Search for WOW begins

June 27, 2010. Why is it so difficult to find truly and excitingly superb public organizations? This question was the focus the lunchtime discussion forum organized by IRI at CEU Business School on Sunday, June 27th. The discussion opened with a 15-minute movie outlining the three cases that the participants studied in preparation for the discussion (you can watch the movie on the IRI's Youtube channel here).

Unclear goals, unclear incentives

Paul Marer, professor of business and academic outreach coordinator at CEU Business School started the discussion by pointing to a fundamental ambiguity in conceptualizing the very objectives of public organizations. “Despite the growing importance of the stakeholder model, and of new managerial tools such as the Balanced Scorecard, private companies are still by and large evaluated based on their financial performance,” argued Dr. Marer. “No comparable, unambiguous metrics exists in the public sector.” Professor Marer’s comment instantly focused participants’ attention on the issue of incentives – both for public managers and desk-level administrators. Evelyn Maina, CEU full-time MBA participant, argued that Craig Coy, the CEO of the Massachusetts Port Authority (an organization studied as one of the three cases mentioned above) “would be a very different manager if he worked in a private business.” Many other discussants agreed, referring to multi-million incentive packages that today’s private managers receive. Duncan Ochieng, another full-time MBA with extensive public-sector job experience in Africa, pointed out that perhaps an even more important consequence of the incentive problem is its impact on the very selection of people choosing the public-sector jobs – and not only at the managerial level.

Lack of vision and empowerment

This line of reasoning was countered by two full-time MBA participants: Chris Nicholson and Martin Hergert. “Hundreds of thousands of people have been applying for low-paid jobs in the Obama administration,” noted Nicholson. “And it is simply because they believe something can be achieved under his leadership.” Motivation and vision can be a powerful substitute for material incentives. Indeed, in many cases, the notion that the pay in the public sector is worse than in the business world is simply incorrect. “Look at East Germany,” pointed out Hergert. “The public agencies are among the best employers there, particularly because an alternative is often unemployment. Yet it did not make those agencies particularly efficient.” Katalin Nagy of the Business School’s Academic Office added to this that rigidity of the public-sector jobs demotivates people and thwarts initiative. Antonia Issa, a full-time MBA participant with public-sector job experience, pointed out that a feedback loop seems to exist between the lack of vision and empowerment that characterizes the culture of public organizations and the self-selection of people that choose public-sector jobs. “What you tend to get is very risk-averse people,” observed Issa. “When I talk with my former colleagues and tell them that I’ve moved to this or that part of the world, their reaction is that I’m completely crazy.”

Focus on customer

Maciej Kisilowski, assistant professor of law and public management and IRI’s co-director, admitted that he was puzzled by the argument about fundamental difficulty with performance measurement in the public sector. “During the last half hour, every public organizations mentioned here in this discussion would have no problem whatsoever with defining what good performance is.” Dr. Kisilowski argued that one of the most logical of such performance measures is usually customer satisfaction. “It is beyond my comprehension why almost no customer surveying is being carried in the public sector, especially in Central and Eastern Europe.” Chris Nicholson added to this that getting such feedback is much easier nowadays given the cheap (or free) information technology available. Yet Antonia Issa was skeptical about this approach. “Customers of the public sector have a very special attitude towards the services they receive. On the one hand, they feel that they are entitled to what they are getting, that this is a natural state of the world. On the other hand, they are so used to mediocre public service that they have trouble even formulating more ambitious expectations.”

Privatization as a solution?

A number of discussants mentioned privatization as a potential solution for many of the public sector problems. “I am frankly skeptical about our ability to achieve WOW in policy implementation,” argued Chris Nicholson. “But a lot of the implementation tasks can simply be carried out by private contractors.” At this point, the discussion focused on a topic of higher education. Across Central Europe, major universities are state-owned and operated. One notable exception is obviously CEU and thereby its case is a good example of how private and public institutions achieve very different results while operating in a similar environment. Discussants agreed that, despite some flaws, the organizational effectiveness and efficiency of CEU is incomparably higher than those of most public universities. The specific differences identified corroborated the observations made earlier in the discussion: Public universities’ inefficiency stems from irrational resource allocation decisions, overgrown (and often unionized) administrative personnel, and extremely hierarchical and rigid faculty structure.

Are societies ready for public-management revolution?

The focus on privatization is obviously in many ways an admission that good, much less ‘WOW,’ public management may simply be a pipe dream. That is why it should come as no surprise that the privatization discussion ended up as a prelude to a search for deeper reasons for public sector underperformance -- the search that dominated the final minutes of the discussion. Professor Marer again struck a somber tone, posing a provocative question: “Do the societies really want better Public Management?” Professor Marer brought a recent Hungarian example, when the government proposed introduction of a small $1.50 fee for each doctor or hospital appointment. Anybody with a rudimentary training in microeconomics understands that such a proposal makes a lot of sense and is indeed the only way to control excess demand when a government service is free. The main goal here is to discourage overuse of medical services – the phenomenon that drags scarce resources away from where they’re needed most. Yet, influenced by populist political opposition, which succeeded in arranging a costly referendum on whether the fee should be paid, an overwhelming majority of the voters opposed paying a fee of any kind, so it was not introduced. 

Professor Marer’s point was, quite interestingly, corroborated during another part of the discussion, when Daniel Kapusy, CEU’s executive MBA participant, praised the World-Bank recommended Romanian law that introduced official optional fees for expeditious service in many public agencies. Kapusy argued that the law is an effective tool in a fight against corruption, as the need for speeding-up simple services, such as issuing a passport or a driving license, is among the most common reasons for businesspersons to resort to bribery. Yet the idea came under strong criticism of Antonis Koupparis, another CEU executive MBA participant. “Prompt service should be a norm and not a frill,” argued Koupparis. “I’m already paying taxes, and the highly progressive ones, and now I am asked to pay even more to get a decent service?!”

The way forward

Clearly, the discussion left participants with more questions than solutions. And that was precisely the goal of the meeting. As Professor Kisilowski concluded, the goal was to open the conversation about some of the most challenging social and managerial problems our societies face today. It is IRI’s intention to organize similar discussion sessions regularly during the next academic year.

To read the complete framing statement for this discussion, click here.