Lessons From Abroad

T he best clues to what managing in the new millennium will be like probably come from overseas, in countries where parliamentary systems have allowed reformers to sweep away many of the bureaucratic structures so characteristic of 20th century governance. Traveling to New Zealand or Great Britain feels like gazing into the future. Both countries have leaped far ahead of the United States into what they call "the new public management."

In a parliamentary system, if a few people at the top of the majority party decide something must be done, it usually happens. Back-benchers risk their careers if they vote against their party. There is no separation between the executive and legislative branches; no checks and balances. When a party has a majority, it simply pushes its program through.

Britain and New Zealand also lack federal systems. Virtually all power lies with the national government. When national policy undergoes seismic shifts, the whole country feels the earth move.

So what can we discern in the crystal ball by looking at these and other countries? A public sector focused intensely on performance but less bound by rules and procedures--an environment in which managers can manage, innovators can innovate, and success sometimes even generates a reward. Overall, they are operating in a more challenging but far more satisfying managerial environment.

Consider a few of the headlines:

* In 1988, New Zealand did away with its rule-bound civil service system, while preserving its protections against political interference in hiring and firing. Several years later, the United Kingdom let agencies radically simplify their personnel rules. Both countries have enjoyed excellent results, with few problems.

* New Zealand split up its large departments into smaller units more focused on specific missions, guided by "output budgets" and perform- ance agreements. The United Kingdom carved some 140 "executive agencies" out of its large departments, each with a performance agreement and far greater flexibility.

* Managers in both systems are eligible for significant financial bonuses if their organizations hit their targets.

* Having focused agencies on improving their outputs, both New Zealand and Great Britain are now struggling to hitch these more efficient machines to the outcomes citizens care most about.

* And both countries are wrestling with the challenge of getting different agencies to work hand-in-hand to solve citizens' problems.

Most of the developed democracies are experiencing a collision between their industrial-era bureaucracies and information-age challenges. Many are transforming their bureaucratic systems into the more decentralized, flexible, responsive systems necessary to succeed in the 21st century. In this process, at least seven trends that should be harbingers of events to come in our own federal government have emerged.

1. While the trend toward privatization, public-private partnership and devolution will continue, the federal government will not wither away.

New Zealand has shrunk its core public sector from 88,000 employees to 32,000 since 1987, while Britain has privatized dozens of enterprises and slimmed down the rest of the civil service by more than a third. Rather than creating a "hollow state," as some academics have warned, the process has in many ways created a stronger state. By getting out of businesses the private sector could do better, leaders in Britain and New Zealand have increased their ability to concentrate on areas in which the public sector is indispensable.

It turns out that smaller governments are sometimes stronger governments, because they are more effective. Majorities of citizens abroad, as in the United States, no longer want big, bureaucratic government--but that doesn't mean they want minimalist government. Instead, they want lean, activist government that solves problems with as little waste and bureaucracy as possible.

2. Though politics will always make management at the federal level less than optimal, we can do far more to protect our agencies from political pressures.

How? By uncoupling "steering" (policy and direction) from "rowing" (service delivery and compliance enforcement) and walling off the rowing agencies behind more effective barriers to political manipulation. The New Zealanders carved out several dozen new operational departments and gave their chief executives the power to manage their resources free from the constraints of civil service rules and bureaucratic procurement processes. But they did not let elected officials appoint those chief executives; the State Services Commission, staffed by top civil servants, does that.

The United Kingdom did something similar with its 140 new executive agencies. Neither country managed to eliminate political pressures on its chief executives. But in both countries the executives have the power to negotiate performance agreements with elected ministers, which by design leave most management issues to the agency.

3. The future lies in handing organizations dramatic new flexibilities in return for serious accountability for results.

This is the basic deal at the heart of the new public management. Once a service delivery or compliance organization is uncoupled--that is, set up as an independent or semi-autonomous agency with a clear mission--it is held to high performance standards but liberated from burdensome red tape. In Britain and New Zealand, managers are now empowered to control their budgets, manage their people, and buy what they need. If they want to offer performance bonuses, they can. If they want to radically simplify their job classification systems, they can. If they want to buy goods and services that offer the best value rather than the lowest cost, they can.

But these same managers are held personally responsible for their organizations' performance. Every year they have up to a dozen clear, measurable performance targets. If they meet most or all of them, they are eligible for bonuses of around 10 percent of their salaries. If they consistently fail, they may find themselves out of work.

This trade-off works for both sides. The politicians and policy-makers get the leverage they need to deliver results to citizens at a cost they can afford, while the managers get the freedom they need to succeed in producing those results. This is the basic model for the Clinton administration's initiative to create performance-based organizations (PBOs). Though Congress has approved only two PBOs--the Education Department's Office of Student Financial Assistance and the Commerce Department's Patent and Trademark Office--we can expect the idea to spread.

If we really want to learn from overseas, we will copy the New Zealanders rather than the British and set up PBOs as independent agencies, operating under performance contracts with departments but not within their management systems. In the United Kingdom--and in our first PBOs--departments have often been reluctant to give executive agencies all the flexibilities allowed under law. The cultural pressure to conform with departmental practice is simply too strong.

4. Civil service reform is an indispensable element of performance improvement.

Foreign experience proves that we won't get dramatic leaps in performance until we junk the rigid personnel rules and structures built up over the last century. As General Motors concluded 15 years ago, you can't build a Saturn using traditional GM rules.

The building blocks of personnel reform have become clear, both overseas and in some of our state and local governments. They typically involve the following:

* Management delayering, to reduce the levels of hierarchy.

* Simplified job classification systems.

* A handful of broad pay bands within each classification, rather than a complex step-and-grade system.

* Freedom for managers to set pay levels within those broad pay bands and to use performance, team-based, and skill-based pay.

* More freedom for managers to reward performance with bonuses and other financial incentives, such as gain-sharing.

* Elimination of pay increases and personnel reductions based solely on longevity.

* Allowance for work teams in which various employees share tasks and are cross-trained to share skills as well.

* New forms of performance appraisal, based more on measurable team or unit performance than on subjective ratings.

* Streamlined hiring and firing processes.

* More freedom for managers to invest in professional development, employee training and other forms of capacity building.

5. The customer is here to stay.

A decade ago, few civil servants talked about their "customers." In 1992, Ted Gaebler and I were roundly criticized for the emphasis on customers in our book, Reinventing Government. Today, leading public organizations here and abroad carefully define their customers, then rethink, reengineer and reorganize to maximize results.

The British have led the way. Their Citizen's Charter, launched in 1991 (and since relabeled "Service First" by the Labor government) requires every public organization in the country to define its customers and create a charter. That document sets service standards based on input from customers. For example, "90 percent of trains should arrive within 10 minutes of the scheduled time." Organizations are encouraged to offer redress to customers if they fail to meet their standards--discounts on the next train ticket, for instance. They must have systems to deal with complaints. And if they succeed in meeting Service First criteria--including customer choice, service standards, independent validation of performance, and continuous improvement in both quality and customer satisfaction--they can apply for a "Chartermark," a symbol of public-sector quality they can put on their stationery, publications and signs.

The Citizen's Charter created a paradigm shift among public employees. It moved the customer from the periphery of organizations' concerns to the center. It injected quality service into organizations' performance standards. And it has been copied by more than a dozen countries, from Canada to Malaysia. The Clinton administration's 1993 executive order requiring agencies that dealt directly with the public to create customer service standards was inspired by the Citizen's Charter.

6. One of the next big challenges will be getting different organizations to work together to deliver seamless services to the customer.

If the customer is at the center, an organization's work processes and outputs are less important than meeting customer needs. And often, that can't be done by one organization alone. If a poor, at-risk student from a dysfunctional family has four different public-sector adults involved in his or her life (a guidance counselor at school, a caseworker at the county welfare office, a different caseworker at the bureau that deals with child abuse, and a parole officer), it's not enough for all of those adults to follow their own organizations' protocols. They must work together to help the family and child.

British Prime Minister Tony Blair calls the solution "joined-up government." His civil servants are working hard to figure out how to make it happen. In New Zealand the same discussion is taking place. U.S. managers are already struggling with it in many initiatives. In the 21st century, few will be able to avoid it.

Information technology will be a big part of the solution. Customers will be served in one-stop shops by multiple organizations collaborating through technology. Already, several Asian countries have developed smart cards--plastic cards with embedded chips--that help people get seamless service in sectors like health care. Even developing nations such as Malaysia are intent on leapfrogging the West using advanced information technologies.

7. The biggest challenge on the horizon is improving our ability to steer.

As the 21st century opens, Great Britain and New Zealand have created far more efficient rowing organizations. Both systems focus primarily on improving outputs--improving what public organizations already produce. But neither has figured out how to systematically examine whether those outputs actually produce the outcomes citizens value most. Public organizations are doing things right, in other words, but they are not necessarily doing the right things.

In both countries, however, elected leaders have recently begun to define their key outcome goals. This is a big step, because elected officials are not rewarded for thinking strategically. If they succeed, the results are rarely evident during their terms in office. And if they start measuring outcomes, they are handing their political opposition a scorecard with which to grade them.

In the United States, leading state and local governments (for example, Oregon, Texas, Florida, Sunnyvale, Calif., and Multnomah County, Ore.) are wrestling with this challenge. But the federal government is still trying to master output measurement, through the 1993 Government Performance and Results Act. Next it must create the frameworks for flexibility and performance accountability (such as PBOs) necessary to improve outputs. But some day, when it has mastered this challenge, it will turn to the $64,000 dollar question: Are the outputs we fund producing the outcomes our citizens want?

One hundred years ago, as the 20th century dawned, reformers in business, government and academia--and in both major political parties--were struggling to overcome the abuses and failings of 19th century government. To do so, they invented the modern, rule-driven bureaucracy. Today, we are struggling to overcome the limits of that model and to create its successor. We are gradually redesigning our public systems, to create adaptive, decentralized institutions capable of producing continuous improvement.

This movement is not dependent on either political party. My final lesson from abroad--perhaps the most encouraging--is that these reforms tend to survive even when political power changes hands. In the United Kingdom, the Labor Party embraced 95 percent of the Conservatives' public administration reforms and kept right on going. In New Zealand, when the National Party defeated the Labor Party in 1990, the same thing happened. Australian reforms have also survived political transitions.

If you doubt this will occur in the United States, take a closer look. The domestic policy chiefs of both front runners in this year's presidential campaign--Elaine Kamarck of Al Gore's staff and former Indianapolis Mayor Stephen Goldsmith in the George W. Bush camp--are themselves reinventors. Kamarck designed and ran Gore's effort for five years, while Goldsmith led more reinvention initiatives in his eight years as mayor than virtually any other state or local executive. The two see themselves as part of the same movement. And they know its century has come.

David Osborne, a partner in the consulting firm The Public Strategies Group, is co-author of Reinventing Government (1992) and Banishing Bureaucracy (1997). His next book, The Reinventor's Fieldbook: Tools to Transform Your Government, will be published in June by Jossey-Bass.