4 STRATEGIC MANAGEMENT IN THE STATE SECTOR

Introduction

One of the major shortcomings of New Zealand's previous public management system was the lack of clarity and certainty that existed about the Government's overall strategic objectives, about the way these inter-related, and about the ways in which they impacted on the operations and business of State sector agencies. Budget statements had become the principal vehicle for presenting and explaining the Government's overall programme and strategic aims, generally with a very short-term - one year - focus.

There was, in other words, inadequate strategic co-ordination and management of the business of the State.

When the new system was designed it was accordingly proposed that its centrepiece would be an annual 'Outcome Statement' issued by the Government. These outcomes, to be produced after dialogue between Ministers, would summarise the high-level and long-term results the Government would be seeking to achieve through its programme. Departments would relate their business - their outputs - to one or more outcomes.

For various reasons it proved impossible for the Government to produce an outcome statement of the kind that had been envisaged in the first few years of operation under the new system. In these circumstances departments found it necessary to fill the gap by making their own estimations of what the outcomes were likely to be in their areas of activity. Not unnaturally, these versions of 'outcome statements' tended to be very general, sometimes reflecting departmental preferences, and there was an unsatisfactory degree of co-ordination and comprehensiveness across the board. Most importantly though, they lacked the authority and collective Ministerial commitment that would have been implicit in a Governmental 'outcome statement'.

The corner was turned in 1993, when the Government produced a document entitled Path to 2010 which, along with its companion document The Next Three Years, outlined the Government's strategic vision for New Zealand in the medium term. These were followed by publication of Strategic Result Areas for the Public Sector, 1994 -1997. This set out nine strategic result areas (see box) with some detail as to where particular emphasis would be placed in each case.

This provided the basis for development of a comprehensive and co-ordinated strategic management system.

Strategic Result Areas

At the apex of New Zealand's strategic management model, the strategic result areas (SRAs) shape the priorities of the agencies of government. They must inform and take account of the fiscal and other constraints of the Economic and Fiscal Update (see chapter 5). They are formulated through a process of dialogue and analysis by Ministers. Each SRA may have an impact on more than one department, with a number of agencies contributing to the achievement of a particular result area.

Strategic Result Areas for the Public Sector 1994 - 1997

1 Maintaining and accelerating economic growth

2 Enterprise and innovation

3 External linkages

4 Education and training

5 Community security

6 Social assistance

7 Health and disability services

8 Treaty claims settlement

9 Protecting and enhancing the environment

As an example, the details of the 'Education and Training' Strategic Result Area are shown below. The SRA has significant implications for several departments - the Ministry of Education, Education Review Office, Department of Labour, Ministry of Youth Affairs, Ministry of Women's Affairs and Ministry of Maori Development, as well as the three central agencies - the State Services Commission, the Treasury and the Department of the Prime Minister and Cabinet. All of these agencies will also be involved in the achievement of a number of other SRAs as well.

4 Education and Training

Progress towards higher and more appropriate skill development to support the achievement of stronger employment and income growth.

Particular emphasis will be placed on:

i Development of programmes and a curriculum that will enable an increasing proportion of children to receive effective early childhood care and education, particularly those at risk.

ii Completion of a redesigned compulsory curriculum which focuses on generic skills, sets learning objectives and monitors the performance of students; monitoring the performance of

providers and provider institutions.

iii Further implementation of the National Qualifications Framework to enable students to build recognised qualifications; and integration of all post-core education and training in a seamless continuum of learning opportunity.

iv Ensuring that more New Zealanders have access to education and training, particularly through Skill New Zealand; development and implementation of systems that will enable full participation in workplace and post school education and training which leads to recognised qualifications.

v Improved systems for the effective delivery of resources to students and providers to enable the flexible provision of educational services to the community and, in particular, to target groups within it.

The advantages of this approach to strategic management are that the Government's priorities and objectives are explicit to the principal parties - Ministers and departments - and also to citizens, as the strategic result areas are public information. This clarity establishes strong incentives for co-ordination and co-operation between agencies.'

From SRA to KRA - achieving alignment

The essence of strategy is to be purposeful and selective, to focus on results and to frame objectives in terms which allow those responsible for their achievement considerable discretion by way of innovative and intelligent adaptation in the face of uncertainty. The Government's SRAs are complemented by departmental key result areas (KRAs). KRAs provide the means by which departments expose the 'critical few' targets which they wish to achieve over a 2 - 3 year period. Measurable milestones associated with each KRA allow Ministers and others to track progress towards those targets. KRAs might have a direct or indirect link to an SRA, or they might focus on an important aspect of organisational capability. KRAs should be few in number - generally not more than six. The requirements to expose KRAs to critical scrutiny by central agencies and other departments with related interests, and to obtain the Minister's endorsement of the selection, ensure that chief executives direct organisational effort and resources towards those few priorities which offer the greatest potential return to the Government. Moreover, chief executives have a direct stake in the strategic performance of their department through the incorporation of the KRAs in their performance agreement with the Minister.

Underpinning the convergence of SRAs and KRAs - aligning administrative priorities with political intent - is a largely informal strategic conversation between Ministers, chief executives and central agencies. That conversation, which is more or less continuous, allows important information to wash through the strategising process thereby sharpening the focus of all parties on both the Government's priorities and the risks to delivery on those.

For example, the KRAs agreed this year between the Minister of State Services and the State Services Commissioner, as chief executive of the State Services Commission, include:

• The Commissioner will provide leadership in the maintenance of an apolitical and effective Public Service with a high standard of ethical and professional behaviour during, and after, the transition to a Proportional Representation environment;
• The Commissioner will ensure that the system for employing chief executives and managing their performance supports Government's strategic objectives for the Public Service;
• The Commissioner will ensure the Government is provided with relevant advice on the implementation of its strategies (Particular emphasis will be given to the management of the Government's major machinery of government decisions, and
• The Commissioner will review the resource capability of the State Services Commission to ensure the organisation's capacity to perform its agreed role...

Assessing performance - completing the strategic management loop

The performance of the department - and through it the performance of the chief executive - are assessed by the State Services Commissioner, in consultation with the relevant Minister or Ministers and any other relevant parties. These parties may include the chief executives of the other central agencies, and representatives of organisations - in the State, private and community sectors - which have worked closely with the department. Assessments normally take place at the end of the term of the Performance Agreement - generally an annual document.

The information obtained from this process feeds back into both each chief executive's next Performance Agreement, and into the Ministerial dialogue which shapes the next series of strategic result areas.

Summary

The new strategic management system is fundamentally straightforward - Ministers decide and specify the Government's priorities, the Public Service distils these into achievable objectives for each chief executive and department, Ministers and chief executives conclude formal contracts to cover these, performance against these agreements is assessed, and the information obtained feeds back into the loop to improve the quality of the next cycle.

The deceptively simple formal strategic mechanism is wrapped in an informal process of conversation, monitoring, adjustment and evaluation. The informal process cannot readily be described or specified, but it is critical to fostering the motivations, incentives, attitudes and relationships necessary for strategic management of government in a small and relatively intimate society such as New Zealand's.

Effective performance of the system is, however, dependent on all steps being carried out comprehensively and conscientiously. Strong commitment and high quality inputs are essential at each stage - from Ministers, central agencies, chief executives and the State Services Commissioner. The main challenges in the next stage of development of the system lie in refining and consolidating these processes.