New Frontiers in the Public Sector Management: Trends and Issues in State and Local Government in Europe [Reprint 2017 ed.] 9783110809626, 9783110150162

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de Gruyter Studies in Organization 69 New Frontiers in Public Sector Management

de Gruyter Studies in Organization Organizational Theory and Research

This de Gruyter Series publishes theoretical and methodological studies of organizations as well as research findings, which yield insight in and knowledge about organizations. The whole spectrum of perspectives will be considered: organizational analyses rooted in the sociological as well as the economic tradition, from a sociopsychological or a political science angle, mainstream as well as critical or ethnomethodological contributions. Equally, all kinds of organizations will be considered: firms, public agencies, non-profit institutions, voluntary associations, inter-organizational networks, supra-national organizations etc. Emphasis is on publication of new contributions, or significant revisions of existing approaches. However, summaries or critical reflections on current thinking and research are also considered. This series represents an effort to advance the social scientific study of organizations across national boundaries and academic disciplines. An Advisory Board consisting of representatives of a variety of perspectives and from different cultural areas is responsible for achieving this task. This series addresses organization researchers within and outside universities, but also practitioners who have an interest in grounding their work on recent social scientific knowledge and insights. Editors: Prof. Dr. Alfred Kieser, Universität Mannheim, Mannheim, Germany Advisory Board: Prof. Anna Grandori, C R O R A , Università Commerciale Luigi Bocconi, Milano, Italy Prof. Dr. Cornelis Lammers, FSW Rijksuniversiteit Leiden, Leiden, The Netherlands Prof. Dr. Marshall W. Meyer, The Wharton School, University of Pennsylvania, Philadelphia, U.S.A. Prof Jean-Claude Thoenig, Université de Paris I, Paris, France Prof. Dr. Barry A. Turner (f), Middlesex Business School, London, GB Prof. Mayer F. Zald, The University of Michigan, Ann Arbor, U.S.A.

Frieder Naschold

New Frontiers in Public Sector Management Trends and Issues in State and Local Government in Europe

Translated by Andrew Watt With Case Studies by Robert Arnkil and Jaakko Virkkunen in Cooperation with Maarit Lahtonen and Claudius Riegler

w DE

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Walter de Gruyter • Berlin • New York 1996

Professor Dr. Frieder Naschold, Director of the Research Unit II, Technology-Work-Environment, at the Science Center Berlin (WZB), Germany With 54 figures and 38 tables

© Printed on acid-free paper which falls within the guidelines of the ANSI to ensure permanence and durability. Library of Congress Cataloging-in-Publication

Data

Naschold, Frieder. New frontiers in public sector management : trends and issues in state and local government in Europe / Frieder Naschold ; translated by Andrew Watt ; with case studies by Robert Arnkil and Jaakko Virkkunen in cooperation with Maarit Lahtonen and Claudius Riegler. (De Gruyter studies in organization ; 69) Includes bibliographical references and index. ISBN 3-11-015016-6 1. Public administration. 2. Local government. 3. Government business enterprises — Management. 4. Comparative government. I. Title II. Series. JF1341.N35 1995 350'.00094-dc20 95-41025 CIP

Die Deutsche Bibliothek — Cataloging-in-Publication

Data

New frontiers in public sector management : trends and issues in state and local government in Europe ; 38 tables / Frieder Naschold. Transí, by Andrew Watt. With case studies by Robert Arnkil and Jaakko Virkkunen. In Cooperation with Maarit Lahtonen and Claudius Riegler. - Berlin ; New York : de Gruyter, 1996 (De Gruyter studies in organization ; 69 : Organizational theory and research) ISBN 3-11-015016-6 NE: Naschold, Frieder; Watt, Andrew [Übers.]; G T

© Copyright 1996 by Walter de Gruyter & Co., D-10785 Berlin All rights reserved, including those of translation into foreign languages. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopy, recording, or any information storage and retrieval system, without permission in writing from the publisher. Typesetting: Converted by Knipp Medien und Kommunikation, Dortmund. - Printing: Gerike GmbH, Berlin. — Binding: D. Mikolai, Berlin. - Cover Design: Johannes Rother. Berlin. — Printed in Germany

Preface

This volume is based on an evaluation study of public sector modernisation in Finland conducted by the author. The aim of this evaluation was to place Finnish public sector developments in the context of the OECD countries and to sketch out a strengths-and-weaknesses profile at central and local government level. In the course of the study, the comparative perspective expanded considerably. This publication must therefore be seen primarily as an attempt to analyse public sector developments in selected OECD countries, in particular Great Britain, Germany, Finland, Sweden and Norway, from a comparative perspective. Given that the state of comparative public sector research is still very under-developed, at least compared with that into many areas of the private sector, this attempt should be seen as opening a door for debate, rather than seeking to bring discussion to a conclusive end. A project such as this is only possible within a broad-based working, discursive and supportive environment. I would therefore particularly like to express my thanks to the most important people and institutions within this framework. The initiative and continued support for the project came from Pertti Sorsa (Secretary General), Matti Salmenpera (Director of Working Environment Division) and Timo Kauppinen (Director of Research Unit, Working Environment Division), all at the Finnish Ministry of Labour. Further thanks go to the representatives of the Ministry of Finance and the Ministry of Transport and Telecommunication, the Finnish Road Administration and the Sibelius Academy, all of whom offered support in an extremely competent, friendly and helpful way in the form of interviews and assistance in tracing relevant documents. The many discussions held with representatives of Finnish business, trade unions, collective organisations, and individual firms and organisations were also very informative. Without the diverse and very stimulating discussions with colleagues from the academic community, consulting firms and with interested journalists, the project would never have been concluded in its present form. Particular thanks are due to the academic and consulting colleagues, from whose written and oral comments I have profited greatly. These are: Robert Arnkil, Social Development Company, Hameenlinna, Antti Kasvio, University of Tampere, Illka Ronkkainen, Yritystaito, Helsinki and Jaakko Virkkunen, Administrative Development Agency, Helsinki. In the city of Hameenlinna I was able to conduct a number of intensive interviews and discussions and to take part in a number of important strategic conferences. I have been very impressed by the enthusiasm, the persistence and the strategic sense of politicians and administrators in the city of Hameenlinna, who

VI

Preface

were never reluctant to discuss the problems facing the city. The great hospitality towards, and willingness to support, the evaluation project were remarkable. I would like to express my heartfelt thanks to Mrs. Elina Lehto, mayoress of the city, and Mr. Veikko Mikkola, Head of Municipal Planning as proxies for all those involved in the city's politics and administration. The comparative study would not have been possible without the support of the representatives of the labour and finance ministries, including members of the subordinate agencies, and of selected local authorities in Great Britain, Sweden, Germany, Norway and Austria. In Germany, my working relations within projects conducted by private foundations was of great value. I am particularly grateful to Dr. M. Prohl and Dr. C. Schurig of the Bertelsmann Foundation and to Dr. E. Mezger of the Hans Bockler Foundation. I have profited enormously from the discussions within a project entitled "Methods and Instruments to Determine the Degree of Vertical Integration of the Public Sector" involving the following colleagues: Prof. D. Budaus, University of Hamburg, Prof. W. Jann, University of Potsdam, Dr. E. Mezger, Hans Bockler Foundation, Dr. M. Oppen, WZB, Prof. A. Picot, University of Munich, Prof. C. Reichard, Technology and Economic College, Berlin, and N. Simon at the headquarters of the public sector workers' union in Stuttgart. I sincerely hope that I have been able to incorporate into the study at least some of the stimuli that have resulted from my many years of contacts and discussions with Dr. M. Wulf-Mathies, formerly Chairperson of the German public sector workers' union, and now European Commissioner in Brussels. As with previous studies, the departmental team at the WZB was indispensable in carrying the entire project through to a successful conclusion. I would particularly like to thank for their competence, cooperation and the good working atmosphere: Franz Cramer, M.A., Mrs. E. Narewsky and Mrs. S. Giesecke, M.A. An evaluation study in foreign countries can, in the final analysis, only be conducted with continuous and extremely competent support "on the ground". Without Mrs. Maarit Lahtonen, this project would never have been completed. She was project assistance for the entire course of the study and filled the roles of academic assistant, project organiser and overall coordinator with gusto, imperturbable patience and constant good humour. As always with Scandinavian projects, Mr. C. Riegler, Ystad (Sweden) played a major supporting role in the project. He has kept me consistently up to date and well informed on the Scandinavian, and in particular the Swedish discussion on public sector modernisation, and conducted a number of small-scale research projects at central and local government level. As he has done many times before, Andrew Watt BSc., Berlin, has produced a skilful translation into English of this difficult text within a tight time schedule.

Preface

VII

He also drew my attention to a series of weaknesses in the first German version of the text. It goes without saying that sole responsibility for the weaknesses that remain lies with the author. Helsinki, Berlin, November, 1995

Frieder Naschold

Contents

Preface

V

Summary

1

1 1.1 1.2

Current Trends in Public Sector Modernisation A new best practice model of public sector task fulfillment Public sector modernisation: a limited plurality of development patterns rather than a linear homogeneous development path Finland: A Late-comer to public sector modernisation in a precarious compromise equilibrium of old and new steering systems. The search for a new momentum

1 1

The Impacts of Public Sector Modernisation Fundamental criticisms of public sector reform: Modernisation as a passing trend and the threat to the democratic welfare state The new organisational principle in current modernisation strategies: from the rationalistic planning model of state actors to the integration of state, economic and social regulatory mechanisms Exemplary developments indicate the strategic relevance, but also the ambivalence of current public sector modernisation

3

1.3

2 2.1 2.2

2.3 3 3.1 3.2 3.3 3.4 3.5 4 4.1 4.2 4.3

The Development Dynamic of Public Sector Modernisation The deficiencies of incrementalism and the fallacy of programmatic change Political mobilisation and not economic crisis is the driving force behind public sector modernisation The strategic role of political-administrative "Advocacy Coalitions" in the context of party political competition Rooting the mobilisation for reform in the governance operators .. Think tanks and meta-organisations to prepare the way for and support public sector modernisation Ten Key Issues of Public Sector Modernisation The necessity of and limits to internal administrative modernisation From ideological privatisation to the rational use of markets Citizen and customer participation in quality production: Beyond consumerist managerialism

2

3

3

4 4 5 5 5 6 6 6 7 7 7 8

X 4.4 4.5 4.6 4.7 4.8 4.9 4.10

Contents Internal public sector modernisation involves both results steering and organisational re-engineering The value added by the central departments The new steering model between results steering and Total Quality Management Evaluation as a complementary instrument to results steering Overcoming the modernisation dichotomy: on the integration of management and work reform Process steering and process qualification Public sector modernisation: an innovative re-regulation of internal reform, social devolution and competitive context

8 9 9 10 10 11 11

New Frontiers in Public Sector Management - Trends and Issues in State and Local Government in Europe Frieder Naschold

13

1

13

Evaluating and Monitoring the Transformation of the Public Sector

2

Public sector reform trends in the OECD: Profiles, processes and effects 2.1 Initiatives for public sector reform and modernisation in OECD countries 2.2 Modernisation profiles of the OECD countries 2.2.1 Finland: Precarious balance of tradition and modernisation 2.2.2 New Zealand: Radical reengineering on the private-sector model.. 2.2.3 Great Britain: Top-down modernisation and market orientation 2.2.4 Netherlands: Devolution, market elements, internal modernisation 2.2.5 Denmark: Devolution, market elements, internal modernisation . . . 2.2.6 Sweden: Strategic internal modernisation through MbR and market mechanisms 2.2.7 Norway: Moderate and incremental internal modernisation 2.2.8 Japan: Persistence of bureaucratic governance by rule and reduction in public sector employment 2.2.9 Germany: Persistence of governance by rule and the use of skilled labour 2.2.10 USA: Bureaucratic managerialism, dynamic but not change-inducing 2.2.11 Austria: Bureaucratic governance by rule and symbolic politics . . . 2.3 Regulatory regimes for public sector modernisation in the OECD . 2.4 The effectiveness of different regulatory regimes of public sector modernisation 2.4.1 The macroeconomic performance of the various regulatory regimes 2.4.2 The microeconomic performance of different regulatory mechanisms

19 20 24 24 33 34 34 35 36 37 38 40 41 42 43 46 47 52

Contents

2.5 2.6 2.6.1 2.6.2 2.6.3 2.6.4 2.6.5 2.6.6 3 3.1 3.2 3.3 3.4 3.5 3.6 3.7 3.8 3.8.1 3.8.2 3.8.3 3.8.4 3.9 4 4.1 4.1.1 4.1.2 4.1.3 4.1.4 4.1.5

Distributive effects induced by the transformation of rule-oriented governance regimes Current trends and the challenges facing public sector modernisation in the 1990s Governance by results between the Scylla of bureaucratic governance by rule and the Charybdis of competition The rational use of markets Towards the "guarantor" welfare state and strategic self-reliance .. Questioning the "value-added" of strategic public sector management Beyond the decoupling of managerialism and labour policy The role of politics, public discourse and evaluation Management by Results (MbR) Systems: Developments, Variants and Perspectives Conflicting views on MbR MbR: Dimensions and profiles Between bureaucratic rule steering and results steering Results steering between process stabilisation and process enhancement Results steering, results organisation and organisational transformation Results steering and strategic management Results steering and decentral contextual steering: public administration as a political system Excursus: Private Sector Steering Systems - The Finnish Firm BENEFON A brief history of BENEFON The firm: products, markets, production The governance of BENEFON Conditions of development and potential risks Results steering and the public sector The Modernisation of Central Government Development trends at central government level: an international comparison of labour ministries and labour market authorities Labour ministries undergoing change A five-country comparison of labour ministries Innovation, effectiveness and process dynamics Scandinavian developments and the strategic position of Finland .. The development dynamic of labour market authorities

XI

58 60 60 61 61 62 62 63 64 64 65 67 69 71 72 74 77 77 78 79 82 83 86 87 87 88 92 94 97

XII 4.2

4.2.1 4.2.2 4.2.3 4.2.4 4.2.5

4.3 4.3.1 4.3.2 4.3.3 4.3.4 4.3.5 4.3.6 5 5.1 5.2 5.2.1 5.2.2 5.2.3 5.2.3.1

5.2.3.2 5.2.3.3 5.2.3.4

Contents Developments paths taken by central government institutions: an intra-national comparison of the transition from functional bureaucracy to results-driven organisations in Finland From integrated official producer to enterprise with own production facilities in a competitive environment: The case of FinRA New concepts and established practices: the case of the Ministry of Transport and Communication (MTC) The long and winding road to MbR modernisation: The case of the Ministry of Labour (ML) Integrating management reform and work reform: The case of the National Labour Protection Board From bureaucratic-centralist administration to a customer-contractor relation: The reengineering of the Sibelius Academy Key issues in central government modernisation The crisis of the centre: The role of the central departments Results areas and work organisation: Two central issues of MbR reform The negotiating process in MbR systems MbR development projects and evaluation Competition or complementarity between public and private services The effectiveness and efficiency of MbR systems The Modernisation of Local Government The local authority as the base unit of national public sector developments An international comparison of developments at local government level The institutional framework of local government administration... Developments at local government level: The focal points of modernisation National profiles of local government modernisation Reengineering of a traditional administration by central government: Rescinding the powers and changing the role of local government in Great Britain From internal modernisation to the market model and back again? The cycles of local welfare production in Sweden Internal modernisation and decentralisation. Changes in local government welfare production in Finland The incrementalism of the traditionalist: German local government on the road to modernity

100 101 103 106 110

Ill 114 114 120 123 125 128 129 131 131 133 133 135 138

138 140 141 143

Contents The governance structure of local government - an intermediate résumé 5.3 An international comparison of local government performance: A competition between eleven city administrations 5.4 Modernisation of the city administration of Hámeenlinna Innovative development and development constraints from an international perspective 5.4.1 The three modernisation waves in Hámeenlinna 5.4.1.1 The internal process of development: The renewal of the management system in Hámeenlinna 5.4.1.2 The next step: the Hámeenlinna model 5.4.2 An external evaluation from Finland 5.5 Innovative development and development constraints within local government from a comparative perspective 5.5.1 Local government modernisation between economic pressure and political decision-making 5.5.2 The development dynamics of local government modernisation . . . 5.5.3 Quality of service and customer orientation: Modernisation between managerialism and consumerism 5.5.4 Market-oriented organisational alternatives: The purchaser-contractor model 5.5.5 The dichotomy within local government modernisation 5.5.6 The potential for, and conflicts over resource redistribution in local government modernisation 5.5.7 Modernisation policy and process steering

XIII

5.2.4

6 6.1 6.2 6.3 6.4 6.5

6.5.1 6.5.2 6.5.3 6.5.4 6.5.5 6.5.6

The Ambivalent Future of Public Sector Modernisation Between hubris and helplessness The relationship between public and private sector in the modernisation process Rationalisation of decision systems: beyond the rationalistic planning and decision making models The relationship between administrative reform and modernisation effects Beyond the dichotomy between "grand strategy" and "incrementalism": factors critical for the success of implementation strategies in public sector reform Resource independence Path dependency Advocacy coalitions in the context of party-political competition.. Institutional anchoring Meta-organisations The production of knowledge and orientation

144 147

152 152 154 160 162 163 164 166 169 177 183 185 187 189 190 191 193 196

198 199 201 201 201 202 202

XIV

Contents

References

203

Appendix 1 to 4

210

Case Studies

219

Restructuring Labour Administration - investigating the Finnish experience 221 Robert Arnkil 1

Introduction

221

2 2.1 2.2

The context: environment and organization The labour market situation The Ministry of Labour

222 222 224

3 3.1 3.2

225 225

3.3.1 3.3.2 3.4 3.5

The "first wave" of management by results Pushing forward or getting stuck? Changes preceding management by results in the labour administration The "first wave" of the implementation of MbR in the labour administration Management cycle, negotiations and measurements in MbR Organization renewal and MbR Feedback from staff on MbR Conclusions

227 227 231 234 237

4 4.1 4.2 4.3

Experiences in developmental projects How to reach innovative acceleration? Examples of developmental projects Evaluation

237 237 237 241

5 5.1 5.2 5.3 5.3.1 5.3.2 5.3.3 5.4

Practical experiences: building blocks of further restructuring What are the keys to reach new impetus? Integrating results measurement Building a quality feedback system Introducing a quality questionnaire to employment offices The main results of the quality-feedback Further development of the feedback system Developing "action statistics" and "action-follow-up" methods in customer service Developing process analysis and team-work in customer-service .. Organizational development in districts and employment offices... Developing the structure of large and mid-size employment offices Developing the internal network in labour districts Activating the customer Developing local-regional analysis of the labour markets

241 241 243 245 245 248 249

3.3

5.5 5.6 5.6.1 5.6.2 5.6.3 5.7

226

249 252 253 254 254 255 255

Contents

XV

5.8

Enhancing information processing

256

5.9

Building an integrative "constellation of success"

257

6

Summary: The key issues of further restructuring

263

Appendix 1 - 2

266

References

269

Surpassing Functional Bureaucracy with Management by Results Experiences in Finnish State Administration Jaakko Virkkunen

271

1 1.1 1.2 1.3 1.4

Management as a culturally formed activity system The concept of activity system Cultural mediators of management Historical types of management activity The expansive transition to a new management activity system

271 271 274 275 276

2

Management by results as a solution to the problems of the functional bureaucracy The functional bureaucracy Attempts to surpass functional bureaucracy

279 279 281

2.1 2.2 3 3.1 3.2 3.3 3.4 3.5 3.6 4

Transition to management by results in the Finnish Road Administration (FinnRA) The need to develop the management practice The crisis of the old management activity and the double bind Reframing the object of management's work: springboards and the given new The contradiction between the new and the old Contradictions with surrounding activities and the consolidation and expansion of the new system Evaluation

285 285 286 286 289 289 290

4.5 4.6

Management by results in the Ministry of Transport and Communications 293 The Ministry of Transport and Communications 293 The need state: a latent crisis of the old management system 294 Planning the new mediators for management, springboards 295 Changing the management practice - contradictions of the new and the old 298 Generalizing the new principle 300 Evaluation 302

5 5.1

Management by results in the Ministry of Labour The Ministry of Labour

4.1 4.2 4.3 4.4

303 303

XVI

Contents

5.2 5.3 5.4 5.5

The need state and the crisis of the old practice Planning the new practice and new mediators of management Changing the management practice Evaluation

6 6.1 6.2 6.3 6.4 6.5

Increasing flexibility in the Uusimaa district of labour protection .. 309 The Uusimaa district of labour protection 309 The need to develop the management practice 310 Crisis of the old management practice 311 Planning the new management activity system 311 Changing the management practice 312

7

Creating flexibility and cost consciousness with management by results in the Sibelius Academy The Sibelius Academy The need for management development Deadlock of the old management system Planning the new management practice The change of management practice - contradictions of the old and the new activity system Expansion of the new management principle - contradictions with the surrounding activities

7.1 7.2 7.3 7.4 7.5 7.6 8 8.1 8.2 8.3

Issues of criticism and further development of the management by results system Management by objectives and management by results The importance of multiple perspectives and the negotiation process The change process: the problem of creating motivation to change

References

303 304 304 307

313 313 314 314 315 315 317 319 319 321 324 325

Summary

Whereas the 1980s were characterised by restructuring in many private-sector industries, in the 1990s scientific and political interest in the OECD countries has increasingly turned towards the restructuring of the public sector. Led by Englishspeaking countries such as Great Britain and New Zealand, an ever increasing number of European states are now riding the wave of public sector modernisation. The spectrum of themes and approaches ranges from traditional cost-cutting, productivity and privatisation strategies, to questions of quality assurance and personnel development and the increasingly acute questions of devolving central state responsibilities to civil society. This volume seeks to describe and analyse the most recent experiences gained during this restructuring process, focusing on the leading edge of public sector developments in Europe. The analysis of four proto-typical European countries Great Britain, and Germany, Sweden and Finland - at both central and local government levels forms the centerpiece of the study. This analysis takes in a quantitative examination of transformational trends at the aggregate level of selected OECD countries, an examination of selected sectors of central government, an international bench-marking of local government, and case studies of various public institutions in a number of different policy arenas. At each of these levels, the practical lessons learned are summarised and the relevant issues of public sector modernisation are systematically addressed. The result is to be seen as an intermediate résumé of a broadly-based learning process.

1 Current Trends in Public Sector Modernisation 1.1 A new best practice model of public sector task fulfillment There is a common core to public sector modernisation in the OECD countries, one which transcends the convergencies and divergencies of the programmatic level: on the one hand the functional shifts in the strategic role of the government from producer to enabler, on the other a systematic decoupling and recomposition of the programming, realisation and financing of service production. These two new constitutive principles open up design options which go beyond traditional bureaucratic forms of task processing. These include a distinction between politics and managerialist steering, leaner and radically decentralised or-

2

Summary

ganisation structures, the formation of diverse results oriented units with operative autonomy, emphasis on the internal and external competitive environment in ordering and purchasing services, and in particular systematic customer/citizen quality feedback systems. A new best practice model of public sector task fulfillment appears to be forming around these elements.

1.2 Public sector modernisation: a limited plurality of development patterns rather than a linear homogeneous development path Contrary to the official view taken by the OECD as an organisation, there is no evidence of a linear homogeneous trend in public sector development. Rather, four regulatory regimes of welfare state modernisation can be distinguished within the OECD. Great Britain and New Zealand have largely followed the logic of the private sector, their strategy being based on the three elements of privatisation/reduction in the size of the public sector, market oriented organisational alternatives and neo-taylorist managerialism. Denmark and the Netherlands are on the development path characterised by far-reaching devolution government activities to civil society together with a broad-based introduction of competitive elements in market-related areas and results steering in the administry areas. In countries such as Sweden, Finland and Norway, the results steering regime is still predominant, increasingly in conjunction with competitive instruments and selective decentralisation and privatisation projects. Such heterogeneous countries as Japan, Germany, the USA and Australia have in common the clear predominance of administrative rule steering, having largely rejected results steering (except in the USA) and the selective reduction in the scope of state activity by means of competitive instruments and privatisation programmes. There is not just one, but rather - as a mixture of international trends and local factors - a limited plurality of development paths of public sector modernisation within the OECD. Indeed, as far as future developments are concerned, convergence seems less likely than centrifugal development trends within regulatory models. This is because both the optimality points and the risk areas are very different in a predominantly market regulation system with results steering elements than in a developed system with extended participation by civil society and in systems in which results steering is supplemented by competitive instruments, and of course in classical rule steering with privatisation components. Moreover, contrary to the assumptions made by the OECD, the plurality of regulatory regimes makes it impossible to derive and justify an immanent ranking of these regimes or to presuppose that one specific regime (in particular the anglo-saxon model) is necessarily more efficient than the others.

Summary

3

1.3 Finland: A Late-comer to public sector modernisation in a precarious compromise equilibrium of old and new steering systems. The search for a new momentum The modernisation trend in Finland at both central and local government level is characterized by a parallelism of the old and new steering system, by a case of "stuck in the middle". The compromise equilibrium situated between the two poles of administrative rule steering and results steering cannot, however, be seen as stable. The experience of management by objective and management by results systems has convincingly shown that they are absorbed by the pressure of rule steering and degenerate into mere formalism and thus into bureaucratic paper work if they cannot, by means of political mobilisation, be driven beyond a certain threshold value. And it is precisely at this dilemma that the central controversy has been initiated on the direction to be taken by the ongoing development path, although this has only played a role in the public discussion to a limited extent. Either it will prove possible in Finland to bring in a new momentum to push ahead with the development of MbR systems in the modernisation process, or there is the danger of a degeneration back to the old system of rule steering or, perhaps of a centrifugal fragmentation of the state apparatus. The development alternatives lie in standardised effective mass production such as in Great Britain, in decentralised customer orientated quality production, such as in Sweden, in flexible qualified mass production, such as in Germany, or in a genuinely Finnish variant, i. e. an innovative combination of bureaucratic standardised production and flexible specialisation.

2 The Impacts of Public Sector Modernisation 2.1 Fundamental criticisms of public sector reform: Modernisation as a passing trend and the threat to the democratic welfare state Since the mid 1980s public sector modernisation has been subjected to two fundamental although mutually exclusive criticisms: the reform strategies are considered to be a cyclical passing trend within the public administration without a significant increase in efficiency compared with traditional bureaucratic systems; in contrast to the first criticism, current modernisation strategies are sometimes also considered to be a danger to democracy and to be dismantling the welfare state. Both criticisms can point to considerable supportive evidence. The reform efforts during the 1970s to introduce PPBS, MbO and ZBB have, indeed, largely

4

Summary

proved to be passing trends with little impact; and in a number of OECD countries modernisation strategies have involved numerous measures which have restrict democracy and dismantled the welfare state, either for ideological or party political mobilisation reasons or in the form of a cut-back strategy motivated by fiscal policy concerns.

2.2 The new organisational principle in current modernisation strategies: from the rationalistic planning model of state actors to the integration of state, economic and social regulatory mechanisms The reform strategies of the 1960s and 1970s sought to optimise the subjective decision making calculation of state actors in accordance with the "rationalistic planning model". More recently, however, public sector modernisation has focused on an extention of the administrative logic of action and then supplementing it by the regulatory mechanisms of social devolution (systematic customer/citizen quality feedback systems and increasing powers for civil society organisations) and market-related decentralisation (by means of various forms of internal and external competition). If it proves possible to extend and integrate the various regulatory mechanisms in this way, this would assure a number of vital conditions for the success of the reform strategies currently under way.

2.3 Exemplary developments indicate the strategic relevance, but also the ambivalence of current public sector modernisation Developments in the OECD countries exhibit a number of cases in which efforts to reform the public sector have been very successful: rising productivity performance by distinguishing between agencies and central government departments; utilisation of the MbR negotiating process as a step towards total quality management; utilising MbR systems in the form of interactive co-planning with citizens in technical and social areas; integrating MbR systems with systematic customer/ citizen qualitiy feedback systems; distinguishing between programming, financing and implementation in the sense of various forms of the "enabling authority"; interaction between results orientation, regulation and competition in local government services; integration of MbR systems and organisational outsourcing with the aim of stimulating institutional competition; extending the opportunities for employee participation and further development of industrial relations. All these examples have achieved a the successful balance of increased organisational effectiveness and efficiency without negative redistributive effects on

Summary

5

product quality and working conditions, whereby organisational design and contextual characteristics can be precisely specified. At the same time, these examples serve to warn against the promises of easy solutions. The simplistic paths of exclusive internal modernisation, privatisation or unilinear social devolution lead astray. The reality is always a complex mixture of government regulation, economic competition and social devolution. Equally, all the above examples also indicate the ambivalence of public sector modernisation. The departure from administrative rule steering renders the state regulatory system both more flexible and more precarious, and is thus conducive both to regressive development paths such as to dismantling the welfare state and restricting democracy, ideological privatisation and new-taylorist work intensification, and to progressive modernisation parts involving higher productive and distributive efficiency, greater decentralisation and improved opportunities for participation. Thus the fate of public sector modernisation depends on the specific development dynamic of the reform process. This in turn is very largely politically determined.

3 The Development Dynamic of Public Sector Modernisation 3.1 The deficiencies of incrementalism and the fallacy of programmatic change The experience with successful modernisation strategies in the OECD countries provide convincing evidence that gradual, incrementalist reforms are no longer adequate in view of the intense pressure for change. Equally unsuccessful, however, are the "grand strategies" of "programmtic change". Incrementalism remains below the critical threshold for change. The grand strategies of programmatic change, on the other hand, operate largely at the symbolic level, while failing to activate the operative and strategic factors for change, and tend to mobilise the opponents rather than the supporters of a reform strategy.

3.2 Political mobilisation and not economic crisis is the driving force behind public sector modernisation It is a widely held view that the pressure of economic crisis is an essential precondition for successful public sector modernisation. The experiences of the OECD countries, though, tend to indicate the reverse: in many case economic crisis induces the return to traditional crisis management patterns; very frequently there

6

Summary

is no correlation between economic crisis and public sector modernisation; and only in a very few cases have economic crises been identified as the initiator and catalyst of public sector modernisation. Politicians have no excuses: there is no economic and social determinism; in this area it is political mobilisation which is the driving force behind public sector modernisation.

3.3 The strategic role of political-administrative "Advocacy Coalitions" in the context of party political competition The key strategic role in the political mobilisation behind public sector reform is played by political and administrative elites in the context of party political competition. To a very large degree the public sector reform depends on the extent to which such roles are performed in an active manner, on the degree to which a common development coalition can be forged between the political and administrative elites, and on the role played by public sector modernisation within the framework of party political competition.

3.4 Rooting the mobilisation for reform in the governance operators Political mobilisation can only be successfully transformed into concrete modernisation measures if it is well rooted within the institutional framework of government. The office of Prime Minister or, at local level, City Mayor, together with the Ministry of Finance, a small and powerful modernisation unit within the government apparatus to provide operative coordination, a strategically and operatively oriented reform commission situated at the interfaces between politics, business and society at large (as in Japan), and above all process steering which is both differentiated and resolute; these are the indispensable conditions for the success of public sector modernisation.

3.5 Think tanks and meta-organisations to prepare the way for and support public sector modernisation Political Mobilisation requires broad-based support by means of meta-organisations outside the government operators. Political and other expert associations, institutions for the international exchange of ideas, in some cases audit commissions, can be invaluable in supporting the modernisation process. Stand-alone strategies are nearly always inevitably destined to fail.

Summary

7

Public sector modernisation, in the sense of transformational change requires the paradigma-generating impact of competent think tanks outside the governing apparatus; they can range from research institutes to leading consulting groups. In times of organisational transformation, mere pragmatism, however energetic, will not be sufficient. Long before it is a question of introducing operative measures, such think tanks can develop the linguistic games and the concepts which underpin a long-term reorientation helping to form the "mental models" within politics, administration and the public at large regarding public sector modernisation.

4 Ten Key Issues of Public Sector Modernisation 4.1 The necessity of and limits to internal administrative modernisation A consensus now prevails within all the OECD countries studied here, of the necessity of a far-reaching reform of bureaucratic organisations and steering systems. The direction and speed of the reform process, however, remains a subject of great controversy. In those countries in which reform developments are most advanced we now have evidence of the strategic relevance and the actual impact of an internal modernisation of classical administrative structures by means of the concept of strategic managment, by results steering including operative controlling and the strategically oriented development of personnel and work organisation. At the same time, the experience of precisely these countries shows that internal public sector modernisation n its own rapidly comes up against inherent limits to reforms. What is then required is to activate the external context within which the administration operates: an extention to civic participation via a comprehensive quality policy and improvement in citizen's freedom to choose by introducing competition into service production.

4.2 From ideological privatisation to the rational use of markets Two conclusions can be drawn from the experience gained in the OECD countries with the use of competitive and market elements in the process of public sector modernisation. On the one hand, the simple transposition of market models onto the public domain and ideological privatisation usually lead to both cost and quality problems with regard both to the services offered and to the working con-

8

Summary

ditions of those employed in service production. On the other, there is also considerable evidence of the allocatively and productively beneficial effect of competitive elements in the course of public sector modernisation, frequently without undesireable distributive effects. Such elements inclused "virtual" organisational competition by means of transparent comparisons of performance and costs, organisational development of production units within the public sector by means of results and resource responsibility, planned competition between public sector enterprises and public and private bodies in either a complementary or substitutive sense. Thus the rational use of markets under well specified conditions is clearly an important element of public sector modernisation.

4.3 Citizen and customer participation in quality production: Beyond consumerist managerialism There is a trend within the OECD reforming countries towards a quality control of public service production through citizen and customer participation. In some cases, though, customer-related quality production in the context of a policy of consumerist managerialism may largely mean that public departments seek to "create" acceptance on the part of citizens. More far-reaching conceptions and practices in the field of quality policy aim to establish interactive co-planning at the programming and implementation level of administrative services together with the relevant citizen and customer segments. Above all, they include systematic and decentralised citizen quality feedback systems and in some cases explicit service obligations by the administration towards citizens within the framework of a citizen charter. The systematic incorporation of citizens into administrative quality policy as part of a democratic process of devolution within the modern state is, in addition to the activation of the competitive context, a further essential element of the far-reaching modernisation process currently under way in the public sector of the OECD countries.

4.4 Internal public sector modernisation involves both results steering and organisational re-engineering The core element of all internal modernisation programmes is the introduction of the new administrative steering model containing elements of management by results, cost and performance calculations, and results budgeting. Experiences in the OECD countries show that the new steering models can only make their effects felt in full if, and to the extent that, they are accompanied by the restructuring of administrative organisations. It is relatively easy to introduce the new steering systems: the re-engineering of operative administrative units into customer-related

Summary

9

and results-responsible organisations, however, in many ways the acid test of internal administrative modernisation, is still to be accomplished.

4.5 The value added by the central departments In most countries the introduction of the new steering systems and the reorganisation of the operative administrative units has thrown the central units into crisis: the implementation of new organisational principles poses the question as to the value added by the central units. In all reform countries the "headquarters", whether at central or local government level, face a double challenge: the change in the role and function towards strategic management within the public sector context, linked to a radical decentralisation of task structures; and the equally radical re-deployment of personnel and influence from the central units to the more customer oriented periphery. The substantial differences observed in the development of such central units and of their volume in the different OECD countries are clear evidence of the difficulties caused by the redistribution resulting from modernisation efforts. This leads to a strategic dilemma in the course of the internal modernisation process: usually the central units prove to be an important if not indispensable motor initiating the reform process; once a certain stage of development has been reached, however, the headquarters often constitute a major barrier for the further course of the modernisation process.

4.6 The new steering model between results steering and Total Quality Management The new steering systems, e. g. managment by results, are, in the final analysis highly developed forms of traditional MbO concepts. Although from both a theoretical and practical perspective we are all aware of the necessity of strategic action, we are also aware of the diverse and serious problems and frequent failure of results steering. Successful reform projects point to a function of the new steering model which normally remains in the background: the strategic importance of the interactive and decentralised negotiating process. The continuous and targeted discussion and negotiations on targets, results and their conditions can often constitute the point of departure for total quality managment. In such a case, the new steering systems are to be considered less a rationalistic basis for decision making than a suitable basis for collective and binding learning, experience and conciliation processes.

10

Summary

4.7 Evaluation as a complementary instrument to results steering One of the aims of abandoning administrative rule steering in favour of results oriented steering is to create the scope for autonomous action by the units at local level. Such a steering logic will, however, lead to the centrifugal segmentation of the administrative system unless monitoring skills accompanying the process of reform are developed as a medium for collective observation, learning and selfsteering. Besides the extension and broadening of existing stocks of knowledge, this requires the generation of new knowledge capacities, i. e. the ability to process experiences. These processes of self-observation cannot be limited solely to the top management, but have to be brought down hierarchically throughout the entire system. For this reason it is vital that the capacities required to evaluate bargaining and steering processes are set up as a necessary part of internal modernisation. Yet the conceptual centrality of evaluation stands in sharp contrast to the role of evaluation in practice. For politicians are keen to set targets, but not so keen to evaluate degrees of goal attainment. In view of the importance of evaluation as a vital feedback for organisational learning, far too few social resources are invested in such activities. Most evaluation studies served to support a position within a relatively limited frame of reference and thus are only conducive to instrumental but not strategic-paradigmatic learning For these reasons much work remains in the ongoing modernisation process in developing evaluatory capacities differentiated according to the various functions, the various decision making processes and the different actors within the politicaladministrative system.

4.8 Overcoming the modernisation dichotomy: on the integration of management and work reform Clearly, the focus of internal modernisation in all the countries studied here, is to be seen in the reform of the public sector management functions. Nowhere is this emphasis on "managerialism" called into question, as the management function in the public sector, not least in comparison to the private sector, is quite obviously underdeveloped. Equally clear, however, is the dichotomy between the management reform and work reform. In practically all countries, with only very slight variations, the modernisation of the management process has not been accompanied by modernisation of the labour process. Reform on this basis ignores the fact that an internal modernisation is not merely a task for management, but is inherently a function of the work and action of all the employees participating in the value added process. Indeed such a reform approach ignores the fact that

Summary

11

the reform of the management system without the reform of the labour process is bound to be relatively ineffective on the longer run. Thus the development of working structures wich are conducive to learning and favour task integration, together with corresponding personnel development systems, is an additional area in which internal public sector modernisation still has a long way to go.

4.9 Process steering and process qualification The central thrust of the restructuring currently under way in the private sector is the transition from functionally oriented single task-related workshop principles to the comprehensive process orientation of the organisation as a whole. The public sector, with its segmented functions, highly specialised job structures and discontinuous process chains, is generally still far more tayloristically oriented than in the private sector. All the more serious, therefore, is the almost complete lack of a corresponding process steering, one based on different time rhythms, different objectives and degrees of complexity etc., in the public sector. The failure to recognise the fact that political-administrative production processes differ greatly depending on their social, time and substantive structure, and thus require different forms of steering and different forms of process qualification in personnel, organisational and technological terms, is one of the most significant gaps in the process of internal public sector modernisation in all the OECD countries so far.

4.10 Public sector modernisation: an innovative re-regulation of internal reform, social devolution and competitive context During the 1980s the modernisation campaigns in the OECD countries were for many years dominated by simplistic and single-track reform strategies: deregulation and a market-based strategy on the one hand, a strategy with exclusively internal modernisation on the other; both in opposition to the strategy of simply maintaining the traditional administrative structures of rule steering. The experiences of reform during the past 15 years, however, have rendered this simplification obsolete. What is now required is a new combination of the fundamental regulatory principles of public service production. This does not imply convergence between the very different development paths currently being pursued by local and national governments. What must remain at the top of the political agenda is an innovative re-regulation of political responsibility, internal administrative modernisation, market orientation and social devolution.

New Frontiers in Public Sector Management Trends and Issues in State and Local Government in Europe Frieder Naschold

1 Evaluating and Monitoring the Transformation of the Public Sector Since the 1980s the public sector in many OECD countries has been undergoing far-reaching processes of restructuring. The dynamic and orientation of this restructuring have been determined by the confluence of three factor-complexes: economic crisis, tensions within the institutional framework of the welfare state and party-political mobilisation processes. The mainstream of public sector modernisation is nowadays oriented towards the views and strategies of the New Public Management Movement (Caiden 1991) (taken here as a combination of public choice theories and managerialism, cf. Aucoin 1992), whose critique centres on the size and, more importantly, the structure of the public sector, focusing on the prevailing regulatory mechanisms, such as governance by rule, the functional division of labour according to the singletask-related workshop principle, pronounced hierarchy, the lack of process-chainlinked cooperation, the lack of strategic management etc. The inadequacies of the traditional, i.e. bureaucratic, rule-oriented conception of the public sector identified by the New Public Management Movement lead to corresponding demands for change. The most important of these are governance by objective and results, performance management and results budgeting (management by results), contract management of autonomous "results centres", contracting out and the formation of quasi-markets. Figure 1 summarises the central characteristics of both regulatory models from the perspective of the New Public Management Movement. While the critique of the underlying mechanisms of bureaucratic governance by rule may well be convincing - and at the very least the alternative concepts put forward appear to have lost none of their attraction - , neither apologetic studies (e.g. the concise and application-oriented analysis by M. Pirie 1988) nor the ideologycritical studies (such as the clear-headed and knowledgeable contribution by Chr. Pollitt 1990) are sufficient to evaluate the development trends of the public sector. What is required in addition is an evaluation of real development trends on the ba-

14 Figure 1 :

Frieder Naschold N e w Public Management Movement: Two Regulatory Models

Traditional bureaucratic regulatory model

NPM-regulatory model

Governance by rules (Regelsteuerung)

Governance by objectives/results (performance-management) incl. results-budgeting and capping

Functional division of labour according to the single-task-related workshop principle & process-chain-related interface problems in cooperation

Product-related organisation in the form of a process chain

Pronounced hierarchies

Contract management between autonomous "result centres"

Modest use of competitive instruments

Contracting out and the formation of quasi markets

Lack of strategic management

Customer orientation instead of producer dominance

F. Naschold, WZB 1994

sis of empirical evidence. What is really needed, therefore - a point taken up by the OECD (1990, 1993) in summarising the trends - is a continuous monitoring of the developments and the evaluation of critical stages in this development. This is also in line with the experiences of, and the demands made by politicians, particularly in the Scandinavian countries, and increasingly in recent years. Since the beginning or middle of the 1980s, and then even more so from the end of that decade the Scandinavian countries, in particular Sweden, Finland and Norway, have initiated a process of internal modernisation of their public sector under a social-democratic hegemony. From the start of the 1990s this process was pushed forward under the influence of conservative parties, which added market-based steering mechanisms. This development came to a sudden end with the swift onset of economic crisis in 1991/92: the urgent questions of the budget deficit and the problem of mass unemployment displaced the theme of public sector modernisation from the political agenda. At the same time, the steps implemented until then were subjected to critical reflection. Voices were raised, some calling for an acceleration of the existing transformation dynamic, others favouring a return to the allegedly stabilising mechanisms of traditional governance by rule. Now, in the mid-1990s, two central problem areas are at the focal point of political interest in this field. The first is to obtain information on possible trends and best practices by means of a bench-marking vis a vis international developments; the second is to identify the critical "key values" of a modernisation strategy and the constraints imposed by the conditions in which it is implemented.

New Frontiers in Public Sector Management

15

Consequently, a social-scientific study of this area must consider three fundamental lines of enquiry: - identifying the structural development trends and the strategic regulatory mechanisms of the public sector; - determining the effects of this development in terms of their productive efficiency and their distributive impact within society; - analysing the development forces behind the process of public sector modernisation. As far as the methodology and conceptual basis of this evaluation study is concerned, I will restrict myself here to some brief remarks on a number of particularly critical problems inherent in such analyses. (1) In the well-known methodological dispute between the two paradigms of evaluation research - empirical-analytical impact assessment and the conception of evaluation as a "cooperative learning process" - mediation between the two positions appears to me to be both indispensable and feasible (Naschold et al. 1993: 21 f.). (2) The analysis of the "effects" of given "structures" and "processes" is generally the most difficult part of any evaluation. At the conceptual level a distinction is to be drawn between effects involving "productive efficiency and effectiveness", on the one hand, and quality and distributive issues on the other. In theoretical terms these concepts can - with the exception of the question of quality - be defined relatively clearly. At the practical-empirical level, however, the analyst faces massive problems with the data, in measuring effects and assigning them to causes; the larger the unit of analysis, the more difficult these problems are. The "ideal" way to measure "impact" is considered to be by means of a longitudinal, quasi-experimental ex ante design. While there can be no doubting the superior power of this approach in identifying effects, this is frequently offset by major problems of practicability and limited explanatory power and analytical precision. Although within the framework of this study I do attempt to make use of such findings from other studies, the emphasis of this evaluation lies in a multistage group comparison between various countries. This is done at three levels : the nation-state, individual national bodies, and local level. The combination of a international comparison and intensive case studies over a survey period lasting from roughly 1980 to 1994 should be in a position to make a significant contribution to identifying and explaining the operation and effects of national modernisation strategies and structures. (3) An international comparison of relevant countries has the additional advantage that, by means of international bench-marking, it offers a guide to best practices. Provided that this approach is made in full consciousness of the relativity of such statements, the study can furnish a major stimulus to, and guidelines for the reform debate within individual countries (Jürgens/Naschold 1994).

16

Frieder Naschold

(4) An objection frequently put forward against case studies and group comparisons is the limited scope they offer for generalisation. Recent methodological research (Yin 1990) has shown that a distinction must be drawn here between statistical and analytical 'generalisability'. As far as the first criterion is concerned, this study can point to almost 50% representativity among OECD countries over a period of public sector reform lasting roughly thirteen years. Analytical generalisability is to be attained by means of reference to the relatively clearly specifiable concepts of traditional bureaucratic governance by rule, of the New Public Management Movement and, last but not least, of the public sector, with which the empirical findings will be compared. For this reason the central analytical dimensions of this conceptualisation are developed and elaborated in the first three chapters of the study. In sum, the conclusions drawn in this study can claim a significant degree of both statistical and analytical generalisability. (5) The frame of reference for the study is formed by the various approaches which have been taken to the "crisis of the welfare state" in connection with a "governance" conception of societal steering problems, whose various theoretical orientations cover a wide spectrum. They range from the optimisation of existing welfare state structures (more or less the Scandinavian position), its transformation from a producer to a guarantor of services (the Continental European perspective), and the increasing penetration of the market into the welfare state (a strong trend in New Zealand and Great Britain), to the 'communitarisation' of the welfare state (a trend which can be found in the Netherlands and Denmark). This complex is dealt with more fully in chapter II. In my view this debate should centre not on abstract theorisation but rather has the task of processing the existing stock of experience and knowledge. (6) Conceptually, the study focuses on the analysis of systems of state governance. Initially this will concentrate on the debate surrounding the replacement of traditional bureaucratic governance by rule (so-called "conditional programming") by performance, target and results-oriented management. Leading ideas and key elements of results steering are shown in figure 2 (Svensson 1993: 32). The debate broadens out to encompass the significance of market instruments and mechanisms. In my opinion it is vital that the governance concepts employed in the private sector are also taken into consideration, without at the same time ignoring the specificities of the public sector. The two positions which currently dominate the debate on this issue - the "distinctiveness" of the public sector on the one hand, the "generic" character of new management concepts on the other (cf. Pollitt 1990) - are dogmatic and polarising, and as such neither tenable nor helpful. (7) One last word on terminology. Any social or political movement of any significance naturally and inevitably develops its own linguistic conventions. Given that the modernisation of the public sector is a relatively recent phenomenon, it is hardly surprising that little has been done to standardise the central concepts in the language of debate. This linguistic uncertainty is exacerbated by the fact that

New Frontiers in Public Sector Management

17

Target formulation

Verification/ examination Budgeting process

Execution

Obligation » is 4 fixed

Source: Svensson 1993 : 32

Figure 2: Sketch of the principles of results steering

the reforming countries themselves differ in their linguistic conventions and that more traditionalist countries, such as Germany, cling to the language of administrative governance by rule 1 . For the purposes of this study, I would therefore like to establish a number of linguistic conventions: -

Restructuring and reform of the public sector are the colloquial terms used to describe the current processes of change currently under way in the public sector; modernisation and transformation are the rather more scientistic terms in the debate 2 .

-

Governance instruments are means of action open to the state, collective organisations and firms; regulatory mechanisms are social modes of operation among which state governance constitutes a major element. The ensemble of central regulatory mechanisms is termed the regulation regime. 1

2

Translator's note: Many of the terms used in the German version have been derived from Scandinavian concepts, for which neither real-world nor linguistic equivalents exist in the English-speaking countries. Inevitably, this has led to the use of many terms in the English version which will initially be unfamiliar to the native English-speaking reader. The modernisation perspective is derived from macrosociological research (Alexander 1994: 166 ff.), the transformation perspective from the theories of "organisational transformation" (Levy/Merry 1986). It is difficult to understand why this debate on public sector modernisation has ignored the discourse on the transformation of the former communist countries (cf. v. Bey me 1994). The two terms tend to be used synonymously. In the present text modernisation is generally used for the macro levcel, transformation for the micro level of organisational change in cases where the change processes are structural and not incremental in nature.

18

Frieder Naschold

The methodological approach taken by the study follows an analytical schema according to which the structures, processes and effects of modernisation trends in the public sectors of leading OECD countries are compared from an international perspective by means of the analytical concepts of the three patterns of regulation just mentioned.

Figure 3: Analytical Scheme of the Evaluation

Figure 4 summarises the most important methodological approaches used in the course of the evaluation study and on which the analytical schema is based. In the next chapter I will examine development trends - structures, processes and causal chains - of public sector reform in 11 OECD countries at the aggregate level of the nation state (II.). Against this background the conceptions put forward by the New Public Management Movement, in particular results and targetoriented governance within the tension between bureaucratic governance by rule and private sector governance systems, can be analysed (III.). In the two subsequent chapters modernisation strategies at central government (IV.) and local government (V.) level will be examined, by means of combination of intensive case studies in Finland and international comparative analysis. The concluding chapter draws attention to a number of strategic strengths and weaknesses of Finnish developments against the background of international trends.

New Frontiers in Public Sector Management Figure 4:

19

Evaluatory Methods

Impact analysis

Cooperative learning processes

1. 11 OECD-countries in an aggregated international comparison 1980/5 to 1994; secondary analysis of OECD data and additional national documents and interviews

1. Discussion of the line and direction of enquiry at ministerial level and with the scientific community

2. Five-country comparison of a single policy area and its governances systems (using the example of labour market policies)

2. Start conference to begin the evaluation with scientists and practitioners (2/94)

3. Intensive case studies of 5 central government institutions in Finland

3. Network of scientists and practitioners in Finland and in the comparison countries

4. International comparison of public sector modernisation at local government level (11-city comparison, secondary analysis and own research)

4. interactive interviews in the empirical phase

5. 1 intensive case study at local government level

5. Intermediate presentation to scientific community and practitioners

6. 80 extended interviews in central and local government*

6. Evaluatioon conference to follow presentation of report (planned)

7. Participatory observation in stratagy conferences in central and local government

7. Continuation of the strategic discussion within the scientific and political communities (planned)

8. Control-group research at two private sector firms (one small, one large) * Of the 82 interviews conducted, 26 were with scientists/consultants, 29 in the state sector, 23 on the communal level, 4 in the private sector, 4 held in groups. F. Naschold, WZB 1994

2 Public sector reform trends in the OECD: Profiles, processes and effects The subsequent analysis o f public sector reform in the O E C D aims to provide an initial perspective o n the profiles, effects and process conditions o f the public sector in the various O E C D countries. The analysis is initially focused on the aggregate level o f nation-states, covers the period 1980/85 to 1993/94, and considers developments in 11 countries. The countries were selected o n the basis of the most-similar/most-dissimilar approach used in comparative studies, in order to take account both of the diversity o f development trends and the depth of very

20

Frieder Naschold

homogeneous developments. The data for the analysis is derived from two surveys conducted by the OECD in 1990 and 1993 and continued work in this field. This secondary evaluation is supplemented by additional, primary analyses including a number of in-depth interviews conducted by the author. In order to analyse the trends of public sector reform within the OECD I will first describe in a rather standardised manner, the most important "initiatives" (OECD 1993) and the development patterns of the 11 selected OECD countries. This material provides the point of departure and also the point of reference for the subsequent analyses, as in outlining the Finnish situation, I include the most important OECD comparative data. I will then proceed to a study of the regulatory mechanisms and governance structures of the public sector in OECD countries as well as the effectiveness, efficiency and distributive effects of restructuring in the public sectors. Finally the attempt is made to explain public sector development dynamics. The aggregated OECD comparison closes with reference to a number of selected strategic strengths and constraints of the modernisation process.

2.1 Initiatives for public sector reform and modernisation in OECD countries The two OECD surveys of 1990 and 1993 attempt to categorise the most important modernisation initiatives implemented in the OECD countries according to the type of restructuring they entail. I have supplemented this secondary analysis with primary research, adding three additional modernisation strategies (relating to work organisation, human resources and industrial relations). The picture which emerges is summarised in figure 5. I would like to begin with a number of brief comments on the various types of modernisation initiatives. The analysis contains a total of 11 types of reform measure and 73 modernisation initiatives in all (an average of 6.6 per country). Of the 73 initiatives 47 were on a small or medium scale (in terms of their breadth, impact and duration), while 26 were larger in scale. As far as the initial evaluation is concerned, the analysis will obviously focus primarily on the large-scale initiatives. The modernisation initiatives are distributed as shown in figure 6. The type of measure most frequently encountered - if large-scale initiatives are accorded greater weight than smaller ones - is the creation of autonomous agencies and governance by results systems, followed by market-type mechanisms, privatisation and the reorganisation of publicly owned enterprises; after this come decentralisation and strategic management. Three large-scale projects were identified to reduce the size of the public sector and the same number to normalise industrial relations (in the sense of bringing the public sector into line with the private sector). In just four cases smaller initiatives were found relating to work organisation and to human resources; no large-scale initiatives have been imple-

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of the very different governance structures at work in the different regimes, the development paths in the scenarios prove very heterogeneous. Indeed, the findings suggest centrifugal development trends within the mode of regulation rather than convergence. This is because the optimality points and the "danger zones" in a system based largely on market regulation and governance by results are very different from those in a devolutionary system, one based on governance by results supplemented by market elements or the traditional bureaucratic governance by rule systems with privatisation elements. (3) The existence of four regulation regimes, each with its own development paths, does not by itself permit conclusions to be drawn as to the relative effectiveness and efficiency of the systems. Conversely, it is inadmissible to purport that the regulation regime based on private sector regulation with support from competitive elements and governance by results is automatically more efficient, as is implicitly suggested by the OECD analysis. The findings presented by the OECD do no by themselves permit us to rank regulatory regimes in terms of efficiency. In order to be in a position to do so, the following section draws additional findings into the analysis.

2.4 The effectiveness of different regulatory regimes of public sector modernisation Questions as to the effectiveness and efficiency of different institutional and instrumental arrangements are often the focal points of academic and political debate, although often in a very superficial way. Ignoring for a moment methodological issues and problems with the data, addressing such questions requires an homogeneous system of objectives and "production structures" that are comparable across all dimensions: these are seldom available. In its surveys and evaluations the OECD assumes a relatively clear hierarchy of regulatory mechanisms in terms of their effectiveness and efficiency. Expressed in linear terms, the effectiveness ranking ranges from market steering, via competitive instruments and governance by results, to classical bureaucratic governance by rule, whereby devolution processes remain outside the field of analysis. I would like to examine this hypothesis with reference to the national data and to a number of additional studies: the analysis is located at the "plausible" level and is illustrative rather than conclusive in nature. This examination will be performed firstly at the level of the macroeconomic performance of the OECD countries, and secondly on the basis of selected studies of microeconomic performance. The analysis concentrates primarily on questions of effectiveness (i.e. degree of goal attainment), although efficiency problems (cost of goal attainment) are also considered; questions of productivity and quality, on the other hand, cannot be addressed in depth in this context.

N e w Frontiers in Public Sector Management

47

2.4.1 The macroeconomic performance of the various regulatory regimes8 Confronting our findings with the hypothesis formulated by the OECD as to the relationship between macroeconomic performance (economic growth, productivity and unemployment), on the one hand, and the regulation regime (bureaucratic governance by rule and its alternatives) on the other, the OECD hypothesis has to be strikingly refuted: all the countries with bureaucratic governance by rule exhibit with respect to almost all the dimensions a markedly better macroeconomic performance than the other countries. Clearly, one must beware of the danger of over-interpreting findings at such a high level of aggregation, for they can be interpreted in two ways: - Differences in the framework of external conditions could, of course, be responsible for this "perverse" finding. Yet all the evidence suggests that bureaucratic governance by rule is not so ineffective as against alternative forms of regulation, at least not in the prevailing forms in which regulatory mechanisms are being combined, that they are able to reverse a more favourable initial situation in the countries affected. Conversely, market and governance by results systems are not so effective that they are able to turn a very unfavourable initial situation into a positive development path. - The relative effectiveness of bureaucratic governance by rule possibly results merely from compensation of its ineffectiveness by a number of offsetting mechanisms, such as a particularly skilled labour force and leadership potential, and/or a particularly favourable underlying structure of the political system, e.g. a high degree of endogenous decentralisation. In chapter III we will consider this possibility in greater detail. The underestimation of bureaucratic governance by rule (at least in certain contexts and given certain offsetting mechanisms) implies a relative overestimation of the other regulatory mechanisms. Taking the example of Great Britain I will now examine the private-sector strategy of according priority to market steering, cutting back the size of the public sector and privatisation. - During the observation period the UK remained below the OECD average and behind almost all the countries considered here with respect to all three macroeconomic indicators, except for a slight improvement in its economic and productivity growth rates during the years 1985 to 1990. Thus the measures of the private-sector strategy proved unable to overcome the "perverse policy syndrome" of the British political system (for a summary cf. Bennet 1994).

8

Without describing the empirical findings in detail here, I refer in this section to the following studies: OECD 1990, 1993; Maddison 1993, Hübner 1994; Bennett 1994; Naschold/de Vroom 1994; Naschold 1993; Therborn 1992.

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- The effectiveness of the cost-cutting strategy in reducing the size of the public sector must also be very substantially modified in both historical and systematic terms. The cost-cutting strategy, pursued with a great deal of ideological fervour by successive conservative governments indeed managed to achieve a seemingly remarkable reduction in public sector employment of 20% between 1976 and 1985. Yet from a historical perspective this cut does not seem so significant: the cut in the above-mentioned period must be compared with a reduction of 33% between 1921 and 1931 and one of 35% between 1945 and 1955 (Dunsire/Hood 1989: 190). And a far more significant reservation must be made regarding the effectiveness of this cut-back strategy: only around 12% of the white-collar staff, compared with around 46% of blue-collar staff (primarily in the docklands and ordinance factories) were shed in the 1976-1985 campaign. If white-collar, non-industrial civil servants are considered as the "real" bureaucrats, then the cuts achieved during this period are not only far less significant than in other comparable periods, but more importantly are well below the targets for the cuts in the "hard core" of the bureaucratic apparatus. A broadly similar evaluation emerges from analysis of the privatisation strategy pursued by the British government: It is now clear that the British privatisation programme was without doubt a great domestic electoral success and received considerable international attention. Its net effects on economic efficiency and welfare, however, have been far from so unambiguously positive. This view is based on an analysis published by the World Bank in 1992 (Vogelsang 1992) and a widely recognised British evaluation study of the programme (Vickers/Yarrow 1991). Four (selected) findings of these studies can be summarised as follows: (1) A central aim of the privatisation programme lay in increasing the productive efficiency of the firms. Comparing the factor productivity of nationalised and privatised firms generates the following empirical findings. I will quote the comments made on these figures by the authors of the study: "As shown [in figure 15], Bishop and Key (1991) provide estimates of total factor productivity (TFP) for eight enterprises for 1979 - 90. Three of these enterprises have remained publicly owned (British Coal, British Rail and Post Office), two were divested very late in the decade (British Steel: 12/88, British Airport Authority: 7/87 and British Gas: 12/86). There appears to be no discernible pattern of relationships between TFP change and ownership change. In fact, if anything the biggest improvement 1983 - 90 over 1979 - 83 occurs for British Coal and British Rail. Had both these companies been divested in 1983 and shown the same performance improvement, one would have pointed out a big success of divestiture. On the other hand, one can argue that these firms had been doing particularly badly in 1979 - 83; so they started from a low base. Similarly, the vast improvement of British Steel over the whole decade is partly explained by the miserable shape it was in before. On the other hand, it appears to be clear that, during the 1980s, state-owned enterprises in the U.K. substantially changed their behaviour. What sticks out is that these firms were allowed to reduce employment by amounts that are large even by standards of privately

New Frontiers in Public Sector Management

1979 - 90

1979 - 83

1983 - 90

BAA British Coal British Gas British Rail British Steel British Telecom Electricity Supply Post Office

1,0 2,6 1,0 1,2 6,4 3,5 1,5 2,3

-1,6 -0,8 -1,0 -2,9 4,6 3,0 -0,3 1,7

2,6 4,6 2,2 3,7 7,5 3,7 2,6 2,7

Average

2,4

0,1

3,7

49

Source: Bishop and Key (1991)

Figure 15: Total sector productivity in U.K. public sector

owned firms. British Coal and British Steel (while state-owned) trimmed their employment by 70% and British Rail by almost 40%. It has to be borne in mind, however, that these firms operate in stagnating or declining industries so that output fell simultaneously (less than labor in the case of coal and steel, more than labor in the case of rail). It appears that the remaining state-owned firms are in stagnating sectors (the Post Office has grown, but slowly), while divested firms have been expanding. The question is whether observations on stagnating public firms can be used for assigning causation to divestiture of expanding firms. The question may also be related to the selection problem. One can argue that the firms divested were in those areas where divestiture was expected to be most successful. On the other hand, firms remaining public are those where state ownership should be most successful. The selection biases resulting from this could go either way. Hence, inferences from figure 15 have to be drawn with a lot of caution. However, something of importance for assigning causality to ownership change is that the remaining state- owned enterprises in the U.K. behaved very differently during the 1980s than before. In particular, they improved efficiency and laid off employees on a large scale." (Vogelsang 1992: 22 f.) (2) International comparative studies on productivity differentials across the relevant periods of time here have shown that British industries have continued to lag behind their leading competitors irrespective of whether they are privately or publicly owned (Vickers/Yarrow 1991:147 ff.). Thus other factors must be used to explain productivity differentials than legal differences in forms of ownership. (3) The detailed case study conducted by the World Bank into the performance of the privatised British Telecom comes to the following conclusions, which I would again, in view of their pertinence, like to quote in full: "1. Divestiture is no panacea; its gains are limited because:

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a. when divesting into a non-competitive market, there is potential for exploiting consumers. In the BT case, this potential was realized for some of its outputs (e. g., private circuits) and so divestiture was not a Pareto improvement. However, most people were made better off while only few were worse off. b. when divesting into a regulated market there is less than optimal incentive for reducing costs. In the BT case, this, together with the three following factors, presumably explains why productivity gains were negligible for the first six years after divestiture. c. when divesting a reasonably well-run firm, potential improvements are modest. French Telecom has traditionally been a disaster; British Telecom has not. d. when divesting a large firm, changes are likely to be slow in coming, thanks to inertia. e. when divesting to dispersed share-holders, gains are limited by the standard incentive problems associated with the divorce of ownership from control." (Vogelsang 1992, p. 67 f.) (4) Both of the studies quoted caution that: "In closing, note that while assessing what was accomplished by divestiture, we have implied nothing about what could have been accomplished by reform under continued public operation." (Vogelsang 1992, p. 68; for a similar comment cf. Vickers/Yarrow 1991, p. 151 f.) Both studies accept that "substantial improvements in the control systems were (and still are) feasible, including reforms designed a. to establish arrangements capable of sustaining an arm's-length relationship between ministers and managers and b. to improve the incentives for internal efficiency. In particular, four developments in public policy could have contributed to enhance performance: (i) the introduction of greater competitive pressures on those public corporations that have enjoyed protected market positions; (ii) the creation of specialized regulatory agencies entrusted by Government with duties in respect of price controls and the promotion of competition similar to, but stronger than, those afforded to the regulatory bodies that were later established as part of the privatization programme (iii) the creation of a specialized agency (Audit Office) for the sole purpose of conducting efficiency audits on the nationalized industries and responsible directly to Parliament rather than to the Government; (iv) the more widespread use of performance-related incentive schemes for the managements of public corporations." (Vickers/Yarrow 1991: 151 f.) For our consideration of the relationship between public and private responsibilities we can draw three significant conclusions based on the lessons of the British privatisation programme, all of which are of great relevance to the German debate on the scope of public-sector activity. (1) Privatisation is not a panacea by means of which to reform public spending because there is simply no coherent relationship between microeconomic performance and ownership forms. All assertions to the contrary represent counter-factual, ideologically encumbered positions.

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(2) The lesson we can learn from the British experience is that the critical factors for success lie in the interaction between the dynamics of competitive markets, the regime of government regulation, and intra-organisational incentive structures. Thus microeconomic efficiency depends on a complex interrelation of quite diverse regulatory mechanisms, one which transcends a simple dichotomy between private and public legal forms of ownership. (3) All in all the question to what extent private forms of ownership constitute a necessary condition for macroeconomic efficiency (and to what extent public ownership can generate a realistic rationalisation potential in the face of wide- spread government failure, or, indeed, ownership forms are of any great strategic relevance for questions of microeconomic efficiency) remains unclear, both theoretically and practically; at the present state of knowledge the answer would seem more likely to be negative than positive. The findings presented here on the effectiveness of a strategy focusing on market steering, privatisation and cut-backs in the public sector, while exemplary in nature, are broadly in agreement: the public sector based on a "market regime" in the constellations of its various regulatory mechanisms as studied here cannot claim superiority over other regimes, as posited by the OECD. The market regime fails to meet its own objectives whatever indicators are used. At the macroeconomic level there is no justification for the claim of higher relative effectiveness compared with other governance constellations. Indeed, the data tend to suggest the opposite. Any attempt to estimate the relative effectiveness of the governance by results regime must begin with the recognition that all the countries, with the exception of those four in which governance by rule remains predominant, have introduced governance by results systems to a greater or lesser extent. It is the Scandinavian countries, with the exception of Denmark, in which governance by results constitutes the primary and thus the dominant characteristic of the modernisation process and the regulatory regime. In the Scandinavian countries governance by results systems still constitute the central element of internal modernisation in response to the macroeconomic and welfare state problems of the 1980s and 1990s. The initial finding here is rather contradictory in nature: in view of the precarious state of the three Scandinavian countries with respect to both the macroeconomic and the welfare state indicators, the principle of governance by results cannot claim to have met with resounding success. At the same time, it is noteworthy that precisely those four countries in which bureaucratic governance by rule predominates began to move towards governance by results during the crisis of the early 1990s: the USA and Austria at central government level, Japan and Germany initially at local government level, and as yet largely limited to political declarations of intent. Thus, whereas in Scandinavia - and in this evaluation, too - doubts have been expressed concerning the relative effectiveness of governance by results, it is precisely those regulatory sys-

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tems which have been successful up to now that are moving towards governance by results. This apparent contradiction can be resolved by examining the relevant national profiles. Governance by results is inadequate as a strategic element of internal modernisation: - when it is not linked in an appropriate way with other regulatory mechanisms, and - when it is not underpinned with an appropriate personnel, organisational and process-linked infrastructure. It is not possible, however, to address such questions at the highly aggregated level of national comparisons. This requires microeconomic and sociological evidence and additional conceptual work on governance by results: these are the topics dealt with in the next sub-section, 2.4.2 The microeconomic performance of different regulatory mechanisms Until very recently studies of the microeconomic effectiveness and efficiency of regulatory mechanisms focused primarily on the simple dichotomy between government and market organisation and coordination. This line of research came up against a dead-end as it was based on an ideological comparison between these two poles and, not least for this very reason, generated very inconclusive results (cf. the literature survey in Vogelsang et al. 1992). The aim here, by contrast, is to provide a much more highly differentiated impact analysis and to measure the efficiency of an extremely diverse set of governance instruments, many of which are likely to be complementary in nature. Thus one can fall back only on a very limited number of very recent studies which can be considered helpful in this regard. I will refer here to three, largely still unpublished, analyses at local government level. Clearly these findings are not representative in the statistical sense. However, their analytical 'generalisability' is considerable, as they all isolate the underlying causal mechanisms in a way which is both transparent in methodological terms and plausible. In Sweden, St. Folster (1994) has conducted an extremely thorough evaluation9 of changes in cost-effectiveness in local authorities employing various regulation regimes and organisational forms. The comparison encompasses local government services performed by a privatised organisation, by an organisation with budgetary responsibility, by one with revenue responsibility and by an organisation still under full local government control. The data presented in figure 16 and additional information derived from the evaluation study provide evidence of considerable interest for our field of study.

9

Unfortunately, the precise definitions of the concepts measured are not indicated in the manuscript.

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Privatised

Budgetary responsibility

Revenue responsibility

Control

Costs for the local authority

-7,9%

-4,2%

-9,1%

-3,6%

Cost-effectiveness

-12,3%

-4,1%

-9,8%

-3,6%

Source: Fölster 1994

Figure 16: Cost changes following the reform adjusted for changes in quality

1. Those areas of activity which were privatised proved best able to raise costeffectiveness. However, due to the mark-up (profit) earned by the private company, the higher cost-effectiveness of the private firm was not passed on in full in the form of reduced cost to the local authority. Although it is still too early for most cost areas to draw conclusions about the significance of the cost savings over time, the data available tend to suggest that the relative cost advantage for the authority of privatised enterprises tends to decline over time. Many privatised activities initially have low costs, but then successively raise their remuneration demands vis a vis local government. 2. Local authority costs declined most significantly in the case of decentralisation with responsibility for revenue (a refined form of governance by results involving the use of competitive instruments). 3. Decentralisation with revenue responsibility (the original form of governance by results) generated only a marginally higher cost-saving effect than the control group (bureaucratic governance by rule). 4. The gains in effectiveness generated by the various reform concepts are not as significant as suggested by the table, as the organisations in the control group also managed to reduce costs during the observation period, reducing the net effect of the reforms. 5. Budgetary and revenue responsibility both produce consistent and not inconsiderable relative cost changes, with revenue responsibility in all cases the preferred option. Of consistent importance in all modernisation strategies has been the introduction of competitive instruments in the public sector context 10 . Of these instruments the most prominent has been Compulsory Competitive Tendering (CCT), a form of competition between the private and public sector. Kieron Walsh has examined the use of this instrument in the U.K. under the "Local Government Administration 10

The current discussion of modernisation is characterised by a strict distinction between traditional market regulation via competitive markets on the one hand, and competitive instruments within non-market forms of coordination on the other (cf. Stâhlberg 1994).

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Frieder Naschold Local authority costs after change to budgetary revenue responsibility responsibility

Primary care

-1%

-6%

Technical services

1%

-6%

Nursing homes

-2%

-3%

Child day centres

1%

-8%

other

2%

-4%

Source: Fölster 1994

Figure 17: Relative cost changes following decentralisation in different areas

Act" of 1988 in an as yet unpublished evaluation study (Walsh 1994). The findings of relevance for our context are summarised below: (1) The introduction of contracting out on the basis of CCT has clearly produced real effects. In the first two rounds of tendering the public sector gained 75% of contracts, primarily for large-scale contracts in large local authorities. So far the private sector has won 25% of the contracts, concentrated in the smaller authorities. Tendering has largely been for blue-collar jobs; professional and sophisticated service jobs are to be incorporated into the next round of the contracting-out system. (2) The effect on costs has been as follows: in the first round average savings of 6.5% were achieved. The figures vary widely, though, reaching a maximum of 25%. The greatest savings potential has so far been found in relatively simple, manual activities, such as in the waste-removal sector, cleaning and infrastructural repair work. So far the professional-managerial area has remained a critical bottleneck. Cost trends point to three very different modes of productivity growth: 1. Efficiency gains resulting from technological and/or organisational modernisation accompanied by labour savings (up to 30% of the work force), particularly in infrastructural repair work; 2. productivity gains attained by cutting wages, a deterioration in working conditions and job cuts (especially in cleaning work); 3. efficiency gains resulting from technological and/or organisational modernisation accompanied by increased turnover at constant employment levels (achieved in some cases in waste removal). Overall, the increase in efficiency is expected to continue in the coming years, not only due to the incorporation of professional and managerial areas but also, and largely, due to increasing supply-side competition, learning effects in addi-

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tional rounds of tendering and the difficult general state of the economy with the resultant pressure on employees. At the same time, the potential cost savings are far below the target values proclaimed by the supporters of the new system. This largely reflects the fact that the client-related and preparatory costs incurred by the administrations had been seriously underestimated, so that managerial costs increased sharply. (3) As far as service quality is concerned, CCT and contracting out generated results contrary to the expectations of trade unions and the political opposition. The trade unions, in particular, had been expecting a "disaster for quality", and asserted as much in their first evaluation study. However, the very thorough, and methodologically superior, evaluation study conducted by the Institute of Local Government Studies comes to very different conclusions. Apart from cleaning services, standards of quality were improved or at least maintained in all other areas. This improvement in quality was put down to the specification of quality standards, the formulation of explicit quality goals and the controlling of goal attainment against the background of a market-oriented competitive situation. (4) The consequences for the workers affected and for the trade unions in terms of pay and working conditions and industrial relations in general were serious and negative. In the vast majority of cases additional fringe benefits above and beyond basic wages were cut, working conditions deteriorated and jobs were lost. Only in a very limited number of cases were quality improvements and cost savings achieved without a deterioration in these factors. One of the factors behind this trend was the decentralisation of central bargaining systems within the industrial relations system and the local fragmentation of the unions in the context of increasing market pressure and a worsening economic climate. (5) Especially since the second round of tendering it has become apparent that the British Government has not allowed the private and public sectors to compete on a "level playing field", but rather has initiated an asymmetric development dynamic in favour of the private, and to the detriment of the public sector. If the public sector loses out on a contract, its chance of survival until the next round of tendering is extremely slim: in the second round the public sector has virtually no chance. Due to the different regulatory conditions applying, the same is not true of the private sector. Moreover, if the private sector makes a successful bid, some at least of the "public-sector" staff are usually taken on. There is considerable evidence for the view that the asymmetric development dynamic so initiated is leading to a fragmentation and/or erosion of the public sector, and raises the threat of the private sector acquiring a monopoly position. Such trends suggest that decisions of this type are irreversible and imply a deterioration in the steering and control potential of the state. A third study of the regulatory mechanisms employed in public sector modernisation arose out of an international competition between city administrations organised by the German Bertelsmann Foundation (Bertelsmann Stiftung 1993). This study will be discussed in greater detail in section V. At this juncture several

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aspects relevant to the use of competitive instruments will be considered, drawn from the international experience of local authorities. While many German local authorities are now, in view of budgetary restraints, seeking salvation by privatising their authority-owned firms, other countries - interestingly enough particularly English-speaking and Scandinavian countries are opting for more comprehensive political strategies (cf. Saltmann/van Otter 1992). Phoenix/Arizona, first-prize-winner in the Carl Bertelsmann Competition 1993, is a good example here: "The more competitively oriented basic attitude in the USA and the greater weight of the private sector there have led to a very pragmatic attitude (...) towards privatisation in localauthority management. Phoenix has taken a position based on a clear commitment to competition. At the same time, this philosophy opposes privatisation at all cost, indeed, it goes beyond this, demanding explicitly equality of opportunity for the provision of services by the public sector: public-sector firms must, however, play by the competitive rules. Only this approach can ensure that the employees in all areas of the public sector internalise the same basic attitudes." (own translation from Fairbanks/Dumont 1993: 39).

At first sight, what is striking about the international comparison of city administrations is the polar positions: the emphasis of administrative modernisation in countries such as Germany and Austria lies clearly in the internal optimisation of administrative structures; in the UK and New Zealand the stress is on developing an external competitive environment (via contracting out, market testing and privatisation). Yet the international competition has shown that between these two extreme positions a number of cities, in the USA, the Netherlands, Denmark and elsewhere, have developed new governance constellations, on the basis of which two conclusions can be drawn pertinent to the current discussion: - Internal optimisation of the administration requires an appropriate and efficient environment if it is to be effective. Yet a competitive environment need not whatever the dogma of the private-sector model might have one believe - consist solely of ensuring effective competition on markets. The evidence points to the existence of functionally equivalent arrangements able to provide a competitive environment. - In most cases the various types of competitive environment are complementary to one another. More importantly, here too there is no unambiguous justification for according priority to one mechanism over the others. What is vital is to develop efficient and close feedback mechanisms of whatever type, and not to accord priority to one specific form of feedback between citizens/customers and producers/administrators while discriminating against others. Having supplemented the aggregate national analyses conducted by the OECD with a number of comparative findings at local government level, we are now in a position to draw preliminary conclusions regarding the relative effectiveness of

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1. Private-sector competitive markets 2. Planned competition between public sector enterprises 3. Transparency of results and performance comparison 4. Quality feedback to the citizen/customer/consumer within the framework of a citizens' charter F. Naschold/WZB 1994

Figure 18: Types of competitive environment

various regulatory mechanisms and regimes in the context of public sector modernisation. ( 1 ) Decisive for an effective modernisation of the public sector is a complementarity between the public and private sectors and not the monopolisation of one by the other. This relationship of complementarity between the two sectors, its constitution and dynamic stabilisation, must be a central task of the bodies responsible for public sector governance in conjunction with the relevant markets. More specifically, the public sector governance institutions must aim at a continuous modernisation of the public sector both in order to maintain the competitiveness of public sector service production and, at the same time, to maintain the complementarity of the public and private sectors within their competitive relationship. The development of such a complementarity thus requires innovative regulation, and not ideological dogma or short-term fiscal crisis management. (2) Privatisation strategies can produce very heterogeneous, indeed contradictory, results (as shown by British experience with industrial privatisation and the privatisation strategy pursued by Swedish local authorities). Thus the factors critical for the success of this strategy are to be found in the interaction of the dynamism of competitive markets, the state regulation regime and incentive structures within the organisation itself. In other words, microeconomic efficiency is dependent on a complex interaction of very different regulatory mechanisms which transcends the simplistic dichotomy between private and public legal forms. The extent to which private forms of ownership constitute a necessary condition for macroeconomic efficiency (and to what extent public ownership can generate a realistic rationalisation potential in the face of wide-spread government failure, or, indeed, ownership forms are of any great strategic relevance for questions of microeconomic efficiency) remain unclear, both theoretically and practically; at the present state of knowledge the answer to the first question would seem more likely to be negative than positive

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(3) Internal modernisation of the public sector, and in particular the development of effective governance systems in all regulation regimes, is an absolutely vital strategy. What is decisive is the specific design of such a strategy. The introduction of governance by results often produces contradictory results, and not infrequently no visible results at all. Governance by results is only effective if a), it is linked to other regulatory mechanisms, in particular if it is embedded in a competitive and devolutionary context; b), if it possesses an appropriate personnel, organisational and process-related infrastructure. Under such conditions governance by results can be more effective than both neo-taylorist managerialism and traditional bureaucratic governance by rule and governance through intra-administrative budgetary responsibility. (4) Competitive instruments can produce lasting but extremely contradictory effects in terms of quality, cost and effectiveness. Consequently, two strategic points must be borne in mind when introducing competitive elements as part of a strategy of public sector modernisation. Firstly, it is decisive to determine from which of the two sources of productivity the improvement in effectiveness is being drawn: from improvements in "profitability" through cost externalisation (e.g. passing costs on to customers and workers) or by improving actual performance in terms of the two central factors quality and time. The second point is that competitive environments not only constitute competitive markets. Rather, in the public sector context, they may prove even more important than functional alternatives of effective feedback mechanisms such as performance comparisons, citizen and customer feedback in the context of devolution processes, or planned markets within the public sector.

2.5 Distributive effects induced by the transformation of rule-oriented governance regimes The analyses conducted by the OECD either simply do not mention the problems associated by redistribution induced by the modernisation process, or they are implicitly based on the view that the various regimes have no consequences for distribution. This has a number of causes: it is even more difficult to assess the social distributive impact of modernisation strategies and instruments than to determine changes in effectiveness; consequently fewer studies have been made of this problem. A number of provisional conclusions may nevertheless be drawn on the basis of the limited material available. By distributive effects I refer to changes in the distribution of power and influence and of income, working conditions and employment, whereby in the following I will focus on the latter group of effects. Great Britain provides conclusive proof of just how misplaced the OECD view can be. The modernisation programme pushed through by successive conservative governments in Great Britain was programmatically oriented towards redis-

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tribution from the very outset (Pirie 1988; Pollitt 1990): in favour of management and away from the shop floor, in favour of autonomous private sector groups and away from the public sector, in favour of the service sector and away from industry. Moreover, the analyses of the effects induced by Compulsory Competitive Tendering (CCT) have shown that in the vast majority of cases the main source of the productivity gains induced by this instrument was cuts in staffing levels, cuts in wage levels and a deterioration in working conditions (Walsh 1994). Thus we are faced with two basic hypotheses - the neutrality and the distributive effects of such modernisation strategies. On the basis of our data we are able to transcend this dichotomy to some extent. In the case of governance by results there is indeed considerable evidence for the neutrality hypothesis. With the exception of the four countries dominated by bureaucratic governance by rule, governance by results was employed in all the OECD countries, at least as an element of the modernisation strategy, irrespective of the party-political composition of the governments in question. In the Scandinavian countries governance by results constituted the central reform instrument during the second half of the 1980s. On the basis of this evidence, as indirect as it might be, it would seem plausible to conclude that governance by results, by and of itself, can hardly serve as an instrument of conscious redistribution in the sense mentioned above. Thus the controversy over distributional effects can be restricted to privatisation and the use of competitive instruments. At national level, the history of the OECD countries does indeed show that both privatisation and competitive instruments have in the main been introduced by liberal-conservative and not by leftof-centre governments. This would seem to support the view that competitive instruments are non-neutral. Yet at local government level the picture is very different. In his study Fólster (1994) found that roughly an equal number of socialdemocrat and conservative local authorities had privatised local government facilities or bodies and had introduced competitive instruments (in contrast to central government which had made little use of such measures). At the same time, the cities governed by the social-democrats had implemented privatisation schemes more effectively than those run by the conservatives ("ideological privatisation" by many conservative local governments), not least due to the better supervision of contractors, the efforts made to invite more than one tender and the use of alternative cost calculations. At national level the polarisation induced by the various modernisation strategies has not been forced through with by any means the same rigour as in Great Britain. The creation of autonomous agencies, the reorganisation of official bodies into corporations, the introduction of planned competition between public firms, and the systematic use of competitive tendering are measures primarily introduced - during the 1980s - by social-democrat-led governments in countries such as New Zealand, Sweden, Finland, and Austria (cf. v. Otter 1994; Stáhlberg 1994).

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A renewed look at Kieron Walsh's study of the impact of CCT in Great Britain may shed some additional light on this issue. In 35% of the cases the cost reductions and profitability improvements achieved were largely due to the "productivity sources" of wage cuts and a deterioration in working conditions. In around 50% of cases such cost reductions were achieved by linking technical and organisational rationalisation to redundancies. And in 15% of cases a "real" increase in effectiveness was achieved through state regulation, a competitive environment and internal rationalisation, in some cases linked to limited redundancies, but not wage cuts and a deterioration in working conditions. More significantly, this was achieved not only in local authorities under the control of the Labour Party. By inference, this study shows that competitive instruments together with the instruments of governance by results can in fact expose rationalisation potentials, without automatically inducing redistributive effects. They open up opportunities which, under specific conditions, can be used to generate real increases in efficiency without distributive effects.

2.6 Current trends and the challenges facing public sector modernisation in the 1990s To conclude this section I would like to summarise some of the central trends and challenges for the immediate future which can be derived from analysis of the experiences of modernisation in the eleven OECD countries. 2.6.1 Governance by results between the Scylla of bureaucratic governance by rule and the Charybdis of competition Governance by results faces the same two-fold threat in all the OECD countries in which this form of regulation has been introduced. On the one hand there is the danger of a persisting status quo of bureaucratic governance by rule, and thus a "duocracy" of both governance systems which almost inevitably means that governance by results steadily degenerates into a mere formalism. On the other hand, once bureaucratic governance by rule has been overcome, governance by results, on its peak in the 1980s, is bound to becoming steadily replaced in the course of a three-stage process (cf., for instance, Stahlberg 1994) by the emerging competitive instruments. These experiences also point to the necessity, as in private firms, to develop a strategic leadership within the state apparatus and to provide it with the appropriate instruments. This applies particularly where influence can be exerted on the conditions necessary to ensure the effectiveness and the distributionneural character of the governance by results. What is then decisive is to link governance by results - initially considered as a voluntaristic and subjective instrument of government - with real trends as manifested in processes of social devolution and competition. Thus the way in which the results centres are organised

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within the state apparatus is a matter which can decide the fate of governance by results as a linkage between state and society. 2.6.2 The rational use of markets The experiences of the OECD countries with 15 years of public sector modernisation also carry an important message concerning the role of markets, privatisation and competitive instruments. Beneath the seemingly powerful return to free market mechanisms, most developed OECD countries have experienced the complex and uncertain transition from one regime of mixed economy to another, one more adapted to the new configuration of the international arena, the specificity of organizational and technological innovation and of course the new balance between various social groups. Whereas the majority of analysts, policy makers and journalists expect the triumph of the market, the issue really at stake is the institutional transition and organizational innovations which would finally give a significant but opalescent role to markets. Basically, pure markets are actually the leading coordinating mechanisms when the quality of the product is very high, the suppliers and demanders are numerous enough to prevent any oligopolistic cartel, or/and business associations define by consensus a sophisticated set of rules in order to prevent the public market from being destroyed by opportunistic economic agents. On the other hand, when quality is hard to control ex ante, technical changes are rapid and monopoly prevails, or when the commitment of workers is crucial for the quality of the product, joint ventures, horizontal or vertical networks, quasi vertical integration or even hierarchy can provide better results in the very long run (Boyer 1994). A return to free market mechanism, the hope of the 1980s, might therefore result in the likely disillusion of the 1990s. The rational use of markets, and not "ideologised privatisation" (Folster) or the ideologically guided use of competitive instruments, will prove to be one of the central challenges for public sector reform in the coming decade. Distinguishing between 'ideal', perfect competitive markets and real-world markets, differing between markets and competitive instruments, between the use of markets as a "dissolving device" (Boyer 1994) - their most important use during the 1980s - and as a social coordination mechanism, and establishing the required interaction between government regulation, competitive instruments and governance by results all mark first steps towards such a rational use of markets. 2.6.3 Towards the "guarantor" welfare state and strategic self-reliance Whereas during the 1960s and 1970s the fully developed welfare state performing a wide range of functions internally was the innovative point of reference for public sector modernisation, the model country being Sweden, this view has now largely been replaced - partly in the context of the move "back to the market" - by the role-model of lean government and lean administration. Yet now, in the mid-

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1990 there are initial signs of disillusionment with this approach and preliminary attempts are made to overcome the dichotomy of the two models. It is becoming increasingly accepted that if the state provides a very wide range of public services itself, this can lead to significant financial, cost-efficiency and effectiveness problems. To this extent a change of course away from the "producer" welfare state and towards the "guarantor" welfare state indeed appears likely, a development which would amount to a comprehensive restructuring of the state apparatus. Narrowing the scope of public sector activity down to its "core areas" - following lines of argument developed in and for the private sector - would, however, fail to ensure the required complementarity between the private and the public sector. In order to maintain this complementarity the public sector must retain, in addition to its undisputed regulatory role, some degree of 'own production'. Experience at local level, particularly among the most innovative local authorities in the OECD, provides strong evidence of the importance of this point. Redefining the optimal complementarity relationship between the public and private sectors in terms of the degree to which the former produces services itself, will thus represent a further strategic challenge in the on-going process of public sector modernisation. 2.6.4 Questioning the "value-added" of strategic public sector management The philosophy of New Public Management, which has underpinned public sector modernisation in the OECD countries, has, in almost all the countries, implied an increase in the relative importance of top management at the expense of both politics and subordinate organisational levels. More recently, however, two trends have come to light which call into question this privileged role for strategic management. In the course of the reorganisation of administrative bodies into results centres and of the transfer of certain tasks to autonomous agencies or markets, both the organisations themselves and representatives of the political sphere have increasingly posed the question: what is the real value of the centre? Thus managerial levels, particularly within central government, face a questioning of their legitimacy from these two area. Redefining the functions of strategic management, the "value-added" by top management within the overall value-added chain, represents another challenge to the process of public sector modernisation. 2.6.5 Beyond the decoupling of managerialism and labour policy That the position of management as a leadership and coordination mechanism within the public sector needs to be reconsidered is a premise of the New Public Management Movement which is now widely shared. In addition to this, our findings indicate a second development which is closely linked to it. In virtually none of the OECD countries has attention been drawn to an explicit relationship between managerial forms and the labour process. Managerial development, in

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other words, is seen as separate from organisational and personnel development. In the private sector the dysfunctions of such a decoupling of these two areas are already well known (Weisbrod 1989). Our findings suggest that in the public sector this decoupling serves to perpetuate traditional forms of bureaucratic division of labour, even within seemingly highly developed systems based on governance by results, or leads to a neo-taylorism of managerial mass production within the framework of private sector market models. One of the most important tasks for public sector modernisation will therefore lie in the codevelopment of the managerial and the labour process. 2.6.6 The role of politics, public discourse and evaluation Our findings on the history of public sector reform developments all agree on one point: that such restructuring has always been the result of highly political processes. The transformation of the public sector in Great Britain and New Zealand, organisational development processes in Sweden, Finland and Norway, devolution in Denmark and the the Netherlands were all highly political projects, albeit to very different extents and couched in different linguistic styles. Reform of the public administration is, namely, not the same thing as reform by the public administration in the form of managerialism. First and foremost, reform of the public sector is a political challenge. Yet it is striking to note in this context that in virtually all countries - with the partial exception of Sweden and Great Britain - the innovation process itself has not been accompanied by an evaluatory process anchored within the system as a whole. Systemic development is not merely a technocratic matter of planning and implementation, but rather requires fundamental processes of observation and self-organisation as a central medium of collective learning. This requires not merely that existing stocks of knowledge be extended and broadened, but that new knowledge capacities, in the sense of "processing experiences" (Luhmann 1981: 375) be developed. Moreover, these processes of self-observation must be established not only at the top of the organisation but distributed throughout the organisational hierarchy. Thus at a practical level, one of the major challenges for the process of public sector modernisation will be to develop structured forms of observation and public discourse. These will require support in the form of continuous, parallel evaluation studies at both sectoral and transsectoral level. Such evaluatory work must also be distributed hierarchically throughout society as a whole, forming the point of departure for collective selfobservation.

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3 Management by Results (MbR) Systems: Developments, Variants and Perspectives 3.1 Conflicting views on MbR MbR, a refined version of Management by Objective (MbO) systems which lays stress on results control, is a mode of regulation which has become increasingly widespread in the OECD countries. At heart, any well-run private sector firm follows the logic of MbR. Since the 1970s, and particularly since the 1980s, efforts to introduce such principles into the public sector have been made in many OECD countries and especially throughout Scandinavia. Yet MbR has never been a universally accepted management system, but rather has always been the subject of controversy. In recent years this controversy has come to a renewed head as a result of the vigorous spread of MbR at the end of the 1980s. Three positions dominate the international discussion (whereby here the Scandinavian debate will be used as the frame of reference): - it is a widely held view that MbR represents "the form under which public activities will be conducted in the 1990s" (Pihlgren/Svensson 1989); - increasingly though, public sector governance systems are being interpreted in terms of a three-phase schema: the bureaucratic rule steering predominant in the post-war period was replaced in the 1980s by MbR, which, though, is being increasingly supplanted by market-type competitive instruments in the 1990s (Stáhlberg 1994); - from the very outset, efforts to introduce MbR met with the criticism, one which is being made very forcibly at the present time, that "MbR will sooner or later take its place in the series of poorly functioning and outdated steering techniques" (Rombach 1991: 111). The claim made by the proponents of MbR is clear: it represents a decisive step forward on MbO systems and is, in the final analysis, an indispensable rationalisation instrument within the managerial process, simply because there is no alternative to it. Yet the critical objections raised are no less clear. They can be summarised under three systematic headings: - lack of efficiency and effectiveness ("overpromising and underperforming"); - no contribution to managerial process stabilisation, indeed, a tendency towards process destabilisation; - lack of applicability to the public sector, if not actually a threat to democracy. This is not the place to go into the details of the development of MbR systems and the conflict of opinions that has accompanied it. The interested reader should refer to the relevant literature on the Scandinavian discussion (Pihlgren/Svens-

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son 1989; Santalainen 1993; Rombach 1992), the international debate (cf. among others Osborne/Gabler 1992) and to the preparatory work for this evaluation (Reichard/Wegener 1994). Against the background of this literature, what I would like to present here is a basic description of the most important dimensions of the prevailing views, both practical and theoretical, on MbR, and to sketch out the basic variants of this form of governance in current practice. By means of this frame of reference some of the more important of the controversies mentioned above will be examined. The aim of the following sections is, on the basis of the available OECD data and the literature on the subject, to arrive at an overall evaluation of MbR against the background of the controversies of the 1990s.

3.2 MbR: Dimensions and profiles In both conceptual and practical terms MbR systems represent a refinement of MbO systems. The central core common to both variants consists of a 'management cycle' (cf. Locke 1990) which begins with target setting/planning, and proceeds to steering (using results-linked incentive systems) and the monitoring of goal attainment and results. The difference is one of emphasis: MbO stresses objectives, while MbR focuses on the results. In view of the terminological proximity of objectives (a view of how things should be) and results (objectives that have been realised) the two steering concepts are often seen as being closely related (cf. Reichard/Wegener 1994). Yet this is at odds with the results of empirical evaluation studies, according to which MbO can only be seen as an "emergency programme" of an MbR system (Fòlster 1994). My own investigations confirm this latter view based on the practical level. In practice, MbR systems are able to generate a much more powerful and farreaching dynamic within the organisation, personnel structures and, above all, the environment, than the MbO systems deployed in the past, with their focus on objectives. In view of this, it seems appropriate, on the basis of experiences in the OECD countries, to distinguish four specific types of steering concepts:

Figure 19: -

Four Steering Concepts

administrative rule steering within bureaucratic organisations MbO as practised in the 1970s MbR on the lines of the NPMM as practised in the 1980s and 1990s directive and decentrai contextual steering

F. Naschold, WZB 1994

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Frieder Naschold

Whereas administrative rule steering is based on the logic of conditional programming, MbO and MbR are oriented towards the classical concept of linear management processes in which purpose is determined by plan. Contextual steering, on the other hand, is based, in analytical terms, on the concept, developed by systems theory, of management processes where the aim of survival takes precedence over other aims. Looking at MbR systems alone, a wide variety of forms of results steering can be identified within the OECD. Such variation applies especially to the question as to the 'width' or 'narrowness' of the MbR systems. The extent to which organisational and personnel issues are located at the integrated core of the steering system also varies. Strategic management is developed to very different extents, and significant differences are apparent with regard to the degree of process orientation exhibited by the various models. Drawing together these dimensions against the background of OECD trends, it becomes clear that not one, but at least three distinct types of MbR exist in the OECD countries which have so far made use of results steering.

Finland

Norway

^ Great Britain i

Sweden

^

MbO/MbR

m

£

medium

I Governance type

Rule steering/MbR

1

Development of strategic management

low

(

/ 1

t

0\

high

~

N

S Decoupled

0

/

Human resources

Personnel administrai o n y v ^ _

Organisation

Taylorist work organisation

Central weakness

MbR/TQM

^ ^

"stuck in the m i d d l e " ^ inconsequential formalism

J®

Coupled Personnel development

d

( 1 ^

\ •

Contra-intentional over-steering

to

»

Socio-technical j work organisation k

'

Naschold,

Relationship btw. m a n a g e m e n t and labour policy

»

Post-taylorist work organisation ^processes dominate results

Figure 20: Three Types of Results Steering

The following evaluation, based on OECD data, is to be considered provisional in nature. The predominant characteristic distinguishing the three results steering systems is simply the form taken by, and the extent of such steering. The fist type "results-oriented rule steering" - constitutes a compromise between the classical form of bureaucratic rule steering and newer forms of results steering. Finland and Norway are currently typical examples of this form of governance, in each case associated with a decidedly subordinate role for strategic management. Human resource and organisational management are rather traditional, with few linkages

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between management and the labour process in Finland; in the case of Norway work organisation is socio-technical in orientation and there is some linkage between the management and the labour process. Great Britain is a classic case of managerial results steering. The system relies heavily on managerial control over target-setting and results monitoring. Strategic management here is rather highly developed, although the labour process, including personnel and organisational development strategies, are largely neglected. Sweden is characterised by the extremely process-oriented nature of its governance system. This synthesis of MbR and TQM is supported by direct linkages between management and the labour process, involving personnel development strategies and socio-technical work organisation. Each of the three forms of MbR governance has its weakness. The "resultsoriented rule steering" is "stuck in the middle": the precarious compromise between the two systems threatens to undermine its relative efficiency, leading to the danger of inconsequential formalism, and thus, in the final analysis, to the erosion of results steering. Managerial results steering tends towards oversteering and thus to produce counter-intentional results, not least due to the inadequacy of its personnel and organisation infrastructure. Experience has shown that the main problem facing process-oriented results steering is that organisational processes tend to become 'self-sufficient', distracting the organisation from its orientation towards results. I would like to add a number of additional findings derived from both the theoretical and practical discussions of this topic to the aspects of MbR systems dealt with so far, so as to be in a position to evaluate the controversy which is surrounding results steering in the 1990s.

3.3 Between bureaucratic rule steering and results steering We have already drawn attention to the precarious compromise between bureaucratic rule steering and results steering. Such a constellation is characteristic of countries such as Finland and Norway, and is likely to affect countries such as Austria and Germany if they opt to implement the reform efforts envisaged for specific administrative areas. The consequences of this precarious equilibrium identified above were a relatively inconsequential formalism of results steering and its final demise. I would now like to subject this typical constellation to closer analysis. The deadlock between bureaucratic rule steering and results steering can be traced back to endogenous strengths of the former and endogenous weaknesses of the latter. The central weaknesses of results steering - seen as an isolated steering mechanism - are relatively easily identified based on the largely convergent

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findings of organisational science research (Schreyógg 1991; Naujoks 1994)11. At the conceptual level MbO and MbR are based on the following premises: - monolithic hierarchy of command relationships; - classical management functions as a linear process; - subordination of leadership, organisation and personnel as instrumental values to the management cycle of objectives and planing targets, implementation and monitoring. This classical conceptualisation is depicted in figure 21:

Source: Schreyogg 1991, modifications by F. Naschold

Figure 21: The Classical Management Process in MbR

The inadequacy of results steering is due in particular to three systematic conceptual weaknesses: the information, the organisational transmission and the implementation problems. Plans and targets can never accurately depict the outside world in all its complexity; they can merely construe it in a highly selective way. This implies fundamental uncertainty. Planning and the leadership can never be assumed to be infallible. Any actions based on plans, objectives or expected events are thus highly '1

Only a brief outline of the system-theoretical revision of governance by results is possible here. A number of illustrative conclusions from these are drawn in chap. III.7.

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risky. Moreover, objectives and results are also oriented to ends. Yet ends systematically neglect the problems of an organisation's survival. Thus problems of survival have to be addressed in parallel to the setting of targets, whereby at any time the two may come into conflict with one another. Last but not least, social systems always exhibit a "circular interdependency" (Morgenstern) between the steering bodies and the object of such steering. This dialectical relationship undermines the linear logic of results steering. The weaknesses of results steering face a corresponding strength of rule steering. A central concern of rule steering is to ensure the survival of the organisation and is thus able to mobilise all those interested in, and the mechanisms of, the status quo for its own purposes. Results steering and MbR, on the other hand, have no supportive structure of their own: neither exchange relations with market segments nor roots within social groups. Initially at least, results steering acquires the ability to maintain the status quo only by virtue of mobilisation within the political system. Yet, as our empirical findings from the OECD countries have shown, such mobilisation tends to be short-term and vulnerable in nature. Thus, results steering by itself is indeed "dangerously incorrect" and "necessarily erroneous" (Schreyogg 1991: 270, my translation). The weaknesses of results steering and the strengths of rule steering are also constitutive of the typical situation of being "stuck in the middle", with its precarious balance between the two regulatory mechanisms. At the same time, the main lines of criticism levelled against results steering do not go as far as to condemn the whole idea of action targeted at specific aims. Everything thus depends on the way in which results steering is linked to organisational stability. What is decisive is to minimise the risks involved with results steering by the use of organisational and personnel management instruments and by means of compensatory action using other regulatory mechanisms.

3.4 Results steering between process stabilisation and process enhancement While the process stabilisation of results-steered organisations is an important element of public sector organisational development with regard to the need to safeguard the continued existence of the organisation, this is equally true of "process enhancement", the continuous improvement of existing processes. The problems of process enhancement have been the source of a whole range of critical experiences and comments from many different perspectives. The central premise for all approaches to process enhancement is the view, popularised by W. E. Denning, that 80% of quality problems are due to the system and just 20% to the performance of the members of the organisation. From the perspective of Total Quali-

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ty Management (TQM) the following points of criticism, in particular have been raised of results steering (cf., for instance, Gabor 1990; Milakovich 1990). Figure 22:

TQM Critique of Results Steering

1. Result steering emphasises results at the cost of processes. This focus favours short-termism at the expense of longer-term orientations. 2. Results steering sets targets that are distinct, easily attainable and subjective if not actually arbitrary, raising the danger of intransparency and unjustified prioritisation. 3. Numerical targets and coefficients are a "fortress against improvement of quality". They lead to a management system based on fear, rather than generating support in performing tasks and in organisational development. 4. MbR systems "don't filter down to employees". Only seldom are strategic targets set in a way which is clearly comprehensible and the questions of implementation in terms of operative ways and means (an appropriate "road map") is often neglected. Results steering often merely involves target setting by top management, without significant influence on operative dealings in the process of value-addition. 5. Results steering frequently exacerbates the problems of horizontal and vertical co-ordination. On the one hand results steering tends to compartmentalise task areas into specific units, while at the same time the same targets are frequently interpreted quite differently at different hierarchical levels. F. Naschold, WZB 1994

Although these criticisms are ten years old, they still provide a significant bench-mark against which to measure results steering, making process enhancement an additional focus of the further development of results steering. In both the scientific community and among consultants this critique has been largely accepted. This position largely characterises the current state of the - advanced - MbR discussion, in Finland as elsewhere, requiring greater attention to be paid to the process dimensions of results steering (for Finland cf. Santalainen 1993). In the target-setting process this means placing emphasis on a interactive bargaining process; in the labour process it is the enhancement of formerly taylorist forms of work organisation, while results analysis by means of evaluation is no longer to be simply understood as a comparison between what is and what should be, but rather as a co-operative learning process. Yet when process enhancement is implemented in practice, an additional complex of problems tends to come to light. The entire discussion of the relationship between MbR and TQM is based on a decidedly homogeneous conceptualisation of TQM (cf. Santalainen 1993), whereas international theory and practice point to very diverse forms of process enhancement. The choice of one of the various forms of process enhancement depends on both the prevailing structures and the strategies pursued. Whichever is chosen, it is of

N e w Frontiers in Public Sector Management Figure 23:

71

Four Alternative Forms of Process Enhancement

1. TQM as a group-dynamic process of organisational development (the predominant quality maintenance strategy in the USA). 2. Continuous quality improvement steered by management via short-cycle MbR projects (the concept favoured by neo-taylorist managerialism as an alternative strategy to the lack of steering characteristic of the US OD approach: for the USA and GB, cf. the examples given in Shaffer/Thomson 1992). 3. The Japanese version of TQM with its synthesis of process and results orientation, of shopfloor movement and top-management integration (cf. Naschold et al 1993). 4. The most recent strategy put forward by Business Process Reengineering (BPR), a radical, time-compressed strategy of organisational transformation (OT) as a reaction to the Japanese challenge and as a critique of the incrementalism of the organisational development characteristic of the first alternative. F. Naschold, WZB 1994

decisive importance in determining whether results steering can be successfully developed further.

3.5 Results steering, results organisation and organisational transformation In his evaluation study of the various new steering models employed within the Swedish public administration, Fôlster (1994) has convincingly shown that both results steering and results evaluation become increasingly difficult as the extent to which areas of administrative responsibility overlap increases. Thus, far more than rule steering, results steering requires as complete a concurrence as possible between areas of responsibility and areas of action. As has been already mentioned, the analysis of regulatory mechanisms complementary to results steering leads to similar conclusions regarding the types of organisational structure conducive to steering. If results steering is to generate effects in its environment then it must be in a position to develop steering impulses between the organisation and its environment. In organisational terms this implies the development of decentralised "result units" oriented towards the relevant environmental segments - specific markets or socio-structural groups of the population - in terms of their language, motivation and work organisation. Both findings are consistent with the evidence derived from our comparison of the OECD countries. Frequently constellations were identified in which, in the course of the modernisation process, the management cycle of results steering was simply draped over the existing labour process of the organisation as a whole. Yet in all these countries results steering only functions if organisational struc-

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tures have been at least partly adjusted to meet the requirements just mentioned. This minimum organisational requirement is reflected in two strategies of organisational development: the transformation of the current functional structuring of the public administration into a product-oriented segmentation, and the bringing together of product-related processes into a process chain that is as closely integrated as possible. Experiences within the OECD suggest the following distribution of "chances of success" at the current state of the modernisation process: - reorganisations of this type based on agencies have made the furthest progress; - local government administrations are better able to adjust than those at central government level; - central government ministries have so far made the least progress in meeting these organisational requirements. This third focus of the modernisation process can be expected to be one of the most difficult. It is therefore hardly surprising that the traditional change strategies of organisational development - the first two alternatives mentioned earlier - have increasingly come in for criticism in both the public and private sector for their lack of effectiveness. It is primarily the strategies put forward by Business Process Reengineering (Hammer/Champy 1993; Davenport 1993) with its call for a "fundamental redesign", for "dramatic change" and "radical process orientation" that are currently gaining in popularity. On this view the evils of public administration lie not in bureaucracy as such but in the underlying fragmentation of the administrative process. Thus reducing the level of bureaucracy requires a fundamental reorganisation of processes in a dramatic top-down approach. The tough organisational requirements of results steering in the face of the increasing dissatisfaction with traditional OD strategies on the one hand and the difficulty of meeting the demands of Business Process Reengineering on the other: this constellation constitutes the third focal point in the process of public sector modernisation.

3.6 Results steering and strategic management It may be recalled that MbO/MbR are steering concepts that were originally developed in the private sector and then, in the 1970s and again in the second half of the 1980s, applied to the public sector. Yet in the private sector MbO/MbR were always embedded in leadership (strategic management) systems and it was always clear that MbR-steering was only to be implemented in the context of a number of other orientations and instruments. This is a matter that has been largely ignored in the course of public sector modernisation. It has been shown, for example, that in the German-speaking area most of the leadership instruments for personnel management, while they did exist, were only seldom employed in a strategic and in-

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tegrated fashion (Wunderer 1994). For this reason a number of c o m m e n t s need to be made at this point concerning the relationship b e t w e e n M b R and strategic management. In the private sector strategic leadership/management are to be seen as the target of a growth and learning process, one which is generally thought to mature in four stages of development (cf. Timmermann 1988; Hax/Majluf 1994). Figure 24:

Four development stages of Strategic Management

1. Short-term financial planning The first step is short-term financial planning. Here the emphasis of planning efforts is on annual budgets and is largely internal in nature. The main aim of planning and managerial staff is to draw up as reliable a budget as possible and to stick to it. 2. Medium to long-term planning The next logical development step is to extend the time horizon to one appropriate to medium to long-term planning. Most firms enter this second phase when management considers it necessary to look rather further into the future. Characteristic of such a phase are multi-year budgets accompanied by attempts by planners and management to optimise development in individual business areas. 3. Strategic planning Increasingly leading firms are located in the third phase: strategic planning primarily oriented to the external environment. In this phase all the assumptions on which extrapolatory planning was based are called into question. The main characteristics of strategic planning are situation analyses that are increasingly concerned with market and competitive dynamics and the systematic identification of questions of strategic freedom. Resource allocation occurs on the basis of a clear understanding of the possibilities offered by each line of business to contribute to the overall objectives of the organisation. 4. Strategic leadership A number of particularly highly developed firms find themselves at the threshold to the fourth phase: strategic leadership. Such firms have recognised that an effective strategic planning can only be realised if, at the same time, the most important elements of the leadership system are adjusted accordingly. The entire organisation is geared to taking the initiative in competition and to exploit changes in the environment to its own ends. Growth and contraction are organised in such a way as to be in accordance with strategic aims. Executive management takes advantage of the opportunities to actively mould the future. F. Naschold, WZB 1994 Strategic management is thus action which is long-term and anticipatory in orientation and, more importantly, is directed towards the external environment rather than inwards as is the case in more traditional firms. T h e implementation o f this action-orientation involves the use of as many of the management instruments available as possible in an integrated, balanced way. It is also evident that M b R systems with their steering c y c l e s can indeed only constitute one element o f the several components that g o to make up strategic management (on the relationship between strategic management and MbR, cf. v. Troil 1994).

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Clearly, the experiences accrued in the private sector must not be ignored when it comes to modernising public sector processes. In particular the two main strands of strategic management - the external orientation of strategic planning and the integration and unidirectionality of all management instruments in implementation - must be used as a basis for the further development of MbR steering. Irrespective of the various differences between the public and private sector, there is no justification for precluding MbR systems in the public sector from a similar growth and learning process towards strategic management.

3.7 Results steering and decentral contextual steering: public administration as a political system The increased trend towards strategic management within the private sector has been accompanied by a radical shift in the discussion on steering. The impetus for this shift in the discussion of "societal guidance mechanisms" (Etzioni) came from a re-think, inspired by systems theory, of some of the central premises on which organisations are founded. Organisations are largely self-referential, selfgoverning systems with a high degree of operative integrity; the environment surrounding these systems is characterised by uncertainty. This destroys the entire basis for the classical steering model, according to which the steering subject intervenes in the steering object based on informed plans. In this context I would like to note two theoretical developments which are of considerable relevance for the practical modernisation discussion in both the private and the public sector but which have not received the attention they deserve. Based on chaos theory, the recent discussion on strategic management has been characterised by developments which place a fundamental question mark over the traditional understanding of strategic management (cf., among others, Stacey 1992; Peters 1994). By way of illustration, let me compare the requirement profile of strategic management with that of "chaos management" in tabular form (see fig. 25). In contrast to strategic management, steering an organisation is rather like leadership of pluralistic political systems: managing border relations, stimulating groups to take their own initiatives, stimulating self-organising heterogeneity, promoting plural cultures. The initiation of generative mechanisms, enabling groups to perform steering functions themselves, mobilising and forming coalitions between diverse interest groups, allowing emergent strategies, rather than direct steering by means of a vision results steering and monitoring - these are the requirements of modern management in a world characterised by uncertainty. The conclusions drawn by analyses based on the systems-theoretical discussion are similar. This can be exemplified briefly with reference to "decentral contextual

N e w Frontiers in Public Sector Management Figure 25:

75

Strategic Management and Chaos Management - Two Requirement Profiles

Strategic Management

Chaos Management

- mission statement

- no prior organization-wide intention

- formulate vision

- management guidance and control is enabling, not directing

- long term plans

- designing use of power and interest as a pluralistic political system

- key result areas and indicators

- establishing self-organizing teams with power and group dynamics

- strategic milestones

- developing multiple cultures

- monitoring achievement

- discovering challenges, generating new perspectives, taking risks

- culture building

- improving group learning skills

- incentive and control systems

- creating resource slacks - building heterarchic sensor systems, create and support

based on Stacey 1992

steering" (Naujoks 1994:120 f., whose arguments here are to some extent derived from Luhmann, Teubner and Wilke). Decentral contextual steering, the concept at the centre of the following analysis, stands in relatively sharp contrast to traditional ideas about steering. Decentral contextual steering means the reflexive, decentral steering of the contextual conditions of all sub-systems and the self-referential steering of each individual sub-system. Decentral steering of contextual conditions implies that while a minimum of joint orientation and world view is indispensable, this joint context can no longer be predetermined by a central unit or the top of a hierarchy. The contextual conditions must rather be construed from the discourse between autonomous sub-systems. In this form of steering, too, the capacity for self-organisation and self-steering is an essential precondition for the maintenance of the wide diversity of detail, the dynamics and the variability of these base units. In addition, executive levels no longer resort to external steering via the setting of contextual conditions; instead the implementation and information-processing capacities of the basic units are utilised to formulate the contextual parameters. In such a situation the task of the leadership unit is no longer to indicate the direction to be pursued, nor to provide framework steering by setting rigid contextual parameters, but rather to influence the base units in such a way that they continually find their own direction. The aim here must be to maintain the pro-

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cess of "finding a direction" through permanent discourse and variation. It would appear only too logical that in such a view, in which the various parts of an organisation are seen as "black boxes", the leadership must back off from substantive steering of behaviour in favour of exerting processual influence (cf. Naujoks 1994: 120 ff.)- This, however, delegates prime responsibility for the functioning of the organisation as a whole to the base units as they are both the addressees of steering and the main steering actors (horizontalisation). It is difficult to overestimate the significance of these developments, briefly described in the preceding paragraphs, for the practical discussion of public sector modernisation in the OECD countries. Even though these trends are still very much in a state of flux and, more importantly, their instrumental ramifications are still relatively undecided, a substantial degree of consensus has been achieved within the scientific debate: neither traditional strategic management nor chaos management are able to cover system-environment interaction in all its complexity. On the other hand they constitute a steering potential which is more complementary than substitutive in nature. The following figure derived from the private sector illustrates this constellation.

high \

Direct ^ contextual \ N steering

s \

Steering requirement

\ \

low

Decentral contextual steering

"Traditional" steering

\

\

\ \

1

high

low

Steering capacity by leaderhip unit

Source: Naujoks 1994: 136

"Steerability" of the base units

Steering capacity of the leaderhip unit

Figure 26: Concern Steering Matrix

The role of management in both the public administration and private sector firms is, however, not made any easier by the role separation within strategic man-

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agement, as it places contradictory demands on its actions, often enough simultaneously. Thus, the relationship between results steering and decentral contextual steering constitutes a fourth central element in the refinement of results steering systems.

3.8 Excursus: Private Sector Steering Systems - The Finnish Firm BENEFON The firm BENEFON is a small and medium-sized enterprise (SME) located in southern Finland and active in the telecommunications and mobile telephone business. Within a very short space of time BENEFON has achieved an astonishing position in a highly competitive market, in line with a strategy of rapid growth, based on short-cycle product innovations and marketing oriented from the very outset to global markets. The case study sketches this development, draws a profile of the firm and, in particular, attempts to pinpoint the importance of the integrated and simultaneous approach taken by strategic management for the development process of the firm. 3.8.1 A brief history of BENEFON The history of BENEFON is a mirror image of the development of the FinnishScandinavian telecommunications and, in particular, mobile telephone industry. The development of the Finnish mobile telephone industry began with an initiative by the Finnish army, which in 1963 invited firms to tender for an Army Radio Telephone. This invitation mobilised three electrical engineering firms: NOKIA, a state-owned firm TELEVA and SALORA. The at first only modest growth of this branch took a fundamental turn with the decision by the Finnish PTT to set up a national public network, the basis for domestic market expansion. Soon SALORA took on the role of market leader by virtue of its superior R&D, marketing approach and distribution power. Against this background, in 1979 SALORA and NOKIA entered into a 50:50 joint venture MOBIRA; in 1982 NOKIA acquired S ALORA's share of MOBIRA which thus became NOKIA's subsidiary, later NOKIA-MOBIRA. At the end of 1987 a number of core members of the NOKIA-MOBIRA management team left the concern. In 1988 J. Nieminen, formerly radiotelephone unit manager at SALORA, then managing director at MOBIRA and NOKIAMOBIRA, founded the firm BENEFON together with two other top managers of NOKIA-MOBIRA and around thirty investors from southern Finland (investment volume FIM 16 million). A number of R&D specialists joined the venture. Thanks to this remarkable confluence of experienced R&D and managerial experts and the substantial investment funds, the firm was quickly able to start operations and develop its first product.

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Thus in historical terms core competences in R&D, managerial experience in rapid, strategic moves, the desire for autonomy of a SME as against a larger market leader while retaining a firm footing in the relevant network relations can be seen as the core resources of the new firm. 3.8.2 The firm: products, markets, production Products and product development In-house R&D constitutes a large proportion of total development work, as both software and hardware designs are largely performed within the firm itself. Consequently both development costs as a proportion of turnover (10%) and the 25% share of staff involved in R&D are both above branch averages. It terms of its origins, BENEFON is a technology and product-innovation-driven firm. The product range is thus the focus of the firm's attention. BENEFON is active in two of the seven segments of the mobile telephone market: the NMT and the ETACS markets. The first product line - the NMT 450 Car Phone - was developed in the spring of 1989; a number of variants quickly followed. The second innovative wave came in the autumn of 1991 with the NMT Hand Phone, also accompanied by a similar product differentiation strategy. Both product lines (two basic products and a series of further developments) aimed to achieve rapid, short-cycle innovation processes with an expected profitable product life-cycle of 9-12 months and close customer relations. Product development according to the GSM standard was started in 1993; the date of market introduction has not been announced as yet. Markets and marketing Benefon's home base is clearly Finland and Sweden, with direct market relations provided by the firm's own retail network. The firm is now exporting 85% of its output, with a share of 10% of the global NMT market and less than 1 % in mobile telecommunications as a whole. Exports are concentrated in three markets: Scandinavia, the former Eastern Block, Middle East and Southeast Asia, with Central Europe also playing a role. Of the 32 national export markets, 12 are served via the relevant system operators, 20 via independent retail chains. Given the very infrequent occurrence of technical problems with the products, after-sales service was provided through intensive training of retail staff, supported by a small swap pool. Growth trends The original firm strategy aimed to achieve a long-term growth rate of 30% of turnover. This would have been significantly in excess of average growth of the

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market (in terms of value, not units). Ignoring 1991, in which the Finnish economy as a whole experienced major crisis, an annual doubling of turnover has in fact been achieved from 1991 to 1993. Production As far as production is concerned, BENEFON's structure is comparatively "normal". The firm encompasses all the major functional areas in the mobile telecommunications business. Although the focus of the firm's activities is clearly in R&D and also in international marketing, the decision to enter into in-house production was taken at an early stage. Short through-put times in both product development and production, with a turn-over of more than 1 million per employee must be seen as part of BENEFON's recipe for success. The first production line was set up in 1989, the second in 1993. The degree of automation is high, particularly in the early stages of production (automatic board placement) and the final stages (automatic testing procedures), although not significantly higher than normal for the branch. On the basis of the firm's business reports, the level of vertical integration is estimated to be around 15%, roughly in line with the sectoral average. Procurement is decidedly international in nature. Chips are purchased in an international shopping-procedure from all the major suppliers, from AT&T and Motorola and the leading Japanese concerns. Yet a relatively large proportion of the supplier firms are located in the region in which the firm is located, a fact due not least to the immediate proximity of the NOKIA mobile telecommunication plant. A further remarkable feature is the extremely flat hierarchy. The factory contains just three levels: the director of the firm, the works manager (with three divisional assistants) and the shop floor. This minimal vertical division of labour is not uncommon among SMEs. Personnel With the exception of crisis year 1991, the firm has expanded its workforce continuously and rapidly, from just under 50 in 1989 to around 200 in the first half of the 1994. With a capacity of 100 000 units (in 1993) and a workforce of 200 (mid-1994), 25% of the workforce were involved in development (50), 100 in production and procurement, 20 to 30 in marketing and SEAT and 10 in management and finance. These figures underline the central focus on R&D. 3.8.3 The governance of BENEFON Four central steering structures, each with very different regulatory mechanisms, are primarily responsible for the orientation and the development dynamics of the firm.

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R&D as the professional core competence of the firm Both historically and in terms of corporate identity, the R&D division is the central area of activity. BENEFON, as a technology-driven innovative firm, possesses an unusually large, although in terms of the number of employees, the speed of product development (around 1 year) and costs (ca. 10% of turnover compared with the sectoral average of 7-13%) very efficient and effective, product development department. This is all the more true given that the substantial development costs for the SSM line, for which no turnover has as yet been generated, are included in these figures. The professional competence of the product development department is one of BENEFON's main pillars.

The firm as a learning organisation A second and essential characteristic is that BENEFON comes very close to the concept of the continually learning firm. This is thanks to a decidedly complicated structure. The basic organisation of the firm follows the traditional functional differentiation into the traditional divisions. This functional differentiation is responsible for safeguarding the existing stocks of knowledge held by the firm. Despite this functional differentiation BENEFON has managed to pursue product development with very close (integrated-simultaneous) links with both production and sales, involving highly compressed time cycles. This product development and production process approximates closely to the third generation of new product processes (Cooper 1984: 4): "a precarious balance between the need for thoroughness of action and complete information versus the need to move quickly; but it is still very much a system and still requires discipline (that is we are not retreating back into a world of no process, no system and ad hoc decisions). The third generation has four fundamental Fs: 1. Fluidity - it is fluid and adaptable, with overlapping and fluid stages for greater speed. 2. Fuzzy gates - it features conditional Go decisions (rather than absolute ones), which are dependent on the situation. 3. Focused - it builds on prioritization methods that look at the entire portfolio of projects (rather than one project at a time) and focuses resources on the "best bets". 4. Flexible - it is not a rigid stage-and-gate system: each project is unique and has its own routing through the process."

Subject to the leading role accorded to product development, in this mode of operation the entire firm is transformed into a market-steered development process with continually rotating product-cycle phases, a continuously changing and extremely demanding learning process. As part of this learning process there are continuous local attempts to initiate improvement along the lines of bottom-uporiented Total Quality Management.

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Overall steering of the firm: directive contextual steering The functioning of so complex an organisational form clearly requires a complex steering system. BENEFON's central steering structure consists of two complementary regulatory mechanisms. Despite its small size the firm consciously decided to create a highly developed strategic planning and management system. Besides competent budgeting and financial planning it unites a clear corporate vision and unambiguously formulated objectives with programmes, projects, measures and "milestone" derived from them. The strategic resources of organisation, labour and capital are ascribed to the various aims and means. Thus the integrated management of products and strategic resources is located at a comparatively high level (level 3 to 4) on a four-stage development model of strategic management (cf. Timmermann 1988). The firm places great emphasis on the fact that in this planning process - which requires, a subject of controversy within the firm, around nine working days per year - the entire managerial staff of 30 to 40 employees participates at each level and in each area. This "broad-based and deepslice" (B. Gustavsen) approach to strategic planning does not require a parallel organisation and extensive staff functions, and provides the entire firm with its strategic orientation and, at the same time, a high degree of policy consistency (in the sense employed in Policy Development). The second component of overall steering, complementary to strategic management is to be found in the "political management" of the firm. In contrast to the classical conception of strategic management, the aim of top management here is not the traditional task of formulating visions and objectives in top-down fashion, but rather the contextual steering of the firm as a whole. The organisation of this context is conducted by product development, the development of arenas of discourse transcending departmental boundaries, the formation of self-sustaining, integrated teams, the promotion of a corporate culture via conscious personnel selection and socialisation, as well as the incentives for improvement initiatives. It is the successful combination of strategic management and contextual steering which has guided BENEFON along its successful development path.

Supportive networks The importance of a fourth factor, the firm's local and regional networks, should not be underestimated. The area around Salo is part of Finland's highly developed southern region with its long industrial traditions and strong culture. In particular, BENEFON profits from three of these networks: the network of local suppliers of materials, the regional labour markets for recruiting its engineers and production workers, and the risk capital of its investors (currently the firm has 250 shareholders).

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3.8.4 Conditions of development and potential risks BENEFON has a short but glittering past behind it and a decidedly uncertain future before it, albeit one with clear options. According to all the relevant market analyses, neither the NMT nor the ETACS market are likely to grow significantly, but are more likely to stagnate with a trend towards contraction. Due both to their present size and the still considerable demand for replacements, both markets will remain relevant in financial terms (as so-called cash cows), but they are not where the firm's perspectives lie. What remains is the rapidly expanding market for GSM products, currently one of the hottest markets of all. Yet this is the scene of intense competition between at least ten companies, including Motorola, Nokia, Siemens/Alcatel, all of which are pursuing decidedly aggressive cost, innovation and market-share targets, and have major production capacities (of roughly 1 million units each, compared with the current BENEFON figure of 100,000). It is also interesting to note that the corporate strategies pursued by these firms cannot all be realised, as several of them are seeking market leadership in terms of costs and market shares of over 20%.

If BENEFON wishes to force its way onto this market - and this appears to be the current strategy - the firm must determine the type of market differentiation strategy it intends to pursue: by volume, cost and price or as a niche producer. A volume, cost and price strategy is scarcely conceivable for BENEFON in the foreseeable future given the large production volumes and pronounced cost-cutting strategies of most of the other ten firms and given the firm's low initial production volume capacities. A niche strategy, on the other hand, must accept the fact that BENEFON has as yet no niche products on offer, while its competitors are already present on the market with the fourth GSM product generation. Both strategies, or a combination of the two, will certainly require, in view of the pace at which the GSM market is expanding, a substantial increase in the size of the firm, a development which confronts it with a strategic dilemma. The conditions for BENEFON's success, namely, also constitute potential risks in the form of a viscious circle. The dynamic expansion of the mobile telephone market will exert immense and double-edged pressure on the firm: on the speed and targeted nature of its product development process and on the potentials of its strategic resources of labour and capital. A quantitative expansion of the firm in one form or another would appear a logical and perfectly feasible option. Such growth might, however, decisively weaken precisely those regulatory mechanisms which have made such a contribution to the success of the firm so far. The tension between the market-driven expansion of the firm and the stability of its regulatory mechanisms constitutes a central development problem for the firm. The alternative to this strategy would be to form a strategic alliance in one or more of the areas product development, production and sales and marketing. Entering into a cooperative framework in this way would mark the end of the current

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life-cycle of BENEFON: the firm, which originated as an offspring of NOKIA and now an independent company, would be incorporated into a larger concern. It is this development dilemma which currently constitutes the major challenge for strategic management in the firm.

3.9 Results steering and the public sector The four central elements in the critical discussion concerning the further development of results steering all focus on the effectiveness and efficiency of this type of steering: In the main the perspective taken is that of the private sector. The fifth and final problem constellation must address the question as to its applicability to the public sector. As early as 1990, Pollitt drew attention to the two contrary positions on this issue. Supporters of the "generic" management concept point to the universalism of the management function and thus, in principle, to its universal applicability; the supporters of "distinctive" managerial concepts, on the other hand, emphasise the specific nature of the public sector and thus the frequent failure of attempts to transfer managerial systems. In the recent discussion in Scandinavia and a number of west European countries (the UK and Germany among others) the hypothesis of "non-transferability" has been developed further. Results steering systems are, it has been argued, incompatible with the public sector; any attempt to introduce them endangers democracy and the rule of law in western countries (cf. Rombach 1992). In view of the central importance of this question I would like at this point to reconstruct this two-edged argument - non-transferability and inconsistency with democracy - and to attempt a preliminary evaluation on the basis of the findings presented so far. One of the challenging questions which confront both academics and practitioners is whether there is a generic concept of management. One way of discovering whether management in public sector organisations has unique features is to examine the ways in which those organisations differ from private sector companies (Stewart/Ranson 1988). The public domain has its own conditons, which are ignored at their peril. These conditions are themselves an expression of the fundamental reason why management in the public domain is the area in which values can be realised, which cannot adequately be realised outside it. Economics may see the public domain as required to correct market imperfections, to provide services which cannot be provided by the market or to re-distribute resources. Such statements are, however, inadequate because they still define the public domain negatively. It is also possible to see the domain as a public arena, not merely where the defects of the market can be corrected but where distinctive values can be realised.

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Thus, in the public arena many will assert the value ot equity in meeting needs that cannot even be expressed in the market. If equity is sought in the public arena then it must influence the nature of management. In the search for value for money, emphasis is placed on economy, efficiency and effectiveness. For at least the first two of those values the private sector model may suffice. Yet, if the value of equity is sought, distinctive management processes are required. Need has become a management concept. Again, in the public domain justice can be sought. Justice is a product of the public domain. It represents an appeal from individuals to the wider public arena. Justice cannot be determined by the individual for the individual. If justice is sought in the public domain, then management must support justice. It is not sufficient to ask whether management is efficient, it must be asked whether it is just. The public are not merely clients or customers of the public sector organisation. They are themselves a part of that organisation as citizens. Citizenship can be a basic value in the public domain. In building citizenship management has to encompass a set of relationships for which the private sector model allows no place. The values given expression in the public domain set the purposes for management, determine its conditons and specify its distinctive tasks. They constitute the basis for a model of management in the public domain that has its own rationale distinguished from management in the private domain. Figure 27:

Comparing Private and Public Sector Management

Private sector model

Public sector model

Individual choice in the market

Collective Choice in the polity

Demand and price

Need for resources

Closure for private action

Openness for public action

The equity of the market

The equity of need

The search for market satisfaction

The search for justice

Customer sovereignty

Citizenship

Competition as the instrument of the market

Collective action as the instrument of the polity

Exit as the stimulus

Voice as the condition

Stewart/Ranson 1988

The dilemma for the private sector is that the public domain sets its conditions and on those conditions the private sector depends. The dilemma for the public domain is that while it has its own rationale, it must encompass the private sector. The definition of public and private depend on each other. They have, however,

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to be distinguished for it is only then that they can be understood by and for management (Stewart/Ranson 1988). The second stage of the argument - the incompatibility of results steering with democracy and the rule of law - can be discussed taking the studies conducted by B. Rombach (1991, 1992) as an example. Against the background of a broadbased survey of the literature Rombach conducted an empirical survey of the introduction of MbO/MbR in the Stockholm provincial government under the aspect of the relationship between politics and administration, on the basis of which a number of more general conclusions were drawn. I have summarised the overall argumentation contained in Rombach's various studies in one diagram: Potential success factors of MbR

Limiting conditions in public sector

MbO can have positive effects

Final assessment

1. Clear objectives

1. Goals are

1. Employees try

1. It is easy to

must be formulated.

unclear and

to achieve

predict failure:

inconsistent.

objectives.

attempts to manage

2. Emioyees must

2. It is difficult

2. More employees

participate and

to measure

are more

are not likely

have influence.

results.

satisfied.

to succeed.

3. Employees must

3. Reward systems

3. Improve

2. Introducing MbO

get feedback.

are intransient.

planning and

systems leads to three

communication

impairments of

MbO in public sector organisations

democracy: 4. The fulfillment

4. Personnel are

It is debatable

of goals must

made up of

whether the

be rewarded.

voters.

positive effects

5. MbO must have

5. The leadership's

from MbO are

the support

utilisation of

essential for

of the leadership.

MbO is not

an organisation.

to be expected

self-evident.

- depolitization of the agenda, - managerial dominance over elected politicians, - decreasing direct and indirect influence of citizens.

Figure 28: MbR and Democracy

Comparing the conclusions drawn from Rombach's analyses with our findings on the development of the modernisation process in OECD countries, it is possible, at the current stage of the debate, to reach a brief and provisional verdict: 1. While the distinctiveness of the public and private sector is increasingly being recognised, there remain a significant number of functionally equivalent and

86

2.

3.

4.

5.

6.

Frieder Naschold

structurally similar regulatory mechanisms which do not preclude transfer in both directions - in the sense of a process of stimulation and learning - and indeed suggest that this could be fruitful. It is difficult to deny that MbR strategies have led to a whole range of problems regarding both their effectiveness and their implications for democracy; equally, in most countries a significant number of positive developments are also reported where the public administration has been rendered more effective within the context of an effective democratic system. Weighing the pros and cons of introducing MbR systems is a more complex process than suggested by the determined critics of MbR systems, such as Rombach. Firstly, democracy cannot be taken as the sole target variable while completely neglecting criteria of efficiency. Moreover, democratic regulatory structures can themselves be subject to processes of change: there is no one, static model of democratic regulation. Last but not least, the alternative to forms of results steering, ignoring market mechanisms and competitive instruments for a moment, is the classical form of bureaucratic rule steering, the supersession of which was, after all, the point of departure of the entire debate. It would therefore appear to be a fruitless strategy to seek to answer the questions as to the effectiveness, applicability and consistency with democracy of results steering at the conceptual level. A more promising approach is to consider the empirical conditions under which such steering is applicable, effective and consistent with democracy, seeking to identify the constellations conducive and those not conducive to these aims. Even at this stage the finding discussed above should be borne in mind, namely that results steering systems are unable on their own to supplant classical rule steering and remain stable over time. If results steering is to be processstabilising and process-enhancing it must be linked to the experiences of TQM and the organisational transformation strategies of decentral results units and at the same time be embedded in the development processes of strategic management. A central challenge facing both the public and private sectors is to establish situation-specific linkages between steering systems and forms of decentral contextual regulation, considered as two complementary regulatory mechanisms, in the process of public sector modernisation

4 The Modernisation of Central Government In all the reforming countries within the OECD central government has played a leading role in the modernisation process. In countries such as Great Britain, Sweden and Finland, central government performed the function of simulator and ini-

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tiator. In Denmark the Netherlands and New Zealand its role was to articulate and generalise innovative projects that had begun at local and regional level. The question which now needs to be addressed is to what extent and in what way central government has itself changed in line with the new "rules of the game". The international debate on this issue is characterised by two contrary positions. The "traditionalists" claim a monopoly of political authority and decision-making powers for the core organisations of central government, the ministries, deriving from this the need to maintain more or less traditional ministerial structures, conceived as a mixture of political "decisionism" and bureaucratic functionalism. The "modernisers", on the other hand, aim to restructure central government administration along the lines of the headquarters of a private sector concern. The debate in the run-up to the most recent British White Paper on Government Reform (HMSO 1994) is one manifestation of these multi-faceted discussions and conflicts. The debate on the future of central government and the associated practical developments are of great relevance not only for central government administration itself: there is much to support the view that the outcome of this debate will be decisive for the scope and the quality of the entire modernisation process. I would like to begin by sketching out the variety of national developments and the strategic position of individual countries by means of an international comparison of central government administrative structures, taking as an example the ministries of labour and the labour market authorities in selected countries. I then proceed to examine from an international comparative perspective development trends in five central ministries/agencies in Finland, all of which have played a pioneering role in the reform process. Against the background of these two sets of data a number of central issues and controversies associated with central government modernisation will then be discussed.

4.1 Development trends at central government level: an international comparison of labour ministries and labour market authorities 4.1.1 Labour ministries undergoing change National labour ministries and the labour market authorities subordinate to them are particularly well suited to the purpose of identifying central government development trends from an international comparative perspective. All the labour ministries in the OECD countries selected for analysis are classical central government departments employing the classical instruments of legislation (for the purpose of regulation) and money (for the purpose of monetary transfer). At the same time, in formal organisational terms they also have the most highly decentralised subordinate administrative structure in the form of regional and local labour mar-

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ket authorities and administration (employment offices etc.). In view of the specific requirements and organisational structures of the labour ministries, many countries have attempted to combine the rigour of rule steering with the responsiveness of decentralised base units. It is therefore not surprising that in all the OECD countries processes of change are particularly pronounced in the ministries of labour. That "the elephants are starting to dance" (E. Kanther) even in such "traditionalist" countries as the USA and Germany can be briefly illustrated with respect to the USA (see fig. 29). Those who have experienced the modernisation process of labour market authorities in more advanced countries such as Sweden or Great Britain may well smile at such developments as being little more than clumsy attempts, the initial phases in such countries were also characterised by similar "infantile disorders". 4.1.2 A five-country comparison of labour ministries12 The discussion on the reform of labour ministries and their subordinate labour market authorities in the Scandinavian countries, here Sweden and Finland, have at their root three assumptions, which are relatively seldom made explicit13: - overall the Scandinavian labour market authorities are to be seen as very effective and efficient in international terms; - international modernisation trends are located within the boundaries set by two Labour Administration (LA) regimes: the mass production of labour market services on the one hand, and their flexible-specialised production, on the other; - in terms of effectiveness and efficiency there is, in the final analysis, only "one best way" for labour market authorities, namely flexible specialisation. This set of hypotheses will be taken as the point of departure for the analysis of five national labour ministries and labour market authorities in an attempt to describe, with the help of structural profiles, the empirical variation between countries, and to identify national profiles of governance structures (see fig. 30). 12

13

Depending on data availability, the comparison encompasses five to seven countries: Great Britain, Sweden, Finland, Germany, Austria; in some cases Denmark and the Netherlands. The conclusions drawn are based on numerous documents and a large number of interviews conducted with representatives of the national labour ministries and labour market authorities. It was not possible within the scope of this project to completely standardise the data, thus permitting a full quantitative comparison. Although relatively similar definitions are used in national statistics, the underlying labour market operations are often rather different. For this reason the findings are compared summarily and using ordinal scales and structural profiles. I would like to warmly thank all the labour ministries and labour market authorities for the unstinting support provided and for the very fruitful discussions I had with their representatives. On the discussion in Finland, which is currently being pursued with great vigour, cf. the publications and workshops emanating from a labour ministry development project conducted by Robert Arnkil, Hameenlinna 1994.

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90

Frieder Naschold Great Britain

1) Legal status 2) R e l a t i o n s h i p politics - administration 3) Delegation/ decentralization 4) Formal integration of labour market policy

Sweden

Finland

Germany

Austria

Agency

Agency

Ministry

Public agency

Agency

Contract within hierarchy

Broad f r a m e s and mission

Hierarchy/ contract

Hierarchy/ contract

Hierarchy/ contract

Centralized

Decentralized

Centralized with d e c e n t r a l i zing t e n d e n c i e s

Centralized

Centralized

No

Yes/no

No

Yes

Yes

5) Steering system

MbR

MbR

MbR

MbRules

MbRules

6) Budgeting system

Advanced result budgeting

Mission/ result budgeting

Result budgeting

Line item budget

Line item budget

7) Strategic management (development level 1-4)

2-3

2-3

1-2

1-2

1-2

8) Process qualification

Continuous short-term MbR change cycles

TQM and OD

Fragmented local improvem e n t s and national agreements

Fragmented local experiments

Fragmented local experiments

9) Market/ competition instruments

Privatization/ Marginal business-led privatization labor market under public institution conditions

No privatiz a t i o n and competition instruments

Marginal privatization under p u b l i c conditions

No privatiz a t i o n and competition instruments

Bureaucratic work organiz a t i o n with some new work organization development

Bureaucratic work organization with few new work organization experiments

Bureaucratic w o r k organiz a t i o n with few new work organization experiments

High/medium

Low/medium

10) Work organization

Neotaylorism

New f o r m s of organization

11) Qualification level of the personnel

Low

Medium/high

Medium

12) Trends in debate

Internal d e b a t e on decentralization of the system

Further decentralization

Decentraliz a t i o n and local initiatives

F. Naschold/ WZB, 1994

Internal debate Internal debate and first steps and first steps t o w a r d s d e c e n t r a - towards f o r m a l lization and loorganizational cal initiatives decentralization

Figure 30: The Governance of Employment Policy

The British labour market authority matches perfectly the profile of central government as a whole in the UK (see above) compared with that in the other OECD countries. The Employment Department (ED) Group with its Employment Service Agency is a highly centralised and hierarchical administration with, formal-

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ly at least, a decentralised network of field offices. Over the years the Employment Service Agency, in particular, has generated a highly developed MbR system in which elements of strategic management (retrograde planning, integration of resources and strategy) play a prominent role. Besides the hierarchical setting of conditions, the main instruments of overall steering include contractual relations between the ministry and agencies and, increasingly, the inclusion of market mechanisms and competitive instruments, especially in the areas of training (notably the Training and Enterprise Councils). Work organisation, personnel deployment and skill enhancement are all in line with the labour policy regime of neo-taylorist managerialism mentioned above. The Swedish labour market authority has a highly decentralised and nonhierarchical process structure. The Labour Market Agency (AMS) operates within the framework of a broadly defined mandate ("mission") and in the context of a loose form of results steering in which programmes are subjected to intense examination in the course of the budgetary process after a three-year period. The most important steering instruments are the contractual relations between the ministry and agency and pronounced self-regulation in provincial and local labour market organisations within a broad contractual and hierarchical framework. A combination of organisational development and TQM is the motor behind relatively continuous processes of organisational learning. The Finnish labour market authority has a relatively highly centralised and hierarchical tradition, being the only case in which the ministry and the labour market authority are fully integrated. This tradition has had a profound influence during the introductory phase of MbR steering and MbO budgeting. More recently an increasing number of decentralised initiatives have made progress: experiments in work organisation and skill enhancement, process enhancement measures and attempts to further decentralise the entire organisational structure. Discussions have begun on the use of market mechanisms and competitive instruments, although it is not yet clear whether they will be deployed. The German and Austrian labour market authorities are traditional administrative departments in terms of structure and processes: highly centralised and hierarchical. Although the role of the labour market authority is performed by agencies, the relations between ministry and agency are classically bureaucratic and not contractual. Rule steering systems have retained their predominance together with traditional line-item budgeting. The most important instrument remains legislation and hierarchical command relations as the form of intervention to be used for both general and individual cases. In Germany some smaller elements of job placement have been privatised. The labour process is closely oriented to the traditional work organisational and personnel management norms of a bureaucracy. At the same time, an increasing number of local initiatives have initiated a broadbased discussion of decentralisation, and this has already led to concrete measures in this direction.

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4.1.3 Innovation, effectiveness and process dynamics Closer analysis of the five national profiles enables some initial conclusions to be drawn regarding the three hypotheses underlying the Scandinavian discussion mentioned above (cf. the recent Scandinavian studies by Henning 1989 and Niklasson/Thomsmark 1994). Two main constellations can be clearly identified among the five countries. Great Britain

Sweden

Finland

Germany

Austria

Decentralized Traditional Traditional Stuck in the Centralized bureaucratic bureaucratic middle, neo-taylorist and segmented organization and centralmanagerialism parallelism of and centralwith flexible old and new ized system ized system with mass systems with mass production and specialization 4—» 4—» with mass prostrategy, marduction and se- p r o d u c t i o n continuous ket strategy lected special rationalization and TQM campaigns drives based on high qualification F. Naschold, of personnel WZB 1994

Figure 31 : Three Modernisation Constellations in Employment Policy

The five-country comparison reveals two distinct modernisation constellations: the innovative reform countries Sweden and Great Britain on the one hand, and the "traditionalists" such as Germany and Austria on the other. Finland, by contrast, is characterised by a parallelism of the old and the new, and is located, as is clearly revealed by its overall profile, squarely between the two major constellations with respect to almost all the dimensions of restructuring. It is also evident that the modernisation constellation contains two very different "innovation regimes": Great Britain, with its highly centralised and neotaylorist steering system, with mass production and continuous rationalisation through rationalisation drives etc., and Sweden with its highly decentralised system, a high level of local self-regulation, a strategy of flexible specialisation with continuous intra-organisational improvement processes on the other. Thus the international comparison shows that it is not a question of a simple dichotomy between mass production and flexible specialisation. Rather there are three different regulatory regimes within the labour market authorities: the two innovation regimes just mentioned and the traditional regime of centralised rule steering. What can be said about the effectiveness and efficiency of these various regulatory regimes? An initial insight into this extremely complex and complicated question can be gained on the basis of national labour market data and of interviews conducted by the author with representatives of national authorities (here including Denmark and the Netherlands).

93

New Frontiers in Public Sector Management Work Load

Country Austria Netherlands Great Britain Sweden Finland Denmark ^ Germany

VA High Low Medium Medium High Medium Low

JS High High Medium Low High High Medium

Effectiveness WP High Medium High Low High High Medium

VF Low Medium High Medium Medium High High

JP Low Low High High Medium —

High

Efficiency JE Ì Medium Medium High Medium High High High J

(1) VA = No. of vacancies registered with Labour Market Administration (LMA) per employee (excluding benefit departments) (2) JS = No. of job-seekers per LMA employee (excl. benefit departments) (3) WP = Working population per LMA employee (excl. benefit departments) (4) VF = Vacancies filled via the LMA as a proportion of the number of vancancies dealt with by the LMA (5) JP = Job-seekers placed through the LMA (6) JB = Job-seekers (incl. the unemployed) placed, or vacancies filled per LMA employee (ecxl. benefit departments) = unknown — Source: BMAS 1992: 70/modifications by F. Naschold, WZB 1994

Figure 32:

Workload, Effectiveness and Efficiency

As far as workload is concerned, Finland, Austria and Denmark carry the heaviest burdens; Sweden by far the lightest, with Great Britain and Germany in between. In terms of efficiency - which is clearly closely linked to workload - Denmark, Great Britain and Germany are in the lead by a long way, followed by Sweden and Finland in the middle ground, well ahead of Austria and the Netherlands. As far as effectiveness is concerned - i.e. with respect to the strategic variables of the filling vacancy ratio and job placement rates14 - Great Britain, Germany (and probably Denmark, too) lead the group, followed by Sweden and Finland. Austria and the Netherlands bring up the rear, a long way behind. Finland is slightly ahead of Sweden with respect to the filling vacancy ratio, but substantially behind Sweden in placement rates. Drawing together the results for effectiveness and efficiency in an overall qualitative appraisal, the ranking is approximately as follows: Figure 33:

Efficiency and Effectiveness: Performance Rating

UK, FRG, (DK): (S), SF: A, NL:

14

High Performance Medium Performance Low Performance

The Danish study used here as the data base defines efficiency in terms of vacancy filling and placement rates. Recently other countries have drawn up differentiated typologies based on variables such as market share, utilisation rates etc.

94

Frieder Naschold The findings suggest two surprising conclusions.

- The performance of innovation regimes such as Great Britain and Sweden is not superior, and is to some extent inferior, to that of the traditional regulatory regime in Germany. Thus it can be concluded that, contrary to the initial hypothesis, there is at least one independent third regime - that of flexible qualified mass production15 - in addition to the bi-polar regimes of mass production and flexible specialisation. This form of production generates a comparable, if not higher, level of performance within the labour market authority than the two other regulatory regimes. - Moreover, the comparison between the two innovation regimes, Great Britain and Sweden, reveals performance values that contradict the initial hypothesis: Great Britain has higher values than Sweden in terms of both efficiency and effectiveness. - There are also significant differences in performance level between the two "traditionalists", Germany and Austria. Indeed, the differences here are far more pronounced than between the two regime types. - In contrast to the initial hypothesis there is a substantial degree of variation between the Scandinavian countries. The performance of the Danish labour market authority is one of the best, while Sweden and Finland occupy the middle ground (with Sweden rather closer to the leading group). It should be noted in this context, however, that Sweden exhibits a job-seeker orientation to a comparatively high degree. The task of explaining these findings against the background of the initial hypotheses will be taken up by the interpretation with which this chapter concludes. 4.1.4 Scandinavian developments and the strategic position of Finland The fact that the labour market regimes in the Scandinavian countries (cf. Niklassen/Thomsmark 1994; Henning 1989) are not nearly as homogenous as is usually supposed can be illustrated with reference to a Danish study (ECON 1993), which serves both the confirm and differentiate the findings of the OECD comparison. Firstly, not surprisingly the four Scandinavian countries (in each case represented by two "typical" local employment office) exhibit a clear correlation between workload and unit costs. According to the study Finland has the heaviest workload, followed by Denmark and then Norway and Sweden. The distribution of costs per job-seeker was precisely the reverse of this. In other words, in relative terms (i.e. per jobseek-

15

This term is derived from the analogous debate in the private sector, particularly in the automobile and engineering industries (cf. Gordon 1994).

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95

H Jobseekers/employee * Krone.s/jobseckcr

Eight employment offices: - Denmark: Copenhagen and Hillerod - S w e d e n : S t o c k h o l m and S a l a - F i n l a n d : Vantaa ( o n e of the big e m p l o y m e n t o f f i c e s in H e l s i n k i a r e a ) a n d P o r v o o ( m i d d l e - s i z e m u n i c i p a l i t y / s m a l l city n e a r H e l s i n k i ) - N o r w a y : M o s s and Folio

S o u r c e : E C O N 1 9 9 3 / m o d i f i c a t i o n s by F. N a s c h o l d , W Z B 1 9 9 4

Figure 34: Jobseekers per Employee and Operating Costs per Jobseeker

er) the Finnish employment offices devote the least amount of resources, those in Sweden the most. As far as the quality of placement procedures is concerned, a variable which is extremely difficult to determine, the study does at least provide two guidelines (see figs. 35 and 36). According to these figures, the Swedish employment offices spend the longest amount of working time on each job-seeker, followed by those in Norway, with Finland and Denmark spending the least number of working hours. An additional dimension of quality is shown by the way in which computers are used in the placement process. The figures clearly show how the Swedish employment offices make intensive use of data processing technology for customised job-search process outside of routine procedures, whereas the Danish offices only do so in marginal cases, i.e. if explicitly requested to do so; the Finnish and Norwegian employment offices are situated between these two extremes. The skill structure of employment office staff - defined in terms of time spent in education - is in marked contrast to the above quality characteristics, as can be seen from figure 37.

96

Frieder N a s c h o l d

Vantaa Porvoo Job seekers

Stockholm

Sala

Hillerod

Copenhagen

Moss

Folio

14.666

6.823

4.019

2.765

8.000

74.000

3.000

2.418

H o u r s in a week

1413

737

1.186

720

925

11.900

588

715

Jobseekers per w e e k l y working hours

10,2

9,3

3,4

3,8

8,6

6,2

5,1

3,4

Source: ECON 1993

Figure 35:

Job Seekers/Working Hour

f

N StockHille- CopenVantaa Porvoo holm Sala rod hagen ADP terminal per employee

47/56

14/20

29/34 21/20 25/50 230/340

Moss

Folio

9/20

25/30

Search outside wishes for Seldom O f t e n classification

Often Often

Not

Only if Seldom wanted

Only if Search outside he/she Often region wants

Often Often

Not

Only if wanted

V

Often if lack of jobs with criteria of wishes

O f t e n Often, because Oslo is near

/

Source: ECON 1993

Figure 36:

U s e of Computerized Data B a s e s in E m p l o y m e n t E x c h a n g e

The skill structure of staff in the Finish employment offices and in the Swedish offices is considerably higher than in Denmark and Norway. It should be noted, though, that it is not possible to determine on the basis of the study to what extent these differences are offset or reinforced by internal training programmes and differences in the requirements set by national education systems. Taking all these factors into consideration, the intra-Scandinavian comparison serves to both confirm and differentiate the results of the OECD comparison given earlier. - Denmark is confirmed as being characterised by a regulatory regime of effective and efficient mass production analogous to the British system. With a heavy workload and low unit costs, the emphasis is on quantitative processing

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97

Vantaa Porvoo Sala Hillerod Follo Stockholm Moss 0

20

40

60

80

100

O Further schooling Q H i g h e r education ^ H i g h e r education H H i g h e r education up to 2 years up to 4 years over 4 years Source: ECON 1993

Figure 37: Highest Educational Level Attained by Staff

of job placement. This is in line with a relatively low skill level among employment office staff. - Sweden on the other hand, proves to be the prototype of flexible, specialised, customised service production. With high resource input, high unit costs and a low workload, the strategy adopted is one of decentralised quality production with relatively good effectiveness and efficiency ratings. The employee skill structure is relatively high. - The strategic location of Finland (and, more or less, that of Norway) is very much in accordance with the "stuck in the middle" hypothesis. Finland occupies the middle ground between the production regimes of efficient mass production a la Denmark and flexible and specialised service production a la Sweden. With a heavy workload and low unit costs, a relatively highly skilled workforce provides services which exhibit characteristics of both mass production and limited customer-orientation, attaining a relatively high efficiency and medium effectiveness level. 4.1.5 The development dynamic of labour market authorities As is to be expected, the different structural types identified among our national labour market authorities can be traced back to differences in development paths and development dynamics. This sub-section sketches out the basic types with their specific developmental problems.

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Frieder Naschold

The innovation constellations in the Swedish and British labour market authorities have been constituted along totally different development paths. Great Britain represents the classic case in which the labour market authority's regulatory regime (MbR-steered efficient mass production) was pushed through in a relatively short period of time and largely from the top-down by virtue of a combination of political and ideological awareness-raising and mobilisation and radical and short-cycle business-process-reengineering measures. The central developmental problems currently facing the British labour market authority can be expressed in the form of two questions: firstly, can the structures developed at the top be given life and stabilised over time at the bottom; and secondly, in view of the relatively low skill structure of the staff, to what extent could and should measures be implemented to bring about a limited decentralisation of the British system? The Swedish labour market authority, with its decentralised, segmented customised service production took a completely different course. The Swedish labour market authority is the prototype of long-term organisational development, supported by enabling government, but without far-reaching political mobilisation. In the field of labour market policy, unlike in other political arenas, the Swedish administration has. remained rather successful with its strategy of organisational development. During the 1980s and with the help of a number of strategic decisions (introduction of MbR steering in 1983, far-reaching localisation of labour market administrative policy in 1991), the policy of continual experimentation and evaluation of internal learning processes and external support has brought about a far-reaching restructuring of the entire labour market authority, in the sense if a radical decentralisation of central government activity. It thus constitutes one of the few historical examples in which the rigorous pursuit of an OD strategy has, in the final analysis, led to an organisational transformation. The central problem for further development in Sweden is to find ways of stabilising the decentralisation processes now that they have been introduced, particularly in the face of the crisis on the labour market and the still unbroken position of the central government departments (finance and personnel). The German regulatory regime under which the labour market authority operates is characterised by the all but prototypical traditionalism of rule steering together with qualified and flexible mass production, highly efficient and effective. The continuity of these basic structures has overshadowed the moves for change. The discussions that have been held for many years at the level of local employment offices concerning gradual, staged decentralisation have, however, recently begun to bear fruit. In 1994 the tightly steered and rather small number of reform experiments involving limited task integration and budget responsibility at local employment office level were accepted by the central administration (and by the Federal Labour Office); they have now been applied to all the local offices by decree. Initially, at least, the reform does not seek to introduce results steering, but rather to tap the skill potential of the employees more fully in the context of debureaucratised working structures. The main problem facing the German devel-

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99

opmnent path is now to maintain the required critical mass and the momentum needed to overcome the entrenched tradition of rule steering by the apparatus at central and federal state level. Much is certain to depend on the next steps taken in the modernisation process. The privatisation of certain elements of job placement implemented in the summer of 1994 is, for the time being at least, distracting attention from the imminent problems involved in modernising the internal workings of the German labour market authority. The regulatory regime governing the Finnish labour market authority was characterised by the predominance of mass production at a limited level of effectiveness and by the parallelism of the old and the new; in short being "stuck in the middle". The precarious balance between the two poles of results and rule steering cannot be seen as stable, however. Experience with modernisation processes in the OECD countries has, namely, convincingly shown that MbO and MbR systems tend to be reabsorbed by the pressure of rule steering and to degenerate into formalistic bureaucratic paperwork if they cannot be pushed beyond a given threshold level by means of political mobilisation. Within the Finnish labour market authority itself great efforts are being made, both at the executive level within the labour ministry and in a number of district and local employment offices to improve the unsatisfactory state of affairs with regard to the quality and effectiveness of the regulatory regime. The direction to be taken by further reform is, however, subject to latent controversy. Thus the Finnish labour market authority is very much at the cross-roads, facing as it does two fundamental development options. Figure 38:

Finland's Labour Market Authority at the Cross-roads - Two Strategic Decisions

1. Overcoming the parallelism of rule and results steering Either: new momentum to push ahead with MbR or: degeneration into the old system of rule steering or centrifugal fragmentation. 2. Development alternatives - standardised, effective mass production (the British path) - decentralised, customised quality production (the Swedish path) - flexible, qualified mass production (the German path) - a genuinely Finnish variation based on a different combination of mass production and flexible specialisation. F. Naschold, WZB 1994

The decisions taken in the near future will have a decisive impact on the development path taken by the Finnish regulatory regime in the field of labour market administration, and in particular on results negotiations during the next two budgetary processes.

100

Frieder Naschold

4.2 Developments paths taken by central government institutions: an intra-national comparison of the transition from functional bureaucracy to results-driven organisations in Finland The international comparison of central government ministries and bureaucracies has established Finland's strategic location caught between bureaucratic rulesteering structures and the new results-steered administrative units. The following intra-national comparison of Finnish central government aims to differentiate this picture by determining the extent of variation within Finland itself. Beyond the simple dichotomy between "old" and "new" steering systems, this approach will enable us to gain an insight into concrete development perspectives and obstacles to further development. A study of the distribution of MbR systems in both the public and private sector shows that such systems have been introduced to a greater extent in the public domain, and there more frequently at central, than at local government level.

of Workplaces 10%

Manufact./Constr. Private services

14%

Municipalities

Big units split into smaller result units 24%

State Manufact./Constr.

129

Private Services

Small units united into bigger units

Municipalities ::

State Manufact./Constr. Private Services

,

—

—|

Municipalities

Manufact./Constr. Private Services Municipalities State

0%

I 50%

:

State

;

48%

Increased results steering 65%

18: 1 12%

1 6%

18%

Profit related: pay introduced

: 20%

40%

60%

80%

100%

Working Life Barometer, November 1993 Working Environment Division, Research Unit

Figure 39: Spread of MbR-Systems at Finnish Workplaces

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101

Of interest here are less the average distributions than the areas in which developments have made greatest progress, as these "leading-edge developments" are a better guide to strategic progress and obstacles than average development levels. It will be recalled that Finnish public sector modernisation began in 1989 with the initiation of a number of pilot projects. In the following we will examine developments in four of these pioneering departments, adding the reform course begun at a very early stage in an autonomous organisation from the cultural sphere 16 . Figure 40:

Pioneers in the Trend to MbR

Institution

Ministry/Agency

Area

Ministry of Traffic and Communication (MTC)

Ministry

Transport/business

Finnish Road Administration (FinRA)

Agency

Transport/business

Ministry of Labour (ML)

Ministry

Labour/Social affairs

National Board of Labour Protection/ Occupational Safety and Health Division (OSH)

Agency/ autonomous administrative unit

Labour/Social affairs

Sibelius Academy (SA)

autonomous administrative unit

Culture

F. Naschold, WZB 1994

4.2.1 From integrated official producer to enterprise with own production facilities in a competitive environment: The case of FinRA The history of FinRA offers the clearest illustration of the transformation from a highly integrated public sector producer, organised as part of the state apparatus, to a results-oriented provider of public services, partly produced by itself and partly contracted out on a competitive basis. Until well into the 1960s the FinRA was a typical central government department with functional differentiation within management, detailed centralised planning, separation of planning and budgeting and centralised decision-making. 16

In addition to his own research the author bases the following analyses on the study by Jaakko Virkkunen (1994): Surpassing Functional Bureaucracy with Management by Results. Experiences in Finnish State Administration, which goes included in this volume.

102

Frieder Naschold

The 1970s saw the start of a gradual process of transformation within this department, the most important stages of which are summarised in the following figure. Figure 41 :

Stages of Development at FinRA, 1970-1994

- 1972 Development project with parallel structure in the office: 1. Functional departmentalisation into "construction" and "maintenance" due to economies of scale; regional organisation in terms of "executing operative organisations" of the central office, 2. flexible and decentralised decision-making structures with MbO planning and budgeting MTC and Ministry of Finance did not accept decentralised flexibilisation, however. - Consolidation of the MbO system during the 1970s and 1980s - From the mid-1980s growing pressure for change: • falling volumes • redistribution from construction to maintenance • north-south divide -

1985 MTC initiates development project: new vision and organisation for FinRA

- 1988/90/93 far-reaching decentralisation of the organisation as a whole; strategic orientation of HQ; regional/local results centres within the framework of an MbR steering system; increasing orientation towards producer-provider model of service production. F. Naschold based on J. Virkkunen 1994

A comparison between the old and the new organisational models on which FinRA was based illustrates the extent of the organisational transformation (see fig. 42). Particularly striking in our context are the following three structural changes: - the redefinition of the role of central government at the top executive level by differentiating between a strategic and an operative management and setting new targets for the organisation as a whole; - the transition from the functionally organised central government office to decentralised results units together with an increased differentiation of roles along the lines of the producer-provider model; - the introduction of genuine results budgeting and the rejection of the line-item budget. At the same time, significant problems remain or have taken on a new guise after this major restructuring. The following problems are particularly pressing: - a new form of the division of labour between self-regulating results units at local level, particularly with regard to new forms of cooperation and specialisation;

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103

the cooperation b e t w e e n the operative management of the agency and the strategic management o f the ministry; the mediation between regional interests within the framework o f the producerprovider model.

Figure 42:

Old and New Regime of FinRA Management

Mediators of management activity

Old

New

Object of central mangement's work

Coordination of operative functions

Strategic management, set objectives and resource frames for the districts and controlling results

Tools of central management's work "Where-tools"

Development perspectives of different operative functions

Vision of the future structure and way of operating of FinnRA

"Why-tools"

Efficiency idea based on economics of scale

Efficiency idea based on customer orientation and market regulation

"How-tools"

Elaborated planning and objective setting system

Production agreement procedure, bonus pay

"What-tools"

Measures of objectives according to functions and levels of management

Objectives of FinnRA: safety, maintenance level, environment, etc. products, product prices

Division of labor of management

Functions of road building and maintenance, hierarchy

Operative/strategic management, Concern management functions

Rules of management

Collegial decisionmaking Budget divided into subsections by the functions

Result agreements

J. Virkkunen 1994: 19

4.2.2

N e w concepts and established practices: the c a s e o f the Ministry o f Transport and Communication ( M T C )

T h e Finnish Ministry o f Transport and Communication is a small department with around 140 e m p l o y e e s in three divisions and t w o internal offices. For many years its organisational form w a s very much in line with the classical bureaucratic principles of functional division (by m o d e s of transport), administrative steering and monitoring, and individualised, specialised task processing at the operative work level.

104

Frieder Naschold

At the end of the 1980s the latent tensions within the department and in its relations with the outside world manifested themselves. An additional factor was that workforce surveys had indicated a high and permanent level of dissatisfaction on the part of staff with the bureaucratic way in which managerial tasks were performed and with their own work situation. The new political leadership at the top of the Ministry sought a strategic change of policy course with respect to the objectives of the Ministry, in the sense of a greater orientation towards competition in transport policy, a policy change requiring a shift in the dividing line between bureaucratic regulation and market competition and a redefinition of the ownership role of the Ministry. To these ends, in 1990 the Ministry set up a reform Commission composed of high-level representatives and a number of external experts. Its task was to restructure the Ministry, coupled with the introduction of an MbR system. The major reform proposals put forward by this Commission were introduced to the Ministry in the economic and financial planning for the 1992 budget. The work of the Commission had two main thrusts, both of which transcended the previous logic of operation at the MTC. With the help of future scenarios and "cross-impact matrices" the aim was to overcome the functional separation based on mode of transport. Figure 43:

New Result Units at the MTC

1. Transport result centres - transport and communications infrastructure - transport services - transport safety and environmental protection 2. Communications result areas: - telecommunications - the media - information network services based on: J. Virkkunen 1994: 23

With the help of MbR instruments, the logic of the classical budgetary procedure was to be transformed and replaced by a new, consistent target hierarchy as a point of departure for planning, budgeting and reporting (see fig. 44). The introduction of these new management structures and instruments - the new target hierarchy, the new planning and controlling process, the new results centres - led to a whole series of fundamental contradictions and conflicts with those supporting the existing structures and within the new management system: - the need for future-oriented, strategic target-setting, transcending functional area boundaries, contradicted case-by-case management in functionally separate divisions;

New Frontiers in Public Sector Management

Legend: [

105

| = The Minister approves

Source: Virkkunen 1994: 23

Figure 44: The New Target Hierarchy of the MTC

- the target hierarchy, consistent in purely formal terms, was unable to overcome the very real contradictions between actual targets, resulting in a divorce between a "liturgy of paperwork" and the real planning process; - the partial reorganisation of the Ministry in new results units was in direct conflict with the continued traditional organisation of the Ministry in divisions with the retention of the existing division heads and their responsibilities;

106

Frieder Naschold

- the divorce of managerial reform from reform of work organisation and the labour process, i.e. the persistence of tightly circumscribed individual work in the divisions, despite the complexity of the strategic planning requirements. In line with the more general characteristic of the Finnish situation, described above in the course of the international comparison of central government administrations, the MTC currently finds itself in a stage of the development process dominated by a parallelism between the old and the new organisational principles: the two competing forms of the division of labour and the operational modes of management, traditional functional departments with their managers, the new divisions as results centres with their managers, each responsible for results, the requirements of an integrated planning transcending functional boundaries and the fragmented, individualised and specialised work in the divisions. The hypothesis put forward in the context of the international comparison - the parallelism of the old and the new modes of operation does not take the form of "peaceful coexistence", but rather forms a precarious compromise equilibrium is confirmed in this case. If no new impetus is forthcoming in the coming months to push ahead the MbR reform, the forces in favour of bureaucratic rule steering and functionalist forms of organisation threaten to regain the upper hand. Yet such a situation would imply an even greater potential for contradiction and conflict than was the case back in 1990. 4.2.3 The long and winding road to MbR modernisation: The case of the Ministry of Labour (ML) The ML is a relatively young ministry with around 370 staff at headquarters and some 3,700 employees in subordinate offices at district and local level. Its field of operation covers labour market policy, health and safety at work, working conditions and labour law. In 1988 an impetus for organisational change came from several directions simultaneously: a new General Manager with planning experience from the Ministry of Finance, the inclusion of health and safety at work in the Ministry's responsibilities, and growing dissatisfaction with the management capabilities at the Ministry. Taking on the role of pioneer department within Finnish central government, in that year the new top management initiated a Management Development Project based on a classic top-down approach. The aim was to integrate the vertical and horizontal centrifugal forces at work within the ML, coordinating them towards a new strategic orientation. The instruments deployed to these ends were: defining the "mission" of the Ministry, determining and ranking the central objectives of the organisation (result units) and initiating a new bargaining process between the central ministry and the districts. The development process so initiated proceeded as outlined in figure 45. The introduction of the new modernisation system, its rapid implementation and top-down approach, encountered numerous difficulties, contained a number

New Frontiers in Public Sector Management Figure 45:

107

The Development Process at the Ministry of Labour

1988

Management Development Project

1989

Experiments in 3 districts with a new bargaining process

1990

Diffusion of the MbR system to the other areas

1991-93

Continued refinement of the system in annual negotiations and the review process

1994

Intermediate evaluation and continuation of the modernisation process

based on: J. Virkkunen 1994

of conceptual ambiguities and inevitably led to various compromises. This contradictory constellation, particularly pronounced at the start of the development process becomes readily apparent if the old and new management practices are compared (see fig. 46). The unilateral top-down orientation of the MbR system in the specific form employed at the ML was in contradiction to the idea of a dialogue with the districts. The original orientation of the system of results indicators (activity outputs) proved a barrier to the requirement of local units to respond flexibly to changes on the labour market, all the more so as the indicators were conceived as an arithmetically determined outflow relative to the targets set by the ML. The rather diffuse definition and organisation of the "key results areas" was broadly in line with the existing organisational form based on functions, and constituted an obstacle to a strategic reorientation of ML policies and to the necessary distinction between the roles of strategic and operative management. Over the years the annual process of results negotiation, as a continuous and focused interaction between the Ministry and subordinate levels (districts and local employment offices), developed a momentum which served as a motor for the development of the MbR system. It also provided an arena for an exchange of ideas between the initiators of the reform and the supporters of the existing organisational forms. Thus the MbR system became the medium for a learning organisation: - The originally top-down orientation of the annual bargaining process increasingly took on dialogical and interactive forms with the districts and absorbed reform initiatives from local level. - The indicator system, an essential element of results steering, was increasingly transformed from a static and undifferentiated system of activity indicators to an interactive, outcome-oriented controlling system. Examples include the interactive indicators of job placement developed with employers, the increased scope for flexibility and the increasing validity of a whole range of output indicators relating to figures for the long-term unemployed.

108 Figure 46:

Frieder Naschold Old and New Management Activity System

Mediators of management activity

Old

New

Object of central management's work

Coordination of operative functions

Coordination of operative functions and strategy preparation

"Where-tools"

Development perspectives of different operative functions

Development perspectives of different operative functions and strategic lines of labour politics in the nineties

"Why-tools"

Efficiency idea based on economics of scale

No remarkable change in efficiency idea. New mission statement and definition of result areas

"How-tools"

Traditional bottom-up budget process

Result negotiation process

"What-tools"

Statistics of employment services

Output-oriented performance indicators based on the statistics of employment services

Division of labour of management

Administration and economy/ substance of labour policy and labour services, hierarchy

Centralisation of the direction of the disstricts in hands of the secretary general, planning staff

Rules of management

Laws and the budget divided into subsections by the functions

Result and resource agreements

Tools of central management's work

J. Virkkunen 1994: 32

-

N o t only did the districts and especially the local e m p l o y m e n t o f f i c e s gain additional r o o m for manoeuvre, local initiatives were actively w e l c o m e d . S e e n from an international perspective, this means a departure from rigid hierarchical rule steering, such as characterises the prevailing system in Germany, towards the flexible specialisation typical o f the S w e d i s h system.

E v e n so, all these learning process also serve to reveal the still prevailing blockages and contradictions within the modernisation process. S o m e o f the more important e x a m p l e s of such constraints are described below: (1) T h e structure and role of the M L as the strategic H Q of the M b R system itself constitutes a serious problem. T h e Finnish M L is the only ministry in the inter-

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national comparison in which external and subordinate agencies have been reintegrated into the ministry. Although the original state of the autonomous "board" for the labour market authority undoubtedly justified fundamental restructuring, the introduction of the MbR system had been accompanied by hopes of a leaner Ministry: instead quite the reverse happened. In place of the form currently favoured more or less throughout the world - small, strategically oriented ministries with a subordinate two-stage administrative agency - the ML took on the form of a large-scale government department, albeit also with a subordinate two-stage administrative agency. (2) One of the consequences of this "scale effect" is that inadequate progress has been made in developing the functions of an HQ: - distinguishing between strategic and operative planning on the one hand, and support and development functions on the other; - the interactive relationship between General Manager, Heads of Department and Division and the subordinate offices in the tension between hierarchical monitoring structures and dialogical contract management on the one hand, and functional specialisation and the tasks of strategic management on the other. These ambiguities within the Ministry's role structure certainly provide a significant backdrop to the wait-and-see attitude adopted, and the dissatisfaction felt by many areas of middle management regarding the new system. (3) In the ML, too, a sharp division initially prevailed between managerial reform and a rather traditional labour process. More recently however, a number of relatively spontaneous initiatives have arisen in local employment offices, increasingly promoted by top ministerial management, aimed precisely at plugging this gap. "Unitising" by product, orientation by customer segment, integrated and flexible forms of work including job rotation: all these elements are to be found in the reform initiatives under way in the employment offices in Rauna, Turku, North Karelia etc., in line with international leading-edge developments. The problem facing the ML consists in promoting a continuous development process, one encompassing the entire organisation of the results areas, with the aim of transforming the operative results areas. (4) The formation of increasingly self-regulating results areas has led to a problem previously unknown: cooperation between and specialisation of the results areas and the role of the districts. Developments in this area can be seen in terms of two contrary ideal-typical models: self-regulatory local results areas with inter-regional self-co-ordination together with differential specialisation under the strategic co-ordination of the ML; retention of the districts, but their functional redefinition (together with a change in their relative importance) within a field of tension bordered by the central ministry and the local results areas. In sum, the Finnish ML is no longer at the "very start" (Virkkunen) of the modernisation process, but is rather in the middle of a laborious process of organisational change. In spite of all the difficulties encountered, no insurmountable dead-

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locks have yet occurred, although a new momentum is required in order to dynamise the development process. A reorientation of the labour market authority with greater emphasis on customised and more qualitatively oriented service production could provide a concrete vision, the annual bargaining process being the motor for such a "second phase" of MbR reform at the ML. 4.2.4 Integrating management reform and work reform: The case of the National Labour Protection Board As in the health and safety at work offices in virtually all the industrialised countries, the National Labour Protection Board in Finland17 faced a major adjustment problem during the 1980s: the changing structure of work-related risks - the decline in the physical and the rise in the psychosomatic and psycho-social risks of modern production - required changes in instruments, work forms and management co-ordination in the field of health and safety. In response to this the Board embarked on a development project in 1989, the initial aim of which was to develop a new range of analytical instruments. The analytical problem - one typical of all such administrative areas - lay in establishing linkages between the aggregate statistical data held by the central Board, the local information of the regional offices and the action plans of those operating at enterprise level. Yet strict limits were placed on the successful deployment of such instruments by the traditionally individualistic, craft-oriented form under which the work of the inspectors was organised and the functional orientation of managerial organisation. Consequently, in 1992 a District Manager initiated a Management Development project with the aim of stabilising the day-to-day routine service for clients, while at the same time addressing complex enterprise-level problems by means of specialised project groups which were to be embedded into the strategic development of the district. In 1994 this line of development came to a provisional end. The development process in the District brought about internal integration, but also led to demarcation disputes between central management and central administration. The first source of conflict were the target objectives formulated by HQ in annual negotiations which, from a local point of view, often appeared unrealistic. The second "battle-line" arose over the nation-wide information system promoted by the central administration. In view of its high degree of standardisation, it was considered to be of very limited use at district level. Of lasting interest for our discussion is both the synthesis of work instruments, work organisation and 17

The change in the structure of the Finnish health and safety executive from an external Board to an integrated ministerial department has already been mentioned (in section IV.2(3)). It is therefore not discussed further here. This sub-section deals rather with a particularly interesting innovative development in one of the Labour Protection districts.

New Frontiers in Public Sector Management Figure 47:

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Innovative Development in a Labour Protection District

1. Specialised work groups for day-to-day customer service with staff rotation under each inspector. 2. Specialised multi-disciplinary work groups in accordance with strategic focal points previously determined; rotation of the teams in line with the life-cycle of the intervention problems. 3. Management team supervises in rotation the customer service group, the problem-solving teams and - also in rotation - one important process at district level; strategic planning is the task of the management team in collaboration with the project group. 4. The most important planning instrument is a risk identification system which takes account of all the actor-levels involved. 5. Linkage of strategic and the operative action via the MbR system with its annual negotiation processes, subsequent adjustments and evaluations. F. Naschold, based on J. Virkkunen 1994

management systems and the conflict arising with the traditionally organised HQ, the ML. 4.2.5 From bureaucratic-centralist administration to a customer-contractor relation: The reengineering of the Sibelius Academy The Sibelius Academy is the only music academy in Finland, the largest in Scandinavia and the third-largest in Europe. Founded in 1882 by private initiative, most of the affairs on the spending side were assumed by the state in 1966. In 1980 it was placed under the auspices of the Education Ministry and received the same status as a university. The task of the Academy is to train musicians for a professional career in school, the Church and the military. Until 1990 the Academy was a typical "two line specialist organisation". Artistic and educational work was performed by artists with a professional career in the Arts. Such work was completely divorced from administrative activity and other services. The Director was head of both these organisational areas. Managerial decision-making was concentrated at the centre. Since the end of the 1980s and the early 1990s, though, a rising workload together with continuous change in the structure of requirements, rising criticism by professional musicians of the rigid bureaucracy and centralism of the organisation as a whole, and a more general reformist context have led to the rapid and very far-reaching restructuring of the Academy. In 1990 the formal structure and process organisation was changed to a "departmental structure". The new organisational structure (fig. 48) required new forms of management (see fig. 49). In 1991 a process of longer-term planning began, leading to a whole range of project groups, a decentralised MbR system with result units and key result indicators, controlling system and annual bargaining processes, all of which

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Figure 48: The Department System of the Sibelius Academy

were introduced with the help of the Administrative Development Department (later Agency), at the MF. At the time of writing (October 1994) the restructuring process is still under way. A number of problems arising out of the modernisation have become evident: heads of Department are having to adjust to the - for them unusual - double role of professional artist and competent manager; discussions are in progress on a transfer of administrative support from the centre to the departments; the Rector is concerned about the unity and the external image of the Academy as a whole and is seeking to stabilise the ongoing processes of decentralisation with the use of strategic steering instruments and complementary development programmes; the first round of the annual bargaining process proved unexpectedly difficult. Yet no major group within the Academy has sought to establish a movement to counter the reengineering which has taken place so far and to return to the status quo ante. In their study of "Strategic management in the public administration" (1993) Santalainen and Huttunen concluded that "MbR advances very well". In view of the data comparing Finland with other OECD countries, however, this find-

N e w Frontiers in Public Sector Management Figure 49:

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The N e w Management System at the Sibelius Academy

1. Indicators of responsibility for tasks and resources. 2. Decentralisation of decision-making to the level of product organisation in the departments. 3. Decentralisation of centralised research bodies to departmental level; more far-reaching decentralisation of centralised bodies could not be achieved. 4. Substantive orientation and budgeting within the framework of the strategic planning of the Academy as a whole, which at the same time aims to provide an orientation for the annual results bargaining and budgetary processes. 5. Creation of a customer-contractor system between the departments and the service areas via the internal support service provided by the Administrative Department, which for its part offered a number of service packages on internal markets. Contracts then determine the quantity, price and quality of the administrative services. 6. The establishment of a modern accounting system, so as to enable appropriate prices to be set and to permit effective controlling. F. Naschold, WZB 1994

ing requires substantial modification. The international comparison showed that the three fundamental hypotheses on which the Finnish discussion has been based (cf. IV. 1) cannot be maintained in their present form, but must be substantially modified: comparable levels of effectiveness within the Scandinavian countries cannot be observed, nor do the bipolar organisational models (mass production and flexible-specialised customised production) exist, nor is there a "one best way" to an effective and efficient administrative policy, as was illustrated with respect to national labour market authorities. Moreover, the international comparison pointed to the "catching-up" nature of Finnish public sector modernisation with regard to the introduction of MbR, and emphasised its strategic location, caught between the old system of rule steering and the new model of results steering. The intra-national comparison of the preceding pages serves both to confirm and differentiate this finding: - The Finnish variant of MbR systems tends to focus on the narrower rather than the wider conceptualisation of this steering system, concentrating as it does on the steering and monitoring cycle of sectoral policy and budgeting. Organisational and human resource-linked components of modernisation, not to mention complementary development proposals regarding the use of competitive and quality-enhancing instruments very much fade into the background. - The Finnish experience serves to confirm the partly established view that the new steering system is more easily introduced in agencies than in central government ministries. The introductory phase has been completed in a number of agencies, whereas central government ministries still have to address the issue of the extent to which results steering is actually applicable to their situation in the first place.

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- At the same time, the decision taken on this issue by central government ministries is, as experience in Great Britain has shown, of decisive importance for the success of the reform as a whole. Thus a new and stimulating impetus is required to overcome the current blockage in the modernisation process, providing the reform movement with an innovative orientation and new energy. The final sub-section of this chapter considers some of the key issues in the modernisation process at central government level.

4.3 Key issues in central government modernisation The above presentation of public sector modernisation in Finland and other OECD countries has revealed a whole range of problems and questions relevant to the further course of the reform process. All the countries are now repeating the lessons of New Zealand as identified in the OECD Report of 1993 (OECD 1993: 128): "The priority has now moved beyond the introduction of new systems to the more difficult arenas of performance specification and the creation of appropriate incentives and sanctions". A new list of priorities along these lines has recently been drawn up by the British "Next Step Initiative" (Trosa 1994) and on the occasion of this study for Finland (Virkkunen 1994) (see fig. 50). Based on these priority lists and the problems identified in the course of this evaluation, I would now like to address a number of key issues, the cornerstones of ongoing public sector modernisation in Finland and, indeed, in most of the other reform countries. 4.3.1 The crisis of the centre: The role of the central departments A core element of all national public sector modernisation programmes is the distinction between the roles of the central departments (finance and personnel), the centres of (ministerial) department and the autonomous agencies, and the decentralisation of central government functions to subordinate areas. In all countries the setting up of independent and specialised agencies has proved the most successful measure, whereby the relative success of the agency strategy was the greater the more functionally specific and the clearer the lines of demarcation to the organisational structure of responsibility were. This experience, characteristic of all the OECD countries, has been made not least by Finland. However, three serious problems remain to be discussed against the background of this - in general relatively successful - agency programme: - What role remains for central departments? - How large should they be (in terms of staff and resource units)?

N e w Frontiers in Public Sector Management Figure 50:

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Key Issues in the Modernisation of Central Government Administration

Great Britain

Finland

(1) The functions of the centres of department. What are the value-added-producing functions of the ministries?

(1) The conceptual range from traditional MbO and MbR, via producer-provider models with internal markets, to additional competitive elements (2) The importance of the negotiating process and the top-down approach or that of interactive dialogue and the negotiating process (3) The concept of results areas. Rationalistic management model or embedding in clientele groups and market segments (4) Beyond results steering: the potential of the division of labour for providers and producers

(2) The role of the central departments (finance and personnel) between maintaining the unity of the civil service and its segmentation into autonomous agencies. (3) The relationship of the ministries to the agencies between hierarchy, contract and divorce. (4) The process of target-setting. Moving from output to outcome orientation and from internal to external measures of effectiveness. (5) Assessment of goal attainment and auditing: the danger of a dual accounting system by both ministries and agencies.

(5) The development process: the various forms taken by the process of change.

Trosa-Report 1994; Virkkunen 1994 summarised by F. Naschold

- What form should the exchange relations between centre and agency take within the tension of hierarchy and contract? These questions are particularly acute in countries such as Great Britain, less so due to the very different development there, in Sweden, and are hardly relevant to countries such as Germany and Austria which have retained rule steering. Finland is just embarking on this debate. The Finnish Ministry of Finance (MF), for instance, has already implemented a whole range of decentralisation measures. At the conceptual level, resource responsibility has been delegated to a considerable extent to individual ministries. The line-item budget (with its predetermined 600 items) has virtually ceased to exist, having been replaced by a framework current spending budget, subject only to a small number of restrictions. In addition, as far as personnel management is concerned, from 1995 government departments are to be given substantial scope in determining pay groups and drawing up individual employment contracts within the framework of a very broad public service employment code. Such decentralisation and flexibilisation of the relations between the central departments and other ministries is, however, subject to a significant reservation in the form of a cost calculation system on "accrual basis". Moreover, the massive fiscal crisis facing Finnish central government is often seen - by both individual ministries and the central departments - as justifying the "recentralisation" of all these measures.

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The Ministry of Labour (ML) faces a large number of serious problems at central level, all of which are rooted in its historical development (cf. IV.2(3)). These include the precise and binding definition of functions in the relationship to the subordinate administrative levels, organisational forms at the centre, and its quantitative dimensions with regard to staffing levels (including employee skill levels). Especially with regard to the relationship to the districts and the local employment offices, the annual results negotiations have set in motion a collective experience and learning process which goes far beyond the existing distribution of responsibilities. At the MTC interesting developments have occurred at the conceptual level concerning the role of the centre:

Source: After Virkkunen 1994: 26 (modifications by F. Naschold/WZB 1994)

Figure 51 : Three Levels of Management in the MTC

A distinction has been made between the management of sectoral policy, in relation to the Cabinet and the MF, the management of the agencies and firms "owned" by the Ministry and the management of the Ministry as an organisation. Despite these moves, the overall impression remains that on this issue Finland is only just embarking on this development. Yet at the very least, in contrast to countries such as Austria and Germany, Finland is already addressing the right questions and beginning to find provisional answers. In this context, too, a look at experiences abroad and in the private sector may be useful here.

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For Great Britain, which in this area has been making particularly great efforts since 1988, the Trosa Report of February 1994 (Trosa 1994) provides a good summary of the current discussion. I have drawn together the major conclusions of the Report in the following figure. Figure 52:

The Main Conclusions of the Trosa Report

(1) The agency concept is a compromise between full autonomy and traditional central government departments. (2) All those countries that have pursued an agency-based strategy have experienced the same problems of the growing gap between the centres of departments ("bureaucratic obstacles" from the point of view of the agencies) and agencies ("little fortresses" from the point of view of the departments. This problem "is currently the most difficult challenge facing the next step reform" (p. 35). (3) In the course of this transition from rule steering to strategic management two major problems tend to arise for the centres of department: - "The role of the centre is not usually so well defined" (p. 36) - The ministries are usually neither willing nor able to manage a large number of agencies each with different regulatory mechanisms. (4) Proposals for structural reform include: clear financial agreements; clear definition of the functions of the units and functions remaining in the central ministries, use of the same steering principles at the centre. (5) The structural reform measures must be accompanied by personnel management instruments enabling the "cultural gap" between department and agency to be overcome: mobility, career planning, training and networking programmes. based on: The Trosa Report, F. Naschold, WZB 1994

For the case that none of these (or similar) measures is successfully adopted, the Report comes to a drastic conclusion: "The reform will fail because the structures of the centres have not been adapted" (Trosa 1994: 45). Just how controversial and political this question of the functioning of central ministries is, is readily apparent from the recent British Government White Paper (HMSO) on the topic: If the political options for civil service reform indicated are rendered explicit at the level of the central government ministries, these ministries face three decidedly contrary positions, with little by way of linkages apparent between them. The controversy surrounding the definition of the role to be played by central departments revolves not least around the question of the "value-added produced by the centre" mentioned earlier. In the public sector this value added is generally considered to lie in its strategic policy function. The debate on this question in the OECD countries is still at an early phase: it is particularly intense in Great Britain and New Zealand, and has only just begun in Finland. According to the Trosa Report, in Great Britain these "policy functions" are often understood in a very restrictive way as the "pure activity of advising ministers" or "nothing more than monitoring of some collective services provided for the agencies (e.g. general

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I Classical civil service concept Integrated Ministry with operative strategic tasks and high vertical integration

II Agency concept

III Political leadership context

Delegation of tasks to autonomous agencies: oderer-producer relationship between ministry and agency; ministries have central strategic policy tasks

Replacement of ministries as permanent units of the civil service by fixed-term (in line with the government's period of office) political staff subordinate to the minister. Policy tasks of consultancy, strategy formation and controlling; all other tasks delegated to ministries

F. Naschold after HMSO 1994a; WZB 1994

Figure 53: Three alternative concepts of central state administration

and finance divisions)". Yet there is also the very broad view involving strategic target-setting and strategic controlling (Trosa 1994: 38 ff.). In this context theoretical and practical experiences from the private sector may well be relevant (on the following cf. Timmermann 1988: 100 ff.). The basis for value creation by the centre in the private sector is in the first instance considered to be the specialised knowledge and abilities it possesses relevant to the enterprises managed. Such abilities can be used to improve performance in individual markets or to ensure the joint use of critical resources. The potential for value creation by the centre increases - as do the requirements - over the three stages described in figure 54. Improving the performance of individual business areas requires clearly defined, and easily comprehensible measures. The joint use of resources, on the other hand, creates linkages and dependencies, the optimisation of which is far more difficult and costly. This partly explains why in many firms the value of the centre is increasingly being seen in the middle path, the transfer of skills. Not only does the increased efficiency of markets make it increasingly difficult to purchase undervalued enterprises and to raise their profitability so as to regain the cost of acquisition; global competition also requires ever-quicker reactions to changes in the market. Thus any intensification of the joint use of resources is restricted by the need for autonomy to adjust to market and competitive dynamics. If the centre is to make full use of its potential for value creation, it is forced to perform different leadership roles vis a vis different business areas, whereby the role in each case depends on the value to be created, and on the strategy pursued by the individual area and its ability to implement this strategy successfully (see fig. 55). It is the role as "surgeon" or "sponsor" that is usually required in order to improve performance levels in individual business areas, depending on whether

New Frontiers in Public Sector Management Figure 54:

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Three Value-added Strategies for the Centre

Improving performance in individual business areas This is possible wherever productivity potential remains unexploited. Management must be in a position to identify the potential for improvement and be willing to make the changes required. This may require the replacement of executives, operative adjustment and control measures, or a strategy to reposition or restructure an area of business activity. In active steering, management also assumes the tasks normally performed by the relatively independent operative areas themselves. Transfer of special knowledge and skills Here the centre ensures a by means of an exchange of ideas between operative units. Strengths which contribute to competitive success are transferred between units which face similar requirements. The centre functions as a "turntable", for instance by stimulating the creation of working parties and project groups transcending unit boundaries, by means of which the cross fertilisation can be channelled. In practice, skill transfer often proves more difficult than identifying the skills. Often redeployment of the "know-how holders" is the only effective way to transfer exemplary problem-solving approaches to other business areas. Joint use of resources Here the aim is to achieve economies of scale and synergy effects through the joint use of, for example, technology, manufacturing or distribution facilities. This requires a central perspective to be taken, one which transcends the limited view points of the individual business areas so as, for instance, to perform investment projects which are beyond the means of individual business areas. Given that this means intervention in the independence of business areas, and consequently the need to compromise, the resulting competitive advantage must be subjected to sharp critical analysis. Particularly in the case of the joint use of resources, cost-cutting advantages are often put forward, although these are more than offset by the disadvantages resulting from the increased "distance" to operative dealings and the often very significant costs of co-ordination. Timmermann 1988: 100 f.

the business area has to be restructured or whether area management is to be backed up in its present course. The role as "coach", w h o s e characteristics lie between the decisive action of the "surgeon" and the subdued consultancy offered by the "sponsor", is most appropriate to skill transfer. The influence exerted by the "coach" largely results from cross fertilisation and the input of broader k n o w l e d g e and experience from other areas. The orientation towards value creation via the joint use of resources is best performed by an "architect", concentrating o n the creation of an overall network that is as effective as possible. This is frequently achieved by identifying opportunities for synergy effects in individual business areas from a central perspective. This usually requires a "directive" leadership style vis a vis the business areas affected. In line with the observed trend towards locating the value of the centre in the transfer of critical skills, many centres have adopted the role of "coach" towards their subordinate areas. The "architect" is only infrequently called upon here,

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Figure 55: Leadership Roles

namely in those cases where the joint use of critical resources generates unambiguous economic advantages. In well-run companies, the roles of "surgeon" and "sponsor" are increasingly restricted to either companies requiring radical restructuring or to excellently managed subsidiaries. 4.3.2 Results areas and work organisation: Two central issues of MbR reform The management cycle - that is target setting, implementation and monitoring/ control - is the formal steering framework of the MbR system. Establishing such a cycle is always the first phase in an administrative modernisation process. The infrastructure of MbR systems - the organisational results areas and work organisation (including personnel management) - are the core structures on which the management cycle is based. They are the subject of the second wave of the process of change. As emphasised earlier in the context of the OECD country analyses and in Chapter III., the transition from bureaucratic functional structures to product and segment-related administrative structures in which responsibility for results falls to each area constitutes the "hard core" of the modernisation process. The most significant attempt to overcome functional bureaucracy, which also has been the most successful, is based on a new analysis of markets and customers. Customers and markets are segmented according to customer needs and customer behaviour. The whole organisation is divided into semiautonomous result units which operate on different markets. The units are big enough to support all the main functions needed. Authority is delegated to the result units so that they can quickly react to changes in customer needs and business opportunities in their re-

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spective market segments. The units are regulated by establishing resource frames and a set of result objectives, against which the results of the unit are evaluated. The central administration is downsized and reorganised. The management is concentrated to the line manager and a planning and review staff is established for him. The general management negotiates yearly with the result units an agreement on the objectives and the resource frame of the unit. It is up to the units to make more detailed plans, if that is what they want. Some of the specialists who have been working in the functional departments of the central administration are appointed to the planning and review staff. Some of them begin to work in strategic development projects. Furthermore new self-supporting service units are established for various support and development functions. These units sell their services to the result units. Many of the attempts to overcome functional bureaucracy have been based on the same idea of rational planning that looks upon the management activity as a rather voluntaristic one-way process from ends to means, from abstract objectives to concrete activities. This approach overvalues the abstract, subjective intentions of management and devalues technology as the prevailing forms of activity. The result unit approach is an exception to this general line because it stresses the market segment and the clientele instead of the abstract objectives. The strategic importance of results units is evident in Finnish central government administration. The three indispensable steps of this second wave of restructuring, not least as a precondition for a fruitful bargaining process, are briefly described below (in fig. 56). The first step is to distinguish between the various roles of the central administration. In practice, the evidence from the reform countries suggests that a differentiation of the centre (General Manager) into three functions is most practicable: direct results management, strategic development and purely service-oriented units. Operative activities, usually organised as functional units, must then be transformed into product-related results units. In three cases of the Finnish development the concept of "result area" was used, but it was understood in very different ways. The main difference in the use of the result area concept can be set in a subjectivity-objectivity dimension. In the ML the result areas are created deductively from a very general and abstract mission statement according to the logic of the rational planning model. The result areas of the ministry are subjective in the sense that they describe a desired state of affairs, not the object of activity. The result is a set of objectives which are anchored to any existing object of activity. In MTC the result areas describe existing objects such as the traffic network of Finland. The objectives are described with a set of object variables which can be understood as changes of states in these real systems, e. g. level of prices, functional properties of the network etc.

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Legend: H = The basis of resource allocation, review of results 2 = Negotiation of result objectives and resource f r a m e s 3 = Support services sold to the result units Source: Virkkunen 1994: 12

Figure 56: Role Differentiation and the Principle of Result Unit Organization

In the FinRA and the Sibelius Academy the object of management's work is described by defining who are the clients of different units. This makes the concept of results more objective. In the Uusimaa Labour protection district the object of management's work is defined by analysing the labour safety problems in the Uusimaa district (cf. Virkkunen 1994: 40). The third step in the development process relates to work organisation, particularly that at the centre and in the decentralised results units. The prevailing trend to decouple management development and work organisation has already been identified as a major limitation to the scope of the modernisation process. Supplanting the functionally-based form of organisation with product-related results units both enables and requires the supplantation of the task-specific workshop principle underlying the labour process. Comparative research conducted by the author at the level of local employment offices has revealed the clear predominance of traditional, bureaucratic forms of work organisation. The only exceptions are Great Britain and Sweden. Whereas in the former the division of labour is actually becoming more pronounced through the introduction

New Frontiers in Public Sector Management Figure 57:

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Work Organisation and Personnel Resources in Local Employment Offices Staff skill level

Work organisation

low

Traditional-bureaucratic Neotayloristic

medium

high

Austria, Finland Norway

Germany, Japan

Great Britain

Sweden

New forms of work organisation Mix of flexible-specialised and mass production work organisation

—

F. Naschold, WZB 1994

of a number of incentive systems, Sweden exhibits broad-based trends towards new principles of work organisation, such as flexible, multi-disciplinary project teams, matrix organisation and network formation between the results units and segments of the administration's external environment. In Finland, such trends are visible only in a small number of local experiments, in which attempts are indeed being made to link management reform with reform of work organisation. The development of MbR systems is being accompanied by a far-reaching reorganisation of work organisation, the formation of customer-segment-related organisational units, the flexible establishment of multi-disciplinary project groups and network formation (Nurmi 1994). The extent to which it proves possible to generalise such developments will be of decisive importance in determining the fate of the reform process in Finland. 4.3.3 The negotiating process in MbR systems The annual negotiations between the various administrative levels, starting with the ministries and proceeding down to the level of local/regional offices, is very much the operational centrepiece of MbR reform. The aim of the process of agreeing on targets and results is, after all, to attain a uniform objective for the organisation as a whole and to mobilise staff towards this objective by means of a process of dialogue. British experiences in this regard are summarised in the Trosa Report. Contrary to what might be expected, it has not been so much the quantitative level of the targets that has proved controversial in the negotiating process, but rather the relevance of the targets and the quality of the target indicators (Trosa 1994: 52 ff.).

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- As far as the targets themselves are concerned, it has proved favourable not to limit the bargaining process to the analysis and negotiations of just one year, but rather to concentrate on the evolution of the results variables over time. Equally dysfunctional is a mechanistic application of the results attained on pay levels (performance pay) etc. - Of particular importance is the question of the relevance of the objectives. Experience has shown that the targets under discussion often fail to reflect the core activities of the administration, that financial objectives tend to predominate, and that qualitative aims can indeed be transformed into quantitative targets, but not into financial targets; this is usually not necessary, however. - In contrast to the underlying concept of MbR, it is often the agencies and not the ministries that are the driving force behind the target-setting process. In the British debate, at least, this is not seen as a particularly serious problem. Rather, the question is being posed whether the ministries should in addition have strategic responsibility for evaluating the target proposals put forward by the agencies. Events in Finland point to the existence of similar problems in the process of target-setting, although they are more serious due to the later start of the modernisation process there. The central finding of a large-scale evaluation project of MbR practices at the ML is that the "MbR process has not reached the shop floor and that there is inadequate process control" (Arnkil 1994). This report suggests a whole range of conclusions to be drawn regarding the further development of the negotiating process; these are given in summary form in figure 58. The evaluation report in question focused on the early years of the introduction of MbR in the ML, and this in the context of the economic crisis then prevailing. While these problems are still frequently encountered in present-day developments, there are clear signs that the development process has made progress since then: - Quality-related targets have increasingly been incorporated into the catalogue of targets for the central administration: results are to be evaluated in their regional context, the mode of exchange between the central ministries and the districts is increasingly moving away from ministerial directives to subordinate organisations to negotiation on the basis of interaction and dialogue; local and regional initiatives for improvements are supported and promoted (cf. the "Operational and Economic Plan for 1995/98"). - In some districts the MbR process has indeed reached the shopfloor, i.e. individual employment offices: negotiations on targets and supplementary work on them are consistently performed at the level of individual project groups. If the ML proves successful in broadening the base of such (and other) developments, it will have created many of the conditions required for the process of negotiation within the MbR system to in fact become the "central generative mech-

New Frontiers in Public Sector Management Figure 58:

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The MbR-process and its prerequisites

A need to develop more comprehensive, dialogical and more genuinely interactive steering, negotiation, implementation and developmental processes in order to -

get a more flexible and real-time message bottom-up of the labour market changes and development on the different areas - and be able to convey the strategic workpolicy and steering effect top-down in a more motivating and involving way. In connection to this there is a need to take more seriously the real complexity and local differences of functioning on the labour markets in order to avoid too technical and narrow interpretations and measurements in the MbRprocess. This should coincide with developing on the regional and local levels a better contact to the labour markets, other regional administrative agents (especially the new district bodies), data bases and eventually also the regional development in European integration. In order to support the above-mentioned developments the result analysis and measurement need considerable elaboration and integration especially by integrating qualitative evaluations, aspects and measurements and by developing also the "technical data analysis" integration of the connections between different measurements (i. e. comparison models, simulations etc.). In relation to all these there is a need to develop more direct interactive structures and organisation both vertically (involving the central administration more directly in practical projects) and horizontally (by developing

more "profiled" service-entities in the employment offices and regional offices and connecting them into networks). This also involves more usage of common resource pools. A promising vehicle in these developments is the so far rather preliminary development in the field of quality feed-back mechanisms, quality measurement and quality-process analysis and control. This development could serve as a promising "border system" and "border object" which could in a motivating way serve as a connection between different levels of organisation. In order to support the communicative developments also the level of data analysis, statistical know how and computer programmes in the regional offices, but also to some in extent in local employment offices - and the central administration - should be raised considerably. Finally, the "developmental infrastructure" of the labour administration needs considerable development. Now different projects are squeezed in short time tables, left often as "stand alone" projects with inadequate network connections either internally or externally. A comprehensive developmental project like this one finds it difficult to find a "discussion partner" either in the labour adminisatration - especially in the central level which is functionally fractional - or in the scientific community. These problems could be alleviated by developing a continual discussion forum and network crossroads in the labour administration, which would serve as an accelerator in development in the spirit of the dialogue conference methods.

Amkil 1994: 1 f.

anism" for ongoing organisational development. This would then once more raise the question of how the central departments are to be reorganised. 4.3.4 MbR development projects and evaluation Evaluation and the establishment of development projects constitute two operative instruments that can be used to enhance the MbR process: evaluation, in the

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sense of feedback-control, is one of the three core elements of the management cycle, while development projects are an approach frequently adopted in organisational restructuring. Development projects, in turn, themselves need to be evaluated. Yet the conceptual centrality of evaluation, in the sense of a monitoring of results agreements and of the process of organisational development (Svensson 1993), stands in sharp contrast to the role of evaluation in practice. An international comparison of experiences in this area comes to a decidedly sobering conclusion (Leeuw/Rist/Sonnichsen [eds.] 1994): politicians are keen to set targets, but not so keen to evaluate degrees of goal attainment. In view of the importance of evaluation as a vital feedback for organisational learning, far too few social resources are invested in such activities. According to a report by the Swedish "National Audit Bureau", 95% of the evaluations studied served to support a position within a relatively limited frame of reference and thus were only conducive to instrumental (single-loop) but not strategic-paradigmatic (double-loop) learning (Forubo 1994). My observations show that such findings also apply in the Finnish case. The same is true of the conclusions drawn from a variety of national contexts. I will mention just four results in similar vein derived from the international discussion on successful organisational learning by means of evaluation (fig. 59). Figure 59:

Four Requirements of Evaluation for Organisational Learning

(1) The potential provided by evaluation must be deployed as an instrument of "double-loop learning" by making available knowledge "about the fundamental assumptions underlying various activities" (National Audit Bureau, quoted in Furabo 1994). (2) The ex post analysis of organisational processes, and especially of innovative action, is a form of learning complementary to the ex ante analysis of objectives (Weick 1985). (3) Organisations cannot monitor themselves in a way that is both uniform and unidirectional. Because the processes are contradictory and take various course self-monitoring requires the creation of changing processing points distributed heterarchically throughout the entire system (Kasper 1991). (4) Evaluations should be differentiated in accordance with their function, the underlying decision-making process, and the various actors involved (Hjern 1991; Furabo 1994). F. Naschold, WZB 1994

As the Swedish debate has shown, it is possible to draw conclusions from these requirements conducive to an institutional and functional differentiation within evaluation strategy (see fig. 60). A second instrument which can be deployed to enhance the process within the MbR system are experimental projects and programmes to refine managerial structures and work organisation. An experimental policy approach of this type is very popular in Finland, as elsewhere, and has been frequently deployed, par-

New Frontiers in Public Sector Management Figure 60:

127

Functional and Institutional Differentiation of Evaluation

Function

Decision-making process

Actor system

1. Follow up study

Result Budgeting

Result-budgeting units and parliamentary committee

2. Programme evaluation

sectoral political process

Sectoral experts from politics & administration

3. strategic policy evaluation

Fundamental decisions

strategic decision-makers

F. Naschold, WZB 1994

ticularly since 1989 in the course o f the introduction and further development of the M b R system. Three o f the m o s t interesting o f these development projects/programmes in the context of M b R have been subjected to cursory analysis by the author: the M b R projects at the M F (from the end o f the 1980s), the productivity and quality projects of the M F (until 1994), and the E m p l o y m e n t Office 2 0 0 0 project of the M L (until 1994). Although most o f these projects/programmes have already been evaluated, n o attempt has yet been made at a fundamental ex post analysis of experimental policies in Finland, involving c l o s e examination of their underlying premises. The f o l l o w i n g figure provides a number o f preliminary c o m m e n t s on the basis o f the three programmes just mentioned.

Figure 61:

Finland's Experimental Policy in Perspective

(1) The design logic of the development projects/programmes oscillates between an experimental and a developmental philosophy. To a considerable extent this renders the projects ambivalent. In practice the typical experiments conducted in the course of the policy have not been successful. The aim must therefore be to focus on the organisational development perspective (in its various forms, cf. chapter III.). (2) The Finnish development projects/programmes have repeatedly generated interesting individual cases, but have seldom achieved a high level of continuity and generalisation. This situation could be improved if account were taken of the relevant experiences of the numerous development programmes implemented in other countries (cf. Naschold et al. 1993). (3) The project management of the development projects is institutionally weak, quite apart from the consistently tight resource budget. A stronger leadership component is required to coordinate the development projects. (4) The evaluation of the development projects tends to be oriented to a simple form of singleloop learning and seldom question the assumptions underlying the project itself. This fact is linked to the very "state-centred" nature of most of the evaluations. Instead evaluation activity should be heterarchical in orientation. F. Naschold, WZB 1994

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4.3.5 Competition or complementarity between public and private services In the course of our analysis of the aggregate OECD data we addressed the question of the privatisation of public services as a possible modernisation strategy. Based on development trends at local government level, we put forward the hypothesis of the complementarity of the two forms of service production, provided the public sector retains a strategic "own competence" in this area and the complementary relationship is clearly regulated. This view is confirmed by the analysis of central government policies, illustrated in the following with respect to labour market policy 18 . Let us commence the discussion of the interplay between public and private job placement by looking at their relative market shares. In Switzerland private agencies perform 86% of all job placement, in the Netherlands 41%, in Great Britain 17% and Denmark 11 %. On these figures, it is evident that while the public sector job placement service is holding its ground rather well in Great Britain and Denmark (and also in Australia), the market-share situation in Switzerland (and also in the USA) must be seen as negative from the point of view of public sector job placement. The main reason for the weak market position of public job placement in Switzerland and the USA, besides their rather modest resource endowment and the lack of co-ordination at national level, is to be seen in their "voluntary withdrawal" to specific "difficult" labour market segments, e.g. the long-term unemployed and school-leavers (cf. Bishop 1992). In principle though, private job placement complements the public service in all those countries in which the two coexist. Private job placement is primarily "joboriented", concentrating on filling vacancies with higher-level and specialist requirements with the appropriate, usually already employed, applicants. The public placement service, on the other hand, is largely jobseeker-oriented. Not least due to their statutory commission, their clientele consists largely of the unemployed and other persons with placement difficulties. To this extent the public placement service tends to be used more frequently for jobs with lower skill requirements (Walwei 1994). Further evidence for complementarity comes from the comparison of the relative market shares of public job placement services in "monopoly" and "coexistence" countries. Such a comparison shows that a monopoly - the prohibition of private job placement for profit - does not by itself endure a high market share for the public service, while conversely, the existence of private placement agencies does not necessaryly imply a low market share for the public placement service (OECD 1992; Walwei 1994: 105 f.). The example of Denmark, a country in which the two forms have coexisted for several years, may serve to illustrate the complementarity hypothesis (Walwei 1994). Since the 1st July 1990, private, 18

On the following cf. the work of U. Walwei (particularly Walwei 1994), and also the still preliminary report of the Internationale Vereinigung für Soziale Sicherheit on the same topic.

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profit-seeking job placement agencies have been permitted to operate without special permission and without the imposition of particular stipulations. The aim of the Danish liberalisation policy was to raise the quantity and quality of the jobs offered. In particular, employed jobseekers and firms facing difficulties in filling vacancies were to benefit from the new services offered by private agencies. The Danish Institute of Social Research has published a research report into the effects of the liberalisation (on the following cf. Csonka 1993). According to the study, even by 1992 the market share of private job placement agencies was still very small. Various reasons were put forward to explain this phenomenon. It clearly required a considerable length of time to establish a network of private agencies (supply side) and for enterprises and job-seekers to incorporate private agencies into their search efforts (demand side). Even the agencies themselves agreed that, at least in some business areas (e.g. placements in the Arts and abroad), the absence of licensing requirements and operative regulations had a negative effect on the reputation of private agencies and thus on their utilisation by employers and jobseekers (Walwei 1994). Although the liberalisation did not actually initiate reforms within the public job placement service, it did serve to substantially accelerate on-going reforms. The ensuing reform of the public service, the aim of which was to professionalise the services offered, has brought about a lasting improvement in its reputation and market share. This has been achieved by a whole range of measures. Firstly, in the course of the liberalisation local authorities were for the first time able and encouraged to develop placement activities of their own. The clientele of the local authority services consists largely of difficult-to-place recipients of minimum social benefits and former convicts. By virtue of this division of labour, the public job placement services were enabled to concentrate on more attractive segments, such as unemployed benefit recipients and employed job-seekers. At the organisational level this was reflected in the creation of job-oriented placement units and the option of charging for specific services (e.g. personnel selection and application courses). Thus the aim of the Danish liberalisation, namely to improve the supply of placement services in both quantitative and qualitative terms seems to have been realised, although less (than had been expected) via the new offers and services provided by private agencies than by the improvement of the public job placement service (Walwei 1994: 106). The complex dialectic of the complementarity between public and private services, and not the simplistic dichotomy between private/market and public/state regulatory mechanisms, would appear to be an important motor behind the modernisation process.

4.3.6 The effectiveness and efficiency of MbR systems "MbR advances very well, but has it led to better results?". I would like to conclude this chapter by summarising a number of findings which, together with the

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Frieder Naschold

evidence already produced, can go some way towards a comparison of efficiency, and so respond to the question posed by Santalainen (1993). The hypothesis that agencies represent a particularly effective concept is confirmed. The Swedish and British labour market authorities exhibit consistently high market shares, placement rates and utilisation figures, often among the very highest in international terms. Over time their goal attainment values have improved relatively consistently against the background of ever more ambitious targets. For reasons which can be relatively easily identified, Finland lags behind in this development. The case of Germany, with its equally high performance values, but traditional steering and work organisation shows that functional equivalents to the British and Swedish approach do exist. All the same, recent efforts in Germany to decentralise and segment the existing organisational structure and to promote new forms of work organisation point in a similar direction. At ministerial level the current situation is rather different. Here the problem of "role definition" is particularly acute in Great Britain and Finland, and also increasingly in Germany. Yet here, too, the trend is towards smaller central units and autonomous agencies. Due to its long historical tradition, Sweden has achieved a relatively established state of development in this respect. In Finland the intensifying learning process at the ML is noteworthy. For as long as the organisational structures of the central ministry remain unchanged, however, the scope for learning and negotiating processes will remain tightly circumscribed. It is evident that a narrow conception of MbR systems (cf. chapter III.) will lead to growing difficulties for ministries, whereas a broader-based conception contains a significant development potential. Dynamic developments are currently most pronounced at district and local level (results units). At this level there is convincing evidence - in the form of comparative case studies - that MbR systems based on segmented, decentralised organisational structures, together with new forms of work (flexible teamwork, rotation, matrix-forming, networks, onthe-job-training etc.), are the modernisation trends of the future, at least within labour market authorities. Sweden has gone furthest in this direction: Finland and Germany have followed with some initial approaches; in Great Britain the discussion of such topics is only just getting under way. A final finding relates to the effectiveness of the interplay between private and public forms of organisation. Here we have clear supportive evidence that a regulated interplay between private and public forms of organisation, with the public sector retaining a strategic "own competence", can considerably raise the effectiveness of public service provision and, as a rule, improve the market share of public services.

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5 The Modernisation of Local Government 5.1 The local authority as the base unit of national public sector developments Paralleling the relative decline in the "centrality" of government and in the belief in the inherent value of central government steering, local government has entered the political arena as a central actor. It is therefore hardly surprising to see that in almost all the OECD countries considered here, local government represents the "base unit" of national public sector developments. (Great Britain and, since the territorial reform of 1974, Sweden are at least partial exceptions here, due to the large area covered by their local authorities and municipalities.) This is not to say, however, that local government has been immune to change: on the contrary it has undergone far-reaching developments since the end of the Second World War. Local government has been incorporated as an integral part of national policy-making at the macro level with regard to economic and welfare policy. In the face of an increasingly global economy, local authorities, as an arena in which local needs can be articulated and met, are now exposed to inter-municipal competition to attract investment and to the impact of the economic development strategies pursued both by government and business. Many countries are currently making efforts to supplement the local institutions of representative democracy with elements of direct citizen participation. This chapter deals with local government administration in the OECD. As with central government the focus will be on the developments which constitute public sector modernisation, this time at the level of local administrations. The discussion in the OECD countries on this topic centres around a number of hypotheses 19 ; four of the most important are reproduced below: (1) The post-war development of local government has proceeded in successive stages, beginning with a civic self-regulation and self-help strategy, followed by the strategy of internal modernisation of local administration and now centering around a market-oriented strategy. This change of strategy options at local level runs parallel to the analogous development of the national welfare state from a centralised welfare state, to its decentralisation, to a market orientation. In turn, both these development processes correspond to a change in the underlying conception of local government from a civic community, to a political institution, to an enterprise. (2) For many years local government was one of the leading producers of welfare - social, education and health - services. Since the end of the 1980s the trend 19

A good summary can be found in Banner/Reichard (ed.) 1993; Baldersheim 1993; Stahlberg 1993 in Banner/Reichard (1993); Stahlberg 1993; Haggroth 1993; Haggroth et al. 1993; Bennett (ed.) 1993; Williams 1993; Marcou 1993; Naschold/Prohl (eds.) 1994.

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Frieder Naschold

Figure 62:

Local Authority and Welfare State Development Trends

Strategy options for local government

Civic strategy of self-regulation

Public strategy of internal administrative modernisation

Market oriented strategy

Welfare state development

centralised welfare state

Decentraliation of the welfares state, "municipalisation"

Competitive strategy

Underlying model of local government

Local government as a community

Local government as political democracy

Local government as an enterprise

Naschold 1994 following Baldersheim 1993, Stählberg 1993

towards a comprehensive redefinition of the role of local government ("role reversal": T. Williams 1993) have been very evident, in particular from being a direct producer of services to an "orderer" of services or "guarantor" of service provision 20 . (3) The relationship between central and local government has been characterised by a secular process of decentralisation since the 1980s, in which central government played the leading role and increasingly transformed itself into an enabling authority with regard to central government services for local government. (4) As far as developments in the Scandinavian countries are concerned, here too Sweden has played a pioneering and, in ideological terms, hegemonic role vis a vis countries such as Norway and Finland. The following sections deal with the modernisation process in local authorities from a number of different perspectives. I commence by analysing the most important development trends and profiles of local administrations at the aggregate national level by means of an international comparison of four OECD countries. I will then compare one of Finland's best-known reform administrations, the city of Hameenlinna, to similar local authorities in eleven other OECD countries on the basis of an international competition of city governments. This is followed by an examination of the "Free Commune Experiments" in Sweden and Finland, and a look at the more recent modernisation strategies pursued by the city of Hameenlinna. The chapter concludes with a summary of the findings at local level, whereby the results will be set against the four hypotheses mentioned above.

20

The terminology used in this context is just as lacking in standardisation and just as confusing at local as it is at central government level: terms such as "enabling authority", "buyer", "purchaser" and "orderer" are often used synonymously, but not infrequently the different terms reflect a change of emphasis.

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5.2 An international comparison of developments at local government level Within the OECD, three countries, Sweden, Great Britain and Germany, embody the three clearest development paths at local level and thus cover a broad spectrum of the modernisation processes occurring within local government. The neglect of southern Europe at this stage in the analysis is not serious, particularly as far as a comparison with Finland is concerned, and, in any case, will be rectified in the course of the direct city-to-city comparison. 5.2.1 The institutional framework of local government administration The microcosm of local government is embedded in a supra-local institutional framework which constitutes an important determinant of modernisation processes at local level (see fig. 63). As far as the framework of institutional conditions is concerned, it seems natural to begin with the legal status of local government. Sweden, Finland and Great Britain are unitary states, although the two Scandinavian countries do grant a high degree of local autonomy, including the right to raise own tax revenues; in Great Britain local government is the product of decisions by central government. Germany conforms to the prototype of the federalist state, with a highly autonomous and pluralistic structure of local administration. Consequently, in Sweden, Finland and Germany, but not in Great Britain, local government is the base unit of the national structure of government. Whereas in Great Britain and, although to a lesser extent, in Sweden (286 authorities), local government is highly concentrated, Finnish local authority areas are very small (456), with Germany occupying the middle ground in this regard. The political structure of local government administration is characterised by, on the one hand, the relationship between local politics and administration, and that between local government as base unit of state administration or as communal autonomy on the other. Sweden and Finland exhibit the "split hierarchy system" typical of Scandinavia, Great Britain the "dual system" of administrative professionalism and the "board structure" of local government. Germany has a mixed system with respect to the relationship between the heads of local government and the administrative bodies. In Sweden and Finland resource allocation between central and local government is based on a highly localised, in Germany on a decidedly centralised mode of allocation; in Great Britain, by contrast, a highly centralised resource allocation system within the framework of a market-oriented welfare state system predominates. The reform strategy in the relationship between central and local government in the two Scandinavian countries is based on supportive, more or less coopera-

Fairly centralised public sector model of welfare resource allocation Decoupled federallocal relationship and fragmented experimentation strategies on the local level Very late starter (early 1990s)

Highly centralised model of marketoriented resource allocation Binding State legislation and State top down intervention strategy in connection with political mobilisation Pioneering the modernisation trend (early 1980s)

Enabling State legislation and broad based experimental strategy (FCE 1984 to 1988/91)

Fairly localised public sector model of welfare resource allocation

Late starter (late 1980s)

Enabling State legislation and fragmented experimental strategy (FCE 1989 to 1992-95)

Firmly localised public sector model of welfare resource allocation

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Mixed system of fused (Napoleonic) and dual system

Scandinavian "split hierarchy system" Anglosaxon dual system

Scandinavian "split hierarchy system"

Medium-range local government territorial reform; local authorities are the core of local administration.

Far-reaching local government territorial reform (average size of local authority area: 100,000)

Limited local government territorial reform (4SS authorities in 1994); local authorities are basic unit of local administration.

Far-reaching local government territorial reform; large local authorities are the basic units of the local administration.

6. State of developEarly starter ment of the moder(early/mid 1980s) nisation process

5. Reform strategies and Statemunicipalityrelationships

4. Resource allocation between State and municipality, State and market

3. Local regulation structure

2. Geographical pattern and strategic positioning of the municipality

Federalist state and constitutional guarantees of a pluralist local government structure

FRG

Unitary state, local authorities are product of central government.

GB

Unitary state and constitutional guarantees of local government authority

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Unitary state and constitutional guarantees of local government autonomy (286 local authorities, 1994)

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134 Frieder Naschold

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New Frontiers in Public Sector Management

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tive legislation by central government and a broad-based experimental strategy at local government level. In Great Britain central government pushes through its views concerning local government reform within the framework of a broad party-political mobilisation and a top-down approach. In Germany the reform scenario differs fundamentally from the other countries. Recent years have produced a very fragmented picture of local reform experiments, against the background of an almost total dichotomy between central and local government as regards the modernisation process. Great Britain is the pioneer in the trend towards local government modernisation; Sweden was an early starter, whereas the modernisation process began rather late in Finland, and reform initiatives in Germany were not observed until very recently. 5.2.2 Developments at local government level: The focal points of modernisation Let us now turn to the focal points of the modernisation process underway within local government in the four countries. As figure 64 clearly shows, in addition to internal modernisation and the introduction of market-related organisational alternatives, focal points we have already encountered at central government level, the démocratisation constitutes a third significant focal point at local government level. Indeed, local government démocratisation has been an issue which has been on the agenda throughout the past thirty years, enjoying greatest attention during the 1970s and now once more in the mid-1990s, while internal administrative modernisation was the central theme during the 1980s and the introduction of market-linked organisational alternatives the main concern in the first half of the 1990s. Compared with modernisation at central government level, two additional reform measures are to be found at local authority level: quality assurance as a part of internal modernisation (including competitive elements) and organisational development in the direction of the purchaser-contractor model. The evaluation of our data in terms of the number of focal points and the types of modernisation measure generates a number of rather surprising findings (fig. 65). - At local government level, measures involving market-oriented forms of organisation are more frequently found than those involving internal modernisation. - At central government level, it was the use of agencies and results steering systems as a constituent part of internal modernisation that had dominated the overall picture. - In quantitative terms démocratisation measures are far from playing a leading role, although they are significant at local, in contrast to central government level.

11. Purchaser (orderer) contractor (provider) models

10. Compulsory Competitive Tendering/ market test

9. Privatisation

8. Independent agencies

III Market-oriented organisational develooment

Finland

Experimental development of Mbo/MbR systems with very limited controlling Some efforts at budgeting on a output basis

|1

Governmental decentralisation and deregulation, s t r e n g t h e n i n g of local government in financial and competence terms

Efforts towards TQM and Citizen Quality Feedback

Broad-based experiments with purchaser-contractor models

Limited CCT and market testing

Limited privatisation

Broad-based trends towards autonomous agencies

Great Britain

Taylorist task division and personnel specialisation

Comprehensive introduction of MbR systems with rigid operative controlling (just under 60% of local authorities) Budgeting on an outcome basis

,|

Limited CCT and market testing No organisational development based on purchasercontractor models

Increasing restructuring of administration towards purchaser-contractor models

Isolated models

purchaser-contractor

Very limited CCT and market testing

CTT and market testing obligatory in an increased number of political and administrative areas

1

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Limited privatisation

Broad-based privatisation

Scarcely any privatisation

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Traditional form of.sectoral citizen participation

Market-oriented organisational development

Balancing of financial and competence-related local government autonomy within the federalist political framework (federal/state/ local government)

Traditional working structures but high initial skill levels Juridified (administrative courts), because quality understood in terms of conformance to norms

Increasing use of autonomous agencies

Citizen participation in the form of consumerism

Extended and decentralised form of citizen participation

Germany

Fragmented introduction of MbO/MbR systems with very limited controlling Limited budgetary flexibilisation

1

Increasing use of autonomous Broad-based movement towards use of agencies agencies

Managerialism

Increase in the strength of politics and management

Governmental decentralisaCentral government intertion and deregulation, strengvention; limited scope for thening of local government in action by local government financial & competence terms

Some use of TQM and Citizen Consumerist quality moveQuality Feedback approaches ment via Citizen's Charter

Trends towards the development Isolated Trends towards of new forms of work organisation organisational development and limited personnel developm.

Broad-based development of MbO/MbR-systems with controlling via systematic evaluations Budgeting on an output/ outcome basis

Sweden

6. Relationship betw. politics & top-level admin- Increase in the strength of istration (not evaluated politics and management on a points system) Extended and decentralised form 7. Relationship between administr. and citizens of citizen participation

5. Autonomy of local government/decentralisation

IIDemocratisation of local authorities

4. Quality assurance

3. Work organisation and personnel development

2. Budgeting variants

1. Steering model (incl. controlling)

I Internal modernisation

| 136 Frieder Naschold

137

New Frontiers in Public Sector Management

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Figure 65: Number of Focal Points by Type of Local Government Modernisation Measure

- The most important modernisation measure is the externalisation of organisational units in the form of autonomous result and resource units. - This is rather unlike the - in quantitative terms - equally important creation of agencies at central government level, as these have a far lower degree of (legal) autonomy, so that at central government level this measure is to be regarded primarily as an instrument of internal modernisation. - As at central government level, local government modernisation is characterised by a dichotomy between management reform on the one hand, and work organisation and personnel development reform on the other. At first sight the evaluation of the data by country appears to confirm the "modernisation ranking" - headed by Great Britain and Sweden, followed by Finland and finally Germany - observed at central government level (fig. 66). Closer analysis reveals, however, that Sweden and, to a lesser degree, Finland exhibit a more even distribution across the entire spectrum of measures than Great Britain, due to the importance in the Scandinavian countries of the "democratisation of local government", in particular the decentralised and cooperative relationship between central and local government. This contrasts with the state centralism and conflictual centre-local relations in Great Britain.

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Frieder Naschold

7 - '

Figure 66:

Focal points of local government modernisation by country

5.2.3 National profiles of local government modernisation This section provides brief sketches of the reform profiles of the four countries in order to determine to what extent the quantitative distributions described above are reflected in qualitative differences between country-specific strategies and structures in the modernisation process at local government level 22 . 5.2.3.1 Reengineering of a traditional administration by central government: Rescinding the powers and changing the role of local government in Great Britain Great Britain is an exception within the OECD as its local government does not constitute the base unit of the local administrations. British municipalities are large aggregate areas and very much the product of central government; they lack any form of constitutional guarantee and can be steered quite simply by means of normal legislation passed by Parliament. It is thus hardly surprising that the history of central-local relations is the history of confiictual intervention by central in 22

The following country sketches are based on official documents of the four countries concerning, for instance, the relationship between central and local government, administrative structures etc., on the relevant social scientific literature, some examples of which are mentioned in the text, and a number of interviews conducted by the author with representatives of local government associations.

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local government. This trend was exacerbated by the party-political polarisation within the British governance system during the 1980s and 1990s. The conservative government considered local government, and particularly that in the large urban areas with its specific distributive coalitions, to be at the heart of the problem of the permanent rise in public spending and public-sector employment, and by no means as the solution to these problems. The strategy which emerged in the course of the 1980s and was pushed through by central government was to cut back the powers of local government and to shift their role from direct producer of welfare services to that of an "enabling authority", i.e. one which merely ensured that such services are provided. The instruments deployed to further this strategy involved comprehensive and binding legislative intervention by central government, the introduction of market-related mechanisms such as Compulsory Competitive Tendering (CCT), market tests, privatisation, externalisation, and quality control via consumerist citizen mobilisation on the basis of a Citizen's Charter (cf„ among others, Williams 1993; Davies 1993; Stewart/Walsh 1993). The modernisation process within British local government is frequently divided into four phases. Figure 67:

Four Phases of Local Government Modernisation in Great Britain

1. Paradigm Lost, 1 9 7 9 - 1 9 8 2 The conservative policy remains within the paradigm of the previous Labour governments; central government counter measures to control local government spending including privatisation and rate capping. 2. Paradigm Regained, 1983 - 1987 The control measures are initially still based on the old paradigm of local service production: abolishing the 'wasteful' metropolitan counties; increasing use of government-specific grantprojects; setting up of the Audit Commission (1983); besides this, non-paradigmatic measures to curb the powers of local authorities and to set up 'enabling authorities'. 3. The New Paradigm, 1988 - 1991 The Local Government Act of 1988 marks the breakthrough for the concept of the 'enabling authority'. The central instruments are CCT, market testing, additional privatisations and 'sectoral' legislative reform in education, social services and health. 4. Strengthening the New Paradigm, 1991 to present Perpetuating and stabilising the new paradigm by means of the Citizen Charter as a centrally steered TQM movement. F. Naschold, WZB 1994

Thus British local authorities have been characterised by two specific modernisation trends: the wide-spread introduction of MbR systems and results budgeting as the path to internal modernisation, and the role-change from direct service producer to enabling authority. The concept of the enabling authority is the one genuine contribution made by British developments to the process of local government modernisation within the OECD as a whole (Ridley 1988). In the British

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Frieder Naschold

version this involves a financing system which aims to bring about macroeconomic resource control together with the customer sovereignty of citizens within the context of depoliticised relations between central and local government. According to figures provided by the Audit Commission, by 1990 as many as 54% of the local authorities had reoriented their managements structures in accordance with the concept of the enabling authority. 20% of public contracts were going to private suppliers, with the trend rising (Audit Commission 1993). The conservative election victory of 1993 has further stabilised British local government reform on this development path.

5.2.3.2 From internal modernisation to the market model and back again? The cycles of local welfare production in Sweden Sweden has been the second pioneering country with regard to local government reform, starting only slightly behind Great Britain, although the initial situation facing the country was markedly different, and very different strategies have been deployed. Swedish local authorities enjoy a high degree of constitutionally guaranteed autonomy, including the right to raise local taxes. (With the exception of Finland and New Zealand, Sweden is the only OECD country with such a right.) Despite their large size, they constitute the base unit for local administration, underpinned by a long tradition of partnership between central and local government. The development path taken by Sweden's local authorities can be divided into five phases (cf., among others, Haggroth 1993; Baldersheim 1993; Montin 1993). Thus Swedish local government developments are based on three central pillars: decentralisation from central government and local empowerment; internal modernisation of local authorities according to the logic of MbR; and experimentation with various market-oriented organisational forms. A characteristic feature is the use of broad-based and well-evaluated experiments. The relationship between central and local government has been consistent and supportive. It is interesting to note that the FCE initially met with much greater resistance from the various central ministries than the reform of intra-governmental finances, although the overall effects of the former were much less pronounced than those of the latter. The market orientation of local government services announced by the conservative government met with bitter resistance in some cases; since the change of government the policy is likely to take the form of moderate "enabling", without far-reaching privatisation. Thus the core element of the Swedish welfare state the very substantial proportion of welfare services provided directly by the state will remain, albeit in a significantly modified form. The introduction of competitive elements and in particular purchaser-producer models will thus have an impact on the welfare state, but there will be no fundamental change of course, such as occurred in Great Britain, as had been forecast by many observers.

New Frontiers in Public Sector Management Figure 68:

141

Five Phases of Local Government Modernisation in Sweden

1. 1960 - 1980: Expansion of welfare state service production, accompanied by centralisation of responsibilities compared with the decentralised-local responsibility structure characteristic of the immediate post-war period. 2. 1984 - 1991: Decentralisation of central government responsibility for welfare state service production via two developments: the Free Commune Experiment (FCE) (1984 - 1988 1991/92), which culminated in the Local Government Act of 1991, according local authorities wide-ranging freedom of self-organisation. Secondly, financial relations were transformed from a system of detailed special grants at sectoral level to a central allowance system based on generalised criteria of need; this system now encompasses 75% of all central government transfers. (The basis for this new financial system was laid by the Parliament in 1991, but was not made law until 1993). 3. 1991 -1994: The process of local government internal modernisation on the basis of MbR was supplemented by the introduction of market-type organisational forms. The Swedish debate centred on the orderer(buyer) - contractor (producer) model, involving more broadly based invitations to tender and market opening. This trend occurred against the background of economic crisis and the coming to power of a conservative central government and a shift to the right in many local authorities. 4. 1994: In the wake of the return to power of a social-democrat-led government not only at the centre but also in many local areas, the provider-producer models, although not abolished, have been put on ice for the time being and subjected to rigorous evaluation. For the future the expected trend is a continuation of the traditional course of internal modernisation (MbR plus decentralisation) together with a number of more moderate forms of buyer-producer models. F. Naschold, WZB 1994

5.2.3.3

Internal modernisation and decentralisation. Changes in local government welfare production in Finland

A s in S w e d e n , Finnish local authorities traditionally have a strong and very aut o n o m o u s position. At the same time, only limited boundary reform means that the size of such authority areas has remained small, and for many years their activities were curtailed by a highly centralised and legalistically oriented central government. All the same, in Finland as in S w e d e n , central-local government relations have been characterised by partnership and co-operation. Overall, Finnish developments in the area of local government reform are oriented relatively closely to those in S w e d e n , typically with a time lag o f about five years (Ryynànàn 1994; 1994a). A s in S w e d e n , local government modernisation in Finland is based o n the three pillars o f administrative internal modernisation, démocratisation and market orientation. Yet, rather like Norway, both internal modernisation and market orientation began later and neither are as broad-based, nor as deeply entrenched, nor as well evaluated as in S w e d e n . On the other hand, developments within the Finnish local authorities exhibit - in contrast to the v i e w c o m m o n l y taken (cf., for instance, Stâhlberg 1993) - at least t w o distinct, characteristically Finnish trends:

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-

T h e trend towards the m u n i c i p a l i s a t i o n o f w e l f a r e state s e r v i c e s h a s b e e n m o r e d y n a m i c and w i d e s p r e a d than in S w e d e n ; at the s a m e time, staff reductions b e g a n t w o years earlier than in S w e d e n and h a v e b e e n m o r e p r o n o u n c e d .

-

Finland has adhered m o r e c l o s e l y to a public sector strategy. T h e introduction o f c o m p e t i t i v e e l e m e n t s , largely the u s e o f purchaser-producer m o d e l s w i t h i n a u t o n o m o u s organisational units, h a s r e m a i n e d very largely w i t h i n the ambit o f the public sector.

Figure 69:

Three Phases of Local Government Modernisation in Finland

1. 1980 - 1988: Expansion and municipalisation of the Finnish welfare state, although steered by central government. 2. 1988 - 1992: Decentralisation, deregulation and internal modernisation of local administration. The FCE's of 1989 - 1992 - 1995 led to legislation granting local government farreaching organisational freedom. Local government finances were reformed between 1991 and 1993, by making six specific grants into 'global' grants, together with the introduction of double-entry bookkeeping into local government budgets, a step which must be accomplished by 1997. Parallel to these developments, internal modernisation measures were introduced at local level, focusing on the introduction of MbR and results budgeting. 3. Since 1992: Under the conservative government there has been a shift in emphasis away from internal modernisation and towards the introduction of market-oriented organisational forms, in particular purchaser-producer models, especially in the context of autonomous results units within the local administration. F. Naschold, WZB 1994

Figure 70:

Municipalisation of the Welfare State in Finland, 1960 - 1993 1960

1. Local government spending as a share of GDP 2. Local government employees as a share of total employment

6,5 % (48% of governmt. spending)

1970 8%

200.000

After Baldersheim 1993, Stählberg 1993

1980 12 %

1990

1992

15 % (66% of governmt. spending)

17 %

475.000

448.000

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5.2.3.4

143

The incrementalism of the traditionalist: German local government on the road to modernity

German local authorities have a similarly high degree of autonomy and the same key strategic role as those in Scandinavia. In contrast to the three countries considered so far, though, German local government is embedded in a federalist system consisting of four levels, all of them relatively strong, with the effect that the potential tensions between central and local government are continually broken and mediated by an intermediate level, that of the federal states. As in the Scandinavian countries, the relationship between federal, state and local level is on the whole based on partnership, with the important difference that the German welfare state is largely transfer oriented and less of a service producer. The most important phases of the local government modernisation process since its "reformation" after the Second World War are described in the following figure:

Figure 7 1 :

Four Phases o f L o c a l Government Modernisation in Germany

1. Reform of local government boundaries in the mid-1970s led to "decentralised concentration" of local government and limited functional reform. 2. Failure of the reform of civil service employment regulations at the end of the 1970s. 3. 1988 ff. numerous commissions set up to de-bureaucratise, deregulate, simplify legal and administrative procedures and bring government closer to the people, but lacking a general conception and largely without practical impacts. 4. The fiscal crisis of 1993 ff. induced a discussion on a "structural" reduction in public spending, in particular via the use of new steering concepts (in line with the Dutch discussion), and agencies and privatisation (in line with the British discussion). It is as yet unclear whether such concepts will in fact be implemented. F. Naschold, W Z B 1994

German developments thus point to a very distinct modernisation profile compared with the other countries: -

Germany lags far behind the three other countries with regard to the modernisation of both central and local government. Its position can perhaps best be characterised as 'stagnation at a high level' 23 .

23

As evidence of this I would like to quote from an internal planning document on administrative reform at federal state and local level ( 1994) : "The internal structure of the administration is very largely characterised by regulations and traditions that have remained unchanged for decades. Territorial and administrative reforms, critique of tasks and the introduction of information technology have improved existing structures, but have not brought about a major change o f direction. They were an expression of a willingness to change, but in administrative terms have basically remained true to principles that are now forty years old. This must be changed. Real developments in internal structures must be brought about. ( . . . ) Not only

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- The fiscal crisis confronting Germany since 1993, one which is seen as a longterm problem, has for the first time led to a broader-based modernisation discussion within local government. A guiding role in the German debate is played by experiences from two other countries: the Dutch local government steering model and the concept of the 'enabling authority' from Great Britain. The specific Scandinavian combination of internal modernisation, decentralisation, and démocratisation, on the other hand, has played a negligible role as a model in the German discussion. - While those working within the public sector are convinced that the combination of the pressure of economic crisis and foreign competition will bring about a genuine restructuring of German local government, this view is not shared within the scientific community. 5.2.4 The governance structure of local government - an intermediate résumé Against the background of the four-country comparison described in the preceding section, I would like at this point to draw a brief intermediate résumé at national level of the modernisation process within local government. (1) In international terms probably the most surprising finding is the poor standing of Germany in the modernisation process. On the one hand, expert opinion generally agrees that German local government is of a relatively high standard in terms of correct application of the law and the production of standard services. Yet on the other, Germany indeed appears to be lagging far behind in the modernisation process. The evidence is that this discrepancy is best explained in terms of the different initial position facing local government in the various countries: "German local government has had a good start, as it is organised in a transparent way under an administrative leadership that is sufficiently powerful. In other countries it was first necessary to 'clean up the building site'. In Great Britain, for instance, it was necessary to create an overall administrative 'culture' and a sufficiently powerful administrative leadership, in the Netherlands to tighten up an opaque and fragmented administrative apparatus and in Scandinavia to reduce the number of political steering bodies (translation of: Banner

1993: 196). If this explanation is accepted, German local government is now in a relatively favourable initial position, vis à vis that in Great Britain, Sweden and Finland, i.e. has achieved in historical terms, a relatively high level of development and 'modernity'. The ordered internal structures of local administration, the decentralised overall structure of German administration, and the cooperative relations has the volume of tasks performed by government not been reduced, more and more functions have been taken on. This ever-widening division between intention and reality must be finally closed by consciously inducing and steering a development by political means. (...) Although demands have been repeatedly raised for the reduction in the 'density' of regulations, this has not been achieved."

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between central, state and local government are the determining features of this stage of development. Yet it is equally clear that Germany has failed to pick up on the innovative developments emanating, since the 1980s, from the USA and Great Britain on the one, Sweden and the Netherlands on the other hand. As in the private sector, the 1980s were a "lost decade" (Jiirgens/Naschold 1994) for German local government as far as the modernisation process is concerned. (2) Local government has been characterised by three modernisation trends over the past fifteen years: internal administrative reform, démocratisation of the relationship between central government and the administration and between local government and citizens, and an increasing market orientation by local government. - As far as the démocratisation of local government is concerned, the predominant trends are: on-going decentralisation in the Scandinavian countries, a clear trend towards recentralisation in Great Britain and the retention of largely decentralised structures in Germany. - In all the countries the process of internal modernisation has followed the model of results steering described earlier. The main variations concern differences in the structure of the human resource development and work organisation vis à vis the management process, and the extent to which progress has been made in this direction: here Great Britain is clearly the pioneer, followed by Sweden, then Finland, with Germany at local level still largely characterised by rule steering. - Controversial, or at least difficult to evaluate, are the trends towards a more market-oriented attitude by local government. In Great Britain this constitutes the major thrust of the entire modernisation process. In Germany and, until recently, in Sweden, this was the focus of debate. In Finland this discussion has only just begun. The trend towards market orientation has taken the moderate form of purchaser-provider models in Sweden, while privatisation has been abandoned, for the time being at least; in Germany this orientation has yet to be implemented. Thus the hypothesis of a "role reversal" (T. William 1993) for local government, previously unchallenged, can only be unequivocally maintained for Great Britain, but not for the three other countries. (3) Any attempt to determine the governance structure of local government encounters the thorny problem of the highly integrated nature of national governance systems. The "dominance" typology developed by Bennett and based on the "categorisation of intergovernmental relations by the character of the dominant method of resource allocation (governmental or market) and the level at which government action is dominantly exercised (federal-central or local)" (Bennett 1993: 12) can serve as a useful point of departure here (fig. 72). The typology of local government in the four countries according to the two dimensions - central versus local government and government versus market in

146

Frieder Naschold Market resource allocation

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^y /

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Figure 72: The governance of local administration

resource allocation - reveals, as an initial postulate, three very distinct governance types. - In Great Britain the governance structure is characterised by a seemingly contradictory combination of centralist government intervention and decentralised market allocation, that is by a centralised market model. - In contrast to the frequently cited hypothesis of "role reversal", particularly with respect to the Scandinavian countries, local government in Sweden and Finland is (still) characterised by a very highly decentralised structure of public resource allocation, that is a localised public sector model. Increasing use is being made of competitive instruments, but within a public sector framework. - The governance structure of German local government lies between the first two governance types. The share of welfare services mediated via the market have always been relatively high in Germany, and the German welfare state as a "transfer state" has always been marked by a relatively high degree of centralised resource allocation and a relatively low level of local resource production.

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5.3 An international comparison of local government performance: A competition between eleven city administrations An international local government competition held by the Bertelsmann Stiftung, a private German foundation, in 1993 examined the performance of eleven city administrations in three continents (Europe, North America, Australasia) in terms of their level of modernisation. The findings of this competition shed light on the state of local government modernisation at the level of a direct comparison between cities, all of which had been selected as excellent examples of modern administration. This extraordinary sample is ideally suited to revealing leading-edge developments in local government on an international scale. The cities taking part in the competition were Phoenix, Duisburg, Christchurch, Québec, Tilburg, Middlesbrough, Braintree, Delft, Hàmeenlinna, Neuchâtel and Farum 24 . The cities were evaluated in a three-stage process: first, choice of national champions by a country-specific group of experts; second, comparative evaluation of the nominated cities by a group of international experts on the basis of short reports drawn up by two consulting firms; third, final ranking of the cities according to seven main dimensions, each with a number of sub-dimensions. The result - a unanimous decision - was as summarized in figure 73. The ranking of the eleven cities produced two clear winners: Phoenix, USA and Christchurch, New Zealand. They were followed at some distance by two Dutch towns (Delft and Tilburg) and Braintree in Great Britain. Then came, also at a clear distance, a five-city group consisting of Farum (Denmark), Québec (Canada), Middlesborough (Great Britain), Hàmeenlinna (Finland) and Neuchâtel (Switzerland). Duisburg (Germany) brought up the rear, again at a considerable distance from the previous group. If the findings are evaluated by the main dimensions - whereby the dimensions are to be understood as criteria of modernisation the modernisation profiles are as follows: - The most widespread and highly developed are the first two dimensions, i.e. performance that is transparent and under public control and an administration that is oriented to citizens and customers. These were followed by the introduction of decentralised leadership systems and a positive and cooperative relationship between politics and the administration. The controlling and information systems, personnel and organisational development, and innovativeness and adaptability dimensions were far less highly developed. - The main thrust of modernisation in these leading city administrations consists of decentralised leadership which is customer-oriented and in which perfor24

The objective and methodology of the competition, further details on the cities nominated by the various countries and a preliminary evaluation are contained in: Carl-Bertelsmann-Preis 1993, vol. 1.

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Administrative modernisation is either indifferent towards the framework of economic conditions or the latter exerts an effect as a mediating contextual variable on such reform programme. Let us examine more closely the hypothesis that local government modernisation is "indeterminate" with respect to economic conditions with reference to the available evidence for Hameenlinna and other Finnish cities. According to the ranking of the socio-economic potential of Finnish local authorities shown in figure 77, Hameenlinna is in fourth position among the "big centres", and in 14th place overall. In other words it has been among the leading group of Finnish cities in terms of economic performance for many years. Two further conclusions can be drawn from the above evidence. If this socio-economic structural index is compared with the political steering systems used by the local authorities, a very considerable degree of variance between political steering systems emerges and it is apparent that this is "at least as important as the above mentioned four socio-economic dimensions" (i.e. those in the structural index) 34 . Moreover, the history of administrative modernisation in Hameenlinna shows that this began - in the context of the FCE - long before and independently of the economic crisis, and that the deep recession of 1991 and 1992, while placing additional pressure on the reform, did not lead to a change of course. In other words, the process of administrative modernisation is very largely a genuine process of change within the political system of the local authority (and of central government), one which is not conditioned in any direct way by the economic situation. There may be cases in which the economic context has initiated a modernisation process, in others it may play a supporting role; yet it is not the driving and determining force to the extent that is usually assumed. This means that politicians have no excuses for the absence of reform and resistance to change. On the other hand, it is equally clear that politics is not merely a matter of a willingness to act, but is rather subject to structural mechanisms of its own; this issue will be addressed in detail in the following section by analysing the development dynamic behind modernisation in Hameenlinna. 5.5.2 The development dynamics of local government modernisation What explanations can be offered for the fact that some local authorities have made substantial progress in their modernisation strategies, while others lag behind or remain entirely locked in their traditional organisational structures? Taking the modernisation process in Hameenlinna as the point of departure, two more specific questions can be formulated: firstly, what factors explain the advanced state of the modernisation in Hameenlinna within the national context; secondly,

34

According to written information made available to the author by Illko Ronkainnen on the basis of the current stage of evaluation of the data described above.

N e w Frontiers in Public Sector Management

167

and conversely, what are the reasons for the fact that Hameenlinna lags behind the leading-edge cities in an international context? We have already - in the context of the OECD national studies - considered a number of theories propounded in the relevant literature which have been put forward to explain such phenomena: explanations in terms of socio-economic structure and path-dependency, political modernisation theory, the approaches based on social reengineering, and contextual concepts (cf. also Naschold/Oppen/Tondorf/Wegener 1994). As the previous section made clear, the local government modernisation process cannot be satisfactorily explained in terms of the economic pressure caused by the recession, given the progress made by reform prior to economic crisis; nor is the opposing interpretation - the necessity of an abundance of resources - adequate. What Hameenlinna does exhibit, however, this was a view expressed unanimously by all my interview partners, is a long and well-nurtured tradition of "modernity" within the city administration. On this view, the city's bourgeois commercial and industrial culture has led to the development of norms and role-models of an efficient administration closely in tune with local needs, a legacy which made its effects felt right up to the recent Free Commune Experiment. Yet it is clearly difficult to estimate the significance of this "cultural path dependency" in the case of Hameenlinna or elsewhere, and it is important not to overstate its influence. According to another explanatory approach the central factors for administrative modernisation are to be sought within the political system itself. Most of the conditions, listed in figure 78 - the products of the theories mentioned earlier - , seem comprehensible and plausible as explanations of local government modernisation in Hameenlinna. Brief comments would appear to be required only with respect to two of the most important conditions of the development process, namely advocacy coalitions and social engineering. Of strategic importance here are the roles performed by the local political and administrative elites (in accordance with the theory of political mobilisation). For Finland and with variations also for other countries, four constellations, each with a different modernisation dynamic (see fig. 79), can be identified 35 . The most successful cities in terms of local government modernisation are those in which a coalition has been formed between active politicians and a strong city manager pushing through a joint modernisation strategy in the form of a positivesum game. This constellation goes a long way towards explaining the development dynamic generated by Hameenlinna. A combination of subordinate politics and an administration based on the traditional conceptualisation of the role of the civil service is frequently encountered in small authorities and generally leads to developmental stagnation. The city manager, an indicator for the predominance 35

At this point I would like to thank the Finnish Association of Local Authorities for revealing interviews and wide-ranging support. In particular my thanks go to Kari-Pekka MakiLohiluoma, Research Chief in Helsinki.

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Frieder Naschold

Explanatory approach

Conducive

Conditions

Limiting

1. Socio-economic resource structure

- Insignificant due to extent of modernisation achieved prior to economic crisis

- Resource crisis 1991/92 not a limiting factor for local government modernisation

2. Path-dependency

- "Modernity" of the local authority as a cultural tradition of the city (i.e. among politicians and administrators, within the business community and trade unions)

- Legalism, centralism and technicaladministrative conceptualisation of modernisation limits the extent of political mobilisation.

3. Endogenous political modernisation

- Endogenous mobilisation of political and administrative elites (Advocacy Coalitions) in the form of a positive-sum development alliance a central motor behind the modernisation process

- Mobilisation remains largely restricted to the political and administrative elites, limiting the depth and breadth of the reform process

4. Social engineering of the developm. process (process qualification)

- Broad-based, project-oriented steering of local government modernisation (synthesis of OD and TQM approaches)

- Pronounced top-down approach lacking continuity in process steering

5. Contextual conditions - political framework - professional transfer of knowledge

- Devolution of powers (free Commune Experiments & Local Gvnmt. Financial Reform 1992); - Very limited competitive environ- Support from Finnish Association of Local ment due to limited exposure to Authorities; private firms; - Nordic Council facilitates exchange of ex- Very limited exposure to interperience, particularly from more advanced national developments outside developments in Sweden; Scandinavia - Intensive use of know-how from universities and consultancy firms F. Naschold, WZB 1994

Figure 78: Conducive and Limiting Conditions for Local Government Modernisation (as illustrated by Hameenlinna)

of the administration over politics, generates innovation at least to some degree, whereas the dominance of the political sphere, divorced from the administration, and where the latter plays the traditional civil service role leads to only very limited innovation. As far as the "social engineering" of the development process in Hameenlinna is concerned, what is immediately striking is the ambivalence of this steering structure. Although the modernisation process is organised on a relatively broad base and is project-oriented in nature, consciously grounded in OD and TQM philosophy, the execution of this process steering is subject to major limitations. The pronounced top-down approach places tight limits on the breadth of mobilisation within the administration; the result is that MbR seldom reaches the shopfloor. The short-cycles on which the strategic orientation is based lack continuity and restrict policy deployment. An example of this is the transition from the Free Commune Experiment to the PALKE project, and shortly afterwards to the Quality Programme (City Charter and customer quality feedback): project steering is seldom organised on the basis of a rigorous MbR process. We are now in a position to summarise the motive forces behind local government modernisation in Hameenlinna, i.e. their governance structure. Against the background of a relatively high degree of socio-economic resource independence and a cultural tradition within the city administration that has always laid

N e w Frontiers in Public Sector Management

Role played by the city City Manager

active Role played by the politicians subordinate

Municipal development is a "joint venture" between politicians and city managers in the form of a joint development network (Innovative modernisation strategy)

City manager is "dictator", managerial dominance over politics (Some innovation)

169

administration Civil Servant

Divorce between active politics and administration in the sense of the traditional civil service (Little innovation)

Overlapping of political and civil service roles (especially in small authorities) (Stagnation of the city administration)

F. Naschold, WZB 1994

Figure 79:

Types of Political Mobilisation

great store by modernity, a successful advocacy coalition of the city's political and administrative elites has pushed through administrative modernisation in Hàmeenlinna within a favourable contextual framework - which was actively used - by means of a collective process of learning and development. Yet it is precisely in the specific form taken by this advocacy coalition that the limitations to the modernisation process in the city lie: the restriction of the development coalition to a core of political and administrative elites, inadequate process qualification within the "social engineering" of the modernisation process, limited external exposure of the decision-making processes within the authority, due to the lack of a competitive environment in service delivery and in the transfer of know-how. 5.5.3 Quality of service and customer orientation: Modernisation between managerialism and consumerism During the period under consideration here - i.e. since the late 1980s Hâmeenlinna's modernisation programme contained five focal points (see fig. 80). The current debate in Hàmeenlinna now centers on the two last-named focal points, the introduction of market-oriented organisational models, in particular purchaser-contractor models, and greater attention to quality in service production. Hàmeenlinna is very much in the trend established by the leading international cities with these two topics, and is the leading light in the debate on quality

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Frieder Naschold

1. Rationalisation of the structure of political authority (FCE 1989-92) 2. MbR systems (since 1985, especially since 1989) 3. Strategic target planning and results budgeting incls prioritisation since 1992) 4. Market-oriented organisational models (purchaser-contractor-models) (under discussion since 1992) 5. Service quality (Citizen Charter, Customer Quality Feedback Systems) under discussion since 1993; implementation planned for 1995

F. Naschold, WZB 1994

Figure 80: Five Focal Points of Local Government Modernisation in Hameenlinna

in Finland, if not in Scandinavia as a whole. Let us first consider a number of different aspects of service quality. One of the great virtues of the modernisation discussion in the English-speaking world has undoubtedly been to have placed the issue of the quality of public services at the centre of the reform discussion. In particular, the debates surrounding, and the introduction of the Citizen Charter and Customer Quality Feedback Survey have played a pioneering role in this regard. The Citizen Charter, initiated by the Labour administrations in York and Islington/London made binding commitments regarding the level of services aimed for and achieved. In 1991 the Conservative - Prime Minister, John Major, declared this concept to be the cornerstone of his government's strategy of political reform (HMSO 1994a) - against a background of low-level legal standards but well-developed consumer rights. A similar function is performed by continuous surveying of customers regarding the quality of public services. Such surveys were introduced in the context of general dissatisfaction with the standard of public services in Great Britain; they have now developed into an integral part of public sector modernisation in the UK (Coopers/Lybrand 1994). The level of international debate on the issue of quality is now such as to permit some degree of standardisation on this question (see fig. 81). The British trend clearly centres on the managerial and consumerist approach to quality: the former in the case of the Consumer Satisfaction Survey, the latter regarding the Citizen Charter 36 . The critique voiced by the British academic community and by the political opposition emphasises the democratic weaknesses of the approach, calling for citizens to be integrated into a democratic planning and implementation process with regard to quality in a way which transcends mere 36

Critics of the British government, especially from the trade unions, see the Citizen Charter as the harbinger of a renewed privatisation strategy. An analysis from this perspective alone, however, ignores the genuine importance of the managerial and consumerist effects induced by this policy and thus of the policy as a whole.

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Process

Criteria

171

Criteria

I The Traditional Approach to convey prestige and positional advantage II The Scientific or Expert Approach to meet standards set by experts - Fitness for purpose - Specification - Conformity to standards (technical/legal) III The Managerial or Excellence Approach to measure customer satisfaction - Customer satisfaction, in pursuit of market advantage - Customer satisfaction/ responsiveness - Organisational change IV The Consumerist Approach to empower the customers - Consumer movement - Consumer rights - Institutional consumerism: choice and competition V The Democratic Approach to achieve common goals in the interest of the community as a whole - Complex roles of public: customer, citizen, provider - Optimal mix of exit and voice - Fitness for purpose - Responsiveness - Empowerment IPPR 1991; F. Naschold, W Z B 1994

- National standards - Performance measurement - Audit and inspection

-

Total quality management (TQM) Customer relations Customer satisfaction surveys Getting closer to the customer Service sampling

- Complaints and redress - Consumer group formations - Citizen charter

- An open system as public agreement - Rights for customer and citizen: procedural rights and service agreements - Public participation in planning and implementing - Intermediate bodies (user groups and community groups) - Infrastructure for choice/exit and voice

Figure 81 : Five Approaches to Service Quality

m a r k e t interaction (cf. P f e f f e r / C o o t e 1991; m o r e recently Dunsire 1994). In a direct k n o w - h o w transfer f r o m the British t o w n of Braintree, Britain's top-placed city in the B e r t e l s m a n n C o m p e t i t i o n 1993, H à m e e n l i n n a began in the s a m e year

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to introduce an analogous quality policy 37 . The quality initiative in Hameenlinna consists of three main elements: the idea of a Citizen Charter, the Citizen Quality Feedback System, and the idea of interactive planning (co-planning). With this three-pronged approach, Hameenlinna aims to adapt the first two basic ideas of the British quality strategy, while at the same time overcoming its "democratic deficit" (Dunsire), i.e. to supplement the managerial and consumerist approach with democratic components. I will begin by examining the Customer Feedback System; later, when analysing process steering, I will turn to the Citizen Charter and interactive planning 38 . Alternatives for developing a customer/citizen feedback system for the city of Hameenlinna One of the central issues in developing the "Hameenlinna model" is developing citizen and customer feedback and participation in connection with a "citizen charter" approach and continuous quality development. Hameenlinna has quite a lot of recent experience of various kinds of feedback. These include general surveys on citizen satisfaction with city affairs and services (done in 1983,1989 and 1993 by a consultancy firm on the basis of national comparative data), questionnaires about day-care, elderly-care, services for handicapped, technical & waste disposal services of the city etc. Presently there is work on a comprehensive feedback on library services. Also, feedback has been acquired through interactive forums: customer discussion meetings, city sub-district meetings etc. So the problem consists not mainly in a lack of feedback but in providing a more coordinated overall approach, introducing more longitudinal consistency and especially developing the analysis of the results. There are two different basic approaches to pursue these goals: One approach is a strongly centralised solution, which I shall call the "city panel" approach after the model developed in the Dutch city of Delft; the other is a more decentralised solution, which I shall call the "Hameenlinna mix approach". Both solutions have their strong and weak points, although my preference is for a "mixed" approach for the reasons given below. The city panel approach This system is based on a city panel, where a large group of households (in the case of Hameenlinna this would include about 1000 households) are elected to 37

38

The Dutch city of Delft has played an even greater role than Braintree in the Citizen Feedback System, see below. The analysis of Hameenlinna's strategic alternatives in developing a Customer Feedback System is based heavily on a research report by R. Arnkil (1994a).

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represent the city in a "nutshell" according to a range of parameters (i.e. age, income, place of residence etc.). This panel is then asked questions repeatedly over an extended period of time (the panel "life" is about five years, then it has to be "replenished" because of "panel death"). In this system a comprehensive systematic interview is held with the main breadwinner of the household and a supplementary written questionnaire is given to the rest of the household (over 15 yrs.). The interview and the questionnaire cover topics like living and housing conditions, traffic environment, satisfaction with various aspects of the city and city services, how the citizens rate various improvement projects launched by the city, how well they know them etc. The questions are concrete, and precise; because the main part of the data is acquired through interviews it is possible to get more precise responses. The longitudinal panel would seem to be especially well suited for policy and project impact assessment. In the case of Delft in Holland the questions are formulated in the various branches of the city services and administration and are then scrutinised by a central steering body (city planning unit) together with an external professional consultancy which takes care of the actual data-gathering and compiling a city panel report with breakdowns, charts and graphs. In order to secure the support and the usage of the feedback, the panel approach has been extensively discussed in the political and representative, administrative and personnel circles and the various actors are encouraged to take part both in the formulation of questions and use of knowledge. Above all this approach has the following strong points: - It has a strong longitudinal effect as compared with random surveys. - The questions, especially in the interviews, are more precise and concrete than in normal surveys. - "Feedback saturation" (i.e. people getting fed up with random surveys) can be diminished. - Centralised and professional application diminishes logistical problems and saves time of the service providers The approach has also its weak points, though: - Despite the participation in formulating questions, the actual service providers are largely left in an "onlooker" role. - Despite the concreteness in more general city affairs (i.e. environment, safety etc.) the panel has difficulties in reaching the various types of services on a concrete level (because this would extend the survey too much). - Implementation is very demanding.

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The "Hameenlinna mix approach" A mixed approach would include a combination of "normal" surveys, benchmarking, interactive forums and service-unit customer feedback. A "normal" survey would be a written questionnaire with a sample of 500 to 700 in Hameenlinna with largely the same kinds of questions as in the city panel. The normal survey would be less concrete and less effective longitudinally than the panel, however. A strong point is that such surveys have already been done with national comparative data, so the feedback can be plotted against a trend and compared with other cities in Finland. The survey would be conducted about once every three years. As a supplement to this survey a bench-marking survey could be introduced, where a certain comparative city would be chosen in Finland (and perhaps also in other Nordic countries or even elsewhere in Europe) where a set of issues would be probed more deeply and in context than in a general survey. The benchmark city would be a city that Hameenlinna wants to compete with (for instance the city of Kerava has been mentioned). As to the development of interactive feedback forums Hameenlinna would draw on the rather extensive experience derived from its close-range democracy projects (like regional co-planning experiments) and existing interactive forums (parent-teacher meetings, advisory boards etc.). In addition, though, quite new forums are needed and old ones need revitalising. One example of a new forum is an idea of a "citizen council" where certain target groups (like pensioners, young people, the unemployed etc.) would be invited to the town hall to discuss different issues and even to vote on them (in the actual seats of the city representatives). The service-unit feedback would be a central feature of this more decentralised approach. In comparison to Delft, for instance, the public services in Hameenlinna are more extensive and varied (as in Nordic countries in general), so in order both to involve the service providers themselves in an active way in quality development and to get more precise and targeted feedback from different customer groups about qualitatively very different kinds of services, a more decentralised approach is needed. This can be achieved by developing a general framework for a customer feedback system for the different branches (i.e. giving a "good practice profile") but leaving the details and the more precise set-up for the branches themselves to develop. It is intuitively easy to see that the feedback system of, for instance, elderly care, day-care technical services (road maintenance and building) or cultural services need different constellations. So the task here would be to develop a sufficiently general framework, a good practice model, which all branches would be required to fulfil, but the balance of different methods and the more sensitive issues would be left to the services themselves. This would also serve the purpose of involving the service providers more actively in the contact with customers and to mobilise their innovativeness in developing the feedback system in general. This might serve the purpose of gaining more process control in the quality development of services.

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This decentralised and service-sensitive approach would involve some cost in steering, analysing and logistical problems. Strong points in the mixed approach would then be: - a more flexible repertoire of feedback methods and mechanisms, - more flexibility to build the system with different time-tables and different issues in the various service branches, - greater chance of getting comprehensive feedback to the various services, - a stronger involvement and activation of the service providers themselves and a stronger process-control effect. But this would be at the cost of: - possible "feedback saturation" problems with the citizens, - weaker longitudinal effect in surveys as compared with the panel approach, - management, steering, reporting and logistical problems in the overall constellation and the service-unit level. To a certain extent the distinction between these two approaches - the panel and the mixed approach - is artificial, because in practice the Delft approach includes many other elements than the panel described here. But the main point is whether it is advisable to concentrate such a comprehensive part of the feedback effort in a panel approach (and in professional hands) or whether it is better to stress the role of the service units and the shop-floor in a decentralised manner. With the arguments given in short above, I am inclined to propose a mixed and decentralised approach. This would require a considerable effort on the steering and coordinating part of the system, however. The debate on the approach to quality policy taken by the city is still very much under way: a decision is to be taken on the precise form of the Citizen Feedback system in 1995. Bearing in mind the experiences of both the public and the private sector on this issue, the three following conclusions would appear to be relevant. - Opting for the panel-variant amounts to merely adapting the Delft model, whereas the decentralised mixed variant would be a genuinely innovative development by the city of Hameenlinna, not least from an international perspective and against the background of the five-point model of service quality described above. - Compared with the conceptual debate, the question of the instrumentation of the various quality strategies has played an astonishingly minor role. The experience of private industry, however, shows just how demanding even the managerial approaches to quality are. A quality policy that seeks to be both realistic and consistent cannot avoid the question of the far-reaching restructuring of its "production apparatus" towards decentralised and segment-specific results units, a development path that could be combined in organisational terms with the on-going MbR initiatives. Failing to address the issue of reorganisation

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would be to reduce the quality strategy to traditional measures of "customer acceptance", and thus share the fate of many of the well-meaning quality initiatives found in the English-speaking countries - A more ambitious quality strategy can only be realised if it incorporates both the "producer units", i.e. service employees "on the shop floor", on the one hand, and customer/citizens on the other. This touches on critical elements of the top-down orientation of the existing development strategy in Hameenlinna, which will be considered in detail below. In the meantime, Hameenlinna has taken a decision on its quality policy 39 . From January 1995 a comprehensive quality system will be introduced, largely in accordance with the "Hameenlinn mixed approach". It consists of four main elements: (1) The quality policy is based on a set of "service commitments" by the city administration as a whole and by individual departments. These commitments either take the form of politically determined quality standards, analytically determined certifications in accordance with the ISO 9000 norm or product declarations. As far as the politically determined standards are concerned, the values currently achieved are being taken as a point of departure in determining the target values. (2) A highly differentiated citizen feedback system is to institutionalise existing, and create additional "voice mechanisms" for citizens. The feedback system to be introduced consists of three distinct articulation paths: "spontaneous" feedback by means of complaints cards and by telephone links at each service point, whereby the complaints are to be systematically collated and evaluated; "interactive" feedback via so-called "focus groups", extended participation rights and public hearings; and finally "survey-based" feedback which will employ a number of survey techniques, possibly including a limited panel. (3) A Total Quality Management to continuously process in quality projects the inadequacies reported by citizens or identified by the administration itself. (4) The infrastructure required by these three elements will be partly centralised (e.g. in the case of the Citizen Charter, the surveys and the training measures), but largely decentralised in nature. The most significant innovation here is a "municipal service commitment board", which is "staffed" by citizens and customers, is situated outside the representative parliamentary system and without administrative competence; it represents an institution whose aim is to create a direct role for citizens with regard to quality issues in local government processes.

39

The following findings are derived from a final research round which took place in October 1994. Consequently, the current situation in Hameenlinna with regard to its quality policy can only be briefly described, and not discussed in detail, at this point.

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All these innovative regulations are due to come into force as of 1 January 1995. This reform experiment must be seen as highly original in conceptual terms, while at the same time placing heavy demands on all the actors involved: its is thus very difficult to evaluate its potential for success at this stage 40 . 5.5.4 Market-oriented organisational alternatives: The purchaser-contractor model The postulate of the historical development in phases from welfare state centralisation in the 1970s, decentralisation in the 1980s to market-oriented organisational alternatives in the 1990s would appear to be a much more accurate description of reality at local government than at central government level. Initially Great Britain was the trend-setter with its concept of the enabling authorities and the local government legislation of 1988; since 1990 Sweden has launched a second wave of market-oriented organisational forms. It may well be that now, in the mid1990s, countries such as Finland and Germany are about to embark on a third wave of such forms of local government service production. Let me commence by tracing developments and the accompanying discussion in Sweden in some detail, as this illustrates very well the 'status' of this modernisation trend, providing an appropriate backdrop against which to examine developments in Finland, and particularly in Hameenlinna. The situation in Sweden was influenced by the changes resulting from the elections in 1990, when a conservative coalition obtained a majority both in central government and in many local authorities. The policy of the last three years has been largely characterised by stimulating/creating competition, out-sourcing of local authority services, privatisation etc. A central government bill for a law about CCT for local government purchasing was announced in 1992. After much criticism it was withdrawn, however. The central government instead made an agreement with the associations of local authorities to expand the proportion of contracted out services, on a voluntary basis. A goal was set that 20% of the total cost of local government services shall be exposed to competition through competitive tendering within a year. This was to be accomplished through different activities by the associations of local authorities, e. g. handbooks/checklists for purchasing and tendering, courses and other competence-building activities. There is also work going on to develop standard contracts in the different service areas, in cooperation with associations of contractors. Many authorities also cooperate on their own and meet to exchange experiences (s. Bryntse 1994: 12). The local government "revolution" (S. Montin) resulting from the introduction of market-oriented organisational alternatives has been extensively evaluated within the framework of a concluding report by the Swedish parliamentary com40

As an illustration of the recent debate in Hameenlinna, a number of pertinent diagramms are reproduced in the appendix.

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mittee on "Local Democracy" (Stockholm 1994). From this report and the accompanying literature (Montin 1993; Stahlberg 1993; Haggroth 1993) I have selected a number of particularly relevant aspects for discussion. Five different organisational forms can be relatively clearly identified from the literature; between them they cover the entire spectrum of service production 41 . Based on the summary given in figure 82 a number of aspects will now be discussed, particularly those pertinent to the purchaser-contractor model: - In both conceptual and empirical terms there can be no doubting that the main thrust of market-oriented organisational forms lies in the provider-contractor model. In Great Britain 60% of local authorities had started to move in the direction of this organisational form by 1991; in Sweden between 30% and 40% of local authorities have begun experimenting with such models within a very short space of time. 16 of the 294 local authorities in Sweden have taken on this organisational form for the entire spectrum of their activities; the others have concentrated their organisational experiments in technical areas. - Organisational development on this model has been particularly pronounced in those local authority areas in which the conservatives held a majority, although many areas controlled by the Social Democrats have also taken part in the experiments. In addition to ideological orientation, the size of the authority also played an important role: areas with less than 3,000 residents have been very slow in embracing organisational developments of this type. - The different organisational forms tend to be deployed in different areas. The contracting-out model is primarily used for supportive service areas such as laundry, cleaning, care services etc., the purchaser-contractor model for basic local services such as refuse and social services; the voucher model has been largely restricted to the education and health services. - More recently an increasing number of experiments with the "freedom-ofchoice" model have been held. In the cut and thrust of the party-political debate this is frequently seen as "partial privatisation". - At the same time, the trend in many local authorities towards supplementing their existing MbR systems with customer-related quality feedback and contracting-out elements cannot be ignored. - Restructuring of the entire organisational structure of the local authority on the purchaser-contractor model has so far been performed only in a number of "pioneering", conservative-dominated cities, such as Malmo, Linkoping and Norrkoping (cf. Montin 1993).

41

The focus of both the following figure and the subsequent analysis is on the "purchasercontractor" model. This is another area in which the concepts used vary greatly. In spite of slight differences of emphasis, the terms 'orderer-producer', 'purchaser-contractor', 'buyerproducer' etc. are usually used synonomously.

Clearly defined competitive element (external procurement)

Segmented organisation with processorientation and each unit responsible for own results

Functional organisation with pronounced vertical and horizontal division of labour

Tt

rH

1

-•j

(after Fölster

1993)

Central resource allocation by politicians; Sectoral freedom of choice for the citizens; Competition between private, public and co-operative service providers; Private services, supportive services with basic local government service provision; Freedom of choice for the customer on the basis of primary income plus supply-side competition

- New role for politicians: strategic steering - Distinction between decisionmaking and executive roles - Creation of results units with considerable autonomy - Supply-side competition (entrepreneur/net budgeting; "spin-off polices"; private competition)

en

2.

Education and health services

Basic public service provision (refuse, social services etc.)

Supportive services (laundry, cleaning, care services etc.)

Freedom-of-choice model (voucher system)

Purchaser-contractor model of public administration

Overall organisation

Contractingout

ri

Overall organisation

Resultssteered public administration

rH

4. Ranking of cost reduction for local administration

3. Ranking of cost effectiveness

2. Underlying principles

1. Area of application

Local government services organised in government departments

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G O

Oh

•o oH U

t/3

OJ

O tin

"3 c o

c ca 00

> E

bO E

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To illustrate these trends, the following figure depicts local government organisation in Norrkôping, the city which has taken such developments furthest.

NEW LOCAL GOVERNMENT ORGANISATION Local government administration Council Board Department

Local government auditing

Employer dçlegatjQfl

X ' A d m i n i s t r a t i v e ' role Planning permission department. Civil, catastrophe and fire protection department,

'Ordering' role Training and labour market department L e i s u r e and cultural dpt. Technical department District councils

Social benefit department i

zzz

Employer's office

Administrative o f f i c e

• • • • • • ^•Producer

units

' O w n e r s h i p ' role O w n e r ' s bureau

• Producer

•

•

units

• Producer

units

S o u r c e : I n f o r m a t i o n d e p a r t m e n t of t h e c i t y a d m i n i s t r a l i o n of N o r r k f l p i n g ( b a s e d o n the G e r m a n t r a n s l a t i o n by C. R i e g l e r )

Figure 83: Organisation of City Government in Norrkôping

The most striking aspect of this form of modernisation is the very pronounced degree of differentiation within the traditional managerial role. Besides the local government administration with its political and administrative top levels (parliament and executive), the major element of organisational development is the distinction between 'ordering departments' and a large number of producer units. The ordering departments conclude annual (or multi-year) service contracts with the boards of the producer units in which rights and obligations are specified as precisely as possible. The producer units can be public, private or cooperative in form and are, as far as possible, in competition with one another. At the same time, many central regulatory tasks are performed in traditional administrative offices. In addition to these purchaser-producer structures, two further management roles have been distinguished. The employer delegation performs the functions linked to employment contracts and collective agreements, the "owner's bureau" performs the local government ownership function vis à vis the local authority producer units.

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The above sketch of the organisational structure of the Norrkoping administration draws attention to a number of problems, many of which have been analysed in the course of the various reports on local government modernisation in Sweden.

I Basic Structure 1.) C o n f u s i o n between the role of politician and contractor; 2.) Tendency: bureaucracy and professionals gain in power without commensurate responsibility; politicians take responsibility without power. 3.) Multiplicity of management roles leads to demarcation problems and substantial transaction costs

II Orderer Role 1.) Inherent tensions between contractual specification (for reasons of control) and delegation of responsibility (in accordance with the logic of results steering); 2.) Ordering departments de facto not "indifferent" towards the producing units within a local authority governed by representative democracy; 3.) Danger of "illoyal competition" (Folster 1993) by the public against the private sector.

III Producer Role 1.) Difficulty of maintaining competitive offers (scale effect of local government), pressure on m a r k e t - e n t r y trends; 2.) Major uncertainty surrounding market developments of the various public, private and cooperative producers; 3.) Questions surrounding granting of licenses; 4.) Danger of corruption.

IV Relationship between Orderers and Producers (Contractors) 1.) 2.) 3.) 4.) 5.)

Modified centralist co-ordination model involves high transaction costs; Differing views on the fate of producers failing to secure a contract; Transparency principle versus protection for product innovations; Problem of "adverse selection"; Demanding evaluation requirements that are seldom met in practice. Source: Montin 1993, Stlhlberg 1993

Figure 84: Problems with Purchaser-Contractor Models

Swedish experiences with provider-contractor models have proved rather mixed, and indeed contradictory. On the one hand, a very thorough evaluation study of these alternative organisational forms derived very good (relative) cost efficiency and cost reduction figures (Folster 1993; cf. chapter III.) and even the Social Democrat parliamentary opposition during the period in which the conservatives were in office described in a commission report "the purchaser-contractor model (...) as an advanced method for the rational steering of public activities" (cited in Norlin 1993: 120). S. Montin's evaluation study, on the other hand, adopts a "wait-and-see" position: "one conclusion is that far-reaching structural change has only been achieved in a small number of local authorities, whereas the search for new organisational solutions is under way throughout the country. It seems plausible to assert that a sort of paradigmatic change is under way in local and provincial government, although it is difficult to ascertain the true extent of the change. "Decentralisation", "results units" and "customer choice" can stand for many different things: often they are merely stickers that are attached to similar process of change, irrespective of their dimensions. There is the real danger of overstating the ex-

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tent and intensity of the efforts for change. Often they are more a matter of words than of deeds. At the same time, there may also be a danger in underestimating the significance of seemingly minor changes within existing organisational structures." (Montin 1993: 7).

Moreover, social scientists have produced a number of commentaries on these trends, which are particularly critical of observed trends such as a restriction of democracy and the systematic threat of corruption (cf. the summary in Norlin 1993). The change of political power at central government level in September 1994 has given a new twist to modernisation trends in Sweden. In his opening speech held on October 7th 1994,1. Carlsson, while emphasising the importance of freedom of choice, basically rejected the continuation of the voucher system outright due to its "adverse selection effects". The purchaser-contractor models at local level were, he indicated, to be subjected to rigorous evaluation (I. Carlsson 1994). The emphasis of ongoing modernisation was to be placed on refining results steering, although without returning to the decentralisation policies of the 1980s. This "basic line" can also be detected at local government level. In those local authorities in which the Greens form part of the coalition government, attitudes to the voucher system are more positive. In Finland the search for market-oriented organisational alternatives begun rather later than in Sweden (not until 1993), and the search was not nearly as intensive nor as broad-based (Valkama 1993). Initially the cities of Tampere and Hameenlinna were seen as possible pioneers for such a development, but more recently the trend in these two authorities has slowed markedly. Originally Hameenlinna had planned to introduce purchaser-contractor models during the second wave of its modernisation programme. But during the second half of 1993, partly in the light of the transfer of experiences resulting from the international Bertelsmann Competition, the city shifted its attention to the introduction of customer quality feedback systems as part of an extended MbR system (cf. subsection V.5.3). The reasons for this change of course seem to have been the demanding infrastructural requirements of purchaser-contractor systems, uncertainty surrounding the value of such organisational forms and the specific form of process steering in Hameenlinna (cf. V.5.7). Thus here, too, the postulate of the successive phases of modernisation referred to above is not confirmed by the evidence. At local government level the mid1990s are characterised by a new modernisation constellation: - In Scandinavia at least, the "offensive" of market-oriented organisational alternatives has proved provisional and, in this form, is now "on hold". This is particularly true of the voucher system (freedom-of-choice models), whereas the purchaser-contractor models are now being subjected to in-depth evaluation. - Yet this trend does not mark a return to the decentralisation policies of the 1980s. Although decentralisation and MbR systems are once again at the fore-

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front of local government modernisation, the new thrust comes from the incorporation of citizen feedback systems to monitor the quality of public service production and public service "obligations" in the form of the Citizen Charter. Thus it is not the replacement, but rather the revitalisation and extension of MbR systems by means of quality and competitive elements that is at the top of the reform agenda. - Consequently, the second half of the 1990s will be marked by a parallelism between MbR systems supplemented by quality feedback on the one hand, and leaner purchaser-contractor models on the other. And at least in Scandinavia, this debate will be experimental and learning-oriented rather than ideological in nature. The result will be complex arrangements of traditional administration, results steering, quality control and market-oriented forms of organisation. 5.5.5 The dichotomy within local government modernisation We have already, in our analysis of central government, had cause to draw attention to a divorce between management reform and labour process reform. The same phenomenon can be observed at local government level. Local government modernisation always involves the reorganisation of management structures and functions, but seldom the restructuring of the labour process and its personnel functions. Even the direct comparison of leading-edge cities served to confirm this dichotomy, while at the same time yielding additional information: it was in the field of human resource development that Hâmeenlinna attained particularly poor results in terms of the other leading cities. With this in mind, I paid particularly close attention to the relationship between modernisation and human resource potential in the course of the interviews held with city representatives. - A significant indicator of the success of the implementation of MbR systems is the extent to which they actually reach the shop-floor. My interview-based evidence and the analysis by R. Arnkil (Arnkil 1994) generate considerable evidence that as a rule MbR systems have not in fact "reached the shop floor". Ironically it is the exceptions to the rule - a number of technical departments characterised by continual MbR discussions and negotiations spanning all the levels involved - that reveal the substantial deficiencies in terms of participation in Hàmeenlinna's overall steering system. - The participation deficit at shop-floor level is matched by the lack of involvement by operative units in the administration's strategic planning and development process. In the developmental process, there has been comprehensive participation in the processing of the ideas from city management, from the chairman level, etc., but the city service providers, networks, and customers are still in a rather peripheral, "on-looker" role. It is not a question of them being excluded from this possibility in any way. It is rather a question of "operationalising" the general ideas of participation, feedback, measurement of results, and

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quality in a convincing and motivating way so that both the service providers all down the line and the customers grasp the idea on a concrete, everyday-level. - Nor does Hámeenlinna achieve a position comparable with its strong overall performance with respect to working conditions, at least not as far as the employees themselves perceive their conditions of work. An analysis of 11 cities involved in the Free Commune Experiment between 1988 and 1993 (MákiLohiluoma et al. 1994) shows that in Hámeenlinna local government employees are far less satisfied with their working conditions, particularly in those branches that have been modernised, than in the other cities studied. - A similar conclusion was reached by a comparative study of human resource development in selected Finnish cities:

Figure 85:

Strategies and practices of human resource development in Finnish local government - The Henstra Project

1. Very few municipalities can be described as "HRM organisations"; even our well developed case studies are heterogenous corporate organisations with IR as well as HRM policies and practices represented. 2. The local readiness in municipalities to take responsibility for personnel policies has steadily grown in the 90's. 3. The cost cutting model used during the severe economic crisis 1991 has had drastic consequences for the quality of working life in the municipal personnel. 4. Municipalities with ongoing organisational and personnel development programs have been better off. 5. Municipal production (service) strategies are too vaguely defined (most are only retrenchment programs, general production aims or priority schemes of different services). 6. HRM strategies are too loosely integrated with the "production strategies". 7. With a greater development (from state to local government and within the municipalities) there is a need to redefine the personnel responsibilities of • the municipal senior directors • the central, "corporate" personnel function • the results-directed "profit centers" and the supervisors. Source: Sádevirta, Andersson 1994: 4 f.

In this human-resource management study Hámeenlinna was actually placed below the average of the other cities. All this evidence points to a single significant phenomenon: the dichotomy inherent in Hámeenlinna's modernisation path. The reform of management structures and processes has been pushed through with fantasy and bold initiative; the reform of the labour and production process, of personnel structures and development, on the other hand, lags far behind. The city's modernisation strategy is determined by a rather traditional constellation of representative participatory structures and oligarchic bargaining systems involving top-level experts. Although contrary to the strategy's aims and values it has thus failed to achieve broad-based mobilisation - for example in the form of a demo-

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cratic dialogue (cf. Gustavssen 1993) - and to fully exploit its human resource potential in accordance with modern personnel development strategies. The decision to adopt a more conscious quality strategy in the context of an extension of the existing MbR system could and should generate the impetus needed to overcome this dichotomy, the divorce between management and labour reform, within the modernisation process. 5.5.6 The potential for, and conflicts over resource redistribution in local government modernisation In the course of our analysis of the modernisation process within central government, attention was drawn to the inherent potential for, and conflicts over redistribution. The view that modernisation processes are neutral with regard to resource distribution was decisively rejected: the question is, in which direction and to what extent does redistribution occur? Similar considerations apply at local government level. In the public modernisation discourse questions of redistributive effects are considered even less frequently at local than at central government level. Yet such problems are at the core of the critique of the modernisation process 42 . In Finland 43 , where the discussion has been analogous to that in Sweden, the critique also focuses on four areas: the compatibility of the new systems with democratic principles, their effects on working conditions and on employment, and of course, the question as to their efficiency and effectiveness. I will begin by considering the evidence on the first three issues. The "democratic deficit" claimed by critics to be characteristic of modernised local authorities is based on - alleged - changes in the role of politicians and, naturally, that of citizens. This argument in turn is underpinned by a complex process of delegation from politics to administration and the changing role of politics from detailed intervention to context-setting and controlling. Critics see this as a one-dimensional process in which politicians cede powers and competence to the administration. Our analysis in section V.5.2, though, pointed to four trends with four corresponding constellations characteristic of the relationship between politics and administration, and not merely the single path of political erosion and administrative gain. Expert opinion is that, while in two of the four constellations a shift of power in favour of the administration does indeed occur, one other constellation is characterised by a precarious balance between the two, while in the case of

42

43

A good and pointed summary of the critique expressed in the context of the Swedish discussion can be found in Norlin 1994; in the official report of the Local Democracy Commission (1994), on the other hand, such questions are largely ignored. The following remarks on Finland are based, besides my own research in Hameenlinna and Helsinki, on KTV Newsletter (1991): Privatisation in Finland and the Opportunities of KTV, Special Edition, Helsinki; K. Stahlberg 1994.

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Hàmeenlinna a progressive development alliance between politics and administration was generated in which a gain in influence by one side is not necessarily at the cost of the other. Rather, the development process is synergetic, a positive-sum power game which raises the potential influence of the constellation as a whole. A constellation of this type can only be developed if the political sphere is indeed willing and able to change its role in the direction of context-setter, enabler and guarantor. A development coalition between politics and administration with an increase in overall competence and based on a change in the political role offers at least the chance of tapping a progressive "redistribution potential" of the modernisation process and not merely a restriction of local democracy. The second major redistribution issue concerns the working conditions of those employed in modernised administrative structures. Critics point to a double increase in the work burden: an increase in work intensity in the small, resultsresponsible and customer-oriented administrative units, and increased stress resulting from the frequent changes in results steering by the higher-placed administrative bodies (cf. M. Norlin 1994 and KTV 1991). The interviews conducted by the author, especially those with local trade union representatives, serve to confirm this critique. MbR systems do indeed initially increase the work burden for local government employees. At the same time our findings suggest two additional effects: - It is not only the work burden on the shop floor, but also that of (the remaining) middle management and (to some extent) that of top management that increases in the context of the new management systems. Thus local government modernisation leads to an increase in the workload for virtually the all the employees involved. - This makes it all the more important that measures of "social and competencerelated support" are made available to employees. This again draws attention to the strategic importance of personnel and organisational development: both strategies are of central importance in reducing workload and increasing coping capacities, and must therefore be seen as an integral element of any long-term and comprehensive modernisation strategy. The third issue on which brief comments are in order concerns the question of staffing levels and redundancies in the course of the modernisation process. At central government level the personnel redeployment required by the modernisation process was identified as constituting a frequent problem when restructuring administrative organisations. Such questions have also had to be addressed in Hàmeenlinna. Despite the deep economic crisis, politicians have managed to keep the pressure to reduce labour costs within limits, and staff cuts have been restricted to a small number of part-time jobs and "natural wastage". Thus the modernisation process - against the background of economic crisis - largely affected the jobs of women on part-time work and older workers through the use of early retirement schemes. The impression gained from numerous interviews, however, is that the

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most difficult personnel problems still have to be tackled - as the budgetary pressure on local government continues, and due to the preparations for the extension of MbR and quality feedback systems. The fiscal crisis threatens to lead to additional redundancies, while on-going modernisation is likely to require even more comprehensive redeployment: this will be the real test of the new policy. Clearly, this poses the question whether the high degree of cooperation between politics, administration and trade unions can be maintained in its present form under changed conditions. 5.5.7 Modernisation policy and process steering A modernisation policy is put into practice via "programmes for change". The process steering of such programmes is the responsibility of the strategic management behind the modernisation strategy. Our analysis of both central and local government modernisation has revealed significant conceptual and empirical difficulties in steering and monitoring such programmes. In view of their strategic importance I will conclude this chapter by considering in more detail a number of process steering issues, taking Hàmeenlinna as an example. Experience derived from change processes in both the public and private sector, in conjunction with considerations of a more conceptual nature, suggest a typology of four types of process steering (cf. Naschold 1992; Naschold/Cole/Gustavssen/v. Beinum 1993) as summarised in figure 86. Probably the most important conclusion to be drawn from these experiences is that the four types of process steering lead in conceptual and empirical terms to very distinct change processes involving differences of objective, context and development dynamics. Elements from one type of process steering can be exchanged with those from another type only to a very limited extent. The evidence of real-world change processes suggests that well-run private sector firms are increasingly developing a process competence, but that the public sector is lagging behind in this regard. The city of Hàmeenlinna provides numerous examples of the strategic problems of process steering. Modernisation policy in Hàmeenlinna, and this is true of virtually all areas of the city administration, is very largely determined by the premises and forms of the traditional steering strategy: a clear top-down approach, supported by a circle of political-administrative representatives and external experts and oriented towards programmatic conceptions. Hàmeenlinna deviates from this traditional concept in only two regards: firstly, the modernisation policy aims to achieve a continual process of change, rather than major one-off innovations; secondly, the circle of representatives and experts is drawn very much more widely than is normally the case with this process type, including as it does a large number of representatives from politics, administration and the trade unions. These, in turn, are supported by a broad range of external advisors from the academic community

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Traditional steering strategies

Concept steering Top-down approach

Cyclical improvement strategy (MbR) Short-term results steering Top-down approach within management cycle

Continuous improvement strategy (TQM, TbM)

Radical restructuring strategy (BP-Re-engineering)

Process steering

Strategic role-model steering

Bottom-up approach

Simultaneous approach

Experts and representatives

Project organisation

Broad-based mobilisation

Dialectic of top management and broad-based mobilisation

One-off innovations

Continuous short-cycle improvement

Continuous improvement

Rapid development in "quantum leaps" F. Naschold, WZB 1994

Figure 86:

Variants of Process Steering

and consulting firms, who provide information and in some cases play a more active role. Hameenlinna is extraordinarily open to international comparative experience, such as that resulting from the Bertelsmann Competition. Even so, the predominant view of process steering in Hameenlinna gives rise to a number of serious developmental problems within the modernisation process, of which some of the more important ones are discussed below. - The far-reaching and long-term objectives the city has set itself stand in crass contradiction to its steering strategy. At best this is suited to inducing a limited number of large-scale innovations, but not for long-term restructuring processes. As long as Hameenlinna fails to overcome this fundamental inconsistency between political objectives and its process strategy, it will continue to limit the effectiveness of its own policies. - The time structure of change processes is based on two distinct patterns: the relative short-cycle, strategic "turnaround" process - of between one and three years - and the long-term continuous development work which is both a precondition of, and an essential means of reworking the turnaround process. Developments in the city of Hameenlinna are dominated by a quick succession of tactical and strategic objectives, but not by a balance between short-term turnaround and longer-term gestation. The quick succession of the MbR pro-

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gramme by the purchaser-producer model, and the shift from this to the citizen charter concept serves as a particularly clear illustration of this imbalance. - Yet at the same time there is also a lack of process steering based on short-cycle results-oriented development work. The modernisation policies of recent years , i.e. since the conclusion of the restructuring of political bodies in the context of the Free Commune Experiment, have been dominated by conceptual work and discourse, and not by organisational change with the aim of rooting such ideas in administrative structures. The city has yet to prove the success of its results-oriented reorganisation either in the form of a policy of small steps or large-calibre reengineering measures: an example is the further development of MbR systems. As we have seen at central government level, MbR initiatives can come to grief on traditional, hierarchical and over-specialised organisational and administrative structures. This danger is still present in Hameenlinna. - At the same time, there is also a lack of process steering in the sense of Total Quality Management (as properly understood). Particularly if Hameenlinna wishes to play a pioneering role in the field of citizen charter and quality policies, it must recognise and meet the process requirements of such a policy: both a radical and highly time-compressed restructuring in the case of the citizen charter, and the development of an infrastructure and a broad-based mobilisation both inside and outside the administration for the aims of continuous improvement in quality; such requirements can only be met in the longer term. These and a number of other problems relating to process steering, here exemplified by the city of Hameenlinna, constitute the most critical constraints on development particularly in the public sector. Overcoming these constraints will very largely determine the fate of the ongoing modernisation process.

6 The Ambivalent Future of Public Sector Modernisation The analyses presented in the previous chapters have clearly shown that public sector modernisation is anything but a linear, homogeneous and successful path based on a small number of rationalisation principles. Rather, pulic sector reform is characterised by co-existance of both potentials and obstacles, of ambivalences and contradictions. It is the ambivalent future of public sector modernisation that I would like to consider in this final chapter. The chapter examines a number of fundamentally critical positions, which call into question the public sector modernisation trends analysed here at both the substantive and process levels.

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6.1 Between hubris and helplessness44 In the course of our analyses of central and local government we have frequently had occasion to refer to the three-phase schema of public sector reform development. This widely held view - namely that public sector reform has preceeded from public sector centralism via public sector decentralisation to market-oriented organisational alternatives - is a critique which remains within the paradigm of public sector modernisation, the real objective of which is to render the reform movement more effective. At the same time both the public discussion and the relevant literature - with varying diffusion and intensity levels in the different OECD countries - also encompass a number of very distinct positions which place a fundamental question mark for the success of, indeed the whole approach taken by public sector reform. I will consider four of these positions, some of which overlap to some extent, as represented or illustrated by seminal social scientific studies. All these positions have in common that they consider the reform strategies analysed in the previous chapters to be either illusionary, as their underlying approach, objectives or their mode of implementation are ineffectual, or to be negative in their impact on welfare state developments within the public sector. Figure 87:

Fundamental Critiques of Public Sector Modernisation

1. Lack of a causal relationship between reforms and modernisation: the public sector in a cyclical trend (Brunsson/Olson 1994) 2. The transfer of the private sector model and its failure (Downs/Larky 1986) 3. The threat to the democratic welfare state by public sector reform (B. Rothstein 1994) 4. The self-erected barriers to managerialist implementation strategies: problems of "grand strategy" and "incrementalism" (A. Wildavsky 1979)

These four fundamental critiques are based on a common view of the current state of, and trends in the public sector reform: - The lofty aims (hubris) of the conceptions underlying modernisation are matched by an almost complete "helplessness" in times of the concrete realisation of these conceptions in practise. - The predominant path of public sector modernisation is oriented to the role model of private sector efficiency; however, the structure and functional differences between the public and private sectors are so great that any reform taking this approach must fail at both the programmatic and implementation levels; given the specific nature of the public sector (adversality, complexity etc.) any conscious action aimed at reform is unlikely to attain the intended objectives; thus there is no significant causal relationship between reform and change. 44

The term is borrowed from the study by Downs/Larky 1986

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- The positions are also characterised by a major contradiction, one which at times prevails in one and the same study: according to one view public sector reform poses a threat to the welfare state and democracy, a position which is in clear contradiction to the critique that reform strategies, in the final analysis, represent merely a relatively ineffectual passing trend. I will now consider these positions in more detail presenting the relevant evidence and supporting arguments. Hopefully this will enable us to gain further insight into both the robustness and the ambivalence of public sector reform in the future.

6.2 The relationship between public and private sector in the modernisation process The relationship between the private and public sector, in particular the supposd superiority and the general applicability of models from the private sector is almost always a central element, whether or not explicitely formulated, within the modernisation debate. We already considered this problem in section III.9 when analysing steering concepts in the context of "distinct" vs. "generic" management concepts; now, against the background of the material presented in the preceeding chapters, we are in a position to draw some final conclusions on this point. Our analyses have clearly shown that the public sector exhibits a number of structural characteristics which are fundamentally different from those in the private sector. Figure 88:

Constituitive Characteristics of the Public Sector

1. Complexity, endogenous need for compromise, and adversality, frequently implicit nature of the objectives democracy 2. Limitation on executive power the rule of law/division of powers 3. The public tasks of redistribution may take precedence over economic concerns democratic welfare state 4. Limited time horizons competition between political parties in the rhythm of terms of office based on Downs/Larky 1986

The significance of these - and other - specific features of the public sector are not arbitrary in nature; rather they touch on central functional relationship of our social system. - The elements listed above are constituitive characteristics of the way in which modern states are structured with their party political democracy, the rule of law, the division of powers, the importance of the welfare state, and competi-

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tion between political parties based on inherent adversality; in other words they constitute historical, unsystematic fundamental principles of our polity. - As such they also constitute a central basis for the workings of the market economy, and thus are not in conflict with, or substitute for the private sector, but rather complementary functional preconditions for its operations; in certain individual cases, in the short term and from an opportunistic perspective, weakening the public sector may possibly increase efficiency; in the long term however this would be to undermine the functional preconditions of private sector activity. The constituitive elements of democratic politics systematically lead to specific forms of public administration; this means, for instance, that the process chain of public task fulfillment must be oriented to democratic political structures, in this case the horizontal and vertical division of powers. They cannot be construed according to the modern flow criteria of the private sector, unexpected is the fact that the design principle currently typical of the private sector are leading to its fragmentation and to a multiplicity of profit centres. The same is true of modern concepts of time-based management. In the public sector such concepts must take account of the often very different time structures applicable to the rule of law and to party policical democracy, and not the other way around. At the same time these constitutive conditions also lead to contradictory expectations in the course of public sector reform. P. Aucoin (1992) has rightly drawn attention to the tensions between public choice theory and managerialism with reference to the relationship between politics and administration: the comprehensive democratic mandate and democratic politics within the framework of public choice theory, the restrictive role of politics in favour of a more efficient overall management within the framework of managerialism. This tension reflects not an analytical inconsistency, but rather the expression of different orientations within this conception of democracy which has existed ever since this political form was established. Such modifications to modern management concepts made specifically for the public sector are thus systemically necessary adjustments and not limitations with negative effects on efficiency. Given that efficiency must always be measured against (effectiveness) objectives, while the constitutive characteristics of the public sector mentioned above form part of a strategic objective system - in other words part of the "evolutionary universáis" (Zapf 1994): 121) - of our society, a short-sighted critique based on the idea of inefficiency is inappropriate. While it is vital that such constitutive characteristics are recognised, this does not mean that a large number of experiences and stimuli from the private sector cannot serve as an orientation for public sector reforms. Nowhere in the entire public sector modernisation discourse have I found a serious argument to the effect that the public sector cannot be analysed with respect to the three predominant objective criteria of private sector reform, namely quality, time and costs,

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while not losing sight of the specific constitutive conditions of the public sector. This renders the fundamental dispute between the supporters of the public sector model and the proponents of the private sector model obsolete. This controversy should be replaced by a pragmatic, although conceptually grounded debate on the desired role on the specific modernisation elements of the public sector.

6.3 Rationalisation of decision systems: beyond the rationalistic planning and decision making models Public sector modernisation since the beginning of the century has largely proceeded in three waves. The first phase at around the turn of the century led to institutional reforms, at least if developments in the USA are taken as the model here (for the discussion in the USA cf. Downs/Larky 1986). The second phase of the reform movement during the 1960s and 1970s was characterised by the acronyms PPBS, MbO, ZBB (Zero Base Budgeting) etc. In the third phase such elements were again taken up, but this time within the structural context of social decentralisation and market orientation. With hindright, the "rationalisation of decision systems" characteristic of the second wave must be largely considered to have failed, as they remained imprisoned within a rationalistic conception of planning which failed to take account of political contextual conditions. On this basis it is often concluded that the third reform wave of the 1980s and 1990s has also failed. I would like to examine this important and wide-spread argument, first with respect to the discussion in the USA, and then on the basis of our own empirical material. Let us begin by looking at the two milestones in the history of American government - the introduction of "executive" government which began in 1910, and the attempts to rationalise budgetary procedures by means of PPBS, MbO and ZBB in the 1960s and 1970s - and evaluating their effectiveness. The general view taken of these two reform attempts is summarized in figures 89 and 90. The evaluation of the budget reform during the 1960s, on the other hand, is far more critical: A number of more general conclusions can be drawn from these contrasting evaluations of budgetary reform strategies: - The reforms of 1910 are to be seen as a major rationalisation success with respect to administrative operations, leading to concrete change in the institutional arrangements of the budgetary process. - The reform strategies of the 1960s and 1970s, on the other hand, focused on a "rationalisation of decision systems", on the optimisation of a cognitive process in accordance with the rationalistic planning model. And it is precisely here, as was shown in chapter II, that the main reasons for its lack of success lie.

194 Figure 89:

Frieder Naschold The Modernisation of the Budget Process I: The Executive Budget

The essence of the great change which has been introduced in fiscal methods since 1910 (in the national government since 1921) is the grant to the chief executive of authority to control both the budget estimates and to some extent the use of the funds subsequently appropriated by the legislative body. Coordination, supervision, and control of finance are gradually replacing the unregulated and chaotic freedom of the various administrative agencies to deal directly with appropriations committees. The immediate result has been a marked improvement in the care with which estimates are prepared for legislative consideration. A secondary consequence has been to amplify the administrative authority of the chief executive. Inevitably he who controls finance is in command so far as expediency and policy may dictate. The fiscal aspects of administrative reorganisation form one of the principal bases on which the new leadership in administration rests. (White 1948: 259)

- Even given this generally very critical evaluation, it must not be overlooked that a number of rather indirect knock-on effects of there strategies (new constituencies for questions of efficiency within the administration, the increasing role of policy analysis in budgetary processes etc.) have contributed to some not inconsiderable improvements in the budgetary process. Against this background, let us now look at the third wave of public sector modernisation in the OECD countries under consideration here, which begun in the mid 1980s at both central and local government levels. We are now in the position to draw a number of conclusions regarding this controversy. (1) To the extent that the modernisation projects of the third wave focused on the "rationalisation of decision systems" they have remained, as did the reforms of the 1970s, imprisoned in the logic of traditional "rationalistic planning models"; not surprisingly they have proved largely ineffectual. (2) The central aim of a number of the reform projects, however, are the issues of decentralisation and the creation of results units, oriented to the relevant target groups within the external social environment, and to the relevant marketsegments. These reform initiatives go beyond the rationalistic planning model as they place administrative action in a changed social and economic context and thus bring about changes in political decision making structures and incentives. This type of reform measure - extending the administrative logic to incorporate social and economic logics of action - must therefore be considered to have been largely successful. Thus in the public sector we find a similar development to the transition from strategic planning to strategic management in the private sector (cf. chapter III). While, there can be no doubt that such reform projects at least partly reflect mere passing trends, to the extent that such projects are not restricted to the optimisation of decision systems, but attempt to restructure the contextual conditions and the

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Figure 90:

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The Modernisation of the Budget Process II: PPBS, MbO, ZBB

Born of analytical idealism, political naivete, and (except in the case of PPBS) private-sector evangelism, the various decision systems examined in this chapter each promised to improve public sector performance dramatically. As we have seen, however, when measured by an objective, empirical standard, their individual and collective performance fell far short to this goal. Government productivity did not boom, red tape did not disappear, heavily bureaucratized agencies were not suddenly transformed into paragons of efficiency and effectiveness. Yet to say that PPBS, M B O and ZBB failed to achieve their goals is not to claim that they had no impact. The unprecedented demand for policy analysis that they created brought large numbers of talented economists, operations researchers, and accountants into the public sector at all levels. While the efforts of these individuals may not have been sufficient to transform the allocation processes of government fundamentally, they did act markedly to improve the level of discourse that surrounds policy debates, especially at the state and local levels where the tradition of policy analysis was often less well developed and certainly less well funded than it was at the federal level. The implications of a given piece of zoning legislation or a county drainage project may still be only imperfectly understood by decision makers and public alike, but there has been some improvement over the kind of information that was generally available in the early 1950s. While opponents of the decision systems might argue that such improvements could and probably would have taken place without the complicated apparatus and broken promises that accompanied the implementation of the decision systems, the fact remains that these systems have contributed to what might be called the institutionalization of policy analysis in government decision making. Just as the mass employment of lawyers by government has created an internal interest group that is extraordinarily sensitive to issues of due process, so has the mass employmment of economists and other analysts created a bureaucratic constituency that is sensitive to efficiency concerns.

(Downs/Larky 1986: 179 f.)

Perhaps the most profound long-term contribution of PPBS and other decision systems is the deepened understanding of the policy process that these natural experiments have produced. As commentators like Wildavsky and Schick have persuasively argued, there are important lessons to be learned here that have implications for the design and probable success of future administrative and budgetary reforms. One lesson is that the budgetary process is permeated with politics: party politics, interestgroup politics, institutional politics, and bureaucratic politics. This means, as Wildavsky constantly reminds us, that any budget reform is also a political reform, and its success will depend on its political as well as administrative rationality. To assume that Congress will permit major policy decisions to be made solely on the basis of benefit-cost analysis or that agencies will disinterestedly contribute information that is likely to result in the elimination of one of their principal programs is pure folly. Politics may be a frustrating aspect of the budgetary process, but there is every indication that it is a permanent aspect. A second lesson is that the budgetary process can provide an uncongenial environment for the development of high-quality policy analysis. As we have seen, both the time pressures and the incentives that surround the budgetary process act to subvert the integrity of data gathering, analysis, and the search for realistic alternatives to present policies. Policy analysis obviously has an important role to play in budgetary decision making, but when the character of that analysis is excessivly determined by the pressures and constraints of budgeting, its integrity and ultimately its usefulness are lost. The requirement of ZBB that agencies annually produce dozens of decision package analyses that must be summarized in two pages is a good example of a situation in which a well-intentioned decision system ensured that neither good analysis nor good budgeting could take place. The competent evaluation of complex programs requires patience and objectivity, neither of which is widespread in budgetary processes.

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incentive structures for administrative and political action, such changes may well induce real and positive effects. A number of these effects are described briefly in the next section.

6.4 The relationship between administrative reform and modernisation effects The most fundamental critique of current administrative modernisation strategies comes from the organisational theory school centred on Brunsson and Ohlsson (cf. Brunsson/Ohlsson 1993). According to this approach: - Administrative reform strategies are mostly an expression of diverging expectations of the administration held by the external environment which the former seeks to fulfil by means of "reform programmes". - There is generally no causal relationship between such reform strategies and real modernisation effects. - Changes within, and the modernisation of administrative structures are the result of very different micro- and macropolitical forces which are not to be confused with "reform strategies". This view, with its foundations in systems theory, can in many ways be seen as the zero hypothesis of current reform strategies. At the same time the conceptual debate between systems and action theory has shown that systems theory is not able to exclude the possible effects of actions simply with reference to theoretical considerations and in view of non-linear systemic complexity 45 . Such causal relationships and their proof are essentially an empirical question, and not merely one of theoretical deduction. And indeed a whole range of plausible action relations can be shown to exist in which at a satisfactory evidentiary level a "causal relationship" can be postulated. In line with this theoretical orientation, I would like to draw on a number of examples from our findings in which our analyses have shown that the reform strategies have indeed produced real effects in the sense of modernisation and development. The summary in figure 91 brings together concrete examples of administrative modernisation measures that can be shown to have had modernisation effects and, of course, a number of unintended side-effects. Some conclusions can be drawn from these six modernisation constellations for the present discussion: - The case study examples show that there is a whole range of reform constellations which exert systematic and non-accidental modernisation effects. Thus Brunsson/Ohlsson's zero hypothesis cannot be maintained.

45

Cf. the controversy between F. Scharpf and N. Luhmann.

Question as to the "value added" by the centre and the districts

Tension between managerial MbR systems and citizen participation

Acceptance production among citizens instead of administrative responsiveness Danger of private or public monopolisation, absence of competitive effect, leading to resource redistribution

Continuous need for complicated regulation

Horizontal and vertical internal administrative participation procedure as continuous development of measures and organisation Decentralised, target-grouporiented internal administrative participation procedure to democratise administrative planning and steering Social devolution and administrative steering

Complex Interaction of administrative results units, competitive environment and regulation of the interaction

Internal modernisation initiatives by external competitive environment and increase in overall effectiveness

Continuous results bargaining throughout the Finnish and Swedish labour market authority

City administration of Hämeenlinna (technical department)

City administration of Hämeenlinna: introduction of quality policy Waste disposal service in Phoenix/Arizona; maintenance work in the technical department of the city of Hâmeenlinna

Interaction of public and private job placement agencies in Denmark since the start of the 1980s

2. MbR negotiation process as Total Quality Management

3. MbR as interactive (co-) planning

4. MbR and systematic customer/citizen quality feedback systems

5. Enabling authority and variation in the degree of vertical integration within a competitive environment

6. MbR and contracting out/ deregulation in institutional competition

F. Naschold, WZB 1994

Problems of the role and structure of the remaining central departments

Differentiation of the politicaladministrative action system

Agency strategy in Sweden and Great Britain

1. Increase in administrative performance by spinning off agencies from central government departments

Unintended side-effects/ potential risks

Change in logic of action and context

Case Studies

Administrative Modernisation Measures

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G O

•a

o

•o c cd

OS

P,

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- The characteristic common to all the examples given in the figure is that the aim of the reform strategy was not merely to change subjective perceptions of action requirements. Rather all the reform strategies considered here aimed to change the context and the incentives for logics of action: the structure of administrative action is supplemented, over-determined and/or penetrated by additional political, economic and social logics of action, each with their underlying interest structures ad regulatory mechanisms. - These examples confirm the finding obtained at an earlier point in the analysis: current reform strategies are far more successful in autonomous governance areas and at local government level than in the core area of central government. Central government, with its monopoly of power, its "competence-setting competence" and the persistence of its traditional personnel structures, is thus a key source of inertia within the modernisation process, one exerting a pervasive effect in other administrative areas. The examples point to a number of critical structural parameters in the "architecture" of successful modernisation strategies. At the same time, they also indicate certain significant conditions of implementation which, from a "process perspective" are critical for the success of the modernisation process. It is to these conditions of implementation that I now turn in the concluding section of this study.

6.5 Beyond the dichotomy between "grand strategy" and "incrementalism": factors critical for the success of implementation strategies in public sector reform There is a broad consensus within the international debate on modernisation on the inherent limitations of incrementalism in the face of the need for change within the public sector. Beyond this broad agreement, however, a significant degree of controversy prevails concerning the effectiveness of various implementation strategies. The critics of the second wave of the reform strategy referred to above suggest that the relevant implementation strategies suffered fro two major deficiencies (in addition to Downs/Larky 1986, cf. Wildavsky 1979): - Reform strategies tend to be based on comprehensive strategies for change aimed simultaneously at "all the administrative departments", "all the programmes", and "all levels". This comprehensive-programmatic strategic approach is very largely a reflection of party-political competition, and the tough ideological and programmatic requirements it makes. Yet it is precisely here that the structural weakness of this strategic approach lies. The "grand strategy problem" of a programmatic and comprehensive strategy of this type is that by "over-selling" and because of its lack of focus, it mobilises opponents more effectively than supporters.

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- The second deficiency, in particular of managerialistic implementation strategies lies in underestimating, or indeed completely ignoring the political dimension of public sector modernisation. A. Wildavsky (1979:190) has convincingly shown that "any budgetary reform is also a political reform and its success depends on the political as well as the administrative rationality". Both of these criticisms are in line with a considerable body of evidence derived in the course of this analysis. Comprehensive, ideological reform strategies are generally extremely poorly implemented in political, social and organisational terms. This finding is consistent with similar results obtained in the private sector. Here, the diagnosis has been almost unanimous: there is a "fallacy of programmatic change" (Beer/Eisenstadt/Spector 1990). Our findings also confirm that the problem of the underestimation of the political dimension in administrative reform hits decidedly managerialistic modernisation strategies hardest: after often astonishing initial successes, they inevitably become entangled in the webs of the political system. Thus the critique indeed takes a realistic view of some widespread forms of public sector modernisation: of comprehensive "grand strategies" on the one hand, and "sub-critical incrementalism" on the other. However, it fails to specify the conditions critical for a successful implementation strategy. Our findings at national, central government and local authority level are able to shed light on this issue (fig. 92). The findings relating to successful implementation strategies in public sector modernisation can be drawn together in the form of six hypotheses.

6.5.1 Resource independence As we have seen, the hypothesis of the central role played by economic crisis in public sector modernisation - often considered "common knowledge" - does not hold in the form propounded. Neither at central, nor at local government level does the economic resource situation play a systematic role in initiating or selecting modernisation strategies. Rather the resource situation has a diffuse "intervening" effect on the general context in which modernisation takes place, without exerting a strategic, determining role on the reform strategy. Indeed, economic crises tend to reproduce traditional routine behaviour. Only in the context of longer-term discursive and reorientation processes can economic crises exert a "progressive" function, and even here this role remains subordinate. There is thus no empirical justification for the initiatory and catalytic effect of economic crises. Politicians cannot plead "economics" as an excuse for inaction.

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6.5.2 Path dependency Historical traditions, cultural norms and established practices can all play a more or less significant role within modernisation projects. The centralist nature of the state, the tendency towards "legalism", and the rigidity of established patterns regarding the division of labour constitute an historical and cultural legacy that has exerted a significant influence on the course of public sector modernisation in Finland, for instance. The specific impact of path dependency is largely to be seen in the fact that it sets very durable limitations of the spectrum of available development alternatives. Such a path dependency can only be "transformed" by means of far-reaching discursive reorientation. 6.5.3 Advocacy coalitions in the context of party-political competition The major reservations expressed concerning the significance of the resource situation and path dependency point to an absolutely central fact (already mentioned in chapter V.): public sector reform is primarily an endogenous development, produced and reproduced within the political system itself. Public sector reform is political mobilisation and political modernisation and thus very largely subject to the "rules" of the political system itself. The driving forces behind the modernisation process are advocacy coalitions consisting of the political and administrative elites, whereby the competition between political parties represents an indispensable context, the actual impact of which varies, however. The functions of such advocacy coalitions consist of the strategic "induction" and "selection" of modernisation projects within the range of options set by historical and cultural parameters. 6.5.4 Institutional anchoring Decisive for the stability over time and the implementation, in a word for the "reproduction" of the impulses for modernisation is the institutional anchoring of the advocacy coalitions within institutional governance structures. This fact is equally important at local level, and was revealed particularly clearly by the various national case studies. The institutional anchoring of the modernisation project in the Prime Minister's Office, supported by the Minister of Finance, ensures that the reform processes have a far greater chance of success than if they are merely located in a government department (typically the Ministry of the Interior). The establishment of a relatively small but powerful staff organisation, the support of a prominent and praxis-oriented "reform commission" at the interface between politics and society and the appropriate strategic management of process steering and process qualification are all important additional requirements of the reform process in institutional terms.

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6.5.5 Meta-organisations Whether, and the extent to which, the initiation, selection and reproduction processes of administrative modernisation actually bear fruit depends not least on the limiting and conducive influences of "meta-organisations". Institutions are not "stand-alone" organisations, but are embedded in inter-organisational networks. In the case of local government, for instance, the role played by central government or other government offices higher up in the administrative hierarchy is of considerable legal and financial importance. Local government associations and looser metropolitan groupings can perform significant information and orientation functions. The importance of meta-organisations is to be seen less in their direct intervention in the modernisation process than the fact that they mediate an operative context for the relevant actors. 6.5.6 The production of knowledge and orientation One of the most surprising findings of our empirical studies of implementation processes is the importance of the role played by the "producers" of knowledge and orientation, i.e. research institutes, and universities, consultants and transnational know-how transfer. As is the case with meta-organisations, the institutions that produce knowledge and orientation provide an indispensable mediating infrastructure in the modernisation process. The aim of most of the modernisation processes considered here was not to optimise existing administrative structures, but rather to transform them. This requires less tactical, i.e. "single-loop", than strategic, i.e. double-loop learning processes (Argyris). A prerequisite of such learning processes are far-reaching cognitive reorientations. It is here that the producers of knowledge and orientation can play a strategic role by transforming cognitive structures46. Prominent examples of this are the importance of the "three universities in the area around Hàmeenlinna" (E. Lehto in an interview with the author in May 1994) and the transfer of know-how from Sweden and Great Britain for the modernisation process in Hàmeenlinna, and the role played by Think Tanks in the conservative modernisation policy in Great Britain. It is these six complexes of influential variables that, by performing the functions of selection, mediation, reproduction, transformation, limitation and intervention, represent the driving forces behind successful modernisation processes.

46

On the strategic role of "mental models" and "shifts of mind" in the process of organisational transformation cf. Senge 1990.

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References Alexander, J. (1994): "Modernisation theory after 'The' transition". In: Zeitschrift für Soziologie 23, 3, pp. 165 ff. Amendola, M., J.-L. Gaffard (1988): The innovative choice. London. Argyris, Ch., D. A. Schoen (1978): Organizational Learning. A Theory of Action Perspective. Reading: Addison-Wesley. Arnkil, Robert (1994) The Development of Regional and Customer-Oriented Management and Services in Three Labour Districts in Finland. Paper submitted at the discussion- workshop of the project in the Ministry of Labour, September 1, 1994. Arnkil, R. (1994a): Alternatives for developing a customer citizen feedback system for the City of Hämeenlinna. Hämeenlinna: manuscript. Arnkil, Robert (1994b) The Developmental Processes in the City of Hämeenlinna. Sosiaalikehitys Oy (Social Development Company), Hämeenlinna. Paper prepared for the Evaluation of the Finnish Management by Results project led by professor Frieder Naschold, Berlin Sciencecenter. Aucoin, P. (1992): Administrative reform in public management: Principles, paradigms, paradoxes and pendulums. In: Governance. An international journal of Policy and Administration, Vol. 3, Nr. 2, April 1990, pp. 115-37. Audit Commission, The (1993): The client role for contractual services. London: HMSO. Baldersheim, H. (1993): "Die 'Free Commune Experiments'. Ein vergleichender Überblick". In: Banner/Reichard (eds.) 1993. Banner, G., Chr. Reichard (Hg.) (1993): Kommunale Managementkonzepte in Europa. Anregungen für die Deutsche Reformdiskussion. Stuttgart: Kohlhammer. Beer, M., R. Eisenstat, B. Spector (1990): The critical path to corporate renewal. Cambridge. Harvard Business School Press. Bennett, R. (ed.) (1993): Local Government in the New Europe. London: Belhaven Press. Beyme, K. v. (1994): Systemwechsel. Theorie, Ansätze und Konzeptionen. Opladen: Leske und Büdlich. Bishop, J. (1992): Improving job-worker matching in the U.S. labour market. Center for Advanced Human Resource Studies, Working Paper 92-40. Bishop, J., H. Key (1991): "The Impact of Privatisation on the Performance of the U.K. Public Sector", Vortrag für die CEPR/IMPG-Konferenz. Mailand. BMAS (Österreichisches Bundesministerium für Arbeit und Soziales) (1992): Die Effizienz der Arbeitsmarktverwaltung. Organisationsanalyse. Forschungsberichte aus Sozial- und Arbeitsmarktpolitik, Nr. 45. Wien 1992. Boyer, R. H. (1994): Markets as a coordination mechanism. History, Theory, and Policy. Paris: manuscript.

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Naschold, F., M. Pröhl, (eds.) (1994): Produktivität öffentlicher Dienstleistungen, Bd. 1. Dokumentation eines wissenschaftlichen Diskurses zum Produktivitätsbegriff. Gütersloh: Bertelsmann. Naschold, F., M. Pröhl (eds.) (1994): Produktivität öffentlicher Dienstleistungen, Bd. 2. Dokumentation des Symposiums. Gütersloh: Bertelsmann. (Im Druck.) Naschold, F., B. de Vroom (eds.) (1994): Regulating Employment and Welfare. Company and national Policies of Labour Force Participation at the End of Worklife in industrial Countries. Berlin, New York: de Gruyter. Naschold, F., R. Cole, B. Gustavssen, H. v. Beinum (1993): Constructing the new industrial society. Assen/Maastricht: van Gorcum. National Audit Bureau, The Swedish (1993): The Swedish public sector. Stockholm. Naujoks, H. (1994): "Konzernmanagement durch Kontextsteuerung. Die Relevanz eines gesellschaftstheoretischen Steuerungskonzeptes für betriebswirtschaftliche Anwendung". In: G. Schreyögg, P. Konrad (Hg.): Managementforschung 4. Dramaturgie des Managements - Laterale Steuerung. Berlin/New York: Walter de Gruyter, S. 105 - 142. Niklasson, H., L. Thomsmark (1994): Att málstyra arbetsmarknadspolitik/Zielsteuerung von Arbeitsmarktpolitik. Endbericht über ein vom Forschungsausschuß des Arbeitsmarktausschusses des Nordischen Ministerrats (NAUT) finanziertes Projekt, Kopenhagen: Nordisk Ministerád. (Übersetzung C. Riegler.) Norlin, M. (1994): Baklängesrevolutionen. Den kommunala domokratins fall/Die Rückwärtsrevolution. Der Absturz der kommunalen Demokratie, Stockholm: Ordfronts förlag. (Übersetzung C. Riegler.) Nurmi, T. (1994): Unitising of Rauma Employment Office. Helsinki: manuscript. OECD 1993: Public Management Developments. Survey. Paris. OECD 1992: "The public employment service in japan, Norway, Spain and The United Kingdom". In: Employment Outlook, p. 117 - 142. OECD 1990: Public Managment Developments. Survey. Paris. OECD (1994):Economic Outlook. June 1994. Paris. OECD (1994): Employment Outlook. July 1994. Paris. OECD Economic surveys 1992-1993. Finland. OECD, Paris. OECD Public management developments. Survey 1993. OECD, Paris. Osborne, D., T. Gabler (1992): Reinventing Government. Reeding. Otter, C. v. (1992): Personnel management in the public service: Sweden. Stockholm: manuscript. Peters, T. (1994): Liberation Management. New York. Pfeffer, N., A. Coote (1991): Is Quality Good for You? A Critical Review of Quality assurance in Welfare Services. Institute of Public Policy Research. London. Pirie, M. (1988): Micropolitics. London: Aldershot. ders. (1988a): Privatisation. London: Aldershot.

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Appendix 1 : Literature concerning the renewal of the management system in Hàmeenlinna Annual Report of the City of Hàmeenlinna 1993. (in Finnish) Free-Commune Experiment in Hàmeenlinna 1989 - 1993. Report by the planning and developmental department of the city of Hàmeenlinna 1994 (in Finnish) Hautamàki, A. The Hàmeenlinna model. A memorandum of the PALKE - project, 2.3.1994. (in Finnish) Joint-planning experiment of the Katuma-Harviala area in 1990 - 1992. Report by the planning and developmental department of the city of Hàmeenlinna 1992. (in Finnish) Lehto, E. (mayor of the city of Hàmeenlinna). Interview February 1994. Lehto, E. and Arnkil, R. The Next Step of the Hàmeenlinna Model. Paper prepared for the Symposium Citizens, Quality and Local Governmental Reform. Turku 3.- 4.3.1994. (in English) Mikkola, V. (Planning manager of the city of Hàmeenlinna). Interview March 1994. Minutes of the Development of the City Services (PALKE) -project Priorization of the services of the city of Hàmeenlinna. A summary of discussions 1992 - 1993 of the executive board, city government, city council, personnel representatives, chairmen of the boards. Report of the planning department 1994, (in Finnish) Strategic Plan of The City of Hàmeenlinna 1991. Paper of the city of Hàmeenlinna. Approved by The City Council. 21.5.1991. (in Finnish) Strategic Plan of The City of Hàmeenlinna. Revised in 1993. Paper of the city of Hàmeenlinna. Approved by the City Council 16.6.1993. (in Finnish)

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Stahlberg, K. The City o f Hameenlinna. A case o f f r e e - c o m m u n e policy in Finland. A b o Akademi. Ser. A: 3 9 4 / 1 9 9 3 . (in English) Stahlberg, K. The city o f Hameenlinna and local governmental reform in Finland. A written statement on request 3 0 . 3 . 1 9 9 4 . (in English)

Appendix 2: Free Commune Experiment in Hameenlinna General goals: -

increasing self-government and autonomy of communal level increasing participation o f citizens increasing local sensibility o f c o m m u n e government more e f f e c t i v e use o f communal administration raising the level of c o m m u n a l services

Issues of the Hämeenlinna FCE

Evaluation of results

1. Developing the overall organisation • Developing more functional units for the delegate (board) organisation (instead of highly specialised and "shattered" structure) • delegating decision power downwards • diminishing bureaucracy • developing the central role of city government in overall planning and definition of policy

Considerable renewal of the board structure (diminished to half) Technical office restructured according to functional units and "lean" organisation Social security organised regionally Tentative plan for renewal of central administration into five branches: administration, economy, personnel, planning, and commerce (not yet in effect)

2. Developing delegation systems to suit special needs of boards

Considerable delegation of decision power accomplished all along the line Overall speeding up of decision (average halved)

3. Developing introduction systems to suit boards

Different suitable forms of introduction accomplished Frequency of city government meetings the same, but considerable drop in seperate items Decisive drop in frequency of board meetings

4. Developing the budget system

Changes in budget system independently of the FCE (new budget planning and calculation system adopted) Boards divided into result areas and units according to MbR The binding itemisation of the budget relaxed

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5. Preparing for renewals in the state benefit and subsidy system

(Law for state benefit renewal was not passed)

6. Developing cooperation in workplace democracy

Progress in this not specified in report

7. Developing close range democracy and co-planning/systematic feedback from citizens

• Co-planning experiment and regional development projects accomplished • Regional development fund introduced (1994 FMK 220,000) • PTA and inhabitant/tenant activities • Distribution of information through special bulletins and meetings increased

8. Developing the overall MbR system

• First strategic plan prepared in thorough discussions involving officials, city council, and personnel representatives in 1990, revised in 1993 • ("Business idea" of the city, visions, key elements of success, fundamental goals, general strategy) • MbR process reached the entire personnel and delegates • Key results are defined from city level all the way to individual level • Several challenges remain on measurement/indicator levels and issues

Appendix 3: Annual Report 1993 of the City of Hameenlinna Key Results The planning and reporting of the various functions and boards of the city are organized around key results in the spirit of the MbR. In the Annual Report, the key results are as follows (illustrative examples of some functions): Function

Key results

Assessment of Results

Functionality of organization

Level of basic functions maintained in spite of less resources

Value for money/cost effectiveness

Central administration has managed to "undercut" expenses

Accessibility of services

Level of services maintained, but marketing

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Personnel department

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Program for balancing the budget in the next years

City plan for 94/96 prepared

Developing the city MbR-planning system Follow-up and evaluation of the FCE

Revision of the strategic plan completed & approved Report on the FCE published

Preparing the classification and priorization of services

Prepared according to the YTY-plan

General plan of land usage

Project for preparing a general city land-plan for sustainable development launched with Ministry of Environment & Technical University

Functionality of negotiation systems

Local agreement and reorganization not accomplished

Preparedness for rescaling personnel resources

Report given by the PALKE work group Training given to foremen Training given in entrepreneurship and personnel enterprises

Environmental Board

Social Security Board

Functionality of new organization and accessibility of services

Reorganization of central administration uncomplete

Fluent functioning of environment permit licensing

4 training sessions on the subject; 1/3 of appeals approved of

Starting measuring of city air quality

New techniques installed & monthly reports prepared

Starting observation of surface water quality

Samples from surrounding lakes taken

Developing further recycling activities

New forms of services subject to charges

Reports on environmental conditions

Various small reports

Administration Key results: 1. Efficiency of resources 2. Suffiency and sustainability of personnel 3. Functionality of cooperation

214

Frieder Naschold Result obectives: • Development of MbR discussions as a central steering mechanism • Productivity, effectiveness etc. measures for home and elderly service • developing internal budgeting of social security • increasing services subject to charges • clarifying distribution of personnel according to MbR

First MbR discussions completed in the entire social sector Measures for day care developed; measures for elderly care in preparation with VANTTU-project First MbR-budgeting completed charges for services levied separate report compiled

Social work & basic security Key results 1. Completing obligations for basic security 2. Developing family-centered social work 3. Responsibility in refugee situations Result objectives: • Preparing for 30% rise in customers • Focusing on long-term customers • Continuing family work training • Receiving 25 refugees annually Technical Board

• Rise of 17.2% occured • Not achieved • Continued, family work & service developed • Net increase 35

Maintaining and using value of city property

Exhaustive inventory made of municipal engineering, priorities set Focus on maintenance

Adjustment to diminishing economy

Considerable savings achieved

Open & correct information

Co-planning continued

Réévaluation of basic services

Participation in priori- zation processing of the City Council (YTY plan)

Commitment of personnel

Thorough discussions & participation accomplished

Efficiency of management & participation

Board as strategic manager developed

New Frontiers in Public Sector Management FIELD PROJECT

S

/

4

s Employee responsibility and empowerments

ECONOMY

STEERING

FMK/ pupil

Consumer selects within public sector

Consumer rights, choice

Accountability to citizens

Independent quality school 1994

Free application quality competition gives profile

Servicecharter (unitboard level)

Board sets unit price

Optional elderly care 1994-95

QUALITY COMPETITION profiling

Sample surveys

FMK/ child & old aged

optional day-care 1994-95

PRICE COMPETITION customer selects, unit prices

Service More decicharters sion power c o n t r o l l e d to day-care by the centres & board elderly homes panel inquiries responsibility to customopen ers through hearings service charter Cost monitoring by units of the city board

Independent result units

4 4%

4

L

Competition

Institute model 1994

4y

6 o A

Regional company for cultural programs

Free application QUALITY COMPETITION: profiling

feedback by complaints choice

Quality projects service charter

PRICE COMPETITION: customer choice unit prices Competition through BP model

Service charter surveys

Town board as orderer, Kuvala as provider

board to be discontinued 1994 BP model to be applied

Independence of headmasters and schools increase

Headmasters and teachers power of decision increases responsibility to customers

More authority to users, orderers and employees

215

service warrant can a f f e c t unit price

FMK/ pupil

Financing through orders

Orderer choice

Competition on market

buyer responsible for results

Open competition

Partial performances

Inquieries service charter

Indirectly

Ordered by the board

Responsibility for profit, increased authority to units and their heads

Open tenders

Elections

Decentralisation

A p p r o p r i a - Elections tions

Source: City c f Hameenlinn a/Finland

Appendix 4.1 : Developmental Projects of Hämeenlinna

Frieder Naschold

216

1. QUALITY OF SERVICES • Prescribed by law • The level chosen by the municipality

2. SERVICE ASSESSMENT • Customer as a focal point • We believe in the judgement of the inhabitants of the municipality • We are responsible for the consumers • We believe in deeds

3. QUALITY VALUES • • • •

We believe in quality Customer determines quality Customers to participate in setting quality standards We dare to compare quality

4. COMMITMENT ON THE SYSTEM LEVEL • • • • • • • •

Channels of correction, rectification and complaint Access of information to customers Hearings, question times, open meeting of boards Board of appeal for customer needs Questionnaires: commitment to Repetition and reporting Outside audition and evaluation, self-evaluation Publicity

5. SANCTIONS Economical, political, juridical

« .5 ^ g « g 0

S °

U

6. CRITICISM IS A WAY OF PARTICIPATING § NOT A DISGRACE TO ANYONE J Appendix 4.2: Hämeenlinna Charter for the Council Term

New Frontiers in Public Sector Management

1. CHARTER • The municipality commits itself to services and quality • The right of consumers to service and quality

2. QUALTITY • Measured through the opinions of citizens and customers

3. CHOICE • Guarantee for quality

4. STANDARDS - MEASUREMENTS CORRECTIONS • Participation • Information • Possibility for corrective action

5. COVERAGE FOR TAXES • Effectiveness for tax money usage • Value for money

6. COMPETITION • Charters as guarantee for quality • Open municipal acitivites to competition • Control of private choices

Appendix 4.3: Service Charters Basic Principles

•o a

« "3 £«

a

"3 u 0 :cS X «a 4-1

¿>

U ü oi» 9 O C/5

217

Frieder Naschold

218

BIG DEMOCRACY

SMALL DEMOCRACY MOTTO

Everything is politics.

What can be done privately or by the small community is of no concern to the state (subsidiarity).

DRIVING DYNAMICS Large organised interest groups (professions, trade unions, political parties)

Demand and initiative from individual people

WAY OF ORGANISATION Hierarchical j. . j Coordinated „ x .. , Centralised

~ . . Decentralised Pluralistic PARTICIPATION

Indirect MbR & frame steering °

Direct Focused , . Exclusive

DECISION Representative

Private family INFLUENCE

T

It

voicey

if?alty Voice

Source: City of Hameenlinna/Finland; StShlberg 1993 Appendix 4.4: Big Democracy - Small Democracy

Case Studies

Restructuring Labour Administration - investigating the Finnish experience Robert Arnkil

1 Introduction The general situation of the Finnish public sector modernization is described by Naschold1 as a "precarious balance of tradition and modernization" and the particular situation of the labour administration as "stuck in between", a parallelism of old, rule driven and new decentralized and results driven systems. Like in many other countries, the "first wave" of modernization and management by results (MbR) implementation in Finland has not been particularly successful in incorporating work reform, quality feedback or in activating the external environment by competition and transparency. But also progress in many aspects has been achieved. Many of the critical issues - quality, process development, elaboration of the management cycle and negotiations - have been addressed. On regional and local levels there is active development that has contributed towards forming building blocks for a "second wave" of development. This activity appears already on such a scale that a complete return to the old rule driven system is inconceivable. Whether there is enough momentum to push through a genuinely new stage in the modernization and decentralization process of the Finnish public administration in general and the labour administration in particular remains open. In this study I want to review some issues which I regard as critical for further development in decentralization and restructuring in public administration in the light of the modernization experience of the Finnish Ministry of Labour. The examples in this study do not cover the entire work going on in the Finnish labour administration at the present time and they concern mainly the regional and local viewpoint on the development. I am confident, however, that they serve as representative examples of the kind of work and innovations taking place and cover the most important themes. The situation and challenges of central administration is covered in the other contributions of this book 2 . Currently the labour administration in Finland is confronted with a challenging task: How to push forward the decentralization process started in the first half 1 2

Naschold 1995 Naschold 1995, Virkkunen 1994

222

Robert Amkil

of the eighties to a new stage. Largely this is a question of how to develop further the implementation of management by results (MbR) adopted by the labour administration in the beginning of the nineties. Further decentralization is needed on the basis of the continuing differentiation of regional economic and labour market development. This has been accentuated in Finland both by the deep plunge into depression in the last few years and the present emerging recovery. Although there was a general rise of unemployment in the depression in all areas, it nevertheless affected various parts of Finland differently . The emerging recovery has not appeared as uniform process, but rather as an uneven mosaic of development in different geographical areas and fields of economy.

2 The context: environment and organization 2.1 The labour market situation The work-environment context of this study consists mainly of the Finnish labour market, with sub- themes of labour exchange, manpower development and dealing with unemployment. The economic and labour market situation in Finland worsened drastically in the beginning of the nineties (see figure 1) and Finland is at the moment experiencing its worst depression in the post-war period. The first signs of recovery have surfaced in 1994 and at the moment many export sectors are recovering rapidly. At the same time the domestic markets are still in a slump and unemployment, although decreasing, is expected to remain at an extremely high level (over 15%) for the rest of the decade. A new situation in Finland is especially the rapid increase in long-term unemployment and a high rate of youth unemployment. In the former depressions the unemployment concerned mainly "chimney-industry", but now the problems of the labour market hit all professions and walks of life. The changes in the labour market and unemployment have produced quite new problems and introduced new customer groups to the employment offices. Rapid and uneven changes in the economic structures of local and regional labour markets pose a challenge to develop a more decentralized, regionally and locally differentiated way of steering and operating. The various regions of Finland have experienced structural changes and unemployment quite differently in the post-war period. The more rural Northern and Eastern regions suffered especially in the urbanization period of the fifties and sixties and have had a relatively high rate of unemployment (between 10-20%) since. These areas did not suffer as badly of the new depression in the nineties, however. The economic depression of the nineties hit mostly branches that were more represented in the South (banking, building,

Restructuring Labour Administration '000

223

1

i

1 i

v

V

(1)

VIV

\

V

/

,N

- w

V

/

UOV

1974 '75 '76 '77 '78 '79 '80 '81 ' '82 '83 '84 '85 '86 '87 '88 '89 '90 ' '91 '92 '93 '94 Unemployed

job-seekers

(I),

job

vacancies

(2),

seasonal!*

adjusted

(K)

in

employment

offices.

Figure 1: Unemployed job seekers (1) and job vacancies (2) in the employment offices per month (seasonally adjusted). Source: Finnish Labour Administration Statistics 1994

shipyards, etc.)- The Southern areas suffered very badly from the depression of the nineties and the rate of unemployment rose to the levels of the Northern and Eastern areas. With the first signs of recovery the labour administration and its services are facing a difficult dilemma: On the one hand Finland will have a very high rate of unemployment and a growing proportion of long-term unemployment in the foreseeable future. Most assessments agree that the days of full employment are over. On the other hand already at the present time there is shortage of labour in some areas and professions. As many branches of export industry are rapidly recovering labour demand is expected to increase - not as an overall demand, but as selective "patchwork" making the handling of situations difficult and accentuating a decentralized strategy. On top of all this Finland's strategic work policy perspective is overshadowed by a considerably diminishing and ageing labour force and thus potential bottlenecks in labour supply and a strong increase in 'passive' population. This will call for flexible development in re-education, re-allocation, rehabilitation and other "revitalization" measures. So we get very conflicting messages for a good strategy depending on the timetable, geographical area or economic field we are looking at - not to speak of societal values or priorities.

224

Robert Arnkil

In order to meet short term demands the labour administration must be geared to produce a basic "safety network" of services concerning employment and employment benefits. Formerly, in the seventies, this pointed largely to producing mass-services to large and rather uniform groups (factory and construction workers, lower end of services). Now the customers are much less uniform than in the earlier decades. Unemployment effects also the mid- and high-end of jobs and professions. With recovery and growing labour demand new ways of working with customers are called for. This means developing a good contact to the environment and new customergroups. This in turn points to a need of developing well profiled, high quality and customer-oriented services. In the further decentralization of the administration new solutions to these dilemmas must be found.

2.2 The Ministry of Labour The organizational context in this paper concerns the Finnish Ministry of Labour and mainly from a local and regional perspective of the labour districts and employment offices. The labour administration (established in 1970) is divided on the central level into functional divisions. Regionally the administration is divided into 13 Labour Districts and 11 Occupational health Inspectorates. The labour districts include altogether 188 employment offices all over Finland. The multiservice employment offices ( 122) offer services in labour exchange, employment, adult training, career counselling and information on education and labour markets. Unit service offices offer others but career counselling and specialized information services. Additionally there are also computerized self-service terminals and job-markets. The total amount of service spots amounts to 250. The computer system of employment offices (established at the end of eighties) covers the entire country and it comprises the information systems and customer-files of employment service, labour market training and information service on education. The basic structure of labour administration has been, and largely still is, a functional bureaucracy (see fig. 2). Before the decentralization period of the eighties the functional units of central administration managed and inspected the equivalent functions on the regional level (labour district offices) by rules and directives and the districts in turn managed and inspected the functions on the local level (employment offices). The functional structure was first relaxed in the employment offices and their role, along with the role of the employment office managers was considerably strengthened. Somewhat later, in the beginning of the nineties, the functional division of labour in the district offices was also relaxed. The changes in central administration have started only in the last few years.

Restructuring Labour Administration

225

Figure 2: The main functions of the Finnish labour administration

3 The "first wave" of management by results 3.1 Pushing forward or getting stuck? In his evaluation of the labour administration of Finland Naschold describes it as a being "stuck in between", a parallelism of old, rule driven and new decentralized and results driven systems. In the establishment and modernization of the labour administration, we can distinguish three main stages: the expansion period (1970-1980), decentralization (1980-1990) and introducing management by results (1990 onwards) (see fig. 3). The first wave of MbR followed a period of rather considerable decentralization which delegated power especially to the local employment offices. This opened the question of the value added by the regional and central administrations and a good answer to this remains to be given. The first wave of MbR was a "mixed bag" in modernization: New interactive negotiation forums were opened and important budget reforms were introduced. The top management committed itself to renewal. At the same time the first wave meant a step back form decentralization by stressing the role of central steering and in the face of severe depression this "re-

226 1970

Robert Arnkil 1980

DF.VF.I .OPMENT AI • PERIODS Establishment and expansion

1990

I Delegation/ decentraliza^Q "First wave!' of MBR , 'Second wave" of MBR ?

I

•

R. Amkil 1995 Figure 3: The developmental periods of the Finnish labour administration

centralization" partly regressed to old rule/goal-driven steering. At the same time on all levels new ways of operating were discovered and developed and building blocks for new development have emerged. Nevertheless, the overall picture of the "first wave" coincides quite well with Naschold's description of being "stuck in between".

3.2 Changes preceding management by results in the labour administration The "big story" in the development of state administration in Finland since the seventies is the attempt to surpass centralized functional bureaucracy and achieve more efficiency and effectiveness through decentralization, regional sensitiveness and real-time steering. One of the most important initiatives has been the development of management by results in public management and services since the second half of the eighties. The practical implementation of MbR started in the labour administration in the beginning of the nineties and it was one of the first attempts of its kind concerning a whole ministry. Important changes towards decentralization preceded the implementation on MbR. Already before the current economic depression in Finland there was growing criticism from political, general public and to some extent customer perspectives (mainly from the employers and firms) towards ineffectiveness of employment offices. The labour administration - as public government in general - was criticized for shortcomings in quality and cost-effectiveness. The services were criticized for being insensitive to changes in the labour markets and individual needs. With the deep plunge into the depression in the beginning of the nineties especially the issues of cost-efficiency rose strongly to the agenda. Several measures were initiated during the eighties and nineties by the labour administration to meet new demands. The decentralization process in the administration started in the first half of the eighties with considerable delegation of de-

Restructuring Labour Administration

227

cision power in several fields of employment and customer service, use of funds and personnel matters from the central and regional (labour districts) level to the local employment offices. The first stage of decentralization was empowered through changes in legislation, decrees and directives concerning the role, power and duties of the various administrative levels. The changes were also supported by special personnel training programs 3 . Before the changes even small decisions on delivering local employment funds, recruiting new staff to employment offices, paying bills or approving local policy had to be confirmed in the district office or central administration. Before delegation the content of activities on the central and district levels consisted mainly of mediating directives from the central administration and inspecting the employment offices. With slight exaggeration one could say that the employment offices were "remote controlled terminals" before decentralization.

3.3 The "first wave" of the implementation of MbR in the labour administration4 3.3.1 Management cycle, negotiations and measurements in MbR The practical preparations for the implementation of MbR in the Finnish labour administration started in 1989-1990 with pilot experimentation in three labour districts and a training programme for the personnel and was spread to the entire organization in 1991. From this is quite evident that the introduction period was very short. MbR in the Finnish discussion cannot in my opinion be regarded as a uniform paradigm or a doctrine but rather a "mission" with different kinds of interpretations and implementations. In 1987-1988 the Finnish government decided to inject new impetus to the decentralization of administration. Decision power was to de delegated downwards and the many-phased decision routes were to be simplified. On the governmental level one should decide on the frameworks and priorities and the practical tasks and decision power should be largely delegated to regional and local levels. The discussions and targets of the initial implementation in the labour administration revolved mainly around the reform of yearly budgeting and planning. The 3 4

The developmental measures are evaluated in section 4. The empirical data behind the evaluations of the first wave of implementation of MbR derive mainly from a 4-year project on the development of regional and customer oriented services in the labour administration (The DERCOS-project), which included detailed observations of results-negotiations in three labour districts in Finland 1990-1994, videotapes, interviews and other material.

228

Robert Arnkil

highly line-itemized budgeting was relaxed and a more comprehensive, integrated and decentralized structure was introduced. Other typical issues of the general MbR-discussion, like enhancing market or customer orientation and building a corresponding "natural" organizational structure (like on the basis of market or customer segments, "niches", etc.) played a much less important role. To date only rather minor changes have occurred especially in the organizational structures of the central and regional administration. On the local employment office level some organizational changes towards a more customer-oriented structure have occurred. So it can be said that the main emphasis has been on the management cycle, i.e. target setting - implementation and monitoring/measurement and budget reform. An important new element was the introduction of a new interactive forum: the yearly results-negotiations between the top management and the labour districts and correspondingly the labour districts and local employment offices. November-December 3. Results negotiations btw. labour districts and employment offices V October-November 2. Results negotiations btw. central administration and labour districts

I9 •

June-September 1. Preparations for a new cycle and negoti ations

March 4. Quality feedback from customers (since 1994) May-Junç 5. Follow-up negotiations btw. central administration and labour districts

Figure 4: The yearly cycle of MbR negotiations in the labour administration

Another important new element was the introduction of results monitoring/ measurement. The results in the various service functions (i.e. filling job vacancies, employment training, etc.) were measured and used as the material of resultsetting and evaluation in the interactive discussions. The combination of interactive forums and result measurement proved to be an important dynamic element of the whole MbR development. The launching of MbR occurred in an entirely different economic and labour market situation than the actual implementation as can be seen in figures 1 and 10. The "first wave" was designed in a good (in fact overheated) economic situation.

Restructuring Labour Administration

229

The newly elected top staff of the labour administration set out at the end of eighties with determination and speed to introduce MbR. It included the renewal of the annual planning and budgeting system, negotiation and planning procedures, measurement of results and calculation of service costs. The goal was set to steer action with key results, to evaluate the functioning of the entire administration in the light of results, to intensify the interaction between the different administrative levels and involve the entire personnel in the process. Also rewarding by results was introduced. Analyzing the content in the MbR negotiation process (see summary in figure 5 and appendix 1 on the content and measurements used in the negotiation process in 1990-1994) it becomes evident that initially the executive group of the administration adopted an expansive approach in setting goals for increasing market share and customer volumes. Various measurements for this purpose were introduced in the period of 1990-1992. This approach met with great difficulties as the economic situation rapidly worsened and the expansive approach had to be abandoned. Also the so called national "Law of Employment", which guaranteed a temporary job for everybody unemployed for a year, had to be changed and relaxed because of the enormous overflow of unemployed customers, extension of unemployment periods and a widening gap between the requirements of the law and practical possibilities of providing jobs on the local levels. In the beginning the MbR-negotiations between the executive group of the central administration and the labour districts reflected to a great degree the formal and compartmentalized structure of the central administration and district offices. The representative of one function of the central administration would discuss with the representative of the equivalent function on the district level and others would very little comment across the division of labour. The agenda was built around functionally divided key results and measurements and in the discussion mainly the quantitative level of the goal-setting was discussed. Looking at the negotiations of the 1990-1992 period it is evident that the executive group wanted to push for higher and more expansive goals than the districts, who were left on a defensive stance and bargaining for lower levels in the result goals. The district offices in turn represented expansive goals in the negotiations with the local employment offices and likewise the local level was left to bargain for lower levels. There was very little space for genuine negotiations, because the goals were largely set beforehand by the central administration. On the first round of negotiations the levels were set beforehand in the national budget, so in fact it was a zero-sum game: if some district or employment office succeeded in bargaining for lower levels, it had to be caught up with others! With the severe deepening of the depression this expansive approach had to be changed. In the summary chart (appendix) it can be seen how some areas of results measurement were abandoned and in others there was further development. At first these changes were rather regressive than progressive: when some expansive quantitative goal levels could not be reached (mainly because of the dramat-

230 Figure 5:

Robert Arnkil The main content of the MbR-negotiations 1990-1995

1 9 9 0 - 1991

1991 - 1992

1992 - 1993

1 9 9 3 - 1994

1994-1995

"Expansive approach"

"Scaling down expansion"

"Abandoning expansion"

"Priority in preventing long term unemployment"

"Preparing for new changes in labour markets"

Many quantitative and expansive measurements and goals in customer volumes set

With first signs of depression and inability to gain expansive goals in volumes scaling down of goals and abandoning some measurements begins

Expansive approach abandoned and preventive approach prepared

Preventive approach adopted, goal-setting process simplified

Some measurements elaborated further

First measurement of quality feedback

With first signs of recovery preventive approach maintained and preparations for changes in labour market (long term unemployment but also shortage of labour)

Pilot projects on quality feedback launched

Quality development elaborated

R. Arnkil 1995

ically changed labour market situation), the goal levels were simply lowered in the follow-up negotiations if not outright abandoned. This could only have demoralizing effects on the district and local levels, because this kind of changes in goal-levels would accentuate their voluntaristic nature. Eventually more progressive and elaborative attempts would surface, namely attempts to incorporate qualitative aspects to measurements and generally integrate results assessment. In the first "expansive" period the results negotiations were not used as much to discuss regional and local observations or to listen to the message of the changing labour market situation but to push through a top-down policy and expansion. In the later phases the interactive potential of the negotiations begun to be used more flexibly and this was supported by new ways of looking at results and by giving the districts and local levels more voice in the process. The discussion in the MbR negotiations could remain departmentalized on the central and also to a lesser degree on district levels, because they are not in direct contact with the markets or customers. But on the employment-office level the various goals, themes and result-attempts had to be connected and integrated in some practical way. In the end you were dealing with interconnected local problems and had to develop a workable compromise of the different - often con-

Restructuring Labour Administration

231

flicting - goals. The message of the changing market situation had to be taken more in earnest and on time. By 1993 it was quite evident that the situation had changed quite dramatically, the depression was not only short lived and new steering approaches had to be adapted. Many purely quantitative measurements of customer volumes were abandoned in goal setting and more policy- and action oriented measurements were adopted or elaborated. Also the theme of quality began to emerge on a practical level. A comprehensive pilot project to develop a customer satisfaction feedback system was launched. In some measurements quality was built in with quantity5. 3.3.2 Organization renewal and MbR International experience points to the fact that unless MbR is accompanied by renewals in organization (and not only the steering cycle and measurements) and process control, there is eventually a definite danger of a standstill and regression. When MbR was introduced in the Finnish labour administration, no major organizational renewals were introduced. The old functional structure was expected to perform as a "result structure", with the basic "result unit" being an individual employment office. By adding them together on a regional level, you got the result of a district and adding all together, you got the national result. The entire organization was "breathing down" at the operational level without developing special result measurements for the district or central levels or developing integrated criteria for good "chains of service" (á la TQM or the like). There are problems with this "result structure" and looking at results in this way. First the whole original idea of management by results is built on some sort of "market segment" or a "natural result area" approach and equivalent result units. One possibility of doing this in the context of the labour administration is to look at regional or local labour markets as the "natural" result segment or area and correspondingly at all units working with this market as a result unit (with possible internal specialized "profiled" result units 6 ). This is not an easy task. Historically the functional structure of the administration was not built around the principle of "natural" result segments (i.e. regional or local labour markets), but an administrative coverage of the different regions of Finland with mainly democratic accessibility and formal rule steering in mind. So in some instances the labour district or employment office actually is responsi5

6

For instance in stead of only measuring the promptness in filling job vacancies also the quota of filling job vacancies in the time required by the employer was measured. This was important because the speed of filling the vacancy was not always the most critical quality requirement of the employer, but rather the thoroughness in finding good candidates for the job. So a date was agreed with the employer when the job had to be filled and the success rate was calculated. Like special units for employment training, rehabiliation, etc.

232

Robert Arnkil

ble for a "natural" area, but often the labour markets are artificially split between many units. Also another aspect of looking at results only from an internal perspective or as a "sum" of the results of your own functional organization is problematic. There are also other agents operating in the labour market, which are necessary to produce good results. This would call for good cooperation and networking. Networking is demanding and time consuming, but if only the work of your own functional units is measured for results what incentive do you have to "waste" time in networking? All this makes it more difficult to give real content for the definition and measurement of result and especially effectiveness. There are no easy solutions to these problems because they are related to the whole problem of how to develop new ways of "decentral contextual steering" 7 . In the recent years some practical solutions contributing towards solving these problems has begun to evolve in the Finnish labour administration, first by forming internal networks and by introducing quality feedback systems. The resource available both between and within the districts is now seen more as a "resource pool" which is used more flexibly than before. The districts can also specialize in certain fields (like accounting, personnel training, data-analysis) and provide services for each other. Resources of different employment offices are joined together to meet the demands of a certain labour market or across several local labour markets 8 . There is no sense in looking only at an individual employment office as a formal result unit in these developments. Practical solutions in incorporating outside networks have so far been rather modest, but are on their way, too. There is a great need to integrate the efforts of various agents in the different regions in fighting unemployment and making initiatives for regional and local economic and manpower development. This has become more and more evident with Finland's participation in the European Union and the role of labour districts has been increasing in working with outside networks and coordinating initiatives. Yet another dynamic incentive for organizational development is the introduction of private labour market services which has been legally possible from the beginning of 1994. So far the development in the private sector in this field has been rather limited but with economic recovery it is expected to pick up especially in the large market areas of the South and capital city area. This will pose a competitive situation especially for the "high end" of services. The labour administration has been preparing for this situation by developing special services

7 8

Naschold 1995 For instance in the case of sudden very big labour demand or discharges in some area (a typical phenomenon both in depression and recovery) or in using special services like vocational psychologists, outplacement or rehabiliation services.

Restructuring Labour Administration

233

and service units liable for charges especially in services for employers and firms (recruiting, outplacement, etc.)-

Figure 6:

The development of the role of the different organizational levels

Organizational level

Prior to decentralization (1970-1980)

Decentralization (1980-1990)

"First wave" of MbR 1990-1994

"Second wave" 1994>

Central administration

Central bureaucracy

Central role downscaled

Central role reemphasized

Strategic planning and steering

Issuing rules and directives

Strategic planning

Inspecting

Ambivalence of role and value added in process

Personnel development and recruiting District offices

Mediating rules and directives Inspecting

Role downscaled and ambiguous

Personnel development and recruiting

Employment offices

R. Arnkil 1995

Operational execution

Mediating role partly reinstated, resources further downscaled Continued ambivalence of role and value added in process

Autonomy considerably increased and empowered

New developments in cooperative role, monitoring "resource pools", increasing internal and external networking, coordinating on-the-job training

Individual employment office as basic "result unit"

Customer oriented organizational changes

Organizational changes begin

Increasing internal and external networking and using "resource pools"

234

Robert Arnkil

3.4 Feedback from staff on MbR A questionnaire survey concerning MbR was executed in 1992 in six labour districts with over 1500 respondents and a return rate of over 80% 9 . The questionnaire consisted of ordinal ratings of management, organization, implementation of MbR, measurement of results, etc. The most important finding of the questionnaire was that the MbR process had not reached the shop floor level as well as it had the management levels. The managers of the employment offices saw more MbR-impact in their own work and rated many changes more positively than the shop floor. According to the findings of the survey all levels of the organization criticized the MbR-implementation in the following aspects: - MbR implementation was too one-sidedly top-down, with too little possibilities for regional-local influence - Introduction to MbR was seen as unsatisfactory - The measurements devised in the first wave were unanimously seen as unsatisfactory A follow up-study was executed by the authors project in November 1994 in two labour districts that took part also in 1992. It consisted of 386 respondents with a return rate of 70%. The follow up study revealed that although the involvement of the shop-floor level was still unsatisfactory, there were nevertheless some positive developments. The general changes of MbR in the period 1992-1994 were rated as positive by all levels (District managers 10 57%, district staff 11 46%, employment office managers 80%, shop-floor 44%). Also the general changes in the measurements used in MbR were rated as rather positive (District managers 64%, district staff 48, employment office managers 54%, shop floor 50%). The employment office managers see most positive change, which is consistent with the general decentralization trend (see figs. 7 and 8). If the general changes were seen as rather positive, the real impact in own work was rated mush more critically and also the extent to which MbR-measurements reflect own work was rated much more modestly, as can be seen in figures 8 and 9. The shop floor rates the impact conspicuously low and there hardly is any positive development. Other groups rate the impact lower in '92 than '94, which could be interpreted as a "saturation point" of MbR impact. The results of the 1992 questionnaire were also evaluated in a workshop in February 1994 in the labour administration. The participants (24) represented all levels of the organization. 9 10 11

Huuhtanen/Saarinen 1994, Arnkil 1994, 1995 Refers to the management group in the labour districts Refers to other than management personnel in the district office

Restructuring Labour Administration

235

100 75

1 II

50 25

1

District office managers

F i g u r e 7:

District office staff

1 1151 1 1 1

Empi.office managers

Shop-floor

A s s e s s m e n t of M b R c h a n g e s in last t w o y e a r s ( % of p o s i t i v e a n s w e r s )

I B B I

—

H 11 g I 1 1 1 1 • ¡ • I i-xxv^tev:*:

1 "District officebistrict office' Empi.office managers staff managers

1

Shop-floor

Fig«® 8: Changes i® MM$ measurement » last two' years (% of positive answers-)

The participants agreed on the following findings: Positive results: - The level of goal and result-consciousness, especially in effecivity and costconsciousness has risen - The delegation/decentralization process has gone forward Weaknesses: -

Too one-sidedly top-down implementation Very little effect on organization and culture Oversimplified and predominantly quantitative measurement Shortcomings in incorporating networking and network results in the MbR process and measurements - Too short time-spans for development

Robert Arnkil

District office managers

District office staff

Empi.office managers

Shop-floor

Figure 9: Real MbR impact experienced in own work -92 and -94 (% of positive answers)

100.

75. 50. 25 J 0 J

• • 1 ••••

•Hm i im District office managers

District office staff

Empl.office managers

HH !HH • 1 i

m

Shop-floor

Figure 10: How measurements reflect own work -92 and -94 (% of positive answers)

- The lack of personally meaningful goals (especially on shop-floor level) Important issues of further development: - Creating more involvement and contact surface for the shop floor to MbR - Introducing a more regionally and locally sensitive approach in negotiations and measurements and creating genuine space for negotiation - Developing teamwork structures in service and management

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3.5 Conclusions It is evident from the overview that the first wave implementation was rather strongly top-down dominated and there is inadequate reach to shop-floor processes. First the implementation run into difficulties with the severe depression and the changes were rather regressive than progressive. Eventually also new developments have begun to evolve: elaboration of results measurement, development of the negotiation process, introduction of quality feedback. On the regional and local levels many innovations have been pushing forward despite the shortcomings of some aspects of the MbR implementation and they have served as a promising stepping stone for further development. Some of these developments will be described and evaluated in section 5 (also see fig. 11).

4 Experiences in developmental projects 4.1 How to reach innovative acceleration? Developmental projects are an important vehicle in supporting decentralization. The Finnish labour administration has used projects, experiments, research, consultancies and personnel training and various kinds of combinations of these to support and empower changes. Further decentralization calls for skills in developmental and project work so the pattern revealed in the strengths and weaknesses of developmental work can be enlightening also for the evaluation of "next step" potential for further restructuring. In the following some representative examples of developmental projects, experimenting and personnel training are reviewed and evaluated. They do not cover all the work done in the last decade, but give a picture of the general pattern.

4.2 Examples of developmental projects Decentralization and delegation in the eighties was paralleled and supported by a comprehensive training program called "The Management of Employment Offices" in 1984 - 1988 for the staff of employment offices and labour district offices. All districts and employment offices took part in the program and it was arranged on a regional basis. The district offices were responsible for the execution of the training program. The design of program used elements of action research models, i.e. enhancing the skills management-groups and core personnel in analyzing their work processes and in generating projects. The program consisted

238 Figure 11 :

Robert Arnkil Evaluation of the Finnish labour administration M b R

Topic

Evaluation of "first wave"

"Second wave" needs

How have the core ideas of MbR materialized? (Key results, market & customer orientation and structure)

A major shift in budgeting & "economic thinking'Vcost consciousness but not yet in structural/ organizational, regional, market, etc. issues

Further steps in decentralization and better contact to regional and local labour markets needed

Adaptation to work-environment changes a) depression period 1990-1994 b) first signs of recovery 1994>

a) Depression: Rather considerable time friction in regearing central goal-setting according to the depression b) Recovery: Better anticipation

A need to develop the MbR negotiation process towards a more genuine interactive forum

Negotiation process

Top-down dominated, still largely sectorized

A more genuinely interactive steering and negotiation process needed

Negotiation as bargaining Quantitative measurements dominate

Negotiation as learning Integration and elaboration of measurements and inclusion of quality needed, measurements used as learning and simulation material Differentiation of time-cycles and contents in negotiations More involvement of shop-floor needed

Measurements

Basic quantitative measurements produced, qualitative measurements launched

Integration and elaboration of measurements needed Quality assessment needs further elaboration More meaningful negotiations and measurements for shop-floor level

Organization

R. Arnkil 1995

The beginning of organizational changes overcoming rigid functionality

Further steps needed in organization renewal to introduce more market sensitivity, network cooperation and flexible use of resources

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mainly of analysis of local labour markets and customers and designing and executing small local projects. The program span was 1.5 years on the average and consisted of six three day sessions plus rather comprehensive intermediate work. In some instances the training program was organized as a action research project where researches, the management group of the labour district and the core personnel of the employment office collaborated over a time-span of about 2.5 years. Another very important development was a renewal of the information processing system of the labour administration in the eighties. Computers were introduced into customer service 1985-1990 and by the end of eighties the administration had a comprehensive, decentralized and multi-purpose information processing system. On the local employment office level it serves primarily the needs of customer service (customer-, job vacancy-, and training course files) and on district and central level the production of statistics and general steering. Presently the system is under renewal which will increase possibilities of networking and flexibility of use. The system offers many possibilities for local analysis and service follow-up. On the district and central levels it also offers the possibility of using various statistical databases. The introduction of MbR was also supported by a special MbR training program in 1990, but it was much more limited in scope than the Management of Employment Offices -program. The central administration provided a few days of training for the district offices and core personnel and the districts held training days for the shop-floor staff. Somewhat later another supportive measure was the launching of the project "Employment Office 2000", running from 1992 to 1994. The labour administration invited several developmental projects under a loose "umbrella" and by joint workshops wanted to support the developmental work in customer orientation, quality feedback and data management especially in the local employment offices. A comprehensive action research project, The Development of Regional and Customer Oriented Management and Service (DERCOS)-project 12 (1991 - 1994) concerning three labour districts worked partly in connection with the Employment-Office 2000 project. Still another important current development has been the Development of planning of employment training, a project that was executed in seven labour districts and running 1993-1994. Because of the shortage of job vacancies in the depression a major effort of the labour administration was directed to manpower development through employment training courses. The employment offices provide employment training for job-seekers and expertise for employers needing labour force training. In order to improve labour-market and customer orientation, several comprehensive sub-projects and experiments were carried out to improve the database and planning of employment training. This included improving both the

12

The author of this article was responsible for this project (see note on author).

240

Robert Arnkil

regional and local networks activities in obtaining knowledge for this purpose and also improving the information processing systems and skills. The developmental periods (expansion, delegation and implementation of MbR) and the developmental projects can be plotted against time in the following way:

1970

1990

1980

D E V E L O P M E N T A L PERIODS

I

Establishment and expansion

I Delegation/ decentraliza^oq

i

"First wavef' of MBR D E V E L O P M E N T A L PROCESSES "Management of Employment Offices" training program

— t Second wave" of q / NM B R ?

/ /

Computer system bi^t |

j

MBR-trainihg

/

— t — "dmpl6yment

/

f

/

\

(Rate unemployment) te of uni

N

S

Oifice 2000"

I

^jeCt

•

Developing employment training I ¿ERCOS (by the author) I

•

R. Amkil 1995

Figure 12: The developmental periods and projects in the Finnish Labour Administration

Plotted against the rate of unemployment (see thin line and Fig. 10), we can clearly see that the growth-period (1970-1980) coincides with the rise of unemployment in the seventies ("the oil crisis"), the delegation period (1980-1990) with a relative "plateau" and the MbR-period (1990 onwards) with the huge rise of unemployment.

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4.3 Evaluation Naschold (1995) points to some central weaknesses in the experimental attempts in Finland, namely: inadequate connection to organizational development, lack of continuity and generalization, institutional weakness (leadership weakness), lack of evaluation and "double loop" learning. Looking at the experience in the Finnish labour administration we find the same pattern on a smaller scale. I see the challenges of developmental work to be analogous to the challenges of further decetralization. Developmental, action research projects and experimenting is confronted with tremendous challenges of managing decentalization and reaching "critical mass" of development and network connections in order to support and reach genuine self-development. So the main message concerning developmental work in the labour administration context would in my interpretation be a need to develop the entire "developmental infrastructure", i.e. connection to topmanagement, steering, networking, "innovative acceleration" (connecting innovations) and on-the job experimenting.

5 Practical experiences: building blocks of further restructuring 5.1 What are the keys to reach new impetus? We have seen from the descriptions in chapters 3 and 4 that the "stuck in between" argument of Naschold (ibid.) can be largely subtantiated by empirical experience. The "first wave" of MbR implementation in the Finnish labour administration was not particularly successful in incorporating work reform, quality feedback or to activate the external environment (competition, transparency). Nevertheless, despite a time of relative regression in front of a disastrous depression also progress was made. Many of the critical issues - quality, process development, elaboration of the management cycle and negotiations - were addressed. Also on the regional and local levels there was MbR-related and independent development that has contributed towards the forming of a "second wave" of development. Regional offices have begun to develop a more initiative and integrative role and have contributed towards developing new ways of looking at results. Local offices have developed new comprehensive ways of process and organization development, etc. In the following I want to review some examples which I regard as critical for further development in decentralization and restructuring. The examples do not cover the entire work going on at the present time and they concern mainly the regional and local level of the administration. The renewal of the central admin-

242 Figure 13:

Robert Arnkil An evaluation of the developmental processes

Project

Content, actors timetable

Strong points

Weak points

Development of Employment Office management training program

A large scale personnel training program involving the coregroups of Finnish employment offices and district offices (600 participants in 1985-1989 of a total of 1500).

Comprehensive methods, design, process control and communication elements,

Weak connection to top management

Implemented regionally, each 1,5 years.

Locally and regionally concrete projects Large and motivating involvement of personnel

Weak networking Weak evaluation and diffusion of reporting "Stand-alone" projects Understeering

Training for MbR

An introductory course for managers (few days) and one day course by labour districts to staff plus written introductory material

Strong commitment of the top staff

Limited time period and impact for shop-floor staff - "oversteering" - limited array of practical methods

Developing the planning system of employ ment training

A project executed in seven labour districts to improve contact with labour-market and customer needs. Time-range 1 to 2 years.

Integrating technical innovations (producing and using databases) with interactive methods of local and regional information assessment

Limited time period

Employment Office 2000

"Umbrella-project" as a volunteer project forum involving 6 themes and 12 separate projects: - Organization development - Productive work in employment offices - Developing the information processing system - Effectiveness in employment offices - Quality feedback in services Time-range 2 years

Activating forum for various projects, many separate innovations in technical, organizational and personnel topics

Inadequate connection to top management - weak inter-networking and outside contacts - weak evaluation, diffusion and reporting - "stand-alone" - understeering

DERCOS

Developmental action research projects in three labour districts Time-range 3,5 years

R. Arnkil 1995

Comprehensive methods Connecting different levels and aspects of activity Concrete projects in technical, organizational and personnel development topics

Inadequate evaluation and methodological conclusions

- More connection to management processes needed - more diffusion & networking needed - complexity and understeering

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istration in an important part of the whole picture, but these themes have been covered in the other contributions of this book.

5.2 Integrating results measurement A recent attempt to develop result analysis is a project executed by Talonen and Tuomaala (researches from a labour district office) 13 . It is the first comprehensive and comparative study to integrate the various ways of measurement done in the labour administration in Finland and especially during the MbR period. This is important because so far the various measurements in the MbR have all lived "separate lives" reflecting to a great extent the prevailing departmentalized structure of the central administration. The model also makes it possible to simulate and try out different hypotheses about factors influencing the result process. I would argue that this is precisely what is needed in the "next step" of MbR-development. Talonen and Tuomaala used several different methods (Data envelopment analysis -DEA, Free disposal hull -FDH, simple input-output analysis, etc.)14 to compare the input and output efficiency and effectiveness of Finnish employment offices. There were altogether 16 different comparisons made using different parameters. I won't be able to go into the details here, but the most important feature was to compare the employment offices in different areas with an integrated model in three size-groups (small, medium and large offices). Also workload and the effect of different contextual parameters (the structure of the labour markets, rate of unemployment etc.) were analyzed. In efficiency the main result was that smaller units were more efficient than the big ones (around 100 employees). In efficiency there was no definite geographical pattern. The same "inverted scale effect" was revealed also in another study on quality feedback from customers, were the service of large units rated worse than small ones. The inverted scale effect would suggest that large employment offices have a challenge to develop a more customer-oriented way of operating. This is only a tentative assessment, however, because there are also many other factors to consider, especially the higher level of education of customers in towns and Southern regions of Finland in general which correlates with a more critical attitude to service. In effectiveness the main result of Talonen and Tuomaala was that the Northern and Eastern districts were more effective than the Southern. Here of course the interpretation and parameters of effectiveness is critical. But taken at face-value one basis for interpretation of the "North-South effect" would be the difference in 13 14

Talonen/Tuomaala 1994 Charnes/Cooper/Rhodes 1981, Bouckaert 1993.

244

Robert Arnkil

R. Arnkil 1995, based on Talonen and Tuomaala 1994

Figure 14: Conceptual model of results, effectiveness, efficiency and workload of employment offices and examples of parameters

the history and societal development of unemployment of these areas. The North and East suffered a structural change of Finland in the 1950-1975 from a rural to an industrial country and have since had a high rate of unemployment. The South by contrast, is the industrial and more affluent part of Finland with traditionally a low rate of unemployment. The South suffered badly in the recent depression. The result can be interpreted both in terms of a longer experience of the Northern and Eastern areas in dealing with unemployment and the tremendous workload that hit the Southern employment offices 1990-1993. Some critical remarks on the Talonen and Tuomaala study are due here, although the attempt to integrate measurement is an important "second wave" opening in itself and has considerable potential for further elaboration. A general problem in the parameters is the danger of remaining too selfcontained, especially in limiting the interpretation of effectiveness to rather narrow measurements (like the intermediate results in filling job vacancies, etc.). This

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is hardly enough to reflect the true complexity and long term effects and impacts on the labour exchange, manpower development or the role of the public services in the labour markets. To incorporate this perspective in MbR is a very challenging task and in practice one has to settle for a distinction between more narrowly and institutionally defined short term effectiveness and a more comprehensive long term effectiveness and keep on elaborating on both and establishing a contact between them. This problem is related to another aspect of the danger of remaining too selfcontained. Many other agents and network partners have an (often more important) effect on the labour markets and the MbR approaches generally tend to ignore this and direct the efforts of the organization only to "own affairs". To incorporate these aspects to MbR goal-setting, assessment and measurement is also a very challenging task and in the context of the Finnish labour administration still awaits for good practical initiatives. Yet another challenge for further development in integration is including quality measurement and customer-feedback in the models. This will be possible now that the first quality measurements have been executed in the spring 1994. All in all this study clearly indicates important possibilities for "second wave" development of MbR instruments. There is further need for conceptual and "technical" elaboration but especially a need to develop the MbR preparations and negotiations further into interactive learning forums between different levels of the organization and also with other labour market actors. The new measurements and models can provide indispensable material and content for the further development of these discussions.

5.3 Building a quality feedback system 5.3.1 Introducing a quality questionnaire to employment offices Another important new development in the MbR-process is introducing a quality feedback system from customers in the employment offices. Quality was an issue from the very beginning of the MbR implementation. It was brought up already back in the seventies, when there were attempts to adopt MbO - management by objectives - in public government. Despite the fact that there was awareness of major shortcomings in quality aspects, no important practical initiatives were launched before 1992 in the labour administration to open the issue on an operational level. Finally it was opened practically through a pilot project involving representatives from the central administration, the DERCOS project researchers, a consultancy specialized in quality development and several employment offices from different parts of Finland acting as practical pilot cases. The general aim was to develop a quality-feedback system and questionnaire to be used in all employment offices yearly to measure customer satisfaction with the

Robert Arnkil

246

various services. The aim was to build a system, which could be used productively on all levels of the administration. First and foremost it had to be useful for the practical development and process enhancement on the employment office level. In order to do that it had to give concrete feedback on concrete service issues. Another important aspect was that the samples had to be adequate to render also possibilities for statistical comparisons and analysis of significance on regional and national levels, so that benchmarking effect and deeper analysis could be reached. The system also had to be simple to use, without unduly burdening either the staff or the customers and the results were to be presented in a usable, illustrative fashion to stimulate discussion and analysis in group-work on different levels. In order to fulfil all these requirements the questionnaires for the different customer groups (job seekers, employees, customers in career counselling and customers in information services) were carefully planned and experimented through pilot projects in 1992 - 1993 involving also in-depth interviews of customers and staff, trying out the measurements and evaluating the results.

Figure 15:

An example of the feedback-chart from job-seekers

Dimension of rating

Telephone service and "front-office" services - speed of response - friendliness of service, etc. Registering as job-seeker/unemployed - clarity of quidance - time of queuing, etc. Service premises - pleasantness - tidiness, etc. Service of the employment officer - friendliness - competence - j o b offers etc. Adult & employment training - information - guidance etc. Unemployment benefits - information etc. Self-service - ease of use of self service computers Suggestions for improving service in the employment office

Rating by ordinal scale My experiences are 1 2 3 4 5 6 bad good (no resp)

1

2

3

4

5

" "

"

" (Open space for free response)

6

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The gathering of the questionnaires was the responsibility of the employment offices, but the coding process and the production of preliminary charts was commissioned to a major private survey-company in Finland and thus provided centrally in order to avoid burdening the shop floor processes (see fig. 16). Data attainment

Organizational lgvgl

Results, comparisons database

Processing

R. Amkil 1995

1 and 2) The employment offices gather a random sample (proportional to population) of jobseeker and employer customer responses to the questionnaire 3) The questionnaire is coded and the basic summary results (national distribution, etc.) are produced centrally by outside commission (a major private survey company in Finland). The national database (matrix) is distributed to the central administration and the district offices. 4. The central administration uses the results of a national summary and comparisons between districts and various service branches. Also further statistical analysis is performed. 5) The district offices produce a summary of results on employment office and district levels, produce illustrative graphics and also perform other more detailed analysis (also on commission from the employment offices) 6) The employment offices get a distribution of the response, local and regional comparisons plus a summary in a SWOT-form. Some offices have the capacity to do further analysis on their own.

Figure 16: The quality-feedback system

248

Robert Arnkil

The pilot phase was completed in 1993 and the first national measurement was executed in the spring of 1994. The entire sample of all customer groups was 50,000 and the return rate was 31,000 (i.e. 62%) so it affords considerable possibilities for further analysis. The results of the feedback were presented as a national summary and on the district and employment office levels using charts, statistical comparisons, graphics, SWOT-analysis (strengths, weaknesses, opportunities, threats -analysis). The feedback will be repeated in the year 1995 and the plan is to develop it into a "repeated measurement barometer" where cross-section comparisons can be made to other employment offices and districts and longitudinal trend comparisons to previous measurements. The feedback system has very important "second wave" potential. Firstly, by introducing customer process-level information it can considerably bridge the alienation gap of the shop-floor to MbR. It is evident from the feedback from staff that the shop-floor finds it difficult to relate to the measurements and goal-setting in a meaningful way. The quality assessment and process analysis could prove to be one important vehicle for this purpose. Secondly, the quality feedback system adopted by the administration makes it possible to use the information meaningfully on different levels, as a "borderobject " of different scales (see further in section 5.9) 15 . 5.3.2 The main results of the quality-feedback A consistent pattern was that two large Southern labour districts (especially the capital city area) were in many dimensions at the low end of rating on quality from both job-seekers and employers than others. There are many possibilities of interpreting this. For one the South has a larger proportion of educated customers and since they are more critical (as they were in the overall results) this would explain at least a part. Secondly the tremendous rise in unemployment 1990-1994 hit these two districts the worst and they also had less experience with dealing with very high rates of unemployment. Another general result was that large employment offices (regional centres) got a more critical feedback than small offices. This too, can be interpreted against the fact that more educated customers gave more critical feedback. It also possibly points to special needs to develop the customer service organization in large units. When asked in the Autumn 1994 MbR-survey (discussed above) about the general importance of customer quality feedback, all levels agreed on the great importance (all about 70-75% as "important" or "very important"), but saw much less real practical impact in their own work of the quality feedback executed in the Spring of 1994 (see fig. 16). This would suggest that there is a considerable need

15

See Virkkunen's article and Star 1989

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to develop the various ways of practical work with the quality feedback. The formation of special quality teams and the integration of quality-data to other MbR data and the negotiation process are examples of this development.

100

1 i n 1 -il I» 1 1 « -H 1 District office managers

District office staff

Empl.office managers

•1

Shop-floor

Figure 17: General (left column) and practical (right) importance of quality feedback (% of affirmative answers)

5.3.3 Further development of the feedback system The MbR-negotiations of Autumn 1994 included the results of the quality feedback for the first time, but they were not yet very thoroughly discussed or interpreted. In the discussions the emphasis was to secure building the necessary "infrastructure" for a quality feedback system so the districts and employment offices were encouraged to present plans of quality development. The further development of the system will proceed in 1995 with a "tripartite" structure: a steering group from the central administration, a group of specialists and advisors working on special features of the feedback system (like statistical analysis and illustrations) and a series of mutual workshops plus experiments and developments on district and shop-floor level (see fig. 18).

5.4 Developing "action statistics" and "action-follow-up" methods in customer service The complexity of labour markets and huge customer flows poses an increasing problem for the employment offices. In order to act as an "intelligent" agent in further decentralization and the local and regional labour markets it is required

250 Figure 18:

Robert Arnkil Issues of further development of the quality system in labour administration

Issue

Practical examples

Actors

1. Developing the presentation of data

- SWOT*-analysis - box-plot comparisons - cluster analysis, etc.

Specialists together with researchers from labour districts

2. Developing the quality system on management level

- Participating in national competition for quality prize

Managers and management groups on diffferent levels

3. Developing the quality system on process/ team level

- Quality teams processing the feedback and integrating it to other information

Teams in employment offices backed up by quality contact-person networks

4. Integrating quality assessment to MbR and other data

Using a "profile of good practice" (see chapter 5.9.) for overall evaluation

Management groups together with quality teams

5. Further research on quality data

Further statistical analysis on data (cluster analysis, etc.) National and international benchmarking comparisons

Statistical experts and researchers from labour administration and districts in workshops

6. Developing internal quality chains

Resource-pools connected together into quality chains

On all levels: central, district and local

7. Connecting to national and international innovation in practical quality work

Direct contacts to practical quality work, both domestic and international

On all levels: central, district and local

* Strengths, weaknesses, opportunities, threats

that the e m p l o y m e n t office has a g o o d grasp o f the situation and an ability to see the "forest from the trees". O n e important problem is h o w to get a "local-sociological" picture o f w h o the customers are in the particular e m p l o y m e n t office and particularly what is happening to them? Are w e responding to needs and gaining results? Traditionally these questions are dealt with within the face-to-face service of the individual e m p l o y m e n t officer and customer. This w a s all very well, w h e n there weren't so many customers. But with the tremendous rise in unemployment the number o f customers per officer has risen from perhaps a dozen or t w o a month to several hundred a month in many offices. There are incidents of w h o l e factories and firms going bankrupt and suddenly the office is confronted with hundreds of unemployed. With the recovery of e c o n o m y also a flow in the opposite direction is taking place: suddenly a successful firm wants to expand and recruit hundreds of new employees.

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At the same time also qualitative pressures are increasing. The labour markets and customers don't respond in a uniform way, but rather the picture is a mosaic of needs and solutions. So there is an increasing rat race both with quantity and quality . How is the customer service of the employment office going to deal with this? The computer files of customers have a lot of useful basic information like name, occupation, work experience, etc. On the general level it functions quite well in the Finnish labour administration. It is one of the best computerized customer service systems in the country, in fact. But the officials have complained that there should be ways of using the system in a more flexible, customized, "action oriented" and individual way in order to meet specific demands. The possibilities of using the computerized customer files in an innovative way has been studied in many projects. One example is a factory-closure follow-up study in cooperation with an employment office. A factory closed down leaving over 200 workers unemployed in 1991 in an inland town of Finland 16 . The employment office wanted to do extra effort with this group in order to investigate the possibilities of dealing in new ways with large customer groups. The employment office innovated with the researchers a way of "earmarking" the factory group in the customer database and after discussing the service needs and plans of the customers, adopted a new way of coding these needs and plans in the files in a simple way in few basic service categories. The codes are reachable by a special in-built query-language. The advantages of these simple measures were apparent. Before, the files contained basic information about occupation, etc. and also freely written descriptions about the content of discussions with the customer, but nobody had time to read and interpret them, especially on a "local-sociological" level. The codes provided an easy way of obtaining a quick "action-statistics" glimpse of the individual and overall situation and it was easy to follow up the progress made and update the "codes" and other information. This small experiment pointed to further possibilities of elaborating the followup methods and a decentralized, customized way to use of data-files thus obtained. This is a new kind of database describing what are the needs of the customer and what is done. So it is an action database, not merely a description of "background parameters" (age, name, occupation, duration of unemployment) which is also useful information but for other purposes. Generally the statistical use of customer files reflects the needs and logic of central administration and the predecentralization era. The statistics provide steering information for general regional or national purposes, but have rather limited use for local process-steering levels. This fact has also adverse effects on the motivation of the shop-floor staff to update the data-files and fill in all the detailed information used only on the central level. 16

Arnkil 1994

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Robert Arnkil

The whole development of computerized services and especially the emerging ways of producing "action" databases has made the work processes - at least potentially - transparent. This poses important challenges for managing this transparency for the local levels.

5.5 Developing process analysis and team-work in customer-service The labour district of Northern-Carelia designed together with a research-project a special process enhancement and on-the-job training-program for the entire staff in the employment offices 17 . The first stage (1-2) lasted for two years and the second stage (3 and integration) has been launched in 1994 and will last for three years.

R. Amkil, 1995 Figure 19: Structure of a quality-development training course in Northern-Carelia

17

The basis of the program was a carry-over from a case study of an employment office by the author and the new implementation was executed through the DERCOS-project (see Arnkil 1994 and note on the author)

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1) Analyzing the service process The shop floor personnel was organized in natural work-groups and they produced material from actual service situations (videotapes, recordings, case material). These were thoroughly discussed and analyzed and also rated by a special quality assessment scale, which included rating customer orientation and communication, various stages of the process and the intermediate results of the service. 2) Analyzing customer files Also the computerized customer-files were analyzed in the work-groups. In former studies by the author it was revealed that the records in customer-files gave unsatisfactory support to the continuity, cooperation and result-orientation of the service. Now a special effort was devoted to develop the notes in the files so that it would support continuity, customer- and result orientation and networking. Another very important experiment was making the summary of notes also in code-form so that it could be reached by a special query-language. This made it possible to look at the assessment of customer needs on an overall-level in the whole district and use it as a part of planning for instance employment training. 3) Analyzing customer-feedback in teams and integrating it to other information and measurements. The teams participating in the program concentrate especially on the new customer quality feedback in the 1995. In the teams the results of the 1994 questionnaire are thoroughly interpreted and discussed and there will an attempt to integrate the whole analysis into other aspects of the MbR and its measurements. 4) Integrating the findings in the MbR-process The executive group of the labour district is developing a comprehensive approach in MbR in order to incorporate the various aspects of activity and measurement in the MbR process (i.e. integrating measurements a la Talonen and Tuomaala discussed earlier combined with economic, interactive and other data). This will be further illustrated in another chapter.

5.6 Organizational development in districts and employment offices The changes in the labour-market structures and customers call for renewals in the organization of services. It was mentioned earlier that the MbR process has so far lead to rather few organizational renewals and innovations. Largely the old functional structure prevails, but also important "second-wave" innovations are on their way.

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5.6.1 Developing the structure of large and mid-size employment offices Several studies reveal that effectiveness, efficiency and also quality of larger units (50-150 employees) is lower than in small units (this doesn't hold for all, but is a definite tendency). The smaller units working in smaller local labour markets and with a smaller customer flow use a more flexible division of labour and can establish a more intimate contact with both individual customers and the labour markets and their various agents in general. So far the large offices have worked with a rather stiff division of labour with the staff working most of the time individually and providing a wide range of services without being able to concentrate fully on a particular service idea. In order to inject more customer- and labour market orientation in larger units they have been broken down to more independent units with certain customer- and market segments (like units for front-office services, employee-services, special services for managers, career development and training, rehabilitation, employment and computerized self-service. The units need to be small enough to be able to operate as a teams, but big enough to support cumulative learning and flexible reserve. The idea is to introduce more "entrepreneurial" spirit for the different profiled service-ideas and give them more freedom to build their service system according to the needs of their particular customers. Also the measurement of results should support this development by measuring results in a concrete and sensitive way in a particular service field and thus giving incentives for betterment and quality. But there is a snag here. Introducing a new unit structure and teamwork alone is not sufficient, because it could lead to a "reincarnation" of a compartmentalized model. In order to avoid this, good network relations need to be emphasized. The units need to exchange services effectively and this should be supported by another level of result measurement, i.e. measurements of the results on the local/ regional labour market level. All this poses a strong need to develop new instruments to manage a network structure of services. 5.6.2 Developing the internal network in labour districts In the recent years the resources within a particular district, or even between districts are more and more looked at a "resource pool", not as separate units within strict boundaries. So far MbR and its measurements have given insufficient support or incentives to develop this kind of operation, but it is nevertheless on its way. There are recent examples in the "patchwork" of economic recovery were the demand for labour in a certain area exceeds either quantitatively or qualitatively (or both) the capacity of an individual employment office and forces have to be joined to meet these demands successfully. In many instances also special demands in the field of rehabilitation calls for a flexible "pool of resources" to be

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used where it is necessary. Also the different labour districts have begun to specialize in certain know-how and providing each other with services in the fields of personnel development, accounting, research and information processing. All these developments break the barriers of the old functional structure and call for new, "second wave" developments in organizational structure, the role of different levels and the ways of looking at results. 5.6.3 Activating the customer Activating both the job-seeker and employer has been a central issue in the last few years. Self-service supported by computers and "job market-places", supporting self-service and self steering teams in job-seeking and planning of employment training, establishing new contacts to voluntary work and unemployed groups as well as intensive work with employers and firms in recruiting, outplacement and manpower development are examples of these developments. This area has neither traditionally nor in the last years been the strong point of the developmental work of the labour administration. Activating the customer has so far not been a strong point of Finnish public administration renewal in general, so this building block needs special attention in the future.

5.7 Developing local-regional analysis of the labour markets The steering of the administration uses different channels of information to assess the development and demands of the labour markets and customers. One important source is statistics which are provided both internally by the Ministry itself and externally by the state and other agents. Both are well developed and offer many possibilities for analysis. The bottleneck at all levels in the administration is neither the accessibility of information nor the technical infrastructure to obtain or analyze it but clearly the skill to use the various databases and statistical programs and to pose good questions for analysis. The further development of know-how and also the decentralization of these skills is clearly one very important prerequisite for further decentralization. The other problem with statistics is that they are not sensitive enough to the regionality and locality of labour market development. This reflects the same "result area" problems discussed earlier. The third problem is the lack of process sensitive "action statistics" to describe and follow up the actual service processes in a meaningful 'local-sociological' way discussed earlier. The MbR discussions use the assessments of the district and employment offices to get important and up-to-date information about the changes in the labour markets and customer needs. Clearly the pressures to develop this exchange of information will be increasing and it is one of the core issues of decentralization. Traditionally this is largely done by "rule of thumb", using flexibly the experience and network connections of the local and regional managers and staff. But

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there is definitely a need to develop more systematic and "hard" ways of obtaining information about the environment and customers and combine this with other evaluations. All this is vital in order to be able to present the regional and local perspective in a convincing and useful way in planning and negotiations. The situation in the Finnish labour administration is unsatisfactory and very uneven in these respects. In some employment offices and districts there are very skilful people with good hardware and software to produce very good information analysis whereas in others hardly any systematic "refinement" of information is done and there are no programs beyond word-processing and data-sheets. This is clearly an important obstacle for further decentralization. The possibilities of developing a more regionally and locally sensitive picture from the statistics and customer-files is clearly underused. Here the role of regional offices and their researchers could be seminal, but with the ambivalence of the role of the regional agents no new decisive steps have so far been taken, but rather the resources of the regions have been cut. In many projects and experiments in these questions have been studied. The general national and regional statistics have been divided to enhance regional sensitivity, new databases and follow-up studies have been produced for the same purpose. Comprehensive surveys of labour demand and manpower training needs have been executed in different areas and compiled into databases. The customerfiles of the employment offices have been analyzed by a special query-language to produce a picture of customer needs on a "local-sociological" level, etc. All these experiences point to new possibilities of developing the role of the local and regional levels to perform as better channels of up-to-date labour-market information and thus producing good material for result discussions and steering, but in order to achieve this decisive steps should be made to direct resources for the regional and local levels to do this.

5.8 Enhancing information processing Developing measurements and comparisons in MbR, analyzing the qualityfeedback, using customer follow-up and developing local and regional databases of labour markets all point to the relevance of a good information processing infrastructure and skills. Generally speaking the information processing infrastructure of the labour administration can be regarded as good. It is reliable, serves many purposes ranging from customer service to producing statistics and other steering material. It has survived the enormous increase in customers from 1990 to 1994 (from about 100,000 to over 550,000) and taking the flow of customers, the databases include at the moment practically the majority of the potential workforce of Finland. The system is based on a modern decentralized structure and can be used quite flexibly to many purposes on local, regional and central levels. Presently a major renew-

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al of the system is under way and it will make many features even more flexible. So the bottleneck of development clearly is not the infrastructure of information processing, but the conspicuous inability to use its potential. This is quite evident on all levels, local, regional and central administration. I would argue that at some point practically all potential "second wave" developments run into these questions of information processing and unless they are dealt with in a determined way, further progress in decentralization is difficult, if not impossible. The further development of MbR requires better contact to labour markets and the shop-floor processes and developing the negotiations to more interactive learning forums. An important prerequisite for these developments is the development of data analysis and measurement in order to "feed" the forums and teams with new meaningful steering information. The data and measurement need to be developed in many dimensions: the models of integrative analysis, accuracy and local sensitivity of quantitative measurements, ways of expressing evaluative data in an illustrative and compressed way, etc. All these call for development of the information system and especially the ability to use it (see fig. 20). The districts can provide useful information to the employment offices by processing further the data gathered from the labour market, customer files and feedback and also compiling and monitoring data on projects and local-regional initiatives, etc. This challenge can be partly extended also to the employment offices., too, at least the large and mid-range ones and by using the regional "resource pools" in this field in a flexible way. Both the district offices and employment offices need to develop an integrated and comparative approach to look at information about results, quality, costs, workload, etc. This is inconceivable with further steps in both the infrastructure and the especially the ability to use the system. Many present developments prove that this sort of development is feasible.

5.9 Building an integrative "constellation of success" The personal experience of the DERCOS-project, involving intensive work with three labour districts and several employment offices points strongly to a certain "constellation of success" in pushing forward a second wave of development in the Finnish labour administration on the regional and local levels. A case in point here is the experience of working with the labour district of Northern Carelia. In Northern Carelia the various experiments were successfully interconnected so that continuation, commitment and "innovative acceleration" was achieved. In Northern Carelia most the central themes described in the empirical experiences were addressed: - Developing a local-regional labour-market database

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Robert Arnkil Topic

Information processing

Market share Sample survey executed on commission by state statistical centre

Produced centrally and database usable in district offices

Quality feedback from customers Yearly feedback by questionnaire in employment offices

Coded centrally and databases usable on all levels

Analyzing customer files Analyzing customer service, needs, flow and structure from customer files

Special query-language available on all levels and results transfarable to other databases

Quality feedback on labour market training courses feedback questionnaire for course participants

Coded on district and local levels and databases usable on all levels

Feedback on personnel well-being Questionnaire on the wellbeing and health of personnel! (stress, etc.)

Coded in special database on district level or commissioned (tentative plan)

Other analysis Special projects, efficiency and effectiveness, workload and economy studies

Compiling various studies using query-language and outside databases in district offices and also on local levels

Other sources from the labour administration -statistics -MBR reports, etc.

Analysis and usage of information on district and local levels

Outside databases (statistical time-series, etc.)

Amkil 1995 Figure 20: Recent developments in the information system

-

D e v e l o p i n g the quality-feedback system D e v e l o p i n g n e w customer f o l l o w - u p methods D e v e l o p i n g team-based quality analysis Integrating the themes to the development of management by results

The most important thing w a s not only the fact o f addressing a w i d e range of issues, but combining them into a "constellation" of interaction and continuation:

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Amkil 1995 Figure 21:

The "constellation of success" in Northern Carelia

In collaboration with the DERCOS-project the labour district of Northern Carelia and some others have launched an attempt to integrate the assessment of efficiency, effectiveness, quality, economy and work-load by using the recent developments in measurements (Talonen/Tuomaala study on integrating results measurement, quality-feedback data, measurements on service-costs, etc.)- The new data affords comparisons on different levels, geographical areas and between different sizes of offices 18 . The results of comparisons are summed up in a short summary-sheet. "Behind" the summary sheet stands the different data, "hard" and "soft". The important point is that the summary can be used as a flexible and meaningful "discussion object" or a "border-object" on different levels of action ranging from quality teamwork to MbR discussions on the local, district and central levels. At the present time (spring 1995) various experiments are under way in developing integrative descriptions and analysis. One example is a "Profile of good 18

The comparisons must be done to a meaningful standard. So for example large offices in urban areas have a meaningful comparison partner in other large offices in urban areas and not small offices in rural areas. The comparisons need also to be developed into meaningful international benchmarking.

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practice" developed in the DERCOS-project and also Talonen and Tuomaala project. The profile includes an assessment on three main dimensions: 1) Work environment, 2) Process & performance, and 3) Resources.

Figure 22:

Dimensions of an experimental "Profile of good practice"

Dimension

Parameters

How obtained

Environment

Rate of unemployment

Statistics of ML

Structure of unemployment (share of long-term unemployed)

"

Rate of demand (job seekers/ vacancies)

Process

Complexity of labour market

Qualitative and interactive assessment

Level of education of jobseekers

General statistics

Effectivity

Statistics of ML and other sources ("action data", interactive assessment, etc.)

Efficiency

Statistics of ML

Quality feedback/job seekers

Quality feedback and other feedback information

Quality feedback/ employers

Resources

Market share

Special sample provided by central administration

Economy

Statistics of ML

Employment funds

Statistics of ML

Work load (customers/staff) Arnkil 1995

The "profile of good practice" is intended to be used as an evaluative starting point for discussions. It needs elaboration, "flesh around the bones" and an interpretation of what are the strong and weak points of action and what would be a good way to continue. For instance the profile of Northern Carelia suggests that environmental and work-load pressures are not very hard, process performance is good, but challenges point to quality work with employers. The same profile can then be looked at the local employment office level.

Restructuring Labour Administration Figure 23:

261

Case example of a "Profile sheet of good practice" of the labour district of Northern-Carelia

Dimension of assessment

Clearly below comparison

Below comparison

Average19

Above comparison

Clearly above comparison

Trend (change)

ENVIRONMENT Rate of unemployment Structure of unemployment (share of long term unemployed)

x x

Rate of demand (job seekers/ vacancies)

x

Complexity of labour market

x

Level of education of job-seekers

x

PROCESS Effectivity

x

Efficiency

x

Quality - job seekers Quality

x x

- employers Market share

x

Economy

x

RESOURCES Employment funds Work-load

x x

R. Arnkil, 1995, partly adapted from Tuomaala, 1994.

19

The comparison here is done to the average of all districts, which is only one meaningful - and rather abstract - possibility. Another - and in many respects more meaningful comparison can be done to other districts with equivalent labour market problems.

262 Figure 24:

Robert A r n k i l

Summary evaluation of the empirical experiences

Experiments

Content

Evaluating "second wave" potential

Integrating result measurement of employment offices

First comprehensive attempt to integrate and compare different ways of assessing the efficiency and effectiveness of employment offices

Important in overcoming functionality and old structures

Developing a quality-feedback system

A sample-based questionnaire and customer feedback system

Very important especially concerning the involvement of the shop-floor and integration of different levels

Developing new customer follow-up systems

Using computerized "action statistics" and customer-files for "local-sociological" follow-up and planning purposes

A necessary condition for developing the decentralized role of the local and regional levels in labour-market analysis and service planning and enhancing team-network development

Developing team-based quality analysis and work

Using concrete data and observations in employment-office teams to evaluate quality of service and need for improvement

A very important vehicle for developing the contact-surface of the shop floor to developmental work and MbR

Developing a market and customer-oriented organizational structure

Developing a team based "market segment" structure especially in large and mid-size offices

Important prerequisite for developing customer-oriented team- and network and basis for new result units

Developing a local-regional labour-market database and analysis

Developing more regionally sensitive ("real market") ways of describing the labour markets and customer service

Important prerequisite for developing a basis for evaluating real results (effectiveness) in labour markets and providing good information for steering in the MbR -process

Enhancing information processing

Enhancing the skills and software for information analysis and "refinement" on all levels

Important prerequisite of supporting further decentralization and management

Integrating MbR development

Developing a "constellation of success" and a summary "Profile sheet of Good Practice" and connecting it to MbR negotiations and quality teamwork

Important in integrating the developments above and serving as a productive "border-object" for discussions between different levels and functions

R. Arnkil, 1995

Quality feedback must be integrated into the model

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6 Summary: The key issues of further restructuring Generalizing from the empirical experiences and the "constellation of success" as described in the case of Northern-Carelia I would argue that basically the same "constellation" needs to be successfully addressed in the overall development of the labour administration. The key issues for further restructuring would thus be the following:

Arnkil 1995 Figure 25: The constellation for further restructuring

1) Developing interaction and bottom-up signals: One of the most important current challenges for the Finnish labour administration is developing bottom-up processes and signals. There is a definite need to develop more comprehensive, dialogical and more genuinely interactive steering, negotiation, implementation and developmental processes in order to a) get a more flexible and real-time message bottom-up of the labour market changes and development on the different areas and

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b) be able to convey the strategic work -policy and steering effect top-down in a more motivating and involving way. A certain but yet insufficient of degree of development in this direction has occurred in the "first wave" negotiations and many developments in the districts and employment offices. In order to gain momentum for genuine interaction the whole "constellation" needs to be addressed and the regional and local levels equipped with the necessary contacts and know-how to act as important and more sovereign partners in the negotiations. 2) Activating the customer-perspective Finland and the other Scandinavian countries have been traditionally strong in securing the democratic accessibility and general standard of public services. The service network is good, the staff is well trained and the facilities are of a high standard. But the customer perspective has traditionally been low on the agenda. Not in the sense of a low quality offered but in the sense of giving the customer a serious voice in the development of services and using the resources of the customers in an innovative way to find solutions. These developments have been slowly emerging since the eighties, but this would definitely be one of the weak points in the Finnish public service renewal in general and in the labour administration in particular. 3) Elaborating measurements: In connection to this there is a need to take more seriously the real complexity and local differences of the functioning on the labour markets in order to avoid too technical and narrow interpretations and measurements in the MbR-process. Result analysis and measurement need considerable elaboration and integration especially by integrating qualitative evaluations, aspects and measurements and by developing also the "technical-data analysis" integration of the connections between different measurements (i.e. comparison models, simulations etc.). Many promising steps have been taken in this direction and clearly a new stage of development is evolving. 4) Organizational development and better contact to networks Organizational development, particularly in the central administration has lagged behind in development. In Naschold's (ibid.) assessment there is a need of a considerable shift of resources from the central to local levels if you want to secure the further development of decentralization. I would argue that in the context of the Finnish labour administration this shift of resources should be directed to support "local-sociological" steering, networking and information processing capacity, i.e. more resources to districts and local "pools" for "regional range" steering and evaluation. The next steps should also involve developing "profiled" service units in large offices and connecting them into internal and external networks and using the re-

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gional and local resources more flexibly by "resource-pool' thinking. Organization development is closely connected to measurement development because the interpretation of the basic result-unit is crucial in steering and in providing incentives for activity. The result-unit needs rethinking from individual employment office to a network of offices working in the same labour market. Also the various customer-segment-oriented units will need new ways of looking at results. Eventually also the necessary outside "network result" needs to be incorporated in result-thinking to avoid too narrow and self-serving interpretations of labour market results and the necessary agents to produce them. 5) Quality work involving the shop-floor As a promising vehicle supporting these developments is the development of quality feed-back mechanisms, quality measurement and quality-process (quality teamwork) analysis. The work here has only just begun and in my judgement it will be one of the crucial tests for achieving momentum for a second wave development. 6) Improving information processing In order to empower and decentralization and genuine interactive communication considerable development in information processing infrastructure, programs and especially skills is needed. The active role of employment offices and district offices in providing customized, regionally and locally sensitive and up-to-date analysis for steering in inconceivable without further steps in information processing, not in a technical and narrow sense, but in a broad, comprehensive sense. Several experiments prove that the essential bottleneck here is the ability to use the available possibilities to their full potential. The skills in information process- , ing, statistical analysis and flexible use of various software programs is very uneven on all levels of the organization. The technical possibilities are to large extent good, the skills are lagging behind. 7) Developing the "developmental infrastructure" Finally, to support further decentralization the "developmental infrastructure" of the labour administration needs development. Different developmental projects are too often left often as "stand-alone" projects with inadequate network connections either internally or externally. This results in lack of continuation, cumulative learning and "innovation acceleration". The cooperation between different levels and also horizontal partners could be considerably improved by coparticipation in deep-slice projects which address the "constellation of success" described above. The practical experiences of the empirical examples prove that there are good possibilities of further development also in the developmental infrastructure.

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Appendix 1 The development of result measurement in the MbR negotiations 1990-1995 1990-1991

1991-1992

1992-1993

1993-1994

1994-1995

1) Impact on labour market Number of new job vacancies/ month

Discontinued as national, but used in some districts

Discontinued

Concept and new developments to measure market share tentatively introduced

Used as data

Percentage of job vacancies filled in 4 weeks

Same

Elaborated: Same + percentage of commissions completed in required time

Same

Same

Average duration of ended unemployment in weeks

Discontinued as national, but used in some districts

Discontinued

Percentage of handicapped employed in the private sector

Discontinued as national, but used in some districts

Discontinued

Number of new employment course trainees

Elaborated: Price/trainee day total resources, maximum % of others than unemployed - gender equity goals

Further elaborated: Same + - percentage of over 50 yrs - percentage of joint ventures - gender equity goals

Simplified: Allocated resource maximum for employment training, price/ day & share of others than unemployed

Changed and elaborated: Labour districts present a plan

Percentage of employed after employment course training

Used, but generally lowered

Lowered further

Discontinued

Number of customers in vocational counselling

Discontinued as national, but used in some districts

Used in some districts

Discontinued

Restructuring Labour Administration Percentage of over 24 year old customers in vocational counselling

Discontinued as national, but used in some districts

Used in some districts

Discontinued

Number of customers in information service

Discontinued as national, but used in some districts

Used in some districts

Discontinued

Further elaborated: - main objective defined as "cutting off unemployment periods" (volumes set) - long term unemployment - youth unemployment

267

2) Impact on employment Number of employed according to the "Law of Employment" (maximum)

Same

Changed: Slowing "slide" to long term unemployment, setting maximum percentage of LTU/unemployed

Percentage of private sector in employment

Discontinued as national, but used in some districts

Discontinued

Number of jobs achieved through placement steering

Discontinued as national, but used in some districts

Discontinued

Quality of work & work environment General statements

Percentage of wage security decisions (bankruptcies) in 2 months

Same + preparations to participate in "debtreorganization" crisis groups in districts

Same

Same

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Robert Amkil

3) Functionality of the labour - Budget and plan of action renewals started - Preparations for management report (calculating price/ employment service, etc.) - Top heavy ratios of service vs. management & support activities discouraged - Qualitative assessment discussions - Personnel training goals: Average training in days - Job satisfaction: rate of short term leaves (1-3 days)

administration

- "Management report" introduced - Tentative discussions on economy (price of employment service) - reports & evaluations of various aspects of personnel development (training, job satisfaction, etc.)

- Exact calculations of price/ employment service (-91 cost level as goal) - percentage of other than service (i.e. supportive functions) set, qualitative evaluation - productivity estimates - reports & evaluations of various aspects of personnel development

Economy level of price/ employment service set on

Economy level of 1993 to be maintained .M.i i r. l f p t sharp ,

services liable to charges reports & evaluations of

Plans for quality development presented by the districts

development presented by the districts

Appendix 2 A note on the projects by the author The personal experience of the author consists of ten years as a vocational psychologist in an employment office and three consecutive developmental projects concerning the labour administration. Additionally the author has worked as a private consultant. The first project by the author, from 1984 to 1987 concerned vocational counselling in employment offices. The second project, 1987 - 1990, was a developmental action research case study of a large employment office (over 120 employees) in a major industrial town in the centre of Finland. Many of the issues and results of this case study were further elaborated in the third project by the

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author, The Development of Regional and Customer-Oriented Employment Services (DERCOS) from 1991 to 1995. The main empirical findings of this paper derive from this project. The project was executed in three regions in Finland, two industrial and "well-developed" Southern labour districts and a more rural, Eastern labour district of in Finland. The core group of actors involved directly the management-groups of the three labour district offices, core-groups of three large and a number of smaller employment offices and three researchers from a small publicly owned research centre, the 'Social Development Company', which is responsible for the project. The projects have been financed by the Ministry of labour in Finland.

References Arnkil, R. (1995): Tyohallinnon kehittaminen alueellis-paikallisesta nakokulmasta (Restructuring Labour Administration. Experiences in three labour districts. To be published in: Labour Policy Studies. Ministry of Labour, Finland (extensive English summary also to be published 1995). Arnkil, R. (1994): Voimavarat ja verkostot irtisanomisesta ja tyottomyydesta selviamisessa. Tapaustutkimus tehtaasta irtisanottujen selviytymisesta ja viranomaispalveluista. Sosiaalikehitys Oy. Julkaisuja 4/94 (Resources and networks in overcoming unemployment. A follow-up case study of a factory closure and Hameenlinna employment office services. 1994. Social Development Ltd. Publications) Arnkil, R. (1993): The Development of Regional and Customer-Oriented Employment Services in three labour Districts in Finland. Finnish Work Research Bulletin 2b/1993 (in English) Arnkil, R. (1991): Massapalvelusta yhtioittamiseen - tapausesimerkkina Tampereen tyovoimatoimisto ( From Mass-production to Customized Services - a case study of a large employment office. Work Policy Research 13:91 Ministry of Labour, Finland) Bouckaert, G. (1993): Efficiency Measurement from a Managerial Perspective. International Review of Administrative Sciences, vol. 59, 11-27 Charnes, A., W. W. Cooper, E. Rhodes (1981): Evaluating Program and Managerial Efficiency. An Application of Data Development Analysis to Program Follow Through. Management Science, vol. 278, 237-243. Kiesel, P., R. Arnkil, K. Kekki, H. Kurki (1993): "Kahdeksanviikkoiset" tyovoima- ja sosiaalipalvelujen verkostoissa. Tutkimus Hameenlinnan tyovoimatoimiston ja perusturvaviraston yhteisasiakkuudesta. Sosiaalikehitys Oy. Julkaisuja 2/1993. (Case study of customers in the networks of

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Hameenlinna employment office and Social Welfare office. 1993 Social Development Ltd.) Naschold, F. (1995): The Modernization of Public Sector in Europe. A Comparative Perspective on the Scandinavian Experience. Helsinki: Ministry of Labour, Labour Policy Studies 93. Talonen, M., M. Tuomaala (1994): Tyovoimatoimistojen tuloksellisuus (Results in Employment Offices. A comparative study of the efficiency, effectiveness, workload and results in the employment offices in Finland, Work Policy Research. Ministry of Labour, Finland. Tuomaala, M. (1995): Erilaiset tyovoimatoimistot erilaisissa toimintaympáristoissá. (Employment offices in different contexts. Working paper. Háme labour district. Star, S. L. (1989): The Structure of Ill-structured Solutions: Boundary-Objects and Heterogeneous Distributed Problem-Solving. In Gasser, 1. Huhns, M.n. (eds.) Distributed Artificial Intelligence. Volume II. Pitman, London, pp. 3754. Virkkunen, J. (1994): Surpassing Functional Bureaucracy with Management by Results - Experiences in Finnish State Administration. Paper prepared for evaluation of Finnish management by results by professor Naschold.

Surpassing Functional Bureaucracy with Management by Results - Experiences in Finnish State Administration Jaakko Virkkunen

1 Management as a culturally formed activity system 1.1 The concept of activity system There are many different conceptions about what a management system is. The common notion, however, is that a management system is not only a set of methods or instruments used in management work but the whole structure of this work. To speak about different management systems is to speak about qualitatively different structures of management activity. We have, however, to make a distinction between theoretical systems of management and the historically developing system of practical management activity, a management practice. The later is a heterogenous and even internlly contradictoy set of institutional forms of management actions and managers' practices to co-operate with other managers and their subordinates. These forms and practices comprise many historical layers of social institutions, norms and instruments. Theoretical systems of management on the other hand are logically coherent, idealized structural models of the actual practices presented as principles of organizing and realizing the management activity. These idealized models of the essential properties of the actual management practices are produced in research, consulting and teaching to be used as conceptual tools when problems in the actual management practice are analyzed and new practices are developed. To analyze the differences in management practices I use the general model of an activity system which is based on the cultural historical theory of activity (Engestrom 1987, 78, see figure 2.). The main thesis of this theory is that individual actions are always realized in the context of a historically and culturally formed collective activity system. The relation of an actor to the object and intended outcome of the activity and to the other actors is mediated (and conditioned) through culturally formed artifacts. The objects of actions have in this context always a dual existence. On one hand the objects of individuals' actions are the objects and challenges encountered and immediately perceived by the individual. On the other hand there is the interpretation and meaning of the object in the activity context,

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Jaakko Virkkunen

which the individual has constructed using the cultural mediators of the activity. The relation of an individual's immediate impulse for action and the constructed cultural meaning of an action in the activity context is always problematic. The effects and meanings of individuals actions in the context of an activity system do not always coincide with the intentions of the individuals. According to A.N. Leont'ev, the central developer of the cultural historic activity theory, the human activity has a hierarchic structure in which three different logics of activity can be discerned. The collective, historically developed form of societal activity is determined by its object which at the same time is the motive of the activity and basis of motivations for individual actions. The object of an activity cannot be reduced to a task or goal. It is rather a "horizon of possible tasks and goals" connected to an objective phenomenon or process, which the actors try to form so that it corresponds to some human needs. The collective activity is realized through individuals' actions, which have a spesific, finite goal. The goals of individuals' actions are determinded by the object of collective activity as well as the structure of the activity system: the set of persons taking part to the activity, the division of labour between these persons, the rules of the community of practice, etc. The individuals' actions are realized by perfoming a set of operations. According the conditions and the tools in use, the same objectives can be realized with different operations. The manager for instance can have the objective of revi wing the work done thus far. He can reach this objective depending on the situation and intruments available to him by talking with his subordinates, by using a management information system, by reading a report etc. The hierarchical levels of activity and intentionality are depicted in figure 1. (Leont'ev 1978, 67). (COLLECTIVE) ACTIVITY

t »

INDIVIDUALS' ACTIONS

OPERATIONS

OBJECT/MOTIVE

( t

rriAT

CONDITIONS

Figure 1 : The hierarchical levels of activity The three systemic levels of activity have a qualitatively different logic. So a collective activity cannot be reduced to a fixed set of actions and goals (which is the fallaccious assumption of the so called rational planning model), because the

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motive and goals develope in the interaction of the subject and the object of the activity. An individual's actions cannot either be reduced to a fixed set of operations (which is the fallacious assumption of the scientific management theory), because the same operations can serve many goals and the same goals can be achieved with many sets of operations. The collective activity system consists of three interdependent processes: the productive work of the subject, the exchange of results, ideas and information between the members of the community, and the distribution of resources and tasks among the members of the community. These processes determine the overall consumption of the activity. The productive work is mediated by instruments used to get knowledge of the object of the activity, to understand it and to transform it. The rules of the community mediate the exchange and co-operation of members of the community. The principles of division of labour mediate the distribution of resources and tasks in the community. The activity system is partly historically given and partly subjective, socially constructed in the interaction of the actors. Because of the subjective aspect of activity, the activity system can only be analyzed from the point of view of one actor at a time. INSTRUMENT

LABOUR Figure 2: A general model of an activity system

The relation between the individual and the culturally formed activity system is dialectic. The individual has to internalize the cultural forms and adapt to them to a certain extent, but on the other hand he or she can also break the rules and change the practice. However, for one individual alone - even if in authority position - it is impossible to change the whole cooperative activity system.

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There are phases and situations when the collective activity system is especially susceptible to change. The historical development of an activity leads to inner contradictions in the activity system. These cause disruptions and difficulties in the normal course of the activity - ie. individuals' productive work, the exchange of results and information between individuals and the distribution of tasks and recources to the individuals - and pose contradictory demands and dilemmas to the individual actors. In these situations individuals depart increasingly from the historically developed normal "script" of the common activity. The difficulties can also turn the actors' attention to the structure of common activity and lead to common attempts to change their collective activity system. An activity system is always a knot in a network of activities, in which the activity produces objects, instruments, rules and so forth to other activities and receives objects, instruments, rules, subjects etc. from other activity systems (see figure 3).

OBJECT ACTIVITY

Figure 3: A network of activities

A natural unit of analysis is thus an activity system seen as a knot in a network of activities.

1.2 Cultural mediators of management Many writers regard decision making as the central object of management activity. The issues to be decided rise from the managed activity. Seen from the point of view of the managed activity management can often be seen as a rule producing activity. However, this is an abstract, ahistorical characterization of management activity. The object of management activity changes historically as the managed activity system or network of activity systems develop.

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Managers use many complementary tools in their activity. Max Wartofsky has made a distinction between primary and secondary artifacts (Wartofsky 1979). The latter are models and descriptions about how the former are made and used. Yrjô Engestrôm has presented a more detailed categorization of the functions of tools (Engestrôm 1990). He describes four levels of tools. 'What-tools' are the lowest category of management tools. Typical management's what-tools are information systems and performance indicators that tell the manager about the state of the managed activities and their objects and outcomes. 'How-tools' are different models of the management process and "scripts" for realizing recurring management tasks. 'Why-tools' are diagnostic mediators used to analyze and explain the behaviour of the object of activity. A mission statements or a definition of purpose are management's why-tools (although the instrumental value of these is often very scanty). Another important type of managements why-tool is management's idea of effectiveness. Charlotta Perez has proposed that there is in each historic epoch a certain prevailing set of beliefs of what effectiveness and efficacy are and how activities should be organized and managed. She calls these beliefs "the technological style" of the time (Perez 1984). I prefer to call this type of general conceptions of effectiveness as management's 'effectiveness idea'. The prevailing effectiveness idea affects often profoundly the way management sees the activity managed and the outcome of the management, even though the idea is not always very explicit. An effectiveness idea is used to make a 'diagnosis' of the problems and of the managed activity and 'a plan of treatment'. 'Where-tools' are used to orient to the future and to coordinate objectives. A vision of the future activity would be a typical where-tool.

1.3 Historical types of management activity There are two contradictory tendencies in the development of management activities. First, there has been a change from small, isolated organizations to more collective management systems. On the other hand there has been a tendency towards increasing flexibility. As a result of these two development tendencies we can discern four historical types or forms of management activity, four management systems (see figure 4.). The historically oldest form of management is the management of craft work in which a foreman directly supervises his subordinates in a small workshop. The manager knows personally the managed work. In early industry, building and farming the owners made a contrac with a craft supervisor to do a work (a product) and to supervise those helping him (Bendix 1956). The functional type of bureaucracy was first described as a theoretical management system in the beginning of the century by Frederick Taylor and the so-called classical school of management (Koonz/O'Donnell 1964; Urwick/Gulic 1937).

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Functional bureaucracy represents the "technological style" of mass production. Its rationale is based on economies of scale, which can be realized by centralizing, standardizing and developing hierarchic coordination. The flexibility of activity has gradually become a central problem of management. The main solution to the demands of flexibility has been the decentralization of authority and downsizing the organization. The tight bureaucratic couplings of different functions and activities are replaced with loose coupling based on market mechanisms. The idea of effectiveness is based on economies of scope, competition and a direct contact to markets and clients. The typical solution has been an organisation in which the central administration acts as a contractor toward semiindependent, multifunction result units. In recent times the discussion of management has increasingly turned to questions of strategic alliances and other forms of cooperation between firms and also directly between teams working in different firms. Researchers have found that besides market mechanism and bureaucratic coordination new structures of coordination are developing. These forms of coordination are neither based on pure market mechanism nor pure bureaucratic relations. The coordination is based on tight cooperation and communication that is possible since the concerned parties have confidence in each other. The cooperative relations form complicated networks. This kind of network management is essential in developing innovations, but it can also be used to make production more flexible. Famous examples of the new evolving type of network management are the way Toyota co-operates with its suppliers and the way the textile firms co-operate in Northern Italy (See Piore/ Sabel 1984; Womack et al. 1990). There has been a change of focus in the discussion of flexible management systems. Flexibility was first seen mainly in terms of changes in the content and volume of production. In rezent times flexibility is increasingly connected to the development of new technologies and to organizational learning (Gage/Mandel 1990; Heydebrand 1989; Hirschhorn 1986; Reich 1991; Biemans 1992; Peters 1992; Alter/Hage 1993; Lipnack/Stamps 1993) (also see fig. 4).

1.4 The expansive transition to a new management activity system Because of the development of the activity system and changes in the neighbouring activities the parts of an activity system are constantly changing. These changes create tensions, incompatibilities and contradictions between the parts of the activity system. The changes create tensions, incompatibilities and contradictions between the parts of the activity system. These inner contradictioof the prevailing practice create needs to develop new cultural mediators for the activity and to rearrange it. An expansive transition to a more developed activity system has

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INCREASING COLLECTIVITY t

2 FUNCTIONALBU REAUCRACY Administrative control ("Industralized work", economies of scale)

4 NETWORK MANAGEMENT Control by mutualcooperation ("Informated work", economies of innovation and learning)

^ INCREASING ' FLEXIBILITY

* 1 DIRECT SUPERVISION Personal control

y

S/3 PROFIT CENTERS Market control ("Deindustralized work", economies of scope)

\

(Craft work)

Í LEGEND: ,.-..-,, v the zone of proximal T disturbance or mpture 1 1 / > » " - development of A of management activity \ | r management a c t i v i t y »

innovation of management activity

Figure 4: Historical types of management activity

taken place when the object and motive of the activity and all the other parts of the system have been changed in such a way that the contradictions of the former form of activity are surpassed. The expansive transition is a dynamic, contradictory process. In different phases of the change different types of contradictions and problems arise and create dynamic forces of change. There are typically five different phases in this process (Engestrom 1987, 188 - 190). Phase 1: Need state In all activities there is a constant tension between the benefits and the costs of the activity. This tension leads to a constant search for inprovement. The changes of the parts of the activity system change the content of this constant tension and eventually lead to an incompatibility between some parts of the system. The first indication of a developing inner contradiction in the activity system is an increasing amount of value conflicts and dilemmas in the daily activity. These create a need state in which there is increasing dissatisfaction with the current practice and activity system but not necessarily a clear picture of what is wrong with it. Phase 2: The crisis of the old form, double bind If the contradictions between the elements of the activity system are further aggravated the change process enters a new phase. In this phase the content of the

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activity is more and more incompatible with the content of the activity. The subject experiences these contradictions as incompatible, paradoxical demands or even as a double bind situation where only unacceptable choices are left to him or her.

Phase 3: Reframing the object of activity, search for new mediators The double bind situation starts a new search process. The members of the community begin to search for a new object of activity or a new interpretation of the object. They also search for and construct new mediators for the activity. In this phase, the reframing of the activity is often made possible by a 'given new', an analogy, example or model taken from another context. To surpass the old conceptions and to win the inertia of old forms of thinking a mediating structure, a "springboard" is often necessary. Springboard is a mediator taken from another context to be used as an instrument of reframing the object of the activity.

Phase 4: Changing practice The change of practice begins when some new mediators of the work are used, new tools are taken in use and new rules or principles of division of labour are applied. In this phase in the activity there are two competing sets of mediators which crash. The dynamic forces of change arise more and more from the need to surpass these conflicts of old and new forms of acting. Many small innovations are created to overcome these contradictions.

Phase 5: Consolidation and generalization of the new principle As a result of the creative work in the fourth phase the new structure gradually takes over and becomes the prevailing practice which is eventually consolidated with formal statements and rules. The new principle is applied to new areas of activity. In this phase a new type of contradictions arise. The changed form of the central activity is not compatible with the requirements of the surrounding activities. The contradictions between the central activity and the surrounding activities become central in the agenda and begin to form the content and dynamic of the change process. The cycle of expansive development is depicted in Figure 5.

Surpassing Functional Bureaucracy with Management by Results 5. CONSOLIDATION AND GENERALIZATION OF THE NEW PRINCIPLE

279

SURROUNDING ACTIVITIES

A NEW CYCLE

THE CENTRAL ACTIVITY

1. NEED STATE BENEFITS

CHANGE -IMPULSE

jr 2. CRISIS OF THE OLD FOI OF ACTIVITY

NEW IDEAS, AND

CONTENT

4. CHANGING THE PRACTICE, CREATING THE REAL NEW

3. REFRAMING THE OBJECT OF ACTIVI SEARCH FOR NEW MEDIATORS IMPLEMENTATION OF THE NEW STRUCTURE (USE OF NEW INSTRUMENTS. APPLICATION OF NEW RULES, OR DIVISION OF LABOUR)

"SPRINGBOARD", THE GIVEN NEW

Figure 5: The cycle of expansive development of an activity

2 Management by results as a solution to the problems of the functional bureaucracy 2.1 The functional bureaucracy Management by results is an attempt to surpass the problems which functional bureaucracy typically creates when the object of managemen work becomes complex and changes quicly so that flexibility is needed. To understand management by results one has to understand the principle of functional bureaucracy. It is is depicted in Figure 6.

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Figure 6: The principle of functional bureaucracy

A number of functional units in central administration manage the activities of operative units which often are regional. The regional units have a regional manager and a set of functional specialists under him. Each functional unit is responsible for one aspect of the whole activity, such as economy, production, personnel etc. Even if the formal authority is mainly in the hands of the general manager and the regional managers, the actual subjects of management are the functional managers. They often give orders directly to their functional colleagues in the regional units. At the time of its creation the functional structure was a solution to the problems of hierarchical line management with all-round managers. Specialists of different functions were hired to help the line management. The management of a function has typically been realized by establishing standard procedures and report systems for the function. The crisis of functional bureaucracy has been thoroughly described in literature (Burns/Stalker 1968; Chandler 1962; Drucker 1979). The main difficulties can be summarized as follows: The problem of motivation and commitment In the basic level there is a problem of motivation and commitment. Because of the centralized decision-making and detailed direction the persons in the grass root

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level do not feel responsible for the results. Their responsibility is to follow the given orders which for that matter can be difficult because the functional units give contradictory orders and orders that are badly suited to the situation in the field unit. In the central administration the same problem is met as a strong commitment to the goals of the function and the respective profession instead of the goals and interests of the whole organization. The problem of cooperation and redistribution The functional units in the central administration tend to see things very differently. There is often a constant contradiction and struggle between functions in the central administration, and it is very difficult to get the whole organization to commit itself to common goals. Characteristic to the management's work is a constant negotiation of resources and authority between managers of different functions. The general manager has little possibility to get an independent picture of the overall performance of the organization, because reporting is organized according to the functions. The problem of cooperation is especially difficult when there is a need to develop new products and new forms of activity, because these cannot be neatly divided according to the prevailing lines of authority. The lack of strategic management The management work concentrates on operative matters at all levels. The general manager and his subordinates have little time for strategic questions. It is also veiy difficult for the heads of functional units to think of other changes than refinements of the present system. If the heads of major functional units do not agree it is also difficult for the general manager to change the activity or to make major reallocations of recources.

2.2 Attempts to surpass functional bureaucracy There are four main attempts to overcome these problems: the development of rational planning systems, the management by objectives system, program budgeting and the decentralized result unit organization. The rational planning approach The rational planning approach is based on the idea of a rational means to an end - hierarchy which is constructed top down from highly abstract general ends

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to more specific objectives. The idea is to build common objectives and plans that unite and coordinate the activities of the functional units. This approach might solve some of the coordination problems, but it has not effectively solved the problem of redistribution, strategic management and the problem of motivation and commitment. On the contrary, formal planning has often become just another function in the functional bureaucracy instead of integrating the existing functions.

The management by objectives system Management by objectives and self control is a management system developed by Peter Drucker especially to solve the motivation and commitment problem. The basic idea is to realize rational planning in a less elaborate and technical way. The senior manager tries to get his or her subordinate managers to commit to certain objectives in a yearly 'development discussion' and negotiation of objectives. A subordinate gets a bonus when the objectives that have been agreed upon are met. The management by objectives system can help in the motivation problem, but it does not increase flexibility. The system can be applied without changing the functional division of the management's labour. Some systems of management by objectives, notably those of Odiorne and Humble, can be seen as refinements of functional bureaucracy, rather than as a radical departure from its principles (Odiorne 1965; Humble 1965; Humble 1970).

The planning, programming, budgeting system (PPBS) The third attempt to overcome the problems of functional bureaucracy has been the planning, programming, budgeting system (Novic 1969; Novic 1973; Wildavsky 1975). The central idea of this system is to bring competition and market mechanism in the administration. The central administration announces central objectives and asks the organization units to make offers (plans) of how the objectives can be realized. The objectives are so broad that various units have to cooperate. The top management accepts and finances the best offers and they are turned into activity programs and budgets. The relationship between objectives and organization has been problematic in the PPBS. If broad objectives are set which cover the activity areas of several units it is difficult to define a clear responsibility for the results and arrange the practical management of the realization objectives. If the objectives are accomodated to the prevailing organizational structure, no competition and real reallocation of resources takes place. It has also been difficult to establish a logical connection between the broad objectives and the historical forms of activity which normally contribute to many different objectives (see Wildavsky op. cit.).

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The result unit organization The fourth attempt to overcome functional bureaucracy, which also has been the most successful, is based on a new analysis of markets and customers. The customers and markets are segmented according to the customer needs and customer behaviour. The whole organization is divided into semiautonomous result units which operate on different markets (See Chandler's and Drucker's aforementioned books). The units are big enough to support all the main functions needed. Authority is delegated to the result units so that they can quickly react to changes in customer needs and business opportunities in their respective market segments. The units are regulated by establishing resource frames and a set of result objectives, against which the results of the unit are evaluated. The central administration is downsized and reorganized. The management is concentrated to the line manager and a planning and review staff is established for him. The general management negotiates yearly with the result units an agreement on the objectives and the resource frame of the unit. It is up to the units to make more detailed plans, if that is what they want. Some of the specialists who have been working in the functional departments of the central administration are appointed to the planning and review staff. Some of them begin to work in strategic development projects. Furthermore new self-supporting service units are established for various support and development functions. These units sell their services to the result units (see fig. 7). Many of the attempts to overcome functional bureaucracy have been based on the same idea of rational planning that looks the management activity upon as a rather voluntaristic one-way process from ends to means, from abstract objectives to concrete activities. This approach overvalues the abstract, subjective intentions of management and devalues the object of managed activity, technology and the prevailing forms of activity. The result unit approach is an exception to this general line, because it stresses the market segment and the clientele, and so also the object of the managed activity instead of the abstract objectives. Management by results in Finnish state administration The management by results system presented in several Finnish management text books (Santalainen/Voutilainen/Porenne 1987; Virkkunen/Voutilainen/Laosmaa/ Salmimies 1986; Wallin 1989) is actually not so much a unified theoretical system or principle of management but rather a collection of ideas and mediators of management work from rational planning theory, management by objectives, program budgeting and the idea of result unit organization presented in a prescriptive manner. These different ideas have been presented to the managers of Finnish state administration in different times and applied in different reforms. The rational planning approach was introduced into the Finnish state administration in the late sixties and the early seventies when a new planning system for

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1 = The basis of resouce allocation, review of results 2 = Negotiation of result objectives and resouce frames 3 = Support services sold to the result units

Figure 7: The principle of result unit organization

activity and economy was developed. The PPBS system was actually never applied as such in the Finnish budgetary system, but the theory influenced the structure of the five year planning system. The idea was also applied in some agencies and in some branches of activity, for instance in the science and technology policy. The management by objectives approach was applied in the Finnish state administration in the late seventies when accounting systems were developed for the agencies. It was also one of the central contents in management training at that time. The new principle of budgeting adopted in the budget reform in 1990 was called result budgeting. The idea was to change the steering system so that the agencies would be steered with result objectives instead of minute rules about the use of different kinds of resources. The amount of subdivisions by the kind of recourses in the budget were diminished. The agencies got one subdivision for the expenses of the activity. On the other hand an agency had to specify the results it intends to realize with the money. In some state agencies the result budgeting system has been combined to the adoption of a result unit organization, in others it has been applied without changing the division of management labour.

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3 Transition to management by results in the Finnish Road Administration (FinnRA)1 3.1 The need to develop the management practice FinnRA developed a functional structure in the late sixties and early seventies in an ambitious development project called KEHTO. The aims of the project were also partly contradictory. On the one hand functional units were grouped to management sectors according to the successive phases of road building and maintenance. The aim was to take advantage of the economies of scale and standardization of structures and procedures. The regional and local units were regarded as executive operative organisations. On the other hand it was also planned to establish a flexible, decentralized organization and to develop a planning and budgeting system based on objectives. The end report of the KEHTO project was finished 31 December, 1972. The new planning and budgeting system was, however, officially taken in use already during the project. The Ministry of Finance and the Ministry of Transport and Communications did, however, not approve the proposed new flexible organization structures and that part of the plan was not realized. During the seventies especially the regional managers wanted to extend the principle of management by objectives also to the questions of substance of the activity. The management by objectives system was extended and consolidated in the early eighties. At that time objectives were set both for different functions and for different levels of hierarchy and for projects yearly. The attainment of the objectives was also reviewed yearly. By that time the accounting system and standards for estimating costs had also been developed. In the middle of the eighties the management by objectives system had begun to arouse criticism, although the criticism was not readily welcomed. Objectives were set and followed minutely, but the budget was not tied clearly to the objectives. So, in the negotiations with the Ministry of Transport and Communications the Ministry could confirm the objectives and at the same time diminish the resources drastically. The actual activity was not really directed by the plans and objectives, because the actors were not committed to the plans and had practices of their own. There was a feeling of heavy paper work. The most severe critic came, however, from the of the district managers who felt that they got contradictory directions and did not have authority enough to manage their regional organization properly. The Ministry of Transport and Communications set in 1985 a committee to propose a new organization for the central administration. (A similar committee was 1

The description is based on interviews of personnel adviser Erkki Westerlund from FinnRA and the former head of administrative department of FinnRA Heikki Joustie. The interviews took place in April 1994.

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also set to plan an organization model for the districts.) The committee saw three main problems in the then existing organization: 1) In the central administration there were many small functional units which did not cooperate adequately. 2) Decisions were de facto made in a management team, but formally the highest decision-making body was a council of the heads of departments. 3) The division of labour was not functioning well.

3.2 The crisis of the old management activity and the double bind The organization committee set forth several optional structures, all of which would have diminished the number of functional units drastically. It was, however, both in the agency and in the Ministry of Transport and Communications very difficult to choose any of the proposed alternatives. The problem was, that the new organization had been planned very much in the spirit of the prevailing administrative culture, more or less like a technical exercise. On the other hand, there was a growing awareness that the conditions of road management were going to change. The traffic grew rapidly in the southern part of the country. A new policy had been adopted to allocate road investments according to the amount of traffic instead of the former regional criterion. A hypothetical reconstruction of the inner contradictions of the general manager's activity system are depicted in figure 8. The object of general manager's activity was to give the road districts objectives and resource frames. In doing so the general manager was hindered by 1) lack of appropriate means to describe the overall performance of the districts, 2) the division of management labour which was based on operative functions, and 3) the rules of decision making which prescribed that the decisions should be made in the college. The hindrances were aggreviated because of the growing need for strategic management.

3.3 Reframing the object of management's work: springboards and the given new The process of changing organization was stuck in an unproductive discussion about options, which did not seem to lead anywhere. In that phase the management started a collective work of building a vision of the future of the agency and

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TOOLS - FUNCTIONAL PLANS AND STANDARDS - CONTRACT MANAGEMENT PROCESS

SUB J E

OBJECT > OUTCOME

CÏGENE RAL MANAG,

RULES - COLLEGIAL DECISIONMAKING - CENTRALIZED DIRECTION - BUDGET DIVIDED INTO FUNCTIONAL SUBSECTIONS

- COORDINATION OF THE FUNCTIONS, STRA TEGIC MANAGEMENT, SETTING RESULT OBJECTIVES TO 'HE DISTRICT. 1

COMMUNITY - COLLEGE OF HEADS OF FUNCTIONAL DEPARTMENTS -NEWHEAD OF ADMINISTRATIVE DEPARTMENT OF ADMINISTRATION

DIVISION OF LABOUR -

FUNCTIONS

ROAD DISTRICTS

Figure 8: A hypothetical reconstruction of the inner contradictions in the general manager's activity system

its organization. This process of vision building led to a radical reframing of the problem. Instead of discussing the number and competence of departments, the managers began to plan a small, efficient central administration of a decentralized result unit organization. The functional way of seeing the organisation was surpassed. Besides the creation of the vision a comparison to a private, decentralized building firm functioned as a "springboard". The amount of persons in central administration in this firm compared to the agency was very small. A general idea and model for the new decentralized organization came partly from the administrative development work that was done at the time. The newly appointed head of administration had been and was at the same time actively engaged in that work. Some of the ideas were elaborated in a state committee which was planning a reform of management organizations of agencies (Virastojen johtaminen 1989). The basic idea was that effectiveness is increased by empowering the basic operative level and by diminishing the central functional control. Part of the new vision was also a strong turn from a production oriented attitude to customer service and the general public. The agency also began to follow-up its public image.

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The actual change of management practice began in spring 1988 when the new organization was decided upon. On one hand authority was decentralized to the district managers. On the other hand the management authority was concentrated in the central administration from the functional managers to the general manager. The districts were changed from executive organs to regional result units. The general manager had had negotiations of objectives and resources with the heads of districts for several years, but these negotiations now become the central management instrument. The objectives and the resources were discussed at the same time. The head of the administrative department insisted that also the regional and local manager have a dialogue about objectives with their subordinates. During 1988/89 authority was systematically decentralized. The wage system was changed so that a collective bonus was given when the objectives were met. For the result negotiations a new set of concepts for describing the activity and a new definition of areas of objectives were created. These were: 1) 2) 3) 4) 5)

road safety, environment, condition of road network, amount of tied-up capital, economizing of production and overhead.

These objectives made it possible for the managers at different levels to discuss the activity and results in terms that were not tied to the traditional functional divisions. The way of evaluating the results was changed so that more emphasis was put to the importance of the objective than to its measurability. Also qualitative assessments of the activity were used. The new result areas focus on the object of road administration eg. the functionality, quality and the costs of the road network instead of the separate prestations (actions) of the different functions. It can be seen as a shift of focus from actions to the level of activity. The adoption of the new management style in the districts was supported with a massive management training. The budget structure was radically altered. The agency has now only two subsections, one for the maintenance of roads, the other for building new roads. The management process was changed so that the districts gave their strategic plans to the staff of the general manager before the negotiations. So it was possible to concentrate on important issues in the actual negotiations. The whole process was based more on a dialogue than a formal approval of plans. The districts could decide what kind of plans they needed. They did not have to submit detailed plans to the central administration any more. The districts could also use the money they had been able to save in their activity.

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3.4 The contradiction between the new and the old The formal decentralization of authority did not directly lead to the adoption of new roles. The regional managers were hesitant to take the authority and asked the former functional managers for advice; these on the other hand did not mind being asked. According to the head of administration at that time the conflict between new and old management practice concentrated very much on the amount of structure needed and the abolition of old structures and norms. This was also partly realized by not using the old organization terminology. The district managers adopted the new result responsibility by nineties.

3.5 Contradictions with surrounding activities and the consolidation and expansion of the new system The activity of the line management is on one hand connected to the management of the Ministry of Transport and Communications, to the political decision making in government and parliament and on the other hand to specialist- and support activities within the road agency. The change of management activity in the agency led in the beginning of nineties to conflicts with the 'rule-producing activity' of the Ministry of Transport and Communications. It was hard for the Ministry to learn to treat the substantive objectives and the recourses as interdependent aspects of the same activity. In the new system it was not possible to cut recourses without lowering the aspiration level of the objectives too. The decisions about individual road investments have always been politically interesting. The road investments have for a long time been a central issue as well in employment policy as in regional policy. The new principles of result management and the decentralisation of decision making were in conflict with the idea of deciding on road investments on a high political level. This conflict was solved by keeping the development of road network as a separate decision process and a separate subsection in the budget. The resources for the districts were from then on determined in the yearly management by results process strictly from the point of view of road maintenance. The change of line management was also in contradiction with the way the specialists and support functions were organized. The central administration was too big and the idea of result units presupposed that these activities would be directed by markets and financed by those who use the services. It was also evident, that some of the specialties were too narrow in the new situation in which the districts were allowed to organize their work in different ways. This contradiction was dealt with in 1993 by creating a set of service result units which began to sell their services either to the districts or the general manager (the staff). This was realized by dividing the work of the specialists by a provider-producer prin-

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ciple. The idea was that the providers will find out about the public interest for road maintenance and building. The idea of market regulation was extended to other areas of management. The most important application of the market regulation thinking has been the new way of describing the work of road districts in terms of products produced. This approach has also prepared the way for a new quality assessment. There is a long tradition of provider-producer type of co-operation in road building, where the agency makes work contracts with the building firms, but the same idea was now also applied to the internal services and to road maintenance. The cycle of expansive development from a functional management system to a decentralized result unit system in FinnRA is summarized in figure 9. The created new management activity system is depicted from the point of view of the general manager in figure 10. The model shows that all parts of the managements activity system have been changed. The main changes of the cultural mediators of management work are summarized in table 1.

3.6 Evaluation Three changes of the cultural mediators seem to have been important in the expansive development cycle of the management of FinnRA. One essential change is the redefinition of the role of the central administration as "concern headquarters" and the distinction between strategic and operative management. This change could not be realized without a new set of concepts to describe FinnRA's objectives and the new process of vision building. The other great change has been the change from purely bureaucratic forms of control to the the use of market regulation, which has led to the increasing use of product concept and to a redefinition of the role of the specialist and support functions as well as the increasing use of provider-producer division of labour. A third decisive change has been the change in the budget structure and the elimination of binding functional subdivisions of the budget. The development of FinnRA's management activity is in the phase of expanding and consolidating the new market regulation methods of management. At present it is difficult to see what the content of the next cycle of expansive development will be. Two problems, however, seem to become increasingly important. The road maintenance has now been organized so that the district organizations are treated as self sufficient result units. The amount of districts was diminished in 1993, but the effectiveness of the maintenance work in future will be more and more determined by the amount of cooperation and specialization of the district organization. The development of new methods, tools and products is too expensive to be realized in each district separately. So a new system of cooperation and division of labour between the districts is probably needed.

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5. CONSOLIDATION AND GENERALIZATION OF THE NEW PRINCIPLE

291

SURROUNDING ACTIVITIES - POLITICAL DECISION-MAKING - BUDGETING IN THE MINISTRY OF TRANSPORT AND COMMUNICATIONS, • SUPPORT AND SPECIALIST FUNCTIONS

- EXPANSION OF THE PRINCIPLE OF MARKET REGULATION BY APPLYING THE SUBSCRIBER/PROVIDER DIVISION OF LABOUR 1992 AND FIXING PRICES OF INTERNAL SERVICES

A NEW CYCLE

THE CENTRAL ACTIVITY MANAGEMENT BY RESULTS

OFFimRA

1. NEED STATE COORDINATION

SPECIALIZATION

/

CHANGE IMPULSE

2. CRISIS OF THE OLD FORM OF ACTIVITY

NEW • STRATEGIC VS. OPERATIVE MANAGEMENT 1 - DECENTRALIZED1 DECISIONMAKING - RESULT OBJECTIVES AND RESOURCE FRAMES

4. CHANGING THE PRACTICE, CREATING THE REAL NEW - MANAGEMENT TRAINING - DECENTRALIZATION

FUNCTIONAL DIVISION OF MANAGEMENT WORK DETAILDED, CENTRALLY APPROVED PLANS PLANS AND BUDGET AS SEPARA TE PROCESSES

FORM FUNCTIONAL DIRECTION CENTRALISED DECISION J MAKING /

I CONTENT H FROM BUILDING TO MAINTENANCE ' DIMINISHING VOLUME RESULT RESPONSIBILITY FOR THE DISTRICTS CLIENT ORIENTATION

3. RFFRAM1NG THE OBJECT OF ACTIVITY, SEARCH FOR NEW MEDIATORS IMPLEMENTATION OF THE NEW STRUCTURE 19HS DECISIONS TO DECENTRALIZE

"SPRINGBOARD", • VISION BUILDING THE GIVEN NEW - DECENTRALIZED PROFIT CENTER ORGANIZATION IDEA OF NET BUDGETING

Figure 9: The cycle of expansive development from a functional management system to a decentralized result unit system in FinnRA

The coordination of the overall transport policy and the development of transport network is a task of the Ministry of Transport and Communications. This task presupposes close cooperation between the Ministry and FinnRA. To be an active partner in this cooperation FinnRA probably has to continue developing its strategic management. One aspect of the strategic work is to develop further the provider functions as a multivoiced negotiation and problem-solving process which integrates different societal interests concerning the road network. It is probable that coordination of different transport forms as well as the provider function will also be needed on the regional level. The discussion on road

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Jaakko Virkkunen

TOOLS -

SUBJECT MANAGEMENT/ TEAM

VISION OF FUTURE FinnRA OBJECTIVES OF FinnRA OBJECTIVES REVIEW PROCESS PRODUCTION AGREEMENT PROCEDURE

concern ' management work^ consumption

exchange ' f of information • and opinions

RULES

RESULT AGREEMENT WITH THE MINISTRY

OBJECT > OUTCOME -GENERAL STRATEGY OF FinnRA .PRODUCTION AGREEMENTS

' distribution of (management tasks

COMMUNITY - OBJECTIVE REVIEWERS • CENTRAL PROVIDERS - DISTRICT MANAGERS

DIVISION O f LABOUR - CONCERN FUNCTIONS - PROVIDERS/ PRODUCERS

ROAD DISTRICTS CENTRAL PRODUCTION UNITS

Figure 10: The general manager's new activity system

safety which cannot be attained solely by the work of road districts can perhaps be regarded as an outset for a close cooperation between different agencies on the district level. A task force set by the Ministry of Transport and Communications in November, 1993 suggests that the FinnRA should develop further the provider producer division of labour so that later on private producers and FinnRA's producer organizations can perhaps compete with private firms concerning work assignments.

Surpassing Functional Bureaucracy with Management by Results Table 1 :

293

Old and New Regime of FinRA Management

Mediators of management activity

Old

New

Object of central mangement's work

Coordination of operative functions

Strategic management, set objectives and resource frames for the districts and controlling results

Tools of central management's work "Where-tools"

Development perspectives of different operative functions

Vision of the future structure and way of operating of FinnRA

"Why-tools"

Efficiency idea based on economics of scale

Efficiency idea based on customer orientation and market regulation

"How-tools"

Elaborated planning and objective setting system

Production agreement procedure, bonus pay

"What-tools"

Measures of objectives according to functions and levels of management

Objectives of FinnRA: safety, maintenance level, environment, etc. products, product prices

Division of labor of management

Functions of road building and maintenance, hierarchy

Operative/strategic management, Concern management functions

Rules of management

Collégial decisionmaking Budget divided into subsections by the functions

Result agreements

J. Virkkunen 1994: 19

4 Management by results in the Ministry of Transport and Communications2 4.1 The Ministry of Transport and Communications "The purview of the Ministry of Transport and Communications currently includes all forms of passenger and freight transport, individual communications and the mass media. 2

The description is based on interviews of senior consultant Matti Leskinen from the Administrative Development Agency and assistant heads of departments Marja Heikkinen and Reino Lampinen from the Ministry of Transport and Communications. The interviews were made in May and June 1994.

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The Ministry guides and coordinates road, railway and air transport, and also inland waterways and maritime transport. Meteorological research, weather service and maritime research are also included in the Ministry's duties. In communications, the Ministry administrates telecommunication services, postal services, the Finnish Broadcasting Company, local radio stations, cable and satellite TV, and the press. The Ministry of Transport and Communications administrates five Government agencies, four state -owned companies and the Central Organization for Traffic Safety. The Ministry employs 140 people. It has three departments: the Communications Administration department, the Transport Economy department and the Road Tansport department. The Ministry also has an Administrative Division and an Information Unit"3.

The Ministry of Transport and Communications is a small ministry. The work in the Ministry is done by officials many of whom prepare and refer matters to the Minister or to the Council of State for decision.The majority of the civil servants preparing the decisions are lawyers. Because of a long career in a substance area many of them regarded themselves, however, more as specialists in an area of traffic or communications policy rather than specialists in judical forms. In referring the matters to the Minister or to the Council of State for decision traces of the old seniority system can still be seen. All of those who prepare the matters do not have the right to refer a decision to the Council of State. It can happen that the matter is referred for decision by a senior official who has not himself prepared the matter. In spite of the management hierarchy the officials work independently and discuss the matters directly with the Minister. The Secretary General often gives work assignments directly to a specialist.

4.2 The need state: a latent crisis of the old management system The discussions about management by results began in the Ministry of Transport and Communications in 1990. At that time the management of the Ministry was traditional - and typical of a Ministry. Even though the posts of head of department or head of division were management posts they were also posts of high ranking specialists and administrative decision-makers. The planning of activities of civil servants' work or its supervision was not a central part of the work of the heads of departments and divisions. In 1990 there was actually not much discussion of a need to develop management. Those in management positions did not see any major problems of man-

3

The text is from the introductory brochure of the Ministry of Transport and Communications.

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agement. There was a conflict of priorities between the legislative work and the administration of the Government agencies, but this was not regarded as a problem which would call for a management reform. However, there were some signs of needs to develop the management practices. In internal personnel surveys the personnel gave consistently quite negative evaluations about the leadership they got and the way work was supervised in the Ministry. The officials worked independently but also individually. Judging by the personnel survey results the officials would have needed more collective preparation and discussion about the lines and strategy of the Ministry. In the tradition and culture of the Ministry in which the questions of management were devalued it was not easy to start discussion about the management practices. The officials had no arena to speak out and, senior managers were not particularly interested in management and leadership problems. There was also a set of deficiencies in the management practice. The management work was to a great extent reactive. Management was dealing with different topical issues. The individual officers and managers had their own, often contradictory views of the objectives of the activity. There was little common strategic discussion. The management was compartmentalised, and there was no clear result responsibility. An important motive for developing the management system was the change of the object of management work. The Ministry had adopted a new strategic line which stressed market regulation and competition in its area of responsibility. This strategy called for a delineation of the relationship of bureaucratic regulation and market regulation and definition of the role of the Ministry as the owner of the state-owned public companies which meet with hard competition. It seems that there were three inner contradictions in the management activity before the management by results project was started. The decisive factor were the overall change of policy which presupposes the development of market regulation and strategic management. The management did not have general strategic tools for steering the development. Management was based on an issue management system in which each decision was made separately on the basis of presentation. The division of managers' work according to the form of traffic was in contradiction to the new object of management's work as was the lack of result responsibility of the managers of the Ministry.

4.3 Planning the new mediators for management, springboards To realize the government decision of turning to a management by results system the Ministry set in 1990 a project to prepare the process of management by results. The project also had to prepare the next-four year plan. The project was led by a newly appointed assistant head of the Transport Economy Department. The Secretary General was leading the management group of the project. Repre-

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Jaakko Virkkunen

sentatives of agencies and interest groups were invited to the management group. Three outside consultants were hired for the work. The leader of the project was careful not to introduce the new management system in economic jargon. Instead, she wanted to open a discussion about the future of transport and communications and the objectives of the Ministry. This was done by applying a special scenario method called "future matrix". The contentoriented approach and the building of future scenarios turned out to be a good starting point. They acted as springboards which helped the managers to surpass the inertia of thinking and to reframe the object of their work. It can be speculated that the good start was partly brought with the price of lacking problem awareness. The abstract discussion of future development and goals is quite far from the more personal and interpersonal problems of the managers' daily work and it's actual object. During the project a set of new mediators for management work were planned and taken in use. Many of them were new concepts which led to a partial reframing of the object of management's work. In preparing the next plan a new instrument called result matrix was used. A few central objects of influencing were sought out and described as target variables. The relative weights of the variables were determined, and indicators for the values of the variables were also worked out. So, the result matrix gives an survey of the objectives in a concise form. After establishing the result matrix the connections between the different result variables were discussed and a set of broader result areas were defined. The object of the Ministry's work had traditionally been divided according to the forms of traffic. This conceptualization was a obstacle for strategic thinking because it did not differ from the perspectives of the agencies under the jurisdiction of the Ministry. Futhermore, it did not allow the Ministry to analyze the relations between different forms of transport and to coordinate them. The new result areas were defined so that the various forms of traffic were seen as parts of a larger system that was the proper object of the Ministry's work. The new result areas were set to transport and communications. The result areas of traffic were - "the transport and communications infrastructure", - "transport services" - "traffic safety and protection of environment", The result areas of communications were - "telecommunications" - "the media" - "information network services".

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A new hierarchy of targets was worked out, and the planning and reporting system changed accordingly to make the planning, deciding, acting and evaluating cycle clearer (figure 11).

Legend: I

I = The Minister approves

Figure 11 : The target hierarchy of the Ministry of Transport and Communications

Another important newly developed conceptual tool was the distinction of the different objects of management work in the Ministry. A distinction was made

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Jaakko Virkkunen

between the management of the sector policy, the management of the agencies and firms "owned" by the Ministry, and the management of the Ministry as an organization. The planned new management tools for the different management tasks are depicted in figure 12 (the diagrams in figures 11 and 12 are quoted from the report of the project).

SECTOR: COORDINATION Scenario Vision Principles Strategic result matrix Strategies Strategic programs Cooperative networks

/ N

ADMINISTRATION: STEERING Vision Principles Strategies Seering models Coordination processes

MINISTRY: MANAGEMENT Vision Principles Strategies Structures

Figure 12: Three levels of management in the Ministry of Transport and Communications

An analysis of the arenas for cooperation needed for these different management tasks was also made. It was planned that different officials would be responsible for the contacts in different areas of cooperation.

4.4 Changing the management practice - contradictions of the new and the old The management practice was changed while the activity and economy plan was for the first time made according to the new principles in the spring 1992. The new hierarchy of targets and the new structure of the planning and reviewing system were applied in this plan.

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The organization of the Ministry was changed so that the former offices were changed to (result) units and the competence areas of these units were adapted to the new result area categories. The new principle of organization was, however, not realized consequently. Because of the two contradictory principles the division of management labour became in some matters in fact less clear. Also the change of the division of labour between different management levels was realized somewhat paradoxically. It was felt that the organization of the Ministry should be flattened to make it more flexible. The newly appointed heads of divisions were seen as central agents in the management by objectives process. On the other hand, the reform in fact increased bureaucratic control and levels of management. Before the reform, heads of divisions discussed matters directly with one another, with the Secretary General and the minister. For them this was a quick and flexible system. After the reform the Secretary General has stressed that the hierarchic line of command should be followed so that the issues are first presented to the head of division, then to the head of department, then to the Secretary General and then to the minister. At the same time a new result negotiation practice was started. The targets were negotiated within the Ministry, with other ministries and with the agencies under the jurisdiction of the Ministry. The new concepts made it possible for the managers to see a more comprehensive common object of activity.These new concepts helped the Ministry to turn the focus of its work to important structural issues. In the use of the new management tools a number of crashes with the old management system and the actual object of officials' work occurred. First, heads of departments did not actually commit themselves to the result objectives. There are several possible explanations for this. One can argue that this was a contradiction between the old management by issue -practice and the new, more strategic way of thinking. On the other hand, there is a clear contradiction between the object of management and the proposed rational planning model. The rational planning model which was applied in the reform presupposes that the objectives of the management form a consistent and coherent hierarchy of objectives. No conflict of objectives and interests is allowed. However, the objectives of traffic safety, environment protection and the improving of traffic services are contradictory. There are important interests and political forces working on both sides of these conflicts which makes it hard to decide on the objectives on an abstract and general level. The conflict of interests is worked out issue by issue in concrete terms. The conflicting objectives cannot be realized at the same time. One objective can only be achieved on the cost of not achieving another objective. When these objectives are described in a result matrix, the good result in one target variable is necessarily balanced by a bad result in another variable. For the past last two years the officials of the Ministry have worked very hard in preparing the Finnish administration and legislation for Finland's prospective membership in the European Union. This has been a great undertaking. The Ministry has had to adapt its work to the schedules of the European Union. The prepa-

300

Jaakko Virkkunen

rations have to be made very quickly. The hectic cooperation with the administration of the European Union is in contradiction with both the emphasis on hierarchic decision making within the Ministry and the yearly goal setting. The situations and tasks change so quickly that the general objectives lose relevance in steering the activity. So, there is a tendency of the statement of objectives to turn into "a liturgy" which is separated from the actual practice. This tendency is aggravated because the objectives and the actual tasks and use of resources do not correlate. A major portion of the resources of the Ministry are used for the European integration, but it is only one of the twenty-two objectives of the Ministry. On the other hand, the Ministry would probably not have managed these tasks had it not begun to steer the agencies under it jurisdiction with the management by results system. The new management approach stresses the substance of officers' work. While concentrating on the substance matter in the result areas the officers have perhaps not paid enough attention to the formal side of their preparation of legislation. The formal judicial quality of the prepared law texts has been criticized which might be an indication that the coordination and control of quality are inadequate. The new management system would have presupposed that there is a clearly defined and well functioning staff for the management of the Ministry organisation and well functioning inner services for the units. It would also be proper to divide the rescources to the units, but this is not done. The budget for the activity of the Ministry is still in the hands of the Secretary General. The new management structure also crashed to the Secretary General's traditional way of appointing tasks directly to individual civil servants.

4.5 Generalizing the new principle The new principle of management has mainly been applied in the strategic management of the sector and the management of the state agencies and companies under the Ministry. In this part of management work a natural expansion of the new principle is a further elaboration of the role of the Ministry as the owner of the units under it. The owner function will probably be one of the central strategic functions of the Ministry. The elaboration of this function can mean that a provider-producer relationship is developed between the Ministry and the agencies and the companies. As to the management of the Ministry as an organization the changes have barely begun. It is probable that the changes in the work described above create such an intensive inner pressure that the management of the work of the offices begins to change. Instead of changing the management of the Ministry, the change process has brought the inner contradictions of the management system to the surface. The work on the result areas as well as on international cooperation presupposes

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301

projects and multi-skilled teams as well as the coordination of inner and outer cooperative networks. The development of the management activity system is summarized in figure 13.

5. CONSOLIDATION AND GENERALIZATION OF THE NEW PRINCIPLE

J™™™

0

A 5

H

A NEW CYCLE

THE CENTRAL ACTIVITY

1. NEED STATE CORDINATED

EFFORTS

™INDEPENDENT^ WORK OF OFFICES AND UNITS

NEW - RESULT AREAS AND RESULT OBJECTIVES COORDINATION OF TRAFFIC FORMS - STRATEGIC MANAGEMENT - COMMON OBJECTIVES

CHANGE IMPULSE MANAGEMENT BY RESULTS IN THE AGENCIES THE BUDGET REFORM

2. CRISIS OF THE OLD FORM OF ACTIVITY HIERARCHICAL COORDIANTION LITTLE COORDINATION OF THE IORM TRAFFIC FORMS DIVISION OF • FOCUS ON ADMINISTRATION IABOUR BY uAND BUREAUCRATIC CONTROL FORM OF \ MANAGEMENT BY ISSUE TRANSPORT INDIVIDUALISTIC WAY OF INDIVIDUAL L \WORKING WAY OF . WORKING/

4. CHANGING THE PRACTICE, CREATING THE REAL NEW - DEFINITION OF RESULT AREAS - TARGET HIERARCHY - REORGANIZATION OF THE BASIC UNITS - RESULT NEGOTIATIONS

CONTENT CREATING CONDITIONS FOR MARKET REGULATION STRATEGIC MANAGEMENT OF TRANSPORT AND COMMUNICATIONS POLICY

3. REFRAMING THE OBJECT OF ACTIVITY, SEARCH FOR NEW MEDIATORS IMPLEMENTATION OF THE NEW PRACTICE PREPARATION OF THE ACTIVITY AND ECONOMY PLAN FOR 1992 IN 1991

"SPRINGBOARDS" - BUILDING SCENARIOS - FOCUS ON SUBSTANCE ISSUES T H E GIVEN NEW A RATIONAL HIERARCHY OF OBJECTIVES

Figure 13: The cycle of expansive development of the management of the Ministry of Transport and Communications

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Jaakko Virkkunen

4.6 Evaluation The development of management by results in the Ministry of Transport and Communications is in a phase where some new concepts and tools have been taken in use but the management practice has not changed completely. The new and old forms of management coexist. On one hand the management work of the heads of departments has partly been left outside the new practice. The division of labour between departments and the new result areas are in fact two competing ways of dividing management work. It is well possible that the new forms of management are encapsulated to be applied only in the formal planning system but not in the day-to-day management. One can argue that the management reform was planned without analyzing adequately the actual work done in the Ministry and its dependencies to other processes and its contradictions. The adapted rational planning model is not realistic in that it presupposes a harmony of objectives. It also presupposes that the Ministry can to a great extent decide, what it is going to do. The model does not allow enough for the dynamic, rapidly changing and contradictious nature of the object of the Ministry's work. It seems that some other management concepts, which stress the management of conflicting objectives would have been better suited to this kind of work (See for instance Quinn/Cameron 1988; Hampden-Turner 1990; Pascale 1990). The major obstacle for a real break-through of the new way of management may also be the lack of project and team work in the Ministry. The new objectives cannot be realized effectively as long as the basic unit of activity is an individual officer who has a limited expertise and the coordination is mainly established through a formal management hierarchy. From the point of view of a crossprofessional, multi-skilled team work the competence structure of the Ministry is, however, biased. To surpass this bias outside specialists should be actively engaged in the projects of the Ministry. It is common to collect the best specialists in the State Committees and planning task forces appointed by the Ministry. Project work based on result objectives would, however, differ from the traditional committee work. The use of outside specialists is restricted to the planning phase in the traditional committee work. Team work is not used in the implementation of the plans.

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5 Management by results in the Ministry of Labour 5.1 The Ministry of Labour The ministry of labour is responsible for labour politics. It provides employment services, labour market training, and administrates unemployment and employment subsidies. In the late eighties the employment situation was good. The government was afraid that shortage of labour force would be a bottleneck factor for the otherwise fast economic growth. At that time the government introduced a new concept of labour politics. The idea was to broaden the traditional concept of labour policy by including a policy of saving labour force and improving labour conditions. Labour protection that has formerly been a part of social policy was now seen as part of the new labour policy, and the department of labour protection was transferred from the Ministry of Social Welfare to the Ministry of Labour. The organization of the Ministry used to be divided into functional units which each directly directed an operative function at the district and local level. The organization was changed in mid-eighties. The basic idea was to collect the numerous functional units to larger units in order to increase flexibility and co-operation.

5.2 The need state and the crisis of the old practice The development of management by results begun in the Ministry of Labour in 1988 with a management development project. There was a number of immediate causes for starting such a management development project. A new Secretary General was appointed. The transfer of department of labour protection to the Ministry of Labour and the change of organization called for discussion of management practices. There had also been discussions about problems in the relations between the districts and the Ministry. Authority had been delegated to the local labour offices, and the role of the district organization had become problematic. The heads of the local labour offices criticized the management practice. From the point of view of the local offices it was incoherent and without a clear strategic line. The offices got contradictory directions from different units of the Ministry. The authority of the ministry was decreasing in the eyes of the managers of the local offices and districts because of the contradictory directions which could not be followed.

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Jaakko Virkkunen

5.3 Planning the new practice and new mediators of management The new management by results practice was planned in the management development project. In this project emphasis was put to the writing of a mission statement and definition of broad areas of objectives (called result areas) for the Ministry and to the establishment of a new process of yearly result negotiations between the Secretary General and the heads of districts. This new process was experimentally tried with three districts in the years 1989 and 1990. In 1990 the Minister of Labour gave somewhat unexpectedly an order that the Ministry of Labour was to move to a management by results system in one year. The Ministry of Finance was at that time planning to reform the budget so that it would have less subdivisions than before. Instead, the budget would state the objectives that a ministry is supposed to fulfil and the amount of resources given for the ministry to attain these objectives. The Minister of Labour was probably aware of the reform plans. The Ministry of Labour wanted to be a pioneer in the development of the new management by results system and in the applying the guidelines the Ministry of Finance had devised for the management by results.

5.4 Changing the management practice There was little time to prepare the reform. Thus there was no other strategic discussion of the definition of results than the very abstract new mission statement and result areas. The result areas were -

"the functioning of the labour market", "the quality of working life", "work environment" and "the functioning of labour administration". The idea of using very broad and abstract definitions of result areas was to create pressure for the different functional units to think over what means they have to contribute to these objectives and to create co-operation between units.

The development of new tools was also restricted to the planning of the result negotiation process and the performance indicators. The existing system of statistics was used to build the performance indicators. The results of districts were set in terms of quantity of service output rather than in terms of effects in the labour market. The rigidity of this system was already seen in the first cycle of management by results. The result objectives were set to relieve the growing shortage of labour force. The labour market situation, however, turned drastically into fast growing unemployment. The set objectives did not help the districts to react flexibly to the changed situation.

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There has been a number of technical faults in the performance indicators used. For instance, the percentage of the long-term unemployed has been used as an indicator. In case of a rapid growth of general unemployment the relative amount of long-term unemployed diminishes which means that the district has reached its target while the situation has got worse. The management of the Ministry has perhaps not given enough attention to what the indicators really measure and how they direct the behaviour of the districts. Subsequently the Ministry has developed the performance indicators so that performance is not measured directly by counting operations. Now for instance the amount of cut unemployment periods and days of labour market training are used as performance indicators. The amount of cut unemployment periods seems to be a real measure of result (if the lengths of the periods are controlled) because the district can use different measures to cut unemployment. The result objectives were first set so that the Ministry negotiated a set of objectives with the Ministry of Finance. After this the agreed upon amount of output was divided between the districts. In this procedure it was hardly possible to make allowances for the districts' own analyses of the situation and plans. Later on the districts have been able to suggest their own goals. However, the Parliament has given after the negotiations new goals to the Ministry, which have been given directly as orders to the districts. The result of the adoption of the new result negotiation system was that the direction of the districts was centralized to the hands of the secretary general. The functional direction from the different offices of the Ministry to the districts and local offices diminished. On the other hand, the new management system did not get comprehensive support in the Ministry. There was a long and strong tradition of professional work and professional-self appraisal and functional management in the Ministry. Many in the Ministry thought that the management by results system was not a good management system for their professional activity. In the beginning of the new system the districts acted as before and gave the general strategic guidelines to the local offices without transforming them into regional strategies. In the whole result negotiation process there was a language problem. It was difficult for the managers of the districts and local offices to understand what the broad strategic lines could mean in terms of client service activities. The result negotiation process turned out to be a dynamic force for management change. In the negotiation process it became evident that the Ministry did not have sufficient strategic vision and means to evaluate the plans of the districts. The discussions in the result negotiations have been operative in their character. This experience has activated the strategic planning in the Ministry which however is still done in the spirit of the classical top down rational planning model without market segmentation or research on the differences in the labour market dynamics in different economic regions.

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The management by results process was first administered by the department of administration. Later a secretariat was founded which acted as a management by results staff for the Secretary General. The division of labour of the Ministry was not otherwise altered. So the end result is that the planning and administation of the management by results process is one more function in the functionally organized ministry. The division of labour between the departments of substance, department of administration and the secretariat is unclear. This means for instance that the result objectives and the resources are still discussed separately. It is not possible for the Ministry for instance to count how much a cut of unemployment costs in different distiricts. During the process there has not been any further decentralization of management authority or administration, on the contrary. Because of severe unemployment and political pressures the Ministry has launched several new labour political measures which the local offices have had to realize. The amount of different systems has increased so that it has from time to time been difficult for the local offices to follow the "product development" of the central administration. One special problem in the management by results process in the Ministry of Labour is that there has actually been little space for negotiation. For the first the general quantitative output objectives of the whole ministry have been divided mathematically to the districts. On the other hand, most of the costs of the districts are either salary costs or subsidies that are distributed strictly according regulations. Also, in the labour protection districts the costs are to a great extent tied. The Ministry of Labour arranged on 2nd February, 1994 an evaluation seminar on the management by results system of the Ministry. One of the central questions discussed was the role of local initiatives and the local and regional analyses of the labour market situation. The negotiation process was - so it seems - not experienced as a real dialogue between the national strategy and the regional and local strategy. It was also stressed that it had been difficult for the districts and local offices to translate the general objectives to meaningful local activities. The objectives were not giving to the districts and local units possibilities for flexibility, but on the contrary tied up their hands to centrally decided operations. The issues of further development that got most support from the participants of the seminar were to increase the space for negotiation and flexibility for the districts, to take the regional initiatives to the agenda of the negotiations, and to develop a team organization in the local offices. The cycle of development of the management by results system in the Ministry of Labour is depicted in figure 14. The main changes in the mediators of management's work are summarized in table 2.

307

Surpassing Functional Bureaucracy with Management by Results 5. CONSOLIDATION AND GENERALIZATION OF THE NEW PRINCIPLE

SURROUNDING ACTIVITIES

A NEW CYCLE

CHANGE IMPULSES NEW SECRETARY GENERAL,THE TRANSFER OF LABOUR PROTECTION TO THE MINISTRY,A NEW LABOUR POLICY CONCEPT

2. CRISIS OF THE OLD FORM OF ACTIVITY

NEW CENTRALITÀ DIRECTION SECRETARY - RESULT AREA MEASURES OF

CONTENT -A NEW LABOUR POLICY CONCEPT - LACK OF LABOUR FORCE CHANGE OF STRATEGY

4. CHANGING THE PRACTICE, CREATING THE REAL NEW - RESULT NEGOTIATION PROCESSES 1991. 1992 1993

3. REFRAMING THE OBJECT OF ACTIVITY, SEARCH FOR NEW MEDIATORS IMPLEMENTATION OF THE NEW STRUCTURE 1990 RESULT NEGOTIATIONS

SPRINGBOARD" - RESOURCE NEGOTIATIONS T H E GIVEN NEW (A MANAGEMENT BY OBJECTIVES INTERPRETATION OF THE "MANAGEMENT BY RESULTS")

Figure 14: The cycle of development of the management activity system in the Ministry of Labour

5.5 Evaluation The management by results process in the Ministry of Labour is actually in the very start of the change of management practice. The result negotiation process, the establishment of the secretary for the management process, and the new definitions of result areas are the only major changes in management practice so far. The changes have, however, created a set of contradictions in the management

308 Table 2:

Jaakko Virkkunen Old and New Management Activity System

Mediators of management activity

Old

New

Object of central management's work

Coordination of operative functions

Coordination of operative functions and strategy preparation

"Where-tools"

Development perspectives of different operative functions

Development perspectives of different operative functions and strategic lines of labour politics in the nineties

"Why-tools"

Efficiency idea based on economics of scale

No remarkable change in efficiency idea. New mission statement and definition of result areas

"How-tools"

Traditional bottom-up budget process

Result negotiation process

"What-tools"

Statistics of employment services

Output-oriented performance indicators based on the statistics of employment services

Division of labour of management

Administration and economy/substance of labour policy and labour services, hierarchy

Centralisation of the direction of the disstricts in hands of the secretary general, planning staff

Rules of management

Laws and the budget divided into subsections by the functions

Result and resource agreements

Tools of central management's work

J. Virkkunen 1994: 32

system which call for changes and may lead to a more thorough-going change in management practice. The first contradiction is the contradiction between the unilateral top d o w n planning s y s t e m of the Ministry and the dialogical character of the resource negotiations. T h e managers o f the districts have a strong position in the negotiation situation, because they have thorough and concrete analyses o f the labour market situation in the region. The abstract definitions of mission and result areas alone d o not s e e m to be an adequate answer to the regional analyses from the point o f v i e w of the national strategy. There is a need for a more concrete strategic approach to the national direction o f labour policy.

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The tools used to describe the results are in contradiction with the result agreement process. The present system is still somewhat tied to the actions taken by the regional and local units in stead of the object of their activity, and it does not give the regional and local units much room for selfregulation according to the regional and local labour market situation even though the tools have been developed. The idea of getting flexibility by loosening the coupling of units with the market regulation mechanism has not been used in the Ministry of Labour. The third and most urgent contradiction is between the management by results system and the division of management labour in the Ministry. There is not yet any redefinition of the basis of division of labour. The centralization of direction in the hands of the Secretary General and to the result negotiation process are in contradiction with the functional division of labour in the Ministry and especially with the role of the specialist in central administration. The functional management and the result management systems are used at the same time. A special aspect of this contradiction is that the resources and the content of the activity are still treated separately. Sooner or later either the result management system or the functional system must be chosen. If the management by results system is developed further, the role of the departments and the specialists must be thought over. There is no clear distinction between strategic management and operative management in the Ministry. On the contrary, each department has both strategic and operative tasks. There is some differentiation between the general labour political tasks (sector strategy), the management of the district organization, and the management of the Ministry as an organization, but these distinctions are so unclear that it is difficult to set clear result responsibility within the Ministry. When result responsibility is unclear in the Ministry, it is hard to clarify the cooperation between districts and the Ministry.

6 Increasing flexibility in the Uusimaa district of labour protection4 6.1 The Uusimaa district of labour protection The enforcement of labor protection legislation in Finland is in the hands of eleven district authorities of labour protection. The Ministry of Labor (formerly the National Board of Labor Protection) supervises the enforcement work. It also issues instructions on working conditions, machinery, and equipment, runs labour protection training and promotes publicity on labour protection. 4

The description is based on the author's consultancy in the organization.

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The main form of activity of the labour protection districts is the inspection of working premises, which is done by labour protection inspectors. The object of their work is to ensure that the labor protection regulations are being observed and to advise on improvements of working conditions and safety. Inspectors give instructions aimed at eliminating defects and hazards. If this is insufficient, they can order the employer to remedy the defect within a given period of time and under threat of a fine if necessary. In extreme cases an inspector can order a complete halt to operations or demand that work with a specific site, machine or method be discontinued. The inspectors typically have college level technical training and/ or background as labour protection managers or labour protection delegates in industry. The Uusimaa district of labour protection is the biggest of the labour protection districts. Its region consist of the most industrialized and tightly inhabited area of southern Finland in which also the capital is situated.

6.2 The need to develop the management practice The National Board of Labour Protection started in 1989 a comprehensive development project in order to increase the efficiency of labour protection and to find an answer to the increasing demands put on labour inspectors. The development project started with an analysis of the history of existing practices. It was found that there were two main problems in the activity of the labour inspectors. The forms of inspection work as well as the tools and methods used had been developed mainly to find physical risks in industry. These methods and tools were inappropriate when other kinds of safety hazards had to be dealt with. The division of labour and specialization between inspectors was underdeveloped. In the analysis ten real inspections were videotaped and the discussions during the inspections were analyzed thoroughly. It turned out that there was a vicious circle of slow learning in the work practice of the inspectors. Because of the type of instruments used and the mostly unilateral way of communicating with the representatives of the workplaces the inspectors did not learn many new things during the inspections and did not get feed-back of their recommendations (Virkkunen 1991). In the analysis it was also found that the attempts to develop strategic management and to concentrate the efforts of the administration to the most important problems had not succeeded, because the direction of districts was scattered to numerous functional units and specialists in the central administration (The National Board of Labour Protection). The strategic management was furthermore impeded by the individualistic, craft type of work culture of the inspectors as well as the prevailing way of dividing their work. Each inspector had a number of work-

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places on his or responsibility and had to deal with all the problems concerning those workplaces (Virkkunen 1989). To develop the inspectors' work several new instruments were designed. One of these was a new method for analyzing the field of activity (VAKU-system). The idea was to analyze the field of activity successively on three different levels. On the first level a statistical survey was made of the safety problems in the district's area. As a result of this analysis a number of important problem areas were identified - for instance branches of industry in which the safety risks were exceptionally high. On the second level a group of inspectors made a more detailed description of this limited set of workplaces and tried to identify the trades, phases of work, organization types etc. in which the hazards seemed to be the greatest. The findings of research and previous inspections were also used to identify and localize the causes of safety problems. To get the information, the inspectors worked in cooperation with employer and employee organisations, branch organisations and so forth. All the collected data and findings were combined to the same data base. While collecting the information the inspector group also began to build a hypothesis of the possible causes and cures of the safety problems in that particular set of working places (Kuutti/Virkkunen 1995). At the third level of the system the group of inspectors create for themselves a new instrument of inspection, for instance a new checklist based on the findings of previous analyses. They use this instrument to collect more information, to test the hypotheses of the causes of safety hazards, and to correct the situation at workplaces. The results of the analyses can also lead to new types of interventions, for instance to an initiative to develop a new safer tool or to create new regulations for the suppliers.

6.3 Crisis of the old management practice In 1992 there were several inspector groups doing these kinds of analyses in the Uusimaa district. The district manager felt that the analytic work was not turned into practical operations readily enough and that it was difficult to combine the results of the analyses. It became evident that the new way of working could not be developed further without changing the traditional way of dividing inspectors' work and the old hierarchic management structure.

6.4 Planning the new management activity system The district manager started a management development project in 1992. One of the difficult dilemmas in the project was to combine the new project work which was based on strategic analyses with day-to-day custom service. One of the ad-

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vantages of the old division of labour of inspectors and their foremen was that it was always in principle clear who had to react to a customer impulse, even though the division of labour was not in practice always so clear. This problem was solved by creating a special unit for customer services. The unit was manned with a job rotation system so that all the inspectors work for a certain period in customer service. The rest of the work was arranged to project teams which were appointed to strategically important labour safety problems.

6.5 Changing the management practice The management was reorganized in the beginning of the year 1994 so that there is a management group which is led by the district manager. One of his subordinate managers is responsible for the customer service unit and also for developing the cooperation between units in customer service processes. The three other managers have each a set of project teams to manage. Each of them is also responsible for the development of one process that concerns the whole district. So, one manager is responsible for the development of the analytical work and its methods. The other is responsible for the development of the result management process. The third is responsible for developing inspectors skills and methods of workplace interventions. The work on a problem area has a life cycle from analysis to interventions and and eventually to change of target. The project teams change accordingly. The district manager decides on the teams yearly, but it does not mean that all teams change yearly. On the contrary, the work is quite long-sighted, and changes are made when the result objectives are reached or new objectives are set. At present the new management practice is still under construction. However, it is already evident that the new system has for the first time made real strategic management and flexible use of resources possible in the district. Because of the new instrument to analyze the field of activity, concrete and well grounded result objectives can be set for the work. If the area is not yet known well enough to set objectives for the inspection work, the result objective is to analyze the area so that operative objectives can be set. Because of a flexible organization resources can be allocated according to the result objectives. Instead of the old fixed division of labour the head of the district sets new project teams on the basis of the information gathered to the new Depiction of the Field of Activity data base (VAKU) and the analyses made in the inspection projects. Thus the organizational structure is now continuously adapted to the changes in the field of work whenever such are identified and and the results attained using this new "organizational memory"-tool (figure 15). The adoption of the new management system and the new organization has occasionally led to contradictions with the central management and central administration. From the point of view of the district it has been difficult to see the

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Figure 15: The use of "organizational memory" to create a flexible organization

meaning and relevance of some of the result objectives given from the "headquarters". Some of the objectives given from the central administration seem impulsive and less grounded from the point of view of the district. The problem and field -oriented way of working in the district is also in constant contradiction with the way the central administration develops information systems for the districts. The standardized information systems cannot be used in this kind of problem-oriented work 5 .

7 Creating flexibility and cost consciousness with management by results in the Sibelius Academy6 7.1 The Sibelius Academy The Sibelius Academy is the only music academy in Finland, the biggest music academy in Scandinavia, and the third biggest music academy in Europe. It was founded on private initiative in 1882. The State took economic responsibility for most of the academy's expenditures in 1966. The Academy has been devoted in the training of professional musicians for the music life and for the school system, 5

6

The planning of the centrally administred workplace information system has been reported in Salmela & Ruohonen 1992. This description is based on an interview with head of administration in the Academy Mr. Seppo Suihko 18.5.1994 and the head of the Folk music department Juhani Nâreharju 21.6.1994.

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the church and the military from the 1930's. From the 1960's on it has concentrated exclusively on professional training. In 1980 the Academy was made subordinate to the Ministry of Education. In the same year the Academy's degree system was revised and harmonised with the degree systems of universities.

7.2 The need for management development The organization of the Academy was up to 1990 a typical two line specialist organization. There was a clear separation of on one hand the artistic and pedagogic management and on the other hand the support functions and administration. The artistic and pedagogic work was - and still is - done for a great part by professionals who had their main career not in the pedagogic work of the academy but in the concert life. The pedagogic and artistic work was managed by the headmaster in a centralised fashion. The headmaster has, however, only recently taken the role of a general manager in relation to the heads of the teaching units. The use of resources was decided centrally by the headmaster. The administration department also had a central role in the management. The division of labour in administration was quite complex. It was hard to the heads of teaching units to know whose approval was needed in different matters. The use of resources was controlled minutely. The amount of pupils and the volume of the Academy's activities began to grow rapidly in the 1980's. The growth of volume and the new degree system made the old management system increasingly obsolete, which led to a discussion about a new organization and a new management system in the 1980's. The administrative department arranged in-house management training and some aspects of management by objectives were applied.

7.3 Deadlock of the old management system The change of the Academy's activities led to a crisis of the old management system and a double bind situation for the former headmaster. He had come to the post to continue the old culture and tradition of the Academy and to be the patron of music pedagogy, but he found out that the situation had changed and that he was also expected to be the manager of a fast developing organization. The organization structure was changed in 1990. A department structure was established in which each department was responsible for a different training programme. The present organization of the Academy, which is with the exception of some minor modifications the same as the organization in 1990, is depicted in figure 16.

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management

Figure 16: The organization of the Sibelius Academy as of 1st January, 1994

7.4 Planning the new management practice The new structure called for a new management practice. The planning of a new management system began in 1991. Task forces were set in all the major areas to set result variables and to plan result indicators as well as review systems for the area. The planning was greatly influenced by the general trend to decentralize in state administration and the idea of management by results that the Ministry of Finance propagated. The administrative department also started a critical analysis of all the permanent regulations and inner statutes of the Academy.

7.5 The change of management practice - contradictions of the old and the new activity system The management authority and resources were decentralized to the departments according to the plan in 1993. The idea was to give resources to the units responsi-

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ble for the training programmes so that these units can buy services from the other units. An attempt was also made to collect the activities into bigger units, but actually only the functions of the independent research centre were decentralized in to the departments. According to the new principle the result units can also after a certain period buy services from other suppliers outside the organization. At the same time, management authority and responsibility were clearly concentrated to the headmaster and ten heads of departments. The new principle of resource distribution was not applied fully. The teaching of composition and music theory remained centrally financed, because it was expected that the departments might diminish the amount of theory teaching too much if the decision was left to them alone. The administrative reform created within the Academy a market for support services. In 1993 the administrative department worked out a set of service packages or products which it sells to other units. Such packages can consist of for instance the telephone centre, copying services, transportation services, economy administration etc. From the point of view of administration some of the products are combinations of functions formerly realized in different subunits of the department. An elaborate system of negotiations was also worked out for management by results and for the coordination of the functions according to the new market regulation principle. The headmaster of the Academy negotiates the objectives and the resource frame with the Ministry of Education. After this the rector negotiates objectives and resource frames with the departments and independent units. In these negotiations the subvention from the Academy (headmaster) to the unit is also negotiated. After these negotiations trade negotiations between the selling and the buying departments take place. The pedagogic departments negotiate with the administrative department the amount, price and quality of administrative services, the other pedagogical units negotiate about the amount and price of soloist teaching they are buying from the soloist department etc. A set of contract models have been developed for these negotiations. All departments produce services for other departments. There are, however, differences in the relative importance of this internal trade for the departments. The new system of internal markets is not problematic for those departments that do not get a great portion of their income from internal trade. The system is, however, somewhat difficult for those departments, for instance the Soloist department, which are for a great deal dependent on the internal demand of their services, because they must adapt their resources to the changes of demand of their services. The present cost accounting and economic reporting systems are not adequate tools for the heads of departments responsible for the results. The departments do now a greater part of the administrative work than before. It might also be that some kind of staff is needed in the departments. A better system of accounting is also needed to set prices correctly. Such a system is now being worked out.

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As a result of this development the heads of departments are for the first time real managers and subjects of the management of the activities of their departments. This change has been welcomed by the heads of departments, but at the same time there is a contradiction between their traditional role as first rank artists and the new role as managers. It was, however, not easy for all the heads of departments to take the new responsibility and for the former rectors to approve the decentralization of authority. First the new rector has made the new line management system clear. He has also set a new management group in which all heads of departments discuss the management of the Academy. The change of management practice has made it possible for the departments to cooperate flexibly with other organizations such as record producers and organisers of festivals. For instance, the department of Folk Music would not have been able to produce four CD's each year as it does now. The old management practice has persevered in two respects. The decision making of the headmaster has still been much based on either approving or disapproving the initiatives of the departments. There has not been any clear strategic line or development programme for the Academy. Some new tools for strategic management are obviously needed in order to foster the identity of the Academy without going back to centralized decision making. The present headmaster is developing a set of development programmes for this purpose. The negotiation and trading process has been particularly heavy in the first years. Later on the negotiations will probably be easier and concentrate only on changes. The negotiations have already become a more natural cooperation between hierarchic levels. Nevertheless, the management by results process still concerns more economy and formal matters than the content and substance of the Academy's activity.

7.6 Expansion of the new management principle contradictions with the surrounding activities From the beginning of this year (1994) the Academy has got the possibility to accept revenues. To sell their services and products to outsiders the departments have to get approval from the head of administration who also fixes the prices. The rules of how the income is divided between the units and the Academy are just being worked out. The departments have resources with which they can successfully compete with some private enterprises. Until now it is, however, not quite clear what the policy of the state is, as well as the policy of the Academy in this respect. The Sibelius Academy has not previously been particularly interested in following up its activities and results. Because of this it has been difficult to show to the Ministry of Education the results of the Academy. This is why the Academy

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had suffered some losses in the resource competition between the universities and colleges. That is why the review and follow-up systems are also now developed. The development of the Academy's management system from a centralized, functional and bureaucratic structure to a direct line organization, management by results and market regulation system is summarized in figure 17.

5. CONSOLIDATION AND GENERALIZATION OF THE NEW PRINCIPLE CO-OPERATION UNIVERSITIES

- PRIVATE COMMERCIAL ACTIVITIES, - THE MINISTRY OF EDUCATION, • UNIVERSITIES

WITH

A NEW CYCLE

CHANGE IMPULSE GROWING VOLUME, NEW DEGREE SYSTEM, STATE OWNERSHIP

2. CRISIS OF THE OLD FORM OF ACTIVITY

NEW - INTERNAL MARKETS, SUING AND SELLING - DECENTRALIZATION - UNITY OF MONET AND ACTIVITY DECISIONS

CONTENT TRAINING PROGRAMMES

4. CHANGING THE PRACTICE, CREATING THE REAL NEW

3. REFRAMING THE OBJECT OF ACTIVITY, SEARCH FOR NEW MEDIATORS IMPLEMENTATION O F THE NEW STRUCTURE DECENTRALIZATION 19V1

THE GIVEN NEW • IDEA OF DECNTRAUZATION -IDEA OF MARKET REGULATION (Tile e.uintple ofFinnRA)

Figure 17: The development of Sibelius Academy's management from a centralised system to a result unit system 1980 - 1995

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8 Issues of criticism and further development of the management by results system 8.1 Management by objectives and management by results In the case examples described there are two different conceptions of management by results. The management concept applied to the management activity system of the Ministry of Labour is very near a traditional management by objectives system. In the FinnRA and the Sibelius Academy the new management system is much more based on a decentralized system with internal markets and a provider-producer division of management's labour. The management system of the Ministry of Transport and Communications seems to lie somewhere between these extremes. There seems to be two important differences in these management conceptions. The first important difference is the way in which the work of the management is divided. In the FinnRA, the Sibelius Academy and in the Ministry of Transport and Communications one of the most important changes in the management system has occurred in the division of labour of management. In all these organizations the old function or substance -based division of management's labour has been to a certain extent replaced by a clear one line management. In the FinnRa and the Sibelius Academy this has been combined with a remarkable decentralization of management authority and responsibility. In the Ministry of Transport and Communications the change has paradoxically led to a centralization of decision making. The new division of management's labour is combined to a redefinition of the object of the management activity and the perspectives and roles of managers. The provider-producer division of labour is one example of a new way of dividing managements's work and defining the roles and perspectives of different managers. The conceptual distinction of the different management systems in the Ministry of Transport and Communications: the transport and communications policy, the steering of the public firms and agencies under the Ministry, and the management of the Ministry's internal work, is another examples of this. In the Uusimaa Labour Protection district the new division of managers' work is partly based on the difference between proactive and reactive activity, the different programmes and projects and the internal processes. The distinction between strategic and operative management is of course also such a distinction. The aforementioned new ways of dividing management's work represent different ways of surpassing the functional division of labour. It seems that a genuine dialogue and discussion of the results can only be created when the different objects of work and different points of view of different managers are redefined this way.

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The second difference is in the way the object of management is understood and described. In all the cases the object of management activity had been reframed and some new concepts and tools were developed. In three of the cases the concept of 'result area' was used, but it was understood in very different ways. The main difference in the use of the result area concept can be set in the subjectivity objectivity dimension. The management by results approach relies on the rational planning paradigm, which presupposes a harmony of objectives and has a strong bias on the subjective aspect of target setting. It seems that just this conception has led to problems in both ministries, because it has led to neglectin the analysis of the objective properties and dynamics of the object of activity. In the Ministry of Labour the result areas are created deductively from a very general and abstract mission statement according to the logic of the rational planning model. The result areas of the Ministry are subjective in the sense that they describe a desired state or affairs, but are not anchored to an analysis of the processes and machanisms operating in the object of activity, that means, structural changes in the labour market, the processes and mechanisms of employment and unemployment, the way firms are using labour etc. The abstract objectives used were difficult to anchor to the real activity. In the Ministry of Transport and Communications the result areas describe existing objects such as the traffic network in Finland. The objectives are described with a set of object variables which can be understood as changes or states of these real systems, for instance level of prises, functional properties of the network etc. These variables are perhaps somewhat better anchored to the actual object of the Ministry's work, but also in this case there is lack of analysis of the object of work. This is evident, because the functional relationships and dependencies between the target variables and their contradictions were not dealt and because a very important area of activity, the European integration was not adequately treated in the objectives. In the FinRa the new result areas are properties of the object of the agency's work. In the FinnRA and the Sibelius Academy the object of management's work is described by defining who the clients of different units are. This makes the concept of result more objective. In the Uusimaa Labour Protection District the object of management's work is defined by analyzing the labour safety problems in the Uusimaa district. To get the management by objectives process effective it seems to be very important to define clearly the clients of the managed unit or more exactly the objective processes and activities which the managed unit is supposed to effect with its own activity. The target setting can only be meaningful if the targets are anchored to the object of work and the dynamic forces and inner contradictions of this object are sufficiently analyzed. In many cases it seems to be better to describe the objectives as a need to reconcilíate conflicting objectives instead of reaching one objective as Hampden-Turner suggests.

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In the case of the Ministry of Transport and Communications new concepts for describing the object of management activity were established: the sector policy, the steering of the agencies, and the management of the Ministry. The respective concrete objects of activity, however, were not analyzed. One of the central objects of the Ministry activity is the legal system which regulates traffic and the relation of this system partly to the actual traffic activities to be regulated and partly to development of the international traffic regulation. If the result targets were anchored to an objective analysis of the state of the object of activity defined somewhat like this, the analysis of the dynamic change mechanisms in this object and the conflicting change forces operative in the object would have been a natural part of the palnning process and a much more concrete and realistic set of objectives could have been produced. This kind of analysis would also help the communication between politicians and civil servants. This analysis suggests that it is essential to analyze and also study empirically the object of the activity before setting objectives.

8.2 The importance of multiple perspectives and the negotiation process The experiences seem to support the view that the idea of coherent and homogeneous value system distorts management's picture of reality and prevents an effective management of conflicts between different perspectives and different values. So there seems to be a difference between a basically monological management approach and a more dialogical management approach. These elements are evident more or less in all the cases. In all the examples an important element in the change process has been the adoption of a negotiation process between levels of management and in some cases also horizontally between units. In some cases this process has forced the central management to encounter it object of work in a new, more intimate way and to meet new challenges which has created motivation to develop the management practice. These negotiation processes have also been in some cases one of the most difficult and frustrating part of the new management activity. The dialogue between different management levels is an attempt to cross the boundary between two different management activity contexts. This kind of boundary crossing situation sets very high demands to the management tools with which the object of discussion is represented in the discussion. The object must be described so that it can be viewed meaningfully from two different points of view and related to two different context and value systems at the same time. In the result negotiations the result objectives must be so defined that they are meaningful both from the point of view of the strategic management and from the point of view of the operative

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management In the provider-producer division of labour the object of discussion must be described so that the description is meaningful from the point of view of the provider and from the point of view of the producer. In the examples described the FinnRA and the Sibelius Academy had developed contract models that worked well in the boundary crossing situation. In the Ministry of Transport and Communications the result dimensions function as such an instrument. It seems that the traditional mission statements and statements of objectives are not enough in a dialogic situation. These instruments are created for a monologic, deductive decision making process, not for a multi-voiced dialogic process. They can function as a common point of reference, but they cannot serve as tools in the communication. This principle is schematically described in figure 18. The two actors see the object of discussion from a different point of view. They see it in a different context and also set different objectives from their different points of view. The common object must be described so that it can be meaningfully "looked at" from different perspectives and the conclusions made in one of the contexts can be translated to a form that is meaningful in the other context.

Figure 18: Two actors discussing the same object from different points of view

The materials in the negotiation should function as a boundary object that is part of the context of the strategic management as well as part of the context of the operative management (see Star 1989). The description of the field of activity system developed in the Uusimaa District of Labour Protection seems to be an example of a relatively well functioning "boundary object", an instrument that helps the boundary crossing between hierarchic levels of activity. The system describes the field of activity in a hierarchic way somewhat like a set of maps of the same territory which make it possible to discuss the same object at different levels of abstraction, so to say in different scales. Using map metaphor: the discussion between the district manager and the Ministry a scale e.g. 1/5000 is used, in the discussion between the district manager and the inspectors a scale e.g. 1/20000 is used. The important thing is that all the objects that are discussed in the negotiations between the district manager and the

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Ministry can bee "zoomed" also to a more precise scale. This is possible, because the instrument is a map of the activity field, not a set of objectives or expressions of subjective states of will (see figure 19.)

MANAGEMENT OF THE DEPARTMENT OF LABOUR PROTECTION Description of the field of activity levels 1 and 2 DISTRICT MANAGEMENT Description of the field v_of activity levels 2 and 3

INSPECTORS' WORK

Figure 19: The description of the field of activity system as a boundary object between levels of management

From the point of view of organizational learning both the boundary crossing and the encounter of different perspectives and argumentation from different perspectives seem to be important. Yijo Engestrom has found that an interplay of for factors seem to be essential to create leaps of learning in co-operationco in which a qualitatively new, more effective way of working together is found. These factors are the increase of complexity and intensity of work, the manifestation of a contradiction in argumentation, the crossing of traditiona boundaries between contexts and the use of new instruments to handle the complexity (Engestrom 1995, see figure 20). The provider-producer division of labour seems to give new possibilities for flexibility. If the "owner" functions of an agency are separated from the provider function and the agencies are allowed to receive resources from several providers, the tight coupling between ministries and agencies is loosened so that the agencies can serve several purposes at the same time. To realize this kind of flexible and multiple financing the state administration needs small effective result units. The relations between different units can be partly pure market relations, but they

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Figure 20: Conditions for qualitative learning leaps in co-operation

can also be lasting relationships of dialogue and cooperation as in the Japanese "keiretsu" system.

8.3 The change process: the problem of creating motivation to change The material does not allow to make any definitive conclusions about the change process. Some observations, however, can be made. For the first, it seems that it is hard to really change the management practice. The planning of the change is of course relatively easy, but it is hard to develop and elaborate the planned system intensively enough when obstacles are met and contradictions between the old practices and the new system arise. In this phase the building of the new practice does not continue if there is not a relatively strong motivation to change and an active coalition of subjects that goes on with the reform. It seems that in the two Ministries the reform has lost its momentum in half way. It is not clear why this has happened. One possible explanation is in the way the change process was started. In both cases the impulse came from outside and there was not particularly much of problem consciousness or motivation to change among the managers. The way the new system was developed did not create consciousness of the need to reform the practice either. The weak consciousness of the problems of present practice and a weak collective motivation to change the common management activity can perhaps explain why the practice has not changed any more. Another explanation might be in the false assumptions on which the rational planning model used as a management theory is based (unity of purpose and autohrity, deductive, monological way of planning top down, long planning perspective). This specific management theory does not seem to correspond very well to the actual nature of the object of ministry's management activity which calls for

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constant reconciliation of conflicting interests of powerful actors and quick reactions to emerging new issues and demands. In the FinnRa the work with future scenarios led to a real breakthrough in management's thinking and the result seems to have lasted. In the Ministry of Transport and Communications the same method was regarded as useful and motivating, but it did not lead to same kind of lasting changes. One reason can be that in FinnRA the management was before the future scenarios were built in a genuine deadlock situation and the new future perspectives opened a new perspective. In the Ministry of Transport and Communications there was no such feeling of deadlock and impossibility to go on. The building of future scenarios functioned rather as a way to avoid encountering some of the real problems and contradictions of the management practice and the actual object of managements work. It might well be a mistake to begin the change process by setting common values and objectives and by planning the new system. Instead one should perhaps first get the managers to analyze the present practice and its defects and to prepare common awareness of the central problems to be solved. This cannot be done without analyzing both the object of common activity and the disturbances, ruptures and innovations of the everyday management practices. In the Uusimaa Labour Protection District this kind of analysis seemed to create a feeling that there are no possibilities to return to the old practice and focus the individual managers' attention to the same basic problems of the prevailing practice which had to be solved.

References Books and articles Alter, C , J. Hage (1993): Organizations Working Together. London: Sage Publications. Aoki, M. (1988): A New Paradigm of Work Organization: The Japanese Experience (Working papers No. 36). Helsinki: Wider Institut. Bendix, R. (1956): Work and Authority in Industry. New York: John Wiley & Sons. Biemans, W. G. (1992): Managing Innovation within Networks. London: Routledge. Burns, T., G. M. Stalker (1968): The Management of Innovation. London: Tavistock Publications; (' 1961). Chandler, A. D. J. (1962): Strategy and Structure. Cambridge, Mass.: The MIT Press.

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de Gruyter Studies in Organization This de Gruyter series aims at publishing theoretical and methodological studies or organizations as well as research findings, which yield insight in and knowledge about organizations.

Organizational Theory and Research Editor: Alfred Kieser Vol. 66 Warglien, Massimo / Masuch, Michael (Editors)

The Logic of Organizational Disorder 1995. 15.5 X 23 cm. XII, 244 pages. Cloth. ISBN 3-11-013707-0. Vicious circles, goals displacement, makework, ambiguity and garbage cans - students of organizations have always tried to map the territory of the inherent disorderliness of organizational processes. This book gathers together leading scientists from most prestigious traditions in organization theory to check the state of the art in this field and further deepen an open and vital research agenda. Contributors to the book bring empirical analyses, suggest new theoretical directions and explore innovative modelling strategies to advance our understanding of how intelligent behavior often emerges unpredictably from the complications of our daily organizational life. Vol. 53 Naschold, Frieder / de Vroom, Bert (Editors)

Regulating Employment and Welfare.

Company and National Policies of Labor Force Participation at the End of Worklife in Industrial Countries 1994. 15.5 X 23 cm. X, 496 pages. Cloth. ISBN 3-11-013513-2. With 38 figures and 110 tables Research teams from seven countries examine strategies by firms, organizations and states with regard to the early transition from employment to retirement against the background of contradictory trends in demographic structures and labour market dynamics and lead on to a discussion of necessary innovations in industrial work and social welfare. The work is based on empirical data of the relevant actor systems. Vol. 21 Anheier, Helmut K. / Seibel, Wolfgang (Editors)

The Third Sector:

Comparative Studies of Nonprofit Organizations

1990. 15.5 x 23 cm. XIV, 413 pages. Cloth. ISBN 3-11-011713-4 The present volume offers a survey of international and comparative research on the Third Sector. It presents a general introduction, and covers central theoretical and empirical aspects of third sector research: the question of institutional choice and organizational behavior, as well as problems of resource dependency, comparative efficiency and organizational autonomy. In addition, the work offers several country studies and profiles of the third sector in Hungary, France, Japan, Switzerland, Spain, the United Kingdom, the Netherlands, Sweden, the United States and the Federal Republic of Germany.

WALTER DE GRUYTER

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Genthiner Strasse 13, D-10785 Berlin, Tel. (0 30) 2 60 05-161, Fax (030) 2 60 05-222 200 Saw Mill River Road, Hawthorne, N.Y. 10532, Tel. (914) 747-0110, Fax (914) 747-1326

Vol. 31 Kaufmann, Franz-Xaver (Editor)

The Public Sector. Challenge for Coordination and Learning 1991. 17 X 24 cm. XII, 553 pages. Paper. ISBN 3-11-012380-0, Paper. ISBN 0-89925-671-6. With 13 charts, 21 tables und 7 figures This volume is a revised and shortened version of "Guidance, Control and Evaluation in the Public Sector". It attempts to explain how the public sector functions and to serve as a textbook for students in public administration, public finance, political science and social policy. "The volume in hand represents the most important exemplars of current international work on nonprofit organizations in different countries. The essays cover a wide range of subjects, disciplinary approaches and national cultures, and thus provide the most important approach to the national and international study of nonprofit organizations published to date" (Stanley N. Katz).

de Gruyter Studies in Organization International Management, Organization, and Policy Analysis Editor: Stewart Clegg Vol. 28 Caiden, Gerald E.

Administrative Reform Comes of Age 1991. 15.5 X 23 cm. XII, 347 pages. Paper. ISBN 3-11-012645-1. Cloth. ISBN 3-11-012895-0. Paper. ISBN 0-89925-743-7. Cloth. ISBN 0-89925-833-6. The book surveys the state of the art as it has evolved and major steps in reaching common understanding of what is involved in improving public sector performance with special emphasis on — upgrading public administration, - organization and management, - tackling public maladministration, — and dealing with over 150 common bureaupathologies. The book contains case studies of reform campaigns around the world and special attention is given to current attempts to transform bureaucratic centralism in the East Bloc into market socialism, to overhaul the mixed welfare state in the West, and the seemingly fruitless attempts to invigorate public sector administration in the Third World. Serious gaps in the current state of the art are indicated and a future research agenda proposed to fill in some of those gaps in the next decade.

WALTER D E G R U Y T E R

• BERLIN

• NEW YORK

Genthiner Strasse 13, D-10785 Berlin, Tel.(0 30)2 6005-161, Fax (030) 2 60 05-222 200 Saw Mill River Road, Hawthorne, N.Y. 10532, Tel. (914) 747-0110, Fax (914)747-1326