Creating People Advantage in the Public Sector

Creating People Advantage in the Public Sector

          
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Creating People Advantage in the Public Sector

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  • The Imperative for Change

    Government HR leaders know only too well the pressures weighing on their organizations. First, there are the big constraints on public budgets, which frequently lead to large-scale reorganizations or severe staff cuts—or both. In the US, for example, the Department of Defense recently announced a sharp 8% cut in Army staff and a 17,000-person reduction in the civilian workforce. In France, Ministry of Defense staff was slashed from 330,000 in 2006 to 270,000 today. And in the UK, the government has reduced the number of civil servants by almost a fifth since 2010.

    In addition, demands on government are only increasing. For example, in the wake of the global financial crisis, governments in many countries continue to play a large role in areas such as assistance for the long-term unemployed. And providing these services often requires increased staffing and enhanced training and skills.

    At the same time, citizens have increasingly high expectations when it comes to the quality and efficiency of public services, in part because more information is available about the performance of governments around the world. From the OECD’s PISA rankings of student performance to the World Bank’s Doing Business rankings to BCG’s own Sustainable Economic Development Assessment, there is greater visibility into how governments are performing relative to peers.

    Governments also need to upgrade their skills in many areas. Whether because increased outsourcing requires new contract management skills or because the latest digital tools demand high levels of technical expertise, governments need to bring critical skills onboard.

    Compounding these challenges is the fact that many governments are facing an exodus from the workforce over the next decade. In OECD member countries, for example, one-third of employees are older than 50. As a result, a significant amount of hiring and training will be needed, as well as an overall rethinking of roles.

    Transforming HR will require major initiatives… Taken together, the forces weighing on governments will trigger significant shifts. These will include changes in the scope and mission of some roles, improved processes in many areas of government, and mergers, reorganizations, and delayering programs. HR will play a central role in such initiatives, and government leaders must ensure that their organizations are up to the task. HR leaders certainly recognize the need for change.

    In BCG’s 2014 Creating People Advantage survey of more than 400 government HR leaders (conducted in partnership with the World Federation of People Management Associations), public-sector HR managers reported significant challenges, including the need to develop advanced analytic capabilities. (See “The Current State of Public-Sector HR.”)

    THE CURRENT STATE OF PUBLIC-SECTOR HR

    Public-sector HR leaders surveyed by BCG’s Creating People Advantage team identified three areas requiring urgent action: engagement, behavior, and culture management; talent management and leadership; and HR strategy, planning, and analytics. These are areas that participants believe will be critical to future success but in which their current capabilities are low. (See Exhibit 1.)

    exhibit

    Our survey found that HR is significantly less involved in the development of business strategy and in strategic decision making in public-sector organizations than it is in private-sector companies. (See Exhibit 2.) Also, HR metrics are used less in day-to-day decision making in public-sector organizations.

    exhibit

    Furthermore, while HR leaders across industries report that data tools are particularly useful when it comes to HR strategy, performance management, and recruiting, the use of such tools in the public sector is limited. (See Exhibit 3.) For example, public-sector organizations use KPIs much less frequently as part of HR efforts to boost productivity or manage personnel costs. In fact, not even 50% of public-sector organizations have a single data management system that contains all their relevant HR data. And only 40% have dedicated teams within HR to analyze that data.

    exhibit

    The gap between the public and private sectors could widen even further as many private-sector companies extend their analytical capabilities by harnessing big-data tools and advanced data analytics solutions. In order to avoid falling further behind, the public sector must not only adopt big-data tools but also find people with the skills to deploy them and develop a culture that can fully exploit them.

    Certainly there are understandable reasons for the difference in analytical capabilities between the public and private sectors. In private-sector organizations, finance teams often drive the collection of HR data, which can be used to develop analytics for evaluating production costs, including staff expenses. In the public sector, however, bolstering profitability is not an incentive, so information on the costs involved in providing public services is often lacking. However, the fact that public-sector organizations have not used such HR analytics in the past does not mean that they cannot deploy them in the future. After all, if HR organizations are to make progress in meeting their most urgent challenges, they will need to address their capability gaps head-on.

    In many ways, remaking a public-sector HR organization is even more challenging than transformation in the private sector. For one thing, the sheer size of the public-sector employee base has major implications for the national labor market—and therefore complicates the HR mission. In the OECD countries, for example, government employment in 2013 represented an average 19.3% of the total national labor force. (See the exhibit below.) As a result, changes in government salaries or employment levels can affect consumer spending, while higher or lower levels of government outsourcing can affect private-sector employment. There are also institutional factors, such as strict rules on layoffs and restructurings, that can create barriers to change. (See “A Balancing Act in Public-Sector HR.”)

    exhibit

    A BALANCING ACT IN PUBLIC-SECTOR HR

    Change is difficult no matter the setting. But public-sector leaders face a host of institutional challenges that make the task of revamping HR processes particularly complex.

    For one thing, the policies and regulations governing public-sector HR often limit flexibility. In some countries, there are strict rules governing layoffs, promotions, and the use of performance-based compensation and other incentives. And there is often little freedom to move people into different jobs or locations. In part this is because the age of many public-sector workers makes them less amenable to major career changes.

    In OECD countries, for example, the number of workers over 50 in the public sector is on average 26% higher than in the private labor force. In addition, because labor unions are generally more powerful in the public sector than in the private sector, government HR leaders need to involve them in the planning of any major transformation effort.

    Complexity also presents hurdles. Government organizations are often fragmented, with silos within both central and local offices. This can make it difficult to get a comprehensive overview of the workforce and of potential opportunities to move people into different positions and locations. The employee base is also typically quite diverse, resulting in a variety of cultures and HR policies. Defense departments, for example, comprise both civil and military personnel—two very different types of workers.

    Finally, the mission of government to better the lives of citizens affects how HR operates. Public-sector organizations are expected to be out in front when it comes to promoting equality and diversity in the workplace. Any changes affecting the government labor force therefore need to be assessed carefully in that context.

    Taken together, these issues create real challenges for public-sector HR organizations—and offer more evidence of the need to deploy the ten transformation levers outlined here.

    …but some challenges will create opportunities. Some of the challenges to transforming HR could have long-term benefits—if they are handled well. The aging workforce, for example, will result in natural attrition in public-sector organizations—and an opportunity to upgrade talent and potentially eliminate some positions through better use of technology. Of course, capitalizing on that opportunity will not be easy. For one thing, areas in which large numbers of employees are retiring will not necessarily be ones where positions can be eliminated.

    Still, as governments recruit teams to harness new digital tools, they can make major improvements in efficiency. In the UK, for example, the Driving Standards Agency (now the Driving and Vehicle Standards Agency) started offering an online channel for booking driving tests in 2003. More than three-quarters of roughly 2 million annual transactions are now handled digitally. The result: one of two dedicated contact centers was closed in 2008, and the total number of employees involved in these transactions fell from 400 in 2003 to 75 in 2012.