Measuring productivity in the public sector

The public sector is the principal actor in macro socio-economic policy making infrastructure and an architect of an enabling environment for national development.

Public sector management covers such aspects of management as productivity management and management of human, financial and other resources. It involves an array of activities ranging from planning, formulation and implementation of policies, programmes and projects for the delivery of goods and services to the nation through a number of government and quasi-government institutional arrangements. Consequently, it is imperative that the structures, policies and operations of the public sector respond adequately to the socio-economic needs of the nation and to global challenges.

Public sector productivity is an important to economic development of a country as that of the private sector. Three main reasons were identified for why public sector productivity is crucial. First, the public sector is a major employer. Second, the public sector is a major provider of services in the economy, particularly, business services (affecting cost of input) and social service (affecting labour quality). Third, the public sector is a consumer of tax resources. Changes in public sector productivity may have significant implications for the economy. Economic growth and rising living standards depend on higher productivity. The less manpower and capital are available, the more productivity growth must be accelerated.

Public funds

Productivity is generally defined as a measure of the amount of output generated per unit of input. In many countries, public sector productivity has been assumed to be zero in the national accounts, the output of the government sector has been measured as equal in value to the total value of inputs, and this output equal's input convention has increasingly come under scrutiny in recent years.

Productivity focuses on efficient and effective use of resources to produce higher output. Higher productivity could be achieved through the collective capabilities of individuals and teams, technology, improved work process and systems and enhanced collaboration and better decision making. The outcomes include reduced wastage, better products and services and increased profits.

The definition of productivity as being concerned with the relationship between input and output does not cover issues that many people have in mind when they talk about public sector productivity. A more general interpretation of productivity have in mind the general question of what value they receive from public services in return for the utilization of public funds.

The concept of performance may represent a more attractive conceptual path towards improvement. Still, both productivity and performance concepts are underlying premises of public administration and the core of an ongoing efforts that persists because it addresses a fundamental linkage: a productive society is dependent upon a high performing government.

Productivity and performance are a function of many factors - ranging from top management support, committed personnel at all levels, a performance measurement system, employee training, reward structures, community involvement and feedback to correction of budget - management decisions. It is thus important to build up capacities for productivity improvement. Special attention should be paid to productivity issues departing from the special characteristics of services such as intangibility, openness and process - based. Effectiveness and productivity are not opposites but they should be understood as mutually complementary. Productivity of services should be understood more deeply as a phenomenon and pay attention to the relationship between productivity and quality, measurement of productivity and factors that raise productivity and quality.

Customers and service providers

In manufacturing industry, labour intensive manual work and automation may be seen as opposites, but in services, the situation is different. Productivity is also often linked to discussions concern general efficiency. In such cases, productivity is understood in a wider sense and combined to rationalization of work and improvement of well-being in the working community. Distinguished three definitions concerning productivity is the techno-economic approach i.e., productivity as an efficiency measure, productivity as a combination of efficiency and effectiveness and a wide approach that contains everything that makes organization function better.

Drucker (1963) has expressed the difference between efficiency and effectiveness in a very practical way. Efficiency means doing things right and effectiveness means doing the right things. Effectiveness often implies paying attention to value creation for the customer, and this is harder to quantify. Changes in effectiveness show preliminarily as changes in outcomes, and effectiveness has no maximum value in practice.

Quality is very important with regard to services, because a more efficient process have an impact on the character of the service supplied. Due to the openness of process, services may well be investigated from the point of view of developing productivity as a mutual learning process of customers and service providers, in which resources and production and consumption process of both groups are reconciled.

If productivity is improved only by producing more in quantitative sense, this may lead to a greater share of defective or low quality performance thus quality also taken into account for measuring productivity.

The traditional way of measuring productivity is based on physical units; physical input may be hours of work and physical output may be customers served. Also time may be seen as corresponding to physical units.

Productivity can be measured in number of ways, the interpretation of productivity growth is greatly dependent on the way in which productivity is measured and public sector productivity is most often measured as labour productivity. Labour productivity is mostly calculated as Gross Domestic Production (GDP) per worker. In addition to labour productivity, multifactor productivity should also be measured.

Many government managers are inclined to focus on their department's activities or workload, rather than on the bigger picture of whether their efforts lead to positive changes in the lives of citizens or produce other results they were designed to bring about. Thus managers may overlook opportunities, perhaps procedural innovations or fundamental service delivery alternatives that might improve the results or outcomes of these activities. It is thus not enough to measures productivity only in an input and output way in the public sector context, but also quality needs to be taken into account.

Private sector

The concept of productivity is often confused with the wider and more common concept of performance and performance measurement. Productivity is one of the many ways in which performance may be measured and defined.

Many stakeholders with conflict needs, undefined end product and goals and poor management skills are the specific problems faced by the public sector organizations in designing and implementing performance measurement systems.

The public sector is devoting more attention, time and resources to performance management, measurement and evaluation than in early times. Many public sector organizations have implemented performance measurement systems, such as Balance Scorecard. However, such adaptation of private sector approaches has caused a number of difficulties because of multiple stakeholders in public sector organizations.

It is becoming more usual to say that when developing and implementing performance measurement systems in the public sector, the starting point and key drive should be stakeholders' needs and expectations. The public sector should thus prefer performance measurement systems that pay sufficient attention to stakeholders. One of the most important factors behind successful operative level performance measurement is the linkage between measurement and rewarding.

In spite of limitations concerning finance, the public sector has a clear need to develop its appraisal, reward and recognition schemes, along with other motivational influences which ensures that employees' targets are consistent with organizational and stakeholder objectives. Also the measurement process itself should be looked at from the points of view of efficiency and effectiveness.

Productivity is a never-ending marathon. Because the public sector is important in ensuring the well-being of nations and quality of life of their citizens, productivity enhancement in the public sector immediately frees scare resources. Public sector reform and improved productivity should be given top national priority.

Courtesy: Employees Trust Fund Board