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Is Government Ready for Business Management Practices?

The views expressed are those of the author and do not necessarily reflect the views of ASPA as an organization.

By Howard Risher
March 24, 2017

The most frequently mentioned reason people voted for President Trump is his successful business background. They assumed he has the skills to do the same thing in government. Success in business is similarly a prominent characteristic of his Cabinet members. Those with military backgrounds have comparable credentials as high level leaders. They all are accustomed to discussing and reaching agreement on expected results and then holding subordinates accountable for achieving those results.

Political observers have argued for years that government should be run more like a business. The increase in Republican elected officials makes it more likely those with private sector experience will work together to initiate civil service reform. When problems surface, their experience will no doubt influence their response. The Trump Administration’s budget proposal calls for a major reorganization but will undoubtedly take far more time than anticipated.

It’s also reasonable to expect a clash when new leaders are frustrated by their early experience. They are not accustomed to the pace and bureaucracy of government.

A discussion between Maryland’s Philip Joyce and Wharton’s Peter Conti-Brown, on the Sirius radio show, Knowledge@Wharton, Can Government Be Run Like a Business? prompted this article.

Their discussion was at the 10,000-foot level, at times Public-Sector-vs.-Private-Sectorphilosophical, and focused on the role government plays and on the goals of shareholders, the interactions with and the competing interests of other elected representatives, the fiscal and budgetary dynamics and the overriding importance of sustaining adequate profitability. Their conclusion, albeit simplified, is that the differences defy an easy transition between the two worlds.

However, the purpose of management at its core is the achievement of goals through the efforts of subordinate employees. That is true in every organization.

Government agencies have a lot in common with knowledge organizations as well as the many service organizations. In each, results are achieved through the work efforts of employees. The Joyce/Conti-Brown discussion was silent on a basic difference – the constraints on talent management imposed by civil service laws and regulations. Even in states that have initiated reform, work management practices and the culture are not what one would expect in a successful company.

Significantly, government executives are often treated as a separate group. The federal Senior Executive Service (SES) was at one time the model. When strategists discuss ways to improve government performance, they often fail to mention the role of the executive cadre. There is surprisingly little research on the role of elected officials and executives in managing performance.

A related issue which has been studied extensively in the private sector is the impact of financial incentives. There is virtually no research on the use of management incentives in government. In business, cash incentives and stock-related remuneration typically account for a higher percentage of an executive’s total compensation than base salary. There are of course states and local jurisdictions with pay for performance but those policies do not have the impact of a well designed incentive. (Note the phrase “well designed.”)

There is a link between incentives in business (and health care) and metrics associated with an organization’s success. Profitability is of course important but other goals are also involved. Executive awards are divided between company metrics and individual performance relative to job-specific goals. There is little or no subjectivity; the payout calculations are prescribed. The model is decades old.

A more important difference is the universal reliance in business on goal setting as the foundation for planning and managing performance. The focus on goals is central to creating a performance culture. In government, agency goals are broadly used but setting individual goals is still far from a common practice.

Businesses define goals at every organization level and, when done well, help employees understand how their efforts contribute to their employer’s success. Linking incentives to goal achievement makes performance a frequent topic of discussion among co-workers. It reinforces what’s important.

To emphasize a key point, the business model is not focused narrowly on year-end goal attainment. It’s human nature to try to beat goals but there is also the realistic expectation that some employees will fall short. The practice is the subject of regular meetings to review progress, plan steps to address problems, and modify goals as warranted throughout the year. That’s management. When achieving goals is all-or-nothing, as it is often is in government, missing goals is seen as failure.

Bonuses are authorized for the SES. Presumably, this was an attempt to “manage government more like a business.” The best performers are eligible for bonuses as high as $20,000. Through the years after the SES was created, several states adopted the model. However, today a Google search suggests states have discontinued those policies.

The SES bonus policy differs in several respects from the corporate model. First, in business, all plan participants, except the few poor performers, can expect an award. Second, the payouts are an integral component of compensation. And third, the linkage to results enables participants to estimate payouts as the year unfolds. Knowing what they can expect enhances the power of incentives. Government bonuses are largely subjective.

If there is a question about the suitability of business practices, its answered by the emergence of Charlotte, NC in the 1990s as a model for city government. Bill Wilder, the Human Resource Director for almost 25 years, tells the story,

“A primary theme was “Public Service is our Business,” and the principles guiding the successful initiative were accountability, quality and excellence, productivity, teamwork and openness. As part of the process, departments were referred to as “Key Businesses” and where possible and practical, “business” concepts and practices were incorporated in service delivery.”

“As a result, the city of Charlotte became a high-performance organization and was recognized nationally for its innovative and cost-effective approaches to service delivery.”

The business model was integral to the city’s success.

There are undoubtedly other jurisdictions that have benefited from business management practices. The lessons learned, however, have rarely been documented.

Research confirms the value of goal setting and rewarding good performance. That’s accepted in all walks of life as well as education. Incentives do need to be carefully planned—they can trigger unanticipated consequences—but there is no better strategy to reinforce a shared focus on accomplishing goals.

A culture of compliance and risk avoidance have far too long encumbered government. Reform initiatives would be more likely to succeed if executives and managers are rewarded for leading the transformation.

Author: Howard Risher has 40 plus years of experience as a consultant to clients in every sector. He has a BA in psychology from Penn State and an MBA and Ph.D. from Wharton. He is the co-author with Bill Wilder of the new book, It’s Time for High Performance Government: Winning Strategies to Engage and Energize and the Public Sector Workforce. You can reach him at [email protected].

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