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Organisational reinvention—how can we keep up in a climate of rapid change and compliance?

The Commissioner

Lynelle Briggs
Lynelle Briggs is the Public Service Commissioner. She has held this position since November 2004.

See also:

CPA Congress: ‘Agility in the face of change’
17 November 2006

Introduction

I would like to thank CPA Australia for inviting me to participate in this Congress, looking at ‘agility in the face of change’.

My presentation today is about what this means for our organisations, and why organisational renewal is important for our long-term future. My focus is primarily on the Australian Public Service. Nevertheless, many of the issues that confront us in the public sector will resonate with those of you in other sectors.

We cannot afford, whether we are in public or private sector organisations, to sit back and wait for change to happen to us. We have to be active participants in the process; anticipating what is ahead and renewing—or even reinventing—our organisations in ways that make the most of what change has to offer, and managing the risks that arise.

It would be a mistake to think of change or reform as something we can get past before we settle into some fixed version of the future. A capacity, indeed a cultural bias, for organisational renewal, will remain critical to our ability to deliver the outcomes expected of us, and to remain relevant in a highly contestable environment.

In my presentation this morning, I want to start by looking at some of the factors that are driving organisational renewal in the APS. I will then go on to consider the implications of organisational renewal for APS agencies and for the APS as an institution. I particularly want to consider the role of the accountancy profession in this renewal process.

Drivers of Change

While the fundamentals of what we do in the APS, and why we are here, have remained remarkably intact over time, the how of what we do has been something of a moveable feast. The contracting out of some services, the use of public-private partnerships, the growth in e-government, the use of consultants, an increasing focus on whole of government approaches—all of these reforms demonstrate the point.

These changes have been driven by a range of interrelated factors, which we cannot ignore. They underscore the nature of our operating environment, characterised by uncertainty, ambiguity, complexity and a rapid pace of change.

Community/Citizen Expectations

The first of these, one of the key drivers for organisational renewal, is changing community expectations.

Australians are much more sophisticated consumers of services than they were only a few decades ago. They are better educated, wealthier and benefit not only from a supportive social safety net, but from more open government and widespread access to information and communication technologies.

Our increased wealth and sophistication, however, has not been matched by increasing levels of contentment. The Australian community now expects more than ever before from government: high quality, seamless, accessible and responsive service delivery that is tailored to their individual needs. They also expect a greater say in the development of policies and programmes.

Implementation Problems

Not surprisingly, expectations of improved service delivery have been accompanied by a demand for better, and more thoughtful, implementation of Government programmes and services. Speaking about the creation in 2004 of the Department of Human Services, the Prime Minister said:

“One of the things we lack in the public service both at the Commonwealth and State levels is a consolidated focus on the efficient and timely and sympathetic delivery of services. We tend to look at service delivery as an afterthought rather than as a policy priority.”

Policy design needs to take account of the challenges to implementation from the outset. Effective financial planning and budgeting are an important part of this process and need to be fully integrated into our strategic planning more generally. Failure to do this sort of planning at the front end can, at the implementations stage, which is often the point at which the policy is judged to have succeeded or failed, result in cost overruns, unexpected delays and poor outcomes.

Political Will and Interest

The focus on improving our ability to implement programmes effectively and to manage our finances better also reflects a determination by the Government to have greater influence on the timely and effective delivery of their policy interventions.

Governments want to see more ‘bang for their bucks’—identifiable and quantifiable improvements as a result of their interventions. They do not want to see their money fritted away or unspent through poor planning or bureaucratic time wasting or incompetence.

It’s not surprising, then, that the Australian Government has pushed for a greater focus on achieving effective outcomes and made some important structural changes at the delivery end.

It has, for example, established the Cabinet Implementation Unit, within the Department of the Prime Minister and Cabinet, to encourage earlier and more effective planning for implementation of their policy decisions, through government programmes and services. More recently, it has introduced the Gateway Review process - a project assurance methodology that will involve short, intensive reviews at critical stages, to improve the delivery of major projects on time and on budget.

Complex Problems

Among the most manifest drivers of organisational renewal is the need to deal with what Ken Henry, the Secretary of the Department of the Treasury, recently described as ‘chronic policy failures’. These are sometimes called by Peter Shergold, in a Dickensian turn of phrase, ‘wicked problems’.

They are complex and intractable issues, such as the health and economic well-being of Aboriginal and Torres Strait Islanders, climate change and the parlous state of our water resources, balancing environmental protection and economic growth, preventing the growth of social under classes and welfare dependency—all problems that have been resistant over time to government intervention.

Addressing issues of chronic policy failure is driving our focus on improving our ability to work across agencies and across jurisdictions. It is also making us focus increasingly on involving stakeholders—whether industry, non-government organisations, or the public directly—in the design, planning and implementation of government programmes. And it is making us reconsider the need to be innovative, experimental and persistent in seeking new solutions to these chronic problems, which require attention on multiple fronts.

Organisational Performance

The need to deal with these complex problems and to meet Government and community expectations in other areas is fuelling the demand for continual improvement in performance in the Australian Public Service (APS).

It is critical that our governance framework supports improved standards of organisational performance, and is capable of alerting executive management to potential difficulties before they develop into systemic problems.

An important part of this will be developing financial management frameworks that provide for greater transparency and accessibility of financial information and present information in a way that public sector leaders and our elected officials can usefully draw on in their strategic planning.

All managers in the APS are now expected to be financially literate and able to manage their own budgets. What is less certain is whether we have the capability, whether our budget reporting systems allow us to do this effectively, and whether we are getting the right sort of support from the financial areas of our organisations.

The best governance and financial arrangements in the world won’t amount to much unless we also have the appropriate level of organisational capability to use them effectively.

More generally I think it is well known that we are experiencing tighter labour market conditions and are starting to see pretty clear skills gaps, including, despite the large gathering here today, in accounting. Agencies are increasingly reporting that these skill shortages are having a real impact on their business.

This issue of how to maintain and improve organisational performance in the face of these challenges to our overall capacity goes to the heart of the renewal effort.

Organisational Renewal – Overall Theme

In responding to these challenges, public sector organisations need to be more agile, able to quickly respond to changing agendas, and to the fast moving pace of our operating environment. We have to be in a state of readiness to anticipate and deal with crisis situations and other challenges, whether these are natural disasters or security and terrorism incidents or water shortages driven by climate change and urbanisation. We also need to be more strategic so that we are able to recognise policy and implementation failures before they happen.

In the APS, the Management Advisory Committee has defined organisational renewal as ‘a dynamic process of capacity building to ensure that organisations are equipped to succeed in a sustained way within a changing operating environment’. ¹ This is a useful starting point. It acknowledges renewal as a dynamic process that responds to change in our operating environment. Importantly, the link to ‘success’ maintains the focus on organisational renewal as critical to our capacity to deliver effective outcomes.

In the APS, we see a great deal of diversity across APS agencies—in terms of their business and how they operate. We tend to focus on how each agency is different and must take its own path to renewal. We are all, however, in the business of public service and I think it’s important that we don’t lose sight of what we have in common. It is the need to serve the public well, through good policy, really impressive programme implementation and regulation, and responsive client service that is driving organisational renewal in public administration today.

Having established the need for organisational renewal, what are the next steps?

I want to look at this issue first from the perspective of individual APS agencies, before looking at the challenges we are facing at the whole–of–APS level.

Organisational Renewal at the Agency Level

Workforce Planning

At the agency level, the first step towards organisational renewal has to be the identification of the gaps and shortfalls that exist in our workforce capacity to meet business objectives and the development of strategies to deal with these gaps.

We are seeing some encouraging signs across the APS of this more systematic sort of workforce planning being integrated more into agency’s business planning. This is an area where the financial skills that you have can really make a difference to the quality of outcomes.

Whereas workforce planning has in the past tended to be somewhat ad hoc, we must ensure that financial expertise is fully utilised in our organisations’ forward planning. This is especially so in light of the pressure brought to bear by demographic change and a booming economy.

Attraction and Recruitment

An important aspect of workforce planning, of course, is taking a more strategic approach to the attraction and recruitment of new staff.

This year’s State of the Service report will show clear evidence of skills shortages, particularly in the specialist skills areas of HR, IT, accounting and financial management. The situation is not expected to ease in the short to medium term.

Against this background, it is important that the APS positions itself as an employer of choice, to enable it to compete more effectively for a diverse and sophisticated workforce under tight labour market conditions. We need to make a concerted effort to market the APS as an exciting employment opportunity. The nature of our work and the capacity to make a difference, particularly in strategic policy development and service delivery, make the APS an interesting and a unique place to work.

Most of you here today are using your financial expertise to contribute to real improvements for the Australian community. Many of you have been at the forefront of leading edge public sector financial reforms. The work you do, and the opportunities available to you, are far removed from H&R Block.

It is important that we sell the benefits of public sector employment to young accountants while they are still in higher education. Combined with our underpinning values framework, workplace flexibility and widespread access to development opportunities, this sort of approach can potentially give the APS a leading edge.

One of the most significant employment reforms in the APS has been its opening up to external recruitment. The proportion of positions filled by engagements from outside the APS has increased from about a third to about a half² in the decade to 2005–06. We are actively recruiting people from all sectors of the Australian community with the skills we need and we will continue to do this.

The bottom line is that if our attraction and recruitment strategies are not competitive we will be starting from a position of disadvantage.

Capability Development

Getting people in the door is of course only the first step. We need to develop our employees and engage them in the work they do. Continued investment in learning and development that meet the needs of the modern APS is incredibly important.

Core functional skills development designed to foster high-level policy, research, programme and regulatory skills, should be a priority. We also have to ensure we are developing in our employees the full spectrum of management skills, including financial management, but also people and performance management, contract management, strategic management, programme management and so on. You must play a critical role here in contributing to improvement in the overall level of financial understanding in your organisations.

We also have to identify and develop employees with high potential, not only so that we don’t lose them, but also because we should be looking to engage them in the most effective way so that they become our future leaders. Our succession management strategies need to be linked to our future workforce needs.

In effect, what I am saying is that our capability requirements have become too specific and high level to continue to leave the work force to luck and adhockery.

Retention

Strategies for organisational renewal also need to be directed at more innovative approaches to retaining valued employees, particularly in areas of skill shortages such as accountancy.

A significant challenge is to meet the expectations of Generation X and Y employees, in a labour market environment which suggests we cannot expect employees will stay with us ‘for life’ or that they will give us loyalty, unless we earn it.

We need to market the real personal and community benefits of working in the national interest, provide attractive work-life balance flexibilities that aren’t available elsewhere, and develop a reputation for treating our people well. We also have to make full use of the flexible workplace relations environment to respond to the preferences of our employees in ways that are consistent with our business goals.

Even with these strategies, we will have to come to terms with the fact that significant numbers will come into the APS, take advantage of the opportunities for training and development, and then take those skills elsewhere. The challenge will be to provide workplaces that they will come back to, bringing with them the benefits of their diversity of experience as part of what has been described as a ‘portfolio career’.

Professional Communities

One of the actions arising from the Management Advisory Committee’s report, Managing and Sustaining the APS Workforce, is the establishment of professional communities to address specialist skill shortages, especially shortfalls in the number of accountants.

The establishment of the APS community of accountants, with leadership from the Department of Finance, is nearing completion, with a dedicated website (www.accountants.gov.au) expected to go live before the end of the year. The website is designed to facilitate career planning, professional development and networking among accountants. This initiative has potential benefits for the APS for the attraction, recruitment and retention of people with accounting skills. Professional communities are also being developed for statisticians and ICT professionals.

We welcome the generous support of CPA, one of the main professional bodies for accountants, for the community. I hope that all of you who are employed in the APS will be active participants in the forums that develop. These sorts of innovative initiatives may prove critical in giving the APS the edge it needs in matching people, jobs and skills to serve Governments and the Australian people well.

Organisational Renewal – at the Institutional Level

Organisational renewal is about more than what happens in individual agencies. The APS as an institution is fundamental to the social and economic well being of Australia and needs to operate effectively across the board. We are much more than the sum of our parts. It is imperative that our approach to organisational renewal has an institutional dimension.

Whole of Government Working

An important aspect of this dimension of organisational renewal is the growing emphasis on working collaboratively across portfolio and agency boundaries, and with our partners in the private and non-government sector. Increasingly, agencies and their employees are being required to focus beyond agency-specific outcomes and priorities to encompass the Government’s cross-cutting overall policy agenda and priorities.

This is by no means a rhetorical statement of the obvious; the problems we confront daily demand an understanding of a more complex group of issues than previously. They necessitate collaborative approaches to leadership and administration, and a capacity to deploy a range of technical and implementation skills.

Our water resources present the quintessential whole of government problem. Only last week, the Prime Minister’s water summit considered ways to overhaul Australia’s water planning system, the outcome of which could substantially scale back water supplies for farmers, industry and householders. Public servants have been asked to draw up contingency plans—including emergency measures such as blocking water flows into natural wetlands—so that communities, Adelaide in particular, don’t run dry in 2007–08. The summit agreed to introduce interstate trading of water entitlements from January 2007, and the Prime Minister has called for State boundaries to be set-aside in dealing with this national issue.

In this and many other areas it is clear that we can’t go it alone. We have to work with the States, with the community, and with other stakeholders to make things happen. We need new thinking, and we have to ensure that our collaborative efforts capture the creative and innovative ideas of all comers which are necessary to add value in these tough times.

Are forecasts for water availability, based on the last 100 years, for example, still relevant, or should we be planning on the basis of a much drier present and climate projections that suggest things will get worse before they get better?

Strategic Financial Management

At the same time, we have to think about the financial and budgetary implications of these new ways of working. We need to better structure supportive financial budgeting and accountability frameworks for whole of government work. There are a number of issues that need to be addressed:

How should we best articulate shared outcomes across portfolios to provide a clear framework for joint responsibility and accountability?
How should funding for joined up initiatives be appropriated?
How do we set meaningful performance indicators and report on progress in a way that recognises vertical and horizontal responsibilities?

Continuing to improve our budgetary and financial framework will be a central plank of the ongoing organisational renewal effort in the APS.

We have seen a strong focus on the implementation of accrual accounting systems in the APS in recent years. This has had some real benefits. We are now much more aware than we were in the past about our capital expenditure, and even about fundamental issues such as the size of our accrued leave liabilities.

Nevertheless, I think among the non-accountants in the APS, and among politicians, there is still a widespread lack of understanding about what accrual accounting actually means and a concern about its day to day use. Many see only a fog of figures and terminology that has taken a once transparent set of numbers into the world of science fiction. It is still after all, they argue, the cash deficit or surplus that will be the headline in the papers the day after the Budget. This isn’t good for any of us.

At best, this lack of understanding means that managers are not able to use their financial reports to the full extent in their strategic planning. At worst, it means that they can make fundamental mistakes in managing their budgets.

Investing considerable resources in further fine tuning accrual budgeting, in the public sector context, may have some limited returns at the margin, but there is much that can be done to help us. If I can be very candid about this, perhaps you might consider:

shifting the emphasis of analysis from departmental back to administered items, which is where most of the spending happens;
improving transparency by restoring some of the useful detail that was lost in the move to accruals, especially reporting by function and economic type and the detail of estimates of spending;
assisting agencies to use accruals well by helping them to move to 3 or 5 year funding cycles for certain programmes and grants so that processes are eased for agencies and contractors and grantees, and so that money flows where it should under arrangements that work best in the circumstances, rather than being driven by yearly spending cycles;
simplifying the overall complex system of accrual budgeting, especially in terms of the information presented to Ministers for Budget decision making and for operational managers. Greater use of cash information at decision making levels for most portfolios with few assets would be a blessing; and
helping us with budget appropriation and financial management arrangements that support us to do whole of government financial work easily.

Improving opportunities for the professional development of accountants and others in financial areas is also likely to lead to improvements in the information that managers need for strategic planning, and to improve the ability of our managers to interpret that information.

As accountants you need to be client focussed, and, of course, many of you are. Even so, you need to find ways that you can present information more effectively to managers and assist them in their roles.

You will be best placed to do this by developing a really solid understanding of the business of your agency and its strategic priorities. You need to be able to answer the fundamental questions—what are our budget pressures? what financial strategies do we need to implement in the next five years? how will our budget support our organisational goals? A focus on what has happened in the immediate past is not enough.

Renewing the Policy Agenda

This future focus is a vital part of organisational renewal. We need to be sufficiently aware of developments in our own business environment, and in the broader environment, so that we can anticipate and prepare for the challenges, threats and opportunities that are ahead of us, and, importantly, so that we can contribute meaningfully to renewing the policy agenda.

This sort of ‘horizon scanning’ comprehends ‘the systematic examination of potential threats, opportunities and likely future developments, including (but not restricted to) those at the margins of current thinking and planning.’³

Clearly, as public sector accountants you need to be part of this process, and your perspective needs to be broad enough to fully understand the context in which your agency operates—not just whether your budget adds up or how well or poorly constituent parts of your agency have submitted their numbers.

e-tax

Accountants need to have a clear eye to future developments in service delivery. Take, for example, the issues of handling privacy in a world where technology allows Government to integrate a broad range of personal information from a variety of sources.

Anyone who has used e-tax has seen our increasing ability to link information from different data sources in action. E-tax has been a very effective and popular way to lodge tax returns, with taxpayers able to receive refunds in their bank accounts in only a few days.

This year’s e-tax allowed taxpayers, after identifying themselves, to download at a touch of a button, and in a fraction of a second, their interest details provided by the five big banks; their child care details for the year from Centrelink; and their Medicare financial tax statement from Medicare Australia.

The technology that enables this is truly impressive and would have been in the realm of science fiction only a few years ago. For some Australians this ability is also frightening. As public servants we need to have transparent accountability mechanisms that assure the public that their personal details will not be misused. Centrelink’s crack-down on its employees who misused personal data earlier this year is an example of how seriously this issue needs to be taken.

Access Card

The access card, which the Government expects to introduce in 2010, is another example of the risks and opportunities inherent in change. The card has the potential to deliver huge benefits to the consumer, including in time saved and straightforward convenience. However, there are also risks, particularly in terms of privacy and information security.

The Access Card Consumer and Privacy Taskforce, headed by Allan Fels, has recommended “comprehensive legislation to define and regulate the role of the card and associated databases is needed.” [which he says] “…will build public trust and confidence, and establish safeguards regarding current and any new future government uses of the card”.

In this, and other sensitive areas of Government business, it is especially important that we have provisions in place that are manifestly robust, not least because of the increasing level of media scrutiny that is brought to bear on government operations. It is not enough that we are confident. We need to be able to clearly demonstrate the grounds upon which we are confident.

There are implications here for our governance arrangements too. We need to maintain high standards of accountability in an environment of partnerships and more direct engagements with citizens, and this may require re-jigging things in some areas. Freedom of Information arrangements, for example, have served us well, but we need to look seriously at whether there are aspects of the legislation that impede the ability of public servants to have free and frank conversations with Ministers about difficult policy problems. Again, it’s about getting the balance right, and we can’t afford to draw back from the debate.

Aged Care

We need to be able to imagine and develop innovative new approaches to policy problems.

Imagine, for example, an aged care system that is truly designed with the needs of the consumer at the centre—where ease of navigation, support for carers, provisions for tailoring services to meet individual needs are a given, and where the system adapts to individuals rather than the other way round. Imagine, too, that the system, because of the holistic approach taken, delivers financial benefits that help us manage the increased burden on the aged care system as our population ages.

We have to imagine creative and workable policy solutions before we can make them happen. Financial and budgetary implications have to be part of this creative process. It follows, then, that we need to develop public servants, including accountants, who are capable of innovation and strategic thinking. They need to be communication savvy and have complementary skills in areas like stakeholder and relationship management—skills to help them leverage off the best thinking in their organisations and externally, and garner support for innovation. How often have we seen good ideas shrivel on the vine because they were poorly communicated, the timing wasn’t right, or they failed to attract support?

We are facing a range of immediate and pressing challenges. But we can’t afford to be distracted from reflecting on and planning for the future. We need to think about policy directions and develop our organisational capacity. We need to find the right balance between getting things done today and knowing we’ll be able to get things done in the future.

Leading for Renewal

Whatever our futures, and whatever policy solutions we are required to develop, effective and strategic leadership will be crucial to the success of organisational renewal, at both the agency and institutional levels.

Leaders have a responsibility to be agents of change in their organisations, and to contribute to and foster a whole of government culture that supports the Government’s broad policy agenda.

Leaders must have drive and energy to get on with the job and they need to have the ‘smarts’, be strategic and know their business—this, of course, includes the financial ‘smarts’. They also have to bring vision, clarity and a sense of the big picture—without appearing disconnected from the day to day realities of their organisations. They need to be resilient, and to have the capacity to help those in their organisations bounce back from setbacks—by restoring calm, by providing reassurance, by setting a course of action. They must have integrity. Importantly, they must be people people—able to engage their workforce, secure their commitment and gain their trust.

Public service leaders have to be able to work in a large and diverse institution where the public interest and accountability, under the law and within the framework of Ministerial responsibility, is at the heart of its work.

Jack Waterford put it very nicely in the Canberra Times (CT 3 October 2006) recently, when he cited the leadership standard for public servants as being like a “steward, the person in a special position of trust, the person who does the right thing because it is right, and the person for whom there are no private interests but only the public interest”.

The leadership skills required to build collaborative relationships, and that underpin the process of organisational renewal, are sometimes called ‘soft skills’, as opposed to the so-called hard skills such as analytical skills and subject-matter-knowledge. I think this is a misnomer as these are often the hardest skills to master.

In many organisations, leaders have focussed on the concrete, technical, knowledge based aspects of their positions. They have been reluctant to confront the subtle and sometimes seemingly intangible aspects of leadership—inspiring a sense of purpose and direction, nurturing productive working relationships, modelling behaviours and values, and steering change.

Perhaps unfairly, accountants, along with other ‘technical’ professionals, have been categorised as belonging to this category of ‘unreconstructed’ managers. Each of you will know where you fit on what is more a continuum of leadership styles than different camps. Soft skills are, however, as important to those providing leadership in the financial areas of our organisations as they are to our line programme managers.

Leadership is important, but we also need public servants at all levels to think about the public service of the future—about our culture and identity, about our capability, and about how we respond to the challenges ahead. The future will arrive soon enough—but what it looks like will depend on our actions and decisions in the present, and it is up to each and every one of us to contribute actively to that future.

Conclusion: Regeneration and the Future

To conclude, I want to reiterate that the success of organisational renewal, in the APS and more broadly, is dependent on a commitment to leadership and action across the areas that I have spoken about today: a commitment to setting clear directions for our organisations; workforce planning; targeted approaches to attraction and recruitment; a strategic approach to our capability development; innovative and responsive retention strategies and a bias toward whole of government working. New and more strategic and innovative approaches to financial management and policy development will be part of this mix.

Inspired leadership, that articulates a vision for our agencies, and for the APS as an institution, is critical to our success. We are not about change for change’s sake. We are in the business of public service, and achieving outcomes for the Government and for the Australian community is our bottom line.

We need to be mindful that organisational renewal is a process of continuous improvement, of reflecting critically on what we are doing and how we do it. It requires us to have a good understanding of our environment and to have a clear eye to future developments. It is not a project that we can put behind us. It needs to be part of the fabric of how we do business.

This is how we, working together, will keep up in a climate of rapid change and of compliance.

1 Management Advisory Committee, Organisational Renewal, Commonwealth of Australia, Canberra, 2003, p.10.

2 Excluding Medicare, which came within coverage of the PS Act during 2005-06.

3 http://www.hsl.gov.uk/capabilities/horizon_scanning.htm

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