Concepts of Public Sector Productivity

There is no precise definition of public sector productivity, and so the report set out from the emerging consensus that public sector productivity involves effectiveness (in terms of outcomes) as well as efficiency (in terms of the ratio of outputs to inputs). The literature shows wide agreement with that general proposition, but there is less agreement beyond that, even on the meaning of terms such as output, outcome, objectives, performance indicators and so on.

Two questions really show why public sector productivity is such a contentious issue: Are citizens being provided with what they need? How could the services citizens need be provided more cost-effectively?

In the private sector, where goods and services are provided for the market, productivity is defined simply as the ratio of outputs to inputs; that is, how does a measurable volume of what is produced compare to the volume of resources that goes into producing it? But, even in the private sector, there are many different benchmarks, and the choice between them depends not only on the purpose of the productivity measurement but also on the availability of data. The issue is further complicated by the fact that, in reality, the productivity with which a company or an individual worker operates is determined by many factors, some of which are independent of the company or worker.

It gets more complex still in the public sector, where the mission is not to respond to what the market wants but to provide what society and citizens want, as expressed through their choice of government and the decisions made by that government. But the results of what the public sector does are influenced by not only what governments do but also how those actions and their results interact with other factors. Think of education, where the outcomes for any particular child are determined partly by what their school does, but also by other factors, such as their home life, their genetic inheritance and their family's income and wealth.

So the outcomes of the public sector are the product of more than its outputs, and its effectiveness cannot be reduced to its efficiency, although both are important. Efficiency has both qualitative and quantitative characteristics, which include the volume and cost of services, response times, error rates, accessibility, citizen satisfaction and so on. Effectiveness is a matter of whether or not services are provided in accordance with the priorities and objectives of government, and produce the expected or desired impacts. This is similar to the distinction made in economic theory between allocative efficiency (i.e. whether the right things are being produced) and technical efficiency (i.e. whether they are produced in the right way). However, the public sector doesn't just aim to maximise the satisfaction of customers but must deliver for society as a whole, while also fulfilling the particular rights, needs and wishes of minority groups and individuals.

One way to look at the particular role of the public sector is to think of it as creating "public value", which has three interconnected components: services, outcomes and trust. The public value of services is expressed not only in user satisfaction but also in the ethos and culture expressed in their delivery. Outcomes are produced in part by services directly, but also by the effects of those services interacting with other social and cultural activities and forces. Trust is more difficult to pin down but is arguably the most important. It is at the heart of the relationship between citizens and government, and even if formal service and outcome targets are met, a failure of trust will effectively undermine public value.

Historical Perspective

The question of public sector productivity can also be explored by looking at the historical debates about what the public sector is for, how it should operate and how it should be evaluated. The report describes the history of public sector productivity in terms of the various phases of public management models over the last century. In short, it began in the early 1900s when the approach to efficiency in public administration drew heavily on the scientific management theories of the time, which held that there was one best way to produce a defined product. There was later, from around the 1940s to the 1970s, a shift of focus to control of expenditure, and this was followed, from the 1980s, by a new approach, often referred to as "new public management" (NPM). This was ideologically motivated and advocated that public services should be delivered by the private sector or, at least, in ways characteristic of the private sector.

A further phase may now be emerging, one that corresponds to the public value approach to public governance and management. This emerging phase does not do away with the need to measure outputs and outcomes, but complements it by evaluating also the relationships involved in governance and management, seeing these as indicative of capacity to improve services and outcomes.

Measurement

Like the definition of public sector productivity, its measurement is dependent on what the public sector is expected to do and how it is expected to do it. Finding the causal links between outcomes and inputs is fraught with difficulty, and, as it is easier to measure outputs, they are often measured instead. But judging the public sector and its employees by output targets may not only fail to measure the effectiveness with which they contribute to desired outcomes. It may also affect their behaviour so that they aim to meet their targets, even if doing so is not the best way, in particular circumstances, to achieve a desired outcome. Yet governments must be accountable, and this continually recreates this drive to produce what can be most easily measured.

Just as productivity in the public sector began with the orthodox definition of measuring outputs against inputs, as in private sector production, so public sector productivity measurement systems began by measuring quantity of output and quantity of input. But because this left quality out of the equation, measurement systems were refined to include indicators such as timeliness and accessibility, and further complicated by attaching various quantified weights and measures to different qualities.

While understandable from a public accountability point of view, because citizens are able to judge governments against measurable targets, the result can be disastrous from a public value point of view, because it can lead to perverse incentives, producing wrong decisions, financial loss and demotivated staff.

The Impact of Measurement on Productivity Itself

As the measurement of productivity impacts on service delivery and public management practice, it follows that it impacts on productivity itself. The more productivity is defined in terms of standardised outputs, the more it tends to lead to "homogenisation" of services, particularly where staff are judged and rewarded against their performance in meeting output targets. This collides with the public value approach in which a critical element of service quality is meeting the socially and culturally diverse needs of citizens. In order to serve diverse needs equally well and for services to be available to everybody, public services in diverse societies must offer far greater flexibility to meet personal needs, while keeping the ability to connect resources and activities across entire systems of governance.

In addition, the specification of performance standards often narrows the scope for organisational innovation. This is partly because it encourages risk aversion and establishes rigid parameters of organisation and formal responsibility, limiting the gains that can be made from collaboration across service boundaries.

What, then, is the way out of this conundrum? The answer is not to abandon measurement, targets and standards, but to see them as tools to be used carefully and owned by the participants, rather than as an instrument of top-down control. In that way, accountability can be achieved at the same time as continually adjusting organisational and individual employee behaviour in accordance with what is required to produce quality services and desired outcomes. That, in turn, builds trust between governments, their employees and citizens and therefore creates public value.

Such observations are well supported in the literature, which offers considerable evidence that government performance measurement systems do not generally provide a reliable means of assessing how well public services (and the people who deliver them) contribute to the broader objectives of government. One suggestion noted in the literature, to ensure that a measurement system will be accepted and used appropriately, is to include as many viewpoints as possible in its development. The importance of involving frontline employees, in particular, is noted. Workers know the operations most intimately and are the ones in most immediate contact with users. They are the natural source of feedback, ideas and insights into the specifics of operations.

Although such ideas are well supported in the literature, however, governments evidently find it difficult to accommodate them in the way services are organised and productivity evaluated. This may be due to the limited timescale of accountability within the political cycle, which does not fit well with the longer-term and complex nature of organisational development and transformation.

The importance of adaptability in successful productivity measurement is also suggested in the literature, along with the important role staff can play in ensuring that their organisations do adapt to changing and diverse demands on them. This requires systematic feedback mechanisms that allow professionals and other employees to learn from the system and find ways to make improvements. This means keeping it simple at first and letting the measurement system and productivity improvements grow together. Provided that is done transparently, it need not undermine accountability arrangements, but can enrich them.

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