The EY New Zealand Productivity Pulse™

Driving public sector productivity

Closing the $280 million public sector productivity gap

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People challenges are uppermost in the minds of workers.

Job security

The Pulse examined the continued cuts to the public sector, with 51% of government workers experiencing cost cutting or redundancies in the past six months, versus 30% of private sector workers. Looking across occupational groups, the major group affected (both sectors) is professional, scientific and technical workers – over half reporting cost-cutting and redundancies in the last six months. In contrast, every other occupational group has reported a slow-down in cost-cutting, and the security of workers overall shows a slight pick-up. 

The impact of outsourcing

Outsourcing is growing in the public sector, with nearly 30% of workers experiencing some form of outsourcing.  Among those who have seen outsourcing in action, only 31% said it delivered higher quality outcomes.

Of even greater concern are reports that 44% of public sector outsourcing actively reduced productivity, leading to lower quality and higher costs. This compared to 26% of such experiences in the private sector, strongly bringing into question the efficacy of traditional outsourcing for government services.

Amongst workers in both sectors, there is a large degree of uncertainty as to whether functions had been outsourced or whether aspects of their role could be outsourced.

Traditional contracts inappropriate

For several years, many policy makers have assumed that government service delivery would be inherently more efficient in the hands of private operators, because of superior management practices and profit incentives.

However, as the Pulse reflects, the increasing rollout of outsourcing across different public services has been far from successful. Policy makers embarking on the commissioning process need a new approach that creates a tailored contracting model for each service, to address the following issues:

  • Reward structures – unless reward structures are well thought through, they can incentivise providers to respond in undesirable ways. Such gaming behaviours include ‘parking’ service users with complex needs and ‘creaming’ users who are easier to support and more profitable to serve.
  • Service chain – unless the service chain is unpacked effectively, it’s easy for contracts to inadvertently focus contracts on inputs (how many services need to be delivered) rather than outputs and outcomes (actual improved results that benefit society). This is a particular issue in community services where the desired outcomes (stable housing, school completion, better parenting skills) are hard to measure and best viewed over the long-term, when the real net benefit becomes apparent.
  • Educated consumers – effective competition requires consumers who know what they want and where to find it. However, sometimes when it comes to public services consumers find themselves without the necessary information or the support needed to navigate the choices that need to be made.
  • Market design – it’s rare to encounter well-functioning, competitive markets for government services. Often there’s no organised market, or the starting point will be one monopoly provider. Frequently, monolithic, monopolistic supply chains need to be broken down and existing markets reshaped to function more effectively.

Before choosing a contracting model, policy makers need to reflect on: the outcomes that will make the service successful and the incentives required to achieve them, how to unbundle and restructure the service chain to better deliver these outcomes and how to avoid the pitfalls of market design.

Optimal resourcing for productivity

Resourcing management and communication is critical to developing and maintaining a productive workforce, especially where agencies and departments are making significant cuts to staffing levels.

The Pulse found a strong correlation between more productive individuals and ‘right-sized’ organisations. For example, it found 79% of Lost Souls in organisations that are not optimally resourced. Whereas, right-sized organisations had workers with much higher personal productivity. According to all workers surveyed, less than half  - 45% -  believe they are optimally resourced.

It seems both public and private sector workers have an excellent feel for whether an organisation has adequate resourcing. There is a direct relationship between their sense of an organisation’s right size and its actual resourcing adequacy. Their assessment offers an important indicator of whether resourcing should be scaled up or down.

This simple, yet powerful, measure is to ask employees if the organisation has enough, too few or too many resources to cover its current workload. To this point, 39% of public sector workers feel they need more staff to deliver current workloads, in contrast with 25% of their private sector peers. Of biggest concern, 45% of workers in healthcare and social assistance say they are under-resourced, making the effectiveness of further cuts highly questionable.

To improve productivity, government agencies and departments need to:

  • Right-size the workforce – Simply cutting head count will not make an enterprise more efficient. A wider strategic view is required, allowing smarter decisions that retain critical skills, capability and capacity. This must be informed by employee assessment of resourcing needs and ongoing communication to keep ‘taking the pulse’ of the organisation. Gradual right-sizing by freezing recruitment and releasing poor performers will support a more targeted headcount reduction. Public sector organisations need to weigh operational trade-offs between functions and track the link between reducing numbers and productivity, stopping the reduction as soon as productivity improvements plateau out. Otherwise, costs will fall, but at the expense of productivity and performance.
    Most importantly, government organisations need to get their operating models right. If small government is the goal, then we need to be clear what the end game will look like. What are the appropriate models of ownership, contracting and delivery for different services? Clearly, one size won’t fit all?
  • Focus on the front line – the Pulse reveals that workers whose public-facing time is reduced may also experience falling productivity. 10% of workers with some form of public-facing role reported a reduction in public-facing time, and 28% of these workers reported a decline in their productivity.  30% of workers with a public-facing role reported an increase in public-facing time. This seems to be in line with Government’s stated intention to focus on front-line delivery. Certainly the evidence suggests that reducing public-facing workers’ back-office duties will help increase productivity.

  • Attract the right people – to the point about right-sizing, the push for small government makes it even more critical for public sector organisations to attract and retain the right talent. As departmental roles change dramatically to adopt very different operating models, skills gaps will emerge. For example, if government becomes a vehicle largely reliant on technology and innovation, new skills and capabilities will be required – at all levels. Rather than measuring satisfaction or retention, agencies would do better to identify and measure these skills gaps , to understand the skills required for each new role and then find people either with, or with the potential to readily acquire, those capabilities. Some of these people may already be within the organisation. The public sector needs to better understand its current skills to make the most of internal resources.

  • Use workforce analytics – this allows organisations to better understand where skills gaps lie and how talent management decisions feed into performance objectives. At the advanced end of the spectrum, companies are using predictive workforce analytics to forecast potential shortages or surpluses of talent.

  • Manage survivors – redundancies usually reduce the productivity of survivors through impacting trust, increasing stress, reducing job security and increasing cynicism. Tension between employees and management may increase, with managers becoming even less trusted than before. Often, turnover increases, as those who can find another job do so, to escape from a stressful work environment where morale is low.

    Despite the natural instincts of managers to keep a low profile, they need to be visible and accessible throughout the period of redundancy. Responsibility for driving productivity has to sit with managers and ultimately the organisations that support them to ensure the workforce practices motivate workers to perform at their personal best. This is an area agencies and departments should address immediately - managers must be equipped to make the case for change and support employees to adapt.

Like most organisations, public sector agencies grow over time, often failing to remove headcount even when roles are out-dated. Small government may be the future, but across the board redundancies are not the answer. They kill productivity and indiscriminately release valuable talent. The public sector needs a more strategic approach to create a skilled and productive workforce.


2Building a new talent management model, Ernst & Young 2012