Continuity and Change: The Ongoing Pursuit of State Sector Performance

Speech#

Good afternoon

It’s always a pleasure to be among colleagues and friends. I’m conscious that among presenters at this conference are the parents of our current public management system. As one of their “children”, I would like to pay homage to their vision and achievement.

The theme of this conference is change in the New Zealand Public Service. As head of the Treasury, one of the Government’s three central agencies, I’d like to talk about a challenge of fundamental importance to us, that of raising Public Sector Performance.

Public Sector Performance is a vital issue, which is why it sits alongside Economic Performance and Macroeconomic Stability as one of Treasury’s three major work streams.

Serious thinking about Public Sector Performance should be a priority for us all if we are committed to increasing New Zealanders’ living standards. Public Sector Performance carries significant economic implications with far-reaching impacts not just on the wider economy, but on the daily lives of New Zealanders. The blunt reality is that poor performance is costly. Good performance, as well as saving money, provides a solid foundation for our future.

One of the reasons why it’s great to have a conference such as this is because to continue to move forward we need to discuss our progress, share ideas, and demonstrate a willingness to review, report and be assessed on our performance, and we need to be open about doing it.

Today I’d like to:

• do a brief stocktake of our progress as agencies in delivering services to our stakeholders
• examine the role of the public sector management system in that delivery
• look at areas and principles of that system that we need to maintain or further embed; and finally
• suggest some approaches I think are worth exploring to lift our performance and produce better outcomes for all New Zealanders.

So how are we doing?#

Well, like any economist, I’ve got to begin with a disclaimer, though it’s a pretty obvious one. Any performance management and accountability system will necessarily be based on a model that is a simplification of reality because of the complex environment, both political and social, that we operate in. Institutions really matter, but in reality any system can only take us so far.

We mustn't forget that public sector performance is a never-ending challenge, and frankly it is not easy (except perhaps to the most distant observers). Management systems designed to support better performance degrade over time and periodically need to be reviewed, renewed or revamped to maintain their effectiveness.

In my view, the existing arrangements have delivered some good gains and done much to improve the Public Sector’s contribution to the wider economy. However, let us not deceive ourselves; agency performance is still mixed, with scope for improvement in most agencies and substantial scope in some, particularly in the area of achieving results and value for money. In some ways that may always be true, but it does suggest there are still a number of mountains we have yet to “knock off”.

There are still areas of the public management system that we need to protect, build on and enhance, just as there are areas of weakness that we can and must remedy. There are also areas where the system needs to be reconsidered in the light of experiences over the last 20 years, including issues that have become apparent during implementation and responses to changes in the wider operating environment.

None of these necessarily involves a fundamental rethink or change of direction – but they do involve all participants developing a much more connected and citizen-focussed view of performance. I think it is fair to say our current level of connection and citizen focus is well short of where we can be; we still don’t provide the performance information to drive that focus and we don’t measure and assess value for money in public service provision in ways that we could. There is a sense that performance measurement and assessment is treated by some as a compliance exercise or a risk to be avoided or minimised.

People have accused the Treasury of being model-driven and over-simplifying reality. In some ways we have probably encouraged that perception: inevitably we simplify what we know to be in practice much more complex; we talk about what we want to happen and not what we expect to happen; we say more about the formal rules and processes than about the informal rules and relationships; and we focus on changes at the margin and say less about what isn't changing. However, we are far more pragmatic in implementation than initial policy proposals might suggest.

A key point for me is that architectural improvements only take us so far – if we want to get some real performance improvement, we need to focus at least as much on the players within that system as we do on the system itself.

One way of looking at it is to compare Public Sector Performance to the electricity grid system – the ‘grid’ in this case being the Public Finance Act, the State Sector Act, the Crown Entities Act, and basic management principles that allow the grid to operate.

Although the national grid (the system) is important in delivering electricity, there are many other relevant factors. These include the external environment and its interaction with the grid, and also the market, and how the players in the market use the grid. We also can’t ignore other issues – if you were a Waikato farmer, for instance, you might just have some wariness about the grid encroaching on your turf.

It’s pretty clear that to focus solely on the grid (the system) and its design is a bad call, because equally, we need to focus on the market and players. We also need to ask whether the grid is restricting the flow of electricity, and address those sorts of issues when that is possible.

Of course, the landscape can also have a major influence on how the public sector performance “grid” is able to work. In recent years, factors like MMP and the Official Information Act have irreversibly altered the way the public service operates. Today, the factors at work on the public service landscape include heightened public expectations and engagement, technology, advances in international thinking and management techniques, demographics, environmental issues (and not just limited to climate change) and the increasing role of the state in trying to influence individuals’ behaviour – as we’ve seen with obesity and savings.

As always, economic factors and the size of government spending continue to influence the public sector environment and create their own challenges.

Knowing what these challenges are, we must also focus on the areas where the biggest gains can be made. I’m going to talk about three:

• maintenance of the system
• embedding recent and upcoming change, and
• performance initiatives, focusing on players and agencies and how they operate the system.

System maintenance#

Every system requires maintenance, and that includes supporting and maintaining the underlying foundations the system is based on. We must ensure that people understand and play their role in the system – and use the system as it is intended. For convenience I’ve split this discussion into the importance of maintaining some fundamentals and principles and then reflected on whether we can use some parts of the system better.

System fundamentals/principles#

A good example of this is the application of the Official Information Act. The Act has had several very positive impacts – obviously on public engagement but especially on aspects of the quality of policy advice. However, a number of commentators have identified some potential negatives which could impact on the operation of the public management system. There are concerns the OIA has engendered reluctance among officials to be frank, explore new ideas or pursue more lateral solutions.

My view is this: if we know and understand our roles as public servants (which I’ll touch on shortly), and if we do our best to play those roles as well as possible, then the OIA is a positive way of improving the quality of our advice. It makes our advice open to peer review and encourages debate. And that can only get people more involved in Government. And if used properly, the necessary mechanisms are there in the Act to reinforce and protect the processes necessary to good government, including confidentiality where that is justified.

Another fundamental issue is public sector political neutrality. Inevitably the public sector is under the spotlight for what it does or doesn’t say to Ministers and I think it is critical that we understand the basis of those engagements.

It should go without saying that public servants should give free and frank advice to Ministers and we should do this in as persuasive a way as possible. But we should also be trying to assist decision-making generally, by drawing out what the core decisions are, what the evidence tells you, what the range of possible options are, as well as what we would recommend Ministers should do in our best professional judgment and why. And we should do this at each stage of the policy process.

Integrity and professionalism are at the core of what being a public servant is about. We should not and must not shirk our responsibility to provide hard-nosed, impartial advice to the best of our ability. But equally we have a responsibility to recognise the context and constraints on our advice by being responsive to the democratically-elected Government’s goals. We have an obligation to be both free and frank and responsive. They are not mutually exclusive.

In my view, many of you in this audience also have an obligation - to keep the public sector honest about its performance. Because of the knowledge you have and positions you hold, you have the ability to ensure that we and the system are kept accountable. But that does require that criticisms are well founded and don’t draw from anecdote and hearsay – because when they do, they can act to undermine the system and the values we seek to protect. While criticisms are helpful, frankly I think that means we should be putting forward ideas about solutions as well.

Can we use the system better?#

We need to keep challenging our thinking about whether we are using our system levers to their full potential. An example of this is the ability to contract out services to organisations outside the government. We should be looking internationally to learn from the successes and failures in other countries that have tried this kind of outsourcing.

We also need to continue to think about what is the best way to organise ourselves to achieve the Government’s objectives – not only because of the barriers to working across agencies. There are also capability issues and the risk of spreading our key asset – people – too thinly across agencies. Part of that thinking may be around the number of departments and crown entities. Compared to some overseas jurisdictions our system is relatively fragmented and some would argue that that may complicate our endeavours to provide the connected advice and services that ministers and the public need. But the reality is that, however government is structured, there will always be boundaries. We need to find more effective ways to work across those boundaries to tackle the kind of complex problems and opportunities public policy and delivery face today.

Embedding recent and upcoming changes#

System maintenance should be coupled with system evolution. The public sector system is continuously evolving. I believe a number of changes made in recent years – and some changes still being worked through – will support better performance and should be embedded in the system. We also need to bear in mind that those seeds of change will require time to bear fruit.

These changes include the reforms to the Crown Entities Act – which provide the platform to improve governance and performance of our Crown Entities, as well as the improved focus on managing for outcomes – which involves a range of measures to focus agencies on results rather than just inputs.

A key aim of the current Review of Accountability Documents, or RoADs, is to provide better performance information. RoADs is about stripping the fluff and puffery from our accountability documents and concentrating on saying what we do, how we’re going to do it, and how well we’ve done. It should make our performance information more useful to Ministers, Members of Parliament, select committees and the public.

At the agency performance level, the Treasury (working with other agencies) has made good progress in building and telling a better performance story using a “sector lens”, or where that is not feasible looked to isolate particular functions within sectors. Central agencies have attempted to pull together aspects of agency performance, outcomes and value for money to start a dialogue with agencies and ministers about possible areas of focus for improving overall performance.

For example in the health sector, Treasury has led work on productivity measurement and supported Ministry of Health initiatives to provide benchmarking tools for District Health Boards. We also investigated the use of national targets to motivate health sector performance and supported the health targets which the Ministry has now put in place.

While I think that has been a fruitful approach in that we can enhance the supply of useful information, we also need to be able to create a demand for that information. Players in the system, for example agency Chief Executives, have an important role to help create that demand.

Though performance information has a crucial role to play and can be expanded, it will never be the answer to all problems. The reality is that some things cannot easily be measured, nor does performance information itself guarantee impact.

Performance monitoring is not just about information, but about interpreting and using that information.

While the work now in train will be useful, it will not be an endpoint and it is timely to consider what else central agencies and others might do at the system-wide level to lift performance further.

I’ve said earlier that we cannot claim we have a truly citizen-focussed view of performance, and there are real and legitimate questions being raised about value for money in the provision of a number of public services. The fact the public sector development goals have been expanded to include a value for money goal is a significant and important signal about where we must look for greater gains.

Performance initiatives, players and agencies and how they operate the system

I’ve postulated that it’s the behaviour of the players as much as the architecture of the system that is the key. How can we sharpen incentives on the behaviour of the players? As a first step, there is scope to link performance and results to the players in the system.

We can begin by seeking better links between existing tools and levers towards the common purpose of improved performance. There is some challenging thinking to be done in this area.

A good example of the possibilities here is in the budget process. There are opportunities to strengthen further the budget’s focus on performance beyond its current focus on fiscal and input control. There is scope for the budget to become a stronger lever for demanding better performance information, and aligning resources with Ministers’ priorities.

This could be done by using the budget to set clear performance expectations and focusing on existing expenditure more – not just the marginal budget expenditure. Linking access to future funding to the achievement of performance targets would be useful in some areas, as would aligning the chief executives’ performance management closer to the budget process, and the achievement of results.

Secondly we need to put performance into a longer-term frame so that Governments develop enduring and sustainable long-term policies#

In part this is about quality information the public sector can provide Ministers to inform longer-term decision-making. The long-term fiscal report prepared by the Treasury is a good example of where the public sector can support Ministers to make informed decisions about the future. That report highlights the risk to the fiscal position in the long term. We need to be doing more of this across policy areas. There is an additional need to join up the advice across the public sector on the way we see the future playing out.

We also need to look for ways in which we can support Ministers and the public to better understand the trade-offs in policy decision-making. Addressing some of the really hard policy issues may require trade-offs with achieving results in the short term. A good example of this is addressing long-term health expenditure. Money spent on preventing future health issues amongst children comes at a cost – in terms of what can be spent to address existing health issues or elsewhere. The public sector could do more to support Ministers and the public to understand these trade-offs and what is most likely to be effective over the longer term.

Another example is capital asset management where already the Treasury with the support of SSC and DPMC is leading work to raise awareness of the benefits of improved asset management, reduce the risk of fiscal and operating surprises related to management of assets, and secure measurable gains from capital spending. We are looking to achieve those objectives by:

• Central agencies assuming clearer leadership roles in capital asset management and in ICT (Information, communications and technology), and
• Treasury implementing a new capital asset management framework applicable to all departments and crown entities, and all asset classes which will require better quality information to be available for decision making, financial planning and performance monitoring purposes.

Thirdly, what binds these performance enhancements together is leadership and we need to give greater effect to the Whole-of-Government collective approach#

Policy issues are frequently complex and beyond the reach of any single agency. This applies to areas like health status and housing, as well as current concerns about youth potential. As a result, public sector leaders need to work collectively as well as individually on enhancing the collective interest. There are good examples of agencies working together effectively to achieve shared outcomes. It happens not because of the "system", and indeed barriers created by the system can often be overcome through strong leadership.

One example is the 2005 Effective Interventions project, which involved all the Justice sector agencies and central agencies working together on substantive policy responses to New Zealand's crime rate and imprisonment rate. This sector is notable for its linkages - both within the Police/Courts/Corrections 'pipeline', and more widely with health, education and social development agencies having important opportunities to reduce crime. While the policies emerging from Effective Interventions will make a difference, there is clearly more to be done - as signalled in the recent debate about Raising Youth Potential.

A more recent and topical example is the work done around housing affordability. This entailed a project team involving central agencies and housing agencies under DPMC leadership drawing together a story about the housing system and drivers of house prices, and from that, developing policy work and options for Ministers. This work culminated in the Prime Minister’s recent announcements at the opening of Parliament.

Having said that, there are things we could do to support better collective interest including getting greater clarity about expectations for achieving that collective interest.

Finally#

We have every right to celebrate the gains of recent decades. The public service has become more responsive and innovative, and delivers better services. However public expectations are such that better is not good enough, and indeed there are some service quality problems. The answer is not easy but we need to move beyond debating models – we all have a responsibility to achieve better performance and value for money in public service provision. We need to learn from what we've experienced, and make changes where we should, while ensuring the core ideas and values remain clear.

Thank you.

ENDS