Tag Archives: public service reform

Have big organisations had their day? Alas not in the public sector

In a recent bog post David Boyle, whom I regard as a fellow campaigner for a new economic paradigm, describes the phenomenon of the “empty corporation”. He mentioned this after trying to deal with two large British companies: Barclays Bank and TalkTalk, the telecoms company. These companies offer their customers no human contact, and are unable to solve more than very simple problems without causing their customers a lot of work. And yet these businesses conform to our idea of high productivity, which is the holy grail of economic development. Examining how these companies work gives us clues about how economic development needs to change direction.

The key to this is the insight, offered in recent book by information scientist César Hidalgo, that the human brain can only handle so much complexity. And the human brain is at the apex of any system for managing complexity. Whatever power Artificial Intelligence (AI) and computing may have to transform life, they remain a long way from handling complex situations reliably. Groups of people can manage more complexity that individuals, but this is a process of diminishing returns; it ceases to be true of large groups. That is fundamentally why large organisations do not handle complexity well. So how do they succeed?

They do so by simplifying things. Manufacturers build standard products in large numbers. Service providers try to pull off a similar feat, by offering a standard service, handled by a relatively simple set of rules, with the minimum variation due to context. Further, they produce these products and services by fragmenting the more complex parts into simpler steps. By doing so they are able to develop “economies of scale”, first admiringly highlighted by the founder of modern economics, Adam Smith, in a pin factory. That makes them highly productive and competitive, within a tightly defined remit.

Anybody who has worked in a large organisation (as I have within in financial services) will recognise this drive to simplicity. Failures are usually attributed to excessive complexity. Every so often there is a reorganisation to re-simplify things. Hierarchies and bureaucracy is put in place with the aim of preventing complexity from growing – though this sometimes backfires by doing the opposite. Even so large organisations often become unstuck because vital processes are neglected (a recent example being TalkTalk’s inadequate defence against hacking) or parts of the organisation interpret their an over-narrow remit without comprehending the full context (VW’s problems with emissions standards being a case in point here).  It seems impossible to get the balance between inadequate and excessive control.

And yet officialdom often favours large corporations. That is mainly because they have a similar problem with complexity. They find it much easier to handle a smaller number of large organisations. They are many examples, but one that sticks in my mind is the almost vindictive campaign by officialdom against smaller abattoirs after a scandal of lax standards. This still afflicts British agriculture; we may question whether it really has produced much in the way of safety benefits. But it has made the blame game easier to manage. There is a further, and sinister twist. Large corporations, especially in the USA, have discovered how easy it is to manipulate new regulations by lobbying officials and politicians. The payback on investment is apparently enormous.

The problems of excessive scale are even more apparent in the public sector than in the private one. A recent case described by Guardian journalist Deborah Orr is particularly poignant. She told of a woman falsely accused by a neighbour of antisocial behaviour. It was quite clear that this neighbour had mental health problems. Officialdom, in the shape of the housing association that managed the property and the police, where utterly unable to cope. They could not see beyond an isolated series of incidents, which each had to be dealt with according to a set process, regardless of human impacts. In the end her neighbour was evicted – but only because his rent was behind; at no point did anybody think of getting down to the root of the problem – the neighbour’s mental health problems, which are presumably being inflicted on somebody new. The theme of Ms Orr’s article is the lack of compassion in the modern world. To me it is simply the inability of large organisations, like the housing association and the police, to manage context and complexity. There is no place for compassion is such places. Compassion means allowing the impact of context, and that means losing control.

These problems are made worse by organisations attempting to be more “productive” by reducing levels of staff, and “de-skilling” – using less qualified, and cheaper, staff, working within tightly defined rules. Unfortunately this is one area where the wrong lessons from the private sector are being imposed on the public sector.

There is a sort of defining paradox about the problem. On the one hand we have workers working very hard, and very productively, and on the other we have the organisations they work for failing. This almost always arises because the sum of all the things that the workers are doing fails to add up to what they are collectively trying to do. There is even a name for the discipline of trying to resolve this type of problem: “process management” – which I personally have found an essential set of ideas as a manager. Unfortunately people charged with process management are usually given too narrow a remit to get to grips with the real problems their organisation faces. And all too often these problems are insoluble for large organisations – because solving them means depending too much on the exercise of judgement at a junior level (including the “compassion” of which Ms Orr speaks), the full consequences of which the wider organisation will be unable to handle.

Economists should ponder this paradox when they tut-tut about poor growth in productivity, as they are prone to do. Most still believe that productivity comes about with simplification and scale. But each of our lives is complex, from the billionaire to the welfare claimant. Offering us a bewildering menu of simple, standardised products and services is often not what we need, even if each of these services is very cheap, because it is produced to high standards of productivity. At least the billionaire can employ a small staff of professionals to try and make sense of it all. Alas the welfare claimant often needs interaction with just the sort of trained and empowered professional whose jobs are being de-skilled. Productivity, as it is usually understood, may be self-defeating. We need a new way of looking at it.

In the private sector the processes of technological advance and competition will eventually drive positive change. Big corporations will try to slow it down by creating monopolies, by making life difficult for their competitors, or by misusing such concepts as intellectual property rights. But the life expectancy of larger organisations is already shortening. A long last technology may be taking forward individual empowerment at the expense of centralisation. It is always dangerous to predict where technology will take us, but the smartphone, blockchain technology (pioneered by BitCoin), and additive manufacturing (3D-printing) are surely pointing towards a more distributed model of capitalism. Meanwhile the struggles of large companies to secure customer databases and fight disruption from cyber attack are pointing the same way too. With inevitable exceptions, the big commercial corporation may have had its day.

Alas there is no sign that policymakers understand that scale is a problem for public services, even though almost very day provides evidence that it is. Each failure is greeted with promises that some tweak in the system will sort the problem out. You would think that after so many years of such failed promises that people would start to twig. And yet, alas, no.


The Olympics and Hillsborough: two faces of the public sector

Brendan Barber, the outgoing General Secretary of Britian’s Trade Union Congress, called for “an Olympic approach to the economy“.  He was, of course, only one of many politicians and others trying to use the example of London’s success in putting on the 2012 Games to try and make a wider point.   He said that it showed that “the market does not always deliver”.  In this I think he was referring to both the fact that the games were a government sponsored grand project, and the spectacular failure of one of the private contractors, G4S, to deliver security staff.

Well I did not hear his speech, or even read it – relying on radio and press reports.  What comes over is a mixture of the coherent and nonsense.  The coherent part was the idea that an economy lacking in aggregate demand could do with some grand infrastructure projects to keep people employed and deliver future benefits.  Many people across the political spectrum agree with that, although personally I am on the sceptical side.  The nonsense bit was the idealisation of the public sector and suspicion of anything that smacks of private initiative and enterprise.  He precise words may well not have done this: “the market does not always deliver” is not the same as saying that “the public sector always delivers and market never does.”  But that is no doubt what his TUC audience heard, judging by what some people were saying.  The ideas of many trade unionists are not so much inspired by Maynard Keynes as Leonid Brezhnev.  Unlike in America, though, the public are more sympathetic to such notions than they ought to be.

To see why we have the terrible example of the Hillsborough football disaster in 1989.  Today a report has been released vindicating criticisms of the authorities long made by families of the victims; the Prime Minister was forced to make an apology.  The authorities, mainly the Police, not only made misjudgements that caused the disaster, but their handling of things made it worse by delaying medical help.  And to cap it all they systematically covered up the truth and put about mis-information to try and divert the blame.  It has take 23 years to get this far.

What is my point?  It isn’t that the public sector is any more likely than the private sector to perpetrate the sort of mistakes that led to and exacerbated this tragedy.  Far from it.  It is that it is so much harder to hold the public sector to account.  They are integrated into the system that is meant to secure justice; they can pull strings, call in political favours, and work the system so that the truth does not come out.  For every Hillsborough that eventually does come to light, think of the hundreds of lesser tragedies where the authorities manage to thwart the victims.

Compare that to the private sector.  At the Olympics retribution was swift and brutal for G4S, publicly humiliated in days (while their public commissioners who seemed asleep on the job just kept their heads down).  Or to take something a bit more comparable: BP’s Mexican Gulf disaster last year.  BP faced the full weight of the US political and judicial system, forcing a rapid response and compensation payments.

Hillsborough was a long time ago.  I would like to think that standards of public accountability have improved since then.  But we still get procurement disasters in the Ministry of Defence, bad hospitals getting away sub-standard services, state schools in many parts of the country not trying hard enough to raise standards among less well-off communities.  And even the Olympics – compare the cost to original budget!  Not to mention their reliance on armies of unpaid volunteers.

Scepticism of the private sector and open markets is understandable – but we need to get things into perspective.  We have too easily forgotten what happened to the Communist systems in Europe.  All those expressions of goodwill and the promotion of the public good soon get buried in a culture of passing the buck.


Let’s learn the right lessons from the Winterbourne View scandal

On Monday the government published its serious case review into the Winterbourne View abuse scandal.  Winterbourne View was a specialist private sector hospital for learning disabled and autistic people – people who were sectioned and could not fend for themselves – “vulnerable” in the jargon.  The BBC Panorama programme filmed some spectacular cases of staff abusing patients.  A closer look didn’t make things look any better – abuse had being going on for years, and the hospital was not remotely doing the job it was being paid to do.  This is laid bare in the report.  All sorts of people fell down on the job – the hospital’s owners, police and other services, and the Care Quality Commission.  This should not distract us from the central lesson which the report makes clear – the commissioning of these services was seriously deficient.

The report was published on a day when the news was dominated by the Olympics and by the Coalition spat over Lords reform.  Perhaps it is a pity that this meant it did not get the public attention it deserved.  But it may be just as well.  In the hands of the usual top news journalists and editors, the wrong lessons would have been drawn.  Instead the coverage has been a bit more balanced and considered – I have even been able to pick up mature and balanced coverage from BBC’s Radio 4.  Even so, I’m not sure if the right messages are getting through to the people that matter.    There are some big red herrings.

The first red herring is the use of private sector providers to deliver care.  The report and headlines made much of the hospital owner’s pursuit of profit as being the reason they failed to provide a proper service, in spite of being paid quite well.  But this is nothing new – and there are plenty of shining examaples of good practice in the private sector.  The problem was that they were not being held to account.  Terrible things happen in public sector organisations too, if nobody is asking what they are getting for their money.

Which leads to a second red herring.  An early “lesson” was that the Care Quality Commisssion’s inspection regime was too light touch, and that inspections by this national body should be more frequent and more thorough.  But we mustn’t rely on these big inspectorates, who often fail to understand local nuances and issues, and can end up being excessively confrontational.  At best they can guarantee a certain level of mediocrity.

And thirdly there is the role of family.  The patients at Winterbourne were often from a long way away, which meant that it was much more difficult for the family to stay in touch.  This was condemned as being part of the problem.  This is right up to a point.  Public service commissioners are far too casual about sending people a long way from where they have their roots.  I am uncomfortable with the NHS reformers’ constant refrain of creating fewer but bigger specialist facilties for everything – though they always point to statistical evidence.  But while family can and (usually) should be an important part of somebody’s care, the system should not depend on them.

No, the real issue is with the commissioners of public services, within the NHS and local authorities.  They should take more responsibility for the services they commission and devote more time to holding them to account.  At this point it is very easy to be swept away by a debate over structures, procedures and responsibilities, seeing this as simply an exercise in public procurement, as one might outsource street cleaning, for example.  But again, that is not the important point.

At the heart of the commissioning of social and health services should be the client or patient.  Their individual requirements should be assessed, treatment individually tailored and their progress followed with human interest.  The patients of Winterbourne were sent there by commissioners who thought their job was done by just placing them there.  What was supposed to assessment, treatment and rehabilitation, a process implying progress towards a goal, turned into warehousing.  That should be almost as outrageous to us as the abuse itself.  If the commissioners had been following their patients, they would have picked up their lack of progress, and either worked with the hospital to improve it, or simply taken their patients elsewhere.

This isn’t rocket science.  My wife is a care manager at a local authority, dealing with drug rehabs.  Her authority takes an interest in their clients as individuals, and this invovles meeting clients at the rehab facility from time to time to check on progress…and cutting out facilities that aren’t up to standard.  The problem is that some public sector managers take a more industrial view of things, trying to drive efficiencies by doing things in bulk and treating problems and performance indicators rather than people.  This can give rise to some short term cost savings, but it quickly becomes self-defeating, as processes that fail to take account of people as individuals fail to solve their problems, and you end up with warehousing on a minimum cost basis.  But it is not value for money you keep adding to the workload.

Unfortunately in this aspect of public services, not much much can be learnt from the private sector.  Private sector techniques (lean management, business process engineering) can lead to a more people-centred approach if applied properly – but ultimately the private sector answer to difficult clients is either to pass them on to somebody else, or turn them into dependents and warehouse them for a fee.  Warehousing problems rather than solving them can be a lucrative business, as the owners of Winterbourne, Castlebeck Ltd, clearly saw.

I hope that the government’s ideas for GP-led health commissioning, and integration between local authority and NHS care, will lead the commissioning process to the right place, as they should in theory.  But the bureaucratic obstacles are huge.  It would help to have a clearer vision from on high.



The G4S fiasco poisons attitudes to the private sector

The British contractor G4S has specacularly failed to find anything like enough staff to support its contract to provide security staff for the London Olympics…which start in less than two weeks.  The details aren’t clear yet, but this one has all the makings of a fiasco that will be examined in deph in MBA courses for a long time.  A bigger question is the effect it will have on public attitudes to the private sector here in Britain.

For now the politicians and journalists are having some fun.  “Is this a humiliating shambles for G4S?  Yes or No?” (or similar words) one MP asked Nick Buckles, the hapless G4S Managing Director, this morning, showing the sort of skills of forensic questioning that make people wonder how useful parliamentary select committees really are. Mr Buckles had to agree.  It wasn’t just the size of the recrutiment gap, it is that nobody at the top seemed to have any idea that there was trouble until a couple of weeks ago.

Another revealing encounter was on Radio 4’s Today programme this morning.  John Humphreys was interviewing the senior police officer coordinating Olympics security.  The latter referred to G4S as a “partner”.  They’re not a partner, retoted Mr Humphreys, they just a private company only interested in profit.  And that seems to summarise a widespread attitude here.  Private companies are greedy and heedless of ethical standards.  Meanwhile the good old public services, like the police, the armed services or the NHS are selfless public servants working for the good of us all.

What a difference 30 years makes!  Back in the 1980s public services were supposed to be crassly managed, unable to control their unions and unable to deliver anything on time or efficiently.  The private sector on the other hand, the odd (state supported) car manufacturer apart, was all enterprise, innovation and efficiency.  It says a lot for the process of public sector reform that has happened since that public services command such respect now.  The private sector, on the other hand, has not come out of the banking crisis well, as the parallel case of Barclays seems to demonstrate.

This matters because further public sector reform, especially in the NHS, implies greater use of private businesses.  This was already a hard sell politically.  It’s not getting any easier.  Should it?

Well, management screwups are by no means the unique preserve of the private sector.  Last week a coroner reported on a case of a patient dying at our local hospital, St George’s.  This looks like a case too many people being involved, not aware of the complete picture, and nobody taking the initiative to sort problems out.  The hospital said that it had changed its procedures to prevent future incidents like it.  You can almost guarantee that this means an extra check or process spatulaed on top the ones already there – theoretically dealing with the problem, but actually making the process more complex and difficult to manage.  Reengineering of operations to deal with risks like this seems to infinitely more difficult in public sector organisations than in private sector ones, perhaps because it means trampling over well established demarkation lines.  Cases of bad management abound.  The quality of police management was shown in very bad light by last year’s riots, especially in London, where they were caught flat footed by youngsters with Blackberrys.  And as for the armed forces, whose public stock is currently very high, the amount of money they have wasted in equipment procurement programmes is absolutely eyewatering.

And as for the G4S scandal, the wider story is not necessarily against the private sector.  The company is clearly accountable, and is picking up the extra costs instead of the taxpayer.  And surely the procurement process is a much to blame as the contractor?  G4S may have been suffering from “winner’s curse” – required to cut costs to win the contract, and then finding that it had been unrealistic, or taking too many risks.  Realistic or cautious bidders simply get eliminated.  But this is a well known procurement problem – and surely the commissioners should have seen fit to take precautions?  Some rather obvious questions are being asked about how such a large and important contract was being supervised.

And it’s interesting to reflect a little further on the currently popular subject of “culture” in organisations, that, for example, was supposed to be so bad in Barclays.  Well senior managers not knowing about problems building up within their organisation is often a sign of bad culture.  Mr Buckles said he was a “no excuses” manager; so were staff afraid to pass up bad news?  The twist on this is that this sort, tough, no excuses style of management is beloved of politicians and the public (provided they aren’t actually working in the organisations concerned).  I’m not sure that most politicians would recognise healthy corporate culture if they saw it.  And that is bad news for the public sector.

So it would be a pity if this episode slowed down the process of involving private companies in public service reform.  But it would be as well to learn the lessons for public sector procurement and contract management.


Lesson from the banking industry: sometimes people need to be treated as people.

This article from the Economist struck me like a bullet on reading it today.  Not so much for the subject matter itself (US banking practices) but what the whole episode says about the modern world.  We have never had more data readily available on people – but we seem less able than ever to take decisions on their individual merits.  More data, less information.  This problem is usually shrugged off y economists and reformers with a laugh; it shouldn’t be.

The story starts in the US property boom, when banks were falling over themselves to offer mortgages, based on the vague idea that since these loans where secured on property, and property values always go up, you couldn’t have too much.  The banks stand accused of approving loans robotically, without any consideration of individual merits – and as a result often lending to people who could not afford to keep up with the repayments.  This accusation was commonplace, but, as the article points out, little effort seems to have been made to substantiate it against hard evidence.

Then came the crash, and many people who had taken out loans could not or would not keep up with the repayments – and stood at risk of having their homes repossessed.  And the banks once again stood accused of carrying out repossession without due care and attention, again on mainly anecdotal evidence.  This became a hot political issue, and the individual US states set about suing the banks, with the Federal government becoming involved too.  And now an umbrella settlement is proposed, to which the five main US banks and 49 out 50 state Attorney Generals have agreed to.  The banks are making a blanket payment to make the problem go away.

What remains characteristic of the whole story, from the original alleged malpractices right up to the settlement, is a failure to reconcile it to what actually happened to real people in real homes.  No attempt is made to distinguish between whether some banks are more culpable than others; and no attempt to distinguish between arrears that arise from people in genuine hardship, and those who are trying to beat the system.  All that is just too difficult.

And this type of thing is happening all around us.  Decisions are made about us using computer algorithms based on data that may or may not be accurate – or based on our membership of some or other broad group of people (men, women, over 50,  etc.) and the law of averages.  Companies calculate that it is cheaper that way.  To consider people as real people, and base decisions on the individual merits of the case, well that requires the intervention of skilled staff, and they cost a lot of money.

And so the flip side to ever advancing productivity (one of the things that makes skilled people cost so much) is that we are subjected to an increasing volume of de-personalised services and arbitrary decisions; and around the fringe a spectrum of fraud arises, as people learn to take advantage of system weaknesses.  I have been the subject of mild identity theft several times; this looks quite safe for the people who perpetrate it, since nobody bothers to find them – it’s just a cost of doing business.

But what’s the moral of the story?  We gain a lot from the increased wealth that arises because of all this added productivity.  And what’s more part of becoming a more equal society is that well off people like me can’t expect to have armies of people running around fawning on their every need.  So should I just stop whinging, and get on with all the things I can now do that would have been unthinkable in a previous age?

Up to a point.  I think there are two important consequences that many people overlook.  One big picture, and the other of more urgency.  The big picture point is that are are physical limits to economic growth, and it is no wonder that the pace of growth slows in developed societies.  Higher productivity means we consume more services with diluted human content.  But huge part of the pleasure we derive from some services is exactly because we get one-on-one attention from somebody (hairdressing perhaps, a personal trainer, dinner at a posh restaurant, and so on); as productivity advances, the proportion that these non-negotiable services comprise in the total economy rises – and so growth slows.  Economists refer to this as “Baumol’s Disease” after the economist who originally pointed it out.  But it is not a disease; it is the product of success – it’s the process of arriving at the promised land, so to speak – the place that is so good that progress is impossible.  An increasing proportion of services cannot be improved without detracting from their value, and people will resist buying them at any price; and that’s saying nothing of the distortion to incentives that arises from making decisions based on averages.  We can’t rely on economic growth to wash away society’s problems – we need to confront them more directly.

The more urgent point applies to the reform of public services.  Too many people assume that to make these more effective we must follow a similar process of sucking the human content out of them as we see in so many commercial services.  In some cases I’m sure that’s true; some Indian organisations are doing amazing things to improve the productivity and effectiveness of certain medical procedures by using economies of scale.  But in most cases the effectiveness of public services depends on joining up the dots; seeing people as people rather than collections of unrelated needs that can be picked off one by one.  An individual who is committing serial antisocial behaviour offences, may have mental health problems, addiction issues, a dysfunctional family life, educational under-achievement, and inadequate housing.  Just from listing them you can see how all these problems are interrelated and feed off each other.  We stand a much better chance of making progress if we design solutions based on looking at this individual and his exact personal circumstances and negotiating with him as a human being.  Productivity in public services is not about rate of throughput, its about solving problems and reducing demand.  This needs a completely different mindset than that needed from the commercial world.  Alas too much (though certainly not all) public service reform misses this key point.