As an administrative function common to all nations and jurisdictions, the public sector has historically enjoyed a position apart from other industry verticals. A massive employer, it accounts for a quarter of all employment in Europe’s 28 member states (note 1) and plays a key economic role. Of course, it also comes at a significant cost – almost 50% of GDP is swallowed by public services (note 2).
But the lines between the public and private sectors are blurring. In the final years of the 20th century many types of business – in particular utilities and healthcare, but also transportation and security – saw waves of privatisation occur across Europe, followed by outsourcing, offshoring and more recently public cloud computing. Each has redefined the boundaries between the public sector, external organisations and, indeed, the companies, societies and citizens served.
Whilst blessed with an extended period free of conflict, the European Union is not without its challenges. These include: an ageing population, due to extended lifespans and reduced childbirth; resource shortages and rising costs of basic services; and the global downturn, with its impact on infrastructure, regulatory frameworks and citizen wellbeing. Meanwhile public bodies have been looking to innovate, to benefit from the efficiencies of shared service models and the use of technology to improve operationally and in how they engage with stakeholders.
Against this background, the public sector faces many opportunities to deliver enhanced services and reduce costs whilst increasing the value it brings to the communities it serves.
Following waves of outsourcing and offshoring, the traditionally siloed public sector is increasingly looking at ways to collaborate and partner on both service delivery and internal administration. This is in large part cost driven, as authorities look at collaborative initiatives and joint projects, enabled through state-of-the-art technology, as ways to meet reduced budgets. Not only can money be saved in planning, build and operational phases of a project but the range of services can also be broadened in scope and deepened in function.
However, despite frequent overlaps between tasks, public administrations seldom take advantage of cooperating with other organisations to any great extent. Fear of losing power or independence, discomfort about transparency, and lack of experience mean that collaboration opportunities are not taken, even for basic services. It feels sometimes that the 28 EU member countries and 99 regions have each developed individual solutions for implementing European laws and regulations.
Whilst this reluctance to engage with others can be put down to justified fears generated by the failure of shared services initiatives in the past, it can also be due to institutional inertia and an inability to take the required step. It is well understood that cooperative approaches cannot take place in a vacuum – they should always lead to win–win situations and need to be based on trust, which can take time to build. However, if the first steps are not taken, opportunities will be missed to create new, innovative services.
Large-scale infrastructure projects are complex and have sophisticated political, budgetary and legal framing conditions. In a previous edition of the BearingPoint Institute Report, we discussed the impact of a growing funding gap for infrastructure projects, resulting in increased scrutiny on large public investments. From such projects we can learn the importance of controlling requirements and maintaining a clear view of delivery and success criteria.
Those scenarios can result in participative decision-making structures that cross different levels of the public administration. These involve a large number of people in the decision-making and can be unpredictable, leading to uneasy compromises and budget overruns – particularly if initial budgets are based on what is seen as acceptable. Recent projects with huge investment budgets, including Berlin Airport (note 8) and Hamburg Elbphilharmonie (note 9), show what can happen if up-front measures are not taken.
Our digital world provides ever increasing ways for the public sector to engage with the citizens it serves, from ‘smart refuse bins’ that indicate they are ready to be emptied, to online filing of records and better information provision to communities. Digital administrations can respond more directly to the needs of their constituents and public sector resources can be used more efficiently through automated processes.
However, across Europe government administrations are at different levels of maturity in terms of the application of digital models to deliver agile, easy-to-use, ‘consumerised’ services at lower cost. A clear gap exists, for example, between how Baltic states are delivering eGovernment services and supporting strong digital engagement, compared to Germany and France where digital strategies could be strongly improved. (note 4) (note 5) (note 6)
Many organisations continue to define themselves in terms of legacy command and control structures and areas of functional responsibility. This bureaucratic mode of communication and service delivery does not allow public service bodies to take full advantage of the opportunities presented by the digital age. Organisations that present themselves as a department, a ministry or an agency first and a service provider second miss opportunities to engage effectively with the communities they serve, undermining their ability to provide value for money and deliver customer-centric services to citizens.
The recruitment and retention of talent are key success factors for all organisations and public administrations are no exception. The issue is even particularly acute as long-term demographic trends collide with brain-drain. On one hand, ‘baby boomers’ are starting to retire – for example in France, 30% of the public workforce is over 50 (note 3). At the same time, past waves of outsourcing have caused a drain of skills and more recent budgetary constraints have further exacerbated the skills shortage, particularly as organisations look to meet the evolving needs of their constituencies.
A result of the increased competition for talent in the market is to put pressure on HR policies and programmes for a range of issues – including recruitment, promotion and career management, training and development, severance and early retirement – as well as on organisational, management and cultural frameworks. In many cases, however, short-term constraints (for example, balancing the books) or local considerations (such as employment levels) are coupled with inefficient, expensive HR policies based on outdated rules. A significant risk is that neither management nor HR have sufficient understanding of the new competencies they require and thus find it difficult to anticipate how to assure future public service delivery.
Strong public–private relationships are important drivers for economic growth across all aspects of our society. By better understanding the socioeconomic ecosystem, public administrations can become more efficient in stimulating growth in the private sector. However this requires a spirit of partnership to be embedded into all levels of public authorities – a spirit that can slip down the priority ladder when budgets are constrained.
Public administrations can be sluggish in recognising their role as enablers for the private sector and with each other as part of a broader ecosystem of service provision. Divided responsibilities also create issues – for example transport and environmental public authorities might have contradicting aims, translating into ambiguous policies that can confuse private business partners.
In addition, public administrations tend to shy away from cooperating with businesses to mitigate potential risks because they fear that conversations required to establish these partnerships may leave them open to questions of corruption. However, better business partnerships, incentives for employers or improved working environments do not have to imply an entry gate for fraud of financial mismanagement.
Government organisations operating in today’s global, digital and dynamic society are responsible for a range of services to meet the complex and interdependent expectations of their ‘customers’ – that is, taxpayers. Today’s mature and developed services market offers choice in terms of how best to deliver these services to return maximum value from public funds.
At the same time, the world is moving quickly and there is a window of opportunity for providing any new service. Organisations can end up with multiple initiatives, not all of which are destined to reach completion: they can outgrow or under-deliver on their initial objectives and requirements. As funding is tight, budgetary savings may result in ongoing projects and existing services being squeezed. Such reductionist actions result in inefficient and expensive opposition from stakeholder groups.
However the key issue does not lie in any one service, but in the skill an organisation employs to maintain an overview of its service portfolio. The lack of such a perspective may result in a potential time bomb, as the organisation becomes less able to fulfil duties in response to changing dynamics, leading to the inevitable consequence of sweeping cuts rather than more careful triage of the service base.
In a changing world, regulations are subject to frequent adaptation – we only have to look at the considerable effort Europe’s lawmakers are putting into improving and updating regulations following the financial crises of recent years. On a local, national and international level, short-termism can tempt political and administrative actors to redraw regulations as a consequence of media attention to current events.
If left unchecked, regulations can become onerous by attempting to cover all possible cases (including exceptions), adding complexity and causing the letter of the law to overshadow its spirit. In this situation, regulations are difficult to enforce or are applied according to local interpretation, further catalysed by the complexity and lack of harmonisation in regulation between countries. Rules then may become treated as a permission to push the boundaries and, in turn, this opens the door to fraud – for instance in the case of ‘fiscal optimisation’ through offshore headquartering. The outcome is a law of diminishing returns, hindering not only businesses and citizens, but also making it harder for administrations to do their jobs.
A mountain of data exists both within and outside public organisations, with more being added all the time. For example, trains and buses are fitted with GPS transmitters that generate data and accessible data is added continually to disease-transmission information, geological surveys and public statistics. Data is becoming a vital resource: the new gold or oil to be mined, drilled and piped to where it is needed.
The opportunity created by this wealth of information cannot be overstated. Public agencies can support their economies by opening up their data vaults and can also benefit from using the increasingly large external pools of data that now exist. For example:
Welfare, education and health care services (public and private) can analyse public data sources to tailor services to the specific regional needs of citizens
Transport, communication and utilities planning can use available public data to bring down the cost of infrastructure and meet the requirements of citizens and businesses
Even as administrations review their processes and structures for information centricity, they are facing fundamental questions, such as: ‘Should data accumulated with tax payer’s money be given away for free?’ In parallel, the markets that may use these new troves of data are not yet established and so risk being monopolised by private organisations such as global internet players, which could stifle the notion of openness and free access. A final area of concern is privacy, particularly if large amounts of personal data are on public registers. Agencies may be tempted to avoid all such challenges by keeping their data locked away.