Performance
May 7, 2012

A wolf in deficit’s clothing?

Although a recent international poll indicates that Canada’s public sector is in better shape than other nations to face the current economic downturn, there is nevertheless an important opportunity to take quick and effective action to help it recover from budget deficits.

The Wolf is at the Door, a survey commissioned by KPMG International, polled public sector leaders in Canada, the United States, United Kingdom, Netherlands, Germany and Australia. It found that Canada, like other countries, has a window of at most two years to build a more sustainable model on which to provide government services effectively and fairly over the long term.

“It is imperative to put in place a governance and accountability structure, a strategic view, and a performance measurement management system that will enable us to make tough decisions,” says Craig Fossay, partner in KPMG’s public sector practice.

With its banking sector in good shape, Canada has avoided the financial sector bailouts that have compromised the U.S. and British treasuries. However, stimulus programs, decreased tax revenues, and financial assistance to the manufacturing sector have thrown Canadian governments into deficits, a situation to which many Canadians are averse.

The survey found that internationally, 84 percent of public sector leaders expect their budgets to remain static or to shrink. And, worryingly, a majority of respondents do not expect to address this changed environment in the short term.

But acting on deficit recovery is a political priority in Canada and it means acting fast. In fact, in the past month, a number of Canadian governments have announced higher than expected budget deficit outlooks. The public, the media, and the business sector will expect a quick turnaround in the nation’s bookkeeping, and federal and provincial elections will make deficits a pressing political issue.

Clearly, it’s crucial to find new ways of delivering entitlement services with greater transparency and at lower cost. The problem might appear to some to be impenetrable: what concrete steps can the public sector take to set up a vehicle for deficit recovery? Who are the players who need to be involved, with what timeframe must they work, and how should they develop a plan?

What is needed is not an exercise in belt-tightening and budget-cutting, but rather an exercise in profound change management – a new way of thinking about the problem.

Current approaches have drawn on strategies of program and service cost containment, and have done so in a traditional silo approach. In the public sector, allegiance is to the ministry or program silo, its service recipients and people. Rarely is the focus on the wider organization, on a whole-of-government perspective. Since change within a silo is resisted, the extent of identification of cost containment opportunities is therefore limited and narrow.

The keys to success are in reframing our thinking, challenging the status quo, and approaching the problem from an alternate perspective. Drawing from experiences outside Canada, the key components of success sum up to:

  • building a clear and compelling case for change, with real clarity around the size of the deficit challenge and the timeframe in which it is to be tackled;
  • mobilizing leadership from the top – top of the civil service and key ministries, departments, and, most crucially, top political leaders;
  • framing the landscape of recovery from the broadest perspective – whole-of-government and the broader public sector – viewing government services across the entire extended enterprise or value chain, and thinking about these services cross-sectorally; in essence, breaking down the silos;
  • drawing on the best sources of creative ideas for recovery from those within government, senior community leaders, and thought leaders in critical sectors like health, education, and justice – those with a passion to make a difference;
  • designing a deficit recovery program to break the cycle of “business as usual” incremental approaches that is cross-sectoral, not just playing one sector against the other for scarce public funds;
  • setting clear deficit recovery program targets, governance, and accountability for success;
  • harvesting the benefits: capability in planning must be matched by capability in execution, to make the tough trade-off decisions that are exponentially more difficult in the realm of public versus private sector service delivery; and,
  • institutionalizing the framework in permanent practice, embedding the program into the planning and budgeting programs of the jurisdiction. 

How do public sector organizations plan to change in the long term? Of those who will change, most respondents (77 percent) are planning to increase their productivity – they plan to offer the same services for less money. Well-run efficiency programs have been shown to deliver savings. For example, in the U.K., the Gershon efficiency program, which tackled both organizational efficiency and procurement, has resulted in £26.5 billion in savings up to 2008.

As The Wolf is at the Door poll found, the need for action in the public sector is urgent and immediate. By acting quickly with the right strategies and approaches and a deep understanding of how these profound changes can be tackled, we can take on deficit recovery expeditiously and effectively. To delay could be disastrous, but to act effectively is well within our grasp.

Jeffrey Smith is national industry leader for the public sector with KPMG.

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