Chapter

10 Value for Money: Toward Improved Organizational Functioning

Editor(s):
A. Premchand
Published Date:
June 1990
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Author(s)
KENNETH M. DYE

INTRODUCTION

I should like to give you at the outset some background on how my office got involved in studies aimed at getting better management in the public sector.

In 1977, Parliament gave my office an expanded mandate. Before then, our legislative audit work was mainly financial attest and authority auditing. Today, our mandate is to determine whether taxpayers are getting value for the tax dollars public servants spend. So we now perform what is called “value-for-money auditing.” It is based on the notion of “due regard.” We are now obliged to report to Parliament cases in which management had not given due regard to factors which would provide value for money. The value-for-money mandate focuses on the concept of economy, efficiency, and effectiveness. It seeks to provide information to Parliament about public service managers’ handling of tasks, going far beyond the more limited notion of financial attest audit.

When I was appointed Auditor General of Canada in 1981, I decided that the office should review its impact on the public service and the Federal Government. I found that we were primarily focusing in our reports on weak management systems. And what struck me most about government was the slow, laborious way of getting results or not getting results. At the same time, I became acquainted with many individual senior public service executives. Despite a lack of results, I was impressed with their intelligence and commitment. This apparent contradiction prompted me to commission a study on the causes of management weaknesses. I felt that we should report to Parliament not only results of poor management performance, but also what caused it.

We did that study and published it in 1983 under the title “Constraints to Productive Management in the Public Service.”

CONSTRAINTS TO MANAGEMENT

When we began our study, a number of people suggested that the cause of poor management performance was to be found in the managers themselves. It was said that public service managers are inherently limited in their competence and commitment. We rejected that idea. The Canadian Public Service comprises about 250,000 people, about 1 percent of all of the population. And these people come from all areas of Canada to work for the Government. We reasoned that it would not be possible to try and select one fourth of a million people who are particularly incompetent and uncommitted, all in one place.

In our view, people who worked in the public service were probably no better or worse than any other Canadians. We therefore rejected the notion that the cause of poor public service performance resides exclusively within the public servants themselves. We went further in our thinking and concluded that if the causes are not within the people, then they probably can be found in the environment in which the public servants have to work.

Our study confirmed that. We reported three main findings to Parliament, three main causes of poor performance:

  • First, political priorities have a strong impact on management in the public service.

  • Second, there are many administrative rules and regulations that impose severe burdens on management.

  • Third, there are few incentives for productive management but many more disincentives.

Let us consider each of these findings.

The first has to do with the impact of political priorities on management practices. In the early 1980s, for example, the Ministry of Transport proposed abandonment of unproductive rail lines in Western Canada. This action would have saved millions of subsidy dollars that could have been diverted to other more productive transportation services. However, when the proposal was made, there was an uproar in the parts of the country affected. Members of Parliament who represented Western Canada were strongly opposed to the idea, calling it a reduction in government services. The outcome of this debate was that the operation of the unproductive railway lines and their subsidy by the Government continued. Political priorities had impacted on productive management.

Our second main finding was that there were many administrative rules and regulations, some of which contradicted each other and some of which were not sensible in specific cases. Let me illustrate with an example from a senior public service executive in Montreal. This individual had to be in Boston for a series of meetings on a certain Monday at noon. His secretary made travel arrangements through the Government’s central travel services. Unfortunately, there were no more seats on the Monday morning flight, so Mr. Jones (we’ll call him) had to fly Sunday afternoon.

About a week before he traveled, it occurred to him that there might have been a cancellation. He called the airline and found that, indeed, there were some available seats. However, they were first-class seats. This man knew that public servants are not allowed to fly first class. But he asked about the difference in price. The difference was only $17. He then asked his secretary to call central travel services and change his travel arrangements. Instead of flying Sunday afternoon and spending $85 to stay in a hotel, he would fly Monday morning, pay an extra $17, but save $85 by not staying in a hotel. The travel people refused to make the change, because the rule said that flying first class was not permitted. Even though he argued that he was saving money for the taxpayer in the end, the inflexible travel administration prevailed. They said, “Mr. Jones, there is a rule against flying first class, but there is no rule against staying in a hotel.”

Jones took the flight on Sunday evening. He paid $85 for the hotel, and he charged dinner. But he also saved $17 by not flying first class. When he told us this story, he made an additional point. The fact that he spent some $80 of taxpayers’ money unnecessarily was regrettable, he said. But what really made him upset was the fact the he was forced to do this. The system compelled him to act against the interest of the taxpayer and against his own intentions.

Our third finding in our constraints study was that there are many disincentives to productive management, but not many incentives. Let me illustrate again. Our fiscal year goes from April until March, and it used to be a fact of life in the last two months of the year that government departments would expend an enormous amount of money on purchases—far more so than during the rest of the year. There was a reason for this. In our system, unused funds are “lapsed.” We found that there is a stigma attached to “lapsing funds.” A manager who lapses funds is often viewed as someone who is not very good at planning. Also, when you do not use all your allocated funds in one year, it may well be that your funds will be reduced in the following year. Managers, therefore, want to make sure that they spend all their money, whether they achieve value for this money or not. This says something about disincentives for productive management. It also says something about the ingenuity of managers. They learn very quickly how to “beat the system.”

INCENTIVES

When we prepared the report, there was some argument about the “incentives” part. Some people were saying that public servants do have strong incentives: we pay them reasonable salaries; we pay for vacation and legal holidays; we provide pension benefits; we have a paid medical plan; we have a paid dental plan; and we have other benefits of this nature. It is not true, therefore, that there are no incentives.

But there is another side to this. If you line up all these incentives and look at them, you find that they all have one thing in common: to benefit from them, you have to be away from work. And what do we see at work itself? We see that people are surrounded by rules and regulations; we see that they are not trusted very much; we see that they are discouraged from risk taking and that they are criticized for errors. And then we wonder why people would rather be away from work than at work. If the public service system makes work itself very unattractive and it makes being away from work very attractive, we should not be surprised that people prefer to be away from work than at work.

When we published our report on these constraints, we made some suggestions to the Government. We suggested that managers should be given more authority, and that the Government should take steps to improve the training and development of managers.

IMPROVED AUTHORITY AND ACCOUNTABILITY

On both counts, the Government responded positively. It has designed and implemented a program that we call “Improved Managerial Authority and Accountability.” Under this program, the Treasury Board and individual departments agree on results to be achieved and give managers significant autonomy to work toward that achievement. With respect to the development of managers, the Government has set up the Canadian Center for Management Development. Its aim is to foster the development of management competencies and the development of a strong corporate identity, together with the values of responsive and productive service to the public.

This rather unusual study was conducted under our mandate of auditing value and money. It convinced us more than ever that the constraints within a public service system need as much attention as the more conventional aspects of economy, efficiency, and effectiveness. It also convinced us that we have to address value-for-money auditing in a comprehensive and integrated way and not with a fragmented approach.

The study on constraints to productive management talked about the barriers and the burdens that managers are facing when they do their work. It explained some of the underlying causes of less than desirable performance. But we also found during that study that there are some managers and some organizations that perform much better than average. In spite of the constraints, they give satisfactory attention to value for money. We found that and we reported that, but we did not attempt to explain why at that time. About two years ago, we decided to do something about it. We undertook a study to discover the attributes of some of the organizations in government that were considered to work well.

There are many theories why some organizations work well. Some people say that strong leadership is required. Others claim that a clarity of goals is important. Still others insist a strong client demand or good political support are necessary ingredients. Still others assert that it is the adequacy of resources. But there is no agreement. Different people believe different things. No one has a concrete explanation.

We wanted to explore this facet of management to make a fairly definite statement about the attributes that are common in organizations performing well. The idea was not to praise these organizations but to identify and document their attributes. Our hope was that, if we could do this, others might be able to learn from this, do likewise, and thereby also perform well. We realized that such a study was not part of our traditional value-for-money auditing approach. We had in the past looked mainly at weaknesses and inadequacies. However, we also realized that value-for-money auditing is still a very recent practice and that it is necessary to explore different aspects of it for it to grow and mature. We also hoped that such a study would give us additional sets of audit criteria that we would be able to use in future value-for-money audits.

Finally, we wanted to see what response we would get on the part of those we audit: Are we a catalyst or an agent of change, recommending positive action based on good performance, rather than on poor performance?

As was to be expected, there were some reservations when we started this study. We knew it was a high-risk study, because we had never done it before. We knew that there was a possibility of failure if we were unable to put together a coherent and convincing set of study findings in our final report. But we believed it important to advance the frontiers of value-for-money auditing, and we therefore decided to go ahead with the study.

Our first challenge was to select a small number of organizations that are considered to work well. It would have been difficult to make that selection ourselves. If we were to select and then also to confirm good performance, people might doubt the credibility of our study. We therefore went to senior government officials to try and get a peer consensus on a number of suitable organizations. There was some hesitation at first. Officials did not want to be tied down to making such pronouncements, for fear of embarrassment. In the end, though, we had agreement on a dozen organizations that were considered to be performing well. They were not perfect, but they were working better than the average government department or agency.

SELECTION OF ORGANIZATIONS

When we discussed selection, we were careful to point out that we were not looking for one specific element of good performance such as efficiency, or responsiveness, or level of service. We were looking for overall high-performance factors on which senior people could agree. Once we had the list of 112 suggested organizations, we began to discuss the study individually with the persons responsible for these organizations. In the case of a department this would be a Deputy Minister. In the case of a crown corporation, it would be its President.

Our aim was to obtain their active support and collaboration in the study. When we do regular audits, we start out principally on our own terms, whether the auditee finds it convenient or not. In this case, however, we felt that we needed the knowledge, experience, and insights of the organizations’ managers to find out the attributes that contribute to good performance. On that basis, we ended up with 8 organizations that were willing to participate in our study. They opened up their minds and they opened up their files to us; they facilitated interviews with their customers and with their suppliers; and they provided detailed knowledge about their operations.

Let me illustrate the size and the type of work of these organizations. There was Canada Mortgage and Housing Corporation, a crown corporation of about 3,000 people, in business to provide housing to Canadians. There was the National Parole Board. Its purpose is to decide which prison inmates should be released on parole and under what conditions. This organization comprises only a few hundred people that are dispersed throughout the country.

We included the Spectrum Management Sector of the Department of Communications. Its task is to assign, control, and monitor radio frequencies that are used by broadcasting stations, aircraft, ambulances, taxis, and the police. We also included a joint project between the Royal Canadian Mounted Police and the Department of Public Works. It concerned management of the real property of the national police force. There was the International Development Research Centre. Its purpose is to help developing nations design and develop research facilities in their own countries. We looked at the Bankruptcy Branch in the Department of Consumer and Corporate Affairs, a paper-based operation that processes corporate and individual bankruptcies. The seventh organization was the Bureau of Labour Information, which collects and distributes data about the collective bargaining process in Canada. Finally, we included the office of the 1988 Calgary Winter Olympics. We looked on it as a major capital project that spent several hundred million dollars on construction and facilities, all within budget and on time.

The choice offered a considerable variety in the type of work that these organizations do. Yet our study found that there were certain attributes of good performance that were present in all of them. Let me outline the common attributes that we found.

STUDY FINDINGS

There was one overall finding that stands out remarkably strongly. I am referring to the shift from management based on control to management based on commitment that we found in these organizations. In traditional bureaucratic hierarchies, the aim of management is to define the best way to do a job, to set standards for compliance, and to monitor and control people to ensure that they comply. We know that this approach results in efficient production when work is routine, repetitive, and predictable. However, when there is much uncertainty, complexity, rapid change, and high interdependence, this control-based approach loses much of its effectiveness. We found in our study that the organizations performing well have moved beyond bureaucracy. They are able to achieve value for money even in complex and in rapidly changing environments. Our report contrasts this change from the old model to a new, more effective model of management.

The old model reads something like this:

The world is messy. Yet, to manage well, things need to be orderly, predictable, and certain. Therefore, we will create an orderly, predictable, and certain world. And then it will be possible to have effective managers and high-performing organizations.

The view in the organizations performing well that we studied is different. They start with the same premise, but they reach different conclusions:

The world is messy. Hence, to manage well, we need to develop managers who can perform productively even in work environments that are messy, uncertain, and changing. And then it will be possible to have high-performing organizations.

This change in mind-set and values, from a control-based approach to a commitment-based approach, is the most striking overall finding in our study.

Detailed Findings

We found twelve attributes, which we grouped into four clusters. The first cluster has to do with an emphasis on people. Within that, we call the first attribute, “The Empowering Organization.”

What we find is that the organizations performing well become and remain that way by developing and empowering their people. People are challenged, they are stretched, and they are encouraged, rather than criticized. People in these organizations tend to work not only with their hands, but also with their minds and their hearts.

The second attribute is “The Caring Organization.” These organizations care for their clients, they care for themselves, and they care for their people. There is a strong sense of loyalty, of dedication, and even of compassion. There is a team spirit and a sense of caring that is evident in all their relationships.

The third attribute is “The Successful Organization.” We found that the leadership makes sure that success is experienced. They set goals within easy reach at first to ensure success. This success breeds further success. In the end, it becomes impossible to fail. Success has become part of the corporate culture.

The further cluster of attributes has to do with participative leadership. It is not leadership in the sense of authoritarianism or coercion. Rather, it is leadership in the sense of creativity, of detecting patterns both within and outside the organization, of articulating purpose and mission, and of helping people understand and commit to it. People are not only consulted by the leaders in these organizations, they are invited to participate actively in planning and decision making.

A further attribute in this cluster is “The Becoming Organization.” What we find here is that the leaders envision an ideal type that the organization should be, and they are continually striving toward this ideal. They may never fully reach it, but they are always becoming more and more like the ideal.

The third attribute in this cluster is “The Communicating Organization.” The function of leadership here is seen as communicating, rather than commanding. The leaders inspire and foster communication. They hear, they note, they encourage, they articulate policy and purpose, they counsel, and they reward. People are informed, and they are aware of what is going on and what is planned.

Our next cluster has to do with innovative work styles. We have as the first attribute here, “The Learning Organization.” We find that there is continual self-scrutiny, scrutiny of the environment, and scrutiny of actual performance in relation to potential performance. There are measurements, standards, and reviews. These always serve a productive and understood purpose. Their purpose is to learn how to do things better and how to achieve greater value for money. Their purpose is not to impose controls for the sake of them.

The next attribute is “The Problem-Solving Organization.” The organization thrives on identifying and solving problems. Indeed, we found that these organizations view problems not so much as difficulties, but as challenges and opportunities. They are innovative and creative in finding new solutions for greater effectiveness and efficiency, for greater value for money.

The third attribute in this cluster is “The Intelligent Organization.” People in these organizations review, consult, and collaborate as a matter of course. They understand purpose and mission. They know what needs to be done and what needs to be measured. They have control and feedback systems as useful tools. In other words, the organization knows how to control itself. It does not depend on some outside body to control it.

Now to the final cluster of attributes. We find that the organizations are strongly supported by their owners. By owners, we mean a minister in a government department, or a board of governors in a crown corporation.

We find that there is a strong goal congruence between the political and the public service levels. We also find that the political will actively supports and reinforces this goal congruence. We said in our earlier study that good politics is not necessarily good management. In the organizations performing well, we find that the two work very closely together for common purposes and aims.

Second, we have in this cluster the attribute of “Strong Client Orientation.” We find that people in these organizations focus very strongly on client needs and preferences. They do not focus exclusively on the boss and the hierarchy, but also laterally to the customers. We find that their satisfaction derives from serving the client well rather than from observing bureaucratic expectations and processes.

We labeled our last attribute, “The Concretizing Organization.” What we mean here is that the leadership and staff in these organizations are able to talk in concrete terms even about intangible things. Mission and value statements are written in simple and realistic terms. Abstract events such as zero defaults in the collection of accounts receivable are celebrated through concrete awards. The organizations create tangible symbols of abstract events.

To summarize the attributes, there is the very important emphasis on people. There is participative leadership. There are innovative work styles. And there is strong client orientation. These attributes are present to a greater or a lesser degree in all the organizations we reviewed. We find that they are making a significant contribution to the achievement of value for money.

As for the response to our study, we found within the participating organizations the strong wish to perform even better than they are now. As we made the study, managers asked us not only to document the attributes of good performance, but also to tell them about weaknesses that they should improve. We observed a similar phenomenon in the public service at large after we published the study. Departments were calling us for advice on how they could improve their management to achieve greater value for money.

There is an interesting aspect to these replications. Other countries are only mildly interested in seeing whether they will get the same findings that we did. They are primarily interested in seeing if they can generate the same enthusiasm for improvement in their own civil service that we have been able to generate in Canada.

The attributes study has answered most of the questions we asked. We have a good idea now what are the attributes of government organizations that perform well.

What we still do not know, however, is the mind-set, and what are the values that drive some people always to seek improvement in their organization’s performance?

To answer that question, we have started a new study. It is a study to determine the driving elements in organizations. What are the values and what are the value conflicts that influence managers and organizations one way or another in their task to achieve value for money? The report on this study will be completed later.

As indicated at the beginning, value-for-money auditing is still an evolving discipline. There are potential areas in this discipline that are still waiting to be explored. New approaches to achieving and auditing value for money will no doubt emerge in the future. In Canada, we are trying to explore the future so that we are comfortable in it when it arrives. Of one thing we are virtually certain: that the future will be focused on people and on their values.

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