ADS553 STRATEGIC

MANAGEMENT IN PUBLIC
SECTOR

1ST LECTURE
 DISCUSSION OUTLINES

INTRODUCTION
THE NEED OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR
NEW PUBLIC MANAGEMENT
UNDERSTANDING PUBLIC MANAGEMENT IN
PUBLIC SECTOR
Linking Strategic Planning and Human Resources

© 2010 South-Western, a part of Cengage Learning. All rights reserved.

 INTRODUCTION

The terms ‘strategy’, ‘strategic management’ and

‘strategic planning’ are now very common in all different
types of organization from the largest multinationals
through to small business entity including public sector
as well as nonprofit organizations
Strategic management has gained a sustained
prominence in the management of public services in the
past two decades or so
Public organizations are increasingly being asked to use
it as part of their management techniques
It has become an attractive management tool to
reformers
 Bovaird (2009) argues for an organization to be without a strategy is
to appear directionless and incompetent.
 INTRODUCTION

 Strategic planning is a relatively new innovation in the public

sector management and according to some observers, it
represent a major change in the management of public sector
organizations (Bryson, 1988)
 According Poister and Streib(2005) strategic management
was only introduced into the public sector 20 years ago, with
much of the early literature focusing on local government
applications
 This observation implies that strategic management is
basically a new management instrument1 imported to the
public sector
 Llewellyn and Tappin (2003) insist that strategic
management is not rooted in the public sector so strategies
have to be ‘planted’ in the public services
 INTRODUCTION

 For private sector the reasons for the use of strategic

management is rather justified by the circumstances in which
they operate- a competitive and market driven environment in
which the innovation for survival strategic is crucial
 In order to survival and prosper firms have to develop a
means of aligning their missions to their environment and
that means is strategic planning
 For public sector the need for strategic management seems to
be lower because their survival are not in immediate threat
and that their environment is not that major threat for their
survival ( Snow and Hambrick 1980)
 Despite this observation public sector is being forced to adopt
strategic management approach in their performance
 STRATEGIC MANAGMENT

The process of identifying, choosing and

implementing activities that will enhance the long-
term performance of an organization by setting
direction, and by creating compatibility between the
internal skills and resources of the organization, and
the changing external environment within which it
operates
 STRATEGIC MANAGEMENT

The art and science of formulating, implementing

and evaluating cross functional decisions that enable
an organization to achieve its objectives
 GOVERNMENTAL ROLES AND
RESPONSIBILITIES

It posesses diverse roles and responsibilities, ranging

from those with potential commercial focus to boost
up country economy to those that are socially
oriented such as welfare programs, education and
public health campaigns
PUBLIC SECTOR ROLES AND RESPONSIBILITIES
 THE NEED OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

 The current surge for strategic management in the public

sector is related to a number of recent events that also
triggered far reaching public sector reforms.
 There seem to be a clear connection between economic crisis
of the later 1980s and the increased emphasis in the use of
strategic management in public sector organizations.
 For example the strategic management literature includes
extensive writings on "cutback management" (Rubin, 1990)
and as well as the alignment of organizational goals and the
available resources.
 During periods of fiscal austerity, public organizations are
likely to adopt strategic planning to assist agency managers to
contain their budgets and maintain funding for the agency's
highest priority areas (Caiden, 1990)
 THE NEED OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

 Since funding uncertainties and constraints are endemic to

public services, public sector organizations are required to
make their organizational aims, outputs and outcomes much
more transparent in ‘strategies’, in order to secure on-going
funding from government bodies (Llewellyn and Tappin
2003)
 The use of strategic management is triggered by governments’
desire to control public expenditure via enhance efficiency of
public organization (Green 1998)
 This desire is reflected in government’s emphasis to link
organizations’ performance targets with funding ceilings
 Traditionally the link between organizational performance
results and costs involved is not clear and the introduction of
strategic management is assumed to correct this past legacy
 THE NEED OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

To deal with the complexities, new methods and

approaches are needed and, over time, these have been
called ‘strategic management’
Public organizations are considered under- performing
and uneconomical in their use of public resources
With strategic management, it could help to enhance
public organizations’ image and legitimacy
Berry (2001) noted that widespread recession of the early
1990s precipitated the need to ‘hold down the size of the
government’ thereby forcing political leaders to initiate
public sector reform process that takes strategic
management to its heart
 THE NEED OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

Hughes (2003) see the rise of strategic management in

the public sector as a critique to traditional public
administration model, which he describes as inward and
short-term focused, routine oriented based with less
considerate to long term planning issues
As Hughes (2003) insists strategic management has to go
beyond routine management tasks and consider in a
systematic way a long- term organization mission and
vision
Similarly, Eadie (2000) suggests that the purpose of
strategic management is to maintain a favourable
balance between the organization and its environment
over a long period
 THE NEED OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

There are still skeptical–minded people who see

strategic management as unfit for the public sector
management (Berry 2001)
This skepticism emanate from the fact that
traditionally, planning efforts in the public sector
have often ended unimplemented, meaning that
planning documents often end up on the ‘dusty
shelves’ as their contents were rarely implemented
 THE NEED OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

The present practice of management tools consumed

by public managers which are based on an older
mechanistic school of strategic management and
which are in line with laymen’s concept of
management ignore the active, context-dependent
nature of learning and makes it is an impediment to
collaborative knowledge creation, learning and
change (Marika Vanttinen, Kirsi Pyhalto, 2009)
Modern concepts of strategy and strategy process
offer a more formalize manner of strategic
management activities
NEW PUBLIC MANAGEMENT AGENDA
 NEW PUBLIC MANAGEMENT AGENDA

 Recent, more systematic efforts to make public administrations more

accountable, efficient, and responsive
 The core techniques borrow from the managerial methods of the private sector
 From the beginning of the 80ies the public sector has seen a large influx of
private sector principles and tools into the public sector in the attempt to
improve efficiency and effectiveness
 The reform movement can be summarized as “New Public Management”, or
“New Steering Model” in Germany, and has been implemented with different
results almost worldwide
 Since the 90ies “Governance” has emerged as an additional concept, which
some see as an enrichment of the NPM philosophy, others as a paradigmatic
shift towards a more outward focused public sector, emphasizing co-operation,
democracy and citizen participation
 NEW PUBLIC MANAGEMENT AGENDA

 Governance is understood as the shaping and optimizing of the

interdependencies between actors in a society which cooperatively attempt to
produce public value (Kooiman, 1999; Schedler & Siegel 2005; Benz, et al.,
2007; Schedler 2007)
 Some scholars or politicians argued NPM as ‘new global paradigm’ and
skeptical
 Decentralized and liberalism
 Emerge at 1980 & 1990s, it is new managerial approach in public sector
 Related terms:
 “managerialism” (Pollitt,1990),
 “new public management” (Hood,1991),
 “market-based public admin”(Lan & Rosenbloom,1992),
 “post-bureaucratic paradigm” (Barzelay,1992)
 “entrepreneurial government” (Obsorne & Gaebler, 1992)
 NEW PUBLIC MANAGEMENT AGENDA

 It represent a major shift from traditional public administration with far

greater attention paid to the achievement of results and the personal
responsibility of managers
 Intention to move from classic bureaucracy to make organizations, personnel,
and employment terms & conditions more flexible
 Achievement through the performance indicators
 Reducing government function through privatization and other forms of
market testing & contracting
The differences of traditional & public management model

Traditional model Public management model

Focus on structure and process rather Focus more on the result-oriented
than results

Relationship with the political Relationship more fluid and closer

leadership narrow & technical than before

Less profitable to generate revenues High profit to generate revenues

(decentralizations, privatization)

less flexible in decision making Flexible in decision making

 NEW PUBLIC MANAGEMENT AGENDA

 Privatization.
 Quasi-market competition (and contractualization).
 Management, relational, and personnel contracts; competition between
public agencies; inter-agency fee charging; out-sourcing.
 Performance orientation: changing the accountability relationship from
an emphasis on inputs and legal compliance to one on outputs.
 Results-oriented budgeting, full-costing of products.
 Devolution of discretion. Devolution of decision making: reducing the
burden of hierarchical rules and fostering greater discretion at lower
points in the hierarchy.
 Agencification, decentralization of personnel-management.
 Specialization by splitting policy making and policy implementation,
service financing and service delivery.
 Executive agencies, hospital trusts.
 Client-focus: reporting to and "listening" to the clients of the public
sector.
 Citizen’s Charter; e-government, participative budgeting.
 NEW PUBLIC MANAGEMENT AGENDA

Understanding what changes are needed

How to implement and manage these changes
How to create a roadmap for sustaining
improvements that lead to better performance
 THE NATURE OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

Public sector organizations or departments seldom

have a clear link between their level of performance
and the budget they receive.
This tends to encourage a focus on efficiency (do
things right) rather than effectiveness (do right
things) because being effective may be very costly,
will not attract a greater level of funding and is more
likely to be subject to public criticism and political
pressures.
 THE NATURE OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

Public sector organizations, particularly government

departments, exist to implement the political agenda
of the parliament of the day. This political agenda
often makes the strategic management process
difficult to implement effectively.
 THE NATURE OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

Public sector management often requires collective

actions between departments and agencies that are
strategically separate but functionally
interdependent. For example, the implementation of
key transport policies may also invite the resources
and activities of the education, main roads and police
departments.
 THE NATURE OF STRATEGIC MANAGEMENT IN
PUBLIC SECTOR

There is no common denominator (such as market

prices) to facilitate transactions within the public
sector nor is there a single common measure of
success (such as profit).
UNDERSTANDING STRATEGIC MANAGEMENT IN
PUBLIC SECTOR
UNDERSTANDING STRATEGIC MANAGEMENT IN
PUBLIC SECTOR
Strategic Management in Public Sector
Cont…

The first step is information gathering, which

identifies key market, industry and internal
organizational trends and opportunities that will
impact the organization.
 Michael Porter’s “Five Forces Model”
 Threat of New Entrants
 Bargaining Power of Suppliers
 Industry Rivalry
 Bargaining Power of Buyers
 Threat of Substitute Products
Cont…

Where “market”, in the public sector contexts, refers

to all relevant stakeholders.
Understanding the interests of stakeholders is
extremely critical in public sector management.
 Government responsiveness to these interests and
the interests of society as a whole are fundamental to
service delivery and performance.
Cont…

The organization’s ability to respond to these critical

strategic issues and challenges is manifest in their
vision and the mission statement describing:
 what they do, with/for whom they do it
 their distinctive competence
 why they do it
Cont…

The strategic goals and specific strategies for achieving

these goals should be formulated in an operational plan
that also addresses change management issues.
A discussion of strategic management would not be
complete without addressing the role of change
management as a key enabler for innovation.
Change management recognizes that a “multiplicity of
factors influence an organization’s ability to change”.
In this regard, a definitive strategy and structure are not
enough when considering the implementation of a
customer-focused approach.
Cont…

In government, meeting the challenges of

transforming this, previously slow and bureaucratic,
agency of government into a more dynamic and
responsive organization.
The leadership of senior management staff was
critical for change management, and fostered change
agents that worked for a common benefit.
These factors, together with continuity in
management (not always possible in government)
provided stability.
(Cont…) The change success: 7S Model
Cont…

The successful reinvention must be continually

challenged to prevent complacency.
“the largest gap between companies that were good
and bad at change (…) arose because some learned
from change and institutionalized their knowledge,
building it into their culture and performance
assessment.”
Lastly, from this point, a review of this process and
performance should be ongoing.
 TUTORIAL QUESTIONS

1. Define the term strategic management.

2. Disscuss the nature of strategic management in
public sector.
3. Identify the significance of new public management
agenda in strategic management.