5  Strategic management

Strategic management is a phrase that means many different things to different people. Poister and Streib (1996) suggest that:

strategic management is concerned with strengthening the long-term viability and effectiveness of public sector organisations in terms of both substantive policy and management capacity. It integrates all other management processes to provide a systemic, coherent and effective approach to establishing, monitoring, and updating an agency’s strategic objectives (Poister and Streib, 1999, p. 308).

This chapter outlines some of the constraints that may have affected the development of strategic management systems over the 1990s, and which continue to constrain the development of strategic management into the future; and ways in which these constraints may be addressed. The chapter also outlines the current Managing for Outcomes process, and considers whether it has sufficiently robust processes in place to assist agencies meet the identified constraints.

5.1  Articulation of outcomes

As noted earlier one of the key principles upon which the New Zealand public management system rests is the clear specification of objectives. Within a managing for outcomes environment realisation of this principle will require clear articulation of the outcomes sought by Government.

Over the past fifteen years we have seen a clear focus on specification of outputs within the New Zealand public management system[6]. Articulation of outcomes is, however, something that the New Zealand model has struggled with. This would appear to be due to the following.

A lack of Ministerial engagement and to some extent a lack of willingness to engage – Ministers are clearly willing to engage in policy-making processes, but seem to have been less interested in participating in formal strategy setting processes. Ryan (2003) suggests that this may, in part, arise because: where policy problems and solutions are complex and uncertain, the adversarial character of Westminster-derived politics particularly when combined with strong party discipline, provides little motivation for the executive to be precise about its goals and objectives (p. 27).

Lack of advice and support for Ministers – Gorringe (Grimes et al., 2001) suggests that Ministers have been hampered in fulfilling their role by information asymmetries, resource constraints (particularly on their time), the complexity of the New Zealand model, and a lack of advice and support as a counter to these issues. It was assumed that Ministers would purchase any advice and assistance they required, however this has largely not occurred and there is little evidence of departments or central agencies providing assistance, possibly because agency responsibilities in this area are unclear and unspecified.

Implementation of the State sector reforms did not take into account the implications of a strong performance culture on the identification of outcomes – the focus on performance through assessment against performance targets through the early and mid 1990s has potentially created perverse incentives whereby chief executives (like Ministers) appear to have been unwilling to clearly specify outcomes, against the risk that they could be held to account for non-achievement.

Lack of systemic support – arguably, attempts to provide for articulation of outcomes during the 1990s was not supported by other institutional changes. For example: financial management systems focused on outputs, and incremental budgetary processes did not easily allow for consideration of “alignment” of new spending with governmental goals; performance management systems were not designed in a way to encourage taking responsibility for the achievement of outcomes; reporting requirements to Parliament encouraged an outputs focus; and the continued policy of structural separation of agencies on operational / policy lines underlined the expectation that coordination was second to efficiency as a system goal.

Fragmentation of the public service – the fragmented nature of the public service can work against effective articulation of outcomes, if only because of the number of different agencies engaged in specifying outcomes in particular areas. The bottom-up approach currently being utilised to specify outcomes could underscore this risk.

5.1.1  Current processes – lessons learnt

During the 1990s attempts were made to provide for more systematic identification of the outcomes government sought from the public service. More recently the Managing for Outcomes process has been developed and implemented across the core public sector[7]. The process, as designed, seems to have learned from many of the past attempts. It encourages departments to take ownership of the process, and to develop agency specific outcomes in consultation with relevant Ministers, and it has been accepted that an agency should be focusing on an “important few” outcomes rather than trying to push all activities into the framework. Further, guidance provided by the State Services Commission and the Treasury puts the specification of outcomes into a framework of continuous improvement – where planning, evaluation and review are set alongside direction setting.

A recent evaluation of the process to date (Economics and Strategy Group, 2003) suggests that articulation of outcomes has successfully been introduced. However, the authors of the report also suggest that what has been accomplished to date is simply the first step in embedding an outcomes-focused management system within agencies.

More specifically the review identified that: the process has provided a focus for discussions about an agency’s purpose and focus; identification of outcomes has provided for improved expression of tangible departmental contributions to outcomes; and Statements of Intent have proved to be useful communication tools. As a counter-point to these success factors the review also found that some constraints on the process do exist. These are identified as:

• High-level outcome frameworks may have constrained the development of realistic and effective operational strategies and business plans. The more ambitious “reach” outcomes tend to be presented as more important, despite being less within the control or influence of the department.
• The task of identifying, developing and evaluating effective and useful performance measures is an onerous one and seems likely to exceed available skills and resources; it may even distort future workloads in some departments.
• As a result, easy-to-collect (mostly high level) performance indicators in some sectors (e.g. RS&T, health and economic performance) may be substituted for more operationally relevant measures. Also, departments may simply measure what they can afford to, omitting potentially critical interventions.
• Inconsistencies in the MfO approach of departments, including lack of precision in outcome description, could easily impede (or over-state in some cases) the opportunities for cross-agency collaboration (p. 6).

Two key issues appear to underlie these constraints: how accountability will be provided for; and the provision of support to agencies.

5.1.2  Possible responses to identified challenges

It is clear from the above that agencies would appreciate clarity about how evaluation of outcomes will affect accountability, and the provision of more tools, frameworks and examples of best practice. In addition it would appear that an increased level of Ministerial engagement would be welcomed, along with some clarification about who is responsible for the articulation of outcomes.

Increased dialogue with Ministers about the benefits of explicitly specifying the outcomes they wish agencies to focus on might assist in addressing the former issue, and should be supported by clarification of the “accountabilities” associated with specification of outcomes. This process would most usefully be undertaken in conjunction with the Audit Office, to ensure that Parliament is both cognisant and supportive of the paradigm to be established.

A sense of chief executive responsibility should continue to be encouraged by holding chief executives to account for their exhibited behaviours in this area; whether through supporting their Ministers in articulating outcomes, or leading the sector(s) within which they work. Concerns about how performance management systems will be coupled with an outcomes focused strategic management system will only be managed over time as Ministers and central agencies model behaviours which support chief executives in taking responsibility for, but not necessarily being held accountable for, the achievement of outcomes.

Further consideration should be given to how outcomes can best be aligned across and through the different strata of agencies that make up the State sector. This could result in departments identifying outcomes that then need to be picked up by relevant Crown entities, or the development of joint outcomes across departments with a reflection of the dual responsibilities placed upon chief executives as a result. There is some limited evidence of the development of joint outcomes across the public service, and this could best be built upon through disseminating knowledge to chief executives and their senior managers.

Finally, continued dissemination of tools, frameworks and examples of best practice should assist agencies to continually improve the level at which they are able to articulate outcomes, the links between outcomes and outputs, and the capability required to effectively and efficiently deliver services.