Public Sector Re-organisations and Mergers – Creating Agility and Managing Change

As a new coalition Government begins the business of deficit reduction, managers of public sector organisations are faced with the reality of a period of austerity which will demand large-scale organisational reform. Financial pressures – including for reduced management and administration spend – as well as systemic trends - towards greater use of shared services, collaborative commissioning and integrated delivery – will engender more restructuring and mergers in the public sector. This Paper argues that managing this sort of complex organisational change – which requires rigorous planning, audit, communication, a clarity of strategic purpose and an ability to maintain delivery by securing staff buy-in – demands a constellation of skills and experience which is currently rare in the public sector. Odgers Berndtson’s interim change teams and talent development programmes are designed to bring in and bring on change-management expertise, and – unlike traditional, costly consultancy approaches – to develop in-house capacity for the long-term.

The election of a hung Parliament and the formation of a coalition Government have compounded the uncertainty which has troubled managers in the public sector for some time. With the new  administration taking shape and beginning in earnest the business of deficit reduction, public sector organisations (PSOs) now face the prospect of rapidly deteriorating budgets and radical organisational reform. Amid all the forthcoming debates on the nuances of the coalition parties’ policy positions, managers of PSOs should continue to focus on the immediate challenges they will face, come what may from Whitehall.

One of these is workforce reform. The public sector has changed dramatically over the last decade or so; much progress has been made in modernising the infrastructure of service delivery in the core areas of health and education; funding has risen to European levels. Yet much of the increased spend has been taken up in – and many of the improvements in delivery and outcomes achieved by – increased staff numbers and pay levels across the public sector. Now, as public sector organisations (PSOs) face significant cuts, over 70% of total public sector expenditure that is not committed, and can be reduced, is spent on employee salaries and wages.

Any significant reductions in expenditure must involve reductions in direct employment. But current performance systems on their own are not robust enough to support employee selection processes. Appraisal systems are underdeveloped and divergent, even within a relatively cohesive culture such as the NHS. And in any case, there are urgent pressures now for workforce reform and organisational redesign: the federation of schools, for instance, the merger of acute Trusts or the integration of community services and hospital care provision. New structures and conjoined organisations (commissioners as well as providers) are emerging largely as a result of systemic pressures, rather than as a direct consequence of policy-making at the centre. Across the public sector, then, reorganisations will be required to define new structures and mergers and to assimilate staff.

But these are risky; even in the private sector, which has greater experience of and appetite for such change, re-organisations and mergers are expensive, disruptive and injurious to performance if they are not expertly managed. There has been considerable attention paid to Whitehall reorganisations and their pitfalls in recent months; an NAO report published in March found that each cost on average £15m, that planning and cost control were poor and that staff were crying out for support and advice. A more recent study of Machinery of Government changes by the Institute for Government and the LSE found that the most successful such changes were driven by, and focused on, longer-term policy ambitions, rather than short-term political or costcutting considerations.

So the danger is that PSOs – from Whitehall Departments to community services providers – will embark on restructurings and mergers engendered by the financial imperative of delivering year-on-year efficiency savings, rather than by a strategic understanding of the opportunities which organisational reform presents, in terms of leaner production of outcomes for citizens.

Organisational change of this sort makes considerable demands on managerial time; indeed, far from being characterised by streamlined management cadres, many conjoined organisations – being more complex than either of their predecessors, require significant managerial resource. The threat is that rushed re-structuring will damage service delivery performance just as much as the reductions themselves.

Yet, with careful guidance and support, we can create new organisations that are more agile than those which existed before. The task is complicated by the fact that there can be no blueprint for such organisational changes: the merging of commissioning and delivery functions, and the sharing of management or back-office resources will develop at different speeds in different localities. In expansive rural areas, for instance, there may be limited scope for hospital mergers, but strong arguments in favour of coterminous PCTs and Councils cooperating more closely to bring health and social care closer together in more efficient, multidisciplinary teams. We need public service organisations that can adapt more easily to an uncertain policy and financial future.

75% of reorganisations fail to achieve their objectives. Largely this can be put down to employees feeling remote from the change and the change process causing resentment, stress and de-motivation - damaging the employer brand. Badly managed change eats away at performance. Recent work in this  area suggests that the highest-performing organisations, which meet or exceed the outcomes targets they set themselves on embarking on a programme of significant organisational reform, secure high levels of buy-in amongst senior- and middlemanagers, as well as front line staff. They also tend to attach particular importance to clarifying responsibilities from the start and ensuring that the strategic  rationale for change is widely understood.

A nimbler and more agile PSO is more likely to be able to adapt to satisfy regulators, performance-managers and service users, in a period of uncertainty and changing demand. This requires organisational structures, systems and mindsets that are open to, and capable of, rapid change. Managing this well whilst maintaining performance is tricky, but need not be impossible. Creating an agile organisation is about many complimentary strands of action including: structure, job definition and reward; understanding the organisation’s talents and capabilities; promoting a culture that supports redeployments and re-skilling; taking a whole-organisation approach to workforce; strong, visible & consistent leadership and the development of an internal change-management capability.

This last point is important; with downward pressure on consultancy spend across the public sector, building in-house capacity to negotiate changing operating environments will be increasingly critical to securing a licence to operate. Traditional consultancy approaches to supporting change have tended to be sold as a bolt-on and have been insufficiently concerned with developing the capacity of client organisations, engendering dependent, not self-confident and capable public sector bodies.

Our offer is different; it brings people with proven ability in difficult fields into PSOs to address their challenges in partnership. At Odgers Berndtson we have listened to the voices of those who are searching for real, integrated and experienced support. We are unique in having access to a large number of talented individuals with direct experience of devising and delivering complex change, who can join change teams on a flexible interim basis to bring that experience (of organisational reform and mergers in the public, private and non-profit sectors) to bear on specific programmes and to address core skills deficits.

PSOs will know those areas and skills that need strengthening; we work with our public sector clients to build a change team, or an internal talent development programme, specific to their needs. We have access to a wide range and depth of leadership talent, so what we are able to offer is a fully flexible approach to change management, with everything from a full time placement to mentors on offer. Building the capacity of the centre to support and shape organisational restructuring is also likely to be important as the pace of public service and Whitehall reform accelerates; the Institute for Government/LSE report recommends the creation of a “scratch team” in the Cabinet Office ‘to run a new Department’s core responsiveness operations for a transition period [...], helping set-up press operations, interim HR functions and facilitating IT and finance systems changes, while its senior officials are undertaking the reorganisation work’. Here, too, our people, who combine experience of difficult change-management with understanding of the complex, policy-determined operating environments of Whitehall and the wider public sector, are well-suited to the task at hand.

This is not consultancy. It is about growing PSOs’ capacity for and confidence in developing the agility and skills to negotiate change, through dedicated interim teams or through talent management – identifying and bringing on people with skills relating to the design, audit and implementation of transformational change in public services. Its focus is on delivery – not costly advice – and on impact; building a change team in partnership is significantly better value for money than buying in consultancy, and costs around a third less over the lifetime of the project. This is about building a lasting legacy.

We believe this approach can help organisations across the public sector to seize the opportunity that now presents itself. We believe it puts the organisation firmly in control and will support PSOs in building support for change across their workforce. If you are interested in discussing these concepts further, please contact us.

View or download the Public Sector Re-organisations and Mergers – Creating Agility and Managing Change Board Paper