6.1 Public value and the governance agenda

The German discourse critical of NPM has given rise to a shift towards a new paradigm known as the "new public governance" (NPG), which draws some of its features from the international governance discourse and which is closely related to the concept of public value (Bovaird, Löffler et al. 2002; Goss 2001; Jann 2005; Kickert, Klijn et al. 1997; Kooiman 1993; Naschold, Oppen et al. 1997; Pierre & Peters 2000; Reichard 2002; Rhodes 1997; Schedler 2003). NPG has been presented as an answer to the limited scope of the NPM agenda, in which structural and organisational "breakthrough innovations" were often entirely missing (Naschold 1998).

Whereas NPM focussed principally on outputs as a means to enhance productivity in the public sector, the new public governance paradigm also emphasises processes and outcomes. It emphasises the aspect of ownership of and participation in the decision-making process by including multiple stakeholders such as citizens, the voluntary sector, unions, business and different levels of government (Bovaird, Löffler et al. 2002; Pierre & Peters 2000). Bovaird, Löffler et al. illustrate this difference using the example of clean cities:

"Whereas NPM-oriented change agents tend to focus their efforts on improving street cleaning and refuse collection services, a local governance approach emphasises the role of citizens in respecting the communal desire that no-one should throw litter on the streets in the first place, and that materials should be recycled, not simply thrown away. This involves education..., advertisement campaigns." (p. 13).

Linking workplace partnerships to the governance arrangements characteristic of the public value approach may lead to a breakthrough both in defining public sector productivity and developing understanding about how to increase it through partnership. Whereas NPM stressed the need to meet defined quality of service and efficiency objectives through output-oriented performance management systems, the emphasis in the NPG approach is on improving quality of life - both in terms of quality of service outcomes for users and quality of working life for staff - through outcome-related performance management (Bovaird & Löffler 2002). A good example of this is the Improving Working Lives standard, introduced in 2005 in the UK. It sets the benchmarks by which NHS Trusts will create flexible working environments that promote staff welfare and development. A common thread is the involvement of as many strategically important stakeholders as possible, a practice known as "360 degree accountability".

In order to translate organisational strategies into a comprehensive set of performance measures that provide the basis for a strategic management system, Kaplan and Norton developed the "balanced scorecard" (BSC). The BSC measures and balances performance across four perspectives: (1) financial, (2) customers, (3) internal business process, and (4) learning and growth. These measures are balanced between outcome measures and measures that evaluate the capacity required to drive future performance (Kaplan and Norton 1996). Although originally developed for the private sector, the BSC as a strategic management tool enjoys increasing popularity in public sector organisations worldwide. For the public sector, Kaplan and Norton propose:

"Success for government and not-for-profit organisations should be measured by how effectively and efficiently they meet the needs of their constituencies. Tangible objectives must be defined for customers and constituencies. Financial considerations can play an enabling or constraining role, but will rarely be the primary objective." (Kaplan & Norton 1996 p.180).

Frieder Naschold (1998) described strategic management as the missing link in internal modernization that contributes to the redesign of the interface between administration and its political, economic and social environment (Naschold & Daley 1999). Arguably, it bridges the gap between the output-oriented NPM approach and the outcome-oriented public governance concept. Naschold, Oppen et al. identify four key competencies of strategic management: (1) value management, (2) management of structures, (3) management of change, and (4) strategic evaluation (Naschold, Oppen et al. 1998, p.39; our translation). Value management involves addressing the behaviour of employees, as well as their attitudes, values and beliefs. Therefore, Naschold argues, it is critical to link cultural change programmes within an organisation to organisational strategy rather than simply basing them upon organisational development processes. He argues that processes of cultural and organisational change have to proceed in parallel, with employees involved at every stage and in every aspect of these processes (Naschold, Oppen et al. 1997).

A recent empirical analysis of these processes and their effects in an international range of municipalities (Schiller 2005) identified certain factors associated with the success of change management:

1. A common understanding of strategic objectives needs to be established and institutionalised between politicians, public service managers, citizens and employees. In practice, this may be achieved through forums of politicians, public service employees and citizens.
2. A "fit" between the shared strategic objectives and the structure of the organisation, which means that, for example, working committees on the organisational level are aligned with municipal authority committees.
3. Resource allocation needs to be related to the shared objectives.
4. Evaluation of goal achievement needs to include feedback channels with users, for example via user panels.
5. Evaluation also requires feedback channels with citizens, in that capacity, in addition to their capacity as customers, which means that local institutions of direct democracy need to be in place.
6. Double-loop learning processes need to be institutionalised, for example through networks of city governments.

The missing piece of the puzzle then becomes how to institutionalise the connection between citizen involvement in the governance of public service organisations and employee involvement in internal management processes. The Norwegian case study outlined in Box 6.1 illustrates an approach to that problem.

Box 6.1 Larvik (Norway)

During the development of a 12-year-plan for the municipality of Larvik, trade unions, political parties, executive employees, citizens and employers` associations actively participated in the planning process through hearings, meetings, brainstorming sessions and newspaper debates. One particular innovation in citizen involvement is the decentralised local district conferences that take place twice a year. These conferences are funded by the municipality and are jointly organised by the municipality and local civil society organisations. This provides an opportunity for Larvik`s public employees to discuss local affairs, planning and service delivery face-to-face with citizens. The municipality then collects the comments given by the citizens within a special task force, consisting of employees from different units, and reports to the corresponding units.

In 1999, the then city manager introduced a modified version of the Balanced Scorecard (BSC). Larvik`s BSC contains seven categories: (1) user resources, (2) financial resources, (3) human resources, (4) cultural resources, (5) natural and environmental resources, (6) social resources, and (7) structural resources. From 2000 onwards, the city manager decided that all departmental managers would be obliged to include all members of staff in the identification of the department's targets and performance indicators. Larvik also conducts annual surveys on working atmosphere among its employees. These measures, along with the annual open meeting of all employees with the city manager, have contributed to highly collaborative employment relations in Larvik.

Source: Schiller (2005).

6.2 Productivity Measurement and Partnership Effectiveness

If workplace partnership is to contribute to productivity improvement, it follows that, among other factors, public sector organisations must have the capacity to develop and sustain it. An evaluation framework ought, therefore, to focus on progress in the development of partnership capacity as well as the two major elements of public sector productivity discussed in Section 2, service efficiency and service effectiveness. The following list of points for evaluation is proposed as a starting point:

• To what extent have substantive guarantees increased employee willingness to think and talk openly about work organisation, service quality and operational costs?
• To what extent have procedural guarantees (direct and indirect participation) provided opportunities for employees to think and talk openly about work organisation, service quality and operational costs?
• To what extent have both types of guarantee increased employee and manager willingness to work co-operatively to implement operational and organisational change?
• To what extent do employees have more control and discretion in their work, whether individually or as part of their immediate work group?
• To what extent have the exercise of greater control and work process discretion led to employees being able to detect and respond more flexibly to changing demand?
• To what extent do employees consider that their knowledge, experience, interests and opinions are being accurately represented in collective decision-making processes?
• To what extent do managers believe that employee knowledge and experience has contributed to increasing the effectiveness of decision-making?

In keeping with that approach, it follows that workplace partnership arrangements should include within their remit the development and periodic review of benchmarks for evaluating the development of partnership capacity and partnership effectiveness, and procedures for making required corrections to organisational arrangements, cultural change programmes, and the measurement benchmarks themselves.

The logic of the arguments we have made in the course of our analysis of the literature is that the more partnership is regarded and organised as an ongoing systemic process and embedded in organisational culture, transcending its use as a management technique, the more likely it is to produce sustainable improvements in performance. The argument is that the systematic endeavour to develop "learning organisations" (Senge 1990) requires organisational arrangements and attitudes that are conducive to ongoing processes that mobilise and develop knowledge and apply it in ways that improve operational practice, producing virtuous spirals of development.

What follows is not intended to be an exhaustive definition of organisational and attitudinal elements of partnership; rather, it is intended as a statement of the minimum conditions that make mutual trust and organisational commitment rational in an organisation, and which workplace partnership should aspire to institutionalise. We would argue that it is soundly based on the evidence cited and the arguments elaborated in this paper.

• Neither the decision to adopt partnership, nor the interpretation of what it means in practice, should be left to management alone.
• Partnership requires substantive guarantees with respect to (at minimum) employment security, wages and conditions of work. (The precise content of these guarantees is considerably less important than their clarity and relevance to the organisation and its employees.)
• Partnership requires procedural guarantees that ensure that there is absolute clarity about who has the right to decide what, when and how.
• Management must have the power to provide the required guarantees and to ensure that they are respected under all circumstances.
• Partnership should be focused not on particular substantive goals, but on increasing individual employee autonomy and discretion and on constructing systems of representative participation that articulate and transmit employees' knowledge, experience, interests and opinions within collective decision-making processes.
• The scope of partnership should be defined but subject to negotiated redefinition through the partnership process itself.
• The "safety net" of collective bargaining and managerial prerogative should be avoided or (more realistically) used only after non-adversarial dispute resolution has repeatedly failed and when unions, management and employees agree that consensus is not possible.

6.3 Towards a partnership model of public sector reform

The approach outlined above is founded upon the provision of appropriate procedural and substantive guarantees to enable workplace partnerships to improve public sector productivity. Together, these protect the collective and individual interests of employees, removing the risk of exploitation that is otherwise attached to co-operation in circumstances where it is not clear that shared interests exist. Co-operation - including honesty, openness and flexibility - thereby becomes rational. The experience of successful co-operation leads to mutual trust, legitimacy and organisational commitment which, in turn, reinforce the rationality of co-operation. The procedural guarantee of direct participation increases employees' autonomy and control over their work, permitting them to apply their knowledge and experience to the solution of operational problems, whether individually or in small groups, and increasing their capacity to respond to the needs of clients.

The organisational commitment related to mutual trust and co-operation corresponds to an approach to public sector productivity that is based on public value and ensures that an appropriate balance between organisational priorities and employee interests is maintained. The guarantee of representative participation transmits and articulates employee knowledge, experience, opinions and interests in the same way within more "upstream" decision-making processes on organisational goals and strategies. The application of employee knowledge and experience means that decision-making is more effective. The articulation of employee interests in decision-making processes means that decisions are more legitimate, even if - perhaps especially if - compromises have to be negotiated. Together with the flexibility that is related to mutual trust and co-operation, this legitimacy ensures that implementation of decisions proceeds more smoothly. Thus, both the organisation's capacity for change and the effectiveness of that change are improved, leading to improvements in service quality and public value.

It follows that detailed definitions of productivity criteria and measures should be based on public value creation and improvements and not imposed from outside the organisation or from the top down. Rather, the criteria and measures should be developed through participatory processes involving new governance arrangements in respect of relationships between public sector organisations and citizens and service users, and workplace partnership processes in respect of internal relationships. Moreover, institutional design should seek to link these processes without undermining either the democratic precedence of citizens in the determination of public value or the prerogatives of employees and their unions in collective bargaining. It might be that such devolution of authority would also lower one of the key obstacles to the development of genuine workplace partnerships in the public sector in that the risks associated with the different timescales of organisational transformation and the national political cycle would be reduced.

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