Sir Michael Barber’s report “Delivering better outcomes for citizens: practical steps for unlocking public value,” published in November 2017 provides valuable insight into how to meet this challenge. It offers a systematic way of understanding public sector results in the UK and delivering the change that is needed. One imperative is to create a culture of ongoing improvement and learning to drive the economy, improve services, and put society in a strong position to thrive.
Enormous Challenges
All over the world governments find themselves in a triple bind.
- Citizens demand ever higher performance from government and public services
- Taxpayers are unwilling to pay more, understandably so in an era when median incomes have been, at best, rising slowly.
- The burden of debt following the financial crisis remains high, imposing a real, immediate cost in interest payments and a significant burden on the next generation, if not paid down.
The specific challenges facing governments are enormous, and include:
- soaring demand for services
- increasing cost of security
- aging infrastructure
- protecting our environment
- rising demographic pressures
- continuing climate of austerity
Shareholder Value
All organizations exist to create shareholder value. There are two necessary conditions, an engaged workforce, and satisfied customers. In government, the shareholders and customers are one of the same. Analytics contributes to improved budget allocation, financial management, talent management and ultimately, better services for citizens. Budget allocation based on contribution to goals increases fiscal transparency and a business-enabling environment. Applying the analytics makes alignment from top to bottom possible.
Evidence-based mindset
Adopting an evidence-based mindset, an open-minded attitude that would seek to identify what has worked in the past, what has the best chance of working in the future — and endorsing those policies, as opposed to just expressing an allegiance to political ideology or tribe.” - Steven Pinker, Harvard
Evidence-based decisions and increased transparency create cultural shifts within an organization — a clear focus on the clients (beneficiaries of the service). These changes require generative thinking and governing.
In addition to an evidence-based mindset, generative governing requires:
- framing problems and making sense of ambiguous situations
- moving to active learning
- recruiting and embracing a broader array of diverse talents
- adopting a norm that values frank discussion and disagreement
- exploring and reinterpreting the past
- finding new patterns, new ways to frame old problems, and new sources of ideas to set a different course for the future
Most of all, government’s effectiveness increases as the elected officials become more proficient in generative thinking — public servants become more proficient in governance alignment. Citizens benefit from their efforts.
A Principles-Based Approach
Government budgets are squeezed as never before. Governments continue to budget by program rather than optimizing available resources to create better outcomes for citizens. Scrutinizing past expenditures based on their relative contribution to the jurisdiction’s goal will radically challenge the cognitive biases that maintain the status quo.
By principle I mean a behavioral aspiration of the community, a clear, unambiguous statement of a fundamental belief about how the whole and all the parts intend to conduct themselves in pursuit of the purpose. A principle is a precept against which all structures, decisions, actions, and results will be judged. A principle always has high ethical and moral content. It never prescribes structure or behavior; it only describes them.”—Dee Hock, Birth of the Chaordic Age
Principles provide general guidance for how to understand and act in the world. Goals frame the intended outcomes of specific actions (projects, programs, and policies) within some limited time frame. Principles and goals can be complementary. To be most effective, they are aligned and mutually reinforcing. The alignments (or conflicts) between them needs to be considered. Evaluating principles as if they are goals or projects is inappropriate and distorting.
Citizen-Centric Budgeting
There is no excuse for not having good data to enable effective monitoring of the outcomes programs are delivering. There needs to be a much stronger emphasis on outcomes, medium- and long-term, as well as inputs required to achieve those outcomes.
The change of culture and a process across government and the public services is needed. It would affect ministers, officials and all those who work in the public sector. It would put the benefit of ordinary people’s lives and aspirations at the heart of policymaking and budgeting.
The Goal Alignment Program (GAP™) provides analytics and methodologies for modeling, assess and optimize government structures and programs to deal with the reality of citizen-centric budgeting. Good governance means all resources increasingly contribute to attaining the well-being of citizens. With GAP™ there is an alignment of government programs to achieve its high-level policy goals or principles.
Analytics improves financial management
The application of financial and governance analytics improves financial management enabling governments to better serve their citizens.
Based on long and extensive practice, research, teaching, consulting, and publication in this field, I judge GAP™ to be world-class and state-of-the-art. It is uniquely outstanding in concept and usefulness. In my opinion, managers could not find and used a more relevant and applicable planning model and method.\" — Dr. Donald H. Thain, Ivey Business School
170 Percent Higher Return
In the private sector, the companies that align their finances strategically tend to generate significantly higher shareholder returns than their counterparts do. They make tough decisions about investments and reallocate resources quickly. They readjust as things change. As a result, according to McKinsey, companies that dynamically reallocate their resources to higher-value activities deliver, on average, a 10 percent return to shareholders; those that allocate more slowly or not at all, only 6 percent.
In the public sector, however, little change in spending allocations occur from year to year. Although some governments have successfully reallocated resources—for example, infrastructure investments. Few have done so with existing programs. From 2006 to 2014, 92 percent of the annual sector-level budget allocations of EU countries, adjusted for inflation, remained virtually identical from year to year as shown below.
Source: Eurostat government-expenditure statistics; McKinsey Center for Government analysis
This pattern applies to governments at all levels. Governments have considerable room to align goals with available resources. They need to differentiate between their most and least valuable programs when they allocate resources. With our structured process, government quantifies the value of all benefits. The allocation becomes based on fact and logic rather than current opinion and emotion.
Good governance focuses on optimized alignment of its structures to overall strategies. We view these structures collectively as "governance chains.” Good governance means that you ensure that all resources increasingly contribute to achieving your mission and vision. Our analytics enables you to objectively align these governance chains for success.
Need more than benefit-to-cost ratios
For example, the benefit-to-cost ratios of different kinds of road-transport programs in the United Kingdom, range from 1:1 to 25:1, and the earnings outcomes of higher-education programs vary by a factor of seven. Simple benefit-to-cost ratios do not work in the complex system that government manages. The government needs to determine the interrelated contribution of each of the goals. In the above example, what was the contribution of high-education programs to road-transport programs? As a government are you optimizing for the short-term or the long-term? Most choose the short-term to get re-elected. However, most citizens want the government to take the long-term view and secure the future for their children.
Governments can allocate resources more efficiently. Last year’s numbers, for example, are an implicit but extremely powerful anchor in budget reviews. Stability biases include the well-documented tendency to feel losses more acutely than similar gains. This approach discourages decisions that appear risky and the elimination of programs that are not producing results that support the current strategy.
Role of finance
Governments’ finance function has a vital role to play. The key decision of the relative contribution of goals needs to be validated by elected representatives using the best available evidence and considering all factors, including hard benefits to cost ratio and public input. Public servants know the relevant data on expenditures and should oversee reallocation processes based on the schema in GAP™. They are well placed to work with individual departments or agencies to analyze expenditures and to challenge costs. Moreover, they need to armed with the right tools, data, approach, and attitude; finance professionals can effectively counterbalance a system’s inherent biases and ensure that budget-allocation decisions are optimizing to achieve goals.
The finance functions must lead more strategically to ensure the effective allocation of resources. Traditional tasks of reporting, transactional, and compliance activities dominate the current roles. Finance officials need to shift their focus to tracking and to evaluate the effectiveness of spending, challenging line managers to improve productivity, and enabling tough decisions.
GAP™ is a tool at the disposal of finance functions. It provides a strategic spending review. Also, we offer the world’s first artificial intelligence auditor, the MindBridge Ai Auditor for internal audit. Society’s tolerance of corruption in its government is at an all-time low. Anomalies occur in financial transactions. Understanding, early detection, and correction of irregularities in financial reporting are critical to having the right data for managing operations, decision-making and protecting your reputation. It also changes the organizational culture. We also offer a unique application of the Ai Auditor to reduce municipal fraud. Individuals charged with the safeguarding the public purse need to embrace technology to do a better job, yet very few do.
GAP™ features include Documentation and Entry, Alignment Strategies Analysis, Governance Chain Analysis, Unit Performance Analysis, Performance Management, Project Analysis, and Budget Analysis.
Our Goal Alignment Strategies Analysis:
- calculates the value of each goal and governance chain's contribution to, and alignment with entity’s strategies
- enables viewing of the best and worst strategies regarding their contribution to overall goals
- assesses goal contributors across all managerial levels
- identifies opportunities for enhanced strategy alignment
- evaluates organizational synergies and opportunities
- enables the rapid assessment of impacts when you make changes
- permits “what if” scenarios
Goal alignment is achieved through governance chains. Each chain begins with a board strategy. The “chain” is made up of all the goals that contribute to the strategy. They are linked together by your various organizational levels. Historically, several methodologies used governance chains. These methodologies have faced two overwhelming challenges:
- Complexity: Organizations have evolved to encompass a sophisticated workforce. Goals contribute both to those of the next higher level and to other parts of the organization. GAP™ manages this additional complexity and eliminates the sub-optimization that occurs throughout the organization using traditional planning processes.
- Magnitude: Each unit typically has at least 5 or 6 goals. The number of chains escalates quickly. For example, an enterprise with 12 V.P.’s, each with 12 Directors, and in turn, each with 12 Managers with six goals apiece – would have more than 3 million governance chains!
These factors constrained the use of governance chain methodologies. We developed a tool to model, assess and optimize enterprises of all sizes rapidly. We call our technologies and methodologies the “Goal Alignment Program" (GAP™). Read our article, New Breakthrough in Organizational Effectiveness to learn more.
GAP™ reviews involve a rigorous, detailed examination and classification of expenditures to scrutinize their efficiency and effectiveness (for example, through benchmarking) and to identify possible savings.
Moreover, GAP™ makes it necessary to enter data in a disciplined way, so that subsequent analysis of expenditures becomes vastly more efficient. Using the GAP™ analytics, the finance function has the time and capacity to be me more strategic and create additional value.
Strategic spending reviews have helped governments to find tens of billions of dollars of opportunities to improve their effectiveness and efficiency and to reallocate spending toward their strategic priorities. GAP™ can take them to the next level.
Challenges implementing this practice
Change management. Establishing the strategic outcomes and focusing on them. Management within government and corporations actively resists the transparency that is possible using advanced analytics. Most see their intuition as their crucial value to the organizations — analytics threats this.
Challenges in sustaining this practice
Willingness to move from subjective decision-making to objective decision-making. Ensuring that the public service maintains a results orientation by designing and managing projects in such a way as to provide a continuous focus on the achievement of outcomes. Often barriers such as budget allocations and competing policy directions make sustaining the practice very difficult unless the senior leaders are committed to overall optimization of outcomes for citizens.
If you would like to learn more send me an email. I look forward to connecting with you.
Strategic Insights to Grow Your Business
Our insights prepare you for tomorrow. We offer strategy and analytics for evidence-based decision-making related to people, money, and governance:
- Financial analytics powered by the Ai Auditor™ — uncovering material errors using artificial intelligence
- Governance Analytics powered by GAP™ — aligning operations to achieve strategy
- Talent Analytics powered by SuccessFinder™ — predicting career success and job fit
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