines shifts in both the overall competitiveness
and the competitiveness factor rankings for these two countries published in
The World Competitiveness Yearbook 1999.
138 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 6.2. Protecting the Platform for Transition

Strategy Tactics / Issues
The first consolidation • We discussed in chapter 4 two cycle time
strategy is to manage cycle management strategies to achieve a positive
impacts to ensure consolidation.
consolidation into the comfort (a) Manage cycle time to ensure that the net
zone. perceptions of future benefits more than
offset current negative impacts over the
cycle.
(b) Manage a balance between public
expectations of project benefits with the
likely reality of benefits delivered.
The second strategy is to • Continuously develop new proposals to exploit
ensure that the benefits lost the current base so that the cost of reversing
by reversing change are change is not simply the loss of current benefits
higher than the benefits but also the loss of future benefits.
gained by consolidating • Make irreversible changes to structures and
change, at least for key value-chains. This deters those who seek to
groups. There are at least move backward and ensures that the base for
three tactics for erecting this future change will be the new position.
type of protective gap. • Dismantle or neutralize negative groups by
shifting their focus elsewhere; for example, by
threatening unrelated benefits, offering new
benefits of more value to such groups than they
can derive from reversing existing changes, or
by creating tensions between such groups and
the beneficiaries of current changes.
The third strategy is to • Long-term evaluation of the sort required by
support consolidation with the third strategy presents particular problems
effective strategic monitoring for governments because, if it is applied rigidly
and evaluation against the almost all plans can be shown to have failed in
expected impacts over one, some respects.
three, and five years. • The solution is not to ignore failure but to
manage the gap between performance and
plan by learning from failure, improving
performance, but also by adjusting priorities
and targets to ensure they remain realistic and
that planning is used as a management and
communication tool rather than as a rigid
guide for actions which have become
inappropriate.

Exhibit 6.4 indicates that the United States owes its top ranking to top
ranking in “domestic economy,” “internationalization,” “finance,” “infrastruc-
ture,” and “science and technology.” In recent years the U.S. has consolidated
this position by improved its rankings for “management” and “people” and
it’s ranking for “government” has declined.
 Leadership Strategies 139

Exhibit 6.3. Checklist for Mapping Transitions to National

Competitiveness
NATIONAL COMPETITIVENESS
Is the nation accessing an increasing share of world resources? Has it developed a
world competitive industrial base? Have national resources been managed effectively?
Has government assisted or impeded improvements?
Benchmark changes: Has the competitiveness ranking of key industries improved
over the last year? What are the key factors which explain this improvement? Have
the preconditions for future improvements in competitiveness been established? Is
competitiveness high compared with other comparable countries?
Transition strategy: Has a viable development strategy been identified? Is it
implementable? What are the immediate change priorities to support the transition?
What is the strategy for optimizing production strengths? What is the strategy for
optimizing the autonomy of citizens and companies within overall national structures?
SOCIAL VALUE
Has the well-being of citizens increased? Are resources distributed to facilitate ongo-
ing improvements in competitiveness while also addressing the needs of disadvantage
groups? Has government assisted or impeded improvements?
Benchmark changes: Has social welfare performance improved over the last year?
What are the immediate challenges which must be addressed over the next year?
Transition strategy: What are the social impacts of the national transition? Are these
being addressed effectively?
GOVERNABILITY
Has government maintained the scope to govern? Has government assisted or im-
peded governability?
Benchmark changes: Is governabilty seen as less of a constraint to national perfor-
mance than for competitors?
Transition strategy: What are the comfort zone impacts of the national transition?
Are these being addressed effectively?
GOVERNMENT CHARGES AND SERVICES
Are government services and functions delivered effectively? Do they support the
priorities for national transitions? Are critical support functions such as infrastruc-
ture, taxation and education, and training competitive?
Benchmark changes: Are government services competitive compared with other
countries? Has the competitiveness improved over the last year?
Transition strategy: Have government charges and services been adjusted to support
the transition? What are the priorities for further adjustment?
GOVERNMENT MANAGEMENT
Has government developed management systems, structures, and values which meet
the needs of competitive government?
Benchmark changes: Performance relative to other nations. Is strategic leadership a
relative strength? Is the capacity to manage cycle time a relative strength? Is resource
management a relative strength?
Transition strategy: Are government structures systems and leadership seen as better
able to support the national transition than they are in the case of key competitors?
140 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 6.4. Competitiveness Changes 1995–1999

Indicator 1999 1998 1997 1996 1995
UNITED STATES:
National competitiveness 1 1 1 1 1
Domestic economy 1 1 1 1 1
Internationalization 1 1 1 2 2
Government 15 13 7 7 9
Finance 1 1 1 1 1
Infrastructure 1 1 1 1 1
Management 1 1 3 10 6
Science and technology 1 1 1 1 1
People 6 8 12 15 11
SINGAPORE:
National competitiveness 2 2 2 2 2
Domestic economy 18 2 3 3 3
Internationalization 2 2 2 1 1
Government 1 1 1 1 1
Finance 9 10 6 3 4
Infrastructure 13 15 11 33 29
Management 4 2 1 4 4
Science and technology 12 9 8 12 7
People 4 1 5 8 5

Source: The World Competitiveness Yearbook 1999, IMD, Geneva, Switzerland.

Singapore owes its top ranking to a high ranking for “government,” “in-
ternationalization,” “management” and “people.” In recent years, the ranking
for “infrastructure” has improved markedly. As discussed in chapter 3,
Singapore has maintained competitiveness following the 1998 financial crises
in Asia; however, the 1999 rankings show a deterioration in several key
rankings. The report also lists weaknesses in the competitive stance of each
nation. The United States has been particularly aggressive in the production
of new technologies such as computers and telecommunications which are
increasing worker productivity. However, this has led to massive downsizing
and middle-management layoffs, combined with a rapidly growing salary
differential between the best and least educated citizens. Singapore’s chief
problems arise from a limited population base, its relatively small investments
in R & D expenditures and its large overseas investment (The World Competi-
tiveness Report [Yearbook], 1995).
The World Competitiveness Yearbook offers us a unique insight into
two of the world’s most competitive economies. The U.S. economy and the
 Leadership Strategies 141

government management of it is an example of a high-autonomy or decen-

tralized national management system which each day must transform envi-
ronmental economic fluctuations throughout the world into a high responsive
government and economy. The Singapore economy and the government
management of it is an example of high-production, centrally planned na-
tional management system which each day must transform environmental
economic fluctuations in the international marketplace into a high-response
government and economy. Thus, they offer us a unique opportunity to ob-
serve the differential functioning of government within each system. They
are in theory and in fact models of two different types of governmental
leadership, two different types of transitions to high-response competitive
governments.

SINGAPORE’S DEVELOPMENT TRANSITION:

THROUGH HIGH PRODUCTION TO HIGH-RESPONSE

In order to ride the new economic wave, there is a need to

harness globalization and the information-technology revolution.
We must foster an environment conducive to fresh ideas and
innovation, create novel products and find innovative ways to
make a living.
—Gow Chock Tong, “Prime Minister, Singapore”

Singapore is a city-state with an area of 244 square miles located at the tip
of the Malaysian peninsula. It has a diverse population of 2.8 million people,
77 percent Chinese, 15 percent Malay, and 7 percent Indian. Singapore gained
independence from Malaysia in 1965 and has already accomplished a great
deal in just thirty years. First, its average income has risen from $3,072 U.S.
dollars in 1960 to over $22,000 U.S. dollars in 1994. This represents a trans-
formation from a city of small restaurant and shop owners into a major
international manufacturing and service hub. Second, the overall quality of its
telecommunications, seaport, and airport are considered the best in the world.
Third, Singapore’s people have the highest savings rate in the world (45
percent), its labor force is rated the most productive, and it has the world’s
highest proportion of technologists. Finally, Singapore’s business environ-
ment is considered the most supportive and risk free business environment in
the world (Sisodia 1993).
In large part, these accomplishments are the result of governmental lead-
ership, a partnership with multinational firms, and Singapore’s success in
transforming its high-production central planning economy to a high-response
strategic management economy.
142 A VISION TO GUIDE GOVERNMENT REFORM

Singapore’s History of Development

In 1965, Singapore became independent from the Malaysian Federation. This

independence disconnected Singapore, the federation’s capital city, from its
hinterlands. The end of political union with Malaysia led to an outpouring of
concern for the future of the city-state. This concern stemmed from Singapore’s
then limited resource base of one million people, limitations of geographic
space, a city about the size of Hartford, Connecticut, a high unemployment
rate of 40 percent, and a limited tax base with a Singapore citizen averaging
$3,000 U.S. dollars per year (Sisodia 1993). However, under the leadership
of the People’s Action Party (PAP) and its senior minister Lee Kuan Yew,
Singapore developed beyond anyone’s fondest expectations. How this was
accomplished was both simple and elegant. When the only natural resource
a nation has is its people and the only major source of income is foreign
investment, then that nation has a simple task before it. The nation must
develop a skilled and educated workforce, a world-class infrastructure, and a
business climate that will attract major foreign investment.
The People’s Action Party (PAP) government made a conscious deci-
sion to deemphasize political ideology and opt for its now unique mixture
of a free market export economy with a goodly added portion of democratic
socialism. Such a political philosophy operationally included a major dose
of national planning, a balance between public and private ownership of the
means of production, in which both are subjected to the pressures of the
international marketplace, along with democratic political processes and
traditional civil liberties (Argee 1994). The PAP government ruled Singapore
through a series of boards. The central planning group was housed in the
Economic Development Board. In the mid-1960s, the PAP party was faced
with several immediate problems—the need to attract foreign capital, a lack
of affordable housing, massive unemployment, and politically motivated
union strife. The government established several statutory boards to deal
with each of the problems.
The Housing and Development Board (HDB) was established to provide
affordable housing. By 1993, 86 percent of the population was living in
public housing estates which were among the highest quality and lowest cost
of any major city in Southeast Asia. To meet the power needs of a growing
nation, the Public Utilities Board (PUB) was established which increased its
production from 152 megawatts in 1960 to 6,000 megawatts by 1993. An-
other board, the Port of Singapore Authority (PSA), improved and modern-
ized Singapore’s port facilities until it was considered one of the busiest and
best in the world. The National Wage Council was set up to control union
strife. By 1993, Singapore had the best trained, paid, most productive and
strife free workforce in the world (Low et al. 1993). Finally, the government
 Leadership Strategies 143

demonstrated a high degree of intervention in the private sector by creating

government backed firms to compete with private sector firms in key seg-
ments of the economy. This was accomplished through holding companies or
government linked firms, all of which were expected to compete with other
private sector firms on common ground. If they became unprofitable, they
were not assured of a government bail out (Low et al. 1993). This allowed
Singapore to build an indigenous corporate base.
Between 1975 and 1985 the Economic Development Board (EDB) began
to realize that any long-term plan for the development of Singapore would
involve phases where increasingly complex value added manufacturing and
services would have to replace less sophisticated production if GDP was to
continue to grow. So the board initiated a new set of changes aimed at cre-
ating an environment for phased economic development from less to greater
value added production. First, as one new phase began, the production from
the old phase would be shifted out of Singapore to Malaysia, Thailand, and
Indonesia, or the ASEAN Development Triangle. Since these nations were at
early stages of development, their government and the corporations needing
to move could collaborate in cutting costs by migrating production to the
triangle. Second, government tax, training, R & D, and equipment incentives
would be used to attract targeted value added firms to Singapore in a stepwise
progression. This stepwise progression would allow the labor force to keep
up with the technical demands of new value added firms. Lower value added
firms in turn could migrate to the ASEAN Development Triangle as still
higher value added firms arrived and the workforce became even more tech-
nically sophisticated. Third, the program of joint public/private sector training
centers would be increased so foreign corporations could quickly transfer
high value added technology and training to Singapore’s workforce. This
would be funded by a 3 percent tax on all production in Singapore. Fourth,
over the next several years, secondary and post-secondary technical training
would be revamped and expanded to create a higher quality workforce. This
would include new vocational and technology streams from secondary through
college education. Students would be assigned carefully to these streams to
meet projected labor force requirements.
This dramatic shift in public policy fueled a rapid expansion of wages
and high value added production in Singapore and a migration of low end
manufacturing to the ASEAN Development Triangle. Prudent macroeconomic
policies delivered stability and double digit annual growth in GDP in the
1980s. In addition, Singapore’s foresight in infrastructure improvement by
the early 1990s had created one of the world’s most efficient and inexpensive
telecommunication ports for all types of business processes; along with elec-
tronic products Singapore became a major manufacturing and service sector
exports country (Low et al. 1993).
144 A VISION TO GUIDE GOVERNMENT REFORM

Let us direct our attention to how government leadership functioned in

the Economic Development Board to facilitate these remarkable changes.

Governmental Leadership: The Economic Development Board

The Economic Development Board pioneered indicative planning. Indicative

planning can provide a strategic management system which unites entrepre-
neurs from both public and private sectors around common objectives. It
emphasizes uncertainty management by providing maximum profits to corpo-
rations who undertake the risks that uncertainty imposes. Because uncertainty
constantly introduces itself in the form of changes in supply and demand for
world-class products and services, the only certainty is that outcomes will
differ from expectations.
Investment in trained people and infrastructure cannot be delayed while
uncertainty about the future is resolved. Thus, governments have to be entre-
preneurs by investing in training managers, workers or people, and infrastruc-
ture in advance, realizing that errors not only do not cancel out, but they
accumulate. So EDB emphasized indicative planning based on rolling fore-
casts for change. In a moment we will see how Singapore did this. Selecting
products and services to meet market demands requires that corporations be
subjected to international market processes, invest in R & D, manufacturing,
and marketing technology before they are sure how that investment will work
out. Corporations make bets on products and services based on data from
environmental scanning or customer references, competitor product develop-
ment, and global economic trends in advance; they hope to maximize profits.
Any country, state, or city government that can provide a supportive operating
environment to aid firms in their profit maximization will be a highly desir-
able location from which to platform products. Singapore has done this well.
Let us explore two of Singapore’s major governmental processes in this ef-
fort, for example, (1) the attracting of high value added firms to Singapore,
and (2) the development of joint public/private sector technical training cen-
ters for upgrading Singapore’s workforce.
The Economic Development Board prides itself in providing one step
governmental support for all incentives to multinational firms. This support is
targeted at high value added firms in the computer, electronics, precision
tools, and petrochemical industries. These so called pioneer firms can obtain
tax relief, training grants, product development grants, technology transfer
grants, and automation grants. Let us explore the effects of these programs.
Exhibit 6.5. The Development of Competitive Manufacturing Industry;
Exhibit 6.6. The Development of Competitive Workskills; and Exhibit 6.7.
Access to Competitive Technology summarize the development that occurred.
 Leadership Strategies 145

Exhibit 6.5. The Development of Competitive Manufacturing Industry

Table 1. Net Investment Commitment in Manufacturing in Singapore 1972–1999

Singapore $ millions

1972 1975 1980 1985 1990

Total 194 306 1417 1120 2484
Foreign 156 246 1199 86 2217
Local 38 59 218 232 266
Local as % of Total 19 19 15 20 10

Table 2. Contribution of Pioneer Manufacturing to Total Manufacturing

Pioneer manufacturing / Total manufacturing Percentage

Firms Export Value

Average Established Employment Output Added
1960s n/a 23 25 29
1970s 13 43 57 53
1980s 12 44 59 59

Source: EDB (L. Low, T. Heng, S. Wong, T. Yam, and H. Hughes, Challenge and Response
[Singapore: Times Academic Press, 1993]).

By any standard the government’s transition strategy was a success. We now

discuss some key features of these developments.

The Development of Competitive Manufacturing Industry

Table 1 in Exhibit 6.5 details net investment commitment in manufacturing

during 1972–1990. First, note how effective Singapore was in attracting for-
eign investment in manufacturing and the small rates of local to foreign
investment. Second, note how the amount of investment in absolute terms is
exponential. Third, in 1990, of the $2,217 million investment, $1,197 was in
electronics, $381 in petrochemicals, and $265 in industrial chemicals (Low et
al. 1993).
Table 2 explores the contribution of pioneer manufacturing to that total
manufacturing export output and shows the steady increase in percentage of
manufacturing employment output and value added of the pioneer firms. The
value added per worker in pioneer manufacturing establishments rose from
$48,000 per worker in 1973 to $76,000 in 1989 compared to $37,000 and
$58,000 repeatedly for the total manufacturing sector (Low, et al., 1993).
Finally, manufacturing percentage of the total export output rose from 32
percent in 1969 to 63 percent in 1989 (Low et al. 1993).
146 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 6.6. The Development of Competitive Workskills

Table 1. Specialist Manpower Development Programs

Year of
Inception Program Level
1986 IC Design Engineer Postgraduate
1987 Automation Engineer
1989 SMT Engineer
1988 Automation Designer Post Diploma
1987 Tool and Die Designer
1989 Consumer Electronic Product Designer
1989 FA-Tronics Technology
1989 SMT Technician Post ITC
1987 Precision Engineering (Tool and Die Making) Advanced
1990 Precision Engineering (Machine Technology) Craftsmen
1991 Precision Engineering (Tool and Die Making) NTC-1

Table 2. Continual Upgrading Training

Areas No. of Courses No. of Participants

Robotics/Machine Vision F/A 100 1319
CAD/CAM 251 4144
IC/PCB Design 68 705
A1/Expert System 7 65
CNC/Advanced Metrology 347 2434
Others 8 146
TOTAL 781 8814

Source: EDB (L. Low, T. Heng, S. Wong, T. Yam, and H. Hughes, Challenge and Response
(Singapore: Times Academic Press, 1993), p. 264).

What then can we conclude regarding the effectiveness of Singapore’s

attempt to attract high value added foreign manufacturing firms? The data
speaks for itself. Singapore’s investment rose from 194 million in 1972 to
$2,488 million in 1990. Foreign investors in 1990 accounted for 90 percent
of that investment. The contribution of pioneer industries to this total, from
1960 to 1980 to total export output and value added doubled from 25 to 49
percent for the former and from 29 to 59 percent for the latter, with both
outpacing the overall rise in manufacturing for the same period. In 1994
Singapore had a 47 percent average savings rate (number one in the world),
a 2.5 inflation rate, a 1.9 percent employment rate, and a $2.9 billion current
accounts balance.
 Leadership Strategies 147

The Development of Competitive Workskills

When a nation’s GDP rises from $3,000 U.S. dollars per person in 1960 to
over $22,000 in 1994, a massive transformation must take place in that nation’s
educational system in order to accomplish that task. Government planning is
based on one simple premise in the manpower development area. That premise
is the recognition that technical manpower is one of the crucial inputs of a
modern economy. Therefore planning seeks to avoid shortages or surpluses of
technical manpower in pursuit of economic growth. Thus, planners must (a)
identify future requirements for skilled manpower, and (b) design an educa-
tional system to produce the manpower required. In 1989, the then minister
of education outlined the proposed changes to the educational system to meet
1995–1996 workforce needs.
Exhibit 6.6 summarizes key education and training initiatives. The future
emphasis in the educational system is going to be on technology and less on
general broad-based learning. This will help children maximize their potential
and talents. The priority in the next few years should not be on expanding
university education, but on providing technical, commercial, and vocational
education. The goal is to have about 20 percent of the students studying
academic subjects and pursuing university degrees and 70 percent studying
technical, commercial, and vocational courses. The only expansion in univer-
sity enrollment would be in teaching, engineering, business studies, and para-
medical services.
In addition, the three polytechnics will increase their student intake and
their curriculum and a fourth polytechnical college will be established. Through
the EDB, the government has collaborated with such countries as Japan,
France, and Germany to establish specialized technical institutes. These in-
clude the Japanese Institute of Software Technology (JSIST), the German
Singapore Institute in Precious Tools, and the French-Singapore Institute in
Petrochemical Technology.
In addition, the Vocational and Industrial Training Board (VITB) has
planned to open twelve Institutes of Technical Education to provide training
in engineering. These institutes will take ten thousand school leavers or about
25 percent of those who do not go on into higher academic training.
In addition, the diffusion of new technologies in companies requires
training and retraining to develop the analytic and problem solving skills of
workers. This training will be funded by the skills development fund and the
National Productivity Board in industry-based training centers to advance
industry specific skills. Tables 1 and 2, Exhibit 6.5 presents a list of such
projects.
Finally, in 1964 the Economic Development Board established the Singapore
Institute of Management (SIMS) which offers one Ph.D., eight master degrees,
148 A VISION TO GUIDE GOVERNMENT REFORM

Exhibit 6.7. Access to Competitive Technology

e.g., Seiko
Japanese
Japax
Companies Sankyo
Matsushita
Mitufoyo

CIM
FMS
MR DNC

IC SM
De T
P
C/

sig
CN

EDB
Institutions
/C tion

A1
La Visi
AM
la

se on
CA imu

r
D
S

▼
▼ Robotics
Automation

American European
Companies Companies

e.g., Hewlett-Packard e.g., Siemans

Prime-Computervision Bull
Autodesk Asea
Mentor-Graphics Telemachinque
Carl Zeiss

Source: EDB (Heng T. Low, S. Wong, T. Yam, and H. Hughes, Challenge and Response (Singapore:
Times Academic Press, 1993), p. 263.

ten bachelor degrees, and eighteen certificate programs in business and com-
puter sciences for those seeking continuing education. In 1993, SIMS had
4,313 students enrolled in degree programs and 7,269 enrolled in workshops
and seminars (The Singapore Institute of Management 1993).
In spite of this rather vast array of training offered by the government
and, in conjunction with the private sector, training institutes and training
 Leadership Strategies 149

centers, Singapore had to establish an International Manpower division whose

objective was to attract skilled workers and professionals from abroad to help
meet Singapore’s growing needs in knowledge and technology intensive in-
dustries. This vast array of technical training programs are some of the rea-
sons why Singapore ranks number one in the world for the training and
quality of its workforce.

Access to Competitive Technology

In addition, the Economic Development Board set up several technology

transfer centers. Exhibit 6.7 outlines the strategy adopted. These transforma-
tional projects facilitate technology transfer through (a) providing experts on
request, (b) training of EDB’s instructors and technical staff at participating
firms overseas locations, (c) assistance and program development, (d) dona-
tions and /or loans of equipment, and (e) helping upgrade a firm’s equipment

Responses to the 1998 Financial Crises

The Asian financial crises and downturn tested the effectiveness of Singapore’s
transition. Although growth was interrupted, 1999 saw a return to strong
growth in Singapore’s economy. Singapore had already developed many of
the internal reforms that other countries in the region still needed to address.
In 1998, the government responded to the crises by cutting costs and taxes on
business. Recovery in Singapore appears to have been driven by both internal
and external factors. Prime Minister Gow Chock Tong attributed the recovery
to the 1998 cost cuts, a recovery in the global electronics sector, an upturn
in the Japanese economy, and to the continued strength of the U.S. economy
(The Wall Street Journal 2000).

The Singapore Transition

A number of conclusions can be drawn from our analysis of Singapore’s

transformation from a high-production centrally planned economy to a high-
response strategically managed economy.

• The People’s Action Party has had the uninterrupted support of the
Singapore people for over thirty years. This has provided the government
with the long-term political support necessary to plan, make mistakes,
learn from these mistakes, and adjust.
150 A VISION TO GUIDE GOVERNMENT REFORM

• The government has been careful to allow the pressures of the global
economy to test governmental policy in a competitive marketplace and
to force the refinement of those policies.
• Singapore government’s success in transforming its economy from a
central planning to a strategic management, from a high-production to
a high-response system, has led the governments of China and Vietnam
to invite Singapore’s government to develop and lead two of its free
trade zones in a similar transformation.
• Singapore has served as a demonstration project for the pioneer func-
tioning of Economic Development Boards by many countries and for
the development of a variety of public/private sector educational and
training interfaces.
• Singapore has acted as a catalyst for the development of the entire
southeast Asian region. Malaysia, Indonesia, and Thailand are all
benefiting from Singapore’s success.
• The chief limitation to the proper functioning of Singapore’s govern-
ment in the global economy is a rapid change in cycle time of the
global economy. When government correctly anticipates cycle changes,
development works well. When it does not and has to react to unan-
ticipated cycle changes, the human and economic costs can be high.
• Finally, the chief threat to Singapore’s government strategy is a loss of
political support by the Singapore people. Singapore’s proactive long-
term planning and long-term responses to changes in the global market-
place would be undermined should this trust in government be eroded.

THE UNITED STATES: DEVOLVED TRANSITION FROM

HIGH-AUTONOMY TO HIGH RESPONSE

Competitiveness is not unfair, but it is rough. It does change the

rules of the game, and forces countries, companies, and people to
adapt. And this, of course, is sometimes painful.
—The World Competitiveness Report 1995

The United States government and economy is in the process of transforming

itself from a high-autonomy decentralized control system into a high-response
strategically managed control system. The transformation like that of Singapore
has been simple and elegant. Whereas in Singapore the government led the
transformation of the economy from high-production to high-response by
 Leadership Strategies 151

responding strategically to changes in the global marketplace, in the United

States of America the economy has led to the transformation of the govern-
ment from a high-autonomy to a high-response by responding strategically to
changes in the global marketplace (T. Roth 1995). The simplicity of the
transformation comes from the fact that the U.S. economy is for the most part
placed beyond the control of government and thus the 7 trillion dollar U.S.
market is the largest single force acting to provide the American citizens with
one of the highest per capita GDPs in the world, $25,000, and a high standard
of living tied to increases in global trade.
The elegance of the U.S. high-response transformation can be understood
only by observing how global competition in the private sector and the trans-
formation of private sector firms to a strategically managed high-response sys-
tem has required the U.S. government to transform itself to a strategically
managed high-response system able to add value to business competitiveness.
First, we explore the business transition by summarizing the GE (General Elec-
tric) transition. Second, we examine the contribution of government to U.S.
competitiveness. Finally, we compare the Singapore and U.S. transitions.

The Growing Global Competitiveness of Key U.S. Companies:

The GE Transformation

The competitiveness of several U.S. firms is legendary. Intel in computer

chips, Microsoft in software, Motorola in telecommunications, Coca Cola in
soft drinks, Mersk in pharmacology, MacDonald’s in fast food, are just a few
of the most well known. In order to understand the transformation, the United
States and global marketplace has made in U.S. firms, we shall examine
General Electric’s (GE) three transformations in the past years.
We have chosen GE for examination for four reasons. First, GE is a
conglomerate; it competes in fourteen different industries worldwide and as
such faces some of the world’s best competitors—Hitachi, Toshiba, and
Mitsubishi from Japan, and Siemens and ASEA Brown, and Boveri from
Europe. Second, in the last thirteen years, GE’s sales rose from $27.9 billion
to $60 billion; profits before taxes rose from 2.9 billion to $8.8 billion; stock
appreciation went from $31 per share to $93 per share including three stock
splits with stockholder equity reaching $73–79 billion. Thus, GE became the
fifth largest industrial corporation in America, the third largest in profits, and
the second largest in stockholder equity (Welch 1988). Third, GE is one of
only eight multinational firms to make a profit in each of the last twenty
years. In addition, each of GE’s fourteen businesses are number one or two
in market shares in the world with dramatic increases in productivity, quality,
and response time (Hillkirk 1989). Fourth, and even more significant, over
152 A VISION TO GUIDE GOVERNMENT REFORM

twenty of GE’s former top executives have become successful CEOs of such
global firms as GTE, Allied Signal, Goodyear Tire, Owens-Corning, Ryland
Group, General Dynamics, Wang Laboratories, Sundstrand, Rubbermaid,
M/A Communications, USF&G, Zorn Industries, Clean Harbor, and Systems
Computer Technology, suggesting that GE’s global adaptations are principled,
systematic, and representative of the best U.S. firms, rather than a function of
one firm’s unique capabilities (Cohn 1992). Let us briefly explore GE’s three
transformations in the last thirteen years in response to changes in the global
marketplace and draw some conclusions regarding the pressures this places
on the U.S. government’s operations.

GE—Transformation 1
To the Most Competitive and Valuable Firm in the World

In 1981, Jack Welch became CEO of the General Electric Corporation and
anticipated GE’s first need for a transformational change. Welch recalls his
thoughts:

At the beginning of the decade . . . we faced a world economy that

would be characterized by slower growth with stronger global com-
petitors going after a smaller pie. In the context of that environment
we had one clear-cut major competitor: Japan, Inc. . . . powerful . . .
innovative . . . and moving aggressively into many of our markets.
(Welch 1988)

In an attempt to create and operationalize a transformational vision, Welch

set two clear and simple goals for his firm and outlined the operational targets
for reaching these goals (Welch 1988).

To Become the Most Competitive Corporation in the World

This principle is currently operationalized to mean that each of GE’s fourteen
businesses should (a) invest only in products with high growth potential
where GE can become the number l or 2 in market shares in the world;
(b) increase productivity and quality 5 percent per year; (c) decentralize power
and responsibility downward in order to make each business unit as fast and
flexible as possible in responding to global competition; (d ) develop low cost,
high quality, easily serviced products which are customer-oriented so as to
yield increased market shares in order to fund the R & D and acquisitions
necessary to remain number l or 2; (e) monitor carefully the ability of each
 Leadership Strategies 153

business to meet productivity and financial targets; and (f ) intervene when

necessary to make each business become a “win-aholic.”

To Become the Nation’s Most Valuable Corporation

This principle is currently operationalized to mean the “most valuable” in
terms of market capitalization. This principle manifests itself in a number of
specific ways at GE, for example, (a) keep earnings rising at 5 to 10 percent
per year; (b) keep stock appreciation and yield at about 15 to 20 percent per
year; (c) shift earning mix so 50 percent can come from a high growth area;
(d ) keep supplier productivity rising at about 5 to 10 percent per year;
(e) maintain exports as percent of sales at about 50 percent; and (f ) maintain
management’s reputation as an entrepreneurial, agile, knowledgeable, aggres-
sive, and effective competitor.

GE—Transformation 2
To a Boundarylessness Firm through Speed,
Simplicity, and Self-Confidence

In April of 1988, this first massive reengineering effort was all but complete
and Welch began to anticipate the need for a second transformation in GE.
Welch reflects (Welch 1988):

[T]oday the world is even tougher and more crowded. Korea and
Taiwan have become world-class competitors, as hungry and aggres-
sive as Japan was in 1981. Europe is on fire with a new entrepre-
neurial spirit and leadership that is among the world’s best. Many of
its most aggressive companies, like Electrolux and ASEA of Swe-
den, Philips of Holland, and Siemens and Bayer of Germany, are
after our markets through acquisitions and joint ventures—just as we
are going after theirs. . . . At the same time, the Japanese are more
sophisticated and aggressive than ever—building servicing plants
outside Japan, including dozens just over the Mexican border.

By 1988, GE’s challenges were internal and even larger than in 1981.
Welch reflects:

We had to find a way to combine the power, resources, and reach of

a big company with the hunger, the agility, the spirit, and fire of a
small company. The rationale for this change was simple, that only
the most productive, high quality, and rapid response firms were
154 A VISION TO GUIDE GOVERNMENT REFORM

going to win in the 1990s. If you can’t produce a top quality product
at the world’s lowest price and get it to market in less time than your
competitors, you’re going to be out of the game. In such an environ-
ment, 5 percent annual increase in productivity and quality will not
be enough; more will be needed. (Welch 1988)

This transformation envisioned by Jack Welch was a boundarylessness

firm. In GE’s annual report in 1988 he outlined this needed vision as one in
which “. . . we knock down the walls that separate us from each other on the
inside and from our key constituencies on the outside. The boundarylessness
company,” he said, “will remove barriers between functions, levels, and loca-
tions. It will reach out to key suppliers to make them part of a single process”
in which he added, “they and we join hands and intellects in a common
purpose—satisfying customers.” Only through boundarylessness, Welch ar-
gued, could the corporation reach its goals.
Welch argued that now his firm must (1) define its vision in broad,
simple, and strategic terms; (2) maximize its productivity, quality, and speed-
to-market; and (3) be organizationally and culturally innovative, flexible, and
rapid in responding to shifting customer demand for low prices, and high-
value products. He then called for GE to reorient its corporate vision to
“speed, simplicity and self-confidence.” In order to operationalize this inter-
nal vision, two new goals and sets of targets were put in place.

To Develop Open Communication Based on Speed, Candor, and Trust

This principle is operationalized to mean sharing with all employees the

corporation’s vision, goals, and values, and opening each employee up to
discussion regarding his or her strengths, weaknesses, and the possibility for
change. This is accomplished by (a) speaking openly and listening carefully
to discussions aimed at preparing, articulating, refining, and gaining accep-
tance for unit visions; (b) showing candor and trust in sharing and evaluating
personal and business plans; and (c) motivating employees to become more
open, more self-confident, more energized individuals in generating and
employing practical and technical knowledge.

To Develop a Skilled, Self-Actualizing, Productive, and Aggressive

Workforce Capable of Generating and Employing Practical and Technical
Knowledge

This principle is operationalized currently to mean GE wants not only to

create an environment in which GE will be viewed as a challenging place
 Leadership Strategies 155

to work, but also this principle will significantly enhance worker skills so
that they can find another job if the company no longer needs them—a
place where employees are ready to go but eager to stay. In order to actu-
alize this goal (a) develop employee awareness that the only road to job
security is increasing market shares; (b) develop employees who are more
action-oriented, more risk-oriented, and more people-oriented; (c) develop
employees who relentlessly pursue individual and group goals; (d) develop
employee skills and performance through timely and quality education pro-
grams; (e) hold employees responsible for meeting productivity and financial
targets; and (f) reward high-performance and deal effectively with low
performance.
Three new mechanisms were put forward to create a tension capable of
meeting these new goals (1) reengineering GE’s corporate culture, (2) cre-
ation of a world-class continuous improvement program, and (3) creation of
a rapid responsive communication system.
By late 1988, Welch began to notice that most of his top management
team and business leaders had bought into GE’s need for a transformation,
but middle and line managers were still prone to fight or ignore the need to
change. The mechanism put in place to alter these behaviors was a new
continuous improvement program called “Workout.” Workout was designed
to ensure that employees, suppliers, and customers could speak candidly to
managers without fear of retribution. Thus, placing pressure on middle and
line managers from above and below to change—as Welch had hoped—the
process quickly exposed GE managers who did not “walk the talk.”
Workout was a world-class continuous improvement program aimed at
reengineering GE’s organizational processes by increasing the firm’s pro-
ductivity and quality while decreasing its response time. The program in-
cluded (1) a self-managed team program called a “New England Town
Meeting,” (2) a cross-functional team program called “process mapping,”
(3) a benchmarking “best practices” program, and (4) an aggressive outside
linking program. The practical objective of workout was to

get rid of thousands of bad habits accumulated since the creation of

GE 112 years go. The intellectual goal was to put the leaders of each
business in front of 100 or so employees, eight to ten times a year
to let them know what their people think about how the company
can be improved and then make the leaders respond to those changes.
Ultimately we are restructuring the leader-subordinate relationship
to challenge both to make GE a better place to work. It will force
leaders and workers to combine in creating a vision, articulating the
vision, passionately owning the vision, and relentlessly driving it to
completion. (Tichy and Charon 1989)
156 A VISION TO GUIDE GOVERNMENT REFORM

By the end of 1993, over seventy thousand employees participated in

three-day New England Town Meetings with remarkable results. In GE’s
plastic division alone, over thirty work out teams have been empowered to
make changes. One team saved GE plastics $2 million by modifying one
production process, another enhanced productivity fourfold, while a third
reduced product delivery time 400 percent (Welch 1988). Another business,
NBC, used workout to halt the use of report forms that totaled more than two
million pieces of paper a year (Stewart 1993). GE Credit Services used workout
to tie its cash registers directly to the mainframe, cutting the time for opening
a new account from thirty minutes to ninety seconds. Similar results have
been reported from workout projects in GE’s other businesses, demonstrating
a remarkable company-wide reorientation of coalignment processes between
worker capabilities and organizational needs.
While this internal transformation of GE’s value-chain was taking place,
Jack Welch also realized that some other global organizations were achieving
greater productivity, quality control, flexibility, adaptability, and rapid re-
sponse time than GE, even with the workout program in place. In the summer
of 1988, GE began its “Best Practices Program” aimed at locating those
organizations which had out performed GE in a given area, developing a case
study of how they did it, and then employing these case studies as world-class
benchmarks for improving GE’s performance.
GE scanned the globe and located twenty-four corporations which had in
some area out performed GE. They then screened out direct competitors and
companies which would not be credible to GE employees. Welch then invited
each corporation to come to GE to learn about its best practices and in return
to allow GE to come to their companies and study their best practices. About
one-half of the companies agreed. They included AMP, Ford, Hewlett Packard,
Xerox, and three Japanese companies. GE sent out observers to develop case
studies and ask questions. These best practices case studies have been turned
into a course at Crotonville, GE’s leadership training center, and is offered to
a new class of managers from each of GE’s fourteen businesses each month
(Stewart 1993).
Finally, as GE’s top management team reviewed the projects which had
been successful from their workout programs, they noticed a difference in the
types of programs which had saved up to a million dollars and those which
saved one hundred million. The latter always involved changes in organiza-
tional processes which spanned the entire value-chain. They cut across de-
partments and involved linking with suppliers and customers. All emphasized
managing processes, not functions. This led GE to establish its cross-functional
teamwork program aimed at mapping and then improving key organizational
processes. Such process maps frequently allowed employees for the first time
to see and understand organizational processes from beginning to end. They
 Leadership Strategies 157

demonstrated also the need for a new type of manager, a process manager
who could coalign an organization’s total assets. It allowed employees to spot
bottlenecks, time binds, inventory shortages, and overflows.
Since implementing such a cross-functional teamwork program, GE ap-
pliances has cut its sixteen-week manufacturing cycle in half, while increas-
ing productivity 6 percent and decreasing inventory costs 20 percent. The
program has cost less than $3 million to implement and has already returned
profits 100 times (Stewart 1993).
Next, GE put in place a rapid response communication system. This
system was designed to dramatically speed up information flow to and from
the market. Monday through Thursday, issues were generated by sales force
employees regarding growth opportunities, competitor moves, quality prob-
lems, process delivery issues, and sent to Friday’s business town meeting.
This meeting included business leaders and about sixty to seventy unit lead-
ers. They explored and acted on each issue raised. On Friday afternoon,
televeision broadcasted this meeting’s results directly to regions and plants
where they were discussed in a teleconference; a game plan was set for
dealing with these issues.
This rapid turn around time in decision-making energizes change, over-
comes resistance to change, while involving all management layers in the
action plan. Where it used to take fourteen weeks to get an order, make the
product, and then sell it, in some businesses GE has cut that time in half and
in others by a factor four, saving billions of dollars in costs each year (Chief
Executive Magazine 1992).

GE—Transformation 3
A Multipolar Multicultural Firm:
The Push to Become a Major Player in the Pacific Rim Markets

In 1992, Jack Welch began to reflect on the need for a third transformation
in GE. He believed that the slow 3 percent projected growth rate for Euro-
pean, United States, and Japanese core markets over the next several years
would limit GE’s growth. He believed that if GE was to remain a global
leader, it must take steps to position itself in the major emerging markets of
the Pacific Rim, China, India, Mexico, and Southeast Asia. Welch also be-
lieved that to remain a global leader, GE had to shift its center of gravity from
the U.S. / Europe relationship to the U.S. /Pacific Rim markets. This was to be
accomplished through a two-pronged strategy with specific performance tar-
gets for each (Smart et al. 1993).
These markets are presently growing and will continue to grow at 8 to
12 percent per year for the next ten to twenty years. In addition, GE’s growth
158 A VISION TO GUIDE GOVERNMENT REFORM

in revenue from these areas has gone from $10 billion to $20 billion in the
last three years.

GE Must Become a Multipolar, Multicultural Firm

This principle is operationalized currently to mean that, while GE’s fourteen
businesses are currently number one or two in Europe and the United States
and should defend this status, they must now become number one or two in
the major markets of the Pacific Rim—China, India, Mexico, and Southeast
Asia. In order to actualize this goal, GE must develop (a) profit centers in
each of these markets; (b) develop a multicultural pool of business leaders
and employees; (c) integrate Pacific Rim nations into their R & D, manufac-
turing, sales, and service systems; (d ) extend GEs management system into
these major markets; and (e) increase investment in GE from the region.

GE Must Employ Strong Infrastructure in Technology Transfer,

Management Training, and Financial Services in Order to Broadly
and Deeply Penetrate These Markets
In order to do this GE is (a) developing joint ventures in technology transfer
with firms in the region; (b) training foreign nationals in the United States
and then sending them back to Asia to head GE units; (c) exporting GEs
training programs to the region; (d ) using GE financial services to fund
projects in the region which use GE products; and (e) making small $10
million investments throughout the region to hedge against foreign currency
fluctuations and other forms of economic instability.
Thus far, the results of these strategies have been promising. GE’s reality
based action training programs have taken managers from Asian cultures and
trained them in management skills in the United States. Next, these managers
were shipped off to the Pacific Rim’s major markets to interview old, new,
and potential GE customers, competitors, and business managers. Finally, GE
asked these managers to develop market penetration plans and a value-chain,
reengineering plans to better position the firm’s business in the region. Simi-
larly GE’s middle-management training programs are rotating promising
multicultural leaders through different businesses and markets in Asia in order
to create a truly global multipolar, multicultural leader.
Strong open competition in the U.S. core market has important implica-
tions for the nation and for the firms who operate in this highly competitive
environment. From the nation’s viewpoint the U.S. core market attracts more
foreign investment each year ($655 billion United States, $248 billion for
Japan, and $150 billion for Germany), exports more goods and services to the
rest of the world ($609 billion vs. $424 billion from Germany, and $389
 Leadership Strategies 159

billion from Japan), is larger ($7 trillion vs. $4 trillion in Japan and $2 trillion
in Germany), and creates more jobs (7.5 million between 1990–1995) than
any other market in the world (Aley 1995).
Because of corporate adaptation to change in the highly competitive U.S.
market, firms like GE, Motorola, and Intel become world-class competitors in
their home market and carry that competitive stance with them when they
enter other regions of the global economy. In the second quarter of 1995, U.S.
productivity rose 4.8 percent (Duff 1995). The nature of open competition in
the U.S. market provides the American people and American firms with strong
and clear expectations about what government’s role should and must be in
fostering competitiveness. Attention is now directed to what those expecta-
tions are and how the U.S. government has moved from an autonomous to a
strategic management system in an attempt to meet those expectations.

The Transformation of American Government

The U.S. government’s chief role in managing economic competitiveness is

to minimize all constraints on open competition, to encourage the develop-
ment of new technologies through research and military investments, and to
intervene where necessary to assist U.S. global companies to access key
markets. Seven government functions explain the value added by government
to the U.S. business transition. Implementing these changes has required
government to find new ways to reduce cycle time, to work with business in
global markets, and to adopt high-response solutions.

Prevent Price Fixing

The United States Justice Department maintains a large investigative staff
aimed at preventing firms operating in the United States from combining to
fix the price of products and/or services. In September of 1995, the Justice
Department won its biggest fine ever in a criminal case for price fixing when
Dyne Nobel, the world’s largest manufacturer of commercial explosives was
fined $15 million for joining ICI to fix the prices of products in the United
States. Over one hundred fifty such cases have been taken to court in the last
two years. Investigations are being undertaken currently in over seventy in-
dustries (Fix 1995).

Prevent Combinations to Restrict Competition

The Justice Department also investigates attempts by firms to enter into acqui-
sitions or other commercial combinations which would restrict competition in
160 A VISION TO GUIDE GOVERNMENT REFORM

a given industry. Several years ago AT&T was divested for this reason and more
recently attempted acquisitions in the telecommunication and software indus-
tries have been halted. Every combination of firms which might limit compe-
tition is delayed until the Justice Department completes such an investigation.

Remove All Subsidies to Corporations which Restrict Competition

In 1996, the Republican Congress moved to eliminate $30 billion in tax
breaks to businesses. This represents a significant cultural change for govern-
ment; the Republican Party now sees open competition as central to economic
well-being. These tax breaks are to be taken away from pharmaceutical firms,
ethanol producers, and large farms and timber farms. However, tax credits
will be retained for R & D investment, the hard to employ (i.e., former
prisoners and the handicapped), and for corporate tuition assistance for worker’s
advanced formal education (Rosato 1995).

Remove Government Regulations which Restrict Competition

The House of Representatives passed the latest in a series of bills aimed at
revising government regulations effecting a firm’s competitive stance in the
U.S. economy. This includes legislation making it harder for investors to sue
firms (Henriques 1995).

Limit the Access of Other Nations to the U.S. Market Because They Limit
U.S. Access to Their Markets
Recent negotiations between the U.S. government and the governments of
Japan, Korea, Germany, and China have threatened to limit the access of
these nation’s firms to the U.S. market by imposing quotas, taxes, and/or
preventing product entry to the market because access to their markets were
restricted by government. Most recently, the Japanese loosened import rules
on auto parts in exchange for the United States dropping a proposed tax on
Japanese luxury cars. Similar negotiations are now underway with Korea. The
U.S. government is involved in over two hundred negotiations of this type.

Negotiate Most Favored Nation Access to U.S. Markets

The U.S. government can extend or remove most favored nation access to the
U.S. market. Most favored nation access removes taxes and quotas on a
nation or a portion of a nation’s imports into the United States. This is
normally done to enhance economic development in the underdeveloped nation
to which it is extended. Most favored nation status can be withdrawn if the
 Leadership Strategies 161

nation involved fails to trade fairly (i.e., live up to copyright laws, etc.).
Recent negotiations with China and Vietnam have turned on this issue.

Develop and Exploit Leading Edge Technology

The U.S. military and the space exploration programs have a key interest in
the development of leading edge technologies and applications. Various gov-
ernment program budgets underpin commercial developments for many U.S.
companies.
What can we conclude regarding the U.S. government’s intervention in
the economy in order to enhance competitiveness? First, the primary goal
being employed by the U.S. government is to encourage open competition in
both the United States and global economy as the acid test of corporate
viability. Second, the primary strategy for obtaining that goal is the strategic
managed negotiation of changes in a firm or nation’s behavior, imposing a
fine on firms, the denial of acquisitions, or the specification of what part of
a firm must be spun off for an acquisitions to take place without restricting
competition. Third, in the U.S. government’s external efforts to open up
competition in other markets, the denial of open access to the U.S. market is
strategically managed in order to encourage other nations to remove barriers
to their markets for U.S. firms. Fourth, in all cases, American firms bring
these issues and problems to the attention of the government and in so doing
create a pressure on government to react and strategically manage a negoti-
ated solution. In addition, a solution is not considered satisfactory in its
adoption until the U.S. firms consider it so.
Attention is now directed to drawing some conclusions regarding the
Singapore and U.S. governments’ experiences at strategically managing their
nations’ global competitiveness.

A COMPARISON OF THE SINGAPORE

AND U.S. TRANSITIONS
The dilemma is that, if a country loses its competitiveness. it
cannot afford to pay for its value system anymore. In the first
stage, governments step in to soften the reality. This is what they
did in the 1980s through massive public spending. Eventually,
however, their level of indebtedness became such that they are
confronted with the delicate alternative of either reducing the
cost and scope of the value system or significantly increasing
competitiveness.
—Garelli, “Is Competitiveness Unfair?”
162 A VISION TO GUIDE GOVERNMENT REFORM

The major problem of advanced countries and their governments is the cost
of their value system. It is normal to want to maintain or raise one’s standard
of living, to want higher wages, a more comprehensive health care program,
better retirement, and more jobs. It is understandable to want to work less, to
pay fewer taxes, and to protect the environment. But all of these values
contain a price tag. They have to be paid for by government and their people.
The more competitive a nation or firm the more wealth is created to pay for
the value system. The more sophisticated the value system, the more competi-
tive a country or firm has to be. Between 1980–1992, the net public debt in
the United States and Western Europe doubled. This indebtedness demon-
strates the large margin of error between what those nations want and what
they can afford. In both regions their competitiveness cannot support their
wants. They must begin to reduce their costs. In Europe the size of the public
sector is three times what it is in Japan. In the United States the cost of
entitlements will soon tie up over 70 percent of the government’s budget. In
Asia similar problems are beginning to emerge. What can we learn from the
two most competitive nations in the world about how to solve these prob-
lems? We suggest six common lessons and two important diverse lessons.
We have provided a rather extended analysis of two of the world’s most
competitive economies. We have observed the transformation of a central
planning high-production economy toward a strategic management high-re-
sponse economy. We have observed a high-autonomy economy evolve to-
wards a strategic management high-response economy. We have also learned
several important lessons from our analysis regarding the global competitive-
ness of nations.

Common Success Factors

First, both Singapore and the United States realize that (a) access to a large
core market, (b) a strong scientific and technical workforce, and (c) a private
sector which can attract capital in order to provide the infrastructure neces-
sary to increase growth and rapid technological development are the essential
factors involved in long-term competitive advantage.
Singapore has developed a government strategic management system
which maximizes its major resources, people, and its location in southeast
Asia, the most rapidly expanding market in the world. Singapore’s attempt to
help Malaysia, Indonesia, Thailand, Vietnam, and China develop seeks to
provide this city-state with a central role in the world’s potentially largest
core market.
The United States has developed a private sector strategic management
system which maximizes its main resources, its manufacturing, agricultural,
 Leadership Strategies 163

and service firms, and their location in the largest and most profitable market
in the world. U.S. firms are rapidly expanding into Asia in an attempt to
exploit the potentially largest and currently most rapidly expanding market in
the world.
Both nations are currently attracting large capital investments and both
are investing heavily in telecommunication infrastructure. Singapore’s educa-
tion and manpower policies are substantially stronger than those in the United
States, but the base they have to draw from at this point in time is more
limited.
Second, both Singapore and the United States have made important ad-
vances in generating more and better paying jobs. However, in both cases, a
shortage of skilled labor has developed—in Singapore because of its limited
population base and in the United States because of structural weaknesses in
its educational systems. In both nations, productivity is growing and so will
the demand for a more skilled workforce. In both nations, the government is
supporting a brain drain from abroad to fill the gap. However, as other nations
improve their standards of living and pay for skilled work, this solution may
not work. Jobs may migrate along with skilled workers. For example, in the
United States between 1980 and 1992, manufacturing output doubled, but
manufacturing jobs decreased by 10 percent. At the same time, manufacturing
output and jobs in Korea, Taiwan, Singapore, and Malaysia increased by 25
percent (Smadja 1994).
Third, competitiveness has added value to both economies. In Singapore,
it is raising the nation’s standard of living while in the United States, in-
creased competitiveness is required to maintain the current standard of living.
Wages and disposable income in both Singapore and the United States have
changed dramatically. In Singapore, GDP has risen from $3,000 U.S. in 1960
to $22,000 in 1995, while disposable income has risen 500 percent. Between
1973 and 1992, blue-collar workers in the United States have lost 15 percent
of their purchasing power, while real income peaked in 1976 at $24,000 per
person. Today, sixteen years later, real income is $23,000 and purchasing
power remaining has decreased 15 percent. In the United States, 7.5 million
jobs have been created that could push those figures upward, but a shortage
of skilled labor and no effective national labor policy designed to meet those
unfilled needs is pushing real wages down (Narisetti 1995).
Fourth, both the government in Singapore and the private sector firms in
the United States have located a successful strategic development model.
Development proceeds in strategic phases. Each phase has involved the
adaptations of a dramatically higher value added product output. The move-
ment between stages is transformational while the mastery of each phase is
incremental. The goal in each phase is to dominate through excellence. The
observable characteristics of domination are (Vollman 1994): a dramatic growth
164 A VISION TO GUIDE GOVERNMENT REFORM

of capabilities and competencies, high rates of learning, rapid increase in

market shares, faster adaptation to change in the market, increased effort in
all jobs, an increase in team spirit, becoming the benchmark others follow,
flexibility in responsiveness, and changing the culture and rules of the game.
It is remarkable when one looks at what the Singapore government in-
terventions in the economy were and how similar they were to GE’s corporate
adaptations to a changing marketplace. The catalysts were different; the moves
similar.
Fifth, both the effective leadership system of Singapore’s government
and of U.S. corporations such as GE represent a complex team effort. What
Singapore has accomplished is the result of the coordinated effort of leaders
of numerous government boards. What GE has accomplished is the result of
the coordinated effort of the leaders of fourteen businesses. Such a complex
coordination effort requires a large number of competent leaders and an un-
precedented recruitment effort. In Singapore each year the government targets
the top 3 percent of students in their higher education systems for government
service. GE interviews over ten thousand potential managers and hires less
than 1 percent each year. Both organizations have a recruitment system which
can generate a strong leadership team. The U.S. government has not had such
a leadership team in the Senate, House, Presidency, or in administrative agen-
cies. Instead in the United States, the private sector attracts the top leaders.
So it may be difficult for the U.S. government to develop the critical mass of
competent leaders to play a more a active role in the economy without a
significant structural change.
Sixth, with the growth in world trade expanding twice as fast as the
growth in GDP, both Singapore and the United States have developed strong
export economies to take advantage of that growth. Singapore with its 2.8
million people ranks fifteenth in the world with $48 billion in the export of
manufactured goods, twelfth in the world with $18 billion in the export of
commercial services, and twenty-first in the world in the export of agricul-
tural products. The United States with 260 million people, ranks second in the
world with $304 billion in the export of manufactured products, first in the
world with $162 billion in services, and first in the world in agricultural
products with $63 billion. If Singapore had not developed a strong export
economy, it is questionable if it would have developed significantly beyond
its 1965 levels. If the United States had not developed a strong export economy,
the standard of living of its people would have declined substantially below
its 1975 national high. The transition for Singapore from a centrally planned
to a strategically managed economy and the United States from a decentral-
ized control to a strategically managed economy was necessary to advance
the effective participation of both nations in the global economy.
 Leadership Strategies 165

Key Differences

The diverse lessons we can learn from our two case studies may be even more
significant.
First, the contribution of government targets was different in each tran-
sition. In Singapore, the government selection of targets for operationalizing
its vision of an export-based economy employs specific educational and eco-
nomic goals and targets (e.g., attracting x amount of foreign investment through
incentives to power industries, educate x number of computer scientists, etc.).
These goals lack the normal political ideology or values which serve as a drag
on government action. In the United States on the other hand, the values the
American people hold in regard to individualism, or universal health care,
and so forth are unmanageable as operational principles which not only create
significant problems for government and debate over their implementation
but also divide the nation and makes government immobile.
Second, the challenge of maintaining the scope to govern was different
for each transition. In Singapore, the need for strong and extended support of
government by the people could undermine governmental action if it did not
exist. If Singapore had two strong parties with separate vision within which
each could get the power but not hold it, then the current strategic manage-
ment system would be undermined. In the United States shifting political
power has had a limited effect on the economy because most institutions
which can effect the economy have been placed beyond political influence
(i.e., the Federal Reserve Board). So governments come and go, but the
economy goes on.

IMPLICATIONS FOR THE REFORM OF

GOVERNMENT MANAGEMENT
The leadership, management and communications strategies for discontinu-
ous change are different from those required for incremental change. Because
leadership in government must address the complexity of the government
role, the strategies are different than those likely to succeed in business.
Although lack of effective strategic leadership is often a restraint to
change in both business and government, the restraint is often greater in
government because systems are designed to avoid leadership, management
is rule driven, discretion is minimal and centralized, and the management
culture is risk averse. Strategic leadership in government requires strategies
which reposition government structures and resources and enables govern-
ment staff and external interest groups to understand the change and join the
166 A VISION TO GUIDE GOVERNMENT REFORM

transition. Strategies include: managing external rather than internal bound-

aries; directing strategic visions rather than long-term missions; handling
strategic management rather than strategic planning; managing transitions not
end points; shortening the times span of evaluation by managing short-term
benchmarks and impacts rather than long-term results; implementing irrevers-
ible changes rather than incremental change; benchmarking the transition
platform into the future and leveraging expectations of future benefits;
coaligning value-chains through shared interests rather than standardization;
participating through communication and shared values; and harnessing rather
than containing diversity.
Our analysis of Singapore and the United States, two nations that have
managed a successful transition to national competitiveness, raises a number
of implications for national leadership.
First, the National Competitiveness Model predicts the relationship be-
tween government and business will differ between these two transitions. The
high-autonomy transition requires business leadership. The high-production
transition requires government leadership. The case studies highlight these
differences.
Second, our consideration of the relationship between government and
national competitiveness suggests that government and business must share
the role of delivering competitiveness. The Singapore success could not have
occurred without the key multinational corporations who joined with the
government to meet their objectives and to contribute to Singapore’s competi-
tiveness. The U.S. success could not have occurred without governments,
state and federal, moving to expose businesses to global competition and
opening the U.S. market to that competition. The U.S. success could not have
occurred without strategic government action to protect U.S. interests and
assist U.S. companies to access global markets.
Third, the need to manage transitions as a series of discontinuous changes
and to protect the platform for change is evident in both transitions. In the
case of Singapore, creating the base to attract investment required time and
commitment. While pursuing development, the government also addressed
pressing social value needs, essentially housing, education, and training, and
employment. These early stages were prerequisites for the high technology
strategies which are now being implemented. Although the Singapore govern-
ment has generated massive support, this support needs to be seen in terms
of the value which has been added to the Singapore economy over the period
since independence and the resolve of the government to ensure that the
benefits of development are shared with its citizens. In the case of GE, the
transition clearly moved through three discontinuous changes each of which
build upon the other. In the case of the U.S. government, the restrictions
generated by comfort zones are ever present. The government created the
 Leadership Strategies 167

interlinked economy since 1945. Although U.S. business, seduced by

the comfort of its large domestic markets was slower than others to exploit
the possibilities of the global economy, government resolve to avoid protec-
tionism and expose business to global competition has paid off in recent
years.
Finally, our argument that change requires leaders able to create a vision
and rearrange resources structures and systems to deliver that vision is sup-
ported by these studies of Lee Kuan Yew and Jack Welch. These leaders
achieved major discontinuous change, they involved others in the process,
and they developed their long-term visions as the environment changed and
as their capacity to exploit new opportunities changed. Both leaders adjusted
structures, systems, and values to support their particular transition. Both
leaders were able to translate their vision into action.
We have now reached the end of part 1 of this book. The scope of the
problem has now been identified and the ideas required to underpin the changes
have been presented. Part 2 will address specific strategies and tools for
managing the transition to competitive government.
 Part II

A Management Platform for

Government Change
A Management Platform for Government Change

Planning a strategic change is not enough: Much is required to

get there. After all, old habits die hard. Current resource deploy-
ments constitute commitments around which employees and
shareholders form work and career expectations. Previously
announced goals, pay practices, recruitment systems and adminis-
trative procedures place firms on strategic trajectories that create
both inertia and momentum and inhibit change. To turn away
from these trajectories requires, not only skill in selecting the
most promising strategic changes, but also skill in overcoming
inertia and remodeling institutions.
—Fombrun, Turning Points

In chapter 1, we argued that responding to the current crisis in government

management requires major, nonlinear, changes to the strategies structures
systems and staffing of government agencies. This cannot occur unless gov-
ernment abandons the traditional controls and technologies which govern-
ments use to deliver value and to coordinate activities.
In part 1, we presented a vision to guide government reform. We analyzed
the breakdown and presented a number of models and frameworks that can be
used to test the performance of government and to evaluate whether particular
reforms offer value. We described the transition which government manage-
ment must make as a transition from traditional rule driven government to a
new form of government we described as competitive government. The difficulty
with this transition is that it is a nonlinear transition requiring a major break
with the past. While many partial solutions are underway, government must
ensure that the transition proceeds, and that each individual change combines
to create a transition from the present to an as yet uncertain future.
If we are to change our vision of government, we must embark on a
transition. This transition requires the reinvention and reengineering of strat-
egies structures and systems in order to create a management platform which
supports rather than impedes change. If these reforms are to support transition,

171
172 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

they must fix the weaknesses in traditional systems while also retaining pre-
vious strengths. In part 2, we address the internal reforms required to produce
such a platform for transition. The first challenge is to create a platform
which can solve current problems by aligning new management strategies
structures and systems with the new external realities. The second challenge
is to convert on-off changes into an effective platform for transition to address
future problems and exploit future opportunities. We consider detailed change
strategies and management tools which can be used to replace the traditional
static management platform used by governments with a platform for transi-
tion.
Chapter 7 addresses the challenge of transition. We suggest that devolu-
tion and differentiation are central to future government performance. Man-
aging the transition from a tightly controlled uniform system to a devolved
and differentiated system presents three challenges for government reform.
First, there is the challenge of coordinating devolution with new forms of
output focused accountability. Second, there is the problem of managing a
network of differentiated activities and cultures. Third, there is the challenge
of maintaining some capacity to address the public interest.
Chapter 8 addresses planning and evaluation strategies for competitive
government. Devolution and differentiation require new approaches to the
management of performance. In chapter 8, we present a strategy for shifting
government planning and evaluation away from inputs and processes towards
results and measurable impacts on the external environment. High-response
solutions to government management require strategic thinking by govern-
ment. This needs to be supported by new approaches to planning and evalu-
ation. We examine recent criticisms of strategic planning and argue that strategic
planning and evaluation in government is essentially an implementation tool;
it must be developed to avoid planning inertia. We present a performance
improvement planning and evaluation process and discuss its application to
three quite different performance problems: the reform of a national taxation
agency, the reform of services for the schooling of disabled children, and
measuring the performance of senior managers.
Chapter 9 presents strategies and tools for reinventing and reengineering
government management systems and values. The task of facilitating change
requires both the removal of the blockages created by traditional input con-
trolled systems and the replacement of these traditional systems by new forms
of coalignment which focus on the management of government performance
and on holding agencies and managers accountable for results. We suggest that
the role of structures needs to shift from coordinating work or distributing
power to providing a focus for autonomy and accountability. We explore three
change management strategies / tools. We discuss the use of a network of per-
formance contracts as a tool for focusing change. We discuss the use of project
 A Management Platform for Government Change 173

teams to implement leading edge changes. Finally, we address the application

of continuous improvement processes to government management.
Chapter 10 addresses resource management strategies for competitive
government. Most reform processes recognize the need for reform of financial
management systems. Current devolution experiments and the need for gov-
ernments to manage cycle time directly, present many new challenges for
financial management. We focus on the need to remove inbuilt overestimates
from the process, on the development of new approaches to the management
of allocative tensions, and on managing transitions to results based budgeting.
Chapter 11 addresses governance strategies for competitive government.
The institutions which nations use to manage their affairs include an execu-
tive (both political and nonpolitical), an assembly or legislature, which can
have varying powers and varying roles, and a judiciary. Many of the changes
required to support national competitiveness impact on governance structures
which have developed in particular countries. While governance structures
must be part of the change process, they do not determine it. The competitive
countries discussed earlier have different governance structures, yet they have
exploited the global economy more effectively than others. The key is in
managing the strategic fit between the management platform and these gov-
ernance structures. In chapter 11, we examine different governance structures
and consider the impact of transitions to competitive government on such
structures. In particular, we examine the interface between the legislature and
executive government, the ways in which interest groups access governance
structures, and the interface between the political and nonpolitical arms of
executive government.
 Chapter 7

The Challenge of Transition

Under performance is a major issue for public administration in

the 1990s. A major cause of this gap is a lack of fit between the
management and support strategies of public sector organizations
and the delivery strategies they seek to implement.
This lack of fit can be related to the management values that
managers and government apply to public sector operations.
• Management values that see public sector performance in terms
of increased freedom to manage have encouraged the disman-
tling of bureaucratic controls over finance and personnel
without developing increased accountability for the delivery of
services to the public.
• Management values that see structure as independent of
strategy have encouraged attempts to transplant partial private
sector management approaches into the public sector without
developing the sort of focus on performance which guides these
approaches in many private sector situations.
• Management values that see performance as inevitable, pro-
vided malfunctions do not occur, have encouraged public sector
managers to ignore the need to define performance and manage
the delivery of services to the public. . . .
This diagnosis has major implications for the future perfor-
mance of public administration. Lack of accountability combined
with the deregulation that has occurred may well have exposed

175
176 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

many public sector organizations to increased risks of major

failure without improving their capacity to meet public expecta-
tions for improved services.
—Cullen, “Public Sector Performance
and Private Sector Management”

Environment volatility continues to place increasing pressure on government to

adjust to changing political and economic conditions. Participation in the global
economy combined with an increasing incapacity to deliver grass roots value
has created new pressures for government to perform. In chapter 1, we argued
that the failure of governments to respond to these new pressures is the cause
of the current crisis. Failure to perform is a function of not thinking through the
specific transition required and of the inability of government change managers
to implement the transition. We now discuss the challenge of managing a
particular transition.
The changes to government management that are required are major. For
most nations there is no viable incremental path to the new management
platform that government must develop.
It is the purpose of this chapter to present a framework within which
transitions to competitive government can be managed. We discuss five ten-
sions that must in our view be managed for a transition to competitive gov-
ernment management systems to succeed: resource balance / allocation,
accountability / devolution, deregulation / reregulation, corporate management /
operating agency, and cycle impact tension. We conclude with a case study
of transition to competitive government.

RESOURCE BALANCE/ALLOCATION TENSION

The management crisis in government is complex in origin and delicate in its

solution. Many governments must face the reality that they can no longer
fund the level of government activity that developed in a less competitive
world. A consistent decline in resources, shifting government priorities, and
serious cutbacks in many social services are threatening the comfort zone of
many government officials and citizens.
Managers in a time of shrinking resources are finding a new need to
locate a common ground within the political arenas of government on what
programs will be accomplished and even more significant what programs will
be deferred. In times of shrinking resources, a need to shift priorities creates
a dilemma for many existing government programs. There is an opportunity
cost associated with allocating resources to a particular program. That cost is
 The Challenge of Transition 177

essentially the cost of not undertaking or cutting other programs. Shifting

priorities create tensions in the comfort zones of citizens who benefited from
the older programs. If not handled in an appropriate manner, pressure will be
brought on elected officials to halt or cut the flow of resources to the new
priorities.
Traditionally, government managers solved the problems of resource
reductions by one or two well-known methods. The equal common misery
rule, which assigns a flat percentage cut—say 5 percent— to all agencies, or
a recruitment freeze rule, which impacts agencies differently, eliminates the
need to select specific programs as winners and losers. Both strategies work
well in times of temporary reductions. However, in times of continued reduc-
tions, accompanied by shifting priorities, both strategies have demonstrated
high rates of failure. The long-term effect of utilizing these input-oriented
strategies for resource allocation is stagnation, a deterioration in services, and
a serious reduction in staff moral.
This traditional approach of regulated consumption is not a viable tran-
sition option because it is under resources change. First, old priorities tend to
be overresourced and new priorities tend to be underresourced. Second, slow-
ing cycle time, and under resourcing change delays the benefits of change.
Importantly, government revenues are often further eroded by the lack of
competitiveness and by the need to address the symptoms of failure.
The available evidence indicates that a manager’s real transition manage-
ment options are to reduce programs and to alter the program priorities of
government (Cullen 1983). The ability to locate and manage the nexus be-
tween a sustained reduction in resource levels, a reduction in program deliv-
ery, and shifts in fundamental government priorities without destroying a
citizen’s comfort zone is in our opinion, the essence of effective public ad-
ministration today. An orderly decline in governmental organizations is an
organizational transition process about which management theory tells us
very little. How do we motivate people in declining or terminating organiza-
tions? How do we develop organizational commitment and teamwork in a
declining organization? How do we avoid organizational stagnation and pa-
ralysis? How do we manage when survival values dominate?
We believe that one solution to this crisis resides in a shift from an equal
pain and inputs control orientation within existing programs to a priority
based outputs approach to existing programs. We term the conventional inputs-
oriented approach “regulated consumption.” It regulates the consumption of
resources in public sector agencies by controlling the resource inputs. The
overriding assumption here is that all that is done by public sector agencies
is equally good and worthwhile, even if it cannot be defined, measured, and
evaluated. We believe that this equal pain and input approach to public sector
178 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

management must be replaced by an environmental change responsive man-

agement system which is priority based and outputs- or performance-oriented.
But changing a government’s management system, like changing a
government’s priorities, is not simply a matter of moving from one system to
the other. Counter pressures make such a transition difficult; we need to be
aware of the problems and pitfalls which accompany such a transition.

ACCOUNTABILITY/ DEVOLUTION TENSION

Unless deregulation of the public sector is accompanied by new

forms of accountability, under performance will become a long-
term feature of public administration.
—Cullen, “Public Sector Performance
and Private Sector Management”

Effective transition management requires management tools that assist man-

agers to balance the need for devolution against the need to shift the focus
of accountability from processes to results. Exhibit 7.1. The Performance
Management Grid presents one such tool. Exhibit 7.1 involves two axes. The
vertical axis indicates the existence of clearly defined priorities, objectives,
and allocation commitments. The horizontal axis deals with the extent to
which the organization is free of detailed central control over personnel and
financial transactions. In public sector management, because objectives and
priorities are often complex and difficult to specify, many organizations op-
erate at the low end of the vertical axis. There is an organizational inheritance
of very detailed, central controls over transactions. These detailed controls
were developed in the past as an alternative to output-oriented controls; they
operate to preserve equity and minimize errors. Such organizations rate low/
low on Exhibit 7.1, which defines the “regulated consumption” approach to
organizations discussed earlier.
This form of management ensures an orderly consumption of resources
and provides scope for these resources to be consumed to produce required
outputs. In a relatively benign environment, where the major output required
is to maintain established functions, this model avoids the difficulty of defining
outputs and measuring performance. It can survive with some difficulty in a
situation of steady incremental growth. However, the “regulated consump-
tion” approach to organizations cannot meet the twin challenges of an envi-
ronment demanding substantial and ongoing changes in functions and
performance, combined with a situation where available resources are declin-
ing and need to be reallocated to new high priority programs.
 The Challenge of Transition 179

Exhibit 7.1. The Performance Management Grid

High

SHARED PERFORMANCE
RESPONSIBILITY ORIENTED
Accountability—for strategic performance

▼
Medium

FAILURE ZONE
▼

REGULATED UNFETTERED
CONSUMPTION ENTERPRISE
Low

Low Medium High

Devolution—freedom from detailed controls over processes

Note: Failure zone—high risk of under performance or administrative breakdown due to lack of
strategic fit between internal controls and external accountability for performance.

When this model breaks down, bureaucratic organizations in their search

to become performance-oriented, have a habit of moving to one or two quite
undesirable organizational situations. The first, and perhaps the most excus-
able response, is that such organizations develop clear objectives and priori-
ties. This enables such organizations to attempt to respond to their environment.
However, because they remain subject to detailed central controls over financial
and personnel transactions, such attempts are often fraught with difficulties.
This approach to organizational change rates high / low on Exhibit 7.1 and is
180 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

titled “shared responsibility.” Organizations which seek to operate this way

for any length of time experience high levels of frustration. In the face of
detailed central control for which they are not responsible, such organizations
are seldom able to respond to their new objectives. The “saving grace” of this
model is that responsibility for failure is shared between the managers of the
organization and the managers of the central agencies of government; it can
enable somewhat inexperienced managers to be supported by central agen-
cies, and it requires a great deal of goodwill to operate for any length of time.
It is insidious in its fragmentation of responsibility. It tends to encourage a
management culture where managers, instead of performing, become expert
at blaming others for failure.
A second undesirable response to the breakdown of the “regulated con-
sumption” approach is to release detailed controls over transactions and leave
the managers to manage. It is an emotional Catch-22. Unfortunately in the
process, the key questions of what they are going to manage and to what end
are frequently never addressed. Detailed controls are lifted but their objectives
and performance are often neither properly developed nor monitored. This
approach to organizations rates low/ high on Exhibit 7.1 and is described as
“unfettered enterprise.” Under these arrangements, effective organization is highly
dependent on the quality of the chief executive and the existence of overall
support for the functions and objectives that the chief executive elects to pursue.
To move from the position of “regulated consumption” to a priority
specific “performance-oriented” model in public administration is a matter of
managing organizational roles to avoid the weaknesses inherent in both the
“shared responsibility” and the “unfettered enterprise” options. To do this,
clear priorities, objectives, and budgets need to be developed and perfor-
mance output targets established. These developments need to be coordinated
with the reduction of central controls over individual transactions. The end
result is to create a type of public sector organization able to accept total
responsibility for the delivery of agreed results. This type of organization
rates high/ high on Exhibit 7.1, which defines the priority specific performance-
oriented approach to organizations discussed earlier.
Exhibit 7.1 can also be used to define a failure zone where there is a lack
of strategic fit between internal controls and external accountability. Diagonal
lines on the Performance Management Grid define a zone within which any
transition is likely to fail. This failure zone is defined as that part of the grid
where neither variable is sufficiently dominant to provide an effective focus
for performance. Regulated failure attempts a strong focus on both inputs and
outputs which does not deliver a dominant solution. Unfettered enterprise
attempts no external control. The central mode compromises both deregula-
tion and accountability in order to enable organizations to survive. While the
organization may survive, it will lack any real capacity to add real value.
 The Challenge of Transition 181

The point about this failure zone is not that it defines areas in which
agencies are likely to fail but that moving a government agency or bureau
from regulated consumption to performance management requires a transition
through this failure zone.
Most government changes in recent years have moved agencies horizon-
tally to the right on the Performance Management Grid. There is no doubt
that deregulation is required to enable managers to add value to government
programs. However, the lack of effective measures of accountability has led
to perceptions of failure. All too often the solutions have been new structures,
new managers, and new pressures for reregulation rather than solutions which
develop a new focus for performance that coaligns units more effectively.
For example, the short-term focus of many changes is to reduce costs in
order to plug budget gaps In many cases, short-term accountability is defined
in terms surviving the challenge of reduced expenditures. But in the longer-
term accountability for performance requires a negotiation of performance
parameters either with customers or government or both. Viable long-term
change also requires an audit of existing structures systems and staffing not
only to focus management accountability for delivery, but also to avoid the
shared accountability option discussed above. Viable long-term change also
requires managers to establish the basis for continuous improvement which
includes an ongoing evaluation of performance and an ongoing drive to im-
prove performance.

DEREGULATION / REREGULATION TENSIONS

To this day whenever things go wrong, politicians respond with a

blizzard of new rules. A businessman would fire the individuals
responsible, but government keep the offenders on and punishing
everyone else by wrapping them up in red tape. They close
the barn door after the horse has escaped—locking in all the
cowhands.
We embrace our rules and red tape to prevent bad things
from happening, of course. But those same rules prevent good
things from happening. They slow government to a snail’s pace.
They make it impossible to respond to rapidly changing environ-
ments. They build wasted time and effort into the very fabric of
the organizations.
—Osborne and Gaebler, Reinventing Government

Effective transition management needs to include strategies for adding value to

government by strategically reviewing the fabric of rules and simultaneously
182 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

deregulating some areas and reregulating others. Government developed regu-

lation in order to control services to convince the public that they were being
treated fairly. Government extended the rule by regulation approach to their
internal relationships. Interest groups, the legislators, and the judiciary became
involved in the process. The result was a system of management that sought to
respond to new problems with old solutions.
There is no doubt that government structures must move toward the
performance-oriented approach to management, and that this involves the
demolition of many but not all rules. In this examination of regulation, we
will first examine the reasons why government regulates. We will then exam-
ine the impact of these constraints on management practices and values.
Finally, we will examine strategies for change which recognize that some
rules add value. We will suggest that in many areas of internal control rules
are simply inappropriate. In other cases, where rules act to improve customer
service, we suggest that the issue is who controls the rules and are managers
able to make exceptions where these are required? In other cases, we suggest
that rules should be evaluated in terms of objectives impacts and performance
not on the basis of doctrinaire views about whether they are intrinsically good
or bad.

Reasons Why Governments Regulate

Governments regulate for many reasons:

• To define (control) the scope of agencies to act.

• To enable the legislature or interested groups to control government
agencies.
• To ensure agencies act fairly between individuals.
• To ensure resources are used by agencies in an efficient manner.
• To guarantee staff across the government service are treated equitably.
• To provide a vehicle for consultation with service users and interested
community groups.

Most organizations use procedures and guidelines to guide the delivery

of products to customers. Many extend these guidelines to address internal
processes. However, in the business arena the objectives are clearer, for ex-
ample, to deliver products, and to maintain market image. In government,
regulations often become ends in themselves.
 The Challenge of Transition 183

The Impact of Regulatory Constraints on Government Managers and Values

James Q. Wilson (1989), in a powerful analysis of the ways in which govern-
ment bureaucracies work, identifies seven consequences of managing in this
climate of constraint.
“First, managers have a strong incentive to worry more about constraints
than tasks, which means they worry more about processes than outcomes.”
Wilson concludes that delivering outputs is not enough. Managers must also
worry about meeting the constraints and contextual goals of the agency. For
example, if the agency is required to consult, the process can become more
important than tasks performance.
“Second, the multiplicity of constraints on an agency enhances the power
of potential interveners in the agency.” Wilson discusses the intervention of
courts and appeals processes which seldom address performance and usually
address procedures. He describes the organizational boundary as including all
those who have a stake in the maintenance of one or more constraints over
the agency.
“Third, equity is more important than efficiency in the management of
many government agencies.” Wilson argues that procedural rules are usually
defended on the basis of equity and suggests that because equity issues are
easier to judge than efficiency issues, they tend to prevail.
“Fourth, the existence of so many contextual goals, like the existence of
constraints on the use of resources, tends to make managers more risk averse.”
Wilson argues that managers faced with a multitude of complex goals seek
to reduce the risks of failure by replacing complex goals with rules and by
ensuring that such rules are followed.
“Fifth, standard operating procedures are developed in each agency to
reduce the chance that an important contextual goal or constraint is violated.”
In government bureaucracies, standard procedures are used to regulate inter-
nal behavior and also to ensure that the organization conforms to enforceable
constraints imposed by external constituencies.
“Sixth, public agencies will have more managers than private ones per-
forming similar tasks.” The reason is the need to enforce external constraints.
Wilson suggests that the reason why government bureaucracies are more
“bureaucratic” than private ones in large part is because we—the people and
our political representatives—insist that they be.
“Seventh, the more contextual goals that must be served, the more dis-
cretionary authority in an agency is pushed upwards to the top.” Wilson
discusses the risks inherent is empowering line operators in situations where
goals are unclear. The risk is that managers will be blamed for any errors
which occur.
184 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

We have outlined these consequences of regulatory constraints in order

to examine strategies for change. If we are to deregulate government, we need
to examine the purposes and consequences of regulation and, where those
purposes are important, we need to develop alternative solutions.

Strategies for Reengineering Government Regulatory Regimes

The high cost of government is caused by public and legislative demands for
accountability and a rule driven control regime to stop government managers
failing. Reversing this process offers major value in terms of service and
reduced costs, but requires a public acceptance that the old control demands
have become a greater waste of taxpayer funds than the failures they seek to
eliminate.
As part of any change strategy, it is important to audit rules to assess
costs of compliance, external impacts such as the impact on service, the
impact on business costs, cycle time, and the capacity of agencies to respond
to new and existing needs. Change strategies need to examine the cost of
regulation and the opportunity costs in terms of services denied. Where gov-
ernment moves away from delivery or introduces quasi-market forces, new
forms of regulation are usually required to ensure these can continue to op-
erate. Regulatory systems, which aim to protect the benefits of competition,
are already important in the business sector and are likely to become increas-
ingly important in government. These regulatory regimes need to be evalu-
ated against results not process.
We suggest four strategies for reengineering government regulatory
regimes:

• Deregulate the external controls on an agency by agreements or con-

tracts that link autonomy to results.
• Review the internal rules within an agency to devolve management
closer to customers and natural business units. Sell support services
where agencies lack the expertise to provide these in-house. Audit
performance after the event. Rules can be converted into guidelines,
workers can be encouraged to innovate, failure to follow guidelines
can often be decriminalized or at least placed on a par with failure to
meet customer needs.
• Review external rules and use these to communicate with users. Where
appropriate, introduce discretion to enable managers to respond to
changing needs. Change needs to recognize that some regulations are
beneficial; they decrease cycle time; they improve relations with cus-
tomers; they facilitate consultation and improvement.
 The Challenge of Transition 185

• Review internal and external rules against the need to manage cycle
time. Where simple rules allow rapid responses, consider retaining
these as an option for managers who can work within them.

The Development of Competition Policy in Australia

The report of the Committee to examine “National Competition Policy” in Aus-
tralia chaired by Frederick G. Hilmer (1993) illustrates the value that can be
obtained by reviewing old assumptions about government roles and regulation.
There are similarities and differences between the issues examined by the
Hilmer Committee and the strategies discussed for the U.S. in chapter 6. The
committee saw the objectives of competition policy as fostering economic
growth and examined six elements: limiting the anti-competitive conduct of
firms; reforming regulation; reforming the structure of public monopolies;
providing third party access to facilities essential for competition; restraining
monopoly pricing behaviors; and fostering competitive neutrality between
government and private business when they compete.
Although the report did not address the total government management
challenge, it identified government blockages to national competitiveness.
The committee examined the competitiveness impacts of government owner-
ship of businesses in Australia, and of traditional regulatory regimes. The
quite moderate proposals to add value to competitiveness by removing block-
ages and addressing new needs identified by the committee illustrates the
scope that exists in most countries to make governments more competitive.

CORPORATE GOVERNMENT / OPERATING

AGENCY TENSION
Classical Industrial bureaucracies are pyramidal in structure,
with a small control group at the top and an array of permanent,
functional departments below. The Super—Industrial corporate
form is more likely to consist of a slender, semi-permanent
“framework” from which a variety of small, temporary
“modules” are suspended. These . . . move in response to the
change. They can be spun off or rearranged as required by
shifts in the outside world.
—Toffler, The Adaptive Corporation

The business world has discovered that devolution and differences are im-
portant to managing in a high-response environment. Alvin Toffler advanced
these ideas in the 1970s as part of a classic study which argued in favor of
segmenting the Bell system. The benefits of devolution and moving agencies
186 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

closer to markets will not emerge unless governments too finds ways to
encourage diversity rather than conformity. The other side of the devolution
coin is that the central framework must be capable of repositioning the sys-
tem and realigning the missions of government.
The optimal strategy structure and values required for a government
agency to perform is a function of the performance required. For example, the
optimal arrangements for operating schools will always differ from the opti-
mal solution for managing prisons.
In a volatile environment, agencies must obtain the flexibility to address
needs and manage delivery. In part, this process involves devolution to place
management discretion closer to delivery action. The process must also in-
volve experiments to find out what works and what does not and to develop
confidence amongst internal and external groups that new solutions can add
value. These two processes, devolution, and the need to experiment, require
differences between delivery agencies/ units. While these differences are the
key to reform, they create new coordination problems for bureaucracies used
to coordination by standards and rules. The rules and processes must be
dismantled to allow differences to emerge.
On the other hand, many agencies are funded by taxpayers who do not
receive direct benefits. The opportunity costs of expanding one agency at the
expense of another must be managed. Where there is competition there must
be some way to encourage agencies that add value. All this requires central
agencies of government able to manage diversity rather than conformity. The
successful management of diversity requires a shift in the internal values of
government from a belief that performance flows from internal rules and
conformity to a belief that coordination can focus on performance.

Strategies to Encourage Diversity

• Contract with agencies the constraints that will be applied and the
constraints that will not and define how performance will be measured.
• Devolve evaluation closer to users through market-like mechanisms
that consult users. Use these evaluations to replace the traditional focus
on systems and processes.
• Use strategic planning to ensure that agencies and the networks of
delivery agencies address the public interest. While much of the focus
will be on interagency priorities and resources, resource allocation
pressures need to be minimized and performance priorities maximized.
• Ensure that differences are also important within delivery agencies,.
The management processes used for the personnel department must be
different form the management processes used to control delivery offices
 The Challenge of Transition 187

serving the public directly. Agreements which devolve decision mak-

ing to delivery agencies should also ensure that there is real devolution
within those agencies.

Strategies for Corporate Control

How can government control diversified agencies? The key is to learn from
the networks which have been created in some of the most successful global
companies. There are a number of common solutions that all require an
effective and powerful central framework. Evaluation and performance con-
tracts are often the tools used to underpin central control over devolved units.
The central groups in such structures have two missions, to manage corporate
performance, and to assist agencies to manage agency performance. Some
typical framework strategies are listed below.

• An effective evaluation of performance by both the agencies and the center

• A clear understanding of the preconditions for membership
• Some mechanism for terminating or exporting unsuccessful agencies
• A focus on results benchmarked against others
• Planning flexibility in respect of inputs and processes

CYCLE IMPACT TENSION

Effective transition management requires strategies to manage impacts on a

government’s comfort zone. The benefits of change often flow to the public
indirectly through increases in competitiveness. The costs of change, both real
and perceived, are usually significant and need to be balanced against benefits.

Strategies for Managing Cycle Impacts

We have discussed impact and cycle management strategies and tools in
chapter 4. A number of strategies are of particular use in supporting transition
management.

• Reduce expectations of change, for example, by assisting the public to

understand that doing nothing is not a zero cost game; inaction will
lead to major future costs.
• Resist the temptation to lengthen cycle time and instead shorten cycle
time. This usually involves starting fewer changes and resourcing these
to minimize cycle time.
188 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

• Promote short-term benefits/ impacts and build the idea that these are
part of longer-term benefits.
• Neutralize uncertainties created by change, where this is possible.
• Neutralize responses to any failures and wastage that occur as part of
high-response operations, by accepting these as part of change, and by
introducing processes to review and learn from difficulties.

STATE GOVERNMENT TRANSITION:

VICTORIA, AUSTRALIA
Has public administration moved forward or backwards, or has it
simply engaged in a series of structural changes and senior
management re-arrangements which have avoided the basic need
to deliver added value to the public in terms of more effective
and relevant programs at the grass roots level?
Overall, it seems to me that public administration has moved
forward in the sense that the old systems could not have even
commenced to address the range of pressures under which public
administration today must operate. But we should not delude
ourselves that the changes are complete or that the attitude shifts
required to develop effective program delivery have been devel-
oped. The system that has evolved is in a sense less stable and
more at risk until we develop new approaches to accountability to
complement the new personnel and budgetary systems.
—Cullen, “Changes That Have Taken Place
in the Focus of Budget Dependent Agencies”

This case study evaluates a government management transition in the state of

Victoria, Australia, over almost a decade. The objective is to analyze the links
between government performance and government management and attempt
to draw some general lessons from the successes and failures of this particu-
lar transition.
In the early 1980s the state of Victoria, Australia, addressed a crisis in
government management. Government performance had stagnated under a
government that had been in power for many years. Various scandals had begun
to erode support for the government. Within the government, reformers were
seeking to change performance. Outside of the government, the opposition
party began to develop coherent alternative policies. Both the government and
the opposition, which increasingly saw itself as a government in waiting, saw
outmoded government management systems as part of the problem.
 The Challenge of Transition 189

Australia has a federal system with a Commonwealth and State govern-

ments. Victoria is the second most populous state. The executive of the Victo-
rian government comprises elected ministers and a chief minister (Premier)
who are part of a two-house legislature (Parliament) developed along Westminster
lines. Ministers are regularly accountable to Parliament. In 1980, government
management in Victoria was traditional. Agencies were managed by career
managers who were responsible to ministers. Although there had been impor-
tant attempts to reform government personnel systems and to place government
agencies under more effective review, discontinuous change was required.
In 1982, a new government led by John Cain was elected with an agenda
to implement both policy reforms and administrative reforms. The new gov-
ernment had identified the need to reform financial management and to in-
crease political control over government agencies.

Overview of the Reform of Government Management in Victoria

Exhibit 7.2. Government Management Reform Agenda: Victoria, Australia,
1982–1992, outlines the agenda to reform government management in Victoria.
There were five parts to the change strategy: focus on priorities and objec-
tives; develop a flexible and responsive senior management team; improve
central agency functions; review operating agencies: and effect ongoing im-
provements in agency performance.
The focus on priorities and objectives flowed from the new government’s
policy agenda and was used to shape many of the management reforms.
A new senior management team able to drive change was critical to
implementing reform. At the outset, the system was undermanaged compared
to other government systems in Australia and change management skills were
scarce. Over the first four years, the numbers of senior managers grew by
about 70 percent. Three years into the change process 70 percent of senior
managers were new appointments and about 50 percent of these had been
appointed from outside the existing system. The growth was benchmarked
against other government services and the selection processes were upgraded
in an attempt to reduce the risks involved in external appointments
Structural changes reformed both central agencies and operating agen-
cies and implemented an accountability devolution transition. The challenge
was to balance demands to dismantle old controls against the cycle time
required to build new accountability and management skills. By the end of
the first term of the new government, the structural transitions were largely
in place. In the second and third term of the government, although many of
the processes required were put in place, effective ongoing evaluation at the
agency level did not occur, the objective of continuous improvement was only
partially achieved, and the external benchmarking required to convert one-off
190 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Exhibit 7.2. Government Management Reform Agenda: Victoria,

Australia, 1982–1992
Focus on priorities and objectives:
The new government developed strategic change priorities and managed change as
a corporate project. Program budgeting was introduced and changes in structures and
senior management evaluation were linked to outcomes and shifts in priorities.

Develop a flexible and responsive senior management team:

Senior management roles and pay were changed to enable new managers to be
imported effectively into government agencies which had been traditionally closed to
outside management appointments.
• New approaches to executive search and selection, changes to structures to
define new approaches to senior management roles, the introduction of a senior
executive service and performance pay, and a training program to shift manage-
ment values
• Recruitment of an expanded group of senior managers and the introduction of
a senior executive service which required performance contracts and perfor-
mance pay. These changes are discussed further in chapter 8.

Improve central agency functions:

The changes in central agencies and systems were coordinated to support the idea
of corporate government decision-making and to focus on providing operating agen-
cies with the flexibility to manage combined with an increased accountability for
performance.
• The Premiers (Chief Ministers) Department was given the mandate to develop
a major new role to coordinate strategic planning and evaluation.
• The budget agency was reformed and given the role of economic planning; the
development program was responsible for budgeting and management. The
financial system was reformed to abolish old line item controls, move to pro-
gram budgeting, and provide agencies with a greater flexibility to spend.
• The personnel agency was given a mandate to decentralize the personnel system
and provide executive search and consultancy services. The personnel system
was reformed to devolve responsibility to operating agencies.

Review operating agencies:

Operating agencies were restructured using major consultancy interventions which
examined the new priorities, consulted external as well as internal interest groups, and
developed new structures and organizational roles.

Effect ongoing improvements in agency performance:

The importance of ensuring that the new and stronger management teams in oper-
ating agencies improved, corporate performance was recognized as was the need to
consolidate the new changes. The strategy for consolidation was to transfer leadership
responsibility from the few individuals who has introduced the change to the growing
executive teams managing the new agencies using the SES mechanisms discussed ear-
lier and to establish an ongoing process for evaluating agency and program performance.

Source: Summarized from Public Service Board (1984) and R. B. Cullen, “The Victorian Senior
Executive Service,” Australian Journal of Public Administration 45, no. 1 (March 1986): 60–68,
73, and chap. 8.
 The Challenge of Transition 191

reform into longer-term competitive government only occurred in isolation

and ceased to be part of the central government agenda.

Management Culture and Values

The need to shift the management culture to support these changes was
identified and discussed as part of the change process. R. B. Cullen (1985)
explored the ideas used to stimulate a change in the underlying culture and
values of government managers: corporate government, delegation account-
ability grid (the performance management grid), organizational structure fol-
lowing strategy, staff participation in management, a senior executive service,
performance management.

The Failure of Government to Evaluate its Own Performance

Although the performance evaluation and pay system for senior managers
was implemented effectively, government failed to develop complementary
performance evaluation of agencies, of programs, or of overall performance.
Once the agenda created by the need to change the programs of the previous
government dissipated, the reform agenda was driven not by the need to
benchmark performance, but by the need to respond to the twin pressure
created by political factions and failure.
In Victoria, the external audit process was one of the few parts of gov-
ernment that set about enhancing the public accountability of ministers. The
attacks on the audit group from ministers and factions, who felt their path to
government funds threatened, were reprehensible.

Options for High-Response Safeguards

Traditional process focused safeguards were dismantled yet new controls and
counterbalances against the excessive use of executive power were slow to
develop. For example, there are at least five possibilities that might add value
to the Victorian government system, however, none have been implemented
to date.

• Expand the scope of government audit groups to involve these groups in

the development of solutions as well as the identification of problems.

• Require all agencies to evaluate their performance against plan. Re-

quire a regular review of all agencies against plan which is indepen-
dent and able to address the effectiveness of political as well as
managerial decisions in terms of cycle impacts.
192 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

• Provide the legislature with an enhanced capacity to access information

and evaluate the financial and other activities of government indepen-
dently of executive government.
• Change the existing processes which act to suppress whistleblowers
and move to adopt some of the U.S. initiatives to protect this function.
• Seek to adjust the balance between political convenience and manage-
rial imperatives by introducing a statutory requirement on senior man-
agers to adopt agreed codes of conduct. Senior managers are properly
responsible for the advice they provide to government and for imple-
menting government decisions. But at what point should they also be
responsible for advice they decline to offer? And under what circum-
stances should the “Nuremberg” defense, as applied to senior govern-
ment managers, fail? At what point do senior managers become
responsible for opposing directions which offend public as well as
government standards and interests?

The Changing Performance of Government

To what extend did the management reforms assist the government to manage
a successful transition? What can be learned about the management of tran-
sition from the Victorian experience? The performance cycle of the Cain
government can be tracked over three terms of office.

Cain Government (1982–1985): A Corporate Government

The new government had a well-developed policy agenda and the resolve to
reform management structures to deliver that agenda. Government was char-
acterized by a collective resolve to add value to government performance.
During this period, the policy agenda and management agenda synchro-
nized and the government added value to all three government missions. Mark
Considine (1992) comments that the government undertook major management
reforms and matched these to policy reforms. By the end of the first period,
considerable devolution had occurred and individual ministers had developed
the power to manage agencies. Many proceeded to restaff agencies with per-
sons who were seen to believe in governments polices and to be uncritical of
the various implementation failures that were already becoming evident.

Cain Government (1985–1988): A Factional Government

In its second term, the government lost much of its initial strategic direction,
avoided evaluation that would have identified its own mistakes, and increas-
 The Challenge of Transition 193

ingly became a government held together by growth in spending and by a

focus on addressing the needs of special interest groups rather than the over-
all population. Premier John Cain, discussing the change which occurred,
said, “The corporate spirit that had prevailed . . . during almost the whole of
our first term was missing during the first few months of our second term.
This was entirely due to the tensions in the party that had emerged, and was
reflected by the performance of ministers in the Cabinet” (Cain 1995).
The absence of corporate controls was replaced by factional controls
within the governing party. Graham Hudson (1992) discussed the growth of
factional groups within the Cain government. Ministers seemed accountable
mostly to the factional groups; deals were done to avoid conflicts which
ought to have been examined. These deals led to support an executive gov-
ernment level for a range of undesirable projects and proposals.
To some, the government seemed to have develop a magic solution to the
government budget. The supply of funds seemed inexhaustable. When reality
intervened and the spending spree ended, state debt had been allowed to
escalate to record levels.

Cain Government (1988–1990): A Caretaker Government

In the third term, the government lost confidence in its capacity to govern and
became a caretaking government. Robert Murray and Kate White (1992)
provided an early analysis of the “fall of the house of Cain.” There were
external crises. The money which had fed the factional interests dried up.
Increasingly, ministers and factions saw this period as a last opportunity to
dip into the public funding trough. In some areas, nothing short of a feeding
frenzy emerged.
In the third term, the boom in the Australian and world economies ended
with the 1988 bust. Government revenue growth slumped, a number of govern-
ment agencies failed. The industry development agency losses were confirmed
and expanded. The state bank failed twice and eventually had to be sold. A non-
bank private sector institution failed and the government gave public assurances
but only limited support. All these failures occurred in agencies which had been
established with independent statutory roles, or in one case in a private sector
agency. Billions had been lost by mismanagement. Although many of these
losses were generated by quasi-independent bodies, government oversight was
seen to have failed and the government was blamed.
More importantly, from a management viewpoint, the budget ran into
deficit. Whereas some governments around the world attacked spending and
priorities to control this situation, the Victorian government was structurally
unable to do so. A government held together by mandates to spend, driven by
political factions, chose to put off solutions.
194 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Although Premier Cain won an election in 1988, the process of disinte-

gration continued. Premier Cain reported that “by early 1990 we were a
disunited, shambling government racked by lack of trust in each other. We
had lost our collective purpose” (Cain 1995). The reformed management
structures, instead of providing some stability against this disintegration,
reflected the political shambles that was developing. Overspending became
endemic. The lack of external value from many of the reforms, already a
problem in the second term, was subsumed by short-term agendas driven by
the inevitability that the government must soon be replaced.
In 1990 Premier Cain, unable to bring his colleagues to accept collective
responsibility in order to control expenditure, resigned. He was replaced by
Premier Kirner who was in many respects a creature of the factions which
had destroyed the capacity for corporate government.

The Kirner Government (1990–1992)

Premier Kirner cosmeticized the image of terminally wounded government.

Although the expenditure base was bloated by Australian standards, the gov-
ernment had become addicted to spending rather than performance, and was
unable to act to reduce expenditure.
As the impossibility of their situation became apparent, government actions
exacerbated the problem. The government borrowed to finance spending. New
financial arrangements were committed. Pay deals were struck. The future
was mortgaged.
The run down of government finances was achieved with the assistance
of the new senior management teams. Government control over management
was strong enough to ensure compliance. The safeguards, which might have
been put in place to protect the interest of whatever incoming government
was to be elected, had either been dismantled or failed to operate.

The Kennett Government’s Reversal of State Fortunes (1992–1996)

In 1992, a new government headed by Premier Kennett was elected. The

budget situation had deteriorated to the point where they had a ready mandate
for action. The new government acted decisively and quickly in delivering
one of the most effective first terms for a government seen in Australia. The
Kennett government found little difficulty in cutting the budget base and
correcting the underlying finances of the state, using a combination of tax
increase, expenditure reductions, and asset sales.
A number of points can be made about the new government’s first term.
First, the initial success was set up by the previous government’s failures.
 The Challenge of Transition 195

Second, the flexible management structures that had been established were
able to support the new government with very few problems. Third, in ad-
dressing these problems the government moved to reduce cycle time and to
reduce expectations of government. This also acted to manage comfort zone
tensions, at least in its initial term.
In 1996, the Kennett government was generally seen to have been suc-
cessful and was reelected for a second term. Just as the government’s first
term was seen as a successful response to an external crises, the government’s
second term was seen as failing to build on this success. As the financial
crises receded, Kennett was increasingly seen as arrogant and insensitive to
comfort zone issues. In an interesting parallel with Margaret Thatcher, he
came to believe that adding value was simply a matter of continuing to pursue
his own particular values and solutions.
The government was increasingly criticized over perceived favoritism in
its dealings with business, and showed a weak appreciation of the conflicts
which can occur between private and public interests. The government moved
to stifle criticism and to dismantle those with the scope to independently
review its operations. In particular, Kennett moved to reduce the powers of
the state auditor, one of the few remaining statutory bodies able to examine
and report on the activities of executive government in Victoria.
Although business continued to thrive in Victoria, in important areas
such as health and education, the Kennett government was seen as failing to
add value. Government outputs were not evaluated, discussion of these issues
was resisted by the government, and the resources allocated to areas of gov-
ernment such as health and education were not benchmarked against other
states. Education funded well over the Australian average in 1992, was cut to
below the Australian average by 1998. Outputs from education and health
were seen to fall.
Over this period, regional Australia was hard hit by external factors.
While no easy solutions existed for governments around Australia, the Kennett
government abandoned key elements of comfort zone management by failing
to manage the impact of various policies on regional Victoria and by appear-
ing disinterested in the needs of those outside the state capital.
In 1999, Kennett failed to win a third term of government, losing a close
election.

IMPLICATIONS FOR THE REFORM OF

GOVERNMENT MANAGEMENT
Governments have no option but to dismantle the old bureaucracies and regu-
latory regimes and to develop new approaches to management which focus
on results and on accountability for results. Managing such changes requires
196 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

more than the successful implementation of specific changes to structures

personnel and financial systems. Individual changes need to combine to sup-
port ongoing changes and to deliver an integrated transition. Our analysis
identifies five tensions that must be managed for a transition to succeed.

Resource Balance /Allocation Tension

Effective transition must be managed within the short- and long-term re-
sources available to government. Where there are shortfalls in funding, these
tensions often mean that the transition must be managed in times of decre-
ment. Resource tensions often mean that governments must balance demand
to resource underlying improvements in competitiveness against increasing
difficulties in funding the national value systems, particularly pressures to
address the impact of declining competitiveness.
The Victorian experience illustrates that failure to manage resources can
destroy an otherwise sound transition. Short-term funding through one-off
efficiencies, the use of assets to fund current expenditure, and increasingly
just borrowing, is never enough; the longer-term budget structure must also
be viable; in Victoria’s case it was not.

Devolution /Accountability Tension

Effective transition requires a complex and dynamic balance between deregu-
lation and the development of a new accountability for results. The case study
shows that old input controls of government can be dismantled and cycle time
reduced by a comprehensive change program which alters the role of central
and operating agencies.
The reform agenda in Victoria produced a more responsive management
structure. Where this was combined with a policy agenda for change, it was
able to deliver major value to the Victorian community. When corporate
government failed, the new structures stagnated and some also failed. The old
inertia and safeguards that would have reduced the impact of failure had been
dismantled.

Deregulation/Reregulation Tension
The tensions between pressures for deregulation and the need to also reregulate
need to be managed skillfully if the benefits of transitions are to be delivered.
Most transitions must deregulate in order to reduce cycle time and costs and
to provide government managers with the scope to manage. This often in-
creases uncertainty and negatively impacts the comfort zone. While govern-
ment activities and services often require new forms of strategic regulation,
the purpose of regulation should be to produce defined results. Regulations
 The Challenge of Transition 197

should not be allowed to become ends in themselves. Community groups and

legislatures, who have often embraced overregulation as a way of influencing
“big” government, need to find new ways to influence government activities.

Corporate Government /Operating Agency Tension

Transitions must be managed to provide both strong operating agencies and
strong central or corporate roles. The vision of strong operating groups, cus-
tomer closeness, and the ability to deliver results are only part of the solution.
The central role must change from custodians of the government machine, to
managers of a network of service delivery providers who combine to deliver
the core roles of government.
Effective change requires effective corporate management by government
as well as the effective delivery of devolved programs and services. In addition,
change strategies need to recognize that the nature of political systems means
that this direction will not always occur. It is important to ensure that when
corporate focus fails, because executive government loses direction and the will
to manage, collateral damage at the agency level can be contained.
The case study shows that when the Cain government supplied strong
corporate leadership, the new devolved management structures were able to
respond and add value. However, when the government ceased to govern, the
new high-response structures failed to deliver expected value.
Once the initial focus for reform dissipated, the corporate capacity of the
government failed. Premier Cain attributes this to the factions within the govern-
ment political party which came to control ministers and the government. The
process of devolution of administrative power probably enhanced this breakup.
Once ministers were able to act without central controls by either their col-
leagues or the central government agencies, they had unfettered scope to ad-
dress the needs of factions and their own predilections about good government.
The reforms left major powers with agency chief executives. The expec-
tation was that they would focus on performance and resist pressures to
politicize appointments. Many effective managers succumbed to ministerial
pressures. In the Victorian system, ministers have no particular management
expertise. When they ceased to listen to advice about good management from
career managers, many also ceased to practice it.

Cycle Impact Tension

Transition needs to be managed using the cycle impact and cycle-based com-
munication tools discussed in chapter 4. Internally the impacts on devolution
and accountability need to be managed. Externally, the gap between public
expectations of change and the impact of benefits need to be managed.
198 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

The case study illustrates the need to manage change as a transition using
cycle time management and cycle impact management techniques. Initially
the Cain governments were keen to criticize program performance and com-
mit to improvement. In the first term some improvements were delivered and
the public saw the reforms as progressive. Later, as debt increased and disas-
ters emerged, the public grew to discount promised benefits and criticize
delays in delivering promised results. In the end, the government was re-
moved by electors and a new government, the Kennett government was elected
to fix the problems created by financial mismanagement.
 Chapter 8

Planning and Evaluation Strategies for

Competitive Government

As part of the Government of the Future, a common sense

discipline needs to be made part of the Government’s way of doing
business—planning what needs to be done, watching to see that it
is done, and then objectively determining whether the planned
results were achieved. . . . The first element—strategic planning
charts the program course to be followed. . . . The value of the
discipline of strategic planning, however, cannot be realized unless
fundamental changes are also made to the Federal budgeting
process. . . . The second element—monitoring of performance and
progress—requires highly refined management information and
tracking systems throughout many Federal Agencies. . . . The third
element,—the evaluation of results and outcomes—assesses how
well a program met the original purpose.
—Office of Management and Budget,
Management of the United States Government

At the beginning of 1998, . . . all federal agencies must develop

5 year strategic plans—linked, this time, to measurable outcomes.
By the end of the next year every agency will be crafting detailed
annual performance plans—that is, plans which describe what they
intend to achieve, not plans that detail how many pencils they will
buy or people they will hire. And they will have to report their
successes and failures in meeting those goals. . . . The president

199
200 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

should craft agreements with cabinet secretaries and agency heads

to focus on the administrations strategy and policy objectives.
—Vice President Al Gore, Creating a Government
that Works Better and Costs Less

The Reagan Administration’s view (OMB 1990) of the need for planning and
the need to reform budget processes makes an interesting comparison with the
Clinton Administration’s (Gore 1993) focus. While there are similarities there
are also differences. The Reagan model sees program budgeting as central to
the process; the Clinton reforms focus on the evaluation of performance by
devolved agencies. The end solution requires both these perspectives: planning
needs to be devolved to natural business and project groups; also the perfor-
mance of these groups needs to be evaluated centrally to correct mistakes and
ensure that the public interest can be addressed at each level of the process.
In chapter 2, we argued that business and government approach strategic
management differently. Exhibit 8.1. Reasons Why Government Plan lists a
range of applications of planning in government agencies. Only the first
group of reasons, which address performance management or added value,
has direct parallels with business planning. Even there as we have discussed,
goals are more complex and require more negotiation. The other groups of
reasons identified in Exhibit 8.1, comfort zone management and political
management add important dimensions to planning in government. In busi-
ness plans are often a guide to action. In government, the objective of plans
is seldom action. Instead, government planning processes are often used to
develop consensus, to allocate resources and provide a framework for com-
pliance, and ultimately to define rules to protect individual autonomy.
Business strategic management models scan the environment for opportu-
nities, examine what an organization would like to exploit, examine the re-
source and strategic base, and assesses what is feasible; then business selects
a viable strategy. Once selected, that strategy is used to develop purpose driven
budgets and structures. Government starts with agencies, structures, or interest
groups, allocates scarce resources to these groups, and then decides how best
to spend these resources. Agencies that have resources seek to lock up base
funding and minimize the prospects of reallocations. Agencies that need re-
sources seek to present their needs as more important than they really are.
We have oversimplified these differences to ague that reforming govern-
ment planning must change the strategic management role in government
agencies from securing and spending resources to one of adding value by
delivering results. Government value systems tend to presume that resources
(inputs) rather than the need to respond strategically to external opportunities
and threats (outputs) or the need to deliver planned results (implementation)
is the constraint to action.
 Planning and Evaluation Strategies for Competitive Government 201

Exhibit 8.1. Reasons Why Governments Plan

Purpose Discussion
PERFORMANCE MANAGEMENT—DELIVERING ADDED VALUE
Provide a focus for managing Environmental scanning and benchmarking
transitions to national are important emerging tools for government.
competitiveness by flexibly New approaches to planning need to focus
managing the strategic fit managers outward and assist them to see
between external pressures and their mission as responding to new external
government responses realities better than other governments
Coordinate government initiatives Devolution requires flexible coordination
to deliver core priorities
Provide a basis for enhanced Mission statements are very general.
short-term control over Detailed project plans are often very specific.
implementation and change New approaches to planning need to find
processes, particularly over new ways to link the general and specific
impacts and cycle dynamics aspects of planning
Provide a basis for changing Commitment is enhanced if persons, who are
internal values and for developing part of revised programs, understand the
an internal commitment to change need for the program and their contribution to
within government agencies overall delivery
Provide a new basis for control Most government managers can obtain better
over the strategic direction of value from resources if they are given the
government agencies which flexibility to manage. Planning can define the
enables government to dismantle impacts a manager expects over the
old input controls implementation cycle
COMFORT ZONE MANAGEMENT
Provide a basis for consultation Governments often use planning to focus
and the development of consultation and to communicate to interest
consensus and commitment groups key impacts of change
Demonstrate that government Identify the implementation impacts on each
recognzies the needs of groups group. Minimize unintended negative impacts
Ratify negotiated agreements
Provide a basis for managing Impacts need to be planned and managed
implementation impacts on Strategies for managing negative impacts
comfort zones need to be linked to the planning process
POLITICAL MANAGEMENT
Claim the high ground for vision The key to political positioning is not whether
and concern for the public problems are actually solved but whether a
interest government is seen as understanding issues
and is willing to address solutions
Allocate the blame for problems Governments tend to use evaluation to blame
to others problems on their predecessors or opponents;
however, they claim the credit for successes
Respond to problems by giving Governments gain more credibility by
the impression they are being responding to problems than by doing the
addressed by announcing hard work required to actually address the
solutions problem
202 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

This chapter examines how to use planning effectively in a government

context. First, we examine the breakdown of conventional prescriptions for stra-
tegic planning in business and the approaches suggested to apply strategic plan-
ning to dynamic situations. Second, we outline an approach to strategic planning
and evaluation in government which fits the prescriptions for dynamic planning
derived from the literature on business planning. The framework presented is
the Performance Improvement Planning and Evaluation system (PIPES) which
has been used throughout this book to provide a focus for evaluation and action.
Third, we conclude by examining three cases of strategic planning and evalu-
ation in action. Three case studies are presented to illustrate the application of
the PIPES system to different types of government situations, agency perfor-
mance, program performance, and senior management performance.

DYNAMIC STRATEGIC PLANNING

The reason why conventional strategic management will not work
in the 1990s is that grand designs are not robust enough—they
fall apart in open-ended change situations. If you cannot have a
comprehensive grand design then the meaning of control alters. It
is no longer monitoring against plan, that is, automatic detection
of disturbance created by change, and taking corrective action
determined by the plan. Instead, control becomes coherent
opportunism, that is, detecting the disturbance and tentatively
trying out responses before backing successful ones.
—Stacey, Dynamic Strategic Management for the 1990s

In times of rapid change, governments need the capacity to implement long-

and short-term strategies. The focus required to manage change starts with an
effective strategic planning and evaluation system. In evaluating the useful-
ness of strategic planning solutions for government management, we will
address four issues: the idea of strategic planning, the limitations of strategic
planning in the business sector, the translation of strategic planning to gov-
ernment, and finally, the dilemma which evaluation poses for government
management and the impact of this on planning.

The Idea of Strategic Planning

Strategic planning is a key management tool for high-response organizations.
Unfortunately many planning processes that are anything but strategic are
often labeled as “strategic planning.” The idea of strategic planning involves
an analysis of environmental opportunities, the definitions of strategies to
exploit these, and the development of structures and programs to achieve
specific outcomes. However, in practice, strategic planning has come to mean
 Planning and Evaluation Strategies for Competitive Government 203

different things to different people. Some see strategic planning as a means

of developing ideas which assist people to understand where an organization
is coming from and where it is going. Some see strategic planning as a means
of analyzing the big picture and focusing on the priorities important to re-
sponding to change. Others see strategic planning as a process which defines
the two or three actions which must occur for an organization or a program
to succeed, as a means of focusing on action and evaluation.

The Limitations of Strategic Planning in the Business Sector

What are the limitations of strategic planning in the business sector and how
might these impact on the use of strategic planning in the government sector?
As businesses become more complex, plans become more complex. In benign
environments, planning can remain introspective, seeking to coordinate all
aspects of a business. The ideal of an integrated plan supported by an inte-
grated information and control system is too mechanistic to survive in the
uncertain world of business. It must be replaced by three important ideas.
First, planning should be driven by external rather than internal realities;
planning should scan the environment for opportunities and threats; it should
assist organizations to neutralize threats and exploit opportunities. Second,
planning and control should focus on a few core ideas that matter for a given
competitive transition rather than everything which occurs in an organization.
Third, the key to managing responses to a dynamic environment is to intro-
duce modularity and simplify interfaces rather than to attempt to retain high
levels of internal integration.
However, strategic planning for business has often failed to deliver high-
response solutions. Henry Mintsberg (1994) in an important review of stra-
tegic planning warns against adopting processes such as strategic planning as
a substitute for strategic thinking and management. He draws a distinction
between analysis which underpins planning and implementation processes
and synthesis which underpins the development of strategy. Mintsberg’s point
is that, although these processes are useful tools for implementing strategic
responses, they do not produce strategic thinking or priorities. Many break-
downs can be traced to ineffective strategic thinking caused by an overreli-
ance on planning processes which all too readily produce their own inertia.
Ralph D. Stacey (1990) in a powerful analysis of the impact of volatility
on planning suggests that the focus of control changes. For a closed environ-
ment where outcomes are predictable, he suggests that control by analysis
and the management of variance is appropriate. As the environment becomes
less certain but can be contained, control breaks down but grand plans can
still be used to focus control. In turbulent environments, requiring high-response
times, the end goals change. Control needs to focus on specific impacts rather
204 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

than on all the interrelated effects of these impacts. Short-term evaluation

needs to find solutions that contribute. Managers have no option but to man-
age by trial and error. Stacey (1990) summarizes the dilemma his analysis
presents for management.

A point of major significance is that the form of control which is

appropriate to open-ended (high-response) situations is the diametric
opposite of that which is appropriate to closed change. The former
is about intuitive opportunism, while the latter is about analytical
planning or determinism. . . . Control becomes a balancing act be-
tween planning and opportunism, a continuing attempt to resolve the
tension created by the need to apply two diametrically opposed forms
of control simultaneously.

If Stacey is correct, and we think he probably is, his analysis has four
major implications for the way in which governments must change the way
in which they plan and evaluate.
First, the traditional approach which segmented short-term budget control
from grand plans must be bridged. Government organizations need planning
but they do not need an out-of-date road map to a future which will never exist.
Second, the focus of planning must move close to the impacts it seeks
to create. Trial and error cannot be centralized and institutionalized. Outputs
and results cannot be planned as part of some remote program aggregation.
The focus of planning and control must differ to fit the external and internal
requirements confronting an agency or program.
Third, planning frameworks must cease attempting to remove uncertainty
and focus that uncertainty on the links between short-run impacts and longer-
term missions. Planning frameworks need to focus the judgment of managers
on these linkages rather than away from them. Planning must allow scanning
of the environment which alters long-term missions.
Fourth, the opportunism which Stacey identifies as part of dynamic plan-
ning in business also seems critical for government, but the focus may be
different. Many government products and services are more stable than busi-
ness services, but the problem of implementing change is more difficult. As
we have discussed earlier, much of the opportunism in government involves
timing: starting projects when there is support; delivering them rapidly; using
the results of one change experiment to build the scope for the next.

Translation of Strategic Planning to Government

Some approaches to government reform have developed an almost mystical
faith in mission statements and corporate plans. Many consulting projects in
government throw up the same answers; they call for corporate planning; and
 Planning and Evaluation Strategies for Competitive Government 205

they call for a clarification of agency functions and roles to remove overlaps.
Quite apart from the danger of paying consultants to convert their solutions
into client problems, the planning processes which they introduced seldom do
more than reflect the existing culture of the government organizations. Many
attempts to reform government machinery at this general level increase rather
than decrease bureaucratic conflict over territory and resources.
While strategic planning can be adapted to address many of these govern-
ment needs, attempts to transplant the business planning model to government
without adaptation have often failed to deliver value. There are a number of
simple translations of strategic planning to the government sector. First, plan-
ning can be used to draw together an overview of the way in which the parts
of government must interrelate and contribute to key missions and objectives.
Such plans focus on grand visions, on macroroles, on functions, and on re-
sources. Second, planning can be associated with budgets to assist government
to resolve key allocative tensions and to explain the general purpose to which
government expenditure are directed. Third, planning can also be used to con-
sult interest groups and explore the impacts of various options. Such plans
should never attempt to plan action. They are exploratory, they need to outline
problems, stimulate reactions and explore a range of options.
The limitations of strategic planning in high-response situations identified
by Stacey and Mintsberg’s criticisms are both highly relevant to government.
Henry Mintsberg’s call for strategic leadership is more difficult to address
because government systems have typically discouraged strategic thinking.
Stacey’s call for short-run control and long-term flexibility runs counter to
government values, which focus on grand plans and end points rather than
short-term results. The need for experimentation and short-run evaluation is
based on the need to learn by trial and error, to learn from both success and
failure. In government, failure is seen as dysfunctional rather than a learning
experience. The traditional government solution is to avoid short-term evalu-
ation at all costs.
For example, the Clinton-Gore reforms in the U.S. illustrate the chal-
lenge of introducing performance planning in government. These reforms
have added value to the competitiveness of government in the U.S.; a number
of agencies have improved customer service and reduced costs; old manage-
ment values have shifted.
However, the links between detailed improvements and the core perfor-
mances of government are not defined for many agencies. Where there is an
alignment between agency and national roles, the changes are likely to add
value. Where there is no alignment, the planning process is likely to reduce
value by obscuring the need for discontinuous change. Where the planning
process becomes an end in itself, Minzberg’s “strategic leadership” seems
likely to be one of the early casualties. Solutions such as external benchmarking
and evaluation, a closer examination of the impact of agency performance on
206 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

the competitiveness social value and governability performance of govern-

ment, are not stressed as part of the future change agenda.
Nancy C. Roberts (1993) discusses some of the difficulties of applying
these processes to public bureaus. Her criticisms are that the need for high
response threatens internal coordination, and that managers lack the authority
to manage as strategically as their business counterparts. Differences in
decision-making and the scope to govern between the private and public
sector also creates problems. While some of the restraints raised by Roberts
can be addressed as part of the reform process, others seem endemic to the
functions which agencies must perform.
Osborne and Gaebler (1993) suggest that strategic planning can provide
a sense of purpose but argue that strategic thinking is more important than
strategic planning. This combined with Mintzberg’s analysis suggests that
strategic planning in government needs to guard against the assumption that
the process will create the focus.
There are several new and potentially high-value applications of strategic
planning in the government sector. Strategic planning is being used to define
mandates for action and to contract agency, program, and senior manager
performance. Such plans need to focus on performance; they need to be able
to identify nonperformance; and they need to define the scope for action
required to enable agency managers to deliver. Also, planning which ad-
dresses short-term impacts offers the scope to also manage cycle time, to
balance added value and comfort zone impacts, and to provide a basis for the
short-term evaluation of impacts.

The Dilemma of Evaluation

The shift to high-response requires tight short-term evaluation and a flexible

ongoing longer-term evaluation. Frameworks to deliver this exist and are
discussed later. The dilemma is not how to build flexible and effective stra-
tegic planning but how to use this in a political system which seldom looks
beyond the next election and which sees any failure to do what a government
set out to deliver as weakness or mismanagement.
Four strategies can be used to address the dilemma posed by evaluation.
First, ensure that evaluation is against a realistic base by managing plans to
ensure they are not oversold to the point where success appears to be failure.
Second, distinguish, as business does, between public plans, the detailed strat-
egies required to implement them, and the expected impacts. Third, evaluate
short-term impacts rather than overall results. Associate these evaluations
with the scope for performance improvement rather than the need for reme-
dial action. This divorces day-to-day evaluation from public perceptions of
 Planning and Evaluation Strategies for Competitive Government 207

the success or failure of key missions. Ensure that evaluation addresses im-
pacts on both the comfort zone and added value axis of the Implementation
Impact Model. Fourth, institute a series of ongoing detailed audits which will
provide useful feedback but at the same time desensitize the public to detailed
evaluations. Implementation problems can seldom be identified in isolation
from solutions. The scope of government audits needs to be extended to
require audit groups to consult with managers and to offer realistic solutions
to major problems rather than a scorecard on performance.

PERFORMANCE IMPROVEMENT PLANNING

AND EVALUATION

As organizations scrape off the barnacles of line item budgeting,

civil service, and obsolete rules and programs, their next task is
to define their mission and build around it. A ship freed of
barnacles is not yet a ship on course to its destination.
—Osborne and Gaebler, Reinventing Government

Many public sector problems can be overcome, and many private

sector management approaches become feasible in public sector
organizations when they commit to direct evaluation of perfor-
mance, provided evaluation encompasses cost-effective delivery of
services to the public.
—Cullen, “Public Sector Performance and
Private Sector Management”

One planning framework that addresses government management needs is the

Performance Improvement Planning and Evaluation System (PIPES). Many
government reform plans focus on implementation strategies alone. While
there are some general links to government missions and grass roots benefits,
both are presumed to flow from reforming systems and structures.
The PIPES system and similar approaches extend the planning process.
Key elements of the approach are summarized in Exhibit 8.2. Performance
Improvement Planning and Evaluation Framework. The system is not an in-
tegrated plan. Instead it provides a base for the strategic management of three
critical planning interfaces. First, we consider, the strategic fit between the
core missions and objectives of government and the major external transitions
which government must address to be competitive. Second, we discuss the
strategic fit between core objectives and the many support objectives and
management functions which government performs. This includes the focus
208 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

of many change programs which is to improve the strategic fit between cur-

rent performance priorities and the structures systems and staffing available
to resource implementation. Finally, we address the strategic fit between imple-
mentation strategies and short-term impacts and the longer-term objectives of
government. The plan is action focused and change focused. This provides a
basis for ongoing evaluation and control.

Strategic Fit between Core Missions, Government Objectives, and Major

External Transitions

In the case of performance improvement for a government, the system

examines implementation of the transition on the National Competitiveness
Model. The core objectives are derived from the core missions of govern-
ment discussed earlier. In the case of performance improvement for agencies
or programs, the focus shifts to the contribution these programs must make
to the overall performance of government. Core performance improvement
objectives must focus on what needs to change in order to improve perfor-
mance and what noticeable impact such changes are expected to make in
the short term. For this reason effective plans must change as priorities
shift.

Strategic Fit between Core Objectives, Support Functions, and

Management Functions

A feature of government planning and reform is how much of reform focuses

on support objectives and general management change. Interestingly this is
replicated in the resource priorities for actual expenditure in many agencies.
The PIPES framework outlined in Exhibit 8.2 uses strategic fit analysis to
focus on the contribution these functions and support activities must make to
core performance.

Strategic Fit between Implementation Strategies, Short-Term Impacts, and

the Longer-Term Objectives of Government

Exhibit 8.2 details the three-column model used in the plan to translate gen-
eral objectives into implementation strategies and impacts. This system al-
lows the short-term control and long-term flexibility discussed by Stacey,
which essentially affects the left-hand column and part of the implementation
strategies with the identification of short-run impacts. Short-run impacts pro-
vide a basis for evaluating progress and for the management of implementa-
tion impacts.
 Planning and Evaluation Strategies for Competitive Government 209

Exhibit 8.2. Performance Improvement Planning and Evaluation

Framework
STRATEGIC CLASSIFICATION OF OBJECTIVES / FUNCTIONS
Core Strategic Objectives:
Core outputs required of the organization or program. The results which, if delivered,
would lead key external groups to regard it as successful.
Support Objectives / Functions:
Critical management initiatives required over the planning period to support the deliv-
ery of key program results.
General Management Functions:
Support activities of an ongoing nature are required to deliver programs.
Strategic leadership: Managing the transition to national competitiveness involves the
management of environmental boundaries, maintenance of comfort zones, and chang-
ing management.
Cycle time management and cycle-focused communications: Cycle time manage-
ment requires managing the timing, length, and implementation impacts of projects.
The use of cycle-focused communications is necessary to manage implementation
impacts and deliver consolidation into the comfort zone.
Performance management: Performance-focused planning and evaluation. The man-
agement of interrelationships in the government value-chain by coaligning government
functions and groups to deliver varying tasks and results. The management of govern-
ment activities and processes as change projects with both a beginning and an end,
with defined performance impacts, and a defined time frame. Implementation impact
management.
Comfort zone management: Maintaining and developing the scope to govern by
managing diversity and by managing the impacts of change on interest groups to
maintain tolerance of key changes
Results based resource management: The management of resources to deliver cost
effective results.

STRATEGIC RELATIONSHIPS
Strategic fit analysis examines the fit between management and support action strat-
egies and program delivery objectives, both short- and long-term. This involves a
review of structures, values, systems, resource management, and information systems
to optimize their contribution to government performance.

IMPLEMENTATION STRATEGIES AND IMPACTS

Key Objective Action Strategy Impacts Verifiable Outcomes
The key contribution The specific action The specific outcomes and
required from a unit, strategies developed external impacts which can be
functional area or to deliver key scheduled and monitored to
program. Typical time objective(s) over the verify that action strategies
span 2–5 yrs next 12–18 months are being implemented
PROCESSES
Planning involves extending existing priorities from key objectives to impacts.
Evaluation involves evaluating impacts and assessing the consequences for key strategies
and objectives.
210 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

The system provides a basis for shortening evaluation cycles and for a
flexible ongoing evaluation of performance. Plans that do not explore impacts
are difficult to evaluate. Plans that do not specify links with the core objec-
tives of government tend to develop their own focus and agenda or worse
enable participants to project different agenda onto the reforms.
The three-column implementation impact model facilitates the processes
of planning and evaluation. Planning, using this framework, is a left to right
process with a major focus on implementation and external fit issues, evalu-
ation is a right to left process with a major focus on short-run impacts, an
evaluation of the implications for strategies, and the achievement of longer-
term objectives. The links between impacts and strategies and objectives are
flexible. The system is designed to focus judgments about these linkages
rather than replace the need for such judgment.
We will now illustrate the application of the PIPES framework to three
quite different government management situations.

PIPES APPLIED TO A NATIONAL TAXATION OFFICE

UNDERGOING MAJOR CHANGE
In our experience, most large bureaucratic organizations imple-
menting large scale changes have difficulty developing strategic
management perspectives. While the Australian Taxation Office
has successfully implemented a number of major projects it has
not yet translated this experience into its general management
approach. In our view, the key to maintaining the change momen-
tum and to focusing the effort of managers is to rapidly develop
these values. A number of our findings are designed to ensure
that this occurs. We see performance improvement planning as a
process which forces and reinforces these characteristics.
—Cullen, Cortese, and Georgiou,
Report of a Program Effectiveness Review
of the Australian Taxation Office

In the early 1980s, the Australian tax system was in crisis. Tax statutes had
become noncompetitive. Many legal and some illegal practices had grown to
the point where the national taxation base was threatened. The agency re-
sponsible for collecting tax, the Australian Taxation Office (ATO) was fo-
cused on the processing requirements of a rapidly failing system. More
importantly, public exposure of various problems had led to a lack of confidence
in the equity of the tax system and in the capacity of the tax collection agency
to perform.
 Planning and Evaluation Strategies for Competitive Government 211

There were three elements to the government’s strategy to respond to the

crises. First, a program of ongoing legislative reform was commenced. Sec-
ond, major computer systems were developed to expand the ATO’s capacity
to trace income. Third, the value-chain was reengineered from one of pro-
cessing and checking before assessing tax liabilities and paying refunds to a
system of self-assessment where individuals and companies assessed their
own liability and these assessments were audited selectively after the event.
The strategy required the development of major systems able to cross-
check revenues. Major work place reform was required to adjust to the major
alterations to the value-chain required to accommodate self-assessment and to
build the new skills required to undertake more complex audits. The strategy
was dependent on the tax office’s capacity to communicate with taxpayers
differently and their capacity to develop a network of informed tax advisers,
paid by taxpayers, who could undertake much of the checking traditionally
undertaken in the office.
Internally, by 1986, there were change projects underway in most parts
of the ATO. Although most of the individual changes were well-conceptualized,
the capacity of senior management to coordinate change impacts was strained,
and individuals were suffering from change overload.
Externally, the public and politicians were growing uneasy at the lack of
observable results. In 1985, the government auditor examined the perfor-
mance of the tax collecting system and found that some of the benefits of
change were not evident at the grass roots of the system. The audit team had
no difficulty finding uncollected tax in various areas and questioned the re-
form program and its management.
The government responded to these criticisms by commissioning an in-
dependent review of the change program in the tax collecting agency. The
results of the review were published by the government and made available
to legislators. The review prepared a draft performance improvement plan for
the ATO and used this to underpin findings that the change process was sound
but that there was scope to improve the management of cycle impacts both
internal and external to the organization. We will use a summary of the PIPES
plan prepared for this project to illustrate the application of performance
improvement planning to a large-scale operational change process, to explore
the value that can be added to detailed change projects by developing an
overall strategic plan, and to illustrate the value of cycle time management
and communications tools in a large-scale change process.
Exhibit 8.3. Draft Performance Improvement Plan: Australian Taxation
Office (1987) summarizes the PIPES plan produced by the review team.
Exhibit 8.3 illustrates a number of features of performance improvement
planning.
Exhibit 8.3. Draft Performance Improvement Plan: Australian Taxation Office (1987)
Key Objective Action Strategies Verifiable Outcome / Impact
Program Delivery—(1) Implement changes to revenue programs Implement self-assessment, meet
Deliver the government’s revenue Reduce backlogs revenue targets
program within the overall level of Increase assessments from audit
resources allocated Expand the audit program
Reallocate resources Reallocate and retrain staff as a result
of self-assessment
Program Delivery—(2) Advise government of changes Timely and relevant advice
Improve the effectiveness of the tax Effective legislative program Meet legislative change targets
system and tax administration through
a program of legislative reform and Improve international tax analysis and advice Meet immediate priorities
education which can meet the needs of Liaise with other sections of the tax office Improved consultation with staff and
the government, the tax office, taxpayers, Attract, retain, and develop key professional practitioners
and their advisors staff Address staff shortfalls in this key area
Program Delivery—(3) Increase focus on community impacts Reduced criticism by the public and
Manage the impact of the tax system Upgrade public enquiry services practitioners
on the community to ensure they Improved quality of advice
understand their responsibilities Strengthen advisory services, and the interface
between practitioners and the tax office Reduced complaints
Clarify the administration of tax law to
minimize uncertainties
Program Delivery—(4) Improve quality of decisions at objections stage Reduced rate of appeals
Resolve disputes in a timely and effective Analyze the scope to reduce disputes by Improved taxpayer attitudes to the
manner; conduct efficient and independent improving administrative processes disputes processes
reviews; resolve impediments to revenue
collection Establish improved priorities for disputes Reduced levels of impeded debt
resolution Reduced levels of outstanding revenue
Reduce backlogs
Recover outstanding revenues
(continued)
Exhibit 8.3. Draft Performance Improvement Plan: Australian Taxation Office (1987) (Cont.)
Key Objective Action Strategies Verifiable Outcome / Impact
Program Delivery—(5) Increased assessment targets for different Meet targets
Increase taxpayer compliance and the groups of taxpayers
amount of revenue collected Strengthen audit capacity Increase audit skills
Develop the use of audit teams
Improve case selection techniques
Monitor compliance and taxpayer behavior Measure improved compliance
Program Support Strategic: overcome overloads by developing a more strategic and key results driven
Strategic approach to planning and management
Systems Systems: provide systems support to meet the short- and long-term change program
Organization
Organization: support the change program by introducing compatible, flexible
organization structures, and work arrangements
General Management External relations
Corporate management
Personnel management
Planning and resource management
Note: Summary of Plan in R. B. Cullen, D. J. Cortese, B. Georgiou, Report of a Program Effectiveness Renew of the Australian Taxation Office
(Canberra. Australian Publishing Service, 1987), p. 54–66.
214 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

External Fit between Reform Policies and the External Change Priorities
The program delivery objectives reflected the major organizational units within
the agency. Each of these units had a change agenda. The plan can be used
to focus on the coordination of these changes and to identify strategic issues
that must be managed to deliver planned external responses. The key objec-
tives were: to collect tax revenue; to reform tax legislation in order to block
loopholes and simplify administration; to manage the impact of change on the
community; to improve the system for resolving disputes; to improve the
effectiveness of revenue collection including debt collection, the issue of tax
assessments, and the development of systems to support the revenue collec-
tion programs; to increase taxpayer compliance and revenue collections by
developing new approaches to audit.
Clearly the program delivery strategies are interrelated. The increased
compliance objective is dependent on all of the earlier objectives. Traditional
government planning and project systems tend to segment these changes and
treat interrelationships as secondary issues. Unless these systems become
strategic and manage external relationships actively, the risk is that individual
changes will be completed without achieving the overall impacts required.

The Fit between Core Objectives and Support Objectives

The plan separates results into delivery support and general management objec-
tives and the management of the last two categories to add value to program
delivery. Two support objectives are identified in Exhibit 8.3: to develop stra-
tegic management skills required to coordinate the change process; and, to
develop the major systems required to ensure that revenue gaps could be plugged
cost effectively by tracing revenues to individuals taxpayers.
While the need to develop more effective strategic management skills
and the need to manage key interrelationships between system changes and
other changes within the ATO were generally understood, the plan provides
a focus for the evaluation and management of these requirements. The gen-
eral management objectives identified in the plan are: (a) to manage the
external impacts of change by improving external relations; (b) to develop a
new corporate culture and values to underpin the changes; (c) to develop the
new human resource skills and job redesign required to support the change
program; and, (d ) to manage resources to deliver these results.
Management reforms often subsume the external results they were devel-
oped to facilitate. The separation of these objectives in the plan provides a
focus to mange these changes against overall change objectives. For example,
the need to strengthen human resource management functions in order to
support these changes and enable the system to deliver proposed revenue
impacts on time was identified from this analysis.
 Planning and Evaluation Strategies for Competitive Government 215

Exhibit 8.4. Projected Change Impacts

End of First Year
• Adopted Performance Plans linked to budgets. Scheduled key actions and
outcomes.
• Produced simple five-year projection of revenue and costs, discussed these
with department of finance in order to develop a basis for ongoing resource
management.
• Listed major change programs in critical order of importance; decided whether
selected programs can be deferred.
• Introduced simple resource management, reporting from the commencement of
year 1.
• Identified target areas for job design and associated training.

End of Second Year

• Developed successfully the audit program in order to meet the second year
targets; built on this base for further development.
• Reduced outstanding tax through improved recovery initiatives, appeals, and
objective initiatives.
• Addressed key issues raised in the audit. Completed organization project,
including: professional structures, extended the use of teams, improved the
balance of activities across segments.
• Developed and met milestones for longer-term systems program.
• Implemented, in consultation with staff, a number of system enhancements that
immediately benefit the staff who are engaged in day-to-day operations.
• Extensive implementation of job redesign in target areas.
• Concentrated senior manager’s accountability for key outcomes and priorities.
Performance against PIPs evaluated; managers held responsible for results
achieved.
• Planning strengthened and simplified. Deferred some current developments.
Planning and resource management key issue driven.
• Improved additional areas where compliance can be cost effectively in the short-
term are identified and scheduled the areas for action.

End of Year Three

• Developed higher level audit skills, approached, recruited, and developed key
staff to expand this activity.
• Implemented taxpayer service initiatives: achieved planned external impacts from
this program.
• Developed clear user capacity to drive new system developments. Clear evidence
of user priorities in plans and schedules for systems development programs.
• Established an effective and strong focus for both personnel management and
resources management. A clear understanding across the organization of the
roles and contribution required of both these functions.
• Planning and resource management improved to support the adoption of a
strategic focus by the ATO.

Source: Adapted from R. B. Cullen, D. J. Cortese, B. Georgiou, Report of a Program

Effectiveness Review of the Australian Taxation Office (Canberra. Australian Government
Publishing Service, 1987), p. 71.
216 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

The Strategic Fit between Implementation Strategies and Short-Term and

Longer-Term Objectives

The plan links objectives to strategies to impacts moving from left to right in
Exhibit 8.3. Most change strategies commence with a general view of objec-
tives, a focus on strategies, and little focus on the immediate (within one year
impacts). The planning framework links these elements and enables the links
between individual change strategies and overall objectives to be examined;
it enables cycle impact management to be developed.
The impacts in the right-hand column of the plan provide a basis for
examining implementation impacts and cycle time issues. Many of the change
programs extended beyond one year. Traditional planning processes did not
focus on immediate impacts. The translation into immediate impacts enables
various impact management tools to be used and enable various short-run
coordination issues to be explored. Internally, the focus on short-run impacts
identified key interdependencies. The review addressed the need to communi-
cate cycle impacts to a wider audience, notably the government audit group and
legislators interested to evaluate the change process. Exhibit 8.4. Projected
Change Impacts presented a summary of the changes projected for the ATO in
one, three, and five years.
Externally, the audit problem reflected a failure to manage cycle expec-
tations. Essentially because the timing of impacts was not part of the com-
munication agenda, the basis for evaluation was weakened and unrealistic
expectations about change developed. The case illustrates the importance of
managing cycle time and cycle impacts. Cycle-based management and com-
munications are important. Selling end solutions to a public whose evaluation
cycle is growing ever shorter, is a prescription for failure. The ATO could
easily have published Exhibit 8.4 at the commencement of the change pro-
cess. Had this occurred, much of the unease about the change process might
have diminished. In addition, the public would have been placed in a position
to evaluate progress against the ATOs own assessment of likely impacts.

PIPES APPLIED TO PROGRAMS FOR THE

EDUCATION OF CHILDREN WITH DISABILITIES
IN A PUBLIC SCHOOL SYSTEM

The objective of developing education for students with disabili-

ties in regular schools as a viable option for many parents has
been achieved. . . . There is now an established system and an
acceptance in schools and among parents of the value of regular
 Planning and Evaluation Strategies for Competitive Government 217

schooling for students with disabilities. . . . The potential to

develop special schools as part of the overall policy has not been
adequately addressed. There is a need to recognize the shifting
role and priorities of these schools and to define strategies for
their future development. . . . .
In our opinion, . . . the lack of co-ordination and the focus on
process rather than outcomes, are best overcome by developing a
strategic plan covering boh regular and special school options.
—Cullen and Brown, Integration and
Special Education in Victoran Schools

Our next example of strategic planning in action examines the use of the
PIPES framework to review overall strategies for reform and to identify and
remove a number of implementation blockages. The case examines the man-
agement of reforms to expand the schooling options available for children
with disabilities in the public school system in one state of Australia (Victoria).
We start by discussing the underlying problem which reformers set out
to solve. School students with disabilities were traditionally streamed into
special schools resourced to meet their special needs. The streaming and the
special schools tended to focus on particular medical disabilities.
In recent years, there has been a trend for countries to review options
for the education of disabled children and to resource options which enable
some such students to be educated in a regular school, assisted by specialist
support services. This option is described as the “‘integration” or “regular
schooling” option. The state of Victoria led Australian developments in this
field.
Reforms in the Victorian school system aimed to make access to regular
school an option for all children with disabilities. Initial resistance was high.
By any standards the change was highly successful. The change strategy is
summarized below.

• To declare that all parents had a choice; if they chose a regular school,
the school must enroll the handicapped child.
• To establish a series of committees to allocate funding and support
services to each child on the basis of availability and need.
• To lobby for additional resources as additional students transferred to
or were identified in the regular school system.
• To argue against any form of classification of students and to promote
regular school options as offering high-value to all students.
218 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

The regular schooling option grew and the budget to support it grew.
Advocates saw this as proving that regular schooling could meet all needs.
The impact of the success of this program on special schools was largely
ignored. These schools continued to grow but the students enrolled were
now those with greater levels of disability. Special schools sought to repo-
sition their programs in order to meet the needs of different groups of
students; this was resisted by those who saw the success of integration as
making special schooling irrelevant. Advocates of the regular school option
sought to sell this as the only progressive option for all students. Special
schools instead of being seen as part of the solution for disabled students
were seen as resisting change and consuming resources better allocated to
regular school options.
The success of the strategy created new problems which were not recog-
nized by those working within the frameworks which had been established to
manage the initial change. The first problem was related to resourcing and
delays. The lack of assessment and evaluation made it very difficult not only
to manage numbers, but also to ensure that the available resources were
targeted to those needing assistance. The committee structure dealt with needs
on a case-by-case basis. While this is a highly effective approach for a small
pilot change program, it is a senseless approach for an established program
facing ongoing pressures to expand. The value-chain meant that students
were often enrolled and the additional resources were provided later. This
placed students and schools in an impossible position. It placed the commit-
tees in an unnecessarily powerful position. The procedures for allocating
resources through committees proved cumbersome and, more importantly,
caused delays. Students were enrolled without resources and the consultative
processes were then seen to add value by acquiring these resources.
Second, freedom of choice became freedom to select the regular school-
ing option. This combined with the lack of assessment and evaluation led to
a failure to recognize the need to also develop special school options. Advo-
cates of the regular schooling options grew to feel that once the option worked
for some students it should work for all. The strategy to phase out special
schools seemed to be to contain and then reduce the funding for special
schools, to reduce their capacity to add value by fencing off collaboration
between special schools and regular schools, and to oppose the distribution
of information about special school options to parents.
Third, advocates of the “integration” option failed to see or understand
the need for ongoing performance improvement. For example, even when the
audit report quite correctly identified major problems with the program, these
could not be communicated effectively to those involved. The value of a
number of constructive suggestions for change was in danger of being lost.
 Planning and Evaluation Strategies for Competitive Government 219

External Criticisms
In 1992, the state auditor tabled a devastating report of the program. The
audit report suggested there was no control of the effectiveness of the pro-
gram. Far from transferring students from special schools, the program had
increased the total numbers of students identified as disabled, and initiatives
to provide specialist support had failed to deliver. The government response
was to criticize the audit report and suggest that the auditor did not under-
stand the issues involved. It was a classic case of government attempting to
shoot the messenger.
The government commissioned an independent review of the programs.
This review (Cullen and Brown 1992) used the performance management
framework to evaluate program performance and to assist participants to
refocus on the educational needs of students. The review supported many
of the audit criticisms and laid out a plan for improvement. Exhibit 8.5.
Draft Performance Improvement Plan: Integration and Special Education in
Victorian Schools presents a summary of the plan presented in the report of
the review.

Program Delivery: The Preconditions for Effective Choice

This planning framework had different objectives to the PIPES plan pre-
pared to strengthen strategic focus for the ATO discussed earlier. In this
case, the plan was used to assist participants in these systems to understand
the need to see both regular and special school options as part of an overall
solution for children with disabilities. Although the program delivery state-
ments seem obvious, they broke new ground for many of these involved
who had come to support particular solutions on a somewhat doctrinaire
basis.
The policy of student choice had become a one way choice—to attend
a regular school. There was no evaluation of educational outcomes because
this was seen to type particular students. There was considerable resistance
to producing advice to parents that laid out the various regular and special
school options. The first strategy in the plan attacked this blockage head on.
The review included a draft information sheet that combined details of all
available programs.
The idea that schooling in special schools was more costly than resourcing
programs for similar students in regular schools was disproved by unit costs
included in the Cullen/Brown report. The resource management issue was not
to save resources by transferring students between special and regular schools
but to allocate resources against student’s needs quickly and more effectively.
220 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Exhibit 8.5. Draft Performance Improvement Plan: Integration and

Special Education in Victorian Schools
Objectives Implementation Strategies
KEY OBJECTIVES • Develop the policy of parent choice by providing
To meet the educational balanced information about the various options
needs of all students • Reduce the isolation between the regular and special
with disabilities by school systems, ensuring that both systems develop
allowing such students to meet maximized benefits to students
to attend either a • Secure the resources needed to fund these programs,
regular or a special and plan allocations to ensure that scarce resources
school are allocated to students most in need
To develop and expand • Consolidate management procedures to build on the
the Integration strengths of the existing system, reduce delays, and
Program to ensure that ensure that the needs of individual students are paramount
students wishing to be • Develop educational evaluation for all students
educated in a regular • Resource students to ensure that they not only access
school environment are the regular school system but also obtain
supported educational benefits
• Streamline resource allocation procedures and reduce
delays. Ensure that resource differences between regions
and groups of students relate to assessed educational
needs, not distortions in the allocation process process.
To identify the changing • Develop three-year strategies for each special school,
needs of students and adjust roles to maximize student benefits
involved in special • Develop curriculum in special schools in relation to
schools, and to ensure student needs
these schools are able • Draw special schools closer into districts and regions
to develop to meet these • Remove barriers between special schools and
needs regular schools
PROGRAM SUPPORT • Develop procedures to set educational objectives for each
Educational Evaluation student, and monitor outcomes. Where possible, ensure that
these measures relate to criteria developed for all students
• Develop an eligibility test for access to different
levels of resourcing
Planning and • Introduce three-year forward planning. Streamline
Information resource allocation processes to deliver resources
more responsively to students within broadly assessed
levels of need. Review and audit allocations, and
ensure that differences, between institutions, regions,
and students are based on assessed needs.
• Develop a central statistical collection and financial
reporting system to enable effective monitoring of
these programs
GENERAL • Address the staffing and training needs of teachers
MANAGEMENT and support staff involved in both programs
Human Resources • Ensure that teachers can access senior professional
assistance, when they need it to assess the needs of
particular students with disabilities
Program Management • Develop a stronger central management focus for
these programs
• Develop advisory structures to enable it to report
on both programs; transfer operational functions to
management, where this is appropriate
 Planning and Evaluation Strategies for Competitive Government 221

Program Support: Value-Chain Reengineering to Focus on Eligibility and

Cycle Time
The program support objectives in Exhibit 8.5 were each critical to changing
the culture that had developed around the two competing program solutions
for children with disabilities in Victoria. The strategy of using an eligibility
test to evaluate the educational needs of each student and of linking this to
resource allocations challenged the idea that evaluation worked against the
interests of students. First, this evaluation focused on educational needs.
Second, the evaluation of needs at enrollment can be augmented by an evalu-
ation of educational outcomes delivered for each student. Finally the use of
an eligibility test enabled resources to be provided on enrollment without the
delays involved in committees and comparative assessments.
The planning and information strategies sought to replace ad hoc budget
decisions with longer-term planning, to monitor the size of the program, and
to ensure that special funding allocations are effectively distributed between
schools, regions, and students.

General Management: Teaching Skills, Program Management, and New

Advisory Roles
The general management objectives also raised important program needs.
First, there was a need to develop skilled teaching resources and to draw on
the strengths of both regular schools and special schools to do this. Second,
there was a need to enable managers to manage this program across both
special schools and regular schools, and to develop a new role to enable
advisory structures to contribute and add value.

PIPES APPLIED TO IMPLEMENTING A PERFORMANCE

FOCUSED SENIOR EXECUTIVE SERVICE
How does a leader channel diversity into solidarity, creating a
team dedicated to fulfilling that common purpose? How does a
leader help ensure that the organization will live the purpose,
that people will own it?
The answers lie in an organizing principle that is simple to
understand but that requires great courage to implement: Ensure
that those who live the values and ideas of the organization are
the most rewarded and the most satisfied . . . the organizing
principle is that not everyone should be equally rewarded and
satisfied. The organizing principle insists on nothing less than the
strategic management of job satisfaction and dissatisfaction.
—Imparato and Harari, Jumping the Curve
222 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Where the transition to competitive government involves a transition from a

traditional government system with entrenched bureaucratic values, there is
no option but to develop a new style of leadership which is strategic and
which focuses on performance. Developing such a management team, re-
quires the sorts of reforms we have discussed. Reinforcing the new rather
than the old culture of government management requires a system which
alters traditional reward systems and which manages both satisfaction and
dissatisfaction to reinforce the transition to performance evaluation. Pay can
be a powerful tool for making this particular “jump.”
In chapter 7, we discussed the crisis faced by the government of Victoria,
Australia, and the transformation undertaken during the 1980s. The Public
Service Board, the government personnel agency, developed a comprehensive
program of reform. Although the reforms were driven by deregulation of the
personnel system, they addressed agency structures and performance, the role
of central (or staff) agencies, and the role of government managers. Central
to the reform program was the recruitment development and motivation of a
new type of government manager able to make the strategic contributions
within changing structures and project teams.
In 1982, Victoria introduced the first Senior Executive Service (SES) in
Australia. The introduction of this system corresponded with major changes
in strategies and structures introduced a new government. The Annual Report
of the Victorian Public Service Board (1983) outlined the reasons for this
change.

The SES was introduced to increase the mobility of senior staff, to

improve the capacity of the Public (government) Service, to recruit
externally without offering excessively high-base salary levels, and
to develop more performance-oriented attitudes amongst senior
managers in the Public Service. . . . Performance pay is central to the
SES concept. Performance is assessed by reference to the perfor-
mance of agree objectives. Executives and their supervisors negoti-
ate objectives and assess achievement.

Senior Executive Service as Introduced in Victoria

Cullen (1986) described the features of the senior executive service system as
introduced in Victoria.

• A formal system of position classification was able to grade positions

onto bands based on work value measures. The classification system
compared position across agencies for the first time on the basis of
transparent and relatively objective measures.
 Planning and Evaluation Strategies for Competitive Government 223

• A salary structure for the SES bands used overlapping pay ranges. This
provided the scope for performance pay; it provided flexibility to re-
cruit externally without disturbing established relativities, and it broke
the direct link between pay and status which underpinned the tradi-
tional system.

• A performance improvement planning and evaluation system, defined

the key performance required of a manager over the next year, was
used as the basis for evaluation and the allocation of each manager to
a performance pay level.

• A total remuneration approach to salary determination was based on

modern salary practices and facilitated comparisons with business sec-
tor salaries.

• An upgraded approach to executive selection was designed to select

the best senior managers for particular assignments and to facilitate
reassignments to meet new needs.

• A legislative base, which provided for term appointments, gave gov-

ernment increased powers over appointments and differentiated be-
tween career appointments and political appointments.

Three values were identified as required to drive the new SES system.
First, improved program delivery and service to the public comes from im-
proving management in public sector agencies. Second, evaluating the results
of change and improvement initiatives is critical to ensuring that real im-
provements in value are delivered to the public. Third, effective service to the
public requires a senior management system which actively seeks to maxi-
mize the contribution of each senior manager.

The Performance Plan

An application of the PIPES framework to address the general competencies
required of SES managers in included as Exhibit 8.6. General SES Key
Result Areas and Competencies. The Exhibit 8.6 was used to translate core
management roles required of the new SES into competencies that could be
assessed and developed.
Each senior manager agreed a PIPES plan for his or her specific area. The
resultant network of performance agreements were examined to ensure that
they reflected overall change priorities for the agency. This approach enabled
new structures and staff to coordinate their activities in a high-response setting.
224 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Exhibit 8.6. General SES Key Result Areas and Competencies

Key Result Area Competencies
PROGRAM DELIVERY • The capacity to provide authoritative advice and
The development and leadership in some program or project area of
delivery of major projects significance to the organization
or programs which are of • The capacity to develop, analyze, and assess
strategic importance to the policy issues and options within the overall
organization and are the context of government policies, priorities, and
primary responsibility of relevant external factors
this particular manager • The capacity to assess the feasibility of proposed
projects and programs and to develop additional
options where necessary
• The capacity to plan and manage the delivery
of specific projects or programs
• The capacity to monitor and control the delivery
of a number of projects or programs through
both formal and informal means
• The capacity to identify, diagnose, and address
various problems that occur
• The capacity to evaluate both the technical and
nontechnical outcomes of a project or program
PROGRAM SUPPORT • The capacity to understand political sensitivities
Advice to Government and the external environment and to relate these
The management of part to the governments priorities and to ongoing
of the relationship between operational actions within the agency (comfort
an agency and government zone impacts)
• The capacity to manage the provision of timely
and relevant briefings and advice for government
• The capacity to manage the preparation of
replies to correspondence to government and to
questions raised by the Legislature
PROGRAM SUPPORT • The capacity to represent the agency effectively
Management of Relations before a variety of people including senior
External to the Agency managers from other agencies
Manage relationships • The capacity to relate effectively with other
between the agency and bodies with which the agency needs to work
its clients, other agencies • The capacity to ensure that reports and other
and community groups communications reflect the approved programs
and policies of the agency

(continued)
 Planning and Evaluation Strategies for Competitive Government 225

Exhibit 8.6. General SES Key Result Areas and Competencies (Cont.)
Key Result Area Competencies
GENERAL • The capacity to contribute to overall agency
MANAGEMENT— perspectives on corporate issues outside the
Corporate direct responsibility of the manager
Management • The capacity to ensure that individual decisions
Be an effective manager are consistent with the corporate policies and
of the senior management priorities of the agency
team within an agency • The capacity to assist colleagues to achieve
particular manager results for which they have primary
responsibility
• The capacity to work with colleagues to achieve
results where these require a joint contribution
GENERAL • The capacity to manage staff effectively and to
MANAGEMENT— achieve agreed results
Personnel • The capacity to consult with staff to develop a
Management work environment which meets staff needs and
The management of human in which the staff is used effectively
resources of the organization • The capacity to understand and use the personnel
to enable it to deliver system to recruit, promote, and organize staff
approved projects or effectively
programs effectively • The capacity to ensure that the personnel system
operates on the basis of merit and that
government EEO policies and programs are
implemented effectively
• The capacity to develop the management potential
of staff to provide for the future needs of an
agency and the public employment
GENERAL • The capacity to understand and use the budget
MANAGEMENT— system of government to ensure that resource
Resource needs are considered and proper priorities
Management addressed
The management of all • The capacity to adapt targets and programs to
human, financial, and match the resources allocated to deliver them,
physical resources available to monitor and manage resources, to deliver
to the manager to deliver agreed programs and projects within agreed
priority program results budgets
efficiently and effectively • The capacity to identify, diagnose, and address
resource issues that affect program delivery
• The capacity to identify areas of low priority
in the areas under the managers direct control,
to identify resources for reallocation, and to
introduce improvements to ensure that
available resources are used effectively
226 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

The three-column model was simplified by using a common framework

of objectives for all positions. The focus was on the strategies (or key result
areas) each manager would use to deliver defined results, and on the impacts
(verifiable performance standards) which were expected over the next twelve
months.

Performance Pay as a Tool for Government Reform

The PIPES system was linked to annual performance evaluations and to the
introduction of the first performance pay system for government managers in
Australia. The system, including the PIPES framework, was later adopted by a
number of other governments in Australia. The assessment of performance
requires two levels of assessment: program performance, and the extent to
which the individual manger contributed to that performance. The overall per-
formance rating did not translate directly into pay. The ratings were normalized
for each agency to ensure that increase in bonuses were offset by reductions.
This case study demonstrates a characteristic of many government re-
forms. New systems can either be an effective focus for change, or a new
means of entrenching the very values they seek to dislodge. Which outcome
occurs is determined by the visions and leadership which drives the change
process, and by whether other managers understand and adopt that vision.

Benefits from Performance Pay in Government

There are at least six benefits which performance pay systems offer govern-
ment managers. The gap between these benefits and the simple notion that
managers are motivated by money alone illustrates the dangers of translating
simplistic tools and assumptions into government management systems.
First, performance pay stops the traditional classification system acting
to ratchet all managers up on the basis of the performance of a few.
Second, performance pay encourages managers to negotiate, to clarify
their role, and to contribute instead of attempting to distill this from an
examination of job descriptions, structures, and recruitment sale literature.
Third, performance pay systems validate agency and program perfor-
mance evaluation by personalizing it, by forcing short-run evaluation, and by
encouraging managers to see evaluation as a learning experience and an
opportunity to improve performance.
Fourth, performance pay systems force senior managers to address the
links between task performance and their own performance. Managers are
often reluctant to accept responsibility for difficult results, because they see
variables beyond their control which can block performance. The link be-
tween senior manager performance and task performance needs to consider
the importance of the task, the degree of difficulty of the task, and the degree
 Planning and Evaluation Strategies for Competitive Government 227

of assistance provided to achieve the task. Evaluations which address these

issues have the capacity to add value to the operation of many senior man-
agement teams.
Fifth, while many performance pay systems are subverted to seek small
increases for many managers, the proper operation of these systems should
recognize outstanding performance and identify obvious failures. These two
characteristics were seen as anomalies by the traditional system with its uniform
standards of performance.
Sixth, performance pay systems validate staffing action to correct failure.
In the traditional system, these actions were often seen as the product of
intrigues and power plays rather than of the need to perform.
Seventh, performance pays system provides a valid external rationale for
increases (and decreases) in public sector salaries.
Eight, performance pay systems reward high-performing managers better
than traditional systems.

Threats from Performance Pay in Government

First, performance pay systems can produce their own upward pressures on
all senior salaries. Sometimes this is fueled by the old peer equality pressures.
Sometimes it is fueled by competition to retain staff. The solution is to ensure
that performance pay is a fixed sum game with agencies being required to
offset high-performance payments with lower performance payments. Paul C.
Light (2000) comments that the U.S. performance pay system seems to be
running out of control following reinvention. This suggests that the new focus
on agency performance has not been translated into senior structures and
priorities.
Second, governments often respond to funding shortages by capping
salaries and abandoning performance payments. However, freezing perfor-
mance pay also freezes many of the reforms identified above. The net cost to
government performance may well outweigh the short-term bonus savings.
Third, politically elected or appointed managers may use the system to
reward political loyalty and favors rather than task performance. While there
are elements of this in most senior government staffing strategies, when these
processes are seen to replace performance as the underlying criteria for pay,
the benefits of the system are also eroded. Worse, politicians can expect not
only loyalty and commitment, but also an absence of constructive criticism as
senior managers shift their role to that of agents of government rather than
managers of task performance for government.
Fourth, performance pay systems can be used to provide a new way to
focus on failure rather than performance. They can be used to identify scape-
goats for nonperformance and to insulate others from the consequences of
group failures.
228 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

IMPLICATIONS FOR THE REFORM

OF GOVERNMENT MANAGEMENT
The management platform for government change must dismantle traditional
controls, convert managers of processes into managers of results, and build
a culture which can use systems and not be driven by them. A key change
strategy is the development of a network of performance contracts which are
strategic and change-oriented and which can be used to negotiate the au-
tonomy to manage government performance. These performance contracts
need to link agencies, programs, and managers; they need to encompass the
complexity of government roles without becoming subsumed in that com-
plexity. A new approach to planning and evaluation is central to implement-
ing reform. Dynamic strategic planning can be used to provide a focus for the
management of government services and programs. The PIPES framework
presents one such solution.
The case studies illustrate the need to manage expectations and monitor
change. The Australian Taxation Office reforms appeared to underestimate the
effort to implement changes in grass roots culture and systems. The programs
for the schooling of handicapped children in Victoria was a victim of its own
success. More dynamic planning and management could have avoided the conflicts
which occurred. The PIPES framework was used to assist those involved to
broaden thinking and to build on the success of changes that had occurred. The
senior executive service tool addressed a key need in most government systems
undergoing rapid change. The system worked well and cost very little, more
than had across the board pay raises been introduced to meet the management
shortage. However, the unwillingness of government to address agency and
program performance eroded some of the overall benefits gained from the new
system and opened the door to politicization of the SES.
There are two threats to the introduction of dynamic planning and evalu-
ation system in government. The first threat is that the system will adapt to
the planning process and subsume it; plans become bland, issues are avoided,
and the prospect of negative evaluation is avoided.
The second threat is that plans will become static as was the case with
education failing to recognize the need to build the change process through
an ongoing improvement process. The idea of describing the impact over one,
two, and three years, which was discussed in the tax office study, is one
approach to extending evaluation.
In each of the cases presented, the PIPES framework was used to focus
and communicate the results of more detailed evaluations. Only the results
were presented in the case studies. Those who seek to use this framework for
evaluation needed to support the process by effective issue analysis, which
identifies key issues, evidences them, considers causation, and evaluates op-
tions for change.
 Chapter 9

Reinventing and Reengineering

Government Management Systems
and Values

In Washington, debate rarely focuses on the performance deficit.

Our leaders spend most of their time debating policy issues. But
if the vehicle designed to carry out policy is broken, new policies
won’t take us anywhere. . . .
Our federal government is filled with good people trapped in
bad systems: budget systems, personnel systems, procurement
systems, financial management systems, information systems. . . .
From the 1930s to the 1960s we built large, top down,
centralized bureaucracies to do the public’s business. They were
patterned after the corporate structures of their age. . . . And in
today’s world of rapid change, lightening-quick information
technologies, tough global competition, and demanding customers,
top down bureaucracies—public or private—don’t work very well.
Saturn isn’t run the way General Motors was. Intel isn’t run the
way IBM was.
—Vice President Al Gore, Creating Government
That Works Better and Costs Less

Implementing the transition to competitive government requires more than

the new focus created by dynamic strategic planning and evaluation, it re-
quires the dismantling of traditional controls and values and the creation of
a new focus on performance.
Cullen (1995) evaluated a number of public sector changes in Australia
and concluded that the fit between management and the core performance

229
230 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

strategies of agencies involved in major changes is often not addressed or

managed. It does not take an elaborate analysis to test whether a particular
government reform program is on track. Simple questions can be used to
commence a diagnosis. Has the public noticed any improvements in services?
If not, when are they expected to appear? Are delivery units able to contract
performance? Can they manage comfort zones and cycle time? Do the man-
agers of delivery units see central systems as reflecting the priorities of de-
livery units, or are they seen as imposing a new conformity? Are performance
management values developing in the culture of agencies? For example, how
does the system cope with both performance and failure? Is the system able
to build on each new crisis to exploit change, or is the process essentially
locked into damage control and survival values?
Traditional government bureaucracies were controlled by four major
entrenched systems. Interestingly, none of these systems focused directly on
results or outputs.

• A policy and regulatory system that sought to build an integrated web

of policies and regulations to guide action
• A technology system which coordinated the work of government by
segmenting value-chains and by managing transactions through a se-
ries of fixed cycles and queues
• A budget system that sought to manage allocative tensions, provide a
mandate for action, and control expenditure in detail
• A personnel management system that standardized structures and sought
to prescribe and depersonalize work roles, in order to prevent failure

These systems were driven by four ideas about management: the idea
that development could be incremental; fairness, rather than performance,
should be the focus of government management; success requires rules to
ensure predictable treatment; and, finally, the inefficiencies associated with
failure can be avoided by rules designed to identify and require compliance
with “best practice management processes” which were seen to be indepen-
dent of the task required. None of these ideas can survive the transition to
high-response management. A misplaced belief that the past can be revisited,
that these ideas will somehow reemerge triumphant, has caused many other-
wise useful changes to collapse.
There are two prerequisites for the implementation of specific transitions.
First, before ideas like cycle time management, performance planning, and
evaluation can be translated into action, management structures and systems
need to be altered to connect government managers to these new management
 Government Management Systems and Values 231

tools and to remove system blockages to response. Second, new systems need
to protect against the twin forces of reversion and inertia that often emerge
to erode the benefit of particular reforms.
The management and system strategies and tools available to support a
particular transition to competitive government are outlined in Exhibit 9.1.
Performance Management Strategies / Tools for Government Transitions. Value-
chains need to be shortened by reengineering the core technologies used by
many government systems. Conventional structures and regulatory regimes
must change to high-response solutions. Personnel and resource management
systems must change to focus not only on new needs and on results, but also
to shift core organizational values. Finally, new structures and systems need
a new focus on change management and on building a management platform
for ongoing improvement.
It is the purpose of this chapter to discuss each of these changes, to
identify common difficulties, and to outline effective solutions and change
management tools.

HIGH RESPONSE MANAGEMENT STRUCTURES

FOR GOVERNMENT
The challenge is to develop dynamic and motivated {governmental}
organizations in the face of changing services and reduced real
resources. The immediate reaction of many managers is to resort to
crisis management, to centralize control, to demand performance.
The usual outcome is an increasingly stagnant organization.
The enlightened response to this situation is to structure the
scope within which individuals can be given the flexibility to meet
creatively these new challenges, while still ensuring the viability
of the organization. We hear a good deal about authority struc-
tures in organizational theory and very little about the structure
of autonomy within large-scale organizations. Yet, in my view, the
latter concept is far more relevant.
—Cullen, “Managing in Times of Constraint”

[The] corporate environment has changed so swiftly and funda-

mentally in the past two decades that structures designed for
success in an industrial environment are almost by definition
inappropriate today. The task of the business leader or the
corporate strategist is to identify obsolete structures and change
them before they damage the corporation.
—Toffler, The Adaptive Corporation
232 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Exhibit 9.1. Performance Management Strategies/Tools for Government

Transitions
Technology/value-chain strategies / tools Personnel / resource management strategies / tools
Value-chain reengineering (Ch. 5) Performance-focused personnel management (Ch. 9)
Structural coordination (Ch. 9) Performance-based organization values (Ch. 9)
Cycle time management (Ch. 4–5) Results-based resource management (Ch. 10)
Structural boundaries / units
High-response production technologies (vaqlue-chain management)

Performance-focused personnel, resource management, and values

Legislature

Corporate Government

Performance driven change management

Central Agencies of Government

Mega Agencies
Major Program Clusters

Operating Agencies / Associated Bodies

Project teams

Users of government services /

Interest groups /
Comfort zone domains

Structural strategies / tools Change management strategies / tools

Strategy / performance driven structures Transition management (Ch. 3)
Flexible delivery units able to manage Dynamic strategic planning (Ch. 8)
performance, comfort zone impacts, and Performance and comfort zone management
cycle time directly (Ch. 4)
Reduced role for central and macroprogram Cycle impact and cycle time mangement (Ch. 4)
agencies Cycle-based communication (Ch. 4)
Performance agreements / contracts
Project management Performance agreements / contracts (Ch. 8, 9)
Project teams (Ch. 5, 9)
Continuous improvement systems (Ch. 5, 9)

The idea that structure must follow strategy is well-established. It follows that
as the environment forces ongoing changes in the strategies of government
and business agencies, structural changes and resource changes must follow.
Traditional government structures and resource management systems com-
mence with structures (or “fiefdoms”) move to resource allocations, and then
address the detailed delivery of results. In many respects, the challenge of
 Government Management Systems and Values 233

building high-response structures for government is the challenge of revers-

ing these processes and values.
The key to developing high-response structures is to focus on the bound-
aries that deliver clear performance and comfort zone impacts and then en-
sure that these units can manage cycle impacts directly. Two links are important:
structures must provide a focus for strategic planning and evaluation; and
structures must provide a basis for value-chain reengineering and for value-
chain coalignment. The most frequent flaws in government restructures are:
first, to assume that this can occur by focusing on aggregate clusters of
programs and operating units; and, second, to assume that the central require-
ments for empires, for order, and for control, are more important than grass
roots performance.
A challenge in developing high-response structures in government is that
the key units and boundaries often overlap and change as responses change.
Structures that address program delivery boundaries must often address dif-
ferent comfort zone boundaries. The focus for managing cycle time effec-
tively is often fragmented in government structures and value-chains.
Devolution often halts far short of persons and units actually in a position to
deliver. These challenges not only explain the constant reorganization in
government, but they also explain the widespread use of project structures to
bypass constraints and manage key changes.
A key performance management tool is the development of a network of
performance contracts or agreements. We discussed these briefly in chapter 8.
Performance agreements are a useful way of coordinating and communicat-
ing change priorities for any given organization structure.

The Importance of Focusing Reform on the Performance of Delivery Agencies

Most devolution experiments in government work from the top down. They end
up providing a strategic fit with the needs of the legislature and corporate
government and often sacrifice the fit required to deliver services. By starting
at the base of the traditional organizational pyramid rather than the top, perfor-
mance focused structures also redefine the role of other levels of government.
The key delivery role is through operating agencies, bureaus, or project
teams. These are the structures that deliver end results. This is the level of
organization where there must be an effective strategic fit between:

• strategy, structure, workskills and organizational culture

• devolution and accountability for results
• devolution and comfort zone management
• devolution and technology and cycle time management
234 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Mega-Agencies and Grass Root Impacts

Mega-agencies are usually created to manage major groups of programs.
Although they have important roles as part of central government, they need
to transform their management role. Mega-agencies must resist the tempta-
tion to become another arm of the government regulatory and control system.
The management model has already been developed by GE and others. The
mega-agencies of government must transform themselves into a role not unlike
the corporate role in the dynamic business organizations. They must accept
responsibility for the performance of delivery units while devolving the re-
sponsibility for performance to those units.
The devolution of delivery responsibility to delivery units enables mega-
agencies to add value to the government system by addressing five roles.

• Refocus budget allocative tensions into groups with generally shared

interests and an improved understanding of diverse needs.
• Manage relationships with central agencies, executive government, and
the legislature to create the autonomy required by delivery units.
• Negotiate and evaluate performance agreements with delivery agency/
units. Ensure that effective solutions are benchmarked for others to
follow, and that improvement interventions occur where these are re-
quired either because delivery units have failed, or to deliver ongoing
improvements.
• Assist delivery agencies/units to enter into service agreements to en-
able delivery agency managers to access a range of services required
for effective performance.

Central or Staff Agencies and System Performance

The corporate government level includes the chief executive and key execu-
tives with the responsibility for managing executive government. It also in-
cludes the central (or staff) agencies of government. Typically these include
budget and management agencies, personnel agencies, and agencies respon-
sible for coordinating government activities and performance.
There have been many attempts to change central agency roles and struc-
tures. It is important that the roles of central agencies are developed together.
Key differences, for example, between strategic planning, evaluation, and
financial management should not be subsumed in such structure. It is impor-
tant that the agencies involved are coordinated and evaluated in terms of their
contribution to both corporate performance and the performance of operating
agencies.
 Government Management Systems and Values 235

The Legislature and System Reform

The role of legislatures is different in different national systems. However,
generally this role includes oversight of the executive, approval of budgets
and key programs, the review of rules and regulations, and various devices to
ensure that the executive operates to address the priorities of citizens.
In most systems, the devolution and accountability transition has impli-
cations for the roles of the legislators. In many cases, reform cannot proceed
without such changes occurring. In most systems, the changes offer scope to
strengthen the performance of these legislatures. However, strategies for
managing these transitions need to address country differences. We examine
these issues in more detail in chapter 11.
We now consider each of the management strategies shown as vertical
boxes in Exhibit 9.1. Each of these strategies/tools needs to be applied across
and within particular structural frameworks.

HIGH-RESPONSE PRODUCTION TECHNOLOGIES

FOR GOVERNMENT

There are real limits to the efficiency and effectiveness that any
government can achieve. These limits arise from the nature of the
problems that governments are obliged to address, from the
constraints that governments must honor in attempting to solve
the problems, from the large scale of many government organiza-
tions, and from the intentionally adversarial character of govern-
ment processes.
—Downs and Larkey, The Search for Government Efficiency

Indeed one could say that firms become lethargic and bureau-
cratic when the practices, systems, and controls in place take on
a life of their own, divorced from the business problems they were
designed to address.
—Fombrun, Turning Points

C. W. Downs and P. D. Larkey illustrate the challenge of government reform.

Charles J. Fombrun, discussing the challenge facing business, makes the point
that reform of these internal value-chains is essential. The solution is to
remove some of the restraints imposed on government systems and to
reengineer government value-chains and production technologies in order to
link these to performance strategies while also reducing cycle time. Only
when governments alter the basic technologies they use to coordinate and
control work, can ideas about reform be translated into a new reality.
236 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

In chapter 5, we discussed the management of value-chains through the

restraints of fixed government budget cycles and the use of structures that
oversegment value-chains and associated transaction management processes.
Our analysis concluded that these solutions lengthen rather than shorten cycle
time. We suggested strategies for shortening cycle time by reengineering
value-chains to remove some of the external restraints, enabling reduced use
of segmentation and queues.
Managers pressed to reduce costs using traditional value-chains focus on
queues and optimizing unit costs. We demonstrate in chapter 5 these re-
sponses nearly always increase cycle time. Increased cycle length and cycle
time are almost terminal disabilities for an organization seeking to move to
high-response management. The more effective response is to alter the tech-
nology, to remove the need to manage some of the interdependencies or to
automate the management of particular interdependencies, to track particular
actions through the value-chain directly without the use of queues. The ob-
jective is to find a technology which can optimize both costs and cycle time
or, at least, reduce the gap between the two.
Project structures clearly reengineer the traditional value-chains and can
be used to deliver high-response management solutions. The delivery of school
services to a disabled children project discussed in chapter 8 provides another
example. An important sign that the experiment was encountering difficulties
was a lengthening cycle time between the enrollment of a child in the system
and the delivery of resources to a particular school to meet special needs.
The value-chain had six elements: (1) the school enrolls students; (2) the
school defines additional resources required in order to support the education
of students; (3) allocations for resources are queued for consideration by re-
gional advisory committees; (4) initial resources are allocated across all needs
when they have been analyzed; (5) when aggregate budgets are proved inad-
equate, supplementary budget allocations are sought; and (6) when supplemen-
tary allocations are provided, they are allocated to students with unmet needs.
The operation of this value-chain maximized total resources, probably
maximized the equity in their distribution between students and increased the
importance of advisory bodies by locating them in a central segment of the
value-chain. This solution also lengthened cycle time and placed major stress
on particular schools and students by enrolling students well in advance of
the delivery of resources. In addition, because educational outcomes and
needs were not addressed in the value-chain, some students received less
value than they might have been led to expect. The solution was to assess
educational needs at enrollment and to provide access to resources directly on
the basis of these assessments.
The resulting budget requirement to support this solution needs to be
flexible but can be audited against performance. The process shortens cycle
time and increases accountability. In addition the reengineered value-chain
 Government Management Systems and Values 237

allows volunteers to advise on performance and on the operation of the sys-

tem instead of attempting to manage part of the value-chain directly.

PERFORMANCE FOCUSED PERSONNEL,

RESOURCE MANAGEMENT,
AND ORGANIZATIONAL VALUES FOR GOVERNMENT

The central problem in designing government personnel systems

has always been that of creating a bureaucracy that responds to
the legitimate management initiatives of elected officials but in
which professional competence rather than political or personal
loyalty is the primary criterion of selection, promotion, and
advancement. Because the balance between responsiveness is so
delicate, the history of personnel system reform in the United
States and elsewhere oscillates between the twin perils of “spoils
systems” in which politics is everything and highly insulated civil
service bureaucracies, in which incompetence is protected by law.
—Downs and Larkey, The Search for Government Efficiency

In radically changing environments, then, the structural tools that

managers rely on call for them to build interfirm networks; prune
bureaucracy; decentralize decisions; improve two-way communica-
tion up, down, and laterally; reunite personnel and work lives;
encourage participation; and expose sheltered units to competition.
—Fombrun, Turning Points

The role of personnel management is to attract, retain, and motivate the staff
required to deliver key results, to match the skills of staff to the tasks to be
performed, and to do this cost effectively by minimizing the long-term costs
to government of personnel resources. The need to alter personnel systems
and organizational values has been discussed. In this section, we examine
specific solutions and threats.
The need to reform resource management is central to shortening cycle
time and developing more flexible structures. The solution is to move to
results-based budgeting focused on operating units. Because of its impor-
tance, we discuss this particular reform in chapter 10.

Improving the Performance of Personnel Management

What should be the objectives of personnel reform? What strategies can be

used to change personnel systems and effect the culture shift required to
238 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

support ongoing change in government systems? Let us focus on three objec-

tives that personnel systems need to deliver to support government reform.

Recruit, Develop, and Motivate Key Managers

First, the system must recruit, develop, and motivate strategic managers able to
change government systems and manage the delivery of results. Senior man-
agement selection needs to change to focus on key priorities and emphasize
strategic management skills rather than system knowledge and the capacity to
avoid mistakes. Often these skills involve change management and project
management skills. Managers with these skills will usually lack the detailed
systems and program knowledge developed within particular agencies. Senior
management teams need to work together to deliver change. Key positions need
to be opened to a wider range of managers. One test of a competitive personnel
system is whether business managers can be imported successfully.
The traditional skill development system was a series of external and
internal formal qualifications together with structured on the job skill devel-
opment regulated by work-based hierarchies. The system operated to develop
system skills and identify those who made mistakes. The management hier-
archy depended on these shared values and experiences.
Newer structures cannot make these assumptions. The gradual promotion
and development process offered by the traditional hierarchies have become
redundant. The assumption that senior managers understand the system they are
managing has been replaced with a system where they are expected to contrib-
ute skills to some change program and work with others to change operating
systems. Old development paths and old success criteria have disappeared.
Managers today are required to address change projects. They cannot
receive the protection and oversight provided by traditional structures. Al-
though they will make mistakes, they will also make major contributions.
They must work as team members to achieve task objectives. Regular perfor-
mance appraisal highlights the need for particular skills particularly if they do
not exist. Organizations are more likely to accept the need to import skills
when their performance depends upon new skills. Project structures offer
major opportunities for staff to share skills and develop new skills. However,
within project teams there needs to be an understanding of the skills required.
Performance reviews will identify skill gaps or skill building opportunities for
most staff. It is important that government personnel functions offer staff
opportunities to bridge these gaps.

Dismantle Traditional Personnel Rules and Processes

Second, the personnel system must dismantle personnel rules and processes
developed to support traditional government management and develop a per-
 Government Management Systems and Values 239

sonnel system which focuses on performance improvement, using the skills

of staff more effectively, and on staffing which adds value to both individual
and team performance.
In order to use new staff skills to add value, personnel systems must
abandon attempts to prescribe work roles in detail and learn to use more
flexible roles. A prerequisite to more flexible work roles is a personnel system
able to break the nexus between functions, work value, and levels.
There are a variety of strategies for increasing the flexibility of work
roles in government organizations: (a) move away from specific job descrip-
tions to generic descriptions, which define bands of skills required rather than
specific duties to be performed; (b) use performance contracts to define the
outputs required of a person and of a team; (c) break the tight nexus between
duties performed, pay, and status, which has enmeshed many government
agencies by moving to broad-banded pay ranges; and (d) introduce perfor-
mance and results-based pay systems.
It is important that performance contracts reflect real performance priori-
ties each year. For example, a senior manager might be required to introduce
a major discontinuous change. Having done this, the next priority might be
to reduce costs and consolidate the group. The best way to provide this
change in leadership might be to recruit balanced managers able to deliver a
range of very different roles. But another way is to change managers to draw
on narrower, but nevertheless high levels of competency. Increasingly, gov-
ernment organizations are doing this. The structure remains the same. The
longer-term objectives remain but the immediate priorities and strategies for
change shift over time and so do the qualities required to manage the change
process.
Senior level performance contracts are only a start to the process of
focusing individuals in an organization away from rule driven personnel sys-
tems towards performance driven systems. Once agencies and senior manag-
ers have performance contracts, performance thinking must be translated to
other levels of the organization. Individual work groups can develop perfor-
mance improvement contracts. Within teams, individual performance can be
assessed in terms of team contribution.
Team performance presents major problems for the traditional govern-
ment culture. In terms of traditional job design, it means that some people
who do not have the skills to perform the whole job role can combine as part
of a team. In the traditional system this is inequitable. Some members of the
team are “carrying” others. This is a strangely bureaucratic concept but it
must be addressed. The question is not does an individual have the entire
range of skills required to conduct a function but whether they add value to
a particular work team.
240 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Change Organizational Values and Culture

Third, the system must change the underlying organizational culture to focus
on change and performance, preventing the traumas which occur if change is
forced upon structures supported by traditional values. Changing organiza-
tional culture requires changes to systems structures and staffing. It usually
requires external pressures for change. And it requires leaders able to concep-
tualize a new reality and link individual changes to new values which can
explain new management priorities and behavior. The Victorian changes dis-
cussed earlier are one example of such a strategy.
The objective of culture shift is to change key attitudes so that the un-
certainty created by new priorities is reduced and managers are able to predict
new priorities and responses. Value shifts which can be used to audit the
extent of change are detailed in Exhibit 9.2. Mapping Culture Shifts in Gov-
ernment Systems.

PERFORMANCE DRIVEN CHANGE MANAGEMENT

TOOLS FOR GOVERNMENT
Forming a project team was the most frequently cited method for
implementing funded legislative mandates. Such teams attempt to
set and implement priorities, objectives, and performance mea-
sures by establishing goals, defining roles, developing rules, and
coordinating and evaluating functions.
—Wolff, “Managers at Work”
The capacity to erect and manage the nexus between reductions
in resource levels, reductions in program delivery, in times of
continuing resource constraint is critical to the ongoing viability
of public administration in times of decrement.
—Cullen, “Managing in Times of Financial Constraint”
When the challenge of developing a viable external transition has been ad-
dressed and the structures and systems required to implement reform have
been introduced, a government management system has developed the pre-
requisites for successful one off change. But the reality for most systems is
a series one changes. Competitive government needs to develop a manage-
ment platform that not only implements particular changes, but also provides
a new base from which to manage future change.
Transforming one off changes into a high-response system capable of
ongoing change requires tools that address two related threats. First, the
threats of reversion to restore old values and priorities once the immediate
 Government Management Systems and Values 241

Exhibit 9.2. Mapping Culture Shifts in Government Systems

VALUE SHIFT
Away from management values that see performance in terms of not failing
toward values that focus in the need to actually succeed: Management values
that see performance as inevitable have ignored the need to define performance
and to manage the delivery of services to the public.
Away from a focus on failure toward a focus on meeting changing needs:
Management values, which see change as a response to failure rather than a
response to new external priorities, maximize the trauma of change.
Away from unfettered freedom toward how managers use flexibility, whether
they deliver agreed results: “Devolution at any cost” solutions have encouraged
the dismantling of traditional controls without developing increased accountability
for results.
Toward accepting that structures and systems are management variables to be
used to deliver performance rather than a fixed framework within which
performance is defined: “Business management” solutions have sought to
transplant business solutions into the government sector without developing the
focus on performance required to guide these approaches.
Away from prescribed roles toward discretionary roles that use skills and
optimize value for the organization: Bureaucratic job design, which separate
work roles from the skills and capacities of persons in positions, have
underemphasized the importance of the discretionary component of work roles.
Away from consensus and legislative cycles as dominant determinates of
success toward values that see impact management and implementation and
critical: Management values, which see legislative and budget approvals as a
mandate to implement without managing comfort zone impacts, often find the
mandate evaporates as interest groups block or alter changes.
Away from values that see cycle times as fixed toward values that see cycle
time as a key management variable: Management values, which see cycle time
as a given and presume that implementation follows from regulated consumption,
miss the opportunity to manage cycle times and impacts.
Away from remedial communications toward a focus on using communications
to manage cycle timing and to manage the gap between public expectations of
change and the benefits actually delivered: Management values, which see
success in terms of completing programs, and communicate this to interest groups,
often find the gap between their concept of success and the communities expecta-
tions of them is large.

change crisis is seen to have passed. Second, the threat that in seeking to
consolidate new arrangements systems will introduce new inertia against
ongoing change.
242 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Three key management tools can be used to build ongoing change and
improvement skills into government systems. The first is the use of a network
of performance contracts. Contracts ensure that broad changes can be trans-
lated into structures rapidly. The second is the use of project teams to manage
critical changes. Project teams can shorten cycle time and because they are
short-lived they can avoid some of the institutional inertia that is created
when organizational units develop and own particular changes. In chapter 5,
we discussed continuous improvement processes and the needs to maintain
the effectiveness of government structures.

Project Management Strategies for High-Response Change

Exhibit 9.3. Project Structures and Management Processes illustrates how
project boundaries can be defined to include comfort zone management and
cycle time management issues which tend to be segmented hierarchically in
other structures. Special project teams often offer more scope for devolution,
especially when steering committees can be formed to address other interests.
A project is a series of planned activities to achieve defined objectives.
A project approach is used when beginning and ending activities can be
clearly identified. A project mobilizes resources to achieve specified results.
A project management team attempts to precisely specify the goals, means,
and outcomes of a given funded legislative mandate. Project management
teams normally involve three specific processes and employ several well-
developed tools within each process. Exhibit 9.3 suggests that all projects
unfold in stages.
First, a project team must be assembled consisting of a leader and mem-
bers drawn from all the existing units or agencies involved and any new
mandates required to implement the funded legislative mandate.
Second, a project involves a planning process. This begins with a needs
assessment, followed by a problem/ solution analysis on how to provide the
mandated services. Then a logical framework is developed of inputs to the
project, outputs to be created, priorities and objectives to be met, means of
measurement for each of these, and the assumptions involved in each stage
of the program. A budget is drafted which includes personnel, equipment,
overhead, and so forth. Finally, an executive summary is developed which
summarizes the results from the use of the above mentioned tools.
Third, a project involves an implementation process. In the implementa-
tion process, a GANT chart is employed which not only defines functions, but
also sequences and provides timelines for each function in the project. A
responsibility chart is then employed to determine who will perform each
function and the type of monitoring required. A PERT chart is employed to
monitor ongoing functions, processes, and timelines and to reveal which
 Government Management Systems and Values 243

Exhibit 9.3. Project Structures and Management Processes

External Interest Groups

Internal Interest Groups
Steering

Agency Structures
Committee

PROJECT TEAM

PROJECT MANAGEMENT PROCESS

▼ ▼
▼

Planning Implementation Evaluation

Tools Tools Tools

1. Needs Assessment 1. GANT Chart 1. Within Tools

2. Problems / Solutions 2. Responsibility Chart 2. Between Tools
Analysis
3. Logical Framework 3. Logical Framework 3. External
a. Cost / Benefit
4. Budget 4. PERT Chart b. Infrastructure
c. Capabilities
5. Executive Summary 5. CPM Method
▼ ▼ ▼

Monitoring Process

functions must be performed in what sequences to meet deadlines. Then a

Critical Path Model is developed to locate the existence of slack time in
personnel, resources, and so forth, for use in case of problems and to deter-
mine how they might be shifted around to minimize the effects of problems
in meeting performance targets and deadlines.
Fourth, a monitoring and evaluation process is employed to see that
functions are performed in an adequate and timely manner, budget targets and
performance targets are met, and the costs involved are worth the benefits
gained. In addition, evaluation requires that the appropriate infrastructure is
in place and working, and staff capabilities are maintained and updated as
required within time and budget limitations. Finally, one measures the quality
and quantity of service provided and the satisfactions with these services.
244 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Agencies and governmental units are established and maintained through

project management and the levels and quality of services provided are mea-
sured and improved within a project framework. This top down, funded legis-
lative mandated project management team, planning, implementation, and
evaluating framework is the most commonly used means for developing and
implementing new programs. However, sometimes new programs are mandated
with no new funds, programs are downsized based on diminishing funds, or
agency heads seek to improve a unit’s performance with minimal funding. Then
project management gives way to continuous improvement programs.

Continuous Improvement Strategies for Ongoing Change

In chapter 5, we discussed the importance of building continuous improvement

systems into government management. In chapter 6, we discussed the applica-
tion of these ideas to the GE transformation led by Jack Welch. In this section,
we developed the use of these ideas to reeingineer government performance.
Continuous improvement programs serve three functions. First, they at-
tempt to improve an organization’s productivity, quality, and response time.
Second, they place management, workers, and teams in a system of interre-
lationships which are creative, motivating, priority based, objectives-oriented,
and competitive in performance outcomes. Third, such systems reduce the
cost of ongoing programs and improve the organization’s performance levels
in measurable and rewardable ways (Cushman and King 1995).
After a decade of research by universities, consulting firms, and organi-
zational training divisions, we can conclude that organizations are having
very limited success with continuous improvement programs. Studies con-
ducted across national and geographic boundaries indicate that 70 percent of
all such attempts fail to meet organizational expectations and that most
continuous improvement programs are discontinued within two years (The
Economist, 15 January 1994).
It is equally shocking to realize that 70 percent of such programs fail to
meet the expectations of the organizations which started them. Many success-
ful governmental organizations in the world report that continuous improve-
ment programs are the primary reason for their organization’s success. Only
recently have we began to understand how the structure and functions of
unsuccessful and successful governmental continuous improvement programs
differ (Obloj, Cushman and Kozminski 1995).
First, there are major differences in successful and unsuccessful organi-
zations in the learning ability and levels of training provided to employees.
In Singapore, the top 1 percent of college graduates go into public service;
in the United States the top 20 percent of college graduates go into the private
 Government Management Systems and Values 245

sector. There are major skills and abilities to learn differences between these
two groups.
Second, successful organizations had a full array of continuous improve-
ment tools available to managers and employees (i.e., self-managed, cross-
functional, benchmarking, and outside linking teams) and provided specific
training in the most successful versions of each type of program while unsuc-
cessful organizations did not.
Third, successful governmental organizations modified continuous improve-
ment tools to fit the unique hierarchical management systems they employed,
while motivating performance through competitive peer pressure and institu-
tionalizing inhouse learning from the organization’s most successful units. Thus,
let us explore: first, one model of a successful continuous program, and second,
outline several examples of its effective implementation.

One Successful Model of a Government Continuous Improvement Program

The main goal of a continuous improvement program is to adjust governmen-
tal priorities, strategies, and structures to changing environmental demands.
The theory of continuous improvement is primarily drawn from practical
knowledge and empirical research. The theoretical framework is established
by answering the following key questions.

• What demands do a government’s citizens place on governmental

services?
• How are these demands to be prioritized and funded?
• What are the world-class standards for meeting these priorities?
• What areas must government improve to develop these world-class
levels of performance?
• Which tools and applications can our government best employ in
meeting these world-class performance levels?

Let us examine one world-class continuous improvement system and

how it not only minimizes the pitfalls of failed continuous improvement
systems, but also maximizes the motivation, performance, and learning tools
of successful continuous improvement programs, while adapting governmen-
tal administration to the changing needs of its citizens. This continuous
improvement program is called “contract management” and it proceeds in
seven stages.
First, the president/ chief executive and/or governmental ministers in con-
junction with the legislature recognize the changing needs of its citizenry and
246 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

draw up legislation with no funding or a cut in funding to meet that need, or

an agency head seeks to improve his or her unit’s performance with limited
funding. In so doing, they functionally prioritized the solution of these prob-
lems and set expected performance outcomes (i.e., to reduce unemployment 10
percent by increasing participation in existing on the job training programs).
Second, the head of the governmental agency involved with the new
mandate and lack of adequate funding in hand, overviews his/her current
organization and provides a new set of priorities and performance level for
his/ her staff (i.e., we must expand the current participant levels of our on the
job training programs by 20 percent, because only 50 percent of on-the-job
trainees get permanent jobs. That improvement will in turn reduce unemploy-
ment by 10 percent. No new funding is available for this effort).
Third, the heads of each job training program calls his or her staff to-
gether and forms multiple teams within each unit to draw up and prepare
projects for meeting these needs. Each team is given training in self-managed,
cross-functional, benchmarking, and outside linking teamwork, but also given
the freedom to propose alternative solutions to this problem.
One team decides to benchmark the Singapore government and Japanese
governments on the job training programs in order to obtain a solution. Another
team employs cross-functional teamwork including successful and unsuccess-
ful jobholders from existing programs. A third team places on the job pro-
gram trainees and employers in a self-managed team to solve the problem.
All are asked to explain what before and after measures will be employed to
demonstrate at least a 10 percent increase in new permanent employment
levels for each proposal with no new funds. These proposals are then re-
viewed by the head manager of each existing program and either accepted or
revised based on at least four criteria: (1) are the plans appropriately given no
new resources; (2) are the teams staff appropriately trained to implement this
program, or do they need and can we provide the appropriate training; (3)
does the solution being provided exceed one unit’s span of control and if so
can we proceed and how; and (4) does the program show promise of meeting
the target?
Fourth, each team, implementing their plan, must provide before and
after measures of their results in meeting the proposed targets. The bench-
marking team implements their program and has achieved a 20 percent in-
crease in job placement. The cross-functional team implements their proposal
and gets a 10 percent increase in job placement. The self-managed team
implements their solution and gets a 5 percent job placement, and so forth.
A five-page report is prepared on the success and problems involved in each
solution.
Fifth, the head of the job training programs then subjects each report to
peer review. Each team is asked to rank order, based on effectiveness, all the
 Government Management Systems and Values 247

reports excluding their own. Peer review is undertaken for three reasons. It
allows each team to learn from all the other teams. Peer review is always the
most informed and most critical evaluation which can be provided, because
all workers are knowledgeable and involved in the same task. The rank order-
ing of team performance creates a competition and learning environment for
all teams which provides high motivation in the next attempt to continuously
improve.
Sixth, the peer reviews on each team are then made public and can but
do not need to be included in each individual’s annual performance appraisal.
Such an inclusion creates three important performance outcomes. It provides
a measure of an individual’s team effort. It provides an across individuals
evaluation of performance not directly tied to one’s supervisor. It provides
increased pressure to improve performance in the next try based on peer
perceptions.
Seventh, one begins this process all over again with either the same or
new set of priorities and targets. Normally, such cycles in government are
three to six months in time. Such continuous improvement programs have
several unique features which enhance governmental performance. Note that
on future attempts to improve, most teams will attempt to far exceed the
targets set in order to gain peer approval. This process creates a culture in
which change, top-down and or bottom up, is readily accepted because it is
initiated so frequently from the bottom up. While removing the manager’s
individual responsibility for evaluating success or failure, it makes manage-
ment an integral part of the team process. It allows each team to set its
measures of performance with management approval thus allowing for con-
sensual measures of performance. Finally, multiple teams at work in each
agency or unit have an additive and sometimes even a multiplicative effect on
organizational motivation, learning, and performance, subsequently lifting pro-
ductivity, quality, and response time.

An Outline of Several Examples of Successful

Project Management and
Continuous Improvement Implementations

Successful improvement programs have been used in (1) the Malaysian Min-
istry of Education to reengineer its technical education system by benchmarking
the Singapore, German, and American technical educational systems (MTDI
1996); (2) the Egyptian Ministry of Agriculture to privatize agricultural pro-
grams in the upper Nile, by employing cross-functional teams to develop
marketing, sales, and distribution functions for their organizations (MTDI
1996); (3) in Poland by the Ministry of Commerce to create medium and
248 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

small-sized food service businesses run by women through project manage-

ment teams (MTDI 1996); (4) in Asia, Africa, and Latin America by USAID
and UNDP to provide project management training for over two hundred
government officials; (5) the Australian Victorian Public Service to establish
a senior executive service and contract management system, employing per-
formance outputs-oriented project management which substantially improved
governmental performance (Cullen 1986); and (6) Australian national and
state governments in order to reengineer and consolidate its institutions of
higher learning through outside linking programs among colleges and univer-
sities (Office of Higher Education 1992).
Recently, two important global institutions have set up research centers
which publish benchmarking studies of global and national governmental con-
tinuous improvement efforts. First, IMD located in Switzerland publishes an-
nually The World Competitiveness Yearbook (earlier versions were titled Report);
it evaluates about fifty of the world’s government’s performances and provides
an economic climate conducive to private sector growth. This report evaluates
and ranks orders and governmental performance in regard to infrastructure
development, labor force performance, taxes, and governmental management
based on the attractiveness of each nation for global private investment. Indi-
vidual strengths and weaknesses of each nation are provided and serve as
international benchmarks for world-class governmental performance. Second,
two members of the public sector consulting group, David Osborne and Ted
Gaebler, published a book entitled Reinventing Government (1993). This book
includes detailed presentations of over one hundred innovative governmental
programs which were successful and thus can serve as benchmarks of admin-
istrative excellence. These two sources of benchmarking excellence can serve
as international standards for improving excellence in competitiveness. They
create executive, legislative, and citizen pressure to reinvent and reengineer
government, and provide more efficient programs which can deliver better
services to one’s citizens. Dr. Stephanie Garelli, Director of the World Competi-
tiveness Project (Garelli 1994), put the issue clearly:

The problem of advanced industrialized nations, and especially in

Europe (the Americas and Asia), is precisely the cost of their value
system. It is absolutely acceptable to desire a more comprehensive
health, unemployment or pension system. It is understandable to
wish to work less, to have more leisure, to pay fewer taxes and to
protect the environment. However, there is a price to pay.

For a country, the value system is like the overhead costs in a company.
They have to be paid in priority at the beginning of each budget year. Com-
petitiveness should provide the necessary wealth creation to pay for the value
 Government Management Systems and Values 249

system a country has chosen. The more sophisticated the system, the more
competitive the country has to be.
The dilemma is that, if a country loses its competitiveness, then it cannot
afford to pay for its value system anymore. In a first stage, governments step
in to soften the reality. This is what they did in the 1980s through massive
public spending. Eventually, however, their level of indebtedness becomes
such that they are confronted with the delicate alternative of either reducing
the cost and the scope of the value system, or significantly increasing com-
petitiveness. To be competitive, a government must shift to an output
performance-oriented management system, effectively employ project man-
agement and continuous improvement programs, and be evaluated against the
best governments and most effective programs in the world, or lose its com-
petitiveness and modify its value systems to fit within its diminishing re-
sources for implementing that value system.

IMPLICATIONS FOR THE REFORM OF

GOVERNMENT MANAGEMENT

In this chapter, we build on the transition management and impact management

tools discussed earlier. Three performance improvement tools can be used to
implement transitions to high-response management: performance contracts to
focus the activities of high-response organizations; project teams to lead change
and enable managers to manage cycle time directly; and continuous improve-
ment functions to commit new structures to ongoing strategic change.
Although the general framework of the changes required to build a new
government management platform have been discussed in earlier chapters,
this chapter demonstrates various systemic dangers, which those who attempt
government management reform must address. First, there is a danger that
devolution will segment existing central powers, and enhance the power of
megaagencies and their leaders, without impacting on delivery units. Second,
there is a danger that the new solutions will allow flexibility between
megaagencies but will continue to impose uniform solutions on delivery units.
Third, there is a danger new structures will be implemented without the
management skills or systems required to control and lead them. Fourth, there
is a danger that the new management platform will be seen as a static alter-
native to the traditional platform it replaces.
The new platform must change to support an ongoing transition. Where
changes do not occur, government systems face ongoing interventions and
discontinuous changes. In the end, such interventions are wasteful of re-
sources, sap the morale of public sector managers, and stretch the credibility
of a public waiting for some signs that the Goliath has at least turned. How
250 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

might the change process be protected from these dangers? The answer is to
evaluate the reforms in the same way the reformers argue that agency man-
agement should be evaluated, in other words, focus on noticeable changes in
results. While it is necessary to also monitor surrogates like system changes,
for example, strategic plans, and financial deregulation, the end evaluation is
not whether these are implemented or whether the government power base
has shifted, the test is whether all this has generated noticeable improvements
in national competitiveness and in service to the public.
Osborne and Gaebler present a powerful model for moving beyond sys-
temic reform. They focus on best practice examples, on pilot changes, and on
experiments leading to improved performance. The strength of Osborne and
Gaebler’s work is that it benchmarks examples of best practice. The reform
proposals developed by the National Performance Review are extensive, but
are they enough to overcome the problems identified? The danger implicit in
the implementation of these ideas in the U.S. government are: cycle time will
stretch rather than shrink; the system will impose its own uniformity; the
central political controls will not be altered to enable units to deliver value;
and collectively the system will be unable to alter internal funding priorities
fast enough to respond to new opportunities rather than deficits.
The need to strengthen the implementation strategy in the U.S. is becom-
ing apparent. Mission overlaps and fragmentation are widespread (Mihm 2000).
Middle level jobs have proliferated and job design remains bureaucratic (Light
2000). The continuous improvement process seems to be addressing second
and third order problems. J. Christopher Mihm, arguing the need for ongoing
reform, concludes that focusing delivery agencies on results does not come
quickly or easily. Donald F. Kettl (2000), reviewing progress, suggests that,
while much has been achieved, two key deficits remain: “government’s per-
formance deficit—the gap between government’s goals and its results—and
its confidence deficit—citizens’ trust in its ability to get its job done.”
We argue that performance-based structures, value-chains, and personnel
and resource management systems are required to implement particular tran-
sitions to competitive government reform. Change management needs to protect
the system from the twin threats of reversion and inertia by ensuring that one-
off changes are irreversible and, by building into each, change processes that
commit the system to ongoing evaluation and improvement.
 Chapter 10

Resource Management Strategies for

Competitive Government

Normal government budgets encourage managers to waste money.

If they don’t spend their entire budget by the end of the fiscal
year, three things happen: they lose the money they have saved;
they get less next year; and the budget director scolds them for
requesting too much last year. . . . Most managers work in
government to make some positive impact on their community.
That opportunity is available only to the degree that they can get
control over resources. . . . Results oriented organizations find they
ultimately need to develop budget systems that fund outcomes not
inputs.
—Osborne and Gaebler, Reinventing Government

Most government crises involve a budget deficit which government is unable

to manage effectively. The crisis can be triggered by overspending or by an
erosion of the revenue base caused by a lack of competitiveness, or simply
by a failure to respond to changing revenue realities. Attempts to make gov-
ernment more responsive without removing blockages caused by traditional
resource management systems encounter two terminal problems. First, key
reform priorities are subsumed by an ongoing series of budget and related
comfort zone crises. Second, resource inertia negates attempts to shorten
cycle time and often introduces new delays.
The need to implement major changes while also reducing overall expen-
diture creates particular problems for government. Government seeking to
address new priorities must find ways to cutback expenditure on old priori-
ties. In particular, government has little option but to focus on programs that

251
252 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

create new wealth and employment. The impact of these changes on comfort
zones must be managed skillfully. Each reduction disenfranchises some inter-
est group or other and provides a focus for those who wish to erode the scope
of government to govern.
Responding to this crisis requires government to reinvent and reengineer
the way in which they allocate and manage resources. Most government
budgets are input not output driven. Most government budgets focus on ac-
cessing resources and allocating resources between competing needs. Most
forward financial projections are little more than bids designed by agencies
to access new funds and protect existing funding. It is not therefore surprising
that attempts to reform government management must address the need to
manage resources differently.
This section discusses the changes to resource management required to
support a transition to high-response government. We discuss the need to
manage an emerging fit between the sources and applications of funds, and
we discuss the need for budgets which focus on results, on costs, and on
prices rather than on inputs such as staffing numbers and line items of expen-
diture. Finally, we present an action plan for a transition to results focused
budgets.

Strategies for Improving Government Resource Management

The role of budgets in government differs from the role of budgets in busi-
ness. The role of budgets in government is: (a) to access funds frorm various
sources; (b) to regulate access to those funds; (c) to manage the tensions
created by the need to allocate funds between competing needs; (d ) to ratify
the negotiations required to achieve political and public support for govern-
ment; and, (e) to provide a basis for compliance auditing, which essentially
seeks to ensure that funds are spent for the purposes allocated.
Many attempts to reform government resource management systems
address only part of the resource management problem. For example, initia-
tives like program budgeting, while they certainly reshape reporting and
allocative tensions, are unlikely to solve the problem of ongoing government
deficits; they seldom shift the emphasis of resource management towards the
sort of grass roots results the public expect from government.
Strategies which enable government resource systems to support the tran-
sition to high response government are outlined in Exhibit 10.1. Improving
the Performance of Government Resource Management. We will now exam-
ine each of these objectives, managing resource balance, and, shifting to
results-based budgeting, in more detail.
Exhibit 10.1. Improving the Performance of Government Resource Management
Key Objectives Action Strategy for Implementation Impacts or Verification Outcomes
Resource Balance • Extend the financial planning horizon to • Balance government budgets
Manage government activities coordinate growth in revenues and expenditure • Increase the lead time available to managers
to balance available and to ensure an emerging balance and to minimize to vary resources
required resources without short-term disruption caused by short-run cuts

Resource Management Strategies

diverting government focus and the long-term disruption caused by
away from the delivery of excessive debt
key performance objectives • Manage the revenue base to raise funds with • Competitive revenue impacts
competitive impacts growing revenue base
• Manage the expenditure base—ensure that • Reduce systemic pressure which increase
funding projections accurately reflect real needs costs, extend cycle times, and minimize
and priorities evaluation
• Restructure budgets to reduce allocative tensions • Reduced budget allocative tensions
Results-Based Resource • Change traditional resource management systems • New approaches to legislative mandates
Management to provide managers with the scope to manage • Managers able to reallocate within defined
Move the focus for overall resources to produce agreed results and levels to manage delivery priorities and to
accountability away from the scope to treat cycle time as a management opitimize cycle management
detailed line item and variable
associated input measures • Focus budgets on results by linking budgets to • Budgets driven by future rather than past
towards an evaluation of total performance plans, expanding project priorities. Increased proportion of budget
real expenditures against management of funds, expanding transaction and linked to specific results
results output linked funding, and reducing general • Increased proportion of budget available
overhead expenditures for reallocation each year
• Evaluate expenditure against planned budgets • Effective variance reporting as part of the
and results budget cycle

253
254 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

MANAGING RESOURCE BALANCE

Faced with budget cuts in a short period of time, politicians will

initially choose to do one or more of the following:
• Freeze all hiring, promotions, and periodic cost-of-living pay
increases.
• Mandate across-the-board percentage cuts leaving the means to
the discretion of functional managers.
• Eliminate whole departments or programs.
The adoption of these broad-stroke tactics rather than the careful
implementation of detailed efficiency improvements is a function
of the bureaucratic and political realities of government.
—Downs and Larkey,
The Search for Government Efficiency

Managing resource balance is important to government for two reasons. First,

if emerging resource gaps are not controlled, performance is disrupted by the
inevitable short term cuts. Second, market signals, which act to coalign ex-
penditure and results in business systems, are of limited value in coaligning
government systems, where the distance between those who pay and those
who receive the benefits of spending is often vast. This enables governments
to spend large amounts of money without generating comparable real benefits.
One function of budgeting is to allocate resources to produce cost effec-
tive added value. Another is to manage allocative tensions by responding in
a measured way to various interest groups. These two functions often gener-
ate opposing tensions. As we have discussed in chapter 4, added value is
often related to cycle time. While we have also suggested that cycle time can
be used to manage comfort zones, governments often attempt to manage
comfort zones by extending cycle time and starting as many projects as
possible.
The rationale for this strategy is that, in general, governments gain more
popularity from starting projects than from finishing them. Governments can
easily trade project starts for cycle time. The more projects they commence,
the longer each will take to complete. The weakness in this strategy is that
lengthening cycle time reduces both actual added value and public percep-
tions of value.
As the focus shifts to results and performance, government needs to
target resources, reduce the number of projects they commit, and manage
impacts to obtain positive comfort zone impacts. We have discussed in pre-
vious chapters approaches to identifying priorities and managing positive
 Resource Management Strategies 255

comfort zone impacts. Budget reform must also address the new allocative
pressures which targeting and extending the budget planning horizon places
on budget systems. Unless these pressures are managed effectively, they will
impact directly on the comfort zone by making government more difficult.
Exhibit 10.1 outlines three strategies for managing resource balance:
extend the planning horizon, manage the revenue base; manage the ex-
penditure base; and restructure budgets to manage allocative tensions more
effectively.

Extend the Planning Horizon

The first requirement for resource balance is to extend the planning horizon
in order to manage and contain emerging gaps. The key to effective resource
management reform is to establish a basis for the long term viability of
government which does not depend on overspending.
Exhibit 10.2. Managing Government Resource Balance outlines the ele-
ments which must be managed to balance resources. The first point to make
about the process is that resources always balance after the event. If the
process is not planned, the usual balancing items will be borrowing or funds
provided by creditors. The resource balance must manage the sources and
application of funds to achieve an emerging resource balance.
When government fails to plan these elements and deficits blowout dur-
ing the year, they have only two options: they must arrange emergency sources
of funding usually through borrowing or delaying payments to creditors; and
they must freeze or reduce expenditure immediately. Expenditure freezes are
best implemented by intervening to control inputs; for example, by freezing
or cutting staffing and halting purchasing. While these devices are effective
crisis management tools which deliver a short-run control, the impacts on
programs, agencies, and results are indiscriminate.
Even where governments manage to develop short term fixes to budget
shortfalls, many governments find that they lurch from one such problem to
another.

Manage the Revenue Base

The revenue base of government needs to be adjusted and it needs to address

changing expenditure patterns and needs. Exhibit 10.2 identifies four sources
of revenue: activity linked revenue, for example, service-based charges, gen-
eral revenue from taxes and charges not specifically levied on the users of
particular services, asset sales, and borrowing.
 256
Exhibit 10.2. Managing Government Resource Balance

RESULTS

A MANAGEMENT PLATFORM
FORECAST ACTIVITY MEASURES

▼
Capital Projects TAXES AND
RESOURCE
Change Projects CHARGES
INPUTS
Staffing Transactions—User Funded
Transactions—General Funds
Purchases
Other Programs

▼
Price/Unit Costs per Direct User Fees ▼
▼ Activity Measure

FOR
RESOURCE RESOURCE

GOVERNMENT CHANGE
APPLICATIONS SOURCES

▼ ▼
RESOURCE

▼
▼
▼

UTILIZATION
Required / Available Borrowings
STRATEGIES FOR ACHIEVING RESOURCE Resources
BALANCE
Increase supply Asset Sales
Increase user charges / increase general taxes
and charges / asset sales / reduce working
capital.
Changes in
Decrease expenditure Working
Reduce activity forecasts / alter activity mix /
Capital
reduce unit prices / increase savings targets /
increase efficiency.
 Resource Management Strategies 257

The capacity of government to raise revenue is increasingly limited by

public perceptions that they are not receiving value for taxes they already pay
and by globalization and the difficulty which individual governments face in
sustaining uncompetitive tax structures. The scope for government to increase
general taxes and charges is increasingly limited to the impact of growth and
inflation on tax scales. In addition, there are growing pressures for tax reduc-
tion in many countries. For many governments, the major options to raise
additional revenue are to sell assets, to expand activity linked charges (user
pays), and to introduce special, one off, levies to address issue of major
national concern. These solutions address specific concerns and fall short of
the old solution which delivered to government an ongoing license to spend.

Manage the Expenditure Base

The expenditure base of government needs to be managed to match emerging

sources of funds and to reflect a realistic assessment of needs and priorities.
The strategies available to reduce expenditure depend on the time available.
Where the time available is short, the crisis management tactics discussed
earlier must be used. Managers have little scope to protect core priorities or
even to ensure that the cuts do not create an ongoing succession of crises as
service delivery breaks down. Where a longer time period is available, man-
agers can dimension the real need for cuts; they can manage the impact on
results strategically.
There are several proven strategies available to support crisis driven re-
ductions. Controls such as staffing-level freezes or even constraints, bans on
new purchase contracts, and even centrally managed redundancy programs
are the most effective way to prevent governments from spending in the short
term. The strategy stops managers’ spending, and the savings simply appear
in expenditure budgets were they fall. The distribution of reductions is driven
by the need to stop spending not the need to reallocated internal priorities
Averaging reductions across all agencies on some form of pro rata or
equal common misery rule reduces budgets but erodes the scope for all areas
of government to perform. A variation is the forced savings or sinking lid
schemes where managers know there will be an enforced savings each year.
Auditing programs, to identify areas where reductions must fall and iden-
tify new initiatives which must be funded and impose a macrobudget strategy
on agencies, may appear to be the least wasteful approach, but the cycle time
required is somewhat longer and the comfort zone pressures from interest
groups can be more difficult to manage.
Managing the emerging expenditure base requires government to address
three realities. First, there is major scope to reduce most government budgets
258 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

without reducing core activity levels. Second, the way to implement cuts
without reducing impacts is to avoid input controls and to devolve to managers
the scope to manage value-chains and introduce discontinuous change. Third,
the actual operating changes required to deliver given reductions are less than
suggested by forward plans. Most planning bases are inflated by planning
systems used by managers to protect the real base from review and the impact
of cuts. The most effective solution is to change the budget planning meth-
odology to eliminate such overestimates. Where this cannot occur, it is im-
portant that operational managers work off more realistic measures.

The Scope for Cost Reductions

Most experts who have examine government expenditures see scope for major
cost reductions and major service improvement. Many government managers
claim they have been cut to the bone, and there is no further scope to cut
resources without eroding services. The evidence which is available supports
both viewpoints. There are cases of dramatic cuts with service improvement.
There are cases of dramatic service improvement without budget increases.
And there are examples of cuts eroding service to the public and the capacity
of government agencies and systems to respond to future needs.
Three factors which explain the scope to cut government expenditure.
First, governments tend to fund new projects and growth but seldom reduce
resources when projects are completed or transaction levels reduce. In addition,
governments tend to overfund activities that are becoming less important and
underfund initiatives that meet new needs. Often it is far more difficult and
takes far more time to close down a failure than it takes to start a new project.
There is usually obvious scope to reallocate base resources and, except early in
the term of new administrations, there is seldom much commitment to do this.
Second, government tends to focus the majority of resources on support
and management activities rather than on service delivery. This is particularly
evident where activity levels are decreasing. In many areas simply requiring
two-thirds of resources to be directly linked to core outcomes requires in
excess of a 10 percent to 15 percent shift in expenditure profiles. An effective
audit of expenditure will not only improve future control by linking resources
to results, but it can be expected to identify savings of at least half of the
profile shift.
Third, the overregulation of government inputs provides control at a
considerable cost. Government managers indicate quite clearly that deregula-
tion which provides them with the flexibility to manage resources will achieve
savings. Many managers see these costs as worth 5 percent to 10 percent of
budget outlays.
Putting these elements together, it is easy to see why savings are readily
achievable in many agencies. However, there are several prerequisites for
 Resource Management Strategies 259

implementing such savings without eroding services: managers must be con-

vinced that these savings are achievable; the core outcomes to be protected
must be agreed; implementation must be devolved to managers with the
flexibility to negotiate and manage implementation impacts; and, finally, those
managers must be provided with assurances that performance will not be
penalized in future budgets.

The Need for Realistic Forward Expenditure Projections

There are inbuilt factors which inflate budget projections for government
expenditures. The traditional control mechanism is to cut back plans as part
of the budget process. A superior strategy is to eliminate the planning inflation
before attempting such adjustments.
Traditional government budget systems do not start with the actual ex-
penditures the previous year. Instead, they start with a modified budget base
which is an attempt to forecast the cost of continuing all current activities for
a full year plus growth required to implement policy initiative previously
agreed, less an arbitrary assessment of savings achievable. In times of growth,
this approach to budgeting has the advantage of fully funding past commit-
ments and of focusing allocation pressures on the growth component of the
budget. In times of cutback, the approach is destructive because it tends to
overstate the real reductions which must be made and maximizes the threat
to all the interest groups who feel they have an interest in protecting some
part of the budget base.
There are five specific weaknesses in the traditional approach to project-
ing future expenditure needs.
First, while it is important to adjust budgets to reflect realistic cost in-
creases, it is a mistake to fund agencies who agree excessive increases or who
create major additional costs by effecting promotions without offsetting savings.
Second, while government accounting systems can measure what was
actually spent the previous year, attempts to project the full year expenditure
from a current monthly expenditure base are almost always flawed. For ex-
ample, expenditure varies within a year. Staff join the organization and staff
also leave. Staff are promoted but some staff who leave and are replaced at
lower level positions. Forecasting, methodologies seldom address these fac-
tors effectively.
Third, by funding inputs, the traditional approaches shift the focus away
from the scope to reduce budgets where activities are reducing. Although
many budget processes focus on areas of growing transactions, the real scope
for savings in both direct expenditure and overheads is usually in areas of
reducing transactions. The scope to make automatic adjustments to the base
for changes in activity levels is considerable. In the case of reduced transaction
levels budgets should seek to remove full unit costs. In the case of growth,
260 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

government should seek to fund this at marginal cost. The benefits are not
simply that the base is more realistic, the major benefit is the impact on
comfort zones. Many reductions become invisible.
Fourth, the focus on additional funding for new initiatives is seldom
balanced by a realistic assessment of the reductions (or savings) available
because previous initiatives have been completed. Government expenditures
usually comprise a mix of core activities and services and one-off projects to
deliver particular changes and benefits. The core activities need to be linked
to core activity load and productivity assumptions over time. Project activities
need to be evaluated against project plans that are one off in nature. A major
weakness in the design of government budget frameworks is that they focus
on global budgets which mix up these two activities. The effect of many
planning systems is to lock project expenditure into the global base. Although
it may be necessary to complete a project to earn these funds, the real bonus
for an agency is that, after this is completed, the funds keep rolling in forever,
or until they need to be used to absorb some “arbitrary” cut.
Fifth, incremental approaches to resource allocation fail to manage re-
source reductions. Attempts to lock in a budget base which meets existing
commitments and focus the allocation on new initiatives, work effectively in
times of growth. However, the incremental policy approach runs into serious
trouble when it seeks to allocate decreases in resources. In cutback situations,
the base cannot be protected, the funding shortfall is overstated, and the impact
of cuts is maximized. In addition, incremental systems, especially when com-
bined with ineffective evaluation of outcomes against plan, tend to reward
inefficient managers who overspend by leaving at least some of the
overexpenditure in the base for the next year.
There are many options for reducing these weaknesses. One attractive
solution which can eliminate many of these weaknesses and refocus many
government management tasks is to move to results-based budgets. When
government learns to view budgets as a means of purchasing added value, in
terms of transactions or projects, and when managers define their task as
delivering these results within a defined resource envelope negotiated on the
basis of volumes and prices, the budget debate shifts from a focus on protect-
ing inputs to a focus on producing outputs and onto the price of those outputs.
Specific strategies for managing a transition from the traditional budget sys-
tem to a results-based budget system are discussed later.

Manage Allocative Tensions

The issue is not simply about budgeting to resource what is to be done.

Government budgets must also plan what will not be done. While there are
 Resource Management Strategies 261

many options which increase budget flexibility and increase the scope for
government managers to manage, they all impact on comfort zones. Reform
of budgets which do not refocus the allocative tensions which government
must manage almost always fail once the immediate crisis has passed.
The traditional budget system manages allocative tensions by fixing the
budget cycle and focusing allocation on new growth. There are two compelling
reasons why this simple solution must change. First, as discussed above, the
process of cutback management requires an extension of the planning cycle.
Second, the need to devolve management and to provide managers with the
flexibility to manage cycle time and cycle impacts means that commitments
cannot be queued continuously through a centralized annual budget cycle.
Government approaches to resource management must now address wider
tensions unleashed by cutbacks and rapid change. They do this by segmenting
the old tensions into at least three levels and by devolving the management
of implementation of overall decisions to managers with an understanding of
the options and the power to vary detailed priorities and manage impacts.
The first level of tension is the overall allocation to each result area.
Result areas are usually defined in terms of major programs or megaagencies.
The second level of tension is the allocation within that result area to an
agency, bureau, project, or special purpose program. In part, these tensions
focus on the relative worth of outputs and the weighting which should be
used to allocate between agencies and activities.
The third level of tension is cycle time tension. Participants compete to
start programs and to obtain the benefits. The temptation for many govern-
ments is to start too many projects and finish them too slowly. While this may
appear responsive, it actually slows down cycle time and creates uncertainties
about the delivery of benefits. Strategies to manage this are discussed below.

RESULTS BASED RESOURCE MANAGEMENT

Streamlining the Budget Process (an action plan)
• The president should begin the budget process with an execu-
tive budget resolution, setting broad policy priorities and
allocating funds by function for each agency.
• Institute biennial budgets and appropriations.
• OMB departments and agencies will minimize budget restric-
tions such as apportionment and allotments.
• OMB and agencies will stop using full-time equivalent ceilings,
managing and budgeting instead with ceilings on operating
costs to control spending.
262 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

• Minimize congressional restrictions such as line items and

earmarks and eliminate FTE floors.
• Allow agencies to roll over 50 percent of what they do not
spend on internal operations during a fiscal year.
—Vice President Al Gore, Creating a Government
That Works Better and Costs Less

Although they are far from solving the issues of results-based budgets, the
current U.S. reforms call for an extensive dismantling of the traditional sys-
tems and a serious attempt to combine devolution with a focus on results to
drive a new approach to financial management.
The second key objective in Exhibit 10.1 is to manage resources to
deliver results. Shifting the focus of financial management from “gatherer,
custodian and dispenser of funds” to “ensuring that funds add value and
deliver priority results” is a major challenge for government systems. Results
focused resource management needs to shift the government role from input
allocations to the purchase of services. The idea of government budgets as a
vehicle for purchasing services fits well with questions about added value and
the cost of services.
There are many reasons why the shift to results focused budgets is so
demanding. First, government systems seldom address results or evaluate them
in the short term. Second, government systems seldom fully cost services trans-
actions or projects. Instead, they measure direct costs and sometimes simply
incremental costs (the additional costs which cannot be met from existing
allocation). Third, the source of funding is often remote from those who receive
the benefits. Fourth, the delivery of results is often decentralized and managed
separately from the centralized financial budgeting process.
While there has been much discussion of the need to move to results-
based budgets for government agencies, strategies to achieve this are more
difficult to find. In this section, we identify a number of key issues which
must be addressed and then present a strategy for reform.

Managing the Transition to Results-Based Budgets

Exhibit 10.3. Action Strategy for the Conversion to Results-Based Budgeting
details a strategy for moving to results-based budgeting.

Develop the Links between Activity Levels and Expenditure

The first two strategies develop the link between activity levels and expendi-
ture outlined in Exhibit 10.2.
Exhibit 10.3. Action Strategy for the Conversion to Results-Based Budgeting

Action Strategy Implementation Detail

Develop links between activity levels and expenditure Measure accrued expenditure. Categories: capital expenditure—
(1) Measure real expenditure in the year. Categorize base project expenditure—transaction linked program expenditure—
funding in terms of result categories fixed program expenditure
(2) Link these categories to activity measures to explain Activity measures yield average transaction or project costs.
actual funding levels Project and capital commitments that extend beyond a single

Resource Management Strategies

year require assumptions about commitments carried in and out
of the year.
Conduct a value audit of base expenditure Benchmark areas of expenditure and value against the costs of
(3) Review activity costs against assessment of value and other governments and of purchasing services from business
alternative sources of service
Project future expenditure on basis of expected future The projection needs to allow for planned savings, projected
value price increases. Changes in project expenditures need to be
(4) Use amended activity costs plus forecasts of changes decided against project priorities. Changes in transaction
in activity levels to forecast future budget requirements. expenditures need to be measured against transaction volumes.
Include discretionary component to enable managers to All budgets should include a discretionary component of at least
respond within a year. 5 percent.
(5) Balance the match between value projections and Balanced achieved by altering savings targets and varying
available funding activities
Fit future value projections to resource projections Reduce input resources to deliver estimated value or to create
(6) Balance the fit between projected value of results savings. Priorities: target direct resources—reduce overheads—
and projected input costs by adjusting priorities eliminate noncritical projects
Audit results against plan Actual compared with planned expenditures requires an analysis
(7) Audit results against planning expenditures and added of variance. Audits of added value need to link PIPES plans and

263
value project plans to expenditure.
264 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

Results-based financial budgets require some version of accrued expen-

diture. While the difference between accrued expenditure and cash must be
managed by the system, the primary focus of expenditure budgeting and
evaluation needs to be expenditure related to the period, not simply the bills
that were booked or paid.
The payoffs from managing cash more effectively in government are con-
siderable. The traditional solution is to centralize this function and to float on
the commitments of agencies. A better solution is to focus on real expenditure
commitments and decentralize working capital management to operational
agencies. One strategy is to change agency expenditure for working capital
drawdowns. Similar benefits can be derived from projects by crediting project
budgets with planned holding costs and charging project funding against project
budgets until the project is completed and funding returned for reallocation.
The suggested classifications, capital, projects, user resourced transac-
tions, other transactions and fixed expenditure identify activities which can be
subjected to different allocation and control regimes. The result of these
stages is an explanation of base funding in terms of activities and unit costs.
An important element of the strategy is to expand the component of
agency budgets managed as projects. Project allocations are one-off alloca-
tions for the life of a project. They are exempt from macrosavings reviews but
not necessarily for a review of progress against plan. Project managers are
provided with flexibility to manage timing and impacts within overall spend-
ing envelopes and profiles.
The implementation of this strategy provides project managers with in-
creased scope to manage; it provides new scope to commit new projects as
projects are completed. While it might be argued that traditional budget tools
provided this scope through arbitrary cuts, this approach has the advantage
that does not require arbitrary cuts at all.

Conduct a Value Audit of Base Expenditure

The third strategy is a value audit of the base. The idea is to consider unit
costs and value against various benchmarks. The full costs of government
outcomes often provide a useful basis for an examination of value and for a
consideration of alternative delivery options. The outputs of the value audit
are proposals to increase total value by changes to delivery strategies, to unit
costs, or to the mix of activity levels provided.
Many reform programs require governments to tender or outsource ser-
vices. While these strategies are more successful in some areas than others,
they provide an important shift in the focus of managers. They require man-
agers to identify full internal costs; they focus management on the twin issues
of value and price.
 Resource Management Strategies 265

Project Future Expenditure on the Basis of Expected Future Value

The fourth and fifth strategies project future expenditure needs and bring
these into balance with projected sources of funding, using the various bal-
ancing options discussed earlier. These value projections need to define a
resource envelope within which operational managers can manage cycle im-
pacts. A key objective is to break the nexus between the budget cycle and the
response cycle available to managers.

Fit Future Value Projections to Resource Projections

The sixth strategy is to devolve to operational managers the scope to manage
actual input costs against the value derived from particular results. Operational
managers need to target available input resources, reduce overheads, and elimi-
nate low priority activities in order to deliver this balance. This presents an
interesting contrast with the traditional budget process which cuts inputs re-
sources and then leaves the manager to attempt to produce planned activity levels.

Audit Results against Plan

The seventh strategy is also an essential input to each successive budget
cycle. The strategy requires a comparison of performance against plan com-
bined with action to ensure that managers who perform are rewarded and
managers who fail to perform are not.

Resource Management Reform and Cycle Time Management

There are three reasons why resource management reform is central to the transi-
tion to competitive government. First, the reforms make better use of available
resource. Second, reform allows government to manage allocative tensions more
effectively. Third, reform is necessary to break the nexus between budget cycles
and project delivery cycles to allow managers to shorten cycle times?
Where planning systems and strategic leadership develop the scope to
scan the environment and develop flexible strategic priorities, it is important
that these not be marginalized by the budget system. There needs to be an
ongoing review of core priorities, not on the basis of old and new but on the
basis of current and future needs. Meeting emerging needs requires budgets
that do nor commit 110 percent of available resources and which involve an
ex post facto review by external experts of the relevance and performance of
each agency and program.
Responding to changing external pressures, requires government to an-
ticipate selected needs and change to the budget base to ensure it is focused
266 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

on current and emerging priorities rather than on past priorities. New admin-
istrations seem relatively able to do this. However, the older a government
grows the harder it finds this process of closing down its own failures or of
recognizing that priorities, which seemed sensible a few years ago, are no
longer relevant.
How can the transition to results-based budgets break the nexus between
budget cycles and project delivery cycles to allow managers to shorten cycle
times? Results-based budgets meet two key needs of high-response manage-
ment, First the system enables base priorities to be aligned with future and
emerging needs more rapidly. Second, the system provides a new flexibility
for operating managers to manage inputs and cycle time. These flexibilities
can be extended by exploring a number of business-government comparisons.

More Responsive Base Funding Priorities

The focus on outputs and the value analysis assists planners to identify slack
resources or areas which offer declining value. The focus on activities enables
new priorities to be identified and inserted in the budget cycle.
Shifting base priorities more responsively assists operational managers to
manage cycle time. In the traditional system, managers who understood the
need for change were forced to battle endlessly to find the organizational
slack, in terms of spare inputs, to respond. The results-based transition de-
scribed in Exhibit 10.3 provides these managers with a more direct manage-
ment of these resources.

Devolving the Resources to Manage Cycle Time and Cycle Impacts

In addition to changing base funding priorities, high-response government
needs to break the nexus between the legislative and budget cycles of gov-
ernment and the project commitment and delivery cycles required to respond
to new realities.
There are three strategies which can assist government to reduce cycle
time: (1) increasing the discretionary component of budgets; (2) managing
selected change projects separately with dedicated funding, and freedom from
internal controls combined with an enhanced evaluation; and (3) moving se-
lected functions beyond the direct control of government using either autono-
mous agencies, or privatized agencies to deliver key changes. All these solutions
recognize that attempts to shorten cycle times for all government activities
would probably be counterproductive. The answer is to find solutions which
allow key change projects to be resourced, delivered, and evaluated differently.
The need for discretionary expenditure is clear. Many government budgets
are not just fully committed, they are overcommitted. This might work in a
 Resource Management Strategies 267

static world inhabited by very gifted planners. In the real world, fully commit-
ted budgets represent a straitjacket within which change managers must seek to
operate. This overcommitment is explained by the belief that funds that are not
committed will be lost in cutback situations and by the difficulty managers find
in allocating cutbacks. Agency and program managers usually maintain their
own hidden reserves of resources. They need to be assisted to budget minimum
levels of discretionary resources; they need to be evaluated in terms of the
effectiveness with which they used such resources.
The need to provide operational managers with increased scope to man-
age cycle time was discussed above. This flexibility can be increased by a
number of devices which require flexible bridging funding but which increase
accountability for results.

• The idea of charging for working capital and project capital can be
associated with increased flexibility to manage timing.
• The idea of results-based funding is often focused by paying part or all
of grants when services are delivered. Although agencies would re-
quire working capital funding to shift to such an arrangements, it can
be an effective strategy. For example, paying for part of education
places when students enroll and paying part of the funding when they
complete their schooling is a logical way to shift market forces in these
notoriously input driven areas of government.

• Finally, there is the issue of who owns savings. Osborne and Gaebler
are correct is suggesting that the traditional system persecutes per-
formers. We need to ensure that the new financial management sys-
tems, which are evolving, do not repeat this mistake. If a manager can
deliver agreed results at less than the agreed value budget, the system
should encourage this to occur. Whether this is achieved by increased
project allocations, by performance bonuses, or by allowing agencies
to report a surplus instead of underspending needs to be examined.

IMPLICATIONS FOR THE REFORM OF

GOVERNMENT MANAGEMENT

While reform of financial management alone will not solve the crisis in
government management, it is a prerequisite for effective change. While there
is support for providing additional management flexibility within budgets and
for a move to focus on results rather than inputs, the difficulty of effecting
such transactions are often underestimated.
268 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

In this section, we have suggested that there needs to be a much more

effective audit of budget performance against plan, there needs to be a value
audit of base expenditure, and the task of managing inputs should be devolved
to operating managers.
Some would argue that this is the thrust of many budget reforms. We
disagree. Exhibit 10.4. Checklist for Evaluating the Effectiveness of Govern-
ment Resource Management presents a checklist for evaluating some of the
issues we have raised. Most audits fail to address the impact of price and
volume shifts on differences. Most fail to discuss the impact of changes in
working capital (i.e., not paying creditors or paying them early) on perfor-
mance. Few systems manage an emerging balance and those that do fail to
focus on balancing via transactions and price adjustments. While a number of
innovative arrangements have developed in recent years to assist managers to
manage, few provide the flexibility which we suggest is required.
The failure of resource management reforms in the U.S. to achieve the
ambitious objectives set for these reforms seems likely to restrain the future
transition to competitive government unless the blockages can be removed
(Light 2000). Linking budgets to results remains important. Changing re-
source management to facilitate the reengineering of government value-chains
and the development of new linkages with the legislature seem critical to the
success of the U.S. transition. The objective of budget balance has been
achieved. Some limited but important steps have been taken to reengineer
value-chains to free managers from the tyranny of preset cycle times. The
pressures in most government resource management systems to over-budget
and under-evaluate remain part of the system. Although performance plans
are said to have informed the budget process, the budget remains largely
driven by historical, input-focused, base funding allocations rather than base
funding linked to results. The scope to add value to government competitive-
ness by reducing and reallocating expenditures has only been partially un-
locked by the reform process to date.
In summary, budgeting reform has not yet developed to the point where
devolution or accountability are adequate. One reason why these gaps remain
is that budget reformers approach the issue as a system reform of the existing
system and the existing value-chain. The real solutions require a reengineering
of these value-chains. Many reforms assume that the path to reform is to
superimpose results and outputs measures on existing input focused systems
and then allow flexibility across detailed inputs. The real solution requires a
discontinuous shift from inputs to outputs.
 Resource Management Strategies 269

Exhibit 10.4. Checklist for Evaluating the Effectiveness of Govern-

ment Resource Management
• Is the revenue base able to generate future revenue growth? Is there an emerging
balance between revenue and expenditure plans?
• Are taxes and charges competitive with other nations? Is the impact on taxes and
charges competitive for domestic producers seeking to export and for domestic
producers seeking to compete with imports?
• Is there effective audit of actual revenues and expenditures against plan? What was
the difference between last year’s expenditure and plan? To what extent is this
difference explained by price and volume shifts? How were the results presented?
• Is there an effective evaluation of the results achieved? To what extend were planned
results delivered? Where plans involve leverage between government and business,
does evaluation encompass the total outcomes or does government focus only on
it’s own expenditure?
• Is base expenditure linked to activities? Is there an audit of the value of expendi-
ture? On what basis is this conducted? Does it address all expenditures or new
initiative expenditures? What are the unit costs of services and transactions? How
do these compare with other governments, and with this government over time?
• Are underlying productivity improvements at least keeping pace with national pro-
ductivity measures? Where large capital investments are funded to improve produc-
tivity have the improvements been budgeted and delivered?
• What proportion of expenditure is directly attributable to the delivery of results?
What actions are in place to reallocate resources towards direct expenditure on
results?
• What proportion of expenditure is project based? Are full commitments approved
and included in annual budgets? Are these commitments removed at the conclusion
of each project? Are project management and evaluation processes effective?
• What is the level of capital expenditure? What component of capital expenditure
produces real future benefits? Have these been identified and evaluated?
• Is macro forward planning effective in shaping future priorities or is budgeting
essentially an arbitrary adjustment to the sum of many bids for funds?
• Does the annual budge cycle reflect overall strategic priorities, ensure the overall
liquidity of government, enable agency managers to manage? What parts of the
budget cycle have been devolved to agency managers? What proportion of budgets
is available to managers to resource responses within the year? Are these managers
able to manage the fit between value budgets and prescribed inputs? Does the
budget process provide the flexibility for managers to manage cycle time within
overall resource envelopes?
 Chapter 11

Governance Systems
and Management Reform

The greatest mistake citizens can make when they complain of

“the bureaucracy” is to suppose that their frustrations arise
simply out of management problems; they do not—they arise out
of governance problems.
—Wilson, Bureaucracy

Governments have evolved different solutions to the challenge of national

governance. These solutions are evolving; they also reflect different historical
backgrounds and different social values. Many analyses of government man-
agement are based in one particular political system. There are three difficulties
with focusing an analysis of government management in this way. First, the
approach limits the generality of any conclusion reached. Second, the analyti-
cal frameworks tend to be country specific which limits the scope to learn
from other systems. Third, the focus on a specific governance system tends
to mask the reality that national transition requires changes in both the roles
of executive government and the role of the other elements of the government
system, particularly the legislature and its relationship with the executive, and
the roles of interest groups and political parties.
Although some studies of political systems also address comparative
analysis, most do not focus on the management implications of particular
political structures, or on the need to coordinate changes in both management
and political structures as part of the transition to competitive government.
In this book, we have focused on the core role of government, whatever
the structure, on the external pressures which government must respond to,

271
272 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

and on the management required to deliver these roles effectively in times of

rapid change. We have cautioned against process-driven solutions and have
argued that differences between nations and within nations must be managed.
The elements which interact to determine the way in which nations are
governed are outlined in Exhibit 11.1. Governance Systems and Management
Boundaries. For most of this book we have addressed management as it
impacts on executive government. Where interaction with the legislature is an
issue, for example, in managing cycle time, we have expanded our analysis
to address the interaction between the legislature and the executive using
typical relationships.
The objectives of governance systems are similar to the objectives of
government which were discussed earlier. If the objectives of competitiveness

Exhibit 11.1. Governance Systems and Management Boundaries

LEGISLATURE / ASSEMBLY

A—The legislative / executive boundary Judiciary

Tribunals
POLITICAL EXECUTIVE

Ombudsmen

B—The political / nonpolitical boundary

NONPOLITICAL EXECUTIVE

C—The comfort zone boundary

Interest groups
Customers
Electors
 Governance Systems and Management Reform 273

added value and governability are delivered more effectively than for compa-
rable governments, then the governance system is effective. If they are not,
then the governance system needs to be reviewed. Usually, the solution involves
improving the performance of executive government. This often involves
adjustment to other parts of the governance system. There are four roles
which the governance system needs to perform effectively.
First, the governance system provides for an examination of and contri-
bution to the priorities of government by elected representatives. Second, the
governance system contains a series of checks and balances While it is im-
portant for there to be an effective review of the performance of executive
government, checks and balances are only part of the solution. Where checks
expose the system to risks of failure, they may need to be augmented. Where
they are paralyzing the system, they may need to be modified to focus on
outcomes rather than processes.
Third, the governance system determines the way in which selected in-
terest groups interact with government. In particular, the legislature provides
a focus for interest group pressures on government. The legal system is in-
creasingly used to develop the power of particular interest groups or to con-
strain the power of executive government. The difficulty for competitive
government is not that there is review but that it introduces delays and forces
management to remove and centralize discretion.
Fourth, the way in which the executive branch coordinates it’s political
and nonpolitical parts is critical to the provision of strategic leadership and
to the devolution of executive functions closer to the users of government
services. In recent years, there has been a shift to convert the role of the
nonpolitical part of the executive branch from providing independent advice
to government, to a role in which it becomes no more than an agent of the
government of the day.
In this chapter, we examine the impact of different systems on the capac-
ity of government to deliver core roles and to manage the transition to na-
tional competitiveness. We suggest that governance systems are yet another
variable which will change as nations not only become more competitive, but
as they require government management to become more competitive. We
present an overview of the variables which need to be managed and the issues
which government management must address. First, we consider a typology
of government systems in order to identify key performance measures and
key management issues which flow from different structures. Second, we
examine the three boundaries identified in Exhibit 11.1: (1) the relationship
between the executive and the legislature; (2) the boundary between political
and nonpolitical parts of the executive; and (3) the boundary between the
274 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

governance system and the various interest groups which define the comfort
zone, enabling government to govern. Finally, we discuss the implications of
this analysis for the transition to competitive government.

AN OVERVIEW OF SYSTEM DIFFERENCES

There are between 150 and 200 sovereign states in the world
today, the number varying according to how the word sovereign
is defined. Each has its own unique ethnic and social composition
and it’s a own unique history. The interplay of these, and other
factors has created in turn, unique system of government. There
will be similarities between different systems but, in the final
analysis, each is distinctively unique.
[We] describe these systems and try to relate them to the
social and economic forces which, over the years, have fashioned
them. At the same time, we have identified particular features
which are common to all, or most, of them and have classified
them in order to make an objective comparison.
—Derbyshire and Derbyshire, Political Systems of the World

Exhibit 11.2. Mapping Political Systems presents brief summary classifications

used by J. Denis Derbyshire and Ian Derbyshire in Chambers’ Political Sys-
tems of the World. Exhibit 11.2 leads to the identification of many different
clusters of variables. The key issues for managing the fit between government
management and the system of government are the role of executive govern-
ment, the role of the legislature, and the way in which government seeks to
address the needs of pressure groups.
We will focus on two elements of the classification system, the role of the
executive and the role of the assembly (legislature) in order to draw out key
differences between some of the government systems we have discussed earlier.

CHANGING RELATIONSHIPS BETWEEN

EXECUTIVE GOVERNMENT AND ELECTED
LEGISLATURES /ASSEMBLIES
Few public-sector executives possess the administrative discretion
of their private sector counterparts. Just as presidents are
continually frustrated by having to share power with two houses
of congress and the judiciary, public administrators at every level
find their powers strictly circumscribed.
—Downs and Larkey, The Search for Government Efficiency
 Governance Systems and Management Reform 275

Exhibit 11.2. Mapping Political Systems

Variable Categories Background
Constitution Separation or fusion of powers, The separation of powers is
executive, legislature (assembly), a check on the growing
judiciary power of executive
Unitary or federal state government

Ideology Liberal democracy

Emergency democracy
Communism
National socialism
Authoritarian nationalism
Military nationalism
Absolutism
Executive Parliamentary executive
Government Limited presidential executive
Communist executive
Unlimited presidential executive
Military executive
Absolute executive
Political nonpolitical executive
Assemblies Number of chambers Assemblies / legislature
membership, size roles vary.
Legitimizing politics /
Represent the peoples’ views
/ National debating forum /
Reactive: supervising
scrutinizing the role of the
executive
Elections Executive choice / Assembly
and Voters choice / Minimum age /
Compulsory

Political The nature and scope of political Nations seek to respond to

Parties parties relates to the type of diversity and pressure
ideology and other variables. groups in different ways.
Political parties and ideologies / Monism: discourage
Political parties and pressure pressure groups
groups / Political parties and
the electoral system / Political Pluralism: respect and
respond to pressure groups
parties and the legal
environment Corporatism: enmesh
pressure groups into
executive government
276 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

The Role of the Executive

The Parliamentary Executive

This form of executive government involves an executive drawn from the leg-
islature. The executive is generally accountable to the parliament. Most parlia-
mentary systems provide for the parliament to remove the executive. The
Japanese, United Kingdom, Australia, and Singapore are examples of this form
of executive. The successful operation of this form of executive requires party
discipline, and the capacity to combine elected executives with professional
managers either drawn from a nonpolitical executive or from outside sources.

The Limited Presidential Executive

This form of executive provides for an elected president separated from the
legislature. The power of executive government is intentionally limited by the
legislature. The United States is an example of this form of executive. The
president serves for a fixed term and can appoint executives to manage gov-
ernment. This system is less dependent on party unity. The system requires
a balance between the legislative and executive roles. Failure to maintain such
a balance can lead to absolute executive power or alternatively to gridlock.
Other forms of executives include the unlimited presidential and military
executives.

The Role of the Legislature

Closely related to the role of the executive is the role of the legislature or
assembly. The roles of the legislature, the method of electing the legislature,
and the number of chambers differ between systems.
The role of legislatures includes legitimizing polices developed by the
executive, representing the views of electors, providing a vehicle for national
debate, and scrutinizing the role and performance of the executive.
Of the systems studied all have two chambers except Singapore. The
Japanese and Singapore systems are characterized by long dominance of
particular political parties. Parties able to achieve such dominance build strong
links with special interest groups, particularly those which are critical to
national competitiveness.
The United States, United Kingdom, and Australian systems are adversarial
systems with strong governing and opposition groups in the legislature. The
existence of a strong opposition in the legislature provides an opportunity for
 Governance Systems and Management Reform 277

groups who feel disenchanted with government decisions to focus their dis-
content into the political process. The U.S. legislature has developed sepa-
rately from the executive. The capacity of the U.S. legislature to scrutinize the
executive and review performance and advance alternative solution is high.
The committee systems are a more effective means of examining agency
performance than the systems of ministerial accountability used in the parlia-
mentary systems.
The devolution of comfort zone management is constrained by the leg-
islature except where the system is consensual rather than adversarial. The
parliamentary executive system provides for real time scrutiny which tends to
centralize comfort zone management. On the other hand, the use of party
structures often limits scrutiny. The limited presidential system has developed
more effective scrutiny processes. The U.S. committee structures are mark-
edly more effective than those which characterize parliamentary models. On
the other hand, the constraints built into the U.S. system limit its capacity to
respond and increase the pressure to find alternative delivery mechanisms
where responses are critical and need to be rapid.
All political governance systems need to be developed to facilitate the
reengineering of cycle time by removing the legislature from action paths and
strengthening its capacity to map general priorities and scrutinize actual
performance.

CHANGING RELATIONSHIPS BETWEEN

THE GOVERNANCE SYSTEM AND
DIVERSE INTEREST GROUPS
The great fear of the eighteenth-century political thinkers—for
example, the framers of the American Constitution—was the fear
of “factions,” special interest groups with a tendency to make
their own interest or issue a “moral imperative” to which
everything else is subordinated. The brilliant answer to this fear
was the party. . . . The party transcended faction. . . .
Today, parties are in tatters everyplace. The ideologies that
enabled European parties to bring together disparate factions into
one organization to gain control power have lost most of their
integrating power. . . .
Governments have become this powerless against the on-
slaught of special interest groups, have indeed become powerless
to govern—to make decisions and to enforce them.
—Drucker, Post-Capitalist Society
278 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

The way in which government responds to pressure groups is an important

variable. The typology discusses monism which is to oppose pressure groups on
the basis that they threaten effective government and reduce the rights of others.
Pluralism respects differences and sees pressure groups as enfranchising indi-
viduals by providing them with the capacity to influence executive decisions.
Corporatization is a response where powerful pressure groups combine with
government to manage the nation on behalf of all. Derbyshire and Derbyshire
suggest that this disenfranchises individuals. From a management viewpoint, it
can also extend cycle time and institutionalize part of the comfort zone.
Examples are European governments such as Germany or Sweden where
agreements between labor business and government set the framework within
which the nation operates.
Traditional government systems sought to centralize these responses to
pressure groups, using the political executive and the legislature. Implementa-
tion follows sequentially from the negotiated decisions reached by these bodies.
In a rapidly changing world, these processes have failed to deliver value.
On the management side, individual needs are subsumed in general policies,
rules, and budgets. On the interest groups side, the need to combine in order
to produce the power to deal effectively with executive government has forced
the development of a parallel bureaucracy which is as capable of losing
individual needs as the government management system it seeks to confront.
The answer on both sides of the equation is to devolve decision-making
to those who understand the issues and the options. The way to force devo-
lution is to effect the management devolution first. Interest groups will tend
to deal where they feel they can be effective.
Perhaps the ultimate centralization is the corporatist approach discussed
earlier. In these models, big government, big business, and big labor unions
come together to negotiate a consensus which is then imposed on all. Inter-
estingly, these economies have been less able to respond to global pressures
that decentralized economies, which have been able to resist or dismantle the
huge social infrastructures, which formed part of the negotiations which
corporatism made viable.

CHANGING RELATIONSHIPS BETWEEN THE

POLITICAL AND NONPOLITICAL PARTS OF
EXECUTIVE GOVERNMENT

The central problem in designing government personnel systems

has always been that of creating a bureaucracy that responds to
the legitimate management initiatives of elected officials but in
which professional competence rather than political or personal
 Governance Systems and Management Reform 279

loyalty is the primary criterion of selection, promotion, and

advancement. Because the balance between responsiveness is so
delicate, the history of personnel system reform in the United
States and elsewhere oscillates between the twin perils of “spoils
systems” in which politics is everything and highly insulated civil
service bureaucracies, in which incompetence is protected by law.
—Downs and Larkey, The Search for Government Efficiency

The ways in which the political and nonpolitical arms of executive government
interact are critical to the performance of different models of government.
In the U.S. system, the effect of politicization of the executive arm of
government is to increase the burden on the many other checks and balances
created by the Congress and the judiciary. While the U.S. system has many
such mechanisms, the effect is to increase regulation and decrease the scope
for devolution.
In the parliamentary executive systems, the politicization of the executive
arm increases the risks of executive excesses. These systems typically have
fewer checks and balances than the U.S. system. The two main checks are the
Parliament itself which is able to question ministers and debate issues, and
the existence of an independent nonpolitical executive corp which can pro-
vide a counter to executive excesses. Increasingly governments have politi-
cized these systems.
Part of the current reform process is the dismantling of the nonpolitical
part of the executive on the grounds that it has acted to protect its own
entrenched interests. While that is probably accurate, like most reforms the
process can go too far. We have discussed the Victorian experience. This is
paralleled in many other parliamentary executive systems. As these systems
fail, there is a good chance that the controls which the U.S. system has
developed will be imported to contain the scope of parliamentary executives
to act. Alternatively the breakdown of the party system may itself increase the
power of the legislature to scrutinize the performance of the executive in
these systems. As the power of the legislature increase in these systems, they
will need to reinvent and reengineer their internal processes to become more
informed and more effective. There is a danger that this will prevent the
devolution which is required to meet community needs.

IMPLICATIONS FOR THE REFORM

OF GOVERNMENT MANAGEMENT

What are the implications of this analysis for the development of effective
governance systems?
280 A MANAGEMENT PLATFORM FOR GOVERNMENT CHANGE

First, if governments are to devolve power, reduce expenditure, and re-

allocate priorities, they have little option but to reduce the cost of regulation
and review processes imposed upon agencies. This can only occur if there is
a negotiation with the legislature and perhaps the judicial arms to reinvent
relationships. This does not mean that the important role of the legislature in
oversighting the activities of executive government should diminish but, in
many cases, strategies need to alter.
Second, governance systems must either accommodate diversity, or have
it grow around them. The danger of holding on to central controls too long
is that the public will come to see the governance system itself as the prob-
lem. Accommodating devolution means that the legislature must agree to the
processes for reviewing both overall priorities and actual performance.
Third, the scrutiny role of the legislature needs to be developed and redefined.
The U.S. committee systems offer value. There are isolated audits and reviews
which offer value. Effective government audit functions need to be nurtured as
part of most reforms. However, such functions are hard to find; when they are
discovered, they tend to be driven by a few individuals. When those individuals
leave office, so does the constructive thrust of the audit function.
Fourth, the politicization of executive government is probably a neces-
sary reality today. However, sources of independent advice need to be fos-
tered, particularly in parliamentary executive systems where political managers
are often not managers at all. The answer is to develop rules about tenure,
performance, and changes of government that are part of the culture and are
understood. Also there needs to be statutory appointments with a responsibil-
ity to offer advice. Finally review and advisory functions might be further
distanced from government by privatizing them and by internationalizing
them.
Fifth, the intrusion of the judiciary in administrative processes needs to
be reviewed to evaluate its impact on administration. The judiciary, of course,
have an important role in ensuring that the legislature and the executive
behaves constitutionally. However, the combination of the judicial system and
the rules and case law, which drives many bureaucracies, seems a prescription
for low-value solutions. One answer is to create specialized tribunals able to
assess these issues independently from the viewpoint of the public interest
rather than the legal fabric which has been developed to depersonalize
government.
The solution for different nations will differ. As a start, the oversighting
role of the legislature might address improvements in service to the public
rather than the fabric of rules and criteria which currently focus their consid-
erations. Second, these reviews not only might address the cost of regulation
and review, but also consider the opportunity cost they represent in times of
declining budgets.
 Part III

Benchmarking the Transition

to Competitive Government
 Benchmarking the Transition
to Competitive Government

Managing change in complex organizations is like steering a

sailboat in turbulent water and stormy winds. If you’re on course
to some destination and the wind is blowing at gale force, you
have to make a number of critical choices. . . . The true sailor,
knowing these choices, works with the wind. This feel for steering
an organization is the salient character of the effective executive
manager of change. . . . To keep the course, several essentials
must be provided:
• A clear destination or vision;
• Landmarks, or intermediate checkpoints;
• Accurate detailed maps, or scenarios;
• A clear knowledge of the capacity of the boat of the organization;
• The ability to get the best performance out of the boat or
organization.
—Beckhard and Harris, Organizational Transitions

Transitions to competitive government necessarily traverse turbulent seas.

One-off changes need to be converted into a transition. Pressures and re-
sponses must be managed to maintain both the momentum and direction of
change.
The Clinton-Gore reforms in the United States provide an example of the
challenges. The budget summarizes the administration’s view of progress
(OMB 1999). Testimony to the Senate Government Affairs Committee evalu-
ates what has been achieved (Light 2000; Kettl 2000; Moe 2000; and Mihm
2000). High-value agency changes have occurred. Performance planning has
developed. Regulations have been dismantled and personnel management has
been devolved. Customer impacts have been examined. At least the rhetoric
of continuous improvement has been adopted.
However, there are danger signs. The strategic links between specific
improvements and the competitiveness, social value and governability objec-

283
284 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

tives of government are seldom defined. Planned impacts on customer atti-

tudes have been slow to change (Lueck 2000). Is ongoing performance plan-
ning driven by strategic thinking or is it degenerating into a process with a
life of its own? Agencies have adopted the language of reform (as they do
with each successive reform), but beneath all this, does life go on as usual or
have agencies really “jumped the curve”? Has the limited scope of budget
reform constrained the value added by the reforms? The impacts of reforms
on “implementation,” “cycle time,” and “comfort zones” need to be audited.
Unless the impacts on the legislature are included in the process, the benefits
will be eroded.
Mapping the U.S. transition requires an examination of external pres-
sures, including competitiveness, social and governability impacts, a review
of implementation strategies, and an audit of government structures and sys-
tems to ensure they are focused to deliver planned impacts. At least five
opportunities to strengthen the reinvention process are suggested by such
analysis. First, the change process needs to become more strategic, some
changes offer more value than others and need to proceed. Evaluations of
reinvention tend to ignore the government’s key contribution to the improve-
ments in U.S. competitiveness and wealth. Second, critical gaps in the reform
agenda, for example resource management and the legislature, need to be
addressed. Third, over-layered and narrow structures need to be reengineered
to focus on external instead of internal pressures. Fourth, new tools such as
cycle impact managements and cycle-based communications need to be intro-
duced to manage the performance and confidence deficits identified by Kettl
(2000). Fifth, the continuous improvement process started with the reinven-
tion laboratories needs to be strengthened and protected from the inertia that
tends to capture most change processes in government.
The challenge for governments embarked on the transition to competitive
government, including the U.S. system, is to build on what has been achieved,
to continue to evaluate results, to guard against the forces that act to subsume
change processes and reduce value.
The ideas presented in this book present a comprehensive agenda for the
transition to competitive government. In part 3, we address the need to man-
age the transition. We address two questions. First, how can the ideas and
management tools presented in this book be used to map the situation of a
particular country? Second, how can the reader evaluate the effectiveness of
particular government reforms?
We present a checklist which can be used to map the performance of
particular governments and to identify gaps in particular reforms. Finally, we
present a performance improvement plan for competitive government which
can be used to evaluate the strategic fit between national needs and govern-
ment policies, structures, and programs.
 Chapter 12

Managing Transitions to National

Competitiveness

The next decade will make unprecedented demands on political

courage, political imagination, political innovation, political
leadership. They will demand high government competence. The
demands will be external ones as well as internal ones. Exter-
nally, there is a need for new thinking and radical innovations in
several areas. . . . Internally, there is an equally demanding and
equally urgent need to make government effective again. . . .
Government therefore has to regain a modicum of performance
capacity, it has to be turned around. . . . To turn around any
institution—whether a business, a labor union, a university, a
hospital, or a government—requires always the same three steps:
(1) Abandonment of the things that do not work, the things that
have never worked; the things that have outlived their
usefulness and their capacity to contribute;
(2) Concentration on the things that do work, the things that
produce results, the things that improve the organization’s
capacity to perform; and
(3) Analysis of the half successes, half failures. A turnaround
requires abandoning whatever does not perform and doing
more of whatever does perform.
—Drucker, Post-Capitalist Society

This book set out to analyze the crises in government, draw on the new
solutions that are emerging in country after country, and present a framework

285
286 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

which can be used to manage different transitions to national competitive-

ness. We have illustrated key aspects of the analysis with examples drawn
from very different governments facing very different competitiveness chal-
lenges. A strength of the approach we have presented is that it is not culture
bound and it is not political system bound. The similarities and differences
which can be identified provide a rich input to the development of a new
model of government management.
A characteristic of the literature on government reform is that most ideas
have been recycled several times and many good ideas are discarded as gov-
ernments chase each new solution. One of the signs that current theories are
deficient is the inability of these theories to move forward through each new
reform instead of simply recycling ideas and throwing out good ideas along
with bad ideas.
Our analysis draws upon a number of high-value solutions which are already
well-known. Our objective is to highlight the need for an integrated mix of
solutions, to suggest some preconditions for success which offer scope to reduce
the risk of failure, and, hopefully, to encourage the early assessment of the value
of new ideas and solutions, by enabling these to be seen in a wider context than
is often the case. Where there are major gaps in current solutions, we have
presented new solutions or suggested the development of existing ideas.
It is the purpose of this chapter to review our analysis and to address
the challenge of applying these ideas to the needs of specific nations and
governments.
First, we present an overview of the ideas presented and the implications
for the development of theories of government management. Second, we sug-
gest approaches to the audit and diagnosis of particular government reforms.
Our objective is to assist the reader to explore the application of the ideas
presented in specific situations. We address the task of mapping the status quo,
exploring the priorities for change, and addressing the fit between these changes
and government management and systems. Third, we use the dynamic strategic
planning tool discussed in chapter 8 to manage the transition to competitive
government. The plan is not a rigid solution; it is a framework of issues and
options which need to match the external imperatives for change with the base
resources and priorities of each nation. This approach to planning highlights the
need for integrated solutions. It can be used to highlight the gaps in current
reforms. It can be used to benchmark the change process.

OVERVIEW OF KEY IDEAS

Government in Crises
The crisis in government is driven by external change that no nation can
ignore. While reform must address these external issues, reform must also
 Managing Transitions to National Competitiveness 287

address the reality that traditional systems of government have broken down.
There is no simple incremental solution for most government management
systems; they must implement a new management base which meets the
needs of all national stakeholders. If they do not, national competitiveness
will suffer and the well-being of citizens, if not actually eroded, will suffer
compared with nations who elect to be competitive.
There are two implications of our analysis for the reform of government
management. First, governments need to refocus reform from internal to
external factors. Second, governments need to ensure that internal reforms
deliver reduced cycle time (speed), maintain the scope to govern and address
impacts on diverse interest groups (consensus), and deliver expected results
(performance).

Need to Refocus Reform from Internal to External Factors

The changing external environment of nations means that governments must
change to maintain and increase national competitiveness. Failure to do this
leads to a reduced access to world resources and a reduced standard of living
within a particular country. The benchmarks for progress are relative; it is not
enough for a nation to improve, it must improve relative to others. The idea
that nations are managing a transition to improve competitiveness requires
both a competitive business sector and a competitive government. This re-
quires changes in the role of government and in the way in which govern-
ments manage their affairs.
The idea of competitive government needs to be differentiated from current
strategies to introduce competition into the delivery of government services.
The benchmarks for competition in service delivery are unit costs and cus-
tomer service compared with other countries and regions. The benchmarks
for competitive government are: first, improvements in national competitive-
ness and second, whether a particular government adds more or less value to
national competitiveness than others.

Need for Management Solutions which Focus on Speed, Consensus, and

Performance

While different nations must manage different transitions that require differ-
ent contributions from government, our analysis identifies three common
characteristics of competitive governments: speed, consensus, and performance.
It is interesting that the concepts of speed and strategic response which have
proved so powerful in the business sector also seem to be key to improving
the performance of the government sector. However, the reasons why these
concepts add value in each sector are different.
288 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

Speed. A single management strategy which addresses each of these re-

quirements is the management of cycle time. We define cycle time as the time
which elapses between the emergence of a clear need for government action,
the delivery of that action, and the communication of the results to those
affected. In our opinion, the failure of many government systems to manage
cycle time explains many implementation crises. There are powerful reasons
for managing cycle time. It makes sense to start government projects in a
supportive environment rather than when they emerge from a fixed legislative
and budget queue. It makes sense to complete government projects quicker and
to manage implementation against time-based targets. This reduces the scope
for opposition, increases the chances that implementation will be resourced and
managed effectively, and targets the delivery of specific value to the public.
Managing cycle time enables management to coordinate positive and
negative impacts during the implementation cycle. The objective of such
coordination is to maintain a net positive perception of value. This requires
the arrangement of implementation impacts to deliver early benefits. It also
requires negative impacts to be offset by perception of future benefits. The
discount factor which the public uses to compare promises of future benefits
against current costs is not only a function of the time delay involved, but also
the level of public distrust of government. While increasing distrust of gov-
ernment is reducing the discount factor, reduced cycle time can offset this
reduction.
Except perhaps in times of major crisis, government management has not
been noted for its speed of response or for its capacity to monitor external
developments. Even where these responses involve little more than removing
the maze of regulations that prevent the private sector responding, the evi-
dence suggests that the public sector often has difficulty seeing the wood for
the trees. Many of the responses to budget shortfalls actually act to extend
rather than reduce cycle time.
Consensus. An important characteristic of the crisis is the extent to which
nations are either becoming less governable or are so constrained by diverse
pressures that they settle for survival rather than added value and improved
national competitiveness. While many involved in government recognize this
problem, few appreciate that the way in which government continues to at-
tempt to manage diversity is part of the problem. Traditionally, governments
have focused on developing a consensus for a project at the outset. The idea
of consensus involves a search for core values and shared interests. Increas-
ingly governments are finding that initial consensus is eroded during imple-
mentation. The corrections required often addresses criticism by reducing
project value.
Our analysis suggests that the initial search for consensus is probably
misguided. A more realistic approach to the management of diversity is to
recognize and respect differences by negotiating the impacts on interest groups.
 Managing Transitions to National Competitiveness 289

The idea of consensus and enthusiasm for government changes is both coun-
terproductive and unnecessary. In reality, government seeks to maintain a
comfort zone within which interest groups and the public allow government
to govern. This approach requires government to find new ways of both
planning strategic priorities and managing the impacts of projects throughout
the project cycle.
Performance. Many changes have not delivered grass roots impacts.
Many government management systems manage processes or functions and
assume that long-term added value is delivered. Few processes manage short-
term impacts unless a crisis emerges which must be addressed. We argue first
that the focus of reform must be to enable managers to manage performance
directly, and second, that the time horizon of these evaluations must be short-
ened rather than extended.

Lessons from Business

Governments in crises often look to business solutions for salvation. Many of

these solutions fail. While some business solutions simply address the wrong
problem, many business solutions can be adapted to add value to government
reform. While government managers can no longer afford the luxury of re-
jecting business experience, they cannot afford the costs of transplanting
business solutions into situations where they are likely to be rejected. Our
examination of the ideas that underpin business and government management
identifies important issues for public sector reform.
First, while governments can learn from business, they cannot be man-
aged as a business. Business managers are perhaps a decade ahead of govern-
ment in addressing the need to rationalize and respond to new global realities.
However, there are important differences between the way in which business
organizations and governments manage. These differences become more
important when roles are changing and government is seeking to adopt ap-
proaches and systems for the management of change which have been devel-
oped by business.
Second, governments can learn from business how to move beyond man-
agement reform which treats the symptoms of breakdowns toward reform and
which changes their structure role and contribution. Management reform needs
to start with an analysis of external change and the changing role of govern-
ment instead of assuming that this is either static or can emerge from a series
of micro-reforms which are usually focused on internal segmentation and
structures.
Third, although both sectors use plans and budgets, they use them differ-
ently. The plans and budgets developed by government do not provide the
simple guides to action required to drive conventional strategic management.
290 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

Attempts to convert them to this end will tend to destroy the political consensus
required to support change in a complex system.
Fourth, although both sectors have identified the need to devolve power,
government devolution must address complex performance issues and also
the need to manage comfort zones and diversity. Conventional attempts to
centralize the management of comfort zones and decentralize the manage-
ment of service delivery presume that the fit between these systems can be
maintained. The result is often a complex shared accountability which fails
to add value and often creates new comfort zone tensions. In addition, the
public applies different criteria of fairness to government agencies than they
do to business agencies.
Fifth, the techniques for managing comfort zones, including respect for
differences and a focus on solutions, offering specific rather than common
values, are key to successful public sector management. Although these tech-
niques are not part of most business solutions, they can often be added.
Where business solutions cannot be adapted to manage complexity and com-
fort zones, transplantation runs a high risk of rejection.
Sixth, before the government sector can benefit from new approaches to
management, it must change values which have served it well enough in the
past but which are now dysfunctional. Examples include the following: the idea
that short-term control can focus on inputs; the assumption that narrow special-
ist functions, effectively performed, will enable government to manage, change,
and address the changing role required of it; and the belief that success criteria
can be driven by survival, by not making mistakes, and by massaging comfort
zone issues without adding real value to the government equation.
Seventh, government management reform must also adapt and build upon
particular national and regional political systems. Many of these systems
separate the powers of the legislature, the executive, and the judiciary. The
operation of these frameworks has changed over time and can be expected to
continue to adapt. These structures provide important checks and balances;
they provide important links which focus relationships between interest groups
and executive government. It is important to manage the impact of reform on
these systems and to recognize that many of the business solutions ignore this
particular reality.

The Management of Transitions to National Competitiveness

Our examination of external factors suggests that any analysis of the crisis in
government must start with an analysis of the impact of global change. While
examinations of government management often include a few paragraphs on
the changing state of the world, there are few frameworks which address
 Managing Transitions to National Competitiveness 291

national differences, or are able to link these changes to the management role
of government. The National Competitiveness Model simplifies the issues
implicit in national competitiveness. It provides links with key management
variables and enables us to move beyond static, homogeneous, solutions not
only to examine differences between nations, but also to examine change as
a transition. A number of implications for the reform of government manage-
ment can be drawn from this analysis.
First, nations are pursuing different transitions to national competitiveness.
The nature of the transition depends upon the current competitiveness, on na-
tional aspirations, and on the national capacity to coordinate the different busi-
ness and government contributions required to support a particular transition.
Second, different transitions generate different opportunities and chal-
lenges for each nation and for government. Theories of government manage-
ment, which presume that the role of government is static or will emerge
from an internal consideration focused by appropriate management and policy
frameworks, are unlikely to notice, let alone respond to, these differences. It
follows that those who seek to copy the success of other nations, or worse,
export their own solutions to others, run a high risk of failure.
Third, while the model suggests that nations need to optimize production
autonomy and response, it also predicts that there must be trade-offs between
the three basic modes of management.
Fourth, transitions to competitive government must be underpinned by a
viable national competitiveness strategy which addresses not only where a
nation wishes to end up but where it is located on the model now and how
it intends to manage the transition.
Fifth, some transitions are implicitly more difficult to manage than oth-
ers. Nations which have choices should consider reviewing transition options
to ensure the choice for transition minimizes difficulties. For example, a
decision by a developing country to optimize autonomy before developing the
production strengths necessary to be competitive is likely to create a particu-
larly difficult transition dilemma. The combined need to reduce autonomy
without being in a position to deliver direct and immediate benefits creates
difficult comfort zone issues.
Sixth, this examination of the difficulty in managing transitions high-
lights the need for nations and government to benchmark and evaluate progress.
Such benchmarks are likely to be central to any attempt to evaluate the
performance of government.

Implementation Strategies for Competitive Government

Implementation is a major weakness for government reform because gov-
ernment systems assume that results will occur instead of managing the
292 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

implementation process to ensure that they actually are delivered. Our analy-
sis of these of implementation weaknesses raises a number of issues for the
management of transitions to competitive government.
First, traditional government management systems simply cannot address
cycle time management or the management of cycle impacts.
Second, cycle time analysis illustrates how business management solu-
tions can be extended to manage comfort zone impacts. It is not enough to
use traditional hierarchical segmentation which presumes that comfort zone
issues can be managed prior to implementation.
Third, solving the implementation problem in government requires man-
agement systems able to address three different priorities. Government systems
need to manage short-run impacts, balance impacts on added value and com-
fort zones in order to deliver added value while operating within the comfort
zone, and manage cycle inputs to maximize project support.
Fourth, the implementation impact model (IIM) and the cycle impact
model (CIM) discussed in chapter 4, provide tools that can be used to enable
government managers to focus on impacts and to manage cycle-based com-
munications. However, for impact management to succeed, other government
systems need to change. Planning and evaluation solutions need to identify
impacts and link these to wider objectives (chapter 8). Government managers
require new strategic leadership skills to manage the adjustments required to
maintain a project within the comfort zone throughout implementation (chap-
ter 6). The government value-chain must be reengineered to enable managers
to control cycle time and management cycles (chapters 5 and 9).
Fifth, many of the reform solutions adopted by governments create new
implementation problems not only because they do not provide managers
with the scope to manage cycle impacts but because they also increase rather
than reduce cycle time. Although many of these solutions draw on key ele-
ments required for competitive government, they often ignore the need to
manage implementation impacts.
Sixth, our analysis suggests that the failure to manage cycle impacts and
to use cycle-based communications has caused many unnecessary implemen-
tation breakdowns. Many implementation problems are not caused by politi-
cal opponents or by vested interests opposed to change but by the way in
which managers mismanage cycle dynamics. The idea that a communication
strategy should manage perceptions of discounted net project value across
different interest groups changes the management landscape for many gov-
ernment agencies. Cycle-based management, when pursued skillfully, can
stimulate government management systems not only to manage performance
instead of avoiding it, but also to negotiate the scope by managing perfor-
mance rather than blaming nonperformance on others.
 Managing Transitions to National Competitiveness 293

Responding to External Pressures: Value-Chain Coalignment and

the Delivery of Governmental Services

The reason why responding to the current crisis is so difficult for many
governments and the reason why the changes to the government management
platform need to be so extensive are explained by an examination of the core
technologies which government management systems use to coordinate and
perform work.
The traditional government approach to coalignment was to standardize
processes and clarify roles and functions. Actions were processed longitudi-
nally through the value-chain. Coalignment was managed by queuing and
prioritizing each stage of the value-chain. This technology is incapable of
responding to the needs of a high-response environment. Uncertainty and
resource restrictions tend to lengthen rather than shorten cycle time. This
suggests that incremental reform is not an option for most government agen-
cies; it explains why reforms, which deregulate without a strong focus on
cycle time and cycle management, tend to fail.
The blockages created by traditional government management systems
and technologies seem terminal for many parts of government. There is no
choice but to “jump the curve,” abandon these traditional systems and rein-
vent government. Legislatures and corporate government groups now have no
option but to hire managers able to effect these transitions, remove the re-
straints that stop government systems from either succeeding or failing; they
must face up to the risks and opportunities offered by change.
Four issues for reform can be identified from our analysis of value-chain
coalignment. First, reforms of value-chains need to reduce cycle time, pro-
vide managers with the scope to manage cycle time, and manage comfort
zone impacts. Almost all attempts at reforming government management at-
tempt to deregulate, to free up processes and roles, and to focus these on tasks
and functions. Some reforms clearly provide a strong focus for the manage-
ment of cycle time and for external accountability. For example, the case
studies presented in reinventing government powerfully reconfigure both value-
chains and the environmental focus of specific agencies. It is not difficult to
see why these changes work. But other situations are more complex and some
reforms simply miss the need to provide a new focus for the management of
cycle time. In such situations, reform is not only likely to fail, it could well
prove to be counterproductive. The solution is to extend the reform agenda
by finding alternative value-chain configurations to match these new needs.
Second, reforms need to focus government managers on the management
of two key environmental boundaries. Government needs to directly manage
its boundary, and it must indirectly manage the national boundary. Devolving
294 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

part of this management responsibility to operating agencies is important; it

requires new ways of managing relationships between “steerers” and “row-
ers.” The simple demarcation, which suggests that comfort zone impacts can
be managed hierarchically, is a recipe for ongoing crisis management and the
nonelectability of incumbent governments.
Third, the application of value-chain theory needs to recognize the fixed
nature of traditional processes and the major comfort zone impacts which are
unleashed when these processes are by-passed. Just as successful business
organizations have learned to interact with their external environment to shape
opportunities, governments must learn to interact with the groups which cre-
ate the comfort zone and reposition the comfort zone itself by altering expec-
tations and increasing acceptance of the need for change.
Fourth, government reforms must learn to move from one off interven-
tions to reforms which generate continuous improvement. Most government
reforms lurch from crisis to crisis. Reform needs to establish the basis for
continuous improvement. Change strategies for government must meet three
criteria: they must be implementable; they must address current problems;
and they must produce a base for addressing future problems and exploiting
future opportunities. The most obvious weakness in many reforms is the lack
of ongoing evaluation and benchmarking. Once the crisis is past and the
public believe it is no longer an urgent issue, there are many vested interests
in the government system that opt for moving on to the next issue. Four
actions are necessary to consolidate change. First, the change must be inter-
nalized by the agency concerned. Staff and managers need to commit to
building on the change and to an ongoing improvement of performance.
Second, there needs to be some prediction of impacts, say one, three, and five
years ahead. Third, consolidation needs to be resourced once the crisis is past.
Fourth, there needs to be an effective benchmarking of the change against
comparable government situations.

Leadership Strategies for Transforming

Governmental Competitiveness

The leadership, management, and communications strategies for discontinu-

ous change are different from those required for incremental change. Because
leadership in government must address the complexity of the government
role, the strategies are different than those likely to succeed in business.
Although lack of effective strategic leadership is often a restraint to
change in both business and government, the restraint is often greater in
government because systems are designed to avoid leadership, management
is rule driven, discretion is minimal and centralized, and the management
 Managing Transitions to National Competitiveness 295

culture is risk averse. Strategic leadership in government requires strategies

which reposition government structures and resources and enables govern-
ment staff and external interest groups to understand the change and join the
transition. Strategies include: managing external rather than internal bound-
aries; implementing strategic visions rather than long-term missions; address-
ing strategic management rather than strategic planning; managing transitions
not end points; shortening the times span of evaluation by managing short-
term benchmarks and impacts rather than long-term results; implementing
irreversible changes rather than incremental change; benchmarking the tran-
sition platform into the future and leveraging expectations of future benefits;
coaligning value-chains through shared interests rather than standardization;
participating through communication and shared values; and harnessing rather
than containing diversity.
Our analysis of Singapore and the United States, two nations that have
managed a successful transition to national competitiveness, raise a number
of implications for national leadership.
First, the National Competitiveness Model predicts that the relationship
between government and business will differ between these two transitions.
Second, our consideration of the relationship between government and
national competitiveness suggests that government and business must share
the role of delivering competitiveness. The Singapore success could not have
occurred without the key multinational corporations who joined with the
government to meet their objectives and contributed to Singapore’s competi-
tiveness. The U.S. success could not have occurred without strategic govern-
ment action to protect U.S. interests and assist U.S. companies to access
global markets.
Third, the need to manage transitions as a series of discontinuous changes
and to protect the platform for change is evident in both transitions. In the
case of Singapore, creating the base to attract investment, required time and
commitment. While pursuing development, the government also addressed
pressing social value needs, essentially housing, education, training, and
employment. These early stages were prerequisites for the high technology
strategies which are now being implemented. Although the Singapore govern-
ment has generated massive support, this support needs to be seen in terms
of the value which has been added to the Singapore economy over the period
since independence and the resolve of the government to ensure that the
benefits of development are shared with its citizens. In the case of GE, the
transition clearly moved through three discontinuous changes each of which
build upon the other. In the case of the U.S. government the restrictions
generated by comfort zones are ever present. The government created
the interlinked economy since 1945. Although U.S. business, seduced by the
comfort of its large domestic markets was slower than others to exploit the
296 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

possibilities of the global economy, government resolve to avoid protection-

ism and expose business to global competition has paid off in recent years.
Finally, our argument that change requires leaders able to create a vision,
rearrange resources structures and systems in order to deliver that vision is
supported by these studies of Lee Kuan Yew and Jack Welch. These leaders
achieved major discontinuous change. They involved others in the process,
and they developed their long-term visions as the environment changed, and
as their capacity to exploit new opportunities changed. Both leaders adjusted
structures, systems, and values to support their particular transition. Both
leaders were able to translate their vision into action.

The Challenge of Transition

Governments have no option but to dismantle the old bureaucracies and regu-
latory regimes and develop new approaches to management which focus on
results and on accountability for results. Managing such changes requires more
than the successful implementation of specific changes to structures personnel
and financial systems. Individual changes need not only to combine and sup-
port ongoing changes, but also to deliver an integrated transition. Our analysis
identifies five tensions that must be managed for a transition to succeed.

Resource Balance /Allocation Tension

Effective transition must be managed within the short- and long-term re-
sources available to government. Where there are shortfalls in funding, these
tensions often mean that the transition must be managed in times of decre-
ment. Resource tensions often mean that governments must balance demand
to resource underlying improvements in competitiveness against increasing
difficulties in funding the national value systems, particularly pressures to
address the impact of declining competitiveness.
Our examination of reform strategies implemented over almost a decade
in a state government in Australia (Victoria) illustrates that failure to manage
resources can destroy an otherwise sound transition. Short-term funding through
one-off efficiencies, the use of assets to fund current expenditure, and increas-
ingly just borrowing, is never enough; the longer-term budget structure must
also be viable; in Victoria’s case it was not.

Devolution/Accountability Tension
Effective transition requires a complex and dynamic balance between deregu-
lation and the development of a new accountability for results. The case study
shows that old input controls of government can be dismantled and cycle time
 Managing Transitions to National Competitiveness 297

reduced by a comprehensive change program which alters the role of central

and operating agencies.
The reform agenda in Victoria produced a more responsive management
structure. Where this was combined with a policy agenda for change, it was
able to deliver major value to the Victorian community. When corporate
government failed, the new structures stagnated and some also failed. The old
inertia and safeguards that would have reduced the impact of failure had been
dismantled.

Deregulation/Reregulation Tension
The tensions between pressures for deregulation and the need to also reregulate
need to be managed skillfully if the benefits of transitions are to be delivered.
Most transitions must deregulate in order to reduce cycle time and costs and
to provide government managers with the right to manage. This often in-
creases uncertainty and negatively impacts the comfort zone. While govern-
ment activities and services often require new forms of strategic regulation,
the purpose of regulation should be to produce defined results. Regulations
should not be allowed to become ends in themselves. Community groups and
legislatures who have often embrace overregulation as a way of influencing
“big” government, need to find new ways to influence government activities.

Corporate Government/Operating Agency Tension

Transitions must be managed to provide both strong operating agencies and
strong central or corporate roles. The vision of strong operating groups, close
to customers, able to deliver results is only part of the solution. The central
role must change from custodians of the government machine, to managers
of a network of service delivery providers who combine to deliver the core
roles of government.
Effective change requires effective corporate management by govern-
ment as well as the effective delivery of devolved programs and services. In
addition, change strategies need to recognize that the nature of political sys-
tems means that this direction will not always occur. It is important to ensure
that when corporate focus fails, because executive government loses direction
and the will to manage, collateral damage at the agency level can be contained.
Our Victorian analysis shows that when the Cain government supplied
strong corporate leadership, the new devolved management structures were
able to respond and add value. However, when the government ceased to
govern, the new high-response structures failed to deliver expected value. We
suggest that devolution of administrative power enhanced this breakup. Once
ministers were able to act without central controls by either their colleagues
298 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

or the central government agencies, they had unfettered scope to address the
needs of factions and their own predilections about good government. The
management reforms in Victoria left major powers with agency chief execu-
tives. The expectation was that they would focus on performance and resist
pressures to politicize appointments. Many effective managers succumbed to
ministerial pressures. In the Victorian system, ministers have no particular
management expertise. When they ceased to listen to advice about good
management from career managers, many also ceased to practice it.

Cycle Impact Tension

Transition needs to be managed using the cycle impact and cycle-based com-
munication tools discussed in chapter 4. Internally the impacts on devolution
and accountability need to be managed. Externally, the gap between public
expectations of change and the impact of benefits need to be managed.
The case study illustrates the need to manage change as a transition using
cycle time management and cycle impact management techniques. Initially,
the Cain governments were keen to criticize program performance and com-
mit to improvement. In the first term some improvements were delivered and
the public saw the reforms as progressive. Later, as debt increased and disas-
ters emerged, the public grew to discount promised benefits and criticize
delays in delivering promised results. In the end, the government was re-
moved by electors and a new government (Kennett) was elected to fix the
problems created by financial mismanagement.

Planning and Evaluation Strategies for Competitive Government

The management platform for government change must dismantle traditional

controls, convert managers of processes into managers of results, and build
a culture which can use systems and not be driven by them. A key change
strategy is the development of a network of performance contracts which are
strategic and change-oriented and which can be used to negotiate the au-
tonomy to manage government performance. These performance contracts
need to link agencies, programs, and managers; they need to encompass the
complexity of government roles without becoming subsumed in that com-
plexity. A new approach to planning and evaluation is central to implement-
ing reform. Dynamic strategic planning can be used to provide a focus for the
management of government services and programs. The PIPES framework
presents one such solution. We illustrated the application of the PIPES system
to an agency, a program, and to senior managers.
 Managing Transitions to National Competitiveness 299

There are two threats to the introduction of dynamic planning and evalu-
ation system in government. The first threat is that the system will adapt to
the planning process and subsume it; that plans become bland, issues are
avoided, and the prospect of negative evaluation is avoided. The second threat
is that plans will become static as was the case with education failing to
recognize the need to build the change process through an ongoing improve-
ment process.

Reinventing and Reengineering Government Management

Systems and Values

Building a new management platform for government requires a new approach

to structures, systems, workskills, and values. Three performance improvement
tools can be used to implement transitions: performance contracts to focus the
activities of high-response organizations; project teams to lead change and
enable managers to manage cycle time directly; and continuous improvement
functions to commit new structures to ongoing strategic change.
We identify various systemic dangers which those who attempt govern-
ment management reform must address. First, there is a danger that devolu-
tion will segment existing central powers, and enhance the power of
megaagencies and their leaders, without impacting on delivery units. Second,
there is a danger that the new solutions will allow flexibility between
megaagencies but will continue to impose uniform solutions on delivery units.
Third, there is a danger that new structures will be implemented without the
management skills or systems required to control and lead them. Fourth, there
is a danger that the new management platform will be seen as a static alter-
native to the traditional platform it replaces.
The new platform must change to support an ongoing transition. Where
these changes do not occur, government systems face ongoing interventions
and discontinuous changes. In the end such interventions are wasteful of
resources, sap the morale of public sector managers, and stretch the credibil-
ity of a public waiting for some signs that the Goliath has at least turned.
How might the change process be protected from these dangers? The answer
is to evaluate the reforms in the same way the reformers argue that agency
management should be evaluated. In other words, focus on noticeable changes
in results.
Osborne and Gaebler present a powerful model for moving beyond sys-
temic reform. They focus on best practice examples, on pilot changes, on
experiments that lead to improved performance. The strength of Osborne and
Gaebler’s work is that it benchmarks examples of best practice. The reform
300 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

proposals developed by the National Performance Review are extensive.

However, are they enough to overcome the problems identified? The danger
implicit in the implementation of these ideas in the U.S. government are:
cycle time will stretch rather than shrink; the system will impose its own
uniformity; the central political controls will not be altered to enable units to
deliver value; and collectively the system will be unable to alter internal
funding priorities fast enough to respond to new opportunities rather than
deficits.
We discuss the growing evidence that the U.S. reforms need to build on
what has been achieved by closing gaps in both the original reinvention
strategies and in the processes and priorities developed to implement reform.
We argue that performance-based structures, value-chains, and personnel and
resource management systems are required to implement particular transi-
tions to competitive government reform. Change management needs to pro-
tect the system from the twin threats of reversion and inertia by ensuring that
one-off changes are irreversible and, by building into each, change processes
that commit the system to ongoing evaluation and improvement.

Resource Management Strategies for Competitive Government

Reform of financial management is a prerequisite for effective change. While

there is support for providing additional management flexibility within bud-
gets and for a move to focus on results rather than inputs, the difficulties
of effecting such transactions are often overlooked. Our analysis of re-
source management has suggested a need for a much more effective audit
of budget performance against plan, there needs to be a value audit of base
expenditure, and the task of managing inputs should be devolved to oper-
ating managers.
Most government systems have not yet developed budgeting to the point
where devolution or accountability are adequate. One reason why these gaps
remain is that budget reformers approach the issue as a system reform of the
existing system and the existing value-chain. The real solutions require a
reengineering of these value-chains. Many reforms assume that the path to
reform is to superimpose results and output measures on existing input fo-
cused systems and then allow flexibility across detailed inputs. The real so-
lution requires a discontinuous shift from inputs to outputs.

Governance Systems and Management Boundaries

Executive government neither exists in isolation nor operates in isolation.

Executive government needs to be seen as part of a national governance
 Managing Transitions to National Competitiveness 301

system which includes a legislature or assembly and the judiciary. The ways
in which these elements of the governance system interact have probably
created part of the current crisis. Certainly attempts to reform one part of the
governance system independently of the other parts create tensions and reac-
tions which are dysfunctional. While governance systems differ between
nations, there are some common challenges they must all address if nations
are to compete and address the many new issues which only governments can
address and which citizens expect government to address.
First, if governments are to devolve power, reduce expenditure, and re-
allocate priorities, they have little option but to reduce the cost of regulation
and review processes imposed upon agencies. This can only occur if there is
a negotiation with the legislature and perhaps the judicial arms to reinvent
relationships. This does not mean that the important role of the legislature in
oversighting the activities of executive government should diminish but, in
many cases, the strategies need to alter.
Second, governance systems must accommodate diversity or have it grow
around them. The danger of holding on to central controls too long is that the
public will come to see the governance system itself as the problem. Accom-
modating devolution means the legislature must agree to the environment for
operation review, overall priorities, and review performance.
Third, the scrutiny role of the legislature needs to be developed and
redefined. The solution for different nations will differ. As a start, the
oversighting role of the legislature might address improvements in service to
the public rather than the fabric of rules and criteria which currently focus
their considerations. Second, these reviews might address the cost of regula-
tion, review, and consider the opportunity cost they represent in times of
declining budgets. The U.S. Committee systems offer value for systems that
do not have powerful review functions. Effective government audit functions
are critical and need to be nurtured as part of the reform process.
Fourth, the politicization of executive government is probably a necessary
reality today. However, sources of independent advice needs to be fostered,
particularly in parliamentary executive systems where political managers are
often not managers at all. The answer is to develop rules about tenure, perfor-
mance, and changes of government that are part of the culture and are under-
stood. Also, there needs to be statutory appointments with a responsibility to
offer advice. Finally, review and advisory functions might be further distanced
from government by privatizing them and by internationalizing them.
Fifth, the intrusion of the judiciary in administrative processes needs to
be reviewed to evaluate its impact on administration. The judiciary, of course,
has an important role in ensuring that both the legislature and the executive
behaves constitutionally. However, the combination of the judicial system, the
rules, and case law, which drives many bureaucracies, is a prescription for
low value solutions. One answer is to create specialized tribunals able to
302 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

assess these issues independently from the viewpoint of the public interest
rather than the legal fabric which has been developed to depersonalize
government.

MAPPING THE CRISIS:

MANAGEMENT DIAGNOSTICS, TREATMENT
PRIORITIES, BENCHMARKS FOR RECOVERY
The analysis we have presented focuses on total solutions. In the real world,
governments, facing a crisis, need a game plan for action. That game plan
should assist governments to understand the causes of the problem, should
focus available resources to create changes which reinforce each other, and
should set realistic recovery objectives.
The first step is to examine the external pressures and competitive-
ness. How well has the country performed in the past? What is required to
improve the position in future?
Having defined a transition which is competitive, the next step is to
examine the implementation plans in order to test the fit between these
priorities and the transition strategy. There is no point in proceeding unless
the transition is competitive and there is a reasonable fit between these exter-
nal needs and the strategies of the government.
The next step is to examine government structures, systems, costs,
and revenues to test the fit between these and the implementation strategies.
Major blockages to change need to be removed. New frameworks need to be
developed to focus on the end point of the various changes. Systems which
are not blockages and which do not require change to respond should be left.
Key changes should be project managed. Finally, the reform program needs
to be managed as a cycle. The order of changes needs to be considered,
the impacts need to be examined, the communication strategies need to be
outlined.
We have provided a number of checklists in previous chapters to raise
questions which can assist the reader to examine the scope to apply particular
solutions to specific government situations. Exhibit 12.1. Mapping the Scope
for Reform presents a framework for applying these ideas to a specific gov-
ernment system. and evaluating the priorities for reform.
The checklist can be used in several ways. First, it can be applied to a
single country and scored as, say “+1” if there is reasonable agreement that
the statement applies, “0” if uncertain, and “–1” where the statement does not
apply to that particular country. Any net score of less zero suggests a terminal
crises; a positive net score up to say half of the maximum suggests that the
basic solutions for competitive government are not in place. A net score
 Managing Transitions to National Competitiveness 303

Exhibit 12.1. Mapping the Scope for Reform

NATIONAL COMPETITIVENESS
• Is competitiveness high compared with other comparable countries? Have the pre-
conditions for future improvements in competitiveness been established?
• Has government developed a competitive industrial base? Is the nation accessing an
increasing share of world resources? Has access to overseas markets increased?
• Does macrofinancial management support a transition to national competitiveness?
• Have national resources been managed effectively? Has government managed rela-
tionships with domestic and overseas controlled multinational companies to use
these relationships to add value to national competitiveness and wealth?
• Is there effective leverage between business and government? How is this achieved?
Transition strategy. Has a viable development strategy been identified? Is it
implementable? What are the immediate change priorities to support the transition?
What is the strategy for moving to high-response mode? What is the strategy for
optimizing production strengths? What is the strategy for optimizing the autonomy of
citizens and companies within overall national structures?
Benchmarks. National competitiveness ranking improved over the last year. Competi-
tiveness ranking of key industries improved over the last year.

SOCIAL VALUE
• Has the well-being of citizens increased? Has government assisted improvements?
• Have the training and industry development strategies been established to deliver
ongoing access to employment?
• Has government responded to the needs of citizens disadvantaged by change? Is the
system of safety net service for citizens who fail to achieve minimum access to
services through other systems adequate in terms of benchmark countries?
• Can consumers access basic services such as health transport power and water at
world competitive costs?
• Are systems of appeal and review adequate to protect citizens against discrimination?
Transition strategy. Are the social impacts of the national transition being addressed
effectively? How are the constraints between the cost of nation’s value system and the
funding available to support it being managed? Are funds being targeted to those most
in need? What are the immediate challenges which must be addressed over the next
year? Are these likely to be addressed?
Benchmarks. Social value maintained or improved compared with benchmark coun-
tries. Social value performance improved over the last year.

GOVERNABILITY
• Has government both added value and maintained the scope to govern? Is
governability less of a constraint to national performance than for competitors?
Transition strategy. What are the comfort zone impacts of the national transition?
Are these being addressed effectively? Who are the key interest groups with a capacity
to halt change? How are the needs of these groups being managed by government?
Benchmarks. Governability compared with benchmark countries.

(continued on next two pages)

304 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

Exhibit 12.1. Mapping the Scope for Reform (Cont.)

GOVERNMENT CHARGES AND SERVICES
• Are government services competitive compared with other countries? Are
government services and functions delivered effectively? Do they support the
priorities for national transitions?
Transition strategy. Are government charges and services been managed to support
the transition to competitive government? What are the priorities for further
adjustment?
Benchmark changes. Government services competitive compared with benchmark
countries. Competitiveness improved over the last year.

More Detailed Analysis

Business services and infrastructure. Do business services and infrastructure

support key development priorities? Are these provisions shared between govern-
ment and business?
Community services and infrastructure. Do community services and infrastructure
meet emerging needs? What are the immediate priorities? Have existing resources
been targeted away from old needs to meet new needs?
Market access and regulation. Are domestic markets competitive? Do local
consumers obtain value? Are local producers exposed to competition while at the
same time being protected fro unfair competition?
Taxes and tariffs. Are taxes and tariffs internationally competitive and domesti-
cally equitable? Are current services being funded without transferring a burden to
future generations?
Checks and balances. Is there an effective system of checks and balances which
ensures that individuals are treated equitably without destroying the need for a
national focus on results and performance? Is there an effective balance between
regulation and performance? Has the cost of compliance increased or decreased for
business, for government agencies?
Support functions. Are critical support functions such as infrastructure, taxation,
education, and training competitive?
Government business leverage. Is there effective government business leverage?
Does government focus on the end outcomes of these programs? Are they effective
in stimulating business or are subsidies being used to cushion business from new
market realities?
Workskills and access to employment. Does the nation have internationally
competitive workskills? Do these skills match emerging industry priorities?
Resource balance. Has government established an effective macromanagement
system to maintain an emerging resource balance and focus agencies on operating
within realistic resource envelopes and priorities?
 Managing Transitions to National Competitiveness 305

Exhibit 12.1. Mapping the Scope for Reform (Cont.)

GOVERNMENT MANAGEMENT
• Is there a strategic fit between the changing role of government and the
structures, systems, workskills, and values in government agencies? Has the gap
closed or opened in the last year?
Transition strategy. Are government structures systems and leadership seen as
better able to support the national transition than they are in the case of key
competitors? If these have a competitive edge, what is the likely lead time before
competitors respond? How can leadership be maintained?
Benchmark changes. Government performance compare with benchmark nations.

More Detailed Analysis

Strategic leadership. Is strategic leadership a relative strength? Does strategic
leadership drive planning evaluation and coalignment processes?
Cycle time management. Has the capacity to manage cycle time and cycle-based
communication strengthened? Have value-chains been reengineered to reduce
government response times? Is cycle time management a strength (or a weakness)
compared to benchmark countries?
Performance management. Has the system moved to the performance-oriented
form of management by a combination of devolution and a strengthening of
accountability for results? Is planning and evaluation dynamic? Is there a short-
term focus on control? Is there a longer-term focus on the flexibility to meet
external needs? Are structures flexible and performance-focused? Are these
supported by performance contracts which focus on short-run priorities and the
scope to deliver these? Are project structures seen as effective tools for the
management and coordination of change? Has boundary scanning improved? Has
the process been devolved to delivery agencies? Have value-chains been
reengineered to reduce cycle time and enable managers to manage cycle time? Has
value-chain management improved over the last year? Has the focus of
coalignment shifted from the traditional standardization and rules to a focus on
results and the use of temporary structures? Is continuous improvement working?
Do agencies harness and develop the skills of employees by encouraging innova-
tion and added value? Is this supported by ongoing and effective training? To what
extent is a performance focused culture developing in agencies? What are the
responses to change, to failure, to the need for flexible teams and projects?
Comfort zone management. Does government add value to various stakeholders?
Does it demonstrate an understanding of the different priorities of interest groups
and does it seek to protect these as part of change management? Has government
managed the gap between public expectations of change and delivery effectively?
Are completed changes seen as successful and is consolidation improving the
scope to govern?
Results based financial management. Is resource management a relative strength?
Does it support or impede devolution? Are the links between strategic planning
and resource management effective? Has the focus of budgets shifted from inputs
to results? Has financial management been devolved to enable managers to manage
cycle time and deliver results?
306 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

above this suggests that the transition to competitive government is underway.

An analysis of the scores by segments can be used to map the areas of major
concern.
The checklist can also be used to compare a country’s performance with
one or more benchmark countries. This requires a ranking of evaluations
across countries. Where this ranking is limited by a lack of knowledge about
benchmark countries, we hope the reader is motivated to seek that knowl-
edge. Where there is sufficient knowledge to complete the ranking, the an-
swers provide a valuable map of the successes and failures of a particular
government. The advantage of relative evaluations is that they avoid unreal-
istic ideas and standards. If some other government is performing better and
this is obvious, then it is difficult for a government to argue that they are
doing well, they are different, and they cannot improve.
Where there is a desire to improve the next step is often the sort of
benchmarking exercises we discussed earlier. These projects work best when
they are charged with specific national competitiveness objectives, with im-
proving government rather than gathering ideas, discovering that governments
around the world are in trouble, or discovering that some of what any gov-
ernment is doing is bound to be effective.

IMPLEMENTING THE TRANSITION

TO COMPETITIVE GOVERNMENT
In chapter 7, we argued the case for more effective strategic planning and
suggested dynamic strategic planning as a tool to manage the fit with external
pressures. Exhibit 12.2. Planning the Transition to Competitive Government
presents a generalized performance improvement plan for a national transi-
tion to competitiveness. While the plan needs to be adapted to particular
national needs, it provides a useful summary of the issues identified earlier
and the way in which they interact.

Core Strategic Priorities

The first two sheets of Exhibit 12.2 analyze the core strategic objectives in
terms of the three core missions of government discussed in chapter 1.
We have discussed the reality that these objectives differ between nations and
that these differences shape the role and functions of government. We pre-
sented an overview of different transitions in chapter 3, and we examined in
more detail the transitions being managed by Singapore and the U.S. in
chapter 6.
Exhibit 12.2. Planning the Transition to Competitive Government
Impacts or
Key Objectives Action Strategy for Implementation Verifiable Outcomes
CORE STRATEGIC OBJECTIVES

Managing Transitions to National Competitiveness

National • Produce a development strategy which supports a specific national Improvement in the national
Competitiveness transition, addresses the behavior of competitors, national strengths competitiveness ranking
Increase the share of and weaknesses, and national needs and aspirations
world resources • Deliver macrofinancial management which supports development and Preconditions for future
available to the nation is competitive against world benchmarks improvements in
• Access an increasing • Manage national assets and resources to optimize national returns competitiveness established
share of world • Negotiate relationships with major multinational companies which deliver
resources cost effective global business access Competitiveness high
• Manage national • Regulate the domestic markets to optimize competition and minimize compared with selected
resources effectively costs to consumers benchmark countries
• Build a world • Manage systems of taxes and subsides to raise required revenue while
competitive industry encouraging priority business investment and development
• Build a world • Facilitate access to overseas markets
competitive industry • Ensure access to world competitive workskills and world competitive
base research and technology
• Provide infrastructure and services which assist business to be competitive

(continued on next five pages)

307
Exhibit 12.2. Planning the Transition to Competitive Government (Cont.)
Impacts or
Key Objectives Action Strategy for Implementation Verifiable Outcomes
Social Value • Increase wealth available for distribution within the economy Additional social value
Improve both the short- • Ensure that systems of income distribution, including taxes, benefits and provided to citizens
and long-term well- markets, support both improvements in competitiveness, and the delivery
being of citizens of equitable access to national resources Preconditions for future
• Manage the impact of spending and debt on current and future improvements in
generations social value established
• Ensure that the laborforce and workskill development system delivers
access to work and meets emerging community and business needs Social value comparable
• Provide social infrastructure which meets the diversity of national needs with selected benchmark
while also facilitating long-term improvements in national competitiveness countries
and wealth
• Ensure that consumers can access, at world competitive costs, basic
community services, including education, health, transport, power, water,
and security services
• Provide appeal and review processes to protect individual rights,
encourage equity, and discourage discrimination. Provide safety net
services
Governability • Recognize diverse needs and priorities. Negotiate boundaries which Governability seen as less
Develop and maintain address the needs of key influence groups of a constraint on key
the scope to govern • Manage comfort zone impacts to ensure that governability does not strategic changes and on the
become a major constraint on the transition to competitive government overall national transition to
• Manage cycle dynamics to integrate government communications to increased competitiveness
position government implementation within the comfort zone required than it is for key competitors
for effective government
Exhibit 12.2. Planning the Transition to Competitive Government (Cont.)
Impacts or
Key Objectives Action Strategy for Implementation Verifiable Outcomes
SUPPORT OBJECTIVES
Manage traditional • Ensure that for each support area the links with key program priorities Government functions
government functions are identified in order that priorities are not distorted by focusing support core national
and services to on support functions in isolation and that provision is competitive objectives
support key objectives relative to benchmark countries
• Avoid the tendency for functions to become ends in themselves Government functions
competitive relative to
selected international
benchmarks
Business services and • Ensure the provision of business services and infrastructure which supports key strategic priorities and is
infrastructure competitive with services provided by other countries
Community services • Provide cost effective (to users) infrastructure which addresses key needs and which is comparable to
and infrastructure benefits delivered by comparable countries. Ensure that benefits are seen to improve over time
Markets access and • Ensure that domestic markets serve the needs of both producers and consumers. Manage external
regulation competition to avoid unfair competition, facilitate the growth of domestic production, and avoid the
development of high-cost domestic production
Exhibit 12.2. Planning the Transition to Competitive Government (Cont.)
Key Objectives Action Strategy for Implementation

Taxes and tariffs • Deliver a taxation and tariff regime which is internationally competitive in its impact on business,
manages opportunities for external arbitraging of the domestic taxation system, redistributes income to
meet agreed social objectives and, funds competitive levels of government services and activities
Checks and balances • Develop systems of regulation review and sanctions that enable the various stakeholders in a nation to
feel they are treated equitably. Ensure that these systems do not create gridlocks and reduce national
competitiveness
Government business • Develop a government business interface which supports a world competitive industry base as well as
leverage the need for the internal regulation of business
• Avoid the anticompetitiveness impact of government subsidies by leveraging government and business
expenditure to maximize impacts on external competitiveness
Workskills and access • Ensure that education, training systems, and business combine to produce world competitive work
to employment skills for each industry and enterprise
• Ensure that industry priorities as well as access and education, and training priorities drive the
development of workskills
• Ensure that those who seek work are provided with access to the core skills required to enable them
to contribute to changing business needs
• Ensure that both highly talented individuals and those with limited potential fully develop their capacities
and workskills and are not blocked by access restrictions designed to regulate the development of
average skills and capacities
Resource balance Manage government activities to balance available and required resources by:
• extending the planning horizon to manage an emerging balance
• managing the revenue base
• managing the expenditure base to reflect real needs and priorities
• managing allocative tensions by changing the budget process to use devolved structures more effectively
Exhibit 12.2. Planning the Transition to Competitive Government (Cont.)
Impacts or
Key Objectives Action Strategy for Implementation Verifiable Outcomes
GENERAL MANAGEMENT
Develop performance • Manage the strategic fit between the changing role and priorities of Structures, systems, and
focused management government and government systems, structures, workskills, and values values that are blocking
systems, structures, change, identified and
values blockages removed
Strategic leadership • Define and communicate the key elements of a national transition to competitiveness
• Manage the impact of change on both competitiveness and governability
• Leadership which drives other performance and planning systems to ensure they implement agreed
priorities rather than coordinate the outputs from such systems
• Change government culture structures and systems to make national competitiveness a key mission or
government
Cycle focused • Reengineer government value-chains to enable government to manage cycle time
management and • Improvement implementation performance by managing cycle impacts to deliver added value and
communications maintain government within the comfort zone which enables government to manage change
• Change government communication strategies to focus these on implementation cycles and make
communications and management implementation strategies proactive rather than sequential
Results-based resource • Shift the traditional budget driven focus for government managers towards a system in which budgets
management are driven by agreements to deliver specific results which are linked to overall strategic planning
priorities of government
• Change traditional resource management systems to provide managers with the scope to manage overall
resources to produce agreed results and the scope to treat cycle time as a management variable
 312
Exhibit 12.2. Planning the Transition to Competitive Government (Cont.)
Key Objectives Action Strategy for Implementation

BENCHMARKING
Performance • Introduce planning and evaluation systems which are strategic change-oriented and evaluative. Introduce
management new forms of accountability for both long- and short-term performance at all levels of government
• Coordinate the transition to performance management by balancing the need for deregulation with the
need for new forms of accountability
• Introduce performance-focused management structures which focus accountability and enable managers

THE
to manage cycle impacts and cycle time
• Introduce high-response technologies by reengineering value-chains to achieve task-based coalignment

TRANSITION
and which also provide a focus for continuous improvement
• Introduce performance-based personnel management with flexible workroles, a focus on individual
and team performance, and a performance-focused culture
• Develop systems solutions which inform decision-making, underpin flexible work scheduling, and

TO
support but do not predetermine performance evaluation
• Replace traditional system of internal regulation with performance-based systems, structures and

COMPETITIVE GOVERNMENT
workskills
Comfort zone • Manage government change to add value to different national stakeholders and ensure that the nation
management can manage the changes required to increase national competitiveness while also ensuring that the diverse
interest of stakeholders are recognized and least partially addressed so that the nation remains governable
• Replace the strategies of consensus and homogeneous values and priorities with a respect for diversity
and a negotiated solution which adds value to diverse groups
• Negotiate change impacts to manage the impact on diverse groups while also ensuring that national needs
and interests can be addressed effectively
• Recognize the uncertainties generated by change and develop alternative safeguards which meet the
needs of interest groups and legislatures for accountability and for the checks and balances required to
assure the rights of citizens
 Managing Transitions to National Competitiveness 313

• The government’s role in developing core industrial strengths depends

on the strengths of existing companies, their capacity to access inter-
national markets, and the overall wealth of the country and its capacity
to compete.

• The task of adding social value depends again on the production and
wealth base of the country. As discussed in chapter 6, Singapore adds
value by increasing the wealth of its citizens. The United States, start-
ing from a much higher base, needs to work to maintain value and
address the negative impacts of change.

• The task of governability is a function of history, of the particular

political structures used by a country, and of the way in which govern-
ment manages comfort zones and diversity.

While these core objectives are different, because they require different
actions, strategies, and generate different impacts, they are also interrelated.
Governments that pursue competitiveness without also pursuing clear strate-
gies to add social value soon discover that their capacity to govern is eroded.
Governments that pursue governability without also developing competitive-
ness will find their support base disappears. Governments that pursue social
value and leave competitiveness to others will find themselves bankrupt, or
replaced by others who are prepared to take the difficult decisions required
to cut back social value to levels which the country can afford.
The action strategies outlined in Exhibit 12.2 for core strategic objectives
flows from our earlier discussions. The impacts or outcomes which might be
used to evaluate progress are action-based and compare performance relative
to other counties.

Support Objectives
The support objectives are summarized in sheets 3–4 of Exhibit 12.2. We
have discussed a number of these support objectives in earlier chapters. The
point to draw out here is that these objectives need to be managed to support
the delivery of the core objectives discussed above. Many reforms address
these areas as objectives in their own right.
Resource limitations have eroded the capacity of many governments to
provide and even maintain infrastructure in recent years. While avoiding such
expenditure is a short-term solution to resource balance, it often creates major
long-term impacts by eroding competitiveness and social value. More im-
portantly, once these assets are run down, the recovery cycle is long and
expensive.
314 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

Some governments have moved to shift the burden of specific infrastruc-

ture provision to business and to users.
The deregulation of markets has been a feature of the response to glo-
balization by many countries. Most deregulation has focused on the high cost
to business of various regulatory regimes, on the high cost of the government
structures established to regulate, and on the cost to users. The need for
reregulation, which is now becoming evident in many cases, does not mean
that the process had no value. Deregulation has added value to many markets.
The new forms of reregulation which are emerging seek to prevent excesses
without destroying that value.
Most nations have been slow to adapt old taxation and tariff regimes.
Most changes are incremental and many simply set up the need for conse-
quential changes. Nations that have not conducted a competitiveness audit of
these regimes should consider doing so.
The need for new forms of checks and balances has been identified in
many countries. Those that bring forward such reforms instead of responding
to each new crisis will find that many of the crises can be avoided.
The need for government business leverage is now well understood. There
are many successful examples. There are also many government managers
who see their role as protecting government from attempts by business to
gain an advantage from government rather than assisting business to help
government gain national advantages.
Access to employment is a key concern of most governments today.
Many governments manage their involvement with education to maximize
access by young persons rather than to develop a competitive skill base. We
have discussed some of the issues involved in working with business to focus
on the development of relevant workskills.
We have discussed the issue of resource balance in detail in chapter 8.
We have included this as a support objective, because, if this objective is not
met, governments must move to crisis mode and cut back expenditure. While
cutbacks can be achieved, the key objective identified above are usually ca-
sualties of the process.

General Management
Although management reform is critical to delivering competitive govern-
ment, successful reform needs to be prioritized and focused on the delivery
needs of projects which address key objectives.
We have identified five elements of general management reform which
we see as providing a useful framework for implementing and evaluating
change.
 Managing Transitions to National Competitiveness 315

We have discussed the need for a new approach to leadership which we

have called “strategic leadership” in chapter 6. The importance of this priority
is that traditional government discourages such leadership. There is no point
in implementing reforms which depend on strategic thinking and strategic
leadership unless there are strategies in place to find, develop, and reward
strategic leaders differently.
In chapter 4, we discussed the need to manage cycle time and to use cycle-
focused communications. In chapters 5 and 9, we examine some of the difficulties
in changing systems to enable this occur. Delivering this reform is important to
the success of change, it is also a key which places many other reforms in focus
and can be a catalyst for reengineering value-chains effectively.
We deal with the changes involved in implementing performance man-
agement in chapter 9. The elements in the plan summarize the framework
presented there.
The need to manage comfort zones is a central theme of this book. It is
a major difference between management solutions which work for govern-
ment and business. It is the rationale for managing cycle impacts. It suggests
that traditional systems and approaches have compounded the problems im-
plicit in managing diversity. The action strategies focus on the need to man-
age both added value and comfort zones, on the need to discard the old
consensus solutions, on the need to manage cycle impacts, and on the need
to manage the destabilization caused by change and by introducing new safe-
guards.
Finally, we address the need for performance-focused resource manage-
ment. This is discussed in detail in chapter 10.

CONCLUSION

There are many reasons to be optimistic about government reform. Govern-

ments in many nations seem to be addressing the need for fundamental change
and they seem to have learned not to oversell these changes.
However, too many citizens have despaired of government reform. The
reality is that nations need competitive government. In a global and increas-
ingly competitive world, nations that wish to maintain and improve their
values system, provide employment for future generations, and address the
critical new issues created by change, need more effective government. While
there are many functions which governments need no longer perform, and
many functions government performs badly, effective government remains
critical to both national competitiveness and the capacity to maintain the
social value system of a nation. Without maintaining and improving national
316 BENCHMARKING THE TRANSITION TO COMPETITIVE GOVERNMENT

competitiveness, many nations can no longer afford to fund their existing

value system.
The way in which changes have been introduced, the failures, the lack of
a vision for the future which builds on the achievements of the past, has led
many government managers also to despair. The sad reality is that too many
government managers today do not recommend a career in government to
their children or to anyone else.
But the future seems to us to be less bleak. For those in the midst of
government change simply seeking to understand the process and fit the next
solution to the last, we hope they will find the frameworks we have presented
interesting. For those who are motivated to explore, expand, and where nec-
essary correct the ideas we have discussed, the scope to create a more com-
petitive government seems vast.
There are functions which only government has the legitimacy to per-
form, there are functions which government can perform far more effectively
than business, there are functions which government and business should
work together to deliver, and there are functions which would be more effec-
tive if transferred to the business sector. We should identify these and manage
them effectively. But that process should be used to focus the mission of
government managers not to conclude they have no mission or that their
mission has somehow become peripheral to the fate of nations.
Writing this book has drawn us to examine many changes. More progress
is being made than is generally realized. We need a new paradigm for gov-
ernment. We need frameworks for drawing together isolated but successful
examples of reform. These are emerging and we hope that the ideas presented
in this book contribute to those new perspectives.
But, even more importantly, we need to reverse the pessimism which like
a fog is obscuring the progress which is occurring. Three ideas might help to
disburse the fog. First, we need to see the failure of government as a failure
of governance, not the inefficiency of government managers. Nations face
new pressures and reduced resources. All governments must reduce some
services in order to provide others. Often, reductions in services are not a sign
of failure, they are a sign that government is responding to new competitive
realities.
Second, we need to understand that many of the inefficiencies of govern-
ment systems are imposed by public values and by legislatures who would
not think of imposing such restraints on business or even on a contract for the
supply of government services.
Third, if we agree that governments must be evaluated on the basis of their
results, we need to practice what we preach. When the media invite us to grow
exited about the number of potplants in government offices, we should ask
instead why we fund the offices in the first place. We should focus away from
 Managing Transitions to National Competitiveness 317

perfecting potplants towards whether the agency is meeting our needs more or
less effectively. And we should contemplate that in the end we all pay for the
special costs of counting potplants and writing reports about them. We need to
take up Peter Drucker’s challenge to identify successes as well as failures in
government and refocus our reward systems for governments and government
managers in order to recognize success where it occurs.
Finally, we need to discard the idea that we no longer need government.
We may need less government than in the past. We may need a different
government that we did in the past. But today, more than ever before, we
need effective government. Competitive government will not only add value
to nations that pursue it, but it will add value to managers who chose to work
in government. The new competitive global environment is already rewarding
nations with governments able to address new priorities and governments
who work with business to improve national competitiveness.
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 Index

allocative tensions, 260–261 Clinton health proposals, cycle

Armey, Richard K., 123 impacts, 98–100
Asian financial crises, 68–69, 149 comfort zone management
Australian Tax Office, 210–216 consensus strategies, 27
cycle impact tension, 187–188
Beckhard, Richard, and Reubin T. and governability, 7–8, 10–11, 27
Harris, 134, 283 impact management, 87–98
benchmarking planning, 201
government performance, 16 transition, competitive govern-
national competitiveness, 14–20 ment, 303, 305, 308, 312
national workskills, 16–20 competition policy, Australia, 185
transitions, competitive govern- competitive government
ment, 283–284, 307–312 governance systems, 279–280
Bower, J., and T. Hout, 121 idea of, 4, 26–28
bureaucratic solutions, breakdown implementation strategies, 79–82,
of, 43 102–103, 105–108, 130–132
business and government, 37–54 leadership, 133–137, 165–167
communication, 38–40 management systems, 229–250
development, comparison, 41–47 planning and evaluation, 199–228
government management, 47–52 resource management, 251–269
management differences, 45–47 transition to, 283–284, 306–315
Butler, David, and Donald Stokes, competitiveness role of government,
111 6
continuous improvement
Cain, John, 192–194 examples, 247–249
change management tools, 240–247 group dynamics, 122–123
Clinton-Gore management reforms, model, 244–247
25, 250, 262, 268, 283–284 theory of, 121–123

329
330 INDEX

Contract with America, 100–101, Downes, G., and P. Larkey, 20, 41,
123–130 79, 235, 237, 254, 274, 279
cost reductions, scope for, 258–259 Drucker, P., 8, 13, 43, 44, 67, 85,
Cullen, R.B., 18, 37, 45, 175–176, 87, 105, 277, 285
177, 178, 188, 190, 207, 229, dynamic strategic planning, 202–
231, 240, 248 207
Cullen, R. B., and N. F. Brown,
217, 219 Eastern European deregulated
Cullen, R. B., D. J. Cortese, and transition, 70–71
B. Gerorgiou, 210 education of children with disabili-
culture, shifts, 241 ties, 216–221
Cushman, Donald P., and S. S. environmental scanning theory, 108–
King, 45, 108, 244 111
Cushman, Donald P., and Phillip K. government boundary, 110
Tompkins, 88 limits to action, 111
cut back management solutions, 22 real time scanning, 110–111
cycle-based communication 96–99 tools, checklist, 111–112
cycle impact model, 92–96 European Community regulated
consensus cycle, 93 transition, 72–73
consolidation cycle, 95–96 executive governments and legisla-
implementation cycle, 94–95 tures, 274–275
legislative and budget cycle, 93– expenditure base, management of,
94 257–260
cycle time management external pressures, responding to,
cycle-focused communications, 105–108
96–98
cycle impact tension, 187–188
Fombrun, Charles, J., 44, 75, 133,
cycle impacts, 93–96
171, 235, 237
elements of, 89–91
forward expenditure projections,
project timing and cycle length,
259–260
91–92
Fukuyama, Francis, 62
speed, 26–27
time span of evaluation, 81
Galbraith, John Kenneth, 13, 87
Derbyshire, J. Denis and Ian Garelli, Stephannie, 161, 248
Derbyshire, 274 General Electric, transformation,
devolution solutions, 22–23 151–161
Dhanabalam, S., 89 Gingrich, N., 124–128
 Index 331

global trends, impact on govern- implementation impact model, 82–89

ment, 8–12 implementation strategies, 79–98
competition, 9 cycle time management, 89–96
diversity, 10–11 cycle-focused communications,
globalization, 9 96–98
information, 11–12 impact management, 82–89
technology, 10 implementing the transition to
Gore, Al, 1, 200, 229, 262 competitive government, 306–
governability role of government, 315
7–8 core strategic priorities, 306, 313
governance systems and manage- general management, 314–315
ment boundaries, 271–284 support objectives, 313–314
interest groups, 277–278
political and nonpolitical execu- Japan, development transition, 67
tive, 278–279
system differences, 274–275 Kettl, Donald, F., 1, 25, 250, 283,
government and its environment, 284
109 Kotler, Phillip, Somkid Jatusripital,
government management reform, and Suvit Maesincee, 56
status of, 20–25
government management, reinvent- leadership, strategic
ing, 229–250 comparison of Singapore and
government performance, bench- U.S., 161–165
marking of, 16 protecting the base for ongoing
government reform, scope for, 302– change, 136–138
306 shifting focus of leadership, 134–
management diagnostics, 302 137
mapping the crisis, 303–306 Singapore, transition, 141–150
Gow Chock Tong, 141, 149 U.S., transition, 150–161
Light, Paul, C., 250, 268
health proposals, Clinton, 98–100 Low, L., T. Heng, S. Wong, T. Yam,
high-response management, 44–45 and H. Hughes, 68, 142, 143,
Hilmer, Frederick G., 185 145, 146, 148
Howard, first election victory, 101 Lueck, Sarah, 283

impact management, 82–83 management by objectives, 43–44

Imparato, Nicholas, and Oren management solutions for govern-
Harari, 28, 41, 221 ment, 47–52
332 INDEX

mapping frameworks, checklists Osborne, David, and Ted Gaebler,

culture shifts, 241 1, 13, 23, 63, 181, 206, 207,
environmental scanning, 112 248, 251
national competitiveness, 139 overview of key ideas, 285–302
performance management, 52 governance systems, 301–302
political systems, 275 government in crises, 286–289
resource management, 269 implementation strategies, 291–292
scope for reform, 303–305 leadership strategies, 294–296
Mihm, J., Christopher, 1, 250, 283 lessons from business, 289–290
Mintzberg, Henry, 44, 203 planning and evaluation, 298–299
Moe, Ronald C., 1, 53, 283 reengineering systems and values,
299–300
national competitiveness resource management, 300
benchmarking of, 14–20 the challenge of transition, 296–
checklist, 139 298
and global trends, 8–12 transitions to national competi-
mapping transitions, 137 tiveness, 290–291
model, 57–76 value-chain coalignment, 293–294
and the role of government, 12–
14 performance management
transitions to, 55–57 government performance, 27–28
national competitiveness model, 57– grid, 179
63 impact management, 85–87
competitiveness, 60 management tools, 232
government, 60–61 outline, 45, 50–52
high-production, 62–63 transition, competitive govern-
high-response, 62 ment, 305, 312
high-autonomy, 63 performance improvement planning
management, 61–62 and evaluation (PIPES), 207–
national competitiveness transitions 210
deregulated transition, 69–71 performance pay, 226–228
development transition 64–69 Peters, Tom, 47
devolved transition, 73–76 planning and evaluation, 199–228
regulated transition, 70–73 Porter, Michael, 12, 13, 55, 64
project management, 242–244
Office of Management and Budget,
199, 283 Reagan-Bush impacts, 84–85
Ohmae, Kenichi, 8, 12 reengineering value-chains, 118–121
 Index 333

regulation and government manage- competitive manufacturing industry,

ment 145–146
impact on managers and values, competitive workskills, 147–149
183–184 competitive technology, 149
reasons for, 182 competitiveness changes, 137–141
reengineering, 184–185 devolved competitiveness transition,
reinventing government, 23–25 67–68
Clinton-Gore management reforms, history of development, 141–144
25, 53, 227, 250, 262, 268, 283– response to the financial crises,
284 149
gaps in the reinvention agenda, 24– Sisodia R. S., 68, 141, 142
25 social value role of government, 7
resource management, 251–269 Sorros, George, 13, 64
extend the planning horizon, 255 Stacey, Ralph D., 202, 203, 204
impacts on cycle time, 265–267 structures, for high-response govern-
improving resource management, ment, 231–235
252–253 central or staff agencies, 234
resource balance, 254–261 delivery agencies, 233
revenue base, 255–257 legislature and system reform, 235
transition to results based, 261–267 mega agencies, 234
results based resource management,
261–267 Thatcher-Major impacts, 84–85
role of government, changing, 3–8 Thompson, J. D., 105, 106
competitiveness role, 6 Tichy, N. M., and P. Charon, 155
governability role, 7–8 Toffler, Alvin, 33, 231
impact of global change, 8–12 transition to results based resource
social value role, 7 management, 261–267
Roberts, Nancy C., 206 transition to competitive government,
Rockert, J., and J. Short, 111 175–195
accountability/devolution tension,
Sakakibara, Eisuke, 13, 67 178–181
senior executive service, 221–228 corporate/operating agency tension,
performance pay, 226–228 185–187
performance plan, 223–226 cycle impact tension, 187–188
Singapore, transition to national deregulation/reregulation tension,
competitiveness 181–185
comparison with U.S. transition, deregulation/reregulation tension,
161–165 181–185
334 INDEX

resource balance/allocation cycle time, 116, 118–121

tension, 176–178 evaluation, 115
Victoria, government manage- over segmentation, 116
ment, 188–195 reengineering, 118–121
transitions to national competitive- value-chain theory, 111–118
ness, 305–317 Victorian government, management
transition, 188–195
United States transition to national
competitiveness 150–161 Welch, Jack, 125, 151–159
American government transforma- Wilson, James Q., 271, 183, 184
tion, 159–161 Wolff, M., 240
comparison with Singapore’s workskills and national competitive-
transition, 161–165 ness, 16–20
competitiveness changes, 137–141
devolved competitiveness transi- World Competitiveness Yearbook
tion, 75–76 competitiveness factors, 17
G.E. transformation, 151–161 competitiveness changes, 137,
140
value-chain for government activities government and competitiveness,
access to resources, 115 15
budget and legislative cycles, impact of competitiveness, 150
115 workskills and competitiveness,
core management skills, 116 18