Insight No.9 : Dec 2009 : Business Outlook 2010 : Surviving the ScrumOutlook 2010 : Public Sector : Greater Expectationsby Ky Nichol

The outlook for the UK public sector during 2010 foretells impact from election uncertainty and budgets being driven down following the recession and the pumping of public sector funds into economic recovery. As a result of these two drivers we can expect the following behaviors from the public sector.

• Building delivery capability. Agencies will build skills internally to tackle major change programs since they won't be able to afford to hire big consulting teams any longer. They need to do more for less in a self sufficient manner.
• Cutting costs. Agencies will need robust methods for taking cost out while not overly increasing risk of failure on key targets. They'll need to be able to realize benefits today, not in five years' time.
• Operational efficiency. Not only will agencies take money out of big-ticket change programs, but operational spend across the public sector will come under scrutiny. Efforts will focus on taking waste out and driving lean operations into 2010.
• Benefit optimization. Budget holders will raise the bar on the criteria for investment for any spend on change. This will require development of better business cases with credible paths to banked benefits.

The Main Challenges of 2010

The UK public sector faces two main areas of challenge in 2010: 1) uncertainty relating to a potential change in government; and 2) a difficult financial situation following the recession and bailout of the banking industry.

A looming general election will stall many new change initiatives set for take-off in 2010. And it's not only new areas that face risks. On many existing large change initiatives, such as London 2012, senior management will come under threat of replacement. There is, however, still a large agenda for policy-driven change; the Queen's speech on 18 November outlined battlefronts in areas such as education, crime, and security.

Public spending and the public finances look certain to be one of the central issues in the forthcoming general election. The recession and bail-out have taken their tolls, moving the net debt to gross domestic product (GDP) ratio from 23.2 percent of GDP in 2001 to 47.5 percent in 2009. Within the Organisation for Economic Co-operation and Development (OECD) group of industrialised nations there are only five countries with a higher ratio of government spending to GDP (Belgium, Finland, France, Denmark, and Sweden). In addition The OECD estimates that the UK's cyclically adjusted public sector deficit is 7.5 percent of GDP - the worst in the developed world.

There's agreement between the political parties that steps must be taken to restore the sustainability of the public finances. There is, however, disagreement over when this adjustment should take place. The Conservatives argue that increases in public spending planned for 2010/11 are unaffordable while the Government argues that acting too soon could put the economic recovery at risk. Much will depend on the speed with which the economy emerges from the recession. It seems certain that whichever party is in power after the next election, the public spending environment will be much tougher than over the past decade when public spending has grown strongly.

What Will Change?

Public sector departments have to surrender their usual expectations of achieving targets amid gradually increasing piles of cash. All procurement will naturally come under the microscope. Government talks more and more of reducing the transaction costs of doing business with the private sector. Targets are already present in print: The government information and communications technology strategy talks of halving all client-side consulting spend by 2017. "Buying" the use of large teams of consultants to implement a solution for a policy change is a thing of the past. Organizations that help public sector departments build their own capability will be favored.

Will all existing programs come under threat of closure? Thanks to a shift in the government budgeting process over the last decade to multi-year planning, many existing large programs are safeguarded and will continue where commitments have been made. However, as the government asset sale exercise only came up with £16 billion and a pay freeze is set for senior public sector workers, programs such as Crossrail may be safe as a whole but will still come under significant threat of budget reduction.

Public sector operations will change significantly. The basket of free services from organizations such as the National Health Service will come under scrutiny. Yet their chief executives and director generals will want to hold the progress they have made since the doldrums of 1994 and will employ operational efficiency programs and benefits optimization to ensure the funding they have is best used.

Along with this introspection the public sector is also looking outward for learning. Despite the UK government claiming it will halve the budget deficit, there's no clear plan on how this will be done. Canada is considered a good case study in cutting public sector costs, and other areas across the globe will be investigated for the best practices in this area. In addition the Prime Minister's Strategy Unit is also focused on delivering change across departments. For some of the largest programs there's no single department that can own the challenge, which has meant that cross-departmental delivery of change hasn't traditionally gone well. Into 2010 the focus on these areas will attempt to ensure value for investment and a safeguarding of the United Kingdom's financial future.

Ky Nichol is an accomplished consulting leader with over 12 years of experience in delivering complex programs and business transformation in sectors including aerospace, oil and gas, financial services, IT, and more recently the UK government. He has led change programs in areas such as outsourcing at the International Space Station, restructuring at Accenture, HR alignment across Shell, IT systems development in financial services, and building manufacturing facilities. Influencing at the board level, he has extensive experience in organizational change, strategy development, program management, and performance improvement. Contact Ky at ky.nichol@pcubed.com.