Why public and private management are fundamentally alike (in all unimportant respects)

Posted on November 17, 2014

Following the recent death of former Queensland Premier, Wayne Goss, it was interesting to learn that he had completed an MBA after his term as Premier. Clearly, he thought that his role as state leader did not fully equip him for a career in the private sector. Implicit in this decision was his recognition that there are fundamental differences between the public and private sectors—a view quite at odds with the ‘new public management’. At its most extreme, new public management sees private sector management as inherently good and public sector management as the opposite.

While the public sector has benefited from the adoption of some private sector practices, such as IT, marketing and customer service, a slavish adherence to private sector management models ignores three fundamental differences between the two sectors. It’s these differences that Wallace Sayre, who planned Cornell University’s new School of Business and Public Administration, was referring to when he famously stated that ‘public and private management are fundamentally alike in all unimportant respects.’

  1. Objectives

The first relates to the respective goals or objectives. While you may argue over the best form of measurement, it’s clear that financial viability is the fundamental objective of private organisations. Expressing and measuring clear objectives in the public sector is far more difficult. Are corrective services there to lock up offenders, or help rehabilitate them? How do we trade-off the goals of an agency such as NSW Trade and Investment, which is responsible for economic development but also regulating industry? For example, some of the agency’s constituents have polarised views on whether coal seam gas should be exploited or not.

Even when the objectives can be stated clearly, measuring how well they’ve been achieved is another matter. The wellbeing of the community—whether it’s safety, health, crime or environmental quality—is often more influenced by environmental factors beyond the control of public sector organisations.

  1. Accountability

In the private sector, organisations are accountable to shareholders, while public sector accountability is far more complex. Most public sector organisations have a complex web of stakeholders with a legitimate right to influence the decisions, services and actions of government and public sector agencies. After all, that is what democracy and politics is all about.

As guardians of the public’s resources, the public sector also (quite rightly) has a set of accountability requirements to meet and is often subject to the oversight of multiple watchdogs, including parliament, anti-corruption bodies, tribunals, ombudsmans and complaints investigations such as the Health Care Complaints Commission.

The role of public service agencies is generally far more nuanced than the typical relationship between services providers and customers in the private sector, particularly if the agency is exercising the authority of the state. Some clients of the Police or WorkCover may not feel like clients! As the late management guru Henry Mintzberg noted, he didn’t want the local council treating his neighbours like customers, but rather as one of a set of stakeholders to take into consideration when making decisions.

  1. Decision making

Public sector agencies are often criticised for their slow and bureaucratic nature. This partly reflects the fact that decision-making is far more complex and needs to take into consideration legislation, stakeholders and lobby groups which all influence the process. The public sector tends to have less autonomy in its decision-making—it is less able, for example, to unilaterally withdraw a service or make a fundamental change of strategic direction than its private sector counterparts. The complex objectives and stakeholder relationships makes government decision making far more layered and interdependent than decisions made in the private sector.

Essentially, if we try to instill private sector practices into the public sector without understanding these fundamental differences, it can lead to frustration and wasted effort. As a public sector specialist, Nexus understands and respects these fundamental differences when working with agencies, so they can change for the better.