Public sector: Special delivery

So it’s hardly surprising that FDs in the public sector are gearing up to deal with Tony Blair’s “delivery, delivery, delivery” pledge on public services. The clock is ticking and Blair knows that unless he can demonstrate measurable improvements in core services such as health, education and transport by the next election, he might as well book permanently into that Tuscan villa and start writing his memoirs.

Public sector FDs are no strangers to change. Over the past decade they’ve been battered by a raft of new ideas ? from compulsory competitive tendering to public-private partnerships ? designed to improve services. Most have had limited impact. For example, a recent report from the Institute of Public Policy Research think-tank says PPP seems to offer “significant” value-for-money gains in roads and prisons but not in hospitals and schools.

Is there are any evidence that new initiatives will be any more successful? In fact, there is ? for two main reasons. First, more public sector FDs have emerged from their accountancy department cocoons to become management butterflies of no small brilliance. In more and more public authorities the finance function is driving much of the necessary change.

Secondly, with more than a decade of delivery initiatives behind it, the public sector is becoming more aware of what works. Blunt one-size-fits-all schemes introduced with little thought as to the change management questions they beg are out. Compulsory competitive tendering is a case in point.

Now we are beginning to see the emergence of a more focused approach. The Best Value initiative in local government is an example. It is designed to pose more fundamental questions about the purpose of a particular service and whether its objectives are being achieved. It’s not going to grab headlines in the way CCT did, but it’s more likely to change the way local councils go about their business.

Tony Redmond, chief executive and director of finance at the London Borough of Harrow, is one of an increasing number of FDs in the public sector who seem likely to rise to the top in their organisations as the finance function takes centre stage.

He believes Best Value is already proving very important and points to the government?s new public service agreements, which have been piloted in 20 local authorities during the past year, as an example. “They seek to focus on particular areas of activity and actually identify targets for achieving improvement and service delivery,” he says. The idea is that an authority undertakes to improve delivery in a particular service in return for extra funding. This creates a contract that has measurable objectives. These could be general ? such as ancillary services in education ? or specific, such as boosting performance at a named school.

In those public sector organisations that are responding well to the delivery challenge, there is inevitably a reappraisal of the role of the finance function. For example, Highways Agency corporate business controller Tony Dart says his finance function has been at the heart of a new management plan and performance system, which has been introduced during the past year. It covers external service delivery and internal performance.

The management plan is backed by a board-level performance management action group. Its task is to make sure the plan is put into practice. It meets monthly with a major review quarterly. Meetings review progress against schedules of external programme delivery and internal management objectives. It then acts to pull plans back on track where necessary.

Dart believes this new approach is already showing through in what Blair has said he wants ? “delivery outcomes”. He believes one reason why it has been so successful is that front-line managers were involved in setting the performance indicators. “This way, we got commitment,” he says. “After a year with the full board management we can see how the process can be extended to lower levels ? through divisional teams, down to individuals.”

The improved focus on delivery in the Highways Agency is reflected in the way the finance function is being moved closer to its customers. Already about half of the 70 staff in Dart?s management accounting operation are working in regional offices. “And they work with people locally,” Dart says.

The delivery strategy is likely to see more finance functions devolved down into their organisations. “Increasingly, you will find the accountant down at the front line ? and rightly so,” says Steve Freer, chief executive of CIPFA, the public sector accountancy institute. “That is recognising the importance of the front-line activity and of delivery. At the sharp end, accountants are gaining a better and more intelligent understanding of what’s happening in public service delivery at the interface with the customer. As a result, the finance function becomes much more engaged with the real business. You can’t get that from the ivory tower of corporate headquarters.”

With the government determined to press ahead with public-private partnerships, more public-sector FDs are finding they need to hone skills in areas such as negotiating with third parties and creating joint governance arrangements. These need to be carefully negotiated. “If we get them wrong, we sometimes have 30 years to repent at leisure,” Freer says.

The £300m partnership between Liverpool City Council and BT, signed earlier this year, is an example of just how far-reaching some of these deals can be. The two have established a joint venture ? Liverpool Direct ? to operate the Council’s call centre, the largest of its type in the country. Later, the company will take over the running of a raft of other council services including revenues, benefits and payroll.

No matter how services are delivered, performance reporting is clearly going to head up the agenda. “I definitely see more public bodies developing highly systematic approaches to performance management,” says Freer. “Some of this is rocket science because public bodies don’t just make widgets – they provide all sorts of services, some of which are very difficult to measure. Often, of course, it is important to measure quality as well as quantity.”

Dart, a former technical director at CIMA, believes performance indicators work best when they?re used in matched pairs. “If you don’t, you find a project driving one way ? for example, quality sacrificed in the interests of cost.” He has implemented this approach at the Highways Agency, although its application elsewhere in the public sector is fragmentary.

This highlights one of the biggest problems with Blair’s delivery ambition. There are islands of best practice, but they’re set in a sea of poorer management and beset by under-funding. A partial answer to the first problem, as the IPPR suggests, is to encourage successful public sector bodies to work with the less successful. The second might be tackled if local government and public enterprises that generate revenue are given freedom to raise capital and trade with other public bodies. Public sector FDs have a pivotal role in these debates.

Some FDs will find the new pressure a challenge. Freer says: “I think there is a huge need for flexibility. Accountants of the future are not going to be people with an arid job description that says they can do A, B and C but not D, E and F. They are going to be people who are light on their feet and who can switch across from one activity to another.”

• This article first appeared in Finacial Director magazine.