The Reform of Australian Government Administration: Boosting Capability through Better Management of Our Human Capital

Steve Sedgwick
Public Service Commissioner

19 November 2010

Keynote Address 4
CPA Congress 2010, Canberra Session

Powerpoint presentation

Good morning, and thank you to the organisers of this CPA Congress for inviting me to give this fourth and final keynote address.

Let me begin by acknowledging the traditional owners of this land, and paying my respects to elders past and present.

Introduction

The main theme of this Congress is to ‘navigate the new’.  Yesterday’s keynote speakers talked about their strategies for leading large organisations, also on the topics of powerful alternative thinking, and success in tough competitive markets.

This morning, I want to discuss the ongoing reform and improvement of Australian Government administration, particularly our new and positive strategies for the better management of our human capital.

First, I make comments on the strong gains in capability of the Australian Public Service (APS) over recent years, and point to areas where we may still fall short.

Following that, my main topic is the new human capital management model for the APS, and in this the potential for thoroughgoing capability reviews to boost the effectiveness of the APS, and its agencies.

Public Service Reform: Our Capabilities and Shortcomings

The Australian Public Service Commission has vital service-wide responsibilities.  Its main role, and one of my key roles, is to provide leadership for the future capability and sustainability of the APS.

As well as the fostering of APS leadership, my policy responsibilities include developing APS people-management policies and practices, and the coordination of service-wide training and career development opportunities.

The Congress theme of ‘navigate the new’ speaks to these key responsibilities, and to the Australian Government’s public service reform agenda.  That agenda is outlined in the 2010 report Ahead of the Game, otherwise known as our Blueprint for APS reform.

The Advisory Group for the Blueprint, of which I was one member, brought together public service, business, and academic, experts.  This Group argued that there were four main components of a world-class APS.  It had to: meet the needs of its citizens, provide strong leadership, have a highly capable workforce, and operate efficiently at consistently high standards.

The Blueprint recommended specific reforms to assist the APS to achieve that standard, and the government has agreed to the Group’s recommendations.

Within the public service, as in business, we’re all looking for ways to respond to uncertainty and change, to think differently about the challenges we face, and to deliver better value to our clients and customers.

We try to find ways to balance the tensions that arise between our desires to improve service delivery to meet citizen expectations, our imperatives to provide responsive and forward-looking policy advice, the needs for organisational capability and staff engagement, and the need to control costs.

To be successful in leading and managing our organisations—public or private sector—we all have to learn to ‘navigate the new’.

In periods of major organisational reform, there can be a tendency to value the ‘new’ by devaluing the ‘old’ or current practices. 

So, when we developed the Blueprint, we were at pains to acknowledge that the APS is a highly effective institution that is not in a state of crisis.

In some ways, this may have made it more difficult to argue the business case for APS reform. 

However, we believed that it was important to acknowledge that there is a great deal that the APS does with great proficiency every day.  The quality and professionalism of our workforce is what makes this happen.

Over the last twenty years, the APS has focused on improving its productivity and effectiveness through substantial organisational and financial reforms.   The main responsibilities for financial and resource management have been devolved away from central agencies of government, and given to the heads of the individual APS departments or agencies. 

These departments or agencies have also had to meet the ‘efficiency dividend’, by finding more cost-effective ways to carry out their business and respond to periodic program reviews and similar opportunities to reinvent programs or their administration.

These steps have led to considerable gains in departmental performance and productivity. 

The APS as a whole is better placed to respond decisively to the changing needs of government and the community. 

Recent examples of this are the quality of the prompt policy advice and collaborative program responses to the Global Financial Crisis, and then to the Victorian bushfires of 2009.

Recognising that the APS is by no means “broken”, however, there is also growing recognition that the APS needs new and better forms of institutional review if it is to exploit the best practice that has emerged in recent years in a number of jurisdictions and attempt to get “ahead of the game” to deal with what might emerge in the next two decades.

The fiscal, environmental, demographic, regional, and security challenges facing the government are complex, pressing, and beyond the capacity or responsibility of any one agency to resolve.  To respond effectively, agencies will have to find better ways to collaborate across their traditional functional boundaries and they will need to better anticipate emerging trends.  This requires a workforce that is more expert, agile, well informed, focussed on the changing needs of the community which it serves and forward looking.

Highlighting the growing needs for coordination and collaboration are recent examples, which have shown up APS skill shortfalls, or gaps in our organisational capabilities.

One example comes from the Northern Territory Intervention that the government introduced in 2007.

In this case, the public service adopted new ways of interacting with Indigenous communities to improve their wellbeing.  But it is clear now that the early implementation phase was hampered by a lack of inter-departmental communication and coordination skills.  

Also shown up was a degree of institutional rigidity, in deploying the right skills into the field.

Reviews of the Department of Immigration and Citizenship earlier this decade, following high-profile administrative failures at that time, found systemic cultural, leadership, and skill deficiencies. 

These contributed to the poor outcomes for the government and for the citizens affected.  Fixing up these problems over the last few years has been expensive and time consuming.

More recently, the Australian National Audit Office has made critical findings on the Home Insulation and Green Loans programs. 

Both these audits acknowledged failures in departmental governance and advice. 

In the case of Home Insulation, program risks were underestimated, or not understood well enough, administration under-resourced, and compliance and audit not introduced promptly.  A lack of sufficient staff with the right skills contributed to the failures. 

There were a number of extenuating circumstances that contributed to this – including the speed with which implementation was to occur and the relative novelty of such programs for the Commonwealth.  The important point for this address, however, is that the audits illustrated the need for a more deliberate and thoughtful approach to managing our human capital in the APS - and to developing the capabilities of our organisations.

These examples show that there are potentially high costs to the public, when there are deficiencies in organisational capability in the APS, whatever the causes of those deficiencies. 

Introducing Systemic Human Capital Management to the APS

Ahead of the Game recognised the importance of systemic human capital solutions as the vehicle for improving institutional capability. 

It also renewed the emphasis on the APS as an enduring institution – with obligations to the future as well as to the present.

The Advisory Group that authored Ahead of the Game offered a timely reminder that, as well as discharging the agenda of the government of the day, the APS needs the capabilities to anticipate and respond to issues that might only emerge well beyond each current electoral cycle.

So, while the Blueprint has respect for current practice, it also urges that more can be done to build institutional capability for a forward-looking APS. 

The Commission, and I as the Commissioner, are determined to work with all the APS agencies to create a stronger, more robust, more business-focused, approach to developing and managing public service capability, including its capacity to look ahead and to better plan its workforce.

The Advisory Group said that the main lever for change was the APS workforce. 

It adopted the term ‘Human Capital’ to signal a distinct shift towards a more systematic and future-oriented approach to the building and sustaining of APS workforce capability.

The simple, starting premise for human capital management is the need to improve the performance of the business or organisation. 

In this framework, the performance of people matters, because of their impact on the success of the business.

We invest in people not only for the good for the individual, but also for the value that can accrue to the organisation - value that can be understood and verified in terms of improved business productivity and performance.

Effective human capital management can improve the capacity of the APS to create the workforce capabilities that meet the future needs of the community.

The long-term challenges facing the APS are considerable.  Needing to be addressed are the combined pressures of increasing governmental and citizen expectations, growing policy complexity, growing perceptions that governments should be able to solve almost any problem and a tighter financial environment.

To meet these pressures, we recognise that people management is not just about writing policies and processes for managing people.  It is about developing a coherent workforce capability that can be shaped and harnessed to create strategic outcomes.

In taking this approach, we are seeking to build organisational capability across all parts of the APS.  And we would say that such organisational capability is determined by the combination of people, processes, systems, structures and culture.1

Now, I want to talk about the importance of the concepts of ‘Capability’ and ‘Capability Reviews’ in our APS approach to human capital management.

Boosting Institutional Effectiveness: Why Capability Reviews?

I mentioned earlier the main components of a world-class public service, and the reforms and recommendations that were needed to get there.

The reforms proposed in the Blueprint aspire to better service for citizens; more open government; better policy-making capabilities; a reinvigorated strategic leadership; more consistent APS employment conditions; stronger workforce planning; greater agency agility, capability and effectiveness; and improvements in agency efficiency and governance mechanisms.

The agenda for reform, as you can see, is very broad.

The reform area that I wish to discuss in more detail today is that of ‘agency agility, capability and effectiveness’. 

Here, a headline Blueprint recommendation was to ‘Conduct Agency Capability Reviews’.

The Blueprint proposed that the Commission undertake regular and systematic review of APS capabilities, in order to promote improved capability in the key agencies and to assess the institutional effectiveness of the service as a whole.

The Commission is currently developing practical proposals that would give effect to this recommendation.  The government will decide, in due course, whether or not to accept the proposals that I am discussing here.

The idea of assessing organisational capability is not new, either in Australia or overseas.  It is broader than a routine efficiency review or performance review, and it says a lot more about organisational cause and effect than does a skills audit.

This appeal led to our Advisory Group as a tested way to help agencies keep their capabilities up to the mark with the continually changing requirements.

As one submission to the Advisory Group put it: ‘The policy and delivery challenges in the future are likely to be far greater than experienced in the past and a range of new capabilities are required to respond to this environment.’

If it is done well, the capability review has the potential to provide an independent and well-rounded perspective on the totality of agency capability - a practical perspective and diagnosis that agency leaderships can take on board, to make sustainable improvements in their implementation and delivery.

The concepts of capability reviews, have been explored in the Commission’s Contemporary Government Challenges series over recent years.  These have examined emerging capability issues in the APS. 

The proposal enunciated in the Blueprint draws substantially on the United Kingdom (UK) Capability Review Programme.  Also, we were mindful of what New Zealand and Canada have been implementing in this field.

The UK model was initiated in 2005.  As it has evolved and matured, it has been a catalyst for strengthening the UK Civil Service’s corporate capability. 

It targets the underlying capability issues that tend to determine the effectiveness in delivery of public services - questions such as:

• Do departments have the right strategic and leadership capabilities?
• Do they know how well they are performing, and do they have the tools to fix their problems when they underachieve?
• Do their people have the right skills to meet current and future challenges?
• Do they engage effectively with their key stakeholders, partners and the public?

Early last year, the UK National Audit Office put out an Assessment of the Capability Review Programme. 

This audit found that the program had succeeded in raising the capability of the Civil Service, and had put capability improvement onto management board agendas across Whitehall.

Later in 2009, the UK Cabinet Secretary issued a progress report on the capability reviews.  By then, twenty-two widely varying UK government departments had been reviewed.  Sixteen of these had been re-reviewed.

The follow-up reviews showed that capability had improved in key departments, across the three capability ‘pillars’ of leadership, strategy and delivery.  Areas needing development had often been addressed, while continuing areas of weakness were now identified in plain terms.

While the UK Civil Service is confident that the reviews will continue as a ‘key part of the performance management landscape’, their capability model is also of sufficient maturity that they could see where it needed to be revised, and they did so assuredly.

For example, future reviews are to re-emphasise the importance of departmental value for money, to link capability more clearly to results and outcomes, and to sharpen the focus on delivery.

Before taking this argument further, what do we mean by capability? It is a word often used in the public and private sectors but less often defined.

From a strategic perspective, the APS represents a capability for government.   In business terms, this could be expressed as our value proposition.

The APS, you could say, maintains a set of capabilities, and the organisational means to deploy those capabilities, to achieve positive effects for Australian society on behalf of the Government. 

In this sense, the Government’s overriding interest in the APS is going to be whether or not it can deliver a capability or a suite of capabilities that government values highly.

Earlier on, I said that organisational capability was ‘determined by the combination of people, processes, systems, structures and culture’.  The capability of the APS might also be described as:

• a distinctive set of APS qualities – for instance, our APS Values might be seen as central to our capability
• a set of abilities that the APS maintains for government in order to create public value – broadly these might be policy advice, regulatory services, a capacity for service delivery or program implementation
• a set of core organisational competencies such as agility and responsiveness
• various characteristics that are embedded in the assets the APS maintains – say, its people, its technology, and its regional presence.

Indeed, capability has all these meanings.   But, in the case of the APS, practical organisational success also depends, I believe, on harnessing our business systems and our processes so as to convert these qualities, abilities, competencies, and assets, into tangible capabilities that consistently deliver good value to government and to citizens.

The Capability Review model that we have been exploring is guided by the UK experience.

The Commission has close contacts inside the UK program.  We are also in touch with the New Zealand and Canadian public services, and we understand how they have adapted the UK approach to suit their own jurisdictions.

Our work to develop an Australian version is well advanced – but it is still work in progress.  What I am about to show you may well be revised in coming months in discussion with Secretaries, in the light of experience and to reflect any views expressed by the government.

That said, our current thinking is that the main purpose of the Australian capability reviews would be to assess how well the agency exhibits capability in three key areas.  [SLIDE 1 MODEL] That is, a Review would examine the quality of the people, processes, and practices, in place to support the three ‘pillars’ of:

• leadership, strategic policy development, and service delivery.

This concept of capability, I might add, links closely to the concept of human capital that we discussed earlier.

We know that much of the capability that resides in organisations is built on the social capital that exists between people and around teams.

This capability is enhanced by people developing, sharing and exchanging information.  A web of social relationships is constantly being formed and reformed, and similar could be said for the relationships between the agencies themselves.

If the APS is to be more coordinated and collaborative in its approach, then we should understand better this web of interactions within and across agencies, in order to understand, assess and improve our capability.

The 2009 UK audit, which I referred to above, touched on the importance of understanding the quality of institutional relationships as a way of understanding capability. 

The audit, and the ensuing progress report, said that the UK model for capability review could be improved by strengthening the links between capability and delivery, and by placing greater weight on collaboration and working together across ‘complex delivery chains’.

So, while it is essential to assess the components of capability in terms of leadership, strategic policy development and service delivery, it is the way that these three ‘pillars’ interact and combine to deliver the outcomes that is the key.  We will certainly bear this in mind if we subsequently proceed to fully implement capability reviews in Australia.

How Would the Capability Reviews be Implemented?

We imagine that, similar to the successful UK model, each review would be directed by an eminent Lead Reviewer.  Each review would be conducted by a Capability Review Team, which would include senior public servants and business or academic experts.

They would be supported by a group of senior APS executives and external experts, that would provide an expert sounding board for issues raised by Review Teams, and a catalyst for more innovative approaches.

The intention is that each review should develop a well-informed and well-rounded analyses of an agency’s true capabilities. 

This is unlikely to be achieved if each review is conducted as a routine ‘tick-the-box’ kind of exercise.

However, the UK experience strongly suggests that each review could usefully be guided by similar core questions within each of the three review ‘pillars’ – leadership, strategy and delivery.

Our work to date, for example, suggests that the leadership pillar should focus on those features of the organisation that demonstrate strong strategic leadership so as to ensure an agile, capable and motivated workforce.  One way to test this could include asking whether in the agency there is:

• A leader who plays a dominant role in shaping and nurturing the culture and behaviour of their organisations?
• A strategic plan that provides a clear ‘line of sight’ from the organisation’s strategic objectives to its service delivery?
• A scheme for the identification and development of talented staff?
• A performance framework that fosters high performance?
• A focus on professional development through learning and development?

The strategy pillar could focus on those features that enable the agency to develop high quality, forward-looking, policy responses.  Does the agency exhibit, we might ask:

• Cross-agency collaboration?
• Promotion of innovative policy solutions?
• Collaboration with delivery agencies, and the provision of clear guidance and standards?
• Development of strong partnerships with external organisations?
• Development of short, medium, and long-term, strategic policy, based on sound data and effective analysis?

Finally, the delivery pillar could focus on those features that enable the agency to deliver citizen focused services.  Does the agency exhibit, we might ask:

• Active engagement and collaboration with citizens, to improve service delivery?
• A quest to improve coordination of service delivery across all levels of government, and the community and private sectors?
• Innovative service delivery solutions?
• Reductions in red tape?
• Automated and simplified business processes?
• Uses of technology to facilitate communication, reduce non-compliance, and drive greater transparency?

As I say, this is early thinking, which will doubtless evolve.

We would welcome feedback or suggestions from anyone with relevant insights or experience to share.

As it happens, the Commission has already observed some positive effects arising from the recommendation in the Blueprint, and from the publication of our intended approach to capability reviews.

What we’ve seen is that many APS agencies, in anticipation of formal reviews being introduced, are already conducting internal self-assessments against the three ‘pillars’.

The early reports that are coming in from these agencies say that the process has been a useful internal test, which will potentially lead to system and process improvements.  We see this as a promising development.

In broad or service-wide terms, then, what might we achieve if we proceed to conduct well constructed capability reviews?

Importantly, we would be striving to establish capability improvement as an established feature of the APS strategic agenda, as an expected feature of each APS agency’s executive or board deliberations.

An ongoing cycle of capability reviews would provide ongoing practical assessments as to whether agencies have the right people, processes and systems to deliver the highest quality services for the Australian public, and the best forward-looking advice to the government.

Moreover, as agencies become more familiar with the process, we would hope to see that measurement of organisational capability had become a key consideration in the strategic planning processes of each agency, leading to fewer instances of incomplete or ineffective implementation of programs and similar issues. 

This may also help to broaden the APS’s understanding of ‘capability’, beyond the instinctive pre-occupation with skill sets to embrace the three pillars of leadership, strategic policy development and service delivery, to embrace the realisation that real capability builds on skill through an  intelligent combination of people, processes and systems that come together to optimise an organisation’s level of capability. 

Planning inside APS organisations ought then to consider the appropriate balance between these components, as that would give us a better quality-assurance that both public expectations and government commitments can be met.

We at the Commission believe that well constructed capability reviews could provide a powerful addition to an agency head’s armoury of diagnostic tools and would provide a platform for identifying best practice, and for facilitating its service-wide adoption through information-sharing networks.

Cumulatively, the reviews would help the APS to identify its ‘centres of excellence’ on the one hand, or its recurring capability gaps on the other hand.

Through the capability reviews, our ultimate objective would be to strengthen the capability of today’s APS – including its capacities for forward planning - so that it is better positioned to meet the emerging challenges facing both today’s and tomorrow’s government.

Conclusion

Soon after the overwhelming experiences of World War II, the noted American public administration expert Luther Gulick took issue with the conventional idea that good people can renovate poor organisations.  ‘Good men,’ he corrected, ‘seldom survive bad organisation.’

These days, we would say ‘men and women’.  In other respects however this insight, like Gulick’s insights on the functions of an executive, is still topical.

What I mean to say is, we spend a lot of time investing in our people, but do we make comparable investments to improve our organisational health?   Do we invest sufficiently, to put the systems in place that will create the conditions for our workforce to flourish?

Ahead of the Game challenged the APS to purposefully build a strong and adaptable institution that is capable of meeting the test of constant change. 

It sought to refresh the foundations of what is already a robust and well-performed institution, so that it is more capable of delivering enduring value to the government and to citizens.

This Blueprint proposed the components of a world-class APS, and the government has accepted the thrust of the reforms and the recommendations needed to get us there.

Today, my topic has been the shift to human capital management that is embodied in the Blueprint, and particularly the Commission’s work to establish proposals for regular and systematic capability reviews of APS agencies, in order to assess and to improve the institutional effectiveness of the service.

There is much else in the Blueprint that is intended to build the capability and effectiveness of the APS, including a number of proposals to improve the range and quality of the support that the Commission can provide to agencies as the seek to identify and build needed capability.

However these are topics for another day.  I believe that the systemic improvements proposed in the Blueprint, including in respect of human capital management, and capability reviews, have a potentially powerful role to play in taking a highly respected and well-performed APS up to a new level.

Thank you for giving me the time to talk with you today.  I hope you draw much inspiration from your Congress, and its challenge of ‘navigating the future’. 

Thank you.