Cost-cutting, private-sector style

The private sector is always keen to sell its alleged superior expertise to the public sector and this trend has become even more noticeable recently, as public sector managers start drawing up plans to cut costs over the next few years. Some cost-cutting techniques in use in the private sector, including "lean thinking" and reviewing property deal, may indeed deliver significant savings and help reduce the need to cut services. However, there are several factors that mean such techniques cannot simply be imported wholesale into the public sector. In particular, the strength of unions within the public sector means changes to working practices may take longer to introduce than in the private sector. Some in the private sector believe the differences between the two sectors can be overstated. Joel Bellman, director in the public sector practice at professional services firm Deloitte, for example, says the view that the public sector is "different" and "special", and therefore not able to borrow techniques used in the private sector, is a myth. He says that public sector managers planning to cut costs can use a private-sector style "value" or "performance map" - a one-page flowchart that helps public organisations work out ways to prioritise objectives and cut costs. Value mappin g Bellman likens this process of "value mapping" to creating a central control room or battlefield HQ, which gives managers a map of their organisations and where changes are happening. The chart uses a handful of criteria to judge an organisation's performance - policy, strategy, efficiency, accountability and effectiveness - and suggests improvements, starting with broad goals and then branching off into more detailed targets. Bellman says some government departments, including the Department for Work and Pensions, have started to use value maps to help them manage big organisational reform. Continuous improvement Opinion is divided about how far private sector management techniques can be applied to the public sector. Mo Baines, principal adviser to the Association for Public Service Excellence, which represents 300 UK councils, points out that local authorities have been required to show continuous improvements in performance and efficiency since the introduction of best value inspections in 1999 and says the culture of such continuous improvement has become embedded in councils. "I think the private sector can learn from the public service ethos and from some elements of sharing good practice," says Baines. Another common way for businesses to free up cash or cut costs is by renegotiating property leases or selling property. Andrew Hooke, chief operating officer and head of the government and security group, at PA Consulting Group, says public bodies should regularly review their "structural" cost base – especially long-term property costs. The appointment of John McCready as the head of the government's newly-created property unit , is one sign of the renewed emphasis on making public sector property work harder. The public sector owns property worth about £370bn and many public bodies have already made substantial savings by reviewing their property portfolio. In 2008, the London borough of Tower Hamlets reduced its office buildings from 13 to five, savings £750,000 on facilities costs in the first year. In the health services, the government has already introduced a raft of organisational reforms and targets over the past decade aimed at cutting costs and improving services. But there is still plenty of room for improvement, according to Mark Jennings, director of health care improvement at the King's Fund, the health thinktank. Jennings argues that although service quality in the NHS has improved (for example, falling waiting lists) this has only been achieved by spending more money. Rather than simply cutting service budgets, health organisations can learn from the private sector's drive for innovation, says Jennings, for instance by introducing new technology or by standardising the most effective procedures. "The number of cataract operations on a standard-length operating list can vary between about six or seven up to 12 to 14, so somebody has obviously worked out how to do the operations more efficiently for exactly the same quality," he says. Most local authority and PCT performance are closely monitored by regulators while performance is compared in league tables. But Jennings says NHS organisations can improve their efficiency by comparing their performance with peers more regularly – just as companies do. However, borrowing cost-cutting tips from business has limitations and risks. Business executives can make relatively quick and hefty savings by withdrawing products or services, but many public services are essential and can't be withdrawn. Dave Prentis, general secretary of Unison , Britain's biggest public sector union, says it supports the public and private sectors sharing advice about best practice, but warns: "Falling into the trap of thinking private sector values are the magic bullet for saving the public sector money has caused huge problems. You only need to look at the example of hospital cleaning, where selling off contracts to the lowest bidder sparked a race to the bottom. This caused hospital-acquired infections to skyrocket when cleaners were cut to save cash."