Challenges facing the department
RET is regarded as solid and technically competent. It has been respected by successive ministers, and is effectively engaged with stakeholders, who consider the department to be approachable and informed. While there are some concerns about avoiding 'industry capture', most key industry bodies and central agencies generally regard the department as cooperative, engaged in policy issues and able to think analytically. Its recent legacy has been significant, and the department has effectively supported the contribution that the resources, energy and tourism sectors have made to the Australian economy.
However, as these are all sectors in transition, RET or its component parts need to address a number of key issues (irrespective of further MoG changes).
The first is to develop a sense of identity against the background of the frequent changes to structure and senior staff that RET has experienced. The Secretary and the senior executive are working towards a more integrated department, including through a refreshed corporate planning process, but there remain significant challenges to effective integration. There are overlaps in the current departmental structure which reflect how RET has been put together, and these compound a silo approach to the department's work. For example, the energy supply and demand groups do not work together in a holistic way, noting that the energy efficiency functions are a new addition to the department.
The second is to be more innovative and influential in both policy development and program design, particularly when resources are constrained. This includes influencing policies and programs that have an impact on the resources, energy and tourism sectors but where primary responsibility is with other departments; taking a stronger leadership role with the states and territories in the COAG, especially through the SCER; being less risk averse, more proactive and forward looking to better anticipate challenges and risks; and recognising that RET stakeholders are broader than previously acknowledged, and need to be engaged to ensure their views are taken into account when developing policies and programs.
The third is to build a more effective capability to develop the people, processes and systems which support RET's work to make the resources, energy and tourism sectors more productive and sustainable. There have been serious shortcomings in some of these sectors, which are only now being addressed. In addition to making improvements to RET's basic operating model, specific measures are needed, including bedding down governance structures; using the corporate planning process to inform priority setting and resource allocation; integrating the economic research and analytical capability with policy development; sharing learnings, including across policy and program delivery divisions; and embedding a performance management system that is informed by the department's intended policy and program outcomes, and that rewards innovation.
These challenges are recognised by RET's senior leadership, which is tackling them on a number of fronts. At some levels there is resistance to the required change, including because the department has been regularly required to manage reorganisation and resource constraints. But these provide a context within which the department can review how best to deliver on its mandate.
The department in 2013—a snapshot
RET is involved with sectors that are central to the performance of the Australian economy. It works closely with a range of external stakeholders and is widely regarded as having a high level of industry knowledge and awareness, which enables it to provide input into policy issues, both sectoral and whole of government. RET plays an important role in the COAG process, in particular through the SCER and Tourism Minister's Council. The department's relationships with its ministers have been strong, and through these relationships, RET aligns its work program with the government's policy agenda. This has been achieved in the context of significant MoG changes and fiscal constraints.
The department has been a key player in a number of policy reforms principally related to energy, and has had primary carriage on programs relating to energy efficiency. RET led the development of the Energy White Paper 2012 and Tourism 2020 strategies, which are well regarded by stakeholders as broad direction-setting documents outlining the state of industry sectors and describing major policy issues. The department has strong and well-respected research and analytical capabilities, which have been strengthened over the last two years by incorporating BREE and Tourism Research Australia. RET manages a number of programs related to its industry sectors, including the administration of significant grant programs across the energy and tourism sectors, with $2.4 billion  in funding allocated for 2013–17.
The department is regarded by central agencies as approachable, well informed on its sectors, and analytical on policy issues, although there is a challenge in avoiding the appearance of 'industry capture'. It is also highly regarded by its external stakeholders, although some are concerned that RET has limited influence on policies that have a significant impact on them, for example tax, industrial relations, immigration and the environment. Energy regulators and some external stakeholders in the energy sector regard the SCER process as too slow, and as having contributed to the problems with electricity pricing.
While stakeholders generally give RET a positive mark on its current handling of policy issues and its administration of programs, there is concern that the department has a focus on short-term issues and is too reactive. Stakeholders believe this contributed to the lack of public awareness of emerging issues in electricity pricing and to delays in addressing concerns about East Coast gas supply and access to coal seam gas. Clearly there are issues around accountability more broadly in this area, with multiple players including the SCER and independent agencies. The department needs to work to resolve these.
Some significant policy challenges facing RET that will require agility and rapid response include changes in the international demand for resources, shifts in the economic outlook in the Asia Pacific region (especially China), the changing patterns of energy demand in Australia and the impact of coal seam gas and renewables on the energy market.
RET's capacity to be more proactive and forward looking will be constrained by the need to rebuild its systems and processes. It does not have a unified and effective operating model, and corporate services were significantly reduced through the RET 2012 process. These are only now beginning to be restored.
The MoG changes in March 2013 transferred additional corporate services capability from the former Department of Climate Change and Energy Efficiency. It also transferred the former department's Energy Efficiency Division, giving RET a sharper focus on program design and delivery. This should facilitate improvement in the department's systems and processes, though this may be an issue in the event of further MoG changes.
The Secretary and his senior executive acknowledge the need for change and have commenced steps to this end. These initiatives include a review of the 2009–13 corporate plan and related business planning processes; the introduction of new governance committees; the upgrade of a number of corporate service arrangements; a review of performance management; and a stronger focus on communications.
Noting that these initiatives are in their early stages, the review team encourages the department to give a high priority to progressing them. A more detailed discussion of each initiative follows:
Identity and purpose
RET has evolved through a series of MoG changes, which has made it difficult to have a common identity or purpose. This is compounded by what was already a predisposition for divisions to work in silos. The department has three separate energy divisions and there is less interaction than there should be between those responsible for the supply and demand side of energy. Six years on, the tourism division is still regarded as a 'bolt-on'.
The Corporate Plan 2009–2013 was developed in the context of a different policy and economic environment, and it is currently being refreshed, with an initial focus on common themes across all areas of responsibility. For the new corporate plan to be effective in unifying RET and driving performance, senior leadership needs to effectively communicate a cohesive, forward-looking vision to all staff and see that it is embedded into the department's day-to-day work, through a clear line of sight to business planning processes and individual performance management.
The review team encourages RET to complete its work on the corporate plan, and ensure that the results flow through to divisional business units and performance planning. It is important that the corporate plan is used to drive identity and purpose, and inform priority setting and resource allocation within the department. This work should be reinforced by a rationalisation of RET's current structure.
Policy development and program design
RET has been involved in some key policy and regulatory decisions affecting the Australian economy for a number of years. These include the resource super profits tax and carbon emissions abatement. The resources, energy and tourism sectors have been key drivers of the Australian economy for many years, but particularly through the last decade. The Australian public has been the beneficiary of the strong performance of these sectors, but there have also been flow-on consequences for aspects of living standards, particularly with energy prices.
This is the context in which RET has been an important player in decision making. It has needed to work with central agencies, especially Treasury, but increasingly with other departments with primary carriage of policy and regulatory issues which have an impact on these sectors. RET is generally well regarded for its contribution to policy matters, for being approachable and engaged, and for bringing sound, comprehensive knowledge of the industries for which it is responsible. The department has continued to enhance its research and analytical capabilities with the addition of BREE and Tourism Research Australia, but these could be used more effectively to support its policy work.
RET faces three important challenges if it is to remain an effective player in policy development and program design. These were all put to the review team by central agencies and external stakeholders, and are recognised by the Secretary and senior executive team. The department needs to address them and further develop capabilities in these areas to achieve the outcomes required.
The first challenge is that in an economic environment, domestically and internationally, that is changing and bringing new challenges, RET not only has to be able to address short-term issues, it has to have greater capability to understand longer-term challenges and opportunities. External stakeholders have views on this, as do central agencies and other departments. RET, however, should take the lead on aspects of such 'horizon scanning' so it can anticipate and be ready for emerging issues. This inevitably raises questions about resourcing, and the department will need to address how its priorities are set. The review team did not look at this in detail, but at a time of resource constraints, the effort that is currently devoted to information briefs should be further reviewed.
The second challenge is to work more effectively with states and territories in the COAG process, especially through the SCER. Many key decisions affecting RET's responsibilities require the cooperation of the states and territories, which inevitably bring different perspectives to some issues. But stakeholders have a clear view that this work does not have sufficient leadership and has become bogged down in process. The negative impact on attempts to improve Australia's productivity should focus all parties on addressing this effectiveness issue.
The third challenge is to exert more influence on decisions that have an impact on the resources, energy and tourism sectors, but where RET does not have primary carriage. These include tax, industrial relations, immigration and the environment. In this context, the department needs to enhance its capacity as a policy maker, rather than a policy taker, while avoiding claims of 'industry capture'. The Secretary has acknowledged that to be successful at the negotiating table, RET requires a level of empathy with other agendas, a capacity to 'walk in the shoes' of others, and to effectively work to resolve tensions. The department needs to be able to measure success in terms of broader policy impacts and the government agenda. An extension of RET's stakeholder base would better position it to understand the breadth of views on policy and regulatory issues, and better equip it to internalise some of the issues relating to its policies and programs.
With all three challenges, especially since they involve extending the work that RET has previously undertaken, there are opportunities to leverage better practice, capture lessons learned and stimulate more lateral thinking on policy and program design. This has not been a departmental strength, and it requires encouragement from the Secretary and senior executive. The review team found strong support for this proposal at all levels of RET.
The department has significant program, project and grant responsibilities, and is bringing these under common systems to improve RET's capacity to monitor progress and outcomes. Stakeholders provided mixed feedback on their experiences with the energy efficiency divisions of the department, and indicated they had difficulty in understanding where responsibilities lie in this area.
People, processes and systems
While RET has begun to address a number of shortcomings in its capabilities relating to people, processes, and systems, and there is a good level of understanding among the SES in corporate services about the issues to be addressed, RET faces major challenges in this area. Recent changes to the governance structure, comprising the Executive Board, Finance and Administration Committee, Audit and Risk Committee, and Human Resources and Operations Committee, have the potential to improve oversight of planning and decision making, as well as systems and processes.
RET does not have an effective department-wide operating model—a 'RET way of doing things'. Instead, the department has a number of delivery processes and systems in Human Resources (HR), financial management, information, communications and technology (ICT), procurement, and workforce planning. With financial management, detailed aspects of budgets are controlled and managed at senior levels, making the process unresponsive and inefficient. The ICT delivery platform, which has been hosted by other departments, has improved, but risks remain. Procurement systems are largely paper-based, ad hoc and inconsistent. RET does not have a consistent or corporate approach to workforce planning and development of human capital at all levels. While the Workforce Development and Leadership Program (WDLP) assists in recognising talent at the Executive Level (EL), learning and development opportunities have been limited and individual performance management inconsistent and not linked to corporate goals. Feedback from within the department suggests a need for greater transparency.
The effective management of programs is a continuing challenge for RET, as it is responsible for a number of programs (notably in energy efficiency) which are complex, risky and have ambitious targets. Despite the introduction of a Project Management Framework (PM RET) and the establishment of a Program Management and Delivery Committee (PMDC) these vehicles are yet to achieve their full potential and there remain inconsistencies in project management. Projects tend to be monitored more against completion of tasks and milestones, rather than measured against success in achieving outcomes. More broadly, there is an absence of robust performance reporting against agreed outcomes. RET would benefit from a rigorous approach to managing projects, including an agreed approach to establishing measures of success. The PMDC monitors and disseminates learnings from projects, but the learning process is not extended to policy areas, for example, the Energy White Paper 2012 .
Risk is not a phrase that came up in the review team's discussions on policy options, although it is better understood in the context of grant administration and the provision of corporate services. Risk management is too often seen as a compliance requirement. In light of the RET 2012 experience, it is acknowledged that financial risk needs to be better managed by the department. RET faces substantial risks associated with the lack of an effective performance management system in the context of a changing policy environment and with ongoing fiscal constraints. This needs to be addressed urgently by the department.
Leadership to enable change
The Secretary is recognised as a strong champion for the department, with an understanding of the issues at hand, effective negotiating skills and a broad, forward-looking vision encompassing departmental and government imperatives. The review team canvassed the potential areas for improvement set out in this report with the senior executive and SES, and there was generally good support for change. This is important because, as a group, RET leaders will need to display leadership behaviours based on shared values, and be proactive and engaging in their interactions with the workforce and external stakeholders if progress is to be made on change.
It is crucial to the success of this process that the department fully comprehends and supports the vehicles it has at its disposal. A good start has been made with a new corporate planning process, changes to governance structures and specific improvements to some systems and processes. Workforce planning and performance management are crucial aspects of this change, as well as using RET's communications capability. The Secretary and senior executive need to make a judgment about the appropriate pace of change in the context of the department's ongoing responsibilities and fiscal constraints, but it is important that these constraints are not used as reasons to defer required actions.
It is commendable that the Secretary brings a high level of enthusiasm and passion to tackling the issues set out in this report. The challenge now is implementation. In this regard, the department may find it useful to discuss with the APSC significant change programs successfully implemented by APS agencies, including following the findings of capability reviews, to draw on lessons learned.