Policy, programs, control and complexity - ICAC on problems in NSW public policy and administration

I fear that this has been a sadly neglected blog. In this, the first post for 2013, I want to return to a common theme in my writing across all platforms, problems in current approaches to management in both the private and public sectors. One part of my message has been the way that organisations are drowning in their own systems.

The trigger for the post was a November 2012 article in Corruption Matters (Number 40), a twice yearly publication from the NSW Independent Commission Against Corruption  intended to raise awareness about corruption related issues, Can those at the helm see where they are going? If you want to see the original, go here, click on publications by date and then click on November 2012. I agree that it's not a very user friendly approach; to many pdfs!

While I disagree with aspects of the analysis in the article, it does illustrate some of the points I have been making. For that reasons, I am reproducing it in full with commentary.

The article begins:   

"Almost exactly 20 years ago, David Osborne and Ted Gaebler described the importance of uncoupling policy and regulation from service delivery when it comes to driving transformational change in government; that the act of “steering” the boat, if you like, works best when separated from the act of “rowing”.

The idea that those who steer should be separated from those who row has been taken up with gusto throughout the public sector; although not necessarily in the way envisaged by Osborne and Gaebler. Theirs was a call to action for a decentralisation of authority by separating the macro-level function of government from the micro-level creation and administration of public programming. In other words, have government influence direction in a broad sense in order to empower frontline agencies and communities to solve their own problems by creating and delivering services that resonate with the needs of their specific audiences."

Comment: I actually have some problems with the Osborne/Gaebler approach because operations and policy need to be integrated and inform each other. Indeed the article recognises this. Part of the problem is that what constitutes policy gets totally confused. The simple steering/rowing classification fails to recognise the distinctions between different types of policy and operations and is, as we shall see in a moment, part of the problem. The article continues:   

"The reality, unfortunately, is that in some cases agencies and communities are stripped of this power almost completely. Frequently, almost all aspects of policy, procedures and program design are centralised within  distinct policy groups (those under the guise of steering), with little discretion devolved to staff in the operational units (those rowing). A cursory examination of almost any agency’s organisational chart will show a policy group in head office that is separated from the operational group."

Comment: Boy, did that strike a chord. However, it's much more complicated than that. A whole variety of delivery aspects get centralised, from policy through risk management to communications and reporting. As soon as you classify something as "policy", and this includes organisational policy, then it gets complicated. Create a policy or indeed oversight group, and it has to do something to justify its existence. The article continues:

"Disconnected policy

The result is that a disconnect can develop between the policies, procedures and programs directed from above and the operational realities of service delivery at the coalface. Operational staff are often unaware of he relevant policies, are unable to comply due to on-the-ground realities,or deliberately work around these policies to achieve the necessary outcomes.

For example, the Commission has seen corruption inadvertently facilitated because one policy in a given organisation, which required delegation and signature-checking for a transaction, was made impossible because of a supplier-payment timeframe dictated in another. In other cases, corrupt individuals have claimed the complexity of a policy was such that they could not understand what gifts were permitted."

Comment; Again, this struck a major chord.  You make me responsible for delivery. Then impose policies and procedures that mean I can't deliver. Of course if I'm serious about my job, I'll find a way of working around the problems created. That does open the way for corruption by unscrupulous staff. Sometimes, however, it's actually the only way in which audit trails and accountability can be preserved as honest staff fight to create ad hoc procedures that will meet the intent of policies and procedures despite the formal detail. The article continues:

"Often procedures for tendering cannot be followed in remote areas because there are neither enough suppliers nor staff to run the tender process as it has been designed. In one case heard by the Commission, a policy required an academic to be responsible for staff security vetting in specific situations, which did not work out."

Comment: I put this next paragraph on it's own because it has a certain personal resonance. I'm not sure that Sydney based ICAC staff would know what a remote area was. There are no tertiary institutions there. My own alma mater was recently the subject of an ICAC inquiry, but while its headquartered outside Sydney it cannot be classified as remote. But more importantly, rules laid down in Sydney designed for big urban centres can have unforeseen consequences.

I recently listened to a discussion on a building program in remote areas. The tender rules required a specific approach intended to protect subcontractors. The program manager said bluntly that either people would lie or we could not build. The builders did not have the financial resources to comply with well intentioned ideas. The article continues:    

"In some human service organisations, there are tens of thousands of pages of policies designed to cover every future operational eventuality and in response to almost every previous problem encountered. This so exceeds the cognitive capability of any staff that they cannot, and do not, follow much more than the broad intent that is communicated by their manager.

In short, the uncoupling of steering and rowing at this micro-level can result in policies, procedures and programs that are not suited to operational realities. Control of operations is neither by traditional policy prescription and compliance nor by devolved accountability for outcomes. All too often, the result is wasteful, low quality services. In turn, the waste, complexity and unworkability that stems from disconnected policies becomes conducive to corruption."

Comment: What can I say? Sigh, it's true!, although the problem really lies not in the uncoupling of steering and rowing, but in the attempt of the steerers to over control, to move into areas that are not properly their space. The problem is further compounded by multiple layers of steerers, multiple decision and control points. The article continues: 

"Integrating design and operations

The waste, mistakes and overall escalation of costs that results from the separation of design and operations is a central concern for personnel in the manufacturing industry. Far from seeing a benefit in separating the steering from the rowing at the micro-level, the approach of “designed for manufacturability” (DFM) aims to bring together those who design the product with those who make it. By designers understanding operations and vice versa, a product can be designed that the operations function of the organisation is suited to making. Costs and waste are reduced, and quality improved through a joint focus on, for example, simplicity, fewer parts, standard parts, ease of fabrication, minimal handling and use of modular components.

To integrate the design and operations functions of a given organisation requires significant organisational change. Culturally, the division between the designer elite and the operations staff has to be broken down. This is often difficult, as organisations may exist as silos with few connections between them. There is often a physical separation of designers from operational managers that must be overcome; as is the case with the physical separation of policy staff and operational staff in government. When coordination mechanisms are consciously developed to link design and operations, they often function for a short period at the initial stages but tend to revert to the designer-driven norm as the product is modified and upgrade – again not dissimilar to initial rounds of consultation by policy units followed by top-down directives."

I found this writing a little confusing. Design for manufacturability is a two stage process, both requiring better integration with design, manufacturing and sales staff. The first stage aims to get products that deliver better results at lower manufacturing costs. However, once the product hits the market, the process continues with the aim of further improving functionality while reducing manufacturing costs. The process takes place within a framework of corporate policies set by management.

Expressed in this simple way, we can see that policy development and then implementation can be equated to to the manufacturing process. Again, we have an issue linked to the meaning of the word policy. In equating policy to design, there is a danger that the main message - the need to achieve better integration of policy and operations - will be lost. The problem lies as much in what are now called governance systems, the framework within which policy operates and which equate to the corporate policies within which the manufacturability process operates, as in normal policy operations.

In the big organisations, the mega departments, that now dominate the public sector, you find a hierarchy of policy areas that actually suffer from very similar problems as operational areas. The result is a bit of a mess that cannot easily be resolved through better integration of policy and operations. If you actually map one of the main policy fields and its supporting programs, you will find a complex and somewhat crazy spider web of reporting lines, decision points and policy/service interactions that nobody really understands.

The article concludes:

"While there is no doubt that uncoupling steering and rowing at a macro-level is important in driving transformational change, such an uncoupling may become dysfunctional at the micro-level. For a single frontline officer to require multiple and vastly different performance reports from the one non-government organisation that is providing services under several contracts with the one agency can be seen as a symptom of problems generated by the separation of program design from operations.

Another symptom is the prevalence of policies that run to tens of thousands of pages in length or a child protection officer, in a remote location, that sleeps in their office with at-risk children, against policy, because there was no other option. Separation of the function of steering – as intended by Osborne and Gaebler – from the accountable, devolved responsibility for operational outcomes is sensible. But the separation of micro-level policy and program design from operations under the guise of steering may well be counterproductive and conducive to corruption."

Comment and conclusion

I agree. In narrowing the focus to the separation of program design and operation, the article focuses on a real problem. The examples given are real. However, the old saying that a fish rots from the head is germane.

The malaise that the article refers to starts at the top where the interaction of theories of management and governance interact with institutional structures and politics (politics is just as prevalent in the private sector, although the form may be different) to create the framework within which the delivery mess occurs. Without change at the top, reform further down the chain becomes very difficult.

Australian budget day

A post on my personal blog, Australian budget day - what will I examine?, briefly looks at tonight's Australian budget. I will bring the follow up post here tomorrow.

National planning for global downturn

I concluded my last post, Global economic gloom, with the comment:

Like many, I have been mulling over what all this means (for Australia). I thought that it might be helpful, at least to me, if I did some of the same type of very basic economic analysis that I did during the GFC. You know, the simple stuff based on first principles. That's a better guide than the more complex analysis at a time of change.

As I write, the stock exchange and financial markets have been all over the place, with some of the type of breathless reporting that I have commented on before. One minute we are all ruined, the second everybody seems to breath a sigh of relief!

From a practical business perspective, what is important first is changes in the marketplace in which the business operates, rather than overall trends. I make this point simply because the two are not the same, but may diverge quite widely. Then there are the effects on funding of changing conditions in financial markets. This raises a different set of issues independent of individual market conditions. I make these points because there is a tendency to focus on general trends when some businesses may in fact be doing very well.

There is no doubt in my mind that the Australia economy has weakened, although the pattern is variable across the country. The latest Westpac-ACCI survey of Australian industry shows this quite clearly.

We have a number of effects working in combination here. One is the rise in the value of the Australian dollar relative to some other currencies. This has affected certain trade exposed industries in particular. Then, and as has happened before, anecdotal evidence suggests that business is cutting back on discretionary spend, creating flow on effects in related areas including legal services. Then, too, housing has been weak, as has retail spending,

Australia operates in a global marketplace and is affected by changes in that market. These flow through to Australia along four dimensions:

• Direct changes in demand for exports
• Financial affects associated with exchange rate movements and in the availability of funds to the banking system
• Psychological affects as people respond to global changes
• The impact on superannuation funds of global changes in an environment where a significant proportion of funds are invested in equity and off-shore. This one is insufficiently discussed for with compulsory superannuation it actually has major impacts on domestic behaviour.

Australia may be exposed to international conditions, but that exposure is more limited I think than most realise:

• Our main exports, minerals and primary products, have something of a natural buffer in that there is a stable base demand. Prices may fall - I have argued that present commodity prices are unsustainable -  but demand will continue
• Our floating exchange rate means that falling export income would (should) translate to a lower Australian dollar, with domestic stimulus effects. Quite a bit of Australian industry wouldn't mind in the slightest if all the hype about the mining boom #2 proved false!
• We are exposed to international financial markets, but the proportion of bank borrowings funded domestically has increased as local savings have increased
• We have strong institutional structures and relatively low Government debts, giving plenty of capacity to expand spending.

In the aftermath of the global financial crisis, one of the problems that I pointed too was the way in which many countries had lost their public infrastructure investment pipelines. This linked to changing approaches to public administration in many countries. I suggested that one practical result was that Government plans to expand infrastructure spending could not be realised in the proposed time limits.

Putting aside special pleading, there appears to be general agreement in this country that Australia has been under investing in public infrastructure for many years. We have also been under investing in housing, given population growth. Managed properly, there is scope for considerable expansion of public or even public private investment that is likely to yield considerable paybacks in economic terms.

The problem with the previous Rudd Government stimulus measures in this area is that, in the absence of a real investment pipeline and with a need for urgency, we arguably didn't get a long term return for our dollars.

This need not be the case if proper planning is put in place now.

If you accept conventional wisdom about mining boom mark two, then the place for such spend is limited. But who, now, would argue with certainty that that boom will occur? We really do need to have a fall-back position in the event that it doesn't.       

Why do we underestimate the value of broad based skills?

I followed up China's foreign reserves - what they mean, what might happen with a post on my personal blog, Australia's economic fragmentation. Since then we have had the ending of the US debt crisis, new troubles in Europe, bad US economic data and something of a stock market crash. In the first minutes of trading this morning, falls slashed $A56 billion of the value of Australian stocks. There is a smell of panic in the air.

All this took my thoughts in a different direction, one that may seem a bit odd. One problem now is that many of those involved whether as commentators or traders, those trying to decide how to respond, actually lack the broad based experience required to respond sensibly. Further, they live in a wired twenty four hour world where initial responses feed on each other, where reporting heightens nervous excitement.

My original qualifications were in history and economics. Then I worked for twenty years as a professional economist and economic adviser before moving into the private sector as a strategic consultant and manager of professional services firms. I no longer claim to be a professional economist - the profession has moved on. In a way, the economics of finance has replaced the economics of economics, financial modelling has replaced a focus on economic principles.

I was in Shanghai when the Global Financial crisis struck. I watched it unfold on the television screens. Upon my return to Australia, I was struck by the fevered nature of reporting. Australian reactions just did not seem to match what I understood of the fundamentals affecting the Australian economic performance. I was actually drawn back into my past world as an economist.

The analysis that I did then suggested that, so far as Australia was concerned, the GFC was highly unlikely to have the type of catastrophic results forecast. It just wasn't going to happen. I said so, and I was right.

One thing that I have learned from my experience is the importance of time. There is a fundamental disconnect between most current analysis on the economy and the actual lengths of time involved in economic processes. For example, just as it takes time for economic imbalances to emerge, so it takes time for them to unwind. In similar vein, it takes time for new policy initiatives to work, especially where capital investment is involved.

In 1929, the effective closure of the London capital markets to Australian borrowings plunged Australian Governments into effective depression. In similar vein, the GFC had very real world affects. Yet it pays to stand back and look. You do not need complicated models to understand what is happening, nor do ideological positions help.

Economics is about relationships. If you are going to understand what is happening, you have to look at the relationships in general and as they affect your sector. One of the reasons why I have such a high opinion of Australia's Reserve Bank lies in the standard of their analysis of relationships. I may not agree with their analysis, but I can understand it and therefore respond to it. That is not true for a lot of the other analysis I have seen.

I am not sure why we have come to so distrust general skills and broad based experience, why we now place so much weight on narrow specialisation and very task specific requirements. You see, the problem is that narrow specialisations with task specific requirements are very good at getting things done within defined parameters, but hopeless at coping if those parameters change. Then everybody is at sea, lost without a paddle or, sometimes, even the boat.

I know that I sound jaundiced, but today we have managers who have never managed, economists who know a lot about a little but very little about a lot, lawyers whose knowledge is largely limited to a narrow specialisation, policy advisers who see their key roles in terms of narrowly defined statistical outputs. It's all very odd.

While I have been writing this post, share prices have continued to decline. Time, I think, to stand back and look at what is really going on.