Leadership and Public Sector Reform in New Zealand

Leadership and Public Sector Reform in Asia

ISBN: 978-1-78743-310-6, eISBN: 978-1-78743-309-0

ISSN: 2053-7697

Publication date: 23 April 2018

Abstract

New Zealand is a small country with a rich history of pioneering administrative reforms. This chapter describes administrative reform processes emanating from the ‘core agencies’ of the State Services Commission (SSC), Treasury and the Department of the Prime Minister and Cabinet. It describes the famous New Public Management reforms of the late 1980s–2000s, led by the Treasury that restructured ministries (creating more agencies that are single-purpose agencies), rewrote policy rules (e.g., the same laws for public and private sector employees) and created accountability from agency heads to ministers as well as SSCs who evaluate and re-appoint agency heads. It should be noted that in this Westminster system, ministers provide policy leadership but not executive leadership of ministries. The chapter describes in detail two reform processes led/administered by the SSC since the mid-2000s to increase accountability for ministry mid-term policy and organizational capability targets (performance improvement framework) as well as cross-ministry goals (better public services). These efforts have been evaluated over time as being quite effective and are noted for their sustainability and improvement.

Keywords

Citation

Rennie, C. and Berman, E. (2018), "Leadership and Public Sector Reform in New Zealand", Berman, E. and Prasojo, E. (Ed.) Leadership and Public Sector Reform in Asia (Public Policy and Governance, Vol. 30), Emerald Publishing Limited, pp. 257-285. https://doi.org/10.1108/S2053-769720180000030011

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Emerald Publishing Limited

Copyright © 2018 Emerald Publishing Limited


Introduction

This chapter is focussed on public sector reforms in New Zealand and the nature of the leadership that facilitated these reforms. There are two significant periods of reforms that are discussed, the New Public Management (NPM) reforms of the late 1980s through the mid-1990s, and the more recent reforms starting in 2009, which can be linked to New Public Governance (NPG). The organizations that lead both reforms are the three core agencies in New Zealand’s central government.

Within this centralized public sector, the three core agencies, viz. the NZ Treasury (Treasury), State Services Commission (SSC) and the Department of Prime Minster and Cabinet (DPMC) are self-named the ‘corporate centre’, a term adopted in the most recent reforms. This chapter discusses how these agencies acting as the ‘corporate centre’ has been at the heart of leading key public administration reforms since the late 1980s. The corporate centre terminology comes from the organization structure of using core departments of finance, human resources and a chief executive office. These three departments have system-wide oversight over state sector and provide key advice to senior ministers on the performance of the sector and changes required to get the sector to work more efficiently and effectively.

This chapter starts with a short outline of the New Zealand public sector and the role of these three agencies within the system. Included is a discussion on the leadership roles of these three agencies as individual entities and as a corporate centre for central government.

The chapter then discusses reforms of the late 1980s providing an important case study of the leadership role played by Treasury, and how Treasury was supported by SSC and DPMC during those reforms. Treasury sought to incorporate fundamental private sector theories of efficient and effective management of entities into the public sector and the agency had the key leadership role on advising ministers about these reforms.

The third part of the chapter discusses the reforms of the late 2000s in some detail and reflects on the role that SSC played in these reforms, providing the central leadership role supported by Treasury and DPMC. The collaborative approach sought the inclusion of senior officials across several government agencies to ensure their buy-in, and therefore effectively implement the reforms. In part this was because the reforms included the introduction of functional leadership in areas such as information technology, which required this buy-in to be effective. In spite of the need for a collaborative approach to lead these public sector reforms, these latest reforms still highlight the importance of the leadership role of the core agencies of Treasury, SSC and DPMC in public sector reforms.

The final part of the chapter is to consider the changes envisioned for the reforms that are still unfolding in New Zealand. One key area of development by the SSC is the focus on a system-wide adoption of a leadership framework. This framework is designed to promote and support the development of effective leaders throughout the individual’s careers as they gain more seniority in the New Zealand public sector system.

The New Zealand Context

New Zealand is an island nation in the South Pacific, roughly the size of the United Kingdom in area but sparsely populated, with approximately 4.7 million people (Statistics Department, New Zealand, 2016), and geographically remote from other countries (Australia lie almost 2,000 km to the west, across the Tasman Sea).

The two major islands are North Island and South Island, stretching some 1,700 km in combined length, but narrow across, as no locality is more than 110 km from the sea. The climate is temperate, and much of the terrain is mountainous, with the greater part of the agricultural land on North Island. A significant proportion of the population lives in cities, the largest being Auckland, then Wellington, the capital, which are both on North Island, and Christchurch is on South Island.

A former British colony and a member of the Commonwealth, New Zealand is a democratic nation with a parliamentary system of government. New Zealand has no formal constitution, rather the constitution is derived from a few key documents. The New Zealand constitution is to be found in formal legal documents, in decisions of the courts and in practices (some of which are described as conventions). It reflects and establishes that New Zealand is a monarchy, it has a parliamentary system of government and is a democracy. The documents include the Treaty of Waitangi, which is often considered the founding document of the government in New Zealand, the New Zealand Bill of Rights Act 1990 and the Constitution Act of 1986, which sets out the essential provisions relating to executive, legislature and judiciary (Governor General, New Zealand Government, 2016).

Parliament, under the Constitution Act, consists of the Sovereign in right of New Zealand and the House of Representatives. The House of Representatives is elected by universal suffrage every three years. Prior to 1993, New Zealand followed a ‘first past the post’ or simple plurality electoral system with single-member constituencies. In 1993, a referendum held concurrent with the 1993 election resulted in the adoption of a modified form of proportional representation. It is based on a 120-seat House, increased from 99 seats. Under mixed-member proportional representation, electors have two votes: the first vote for one of the 60 constituency seats, and the second vote to determine the remaining seats and the party standings in the House of Representatives.

The responsibility for choosing the cabinet is handled differently by the National and Labour parties. The National Party assigns the responsibility exclusively to the prime minister. However, the Labour Party’s cabinet selection involves both the parliamentary caucus and the prime minister; the whole caucus elects the ministers, and then the party leader (prime minister) allocates the portfolios among those selected.

The structure of the public service is used in a Westminster system, with a politically neutral public service, accountable to the political executive and open on a competitive basis to suitably qualified persons who are recruited and promoted on the basis of merit. The organization, structure and functions of the public service are determined by legislation, namely the State Sector Act (1988) and the Public Finance Act (1989). A state services commissioner also known as the head of state services oversees this apolitical public sector. This role, which operates under a warrant from the Crown, is responsible for the appointment and performance of chief executives, allowing these appointments to not be politicized, and thus giving effect to the notion of an apolitical system.

Under the New Zealand State Sector Act (1988)

  • The DPMC was reorganized combining the cabinet office with the advisory side of the prime minister’s office and leaving separate the prime minister’s private office.

  • The Treasury advises the minister of finance and the cabinet on fiscal policy, financial management, macroeconomics and regulatory policies that have a major influence on economic performance.

  • The SSC is headed by two statutory officers – commissioner and deputy commissioner – appointed by the governor general in council on the recommendation of the prime minister for a term not exceeding five years, and eligible for reappointment.

  • Chief executives are hired on contract to head government departments by the state services commissioner. They sign performance agreements with the state services commissioner in consultation with the relevant minister/s that specify the targets they and their departments are expected to meet.

The Role of Core Agencies

The New Zealand public administration is a very centralized system by international standards; with most key policy delivery agencies administered by ministers in the central government rather than being delegated to local government authorities. New Zealand’s small size, use of one house in parliament, its democratic political system and well-established central government public administration supports this centralized approach. The central government is responsible for a wide range of public services, including everything from defence and security to welfare and education.

Core to this public administration are three key departments. The Treasury, which is responsible for fiscal control, allocating the government’s budget, economic advice on the economy and public sector management. The SSC is responsible for monitoring and assessing the performance of the chief executives of the government departments, infrastructural design of the system and providing advice on supporting and growing the skills of the key resource of the public sector and its people.

The DPMC has several roles, including a policy advisory role to the prime minister. While policy advisers in DPMC will rarely agree to the recommendations of other departments on policy matters, including recommendations for public sector reforms, they will nearly always acknowledge that they have been informed (e.g., better public service (BPS) results: 2015 mid-year progress report cabinet paper). While DPMC may not explicitly support policy recommendations, it is critical, they signal they are aware of it. This ensures that ministers can have some confidence in presenting a policy initiative to their cabinet colleagues and that the prime minister is aware of the proposal. Of course, depending on the significance of the policy initiative, this will gain greater or lesser attention. Public sector reforms are considered significant because of the impact they have on how the system runs and how accountability is determined between ministers’ responsibilities and those of senior public sector officials. Therefore, the role of DPMC, although seemingly passive in the 1980s account of the reforms, was in fact critical to the success of those reforms. The presence of DPMC as a key member of the corporate centre has increased subsequently to the BPS reforms and their endorsement of initiatives such as the performance improvement framework (PIF) is now clearly evident (State Services Commission [SSC], 2016).

New Zealand Government operates with a separation between political leaders and those employed in public service. A state services commissioner also known as the head of state services oversees this apolitical public sector. This role, which operates under a warrant from the Crown, is responsible for the appointment and performance of chief executives, allowing their appointment to occur without political determination; however, it does require considerable political consultation, which gives effect to the notion of an apolitical system. The separation was formalized in 1913 after the opposition party campaigned strongly on the need to get rid of the patronage occurring in the state services, and against the wasteful spending of public money. The party called itself the Reform Party and came to power in the 1912 election.

Within months, the government established the Public Service Act 1912, which enshrined a professional, politically impartial, career public service based on strict and systemized rules and regulations. Key to this was the establishment of SSC, which was led by the predecessors to the role of state services commissioner. This model means the public sector officials supporting the government of the day did not change depending on the public party in power, thereby allowing for consistency of experience and knowledge. It also means career public sector officials can invest into their skills and abilities without threat of losing their position every three years. A key part of the central agencies, and particularly the SSCs, role is to develop and support system-wide initiatives that encourage and maintain the required skills for a high performing state sector.

The tripartite relationship between ministers, chief executives and commissioner exists within this system with both formal and informal allocation of responsibilities between the parties. These responsibilities cover policy development, policy delivery and the performance of the entities. The relationships are managed in part through formal statutory arrangements, some requirements as set out in cabinet manuals (Cabinet Office New Zealand Government, 2016) and informal discussions and negotiations held between chief executives, ministers and the state services commissioner. The development of a political authorizing environment is critical for public sector officials to present recommendations for change and have confidence to proceed with implementation of policy agendas. It is instrumental to the success of public sector reforms to be able to understand, advise and implement the programmatic political agenda of the party in power, which has been elected through a democratic process. A critical part of the senior officials’ leadership role in these core agencies is to steer the policy agenda, so it reflects the political intentions while also influencing these political intentions. These senior officials of the core agencies draw from their own experiences as well as the experiences and insights of their colleagues and staff to inform the discussions between themselves and ministers. The effective teamwork between senior ministers and senior officials allows for reforms that are and continue to be beneficial to New Zealanders and the public sector.

NPM Reform – Treasury’s Leadership

After the first oil shock, in 1973, New Zealand’s economic growth reduced significantly for a decade, with combined private and public sector foreign debt rising from 11 per cent of GDP to 95 per cent between March 1974 and June 1984. Net public debt rose from 5 per cent of GDP to 32 per cent during the same period. Annual inflation remained in double digits for the entire, December 1973 to March 1983, period, which was subsequently controlled only through an extensive wage–price freeze (Evan, Grimes, Wilkinson, & Teece, 1996). When a snap election was called by the prime minister in June 1984, the combination of a likely change in government and devaluation of the exchange rate lead to a rapid outflow of foreign exchange in relation to available reserves that the Reserve Bank ceased converting New Zealand dollars into foreign currencies. This created a foreign exchange and constitutional crisis during the interregnum until the outgoing prime minister agreed to implement the instructions of the incoming government (Evan et al., 1996).

Following the foreign exchange and constitutional crisis of July 1984, the New Zealand government embarked comprehensive programmes of economic reform, including changes in financial markets, privatizations and deregulations, liberalizations to international trade, deregulation to labour markets and reforms in public finance and public sector. The success of institutional and organizational changes delivered by the reforms, called NPM, implemented in the late 1980s has been well recorded and assessed by several authors (Scott, 2001).

Scott (2001) observes the following:

In October 1987, a group of four concerned ministers and some of their senior officials held several long meetings at the SSC to discuss the personnel and industrial relations arrangements for the New Zealand public service. They sought way to improve the effectiveness of government department by initiating changes in the management framework for the public sector. Over the next 18 months, a radical new public sector management framework was put in place based on the State Services Act 1988, the Public Finance Act 1989 and related legislation.

The 1987 reforms sought to achieve changes to the economy, the way government managed the economy and changes to the way public sector managed its self. By adopting private sector management theories and techniques it aimed to achieve greater efficiency and transparency. Scott (2001) notes further:

These reforms occurred in an environment of significant privatization of some state assets (airlines and railways) and corporatization of others such as the electricity sector. The objectives for the reforms for state sector were to reduce the rigidities in the public sector so that there could be greater responsiveness and greater flexibility.

McKinnon (2003, p. 357) observes that Treasury leadership was instrumental in these reforms.

Treasury had secured, via a circuitous route most of the economic reform agenda set out in the Economic Management Strategy of 1984. The new economic constitution with the Reserve Bank Act and the Fiscal Responsibility Act represented how the Government signed up to Treasury’s economic strategy, with its strong focus on liberalization and deregulation of microeconomic policies.

These Treasury-led economic reforms were significant reforms and are explored in greater details by the authors such as Scott (2001). This chapter focusses on the public reforms that occurred at the same time, which were also lead by Treasury and supported by SSC and DPMC. These reforms themselves were extensive and revolutionized the way the public sector operated and the way it has been held to account for both its fiscal and performance management.

The Treasury officials advising the ministers stressed the importance that direct accountability between chief executives and their ministers could make to a new and effective public service management system. In doing so, they were continuing to promote the ideas first set out in 1984 in Economic Management, the Treasury briefing to incoming Labour Government, subsequently published as a book. Scott (2001) notes the concepts that were expanded and developed in the future published briefing to the government after the 1987 election that was titled Government Management. In that brief, the Treasury argued that a well-managed government should have the following six characteristics:

  • Clear objectives that inform managers what is expected of them and enable their performance to be monitored;

  • Transparency in setting out those performance objectives and the means by which they are to be pursued;

  • A structure that minimizes the potential for ‘capture’ of policy by people and organizations that are providing services;

  • Incentives for managers and staff to achieve the goals of the government rather than their own goals;

  • Effective use of relevant information to promote effective performance; and

  • Contestability of both policy advice and service delivery.

Greater discretion and authority was sought for managers, which was matched with effective accountability for clearly specified results. As part of these reforms much greater use was to be made of formal arrangements to clarify roles and performance requirements.

Scott (2001) observes the following:

Specific changes recommended by the Treasury included:

  • the establishment of a clear, unbroken line of accountability from ministers to their departmental heads and from departmental heads to the staff in their departments;

  • greater involvement by cabinet in appointment and other employment decisions about the heads of departments, and by heads of departments in employment decisions about their staff;

  • the dismantling of external controls over inputs; and

  • the introduction of a robust performance management system based on specified performance requirements that would feed into the performance assessment and career development for staff and into employment decisions about the departmental heads.

The Treasury also advocated for new approaches to the structure of government and to budgeting, and accounting such as accrual accounting and financial management. These were subsequently adopted by the government and led to some profound changes in the way in which the public service was organized and did its business. The reforms provided increased understanding about the cost of government policies and the value of government’s investments as well as formalizing the accountability framework for both fiscal control and performance management. These changes created building blocks from which subsequent reforms, including the reforms in 2011, could occur.

Officials from the SSC, who were advising the ministerial committee, supported the directions of the reforms. They promoted the alignment of public sector labour law with the private sector labour law, which was being revised at the time. The procedures for negotiating wages and the resolution of disputes were the focus of attention. The officials also stressed the need in any new arrangements to retain the key values of the old system, such as its non-political character and its fundamental ethics and values. The officials favoured the retention of at least some measures of effective central control in order to promote these values and characteristics; consequently the SSC promoted the concept of senior executive service (Scott, 2001).

McKinnon (2003) observes the reform and asked basic yet fundamental questions regarding what governments could and should manage in the economy and the public sector:

Two fundamental ideas questions had been asked throughout the life of the idea: Who should do the managing – what should be the balance of power and influence between ministers and officials, politicians and officials and what should managing involve – what kind of management of what kind of economy?

While the directive leadership approach adopted by Treasury was necessary and expedient for senior officials, there were, however, dissenting voices as to the wisdom of Treasury adopting such an approach. McKinnon (2003) notes:

‘During the reforms years [between 1984 and 1993] the conventional relationship between elected government and bureaucratic advisors in a Westminster system was to a great extent reversed. The Treasury became the principal initiator to know what governments would do; one read the Treasury’s briefing papers, not the party programs.

The role of Treasury in the 1980s came under scrutiny and was subjected to criticism for Treasury’s involvement in decisions over policy changes as opposed to just advising on the best policy approach. McKinnon observes:

The document titled Government Management that led to major reforms in the public sector was also viewed as ‘a failure on the part of this government department to recognize its true role in New Zealand Society’. Treasury staff seem to have forgotten that are policy advisers and instead they have become politicians…

However, as McKinnon (2003) points out that 1987 was different from times before and its minister supported Treasury’s advice. Although he notes that the nature of the way the arguments were framed in the government management:

‘a sense that Treasury had crossed the boundary separating the official from the political, the official from the theoretical and certainly the digestible from the indigestible. Even, given Treasury’s determination to provide only what it saw as the best advice, however unpalatable, a different kind of production might well have enhanced – and would not have limited – Treasury’s ability to get policies it favoured adopted.

In subsequent reforms, senior officials took a more collaborative approach, particularly the significant public reforms of 2011 creating the BPS agenda. This meant ministers clearly lead the policy agenda and provided the justification and rationale for the reforms. In addition, because of the introduction of mechanisms such as functional leadership buy-in from other senior officials was required and this necessitated a more inclusive and collaborative approach rather than directive. Both approaches did deliver results and reflected not just different styles but a different sense of urgency and judgement about how changes to the public sector could be achieved.

The reforms of the late 1980s and subsequent work in the 1990s created the backdrop for the reforms from 2009. The changes achieved created for the system a good understanding of the balance sheet and the fiscal performance of the entities. It also created accountability within entity structures and between the commissioner and the chief executives. However, the commentators and critics pointed to the weaknesses in the reforms. ‘Structural reorganizations within departments have brought improvements in productive efficiency and standards of service, greater contestability of advice and clearer organizational focus and mission. But there have been problems … more generally; while it is desirable to have broad principles of organizational design, they should be applied with circumspection and concern for evidence. The authors note the possibility of a shift in time away from a managerial paradigm of structure to one reflecting ‘holistic governance’. (Scott (2001) referring to Boston et al. (1996)). Perhaps, some of these weaknesses have subsequently sought to be amended in BPS reforms.

BPS Reforms – The Corporate Centre’s Leadership

The BPS reforms place greater emphasis than the NPM on how the government operates as a system to design policy solution and implement effective change. As part of this is a recognition of the multi-year nature of government intervention, with intergenerational criteria in policy-making, to effect sustained changes. Consistency in government investment to these policies is required to get the results. This means a change in the way accountability was understood and used in the public sector. Recognition of concepts such as stewardship and functional leadership to ensure senior officials are accountable not just for their entities but also for policy agendas that require system collaboration and long-term investment of assets and resources.

The Government was keen to operate as a more cohesive system to enable better results. The need for focus on the leadership required implementing change and developing a culture of stewardship to view initiatives over multiple years and even generations to get long-term benefits from the investment’. (Rennie, 2013)

The SSC, Treasury and DPMC have historically provided leadership as core agencies. This arrangement is now being recognized as the Corporate Centre, acknowledging the departments’ role for system-wide consideration of financial and personnel management. This leadership role is particularly important when adopting centralized system-wide approaches such as the PIF.

The three central agencies – the State Services Commission, Treasury, and Department of Prime Minister and Cabinet (DPMC) - are working together as a Corporate Centre to lead a state sector that New Zealanders trust, and that delivers better public services, including outstanding results and value for money. This requires the Corporate Centre to take an active role across the sector, and provide system-level coordination, a clear focus and strong leadership. The Corporate Centre works together, and uses the three agencies’ respective strengths and collective expertise to support the state sector to deliver better outcomes for New Zealanders. (Rennie, 2013)

How the Reforms Started?

The global financial crisis of the mid 2000s motivated several reforms internationally, including New Zealand. New Zealand’s reforms were started in an environment of austerity, where the Government was focussed on requiring value for money from agencies, where budgets were capped but improved productivity was sought. The BPS reforms were in response to the need to get better government for less and viewed as ‘the next stage of reforms’ (Key, 2012). The direction and focus of BPS is also like the themes found in the NPG paradigm (Osborne, 2010). NPG focusses on how government works as a system and the recognition that public sector entities can’t just concern themselves with the efficiency, effectiveness and sustainability of their own organizations. NPG argues that entities within the state sector are part of a complex public service delivery system where their mission-critical objectives require the successful negotiation of relationships within these systems, including policy makers, other PSOs, service users, citizens and indeed a range of service system elements and stakeholders (Osborne et al., 2015). The BPS reforms recognized the significance of government operating them as a system and designed changes to facilitate the achievement of system-wide objectives.

Important to these reforms was the commitment of ministers to find solutions that had the potential to lift performance by improving the way resources were used rather than just applying more resources. An authorizing environment was created through the leadership of senior officials in SSC and Treasury, working closely with their colleague in DPMC to secure the mandate necessary from the prime minister, deputy prime minister, associate finance ministers and state service minister to implement the reforms.

The reforms recognized the opportunity to rely on the strength of the system to solve policy problems. They realized that policy problems, for instance in social welfare, were multidimensional and complex and often included a number of government agencies in providing a solution. However, getting better results would require an agreement across senior ministers and officials as to the critical results worthy of attention and the changes to the system needed to enable different agencies, each with their independent responsibilities to share accountability to get results. The BPS lead to a shift in approach to managing these issues.

In 2009, PIF was introduced to provide diagnostic tools for understanding the needs of individual agencies.

The Performance Improvement Framework (PIF) was developed six years ago by a team from across the state services, including chief executives, to support continuous performance improvement across the state services. The team took the best of the United Kingdom’s Capability Review Programme and the best of the organizational improvement models from the New Zealand private sector, as well as methodologies from other jurisdictions, and adapted them for the New Zealand public management system (SSC, 2015)

It was because of gaining this improved understanding that system solutions proposed in the BPS became more self-evident to the senior leaders in the core agencies of SSC, Treasury and DPMC.

Performance Improvement Framework (PIF) in 2009 essentially started New Zealand on the pathway of reform as this diagnostic tool helped to uncover some of the failings within the agency approach to policy development and delivery. PIF is governed by the three central agencies and delivered by the SSC. It was launched in 2009 and aims to help senior leaders in the state services improve their agencies’ performance in the face of continuously evolving and increasing complexity. PIF does this by enabling Ministers, chief executives and Crown entity boards to respond with agility and purpose to the opportunities and challenges presented.(SSC, 2015)

Specifically, The PIF framework has been used in three distinct ways (Victoria University of Wellington, 2017):

  • As a diagnostic tool to drive improvements in agency and cross-agency performance by helping ‘senior leaders lift the performance of the agencies they lead’.

  • As a tool for central agencies to ensure improvement in overall system performance.

  • As a tool to provide ministers, the public and other stakeholders with the assurance that improvements in agency performance and across the system are occurring.

Through the PIF, the SSC, Treasury and DPMC aimed to develop a very comprehensive understanding about whether the state service agencies were doing well. After a PIF review, senior teams should be clearer about their roles and know how to add maximum value for New Zealand; they can enlist, engage and enrol their people – and others – in the delivery of that value. The assessment leading up to PIF was that agencies were very good at responding to the demands of ministers here and now. The departments were also very good at responding to crisis and mobilizing response. Now, cross-agency and systemic perspectives were needed as well as deepening of public sector capabilities and leadership.

The PIF reviews revealed that agencies were weak at focussing on policy issues that the government would need to tackle within five to 10 years; ministers received limited support as to how to address these issues and the timelines required delivering the policy solutions that would affect good results. The PIF reviews also revealed that departments were not good at issues such as succession planning and talent management. Finally, capital management of system-wide assets struggled to get attention it desired with comprehensive planning approach without a long-term system-wide approach to capital management. These agencies, acting as individual agencies, were much less good at thinking about the long term, creating a stewardship culture and mobilizing across agency solutions to long-term goals. So, a fundamental shift from the short-term to the long-term planning was required to achieve the objective of having a high performing state service.

PIF has four key elements:

  • Four-Year Excellence Horizon – What is the agency’s performance challenge?

  • Delivery of Government Priorities – How well is the agency responding to government priorities?

  • Delivery of Core Business – In each core business, how well does the agency deliver value, increase value and exercise its stewardship role over regulations?

  • Organizational Management – How well is the agency positioned to deliver now and in the future? (SSC, 2015).

The reports were published and used to highlight good and strong practice as well as to ensure accountability and transparency. PIF uses system-improvement research to promote system-wide understanding. A combination of seminars, workshops and master classes were to share what has been learnt and to stimulate conversations and good practice.

The heart of the programme is the PIF review. It looks at the current state of an agency and how well placed it is to deal with the issues that confront it in the medium-term future. It then proposes areas where the agency needs to do the work to make itself fit for purpose and fit for the future. It is not an investigation. It is not an audit. PIF is unique in the sense that it is inspirational and future-focussed. It asks an organization about its greatest contribution to New Zealand, and how well placed it is to deliver on that.

Reviews are conducted with agencies as required or when incoming chief executives and boards who want to use PIF to set a strategic agenda and create change. PIF reviews are completed by experienced, independent and trained lead reviewers. The lead reviewers use a mix of co-creation, appreciative enquiry and peer-review to create future states, also known as four-year excellence horizon, for senior teams.

The four-year excellence horizon can be tabled in parliament. Ministers and senior leaders oversee the delivery of the four-year excellence horizon via the four-year plans, letter of expectations and chief executive performance agreement. Self-reviews are offered alongside PIF reviews. Crown entity boards often use self-reviews to reset strategy or monitoring agents to better understand sector and system performance.

For ministers, the PIF provides assurance that the agencies they are responsible for are constantly looking for ways to improve how they do business and deliver value for the taxpayer’s investment in them. Ministers also get independent assurance, as external expert parties undertake PIF reviews.

The four-year excellence horizon is strategic narrative written by lead reviewers as a way for senior teams to understand and stay ahead of emerging opportunities and to respond quickly to unexpected issues. The approach was adopted as it was recognized that strategic planning with departments was at risk of becoming very transactional and only compliance-focussed. Consequently, medium-term planning around finances and workforce were being detached from each other or overlooked entirely in the strategic planning discussion.

For the corporate centre, the PIF provides a good picture of what is good about the New Zealand public management system and what needs to improve. The PIF process ensures that senior leaders in a department are having a regular strategic conversation where they look both at their future spending and future workforce needs. This conversation means that they are thinking about what resources they will need in both terms of people and money. For the corporate centre, the four-year plans help identify pressures or gaps in the system, and allow these core agencies to prepare system-level interventions. Ultimately, it provides good information that allows officials to give assurance to ministers that departments are taking a robust approach to change processes, and that leaders have a good understanding of any risks or gaps.

The four-year excellence horizon was developed in 2011 as a separate ‘summary’ section at the front of PIF agency review reports and self-review reports. It provides a distillation of the findings, themes and conclusions about the priority areas for performance improvement, given the contribution New Zealand needs from the agency and its current and medium-term context, issues, risks and opportunities. The important role of the four-year excellence horizon is made explicit in this refresh of the framework. Government agencies that are required to produce a four-year plan need to ensure that the plan shows how the agency is responding to the four-year excellence horizon and the commitment the agency made in its response to its agency review. (SSC, 2015)

The performance of the agency is judged against this future narrative, not just on its previous performance. The four-year excellence horizon is a distillation of the critical shift that an agency needs to make to be successful in four years’ time. It does this by focussing on the following areas:

  • Leadership and direction

  • Delivery for customers and New Zealanders

  • Relationships

  • People development

  • Financial and resource management.

This four-year excellence horizon connects directly to the departmental planning during the annual budget cycle. SSC and the Treasury work with departments in the production of four-year plans prepared by the department on behalf of the minister. These plans create a strategic document that

  • provides a clear and integrated view of an agency’s medium-term strategy and intentions;

  • shows how agencies will manage their resources to deliver their strategy and

  • identify the risks to delivery.

These are central components of the budget process, incorporating both budget planning and workforce strategies. The workforce strategy elements ask departments to articulate

  • the broad workforce capability they want to develop,

  • information on any specific skills gaps,

  • a firm four-year prediction of staff numbers and

  • a signal of their expected medium-term people costs.

Four-year plans are increasingly being seen as a key strategic planning exercise by departments, helping senior leaders clarify challenges, drive change, align thinking of diverse business units and better tell their departments’ performance and management story to engage staff or ministers. The maturity and quality of four-year plans has increased, particularly in the areas of more specific strategic direction, consideration of operating models, increased awareness of customers and the importance of partnerships.

The PIF review framework has been upgraded thrice since its launch to keep step with changing environment. In December 2015, the framework was refreshed to better reflect how agencies are delivering on the reform agenda of BPS that calls for agencies to build and deliver their services around a clear understanding of their customers. Four-year plans are reviewed, and best practices shared. The SSC published in April 2013 Core Guide 3: Getting to Great; Lead Reviewers Insights from PIF, which identifies good practice from the individual PIF reviews. The following key themes for further improvement were drawn from the 21 PIF reviews in the guide:

  • Providing clear purpose and clarity on how the organizations’ strategy will best achieve its goals.

  • Ensuring strong internal leadership that attracts talented people and inspires them to dedicate themselves to working with integrity to deliver the outcomes that the agency has identified as mattering most to New Zealand.

  • Investing in talent by providing challenging, interesting and important work to do, while also managing poor performances to either improve or exit.

  • Enlisting the active support of all those outside the agency who are necessary to the agency’s delivering.

  • Demonstrating that learning, innovation and continuous improvement are valued.

  • Engaging corporate support areas such as finance, information technology, organizational development, strategy, risk and human resources as business partners (Biswell, 2013).

An independent review of the PIF finds broad support for the above (Victoria University of Wellington, 2017). A systematic survey of 430 respondents in 35 agencies ‘shows that respondents felt that benefits accruing from PIF were worthwhile and endurable’. The review finds that lead reviewers are credible, free from bias and upholding public service standards. The self-review is also seen as becoming increasingly important and contributing to organizational narrative and awareness of organizational roles and strategic mission. Following the PIF process, organizations are also perceived as having strengthened their contributions to New Zealand and having increased their organizational stewardship for mid-range goals. Positive PIF reports are also seen as increasing ministers’ confidence in their organization’s performance. Overall, the PIF process is helping to improve clarity of an organization’s purpose, providing a clear and detailed understanding of what to focus on, and improving the organization’s strategic framework.

However, the independent review also notes areas for further improvement. Whereas the four-year excellence horizon was very helpful to many people, at least one-third of survey respondents felt that this was too short. Ministers were said to have shorter horizons. PIF is also not well regarded for enhancing organizational values or culture. Just over half the survey respondents felt that PIF had helped to strengthen the organization’s commitment to core values or improve its organizational culture. The case studies further find tensions between PIF as a compliance exercise and as a tool for improvement, suggesting that fear of negative results (accountability) could drive out improvement. Some recommendations for improving PIF include considering the role of PIF relative to other accountability and performance reviews; strengthening post-PIF processes and support to ensure sustained momentum for change and demonstrable operational improvements and demonstrate cases where PIF reviews have led to operational improvement.

Better Public Services Agenda

In 2011, the Better Public Services Advisory Group was established and it produced recommendations that lead to BPS reforms. The reforms were and continue to be informed by the work of PIF reviews. The reforms themselves included the introduction of the following:

  • A set of challenging goals or targets, framed as ‘results’ to be achieved within a timeframe.

  • A programme of legislative, organizational and process reforms aimed at facilitating more across-organization approaches to improve services, creating a different style of public sector leadership and to allow innovation to thrive so that ‘more and better services can be achieved with less’ (resources) (Eppel, 2013).

These reforms were regarded as ‘a focus on getting better results, and greater efficiency, from the public sector’ (Rt Hon John Key, 2012). Speech from Seven years on the reforms have been imbedded through legislative changes achieved in 2013 and through ongoing changes lead by the core agencies of SSC, DPMC and Treasury.

The BPS advisory group recommended changes focussed on delivering policy results in complex, cross-boundary areas such as education, welfare and health. The institutional and operational changes to the New Zealand public sector involved designing and delivering value-for-money services to meet the rising expectations of citizens, stronger whole-of-government leadership and capability. An overview of legislative and related policy proposals points to three primary reform themes: results focus, citizen focus and performance focus.

Better Public Services Reform Themes (N.D.)

Results focus: Getting traction on the results that matter most

This entails:

  • Defining results that matter;

  • Specifying ministers to lead results and chief executives to deliver on results;

  • Funding departments for results;

  • Reporting on results; and

  • Consolidating/organizing agencies and resources to deliver on results.

Citizen focus: Better services and value for money

This entails:

  • Engaging with citizens and business;

  • Focussed reporting;

  • Leveraging expertise and scale;

  • Best sourcing; and

  • Continuous improvement and innovation.

Performance focus: Strengthening leadership, culture and capability

This entails:

  • Tasking state services commissioner with overall responsibility for state sector performance and reform;

  • Refocussing accountabilities (e.g., functional leadership);

  • Improvingleadership development; and

  • Having a culture built process across the state services.

These reform themes translated into a strengthened role for the state services commissioner to become the head of state services, so creating more enhanced and effective leadership of the reform programme, including, for example, more flexible deployment of senior leaders across the public sector. In addition, the changes added additional tools to support results and allowed work across agency boundaries. Finally, the reforms included a focus on better quality and less volume reporting to parliament to enable improved quality output from departments.

Results Focus: Getting Traction on the Results that Matter Most

In 2011, as part of the BPS reforms, the ‘Results’ programme was launched. ‘Results is not just about the 10 results of the better public services. It is about a new way of working’ (Rennie, 2013). The programme sets out to drive results, improve quality, responsiveness, the value-for-money of public services and strengthening leadership. There is strong government commitment to result areas and resourcing, and staff is allocated to enable Results to be achieved.

The 2011 programme focusses on 10 results across the following five areas:

  • Reducing long-term welfare dependence;

  • Supporting vulnerable children;

  • Boosting skills and employment;

  • Reducing crime; and

  • Improving interaction with government for business and the public.

BPS results were chosen for their importance to citizens and businesses. They are designed to strengthen public accountability and signal our commitment to transform performance in the areas that matter most to New Zealanders.

Setting specific and measureable targets for the BPS results is intended to:

  • reinforce the government’s commitment to a new results-driven approach;

  • demonstrate public’s high expectations for public services;

  • spur innovation and encourage the adoption of new approaches; and

  • accelerate the pace of state sector reform (SSC, 2013).

New Zealand public sector have had mixed results in achieving the proposed targets. Officials note that the targets are designed to be difficult to achieve in full because of the high expectations set in agreement between ministers and the public sector and the desire to lift public service performance.

Both individually and collectively, the BPS targets challenge departments and contributing agencies to deliver substantial progress by refocussing and reshaping public services. In addition, we want to position the BPS results high in the public consciousness so that New Zealanders can grasp our ambitious vision for better public services and hold us to account for performance achieved.(SSC, 2013)

Citizen Focus: Better Services and Value for Money

The core agencies focus on a number of agenda items that are aimed at improving the citizen experience. The move for the PIF reviews to focus agencies on becoming more customer-centric is an important part of these reforms. Other initiatives are data improvements, better longitudinal information, more targeted use of governments’ assets and resources, better investment into citizens and creating a continuous improvement culture.

The corporate centre places increasing value on being customer-centric. Previously, leaders within the public service were very good at servicing ministers, and can achieve great things in times of crisis. However, leaders in the corporate centre believe that departments need to be better at providing services to the public in a way that works best for the public. This means putting the customer at the centre of their businesses by involving them directly in the design and delivery of services. It also meant strengthening interdepartmental collaboration for the benefit of the citizen.

State Services Commission sets out the plan for improving outcomes for New Zealanders within a tight fiscal environment through state sector reforms. As with the use of PIF reviews to understand with improved clarity and insight into agencies, improvements to data analysis enables the system to better understand how New Zealanders engage with government across agency boundaries and the impact government services have on New Zealanders.

We’re bringing together key data from across a range of agencies, and making it more easily available to the public sector and external researchers. We will complete two streams of work:

  • Establishing a central agency analysis and insights team. This team will perform analysis on wider cross-agency data to identify patterns and better predict and understand the pathways, connections and outcomes of New Zealanders’ interactions with government services.

  • Expanding Statistics New Zealand’s integrated data infrastructure (IDI). The IDI is a linked longitudinal dataset that covers an extended range of pathways, transitions and outcomes information. Safe and secure access for approved researchers is provided to integrated and anonymised multi-agency data. (SSC, 2013)

The information is intended to be used for better research and analysis. It enables better understanding of how sections of the population use government services and benefit from government interventions. By connecting this data, it can be used for research and policy purposes without compromising the privacy of individuals.

In a recent speech, the secretary for the NZ Treasury, on what is being done with the data that is now being collected, stated the following:

Social Investment Insights is an online mapping tool providing data analysis and information about children and youth aged 24 and under who are at risk of poor future outcomes. As well as showing, right down to a suburb level, the number and ages of children at risk of poor outcomes, the tool can predict the cost to government (over time) for various interventions over a person’s lifetime. This tool is an expression of an investment approach. It’s not just a question of saving money it’s about using data held within various agencies and technology to better understand people who need help and deciding on the best way of doing that. (Makhlouf, 2016)

Creating the social investment insights tool presented the officials with a number of challenges, including identifying the relevant agencies and resolving privacy issues related to the use of data. In addition, the core agencies had to resolve the siloed way in which central government had historically tended to operate and adopt a system-focussed approach.

We focused on understanding their lives from the perspective of the myriad of agencies they are likely to come into contact with through their lifetime. By doing this we’ve been able to see what is and isn’t working and what the cost to the system is as a result. Releasing this tool means government agencies and community organisations have rich information right at their finger-tips.(Makhlouf, 2016)

The core agencies work on generating data to inform decisions on where to invest, and improve the monitoring of projects and measuring their success. Improvements to use and access information is seen as critical to the BPS reforms.

There is now a dedicated government investment portfolio team in Treasury that provides investment management support across the public sector. Part of their work is about increasing accountability through greater transparency. Last year they released the first annual report providing a snapshot of the government’s overall investment programme. It covers 409 projects such as Information, Communication and Technology (ICT), new schools, defence projects and construction – with a total annual cost of $6 billion. We also released the first tri-annual Major Projects Performance Report, providing a comprehensive update on the 38 most complex of those 409 investment projects, and tracking whether they are delivering on expectations.

Part of the reforms recognises the importance of transparency to enhance accountability. For the first time in 2104, Treasury produced its investment statement, which details the Crown’s balance sheet showing line by line what assets the government holds. So, that’s the number of schools, recreational facilities, reserves – everything – publicly available for anyone to look at. Moreover, the Administrative & Support Services Benchmarking report provides performance information across agencies and gives transparency over a significant area of expenditure. The benchmarking reports are an important step towards transparency and scrutiny of government services. (Makhlouf, 2016)

The continuous improvement of the state services is another critical part of the PIF framework. PIF has helped to foster a culture of continuous improvement, enabling agencies to work more efficiently and effectively every day.

Specifically tailored to our state services, the ‘better every day’ approach enables agencies to design and manage services around the needs of citizens in a joined up way, so the customer experience is better every day. This practical approach engages staff in changing how they work and develop leadership and management capability to continuously improve performance.

Drawing on a range of methods and influences, including the work of John Seddon, W. Edwards Deming, Chris Argyris and Gerard Egan, the State Services Commission’s continuous improvement centre of expertise has developed the ‘better every day’ approach with six partner agencies – Land Information New Zealand, New Zealand Police, New Zealand Customs Service, Ministry of Business, Innovation and Employment, Ministry for the Environment, Inland Revenue – and the Public Service Association. (SSC, 2016)

Performance Focus – Strengthening Leadership, Culture and Capability

Performance focus incorporates the idea that better more focussed leadership is critical to the success of the ‘better public service’ reforms. The establishment of the functional leader and the introduction of the concept of stewardship are the approaches designed to build capability and a culture that embed the reforms agenda over the long term. Senior officials in the core agencies recognized that the system was not very good at making sure the agencies were focussed on policy issues that the government would have to grapple with in five to 10 years. Therefore, the system was failing to provide advice on long-term solutions to the government so that these issues could be addressed.

Part of the solution was the performance of the system, or more specifically the performance of the public servants. The primary area of focus was to change the performance of the leadership talent, today and into the future. This meant changing expectations on current leaders, such as requiring a stewardship focus and improving issues like succession management and talent management. To develop a high-performing state service, a shift from leaders being equipped to deal with the short term to leaders skilled to consider the long term was fundamental.

The performance expectations on chief executives are increasingly being geared towards stewardship and being held to account for the stewardship agenda of their agency. The aim is to build better resilience into the system by reshaping the expectations on senior officials. The mechanism to hold chief executives to account involves Cabinet endorsing each year the stewardship obligations, which the State Service Commissioner gives to [the] chief executives. It means active planning and management. It means thinking about stewardship in a very different way. (Rennie, 2013)

Functional Leadership

The statutory amendments which added the role of head of state services to the state services commissioner mandate was designed to make more explicit the state services commissioners’ responsibility for the performance of state services. Another role that has a similar sharp degree of accountability is that the chief executive of the department of internal affairs/chief government information officer is responsible for the ICT strategy and action plan (SSC, 2016). Government has put in place some very stretching and clear expectations around ICT performance across the system, and around this role in terms of visible assurance and leadership of the system. The leadership is being embedded into the system. In the past the system was set up so that most operational decisions in government agencies, such as decisions around procurement, accommodation and ICT, were made by individual chief executives based on the business needs and functions of their individual agencies. The use of functional leadership is aimed at maximizing the benefits and reducing the overall costs to government of common business activities, removing the need for an agency-by-agency approach.

Functional leadership as a part of the BPS change programme aims to improve the effectiveness and reduce the overall costs of common business functions to government. Functional leadership roles have been given to three chief executives to drive performance across the state services in ICT, procurement and property respectively. Following are the functional leaders:

  • The chief executive of the department of internal affairs/chief government information officer responsible for the ICT strategy and action plan;

  • The chief executive of the ministry of business, innovation and employment, responsible for government procurement reform; and

  • The chief executive of the ministry of social development, responsible for the property management centre of expertise and the government national property strategy.

They retain their departmental roles but wear an additional functional leader ‘hat’ to achieve benefits for government overall (SSC, 2016).

The roles are designed to finding ways to

  • drive efficiencies (through economies of scale, leveraging buying power in whole-of-government contracts, setting common standards and approaches and reducing duplication);

  • develop expertise and capability (centres of expertise, coordinated professional development, deploying capability to where and when it is most needed); and

  • improve services and service delivery (through sharing and coordinating activities and facilities, joined up service delivery).

The areas of procurement, property and ICT were chosen for functional leadership mandates because of their significance, as they are major areas of expenditure and management attention for agencies. In addition, there is considerable number of risks associated with these investments that can best be managed as cross-government portfolios, there are opportunities for effectiveness and efficiency gains and potential for long-term better coordination.

Head of Profession

In addition to the functional leaders are the various head of profession roles, including the secretary of treasury as the head of profession for financial, the head of DPMC as the head of profession for policy, the government chief talent officer employed in SSC as the head of human resources and the solicitor general as the head of legal profession. The expectations include more actively developing their professions, setting standards, building communities of practice and recognizing excellent performance in those professions right across the state services (SSC, 2016).

Leadership Capability Development and Deployment

In addition to the appointment and performance management of chief executives, state services commissioner and head of the state services have the responsibility for overseeing the development of senior leaders in public service. The change means making leadership development and talent management a collective system responsibility. It also means thinking differently about the type of leaders that are recruited, developed and moved around.

The shift by SSC means senior leaders are seen more as ‘system assets’ rather than ‘agency assets’, which lines up with the need to work more collaboratively across the state services. Through chief executive lead career boards, SSC stewards the development and deployment of senior leaders to the areas they are needed most. This may means that they bring their experience to strengthen the existing team or it could be that the role is intended to develop them for more senior and complex roles. The use of career boards involves chief executives engaging with talent management across the system at a senior level. They discuss the development needs of high potential people in their agencies, and how departments can work as a system to provide for the development of these individuals while also looking to benefit from this more agile use of people resources.

The SSC is also focussed on building a strong infrastructure to allow data analytics to identify trends and predict talent risks in the future. Together with agencies and the leadership development centre, a common approach to talent management is being built. This includes redefining the leadership success profile, and assessing the senior leadership cohort against this profile so that the system can better understand where baseline of strengths and gaps exist. A mechanism to inform the decisions is the establishment of talent management information system, which is used to store and integrate data (SSC, 2016).

The SSC is putting in place a programme that is significantly changing how the state sector identifies, develops and utilizes leaders and talented people from the start of their careers to their most senior levels. The new talent management system will provide the tools and approaches to help leaders and people reach their full potential. By maximizing our potential leadership and talent across the public system, we will achieve better results for New Zealanders. SSC is building leadership and talent across the State services by:

  • strengthening leadership across the system;

  • encouraging and supporting leaders to step into more challenging and complex roles;

  • supporting the move away from a Wellington-centric view, encouraging diversity within the Public Service and

  • identifying our most talented people, developing them and placing them where they are most needed. (SSC, 2016)

The SSC is also focussing its attention on those at the other end of the leadership pipeline, those that are early in their careers. To do this, the department is providing shared development opportunities for interns and graduates from agencies across the system to understand what it means to be part of the state sector and not just being in the agency.

Conclusion and Reflections

These public sector reforms in New Zealand have been the focus of this chapter. Of interest has been the leadership role of core agencies in very centralized public management system. Changes to the way New Zealand public sector officials operate might require amendments to funding, reallocation of resources and/or lines of accountability will undoubtedly come to the attention of these three core agencies and consequently will involve the input of Treasury, SSC and DPMC. This chapter has not focussed on singular agency or even sector reforms but rather on the two significant system-wide reforms lead by Treasury in the 1980s and by the corporate centre (three agencies) in 2009. The driving ideology behind the first of these significant periods of reforms is commonly referred to as NPM. These reforms sought to make significant improvements to efficiency and effectiveness within public sector entities and used several private sector theories and approaches to achieve these aims. The thinking behind the current reforms, starting in 2009, is more closely linked to approaches advocated in NPG, particularly the idea that government works as a system. BPS, the name applied to these recent reforms in New Zealand, focussed on the significance of working with the government not as independent entities but rather as a whole system. In this approach the solutions sought worked to align accountabilities and resources to result areas and more recently to create leadership capability equipped to work in a system-focussed public sector.

The organizations that lead both reforms are the three core agencies in New Zealand’s central government. Within this centralized public sector the three core agencies, Treasury, SSC and DPMC, are self-named as ‘corporate centre’. This chapter discussed how these agencies acted as the ‘corporate centre’ and how they have been at the heart of leading these two key public administration reforms. These agencies are SSC, Treasury and DPMC.

The reforms of the late 1980s provide an important case study of the leadership role played by Treasury and how Treasury was supported by SSC and DPMC during those reforms. The NPM-style reforms advocated by Treasury and large respect adopted by the government of the day sought to incorporate fundamental private sector theories of efficient and effective management of entities into the public sector. At this time, notwithstanding the primary responsibilities SSC would have implementing the reforms, Treasury played a key leadership role on advising to ministers.

The reforms of the late 2000s provided a more prominent role for SSC. During these reforms a shared leadership role was evident between SSC, Treasury and DPMC as they operated together to engine the reform advice. The approach to changes in the late 2000s also included the commitment and support of senior officials across several critical agencies to give effect to changes and reforms. In part, this was because the reforms included the introduction of functional leadership, in areas such as information technology, so required the buy-in of the chief information officer to be effective. However, even more significant to the success of the reforms was the general support required across government. This was because the reforms were essentially about moving away from a focus on entities individual efficiency and effectiveness to understanding government as a system. This means that more and more efficient and effective solutions need to designed and implemented in a comprehensively collaborative way for the system to achieve results. Notwithstanding the importance of this, the latest reforms still highlight the importance of the leadership role of the core agencies of Treasury, SSC and DPMC in public sector reforms.

The final part of the chapter discusses those reforms at the early stages of implementation. One key area in the state services is the focus on a system-wide adoption of a leadership framework. This framework is designed to promote and support development of effective leaders throughout the individual’s careers as they gain more seniority in the system. Further work is also taking place in improved communication across the ‘system’, recognizing the need for clear understanding of what is happening and its impact on shared results initiatives. Finally is the increased focus on the need for collaboration that extends beyond the public sector and even the state sector and incorporates the role of community and citizens in achieving good outcomes. Consequently, some of the key result areas are working towards improved engagement with citizens and providing access to information to improve the decision-making capacity of individuals as well as government.

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