Human resource capability in the Public Service

It is clear that to monitor HR capability in the Public Service:

• the SSC will require more extensive and detailed information on human resources in the Public Service than it has at present;
• specifying and collecting the information poses challenges that are largely technical (rather than technological)⁶. Technology for measuring aspects of people management is available in the private sector, and could be adapted for use in the State sector;
• if the information became available, both the SSC and Public Service organisations would need to build the capability to use it to good effect; and
• collection and use of human resource information will not be without cost.

A capable organisation is one that can continue to do what it does currently, and is flexible enough to do what is required in the future. Human resources are part of this capability, and are impacted on by systems, structures and other resources.

Strategic management of human resources is more than managing the basic accounting functions of the HR department, such as leave recording and payroll. It consists of developing and implementing effective policies and practices (selection, training and development, performance management, rewards and remuneration etc) to align human resources with organisational goals. These policies and practices must complement other workplace systems, which include communication and information management systems, financial management, resource allocation systems, and culture. People management is about optimising the interaction of these various systems to enable or persuade people to achieve the organisation's goals.

It is worth noting that organisations with similar purposes may be configured in quite different ways and still be successful in achieving their purposes. In the private sector, even within a single industry, successful organisations may take widely differing approaches to maximising returns for shareholders.

Achieving the optimal mix of human resources

A key question is:

what is the right human resource capability for a particular organisation to achieve its purpose now and into the future?

In New Zealand's devolved management system, the accountability for achieving the optimal mix of human resources (quantity and quality) rests with the chief executive. It is no more the central agencies' role to tell chief executives what sorts of skills they should be purchasing than it is to tell them what sorts of physical capital they should be purchasing. Rather, the central agencies' role is to assure the Government that Public Service departments:

• have been appropriately rigorous in identifying the appropriate mix of human (and other) capability required to deliver their outputs in a manner that will be cost effective over time;
• that they have in place appropriate systems for monitoring and managing that capability; and
• that they are, in fact, operating those systems in an effective and responsible manner.

While the SSC's assessment of performance in departments is essentially retrospective, the monitoring role also has an important forward looking dimension. The accountability for the strategic direction of a department's capability development is clearly with the chief executive. The SSC must be able to assure Ministers that this direction is clearly articulated and is the result of an excellent planning process. HR capability development should be clearly specified in a strategic business plan⁷, and be able to be accounted for in a way that parallels the accounting for outputs.

In large part, the human resource capability of the State sector comprises the sum of the human resource capability in each organisation. However, in some areas there are incentives under the current arrangements that may result in under-investment in capability. These areas are broadly those where the skills required are specific to the State sector and can only be acquired on the job. Government cannot rely on other labour markets to provide these skills, nor can it completely pass the responsibility for investing in the skills to employees (due to the on-the-job nature of the process). The most critical area that fits this description is the area of policy advice⁸.

Currently, capability investment is not fully integrated into the accountability process and as a result chief executives have limited incentives to invest optimally in the types of capability described above. While it is in both Government's and chief executives' collective interests for there to be an adequate supply of policy analysts, for example, chief executives individually face incentives to free-ride on the investment made by others by employing skilled policy analysts on the State sector labour market. However, if all chief executives do this, an under-investment in policy capability can result.

The SSC is uniquely placed to take a whole-of-government view of capability, and therefore has a role in advising Government on what the right level of capability investment should be. It is a role that should viewed with caution, however, as it does intrude on the accountability relationship between chief executives and their ministers⁹. It can only be carried out in an environment where capability investment is integrated into the accountability framework and reasonable ex ante specification of this investment is possible.

⁴ State Services Commission, Yearly Employment Survey, June 1998.

⁵ Statistics NZ, Quarterly Employment Survey, Total Filled Jobs, June 1998.

⁶ The tools (or technology) used by different organisations to look at capability appear to have much in common. However, the absence of the sorts of standards that are found in financial accounting means that the challenges for the SSC relate to establishing common technical methods for measuring HR capability that can apply across organisational boundaries.

⁷ The Improving Accountability project has reported to the Minister of State Services, recommending strategic business planning as the core process for reporting and accountability.

⁸ This most notably affects the Public Service policy ministries, but operational departments and many of the Crown entities also have significant policy functions.

⁹ The SSC currently exercises a mandate only in the Public Service.