Productivity – or, more specifically, finding a way to halt the decline in productivity growth that has been seen in recent years – is a national and international preoccupation.
Global productivity growth between 2015 and 2019 was only a third of the level achieved between 2000 and 2004; that means lower economic growth and lower tax revenues, which has significant consequences for governments and the public sector. As the economist Paul Krugman said, ‘productivity isn’t everything, but, in the long run, it is almost everything.’
‘The way the public sector operates and how public services are delivered needs urgent change’
A new report from ACCA argues that the solution lies in productivity in the public sector, because effective public services are essential to support the growth of the wider economy. Public finances are under pressure; public debt globally reached 93% of GDP in 2023, and in low-income countries on average a quarter of tax revenues are spent on debt interest payments.
The report, A productive approach: Finance professionals improving productivity in the public sector, says that improving productivity in the public sector is vital if governments worldwide are to be successful in addressing the pressures on public budgets and improve public services. The biggest difference will come from delivering higher quality outputs without increasing inputs. To deliver this, however, ‘the way the public sector operates and how public services are delivered needs urgent change’.
Wider lens
The report advocates ‘a transformational shift’ for finance, moving away from a narrow focus on cost cutting and cost control. ‘Finance staff and leaders must work strategically at the heart of governments and the broader public sector to fully understand how productivity ambitions can be realised,’ it says.
The public sector is designed to achieve objectives whose market value cannot be readily identified
Understanding and measuring productivity – or the efficiency with which an organisation converts its inputs into outputs – is even more complex in the public sector. In the private sector, the prices of goods and services are readily available, allowing output to be measured. But in the public sector there are often no prices, and many outputs are provided free of charge at the point of delivery. The public sector is designed to achieve policy objectives as well as outputs, whose market value cannot be readily identified.
The report explores in detail the ways in which productivity in the public sector can be better assessed and measured, and argues that the entire delivery chain needs to be examined to understand where and how finance teams can drive interventions. Useful case studies from public sector organisations around the world are used to demonstrate leading-edge thinking.
‘Having an adult conversation upfront would free up so much of everybody’s time’
The report looks at the three main elements of the public service delivery chain: budget efficiency, organisational productivity, and the effectiveness of outputs and outcomes. Accountancy and finance professionals, it says, are critically important to improving productivity at each of these stages.
Budgeting wise
The budget is seen as the starting point for improving productivity. In reality, however, budgets often act as both a constraint and an enabler. As one participant in the roundtable events that informed the report said: ‘Inevitably we set a budget every year and then subsequently have to find savings. Having an adult conversation about that upfront…would free up so much of everybody’s time and we could actually focus on value add.’
The budget, adds the report, should be seen as the appropriate forum for decision-making, rather than a staging post on the road to further negotiation.
Organisational productivity is essentially ‘doing things right’
The report argues that rather than focusing on economic efficiency and the price of inputs, the budget process could be a strategic tool for enabling productivity. Its recommendations for finance professionals involved in the process include:
- ensuring that budgets are realistic at the point they are approved
- working closely with procurement specialists to identify opportunities for reducing input costs
- providing evidence of how short-term savings can have long-term costs
- advocating for a more strategic approach to cost reductions.
Everyone’s business
When it comes to organisational productivity, the report says that financial professionals’ role in bringing together and reporting information is essential to the understanding of how resources are used. This makes finance professionals ideally placed to help identify blockages that hamper effective delivery, including making the most of incremental advances in technology to streamline processes.
It adds that organisational productivity is essentially ‘doing things right’ and should be seen as everyone’s business. Finance professionals will need not only a strong understanding of their organisation, but good working relationships with other teams to enable changes to be made.
The final element of the delivery chain is delivering outcomes and outputs that meet the goals of decision-makers and wider society; the effectiveness of public services is what matters most to citizens and users. Public sector organisations need to decide on which priorities will have the greatest influence on achieving objectives, and financial professionals ‘are integral to this process, by providing analysis and ensuring resources are allocated’.
‘Public sector finance professionals must grasp the opportunity to lead a focus on productivity’
The finance function can also drive collaboration across organisational boundaries to work together for more effective outcomes, and share their experiences with finance professionals in other public sector organisations to drive ‘a more organic approach to productivity improvement’.
The report concludes that there is no single, straightforward solution to the productivity puzzle, but focusing on these three elements of the public sector delivery chain will allow finance professionals to make a difference.
‘Public sector finance professionals must grasp the opportunity to lead a sustained organisation-wide focus on productivity,’ it says. ‘Joining up finance professionals’ traditional roles of budgeting and reporting with a systematic approach to thinking about performance will put in place a platform for a more productive approach.’
Listen again
Register to listen on demand to ACCA’s Virtual Public Sector Conference session ‘Innovative strategies for public sector productivity’, where these themes are explored further
