1.4. Strategic management in public management as compared with business organizations: applicability and adaptation
The topic of the thesis is devoted to public management, however the basic ideas about strategic planning we have to seek in corporate planning concepts. We suppose that the experience of corporate governance is rather useful for the sphere of public administration, but management objects are different, and direct transfer of experience and ideas is hardly possible. Preliminary assessment of similarities and differences between these two spheres is essential.
‘During the late 1980s, a tendency developed whereby public officials thought that the principles of business management could be applied to the public sector, in order to make the civil service equally more efficient, economical and effective. But a significant number of Public Administration and Management theorists did not share this view, as they were convinced that due to the dynamic socio-political milieu, management in the public sector is more comprehensive, vibrant and efficient than business management. They also believe that the business philosophies of market exploitation do not belong in the public service, where the provision of service is the key focus. What may well be used, are business techniques and tools such as project management, cost-benefit analysis, strategic management, productivity measurement, and so forth’.25
One of the similarities that are common to the public and private sector is political management. Public and private leaders are both concerned with meeting their staffing needs, motivating subordinates, and obtaining financing to maintain efficient operations. Both sectors’ leadership must address issues internal and external to their organizations. There are operational agreements to be reached and maintained; elements of persuasion and coercion to be weighted; and gains and losses to be realized.26
Similarly, it behooves leaders in both sectors to analyze and interpret political, social, and economic trends; to evaluate the consequences of legislative actions; and to possess the required competency to persuade and bargain effectively, thereby furthering their organization’s objective. In addition to being politically savvy, leaders in both the public and the private sectors must also be competent in implementing shareholders’ and stakeholders’ established goals and objectives. Besides, we have to point out that the first stage of strategic planning is strategic analysis. And it is applicable to both spheres. Federal strategy begins with chapter covering current trends and at the same time corporate strategy gives initial marketing research and current trends in the market.
Guth (1980) argued that programs in both public and private sectors require a comprehensive understanding of five traditional management functions: planning, decision making, organizing, leading and controlling.
As far as projects are concerned (in public or private sector), five traditional management functions are also extremely relevant. David Kassel in his book ‘Managing public sector projects’ outlines the following definition of public sector project management: the application and integration of project planning, selecting agents, enacting agreements, and monitoring and controlling work to achieve a unique public sector project vision’.27
If we look at strategies, there are some clear differences between private sector strategy and public sector strategy. Companies constantly look for competitive advantages in insecure markets and changing environments. For public institutes, strategy is determined by the desire to find a solution for issues within society. Shareholders and stakeholders make strategic choices, with the purpose of realizing the continuity of the enterprise and/or generating profits. Changing markets and circumstances lead to changes in strategy and different strategic choices. For a public organization on the other hand, strategy is the consequence or the outcome of a political choice, inspired by principles of democracy and law. Basically, one is oriented on society, the other on markets. However, at the end there is a clear resemblance between strategy for public and strategy for private organizations. The resemblance is that public organizations as well as private organization are both oriented towards the addition to value and they constantly ask themselves how they can be organized so that their added value will be maximized.28
As Nutt and Backoff suggest, it is the authorizing environment and the interdependent actors that can be considered the actual market of the public organization, the interests of which it must strive to satisfy in the act of strategic management. “How things are viewed or understood by stakeholders holds more salience (to strategy) than the validity of claims.” (Nutt & Backoff 1992). These authors set public organizations apart from private ones in terms of environmental and transactional factors and internal processes. The environmental factors include the influence of the political level and constraints put on public organizations by legal mandates and “market forces” of key actors and funders which expect public organizations to collaborate to achieve social aims. The transactional factors include coerciveness, scope of impact which is much broader than in a private company, public scrutiny of all transactions and thus the need for accountability and ownership which is collective and thus management must include societal values such as fairness, openness, inclusiveness, honesty. Looking into the organization, the goal setting processes are conflicted since there is no common bottom line such as profit, which makes also measuring performance complex and difficult. Incentives are difficult to set since employees are expected to enter the public sector not seeking primarily financial gains, but are motivated by interesting tasks, important roles, and ethical values. There are also limits set to internal processes by legal constraints. They are represented on Table 2.29
The authors Bryson J. M. and Roering W.D. compare and contrast six approaches to private-sector strategic planning within the context of a public-sector strategic planning process. They discuss the public-sector applicability of each of the private-sector approaches and explore the contingencies or conditions that govern its successful use in the public sector. Comparison of private sector approaches to strategic planning and their applicability to the public sector is demonstrated in the Appendix 2.30
They set forth 6 schools of thought or models of strategic planning developed in the private sector and discuss their key features, assumptions, strengths, weaknesses, applicability to the public sector, and contingencies governing their use. We will briefly consider them.
In the business world, the Harvard model appears to be best applied at the level of the strategic business unit. The public-sector equivalent of the strategic business unit is the strategic public planning unit. The systematic assessment of strengths, weaknesses, opportunities, and threats – or SWOT analysis – is the primary strength of the Harvard model. This element of the model appears to be applicable in the public sector to organizations, functions, and communities (Sorkin, Ferris, and Hudak 1984), although in the case of communities the distinction between inside and outside may be problematic. The main weakness of the Harvard model is that it does not offer specific advice on how to develop strategies, except to note that effective strategies will build on strengths, take advantage of opportunities, and overcome or minimize weaknesses and threats.
Strategic planning systems are applicable to public sector organizations, for regardless of the nature of the particular organization, it makes sense to coordinate decision making across levels and functions and to concentrate on whether the organization is implementing its strategies and accomplishing its mission. It is important to remember, however, that a strategic planning system characterized by substantial comprehensiveness, formal rationality in decision making, and tight control will work only in an organization that has a clear mission; clear goals and objectives; centralized authority; clear performance indicators; and information about actual performance available at reasonable cost (Stuart 1969; Galloway 1979).
Traditional private-sector models of strategy have focused only on economic actors, but Freeman argues that changes in the current business environment require that other political and social actors must be considered as well. Because it integrates economic, political, and social concerns, the stakeholder model is one of the approaches most applicable to the public sector. Many interest groups have stakes in public organizations, functions, and communities. The strengths of the stakeholder model are its recognition of the many claims-both complementary and competing-placed on organizations by insiders and outsiders and its awareness of the need to satisfy at least the key stakeholders if the organization is to survive. The weaknesses of the model are the absence of criteria with which to judge competing claims and the need for more advice on how to develop strategies to deal with divergent stakeholder interests.31
Portfolio models. The idea of strategic planning as managing a portfolio of businesses is based on an analogy with investment practice. Just as an investor assembles a portfolio of stocks to manage risk and realize optimum returns, a corporate manager can think of the corporation as a portfolio of businesses with diverse potentials that can be balanced to manage return and cash flow. Although the applications of portfolio theory to the public sector may be less obvious than those of the three approaches described above, they are nonetheless just as powerful (MacMillan 1983). The strength of portfolio approaches is that they provide a method for measuring entities of some sort (e.g., businesses, investment options, proposals, or problems) against dimensions that are deemed to be of strategic importance (e.g., share and growth or position and attractiveness) for purposes of analysis and recommendation. The weaknesses of such approaches include the difficulty of knowing what the appropriate strategic dimensions are; difficulties of classifying entities against dimensions; and the lack of clarity about how to use the tool as part of a larger strategic planning process. Without a shadow of a doubt we may conclude that portfolio model is perfectly applicable in case of project management implementation in state strategic planning system. Experts from the Project Management Institute (PMI) confirm that Portfolio management ensures that an organization can leverage its project selection and execution success. It refers to the centralized management of one or more project portfolios to achieve strategic objectives. PMI research has shown that portfolio management is a way to bridge the gap between strategy and implementation.32
Michael Porter competitive analysis, it assumes that by analyzing the forces that shape an industry (relative power of customers, relative power of suppliers, threat of substitute products, threat of new entrants, and the amount of rivalrous activity among the players in the industry), one can predict the general level of profits throughout the industry and the likely success of any particular strategy for a strategic business unit. The strength of competitive analysis is that it provides a systematic way of assessing industries and the strategic options facing strategic business units within those industries. For public-sector applications, the weaknesses of competitive analysis are that (1) it is often difficult to know what the ”industry” is and what forces affect it and (2) the key to organizational success in the public sector is often collaboration instead of competition. Competitive analyses in the public sector, therefore, must be coupled with a consideration of social and political forces and the possibilities for collaboration.
Strategic issue management is primarily associated with Ansoff and focuses attention on the recognition and resolution of strategic issues – “forthcoming developments, either inside or outside the organization, which are likely to have an important impact on the ability of the enterprise to meet its objectives.” In recent years many firms have developed strategic issue management processes actually separated from their annual strategic planning processes. Many important issues emerge too quickly to be handled as part of an annual process. A separate, quick response is necessary. Typically task forces reporting directly to top management are used to develop responses to pressing issues that turn up unexpectedly. Strategic issue management is clearly applicable to governments and agencies as well, since the agendas of these organizations consist of issues that should be managed strategically (Ring and Perry 1985).
The strength of a negotiation approach is that it recognizes that power is shared in most public situations; no one person, group, or organization is “in charge,” and cooperation and negotiation with others is often necessary in order for people, groups, and organizations to achieve their ends (Bryson and Einsweiler 1986).
Logical incrementalism model views strategy as a loosely linked group of decisions that are handled incrementally. Decisions are handled individually below the corporate level because such decentralization is politically expedient-corporate leaders should reserve their political clout for crucial decisions. Decentralization also is necessary-those closest to decisions are the only ones with enough information to make good decisions. Logical incrementalism would appear to be very applicable to public-sector organizations, functions, and places or communities-the situations in which, and for which, Lindblom first developed the incremental model - as long as it is possible to establish some overarching set of strategic objectives to be served by the approach.
That is why separate projects in the state level with different stages and deadlines may be a great tool of federal strategies gradual realization.
Strategic planning as a framework for innovation. This approach emphasizes (1) innovation as a strategy, (2) specific management practices to support the strategy (e.g., project teams; venture groups; diversification, acquisition, and divestment task forces; research and development operations; new product and market groups; and a variety of organizational development techniques), (3) development of a "vision of success" that provides the decentralized and entrepreneurial parts of the organization with a common set of superordinate goals toward which to work, and (4) nurture of an entrepreneurial company culture (Pinchot 1985). Nonetheless, the innovation approach would appear to be applicable to public sector organizations when the management of innovation is needed, as in the redesign of a public service (eg, Savas 1982). In fact, project management approach is a kind of innovation in public sphere and may become a brilliant public service reform if it is implemented in the right way.
From the author’s review and analysis the following conclusions are made:
It should be clear that corporate strategic planning is not a single concept, procedure, or tool. In fact, it embraces a range of approaches that vary in their applicability to the public sector and in the conditions that govern their successful use;
Although the public-sector strategic planning process is a useful framework to guide thought and action, it must be applied with care to any given situation, as is true of any planning process (Bryson and Delbecq 1979; Galloway 1979; Christensen 1985). Because every planning process should be tailored to fit specific situations, every process in practice will be a hybrid.
Table
2. Uncovering Alternatives in Public, Private, and Third Sector
Organizations
David Wirick in his book discusses the following differences between public-sector and private-sector project management.
a short planning horizon
Public–sector agencies have a shorter planning horizon than private sector organizations because of electoral cycles. Private-sector, for-profit organizations can establish substantially longer time horizons for product planning and other strategic movements. Public–sector organizations cannot count on the commitment to strategic goals beyond the term of current political officeholders and their appointees.
a contentious environment
Every project is subject to conflict and differences of opinion, and private- sector projects may not be supported by all of the organization’s stakeholders. But public-sector organizations are subjected to an organized political opposition. That opposition, usually embedded in the opposition party, may be on the alert for criticism of the current administration. In addition, the media, though not explicitly attempting to find fault with the current administration, finds “good copy” in the failures of public-sector projects. Unfortunately, failed projects make better stories than successful. Both of these factors in combination cause public-sector project managers to feel that they operate in a hostile environment and that they need to avoid visible failure at all costs.
overlapping service delivery mechanisms
Public-sector agencies have to coordinate their projects with other agencies and consider the impact of their projects on that array of programs and providers. These overlapping service delivery mechanisms also increase the number of stakeholders involved in a project.5
Public-sector projects can be more difficult than many private-sector projects because they:
operate in an environment of often-conflicting goals and outcomes
involve many layers of stakeholders with varied interests
must placate political interests and operate under media scrutiny
are allowed little tolerance for failure
are required to be performed under constraints imposed by administrative rules and often –cumbersome policies and often-cumbersome policies and processes that can delay projects and consume project resources
require the cooperation and performance of agencies outside of the project team for purchasing, hiring, and other functions
are performed in an environment that may include political adversaries
public projects are often more complex than those in the private sector.
Public-sector organizations will need to adopt some of the same strategies that private-sector organizations have already made as those public-sector organizations face increasing resource constraints and new demands for services.5
‘For decades, public-sector organizations have emphasized organizational models that value stable processes and an aversion to risk. In addition, public-sector compensation systems have valued longevity, and retirement systems have provided great benefits in the future in return for less compensation in the short run. As a result, public-sector organizations have not been structured to be flexible and innovative. two requirements of organizations in the new economy. Whether government agencies want to make the transitions demanded by the coming storm, environmental conditions are certain to push them there’.33