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Public Management and Governance > Lectures 7-11: Market Mechanisms, Organization & Structure, Financial Management, Reflections and Synopsis > Flashcards

Lectures 7-11: Market Mechanisms, Organization & Structure, Financial Management, Reflections and Synopsis Flashcards

1
Q

Managed competition (Market mechanism)

A

State artificially creates competition to reap benefits.

Due to state failure in government production (bureaucracies tend to grow, Parkinson’s Law) and market failure in competitive production (equal-treatment and delivery of public services problem).

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2
Q

Contracting out (Market mechanism) + drawback

A

State buys services (outputs) from third parties. Based on performance agreements and is delivered straight to the citizen (customer).

Basic problem: Transaction costs > efficiency gains? Also, there is a loss of control with regards to the provision of the service.

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3
Q

Outsourcing (Market mechanism) + problem

A

Different from contracting out!!! No direct service delivery to citizens. State buys inputs/ support services from third parties. So the state is the customer, not the citizen.

Problem: Make or buy? (Williamson & Coase transaction cost theory)

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4
Q

Effects of the use of market mechanisms

A
  • State focuses on core business
  • State becomes a guarantor state
  • Competition leads to fitness (core premise)
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5
Q

Internal clearing of services (market mechanism)

A
  • Cost of an internal service are paid by a responsibility center
  • Pressure on internal service providers increases
  • Creation of internal service centers
  • Internal services need to be budgeted (bargained)
  • Increased transparency
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6
Q

Profit center types

A

Privatization: Change of ownership. = Contracting out/ outsourcing.

Corporatization: No change in ownership. = Simply hold department accountable and has to create “profits”.

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7
Q

User pays-principle (market mechanism) + drawbacks

A
  • Beneficiaries of special services pay for their cost through fees
  • Reduction of demand, thus cost reduction
  • Full cost perspective; internalising external cost is a problem of measurement

Drawbacks:

  • May not be socially acceptable
  • May create monopolies
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8
Q

Competitive Tendering (market mechanism)

A
  • Tenders for public service contract award
  • Regular repetitions needed to avoid monopolies
  • In preparation for contracting out or in
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9
Q

Contracting In (market mechanism) + main problem

A
  • The state agrees upon public services with its own administrative units.
  • Performance agreements through contracts
  • Creation of a quasi-autonomy for providers

Problem: Definition of outputs and outcomes

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10
Q

Main issue with market mechanisms

A

Creates a tension between the state as a shareholder (owner) and the state as an enabler (creating public services).

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11
Q

Choosing to make or buy - decision

A

Make

  • Cost of production
  • Cost of non-production
  • Risk of employment
  • Risk of industrial production

Buy

  • Cost of buying
  • Transaction cost
  • Remaining costs (own)
  • Risk of delivery
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12
Q

Problems with managed competition

A
  • Market as a basis for assessment of performance is missing
  • Competition often in pricing, rarely in quality
  • Planning competition is often done against the natural needs of the system
  • Intransparent economic costs
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13
Q

CIA Case: Business Process Transformation at the CIA

A

Basic problem is budget cutting in a public authority (secret service). A power game is being played out based on which department to cut. Directorate of Administration (DA) and the front offices were both expensive and inefficient, because there was no competition and high expectations for work environment (i.e. nice offices).

Initially there were the front offices and the DA was responsible for the budget of the support services and had the decision making power. Support was both for DA and front.

After the change, each front office had decision making and its own budget. DA was stripped of these powers. However, they had to pay for support services. Injected control and responsibility into the front offices.

Market mechanism used: INTERNAL CLEARING OF COSTS. + Contracting in

Effect of reform was that the demand for internal services fell, which lead to cost cutting and firing of employees at the DA. However, seen from an overall point of view they are receiving the same service for less money and resources.

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14
Q

Circle of public value creation

A

Needs => Public task => Legal basis => Resource allocation (budgeting) => Task fulfillment => Impact on society => Repeat

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15
Q

Functions of budgeting

A
  1. Linking resources and (political) needs
  2. Collective political choice
  3. Objective: Appropriate allocation of resources to political tasks
  4. Programming
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16
Q

Budgets as an instrument of political control

A

Budgets:

  • Reflects choices, what the state should and shouldn’t do
  • Are instruments of accountability to citizens
  • Reflect preferences of citizens
  • Reflect the relative power of individuals or interest groups
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17
Q

Rational view on budgeting

A

Budget results from a rational decision-making process.

Based on:

  • Cost-benefit analysis
  • Holistic view
  • Technical process
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18
Q

Incremental view on budgeting

A

Budget is created by an unstructured, pluralistic bargaining process.

Based on:

  • Segmented view
  • Yearly bargaining by actors
  • Solve problems when they appear
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19
Q

Traditional budgeting (line-itemised budget)

A

Focus on credit and rules. Steering happens through legal regulation (laws) and controlling credit (regardless of income).

  • Yearly prolongation of existing figures
  • Detailed, itemised information
  • Difficult strategic setting of priorities
  • Orientation towards inputs
  • Missing link between budgeting and accounting
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20
Q

Performance budget (new type)

A

Focus on outcome, output and cost.

  • One-line budget (show spending and earnings based on outputs/ task-areas)
  • Obligation to perform, based on tasks and defined outputs.
  • Authorized for net spending (so linked to income).
21
Q

One-line budget

A

Characterized by the fact that the only legally binding element is net expenditure per output category or organizational unit.

Prerequisite: Performance Agreement

22
Q

Budgeting for cost coverage

A

Revenue is planned in a manner that fixed and variable costs will equate the planned utilized capacity (no margin of error).

23
Q

Direct performance budgeting

A

Revenue will barely cover the costs (both fixed and variable) of the necessary utilized capacity. However, the unit is allowed to increase its revenue sources so that it may make a profit (thus reaching planned utilized capacity).

24
Q

Performance based budget: Taximeter-Model

A

A base payment (socket payment) is given to the unit to cover part of the fixed costs (based on a performance agreement). Revenue then covers the remaining costs (up until necessary utilized capacity). If the unit can increase income it can reach planned utilized capacity.

25
Q

Old governance system contra new one

A

Old system:
Steering happens through legal framework.
Objectives are fulfilled by influencing financial means and annual input steering

New system (NPM): Outcome objective => Output objective => Resource objective => Production process => Actual resource usage => Actual output => Actual outcome

26
Q

Christchurch City Council (NZ) + UK case

A

UK case: Chancellor want’s heavy spending cuts as an answer to the financial crisis. Total of 83bn pound savings plan. Regardless of where they come from, ministries must cut 25-40% off current budget. => Example of a classical budget.

NZ: Christchurch City Council. Shows different outputs, goals for each area, and matches income with expenditure => Example of a performance based budget. Based on performance agreements.

27
Q

Objectives of the OPM reform

A

1) Strengthening output and outcome orientation 2) Strengthening strategic leadership and control (increase time horizon and solve long-term problems)
3) Quality and customer orientation
4) Competition orientation (change culture)

28
Q

Main criticisms of OPM

A

1) Criticism motivated by professional concerns:
- Economization of public management.
- Logic of other profession being “pushed” on to public management.

2) Criticism motivated by control theory:
- Loss of control capacity by the state (due to privatization and decentralization).
- Clash between rationales: Management vs. political logic on the level of government.

3) Criticism motivated by power theory:
- Main focus on management control (management gets more power than politicians, because politicians now have to be concrete in their goals, they cannot arbitrarily interfere with process).
- Abandonment of political co-determination in detail.

4) Criticism motivated by systems theory: Output and outcome focus is wrong. System is important and public administration is a political process, not technical.

29
Q

Requirements for a successful implementation of OPM

A
  1. Reform promoters in government
  2. Reform promoters in parliament
  3. Professional project organization on top public management level
  4. Internalization of (external) consulting expertise => Knowledge
  5. Communication of successful results (create support)
  6. Limited duration of parallel systems (otherwise this may create too much resistance)
30
Q

OPM effects on parliament

A

– New organization of parliamentarian committees
– Increasing cleavage between parliamentarians (depending on committee membership)
– Requires more time
– More expertise demanded

31
Q

OPM effects on the relationship between parliament and government

A

One-line budgeting puts an end to traditional line item, incremental budgeting.

– Some parliamentarians criticize the loss of power towards government
– Objective loss in parliamentarian competence as long as insufficient performance and financial indicators.

32
Q

OPM effects on the relationship between parliament and administration

A
  1. Increasing contact intensity between parliament (committees) and administrative units
  2. Necessity of „critical distance“ of supervising body (committee might become too interlinked with units)
33
Q

OPM effects on the relationship between government and administration

A
  • Partially no real negotiations of performance contracts.
  • Strengthening collaboration between departments.
  • Strengthening collaboration between inter-ministerial organizations (finance departments and state chancelleries).
34
Q

OPM effects on top public management

A
  1. Increasing competence.
  2. Expanding scope of action.
  3. Rising motivation.
  4. Improved product and output orientation.
  5. Organizational developments as part of implementing OPM.
35
Q

OPM effects on public sector workforce (old vs new)

A
  • Personnel change not main objective of reform agenda (however some are fired).

Traditional system:

  • Irredeemable
  • Promoted on the basis of seniority and qualifications
  • Part of a unified civil service

Reform system:

  • Abolishment of the status of public official
  • Loss of job security
  • Performance oriented salary system
  • Increase in motivation
  • Most benefits of OPM reform go to top public management
  • Awareness of costs increase significantly
  • Conflict situations increased (especially in organizations during restructuring)
36
Q

General challenges of OPM

A
  • Defining indicators
  • Defining outcomes
  • Empiricism: focus of indicators often on quantitative outputs
  • Empiricism: few indicators focus on qualitative aspects
37
Q

OPM results in CH

A
  • OPM supported by top public management
  • OPM partially accepted by parliamentarians
  • Easier allocation of financial resources (within one-line budget)
  • Objectification of relationship between political and administrative level (indexes)
  • More realistic planning
  • Improved result orientation
  • Strengthening long-term orientation
38
Q

OPM challenges in CH

A
  • Schism between day-to-day work of parliament + government and long term planning (politicians have short-term focus).
  • Difficult to define top objectives
  • Short-term orientation caused by annual budgets and media coverage.
39
Q

Case: Perception of one-line budgets

A

Tony: OPM has given him freedom and room to maneuver => Management driven. Authoritarian-type manager, things “how” he can control his politicians.

Markus: OPM is a hindrance, hasn’t created positive effects.

  • Due to multi-level governance. Federal laws controlling social services (clash of systems).
  • Emotional side: Professional-driven (idealist). Rationality is based on delivering help.

Basically, promise of one-line budgets = Freedom.
But, there is a price to pay: Must become a manager.

40
Q

NPM division of competencies (organization)

A

1) Funder
2) Buyer
3) Provider
4) Service recipients/ customers

41
Q

Organization of public administration under NPM

A
  • Decentralized
  • High degree of autonomy
  • Each unit has own management and decision-making powers
  • Splitting of roles (between funder, buyer and provider)
  • Change system from being self-referential to being customer responsive
  • Management through incentives instead of rules
  • Personal responsibility instead if third-party responsibility

Overall: From vertical, hierarchical structures to horizontal, process structures.

42
Q

Typology of customer-oriented organizations

A

Going from smallest to biggest:

1) Coordination by customers
2) Coordination by intermediaries
3) One-stop concept
4) Customer-segment oriented org.
5) Customer-segment and quality oriented org. throughout the ENTIRE output production

43
Q

Inter-ministerial unit functions

A

1) Coordinating functions

2) Service tasks

44
Q

Organizational units

A
  • Hierarchy according to products
  • Responsible for results
  • Control by performance agreements, output and outcome indicators
45
Q

Funder

A
  • Representatives of the citizens
  • Parliament
  • Determination of public services based on the integrated tasks and finance plan
46
Q

Buyer

A
  • Bearing the responsibility for compliance with the performance budget vis-à-vis the funder
  • Top administration
  • Buyer can decide between ‘make or buy’
  • Performance agreements with service provider
  • Outlined standards for service provider
47
Q

Service provider

A
  • Operative accountability for service delivery

- Direct delivery of service

48
Q

Varieties of legal control

A

From more to less public control

1) Public office
2) Public-law institution directly under gov control
3) Public-law institution with public funding
4) Public-law institutions without public funding
5) Private enterprise with performance agreement
6) Private enterprise

49
Q

How does governmental controlling work?

A

Long-term strategies

Integrated tasks and finance plan (ITFP)

Product group plans

Product plans

Public Management and Governance (3 decks)

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