Can Government Run like a Business?

 One of the big questions discussed in the public sector these days  is should government be run like a business. In addition, we have seen many examples of business men and women running for office suggesting that they can improve government by running government like a business. Based on past experience, business people who want to run government like a business usually fail because government is not a business with a bottom line.

Now, no one would ever question that government should be run more “business like” and there are clearly some practises when applied to government make a lot of sense. But when applying business practises like marketing for example, they have to be done in the context of a public sector environment.

For example, at the Centre of Excellence for Public Sector Marketing (CEPSM) we pride ourselves in understanding the needs and constraints of the public sector and deliver marketing solutions that are strategic, innovative and practical to meet the unique needs and challenges of governments.

CEPSM has a proven affinity and strong reputation in the public sector because we have many years of experience in this field and fully understand both the benefits and limitations of implementing strategic marketing and communications strategies in a public sector environment.

The issue of overlaying private sector solutions to the public sector has many challenges, however if done right in many cases it can work. But those who want to bring business practises into government have to have a full understanding and appreciation of how government functions.

As James Ferabee points out in his article Can Government Services Be Run Like a Business? There is a whopping difference between the overall mission and mandate of a government service provider and any private business.  All businesses are ultimately driven by the pure, overriding goal to make a profit. This creates a single, clear focus that all stakeholders within a private sector organization understand and can agree upon and it puts all other strategic decisions and considerations into a clear context − one that has the power to get everybody pulling in the same direction.

Not so with government service providers.  The executive management of a government agency serves a minister. Their primary job is to protect the minister or the government from any adverse exposure while supporting a departmental mission or mandate that can be interpreted differently by various stakeholder groups.

This has necessarily resulted in complex governance structures to ensure a diverse set of interests are represented while separating and segregating authority to diminish the concentration of power as a protective mechanism for the general public.

Inevitably each stakeholder group has a parochial if not competing interest and an opinion on how to best achieve a given mandate − and each has a legislated right to be heard and asserted. As a result, the executive management or governance of a government-operated service is generally balancing more disparate agendas than typically exist within the private sector.  All of this transpires in an environment where every piece of data collected, every memo written, and every decision made is scrutinized by a waiting press that is eager to second guess, challenge or embarrass

Unlike private sector organizations − which have the distinct advantage of being able to offer services on the strength of market demand and profitability − government organizations have a mandate to serve and be accessible to all constituents. Governments cannot choose their customers. In fact, customers often have a right to access a service thereby creating an obligation for a government agency.  By comparison, any private sector business can analyze their markets and opt to target customers with specific characteristics or needs.  They can quickly retreat when confronted by poor performing results, undesirable segments, or onerous challenges.

In an article titled Running government like a business has been a dismal failure Donald Savoie states that the notion that public administration could be made to look like private-sector management has been ill-conceived, misguided and costly to taxpayers. Management in the private sector has everything to do with the bottom line and market share. Administration in the public sector is a matter of opinion, debate and blame avoidance in a politically charged environment. It doesn’t much matter in the private sector if you get it wrong 40 per cent of the time so long as you turn a handsome profit and increase market share. It doesn’t much matter in the public sector if you get it right 99 per cent of the time if the 1 per cent you get wrong becomes a heated issue in Question Period and the media.

As Savoie points out the genius of the private sector is its capacity to generate creative destruction. New sectors and firms attract resources from old ones. New technologies make existing skills and manufacturing processes obsolete. In the public sector, allocating resources unfortunately remains for the most part, a political decision. Creative destruction has yet to find a permanent home in government and, until it does, the notion that public-sector administration can be made to look like private-sector management will remain a non-starter.

For example Savoie points out that public servants now produce numerous reports and navigate various accountability requirements to fabricate a bottom line. It is hard to determine a bottom line when there isn’t one. This according to Savoie has resulted in the federal government having an oversupply of accountability and oversight processes and performance and evaluation reports. … seldom read unless the report has information to embarrass the government.

Thousands of new oversight positions have been created in the federal government to manage accountability processes. Thirty years ago, 70 per cent of federal public servants were located in the regions; today, the number is 57 per cent.  Public servants who work in the region’s main task is deliver public services, while those in headquarters in Ottawa provide policy advice, manage processes and oversight requirements.

So what are the results of this approach? Well for starters, Savoie maintains that the traditional public administration values have been tossed out the window, including the commitment to a parsimonious culture. Public servants have lost their way, uncertain how they should assess management performance, how they should generate policy advice, and how they should speak truth to political power including their own institution. If anything, recent management reforms in government have made public servants feel worse about their institution than they need to. Dr. Linda Duxbury, Professor, Sprott School of Business, Carleton University has pointed out in her many studies and reports, that this, as well as other actions, has resulted in very low morale in the federal public service.

The long and short of it is quite simple, those who advocate that public sector managers should operate like their private-sector counterparts without understanding the context of how political and administrative institutions function are clearly misinformed. There is no question that there are opportunities for government to adopt business practises from time to time, but government is not a business and  those who continually argue for government acting like a business  are offering a misguided solution.

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