Why should we care about productivity in the public sector? Of course, productivity can raise efficiency, lower prices and make it possible to do more with less. It can help in showing that taxpayer money and other public resources are used prudently. But does it make anyone happier? 

Addressing productivity challenges in public services head on may even be counterproductive in motivating staff to deliver the best service to customers.

Yet ignoring productivity in the public sector would be unwise. Official productivity statistics for the public sector, produced by the Office of National Statistics (ONS) showed an improvement in output per unit of input of on average 0.6 percent per year from 2010-2018. That’s 5 percent more public sector output in just eight years’ time by using resources more productively. Even better, the numbers also show that about one third of that productivity improvement represents a better quality of services, rather than just a higher quantity of a given amount of resources. Perhaps surprisingly, these public sector numbers compare favourably with productivity in the private sector which has hardly grown over the same period. 

Outputs and outcomes

The reluctance to address productivity in the context of a local authority, a hospital or a school is often due to a lack of understanding of how productivity fits in the service delivery model. A zealous implementation of efficiency measures at the cost of the desired social outcome or objective is equal to hitting the target but missing the point. What’s more, the outputs (the activities that organisations carry out and the goods and services they produce) are not identical to the outcomes (the effects of these activities on communities and society at large), and it is the latter we ultimately care about. For example, a surgical procedure in a hospital is a typical output while the patient enjoying a better and longer life is the desired outcome. A productivity increase in the output makes it possible to do more surgical procedures or shorten patients’ time to recover. That, in turn, should contribute to an improvement in the quality of life and a rise in life expectancy.

Digital transformation, skills and collaboration

So what are the key drivers of “true” productivity growth in public sector organisations? More money, staff and competent managers all help, and are often prerequisites. But using those resources productively creates a lot more scope for public sector bodies to provide more and better services on a sustained basis.

Three productivity enhancers stand out. First, there is massive potential for digital technologies to simplify, streamline and enhance public sector delivery. Many office floors are littered with failed IT projects because the organisations themselves have not transformed the way they operate. But necessity can often be the mother of invention. For example, during the Covid-19 crisis the National Health Services in the UK responded to the pressures on resources by accelerating digital strategies, like telemedicine, and simplifying administrative processes in hospitals to free up capacity for Covid-19 treatments. Adaptation to the effects of climate change may also trigger transformational change leading to improved productivity in utility services, urban planning or emergency services.

Second, effective use of new digital technologies, such as big data analytics and artificial intelligence, don’t just require STEM (science, technology, engineering and mathematics) skills. Softer skills, such as collaboration, creativity, adaptability and flexibility, mistake and conflict handling are also critical competencies to use those technologies productively.

Third, public sector organisations often don’t have access to the latest technologies obtained through well-functioning markets. They therefore tend to rely on their own innovation process which risks leading to creating inward looking and path dependent cultures. Collaboration and communication, often in local and regional settings, can lead to more effective procurement, the creation of platforms for joint innovation and training, or interventions to de-risk new technologies by collectively setting standards.

Putting productivity in practice

How do we turn those levers of productivity into actions? In other words, how to make productivity practical? It is all too easy to say public sector productivity is just about management although high quality management is a truly important factor. Public sector organisations are complex and often constrained by political or budget related parameters. The need for services to be tailored to individual customers, combined with heavy public scrutiny, often pushes managers to focus on the symptoms rather than the root causes of the constraints they face.

A methodical focus on removing bottlenecks in delivery processes, and a meticulous focus on data that can help to improve performance can be a good start. But not everything that matters can be measured, and not everything we can measure matters. The primary aim of data collection should be to improve organisational performance and to track and monitor interventions rather than just holding the players accountable. Continuous communications help to establish how such metrics relate to the organisation’s objectives.

Watch this space for further insights about how to put public sector productivity in practice.

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Written by

Bart van Ark

Bart van Ark

Managing Director, The Productivity Institute.

Bart van Ark is a Professor of Productivity Studies at the Alliance Manchester Business School (AMBS) at the University of Manchester. He is also Managing Director and Principal Investigator of The Productivity Institute, a UK-wide organisation which aims to lay the foundations for an era of sustained and inclusive productivity growth by bringing together academic research, policy studies and business engagement. Bart is also a Senior Advisor of the Economy, Strategy and Finance (ESF) Center at The Conference Board, where he was Chief Economist from 2008 until 2020. He is also an honorary professor at the Faculty of Economics and Business at the University of Groningen.

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