Private Sector/Public Sector Differences

	Private Sector		Public Sector
	Discretionary for-profit health services	Example: elective cosmetic surgery	Medically necessary health services for all persons	Example: kidney dialysis
Purpose	Provision of private goods and services through commercial activity	Provision of a desired commodity for which recipients will be willing to pay a premium	Provision of public services	Provision of a life-saving service to citizens
Goals	Simple, economic	Keeping cost and quality competitive to ensure a customer base	Complex, economic, social, political	Keeping the population healthy and cared for
Service recipients	Customers, clients	Any individual with the means to pay, whether a citizen or not	Citizens	All citizens and landed immigrants
Criteria of success	Profitability	The procedure makes a profit and doesn’t involve any unforeseen expenses.	Effective implementation of services	The patient lives and the illness is managed. Society is healthier.
Evaluation of success	Financial, objective	The customer is satisfied, recommending the service to others and/or returning for another procedure.	Political, subjective	Public health care and the well-being of society are promoted.
Accountable to	Owners/shareholders	Private owner of service provider	Elected leaders/citizens	Department of Health, minister of Health, government, public
Operational environment	Marketplace, business realm, private	Private clinic	Government, political realm, public	Public hospital, Department of Health
Focus of management	One-dimensional	Effective provision of service for profit	Multidimensional	Effective provision of service to promote patient and social well-being
Skills of management	Business oriented	Business planning, marketing, service delivery, customer satisfaction, ensuring profitability	Program and policy oriented	Establishing criteria for public health, ensuring health care system can deliver timely and effective care, ensuring that patient and public well-being is promoted through the health care system

Dispatch Box: Measuring Operational Success

In the absence of a clear profit-and-loss method for measuring operational success, the public sector nonetheless provides a vital managerial motive: to allocate finite financial and human resources in order to get the most desirable results. Political and administrative judgments of success or failure take into account not only quantitative issues such as resources deployed and the number of goods and services produced or delivered but also the qualitative benefits that ensue.

How can the success of a government program be determined? How can we measure the merit or quality of a program that provides a necessary public service but doesn’t make any money? In this environment, the ends, means, and evaluation are all subject to differences of opinion.

Let’s look at the administration of the Canada Health Act. Do we take into account the amount of money currently spent on health care, and the medical facilities, staff, and patient care that such spending supports? Or at the pattern of spending support over the past decade, comparing the responses of appropriately sampled staff and patients against the decline in funding over the mid-1990s? Do we look at the new and developing medical procedures available to Canadians and at their increasing life spans? Or at their quality of life? And how does one measure quality of life? Evaluation of a government policy might also be made from beyond the system. For example, how does Canadian medical coverage compare with that of the United States, Britain, or the Scandinavian countries? Where in the spectrum of publicly and privately administered health care in North America do Canadian health services fall? Should we focus on the right of all citizens in this country to advanced standards of medical care regardless of ability to pay, or on lengthening waiting lists and the number of physicians relocating to the United States?

The answer to each of these questions—indeed, the wish to answer them at all—depends greatly on political and ideological orientation. And how a public sector manager within the health care system would answer depends on the leadership of senior management, the minister, the cabinet, and the prime minister. All managerial actions are evaluated in light of the policy objectives of the particular government, whatever the policy field.

Rather than possessing a single, essential form of evaluation—the profit motive in the private sector—the public sector has many, some primarily quantitative and some principally qualitative. Performance evaluation can be more or less comprehensive, more or less detailed, more or less oriented to policy or to administration. Future chapters devote greater attention to program evaluation and government efforts to improve evaluation methodologies, but a basic truth remains. Organizational performance evaluation within the public sector is at heart a political act.

Dispatch Box: Thinking about Span of Control Issues

Figure 5.1 from Thinking Government, 4e- Narrow Span of Control

Narrow Span of Control
An organization based on a narrow span of control:

• is much more hierarchical than one founded on a broad span;
• involves greater levels of middle management, linking the top echelons of the organization to its field offices and line workers; and
• allows a manager to supervise the actions of immediate subordinates and to oversee the quality of their actions.

The benefit of a narrow span lies in the ability of a superior to observe the actions of a smaller number of subordinates more closely, and thus to understand them better, than with a wider span. The main drawback of a narrow span, however, is that it accentuates the hierarchical nature of the organization, placing more bureaucratic layers between the top and bottom of the institutional pyramid. This makes effective formal communication throughout the organization more complicated and time consuming because it must flow through proper channels, moving step by step through the levels of responsible officials. A communication flow either up or down within an extended hierarchy must pass through many hands, and as in a giant game of telephone, with increasing likelihood that the meaning will become distorted or even repressed.

Communication problems can lead to the development of informal channels, whereby officials bypass layers of management in an effort to expedite the flow of communication or avoid the involvement of particular officials, or a combination of the two. Communication patterns become highly idiosyncratic, as some messages move more quickly through the system, and some are more readily available than others—to some managerial actors and not others.

Such informality violates the principle of unity of command. Superiors may lose their ability to stay informed about the communicative activities of their subordinates, and subordinates may not receive the information they need from their immediate superiors. When managerial action and decision making are based on such informal patterns of communication, the input of certain officials is often overlooked, and animosities can develop. The organizational decision-making process comes to be distrusted and viewed as more arbitrary than rational.

Broad Span of Control

Figure 5.2 from Thinking Government, 4e- Broad Span of Control

A broad span of control flattens the hierarchy by removing layers of middle management. This has the benefit of facilitating effective formal communication within the organization because messages need to travel through fewer steps between the top and the bottom. Senior management is more directly linked to the lower echelons than with a narrow span of control, and therefore much better apprised of the state of affairs in the organization.

The problem with a broad span of control, however, is the stress that it places on superiors. They are called upon to oversee and direct a much larger number of officials, who are engaged in a greater range of organizational activities. The elimination of middle-management ranks places greater responsibilities on senior managers because they supervise a much more complicated work environment. As Gulick and Urwick noted, this can lead to management failures as senior officials become overburdened.

The solution, of course—as Gulick and Urwick argued—is a viable compromise between a narrow and wide span of control that maximizes the benefits of effective command while promoting good patterns of communication. Gulick and Urwick emphasized that no rule can apply to all organizations because some function better with a narrower span and others with a broader one. They suggested that the appropriate span of control is contingent on variables such as the nature of the work supervised, the educational and training standards of subordinates, the extent of geographical decentralization of the organization, and the history and general stability of the institution.

While Gulick and Urwick thus failed to discover a scientific rule for devising an appropriate span of control, they consistently argued that their study of the concept highlighted principles and considerations that should form the basis of any systematic managerial approach to organizational design.

White Paper: Public Choice Theory, Bureaucratic Politics Theory, and Policy Network Theory

Public Choice Theory
Public choice theory, in its fullest iteration, refers to “the economic study of non-market decision-making, or simply the application of economics to political science” (Kernaghan and Siegel 1999, 134). Promoted by scholars such as Anthony Downs (1957), Albert Breton (1974), and Douglas Hartle (1976), the theory brings an economistic, market-analysis approach to the study of political and governmental decision making. As with mainstream economic theory, it assumes that all those involved in broadly political decision making are motivated by material self-interest and act in rational, systematic, and self-serving ways to that end. Don’t be confused by the name. Public choice theory is all about how individuals advance their private interests while working within the public sector.

Although the theory seeks to explain all decision making within the public sector—whether performed by politicians, lobbyists, or voters—it is most directly related to managerial decision making. Public choice theory posits that politicians and public servants (both staff and, more importantly, managers) possess the same materialistic and individualistic motivations as other people do. They are driven to advance their self-interest through the manipulation of public policy and public goods. And this becomes the technique of decision making.

A politician will advocate policies and programs likely to secure electoral victory and, once elected, will continue to defend and promote initiatives likely to keep him or her in office. With success, the elected representative gains access to the benefits of office: a state income, a generous pension plan, travel allowances, offices, and staff. And the higher up one goes—all the way to cabinet—the greater the material benefits and personal rewards of power and prestige.

The materialistic logic is much the same with respect to public sector managers. Public choice theory holds that managers exercise their power and influence not to serve the public interest but to further their own. They therefore make decisions and advocate for policies and programs designed to benefit their superiors—more senior managers and ministers—thereby strategically raising their own profile and potential for promotion. They support initiatives that will enhance the mandate, staff, and budget of their given institutional domain, whether an office, a section, a branch, a division, or an entire department. Through organizational growth, managers raise their own responsibilities and powers and consequently their access to organizational wealth, perquisites of office, and personal income. What is often referred to as “empire building” is thus perceived by public choice theorists as the logical outcome of the materialistic drive found in all managers.

Deeply rooted self-interest turns the concept of public service on its head, and it is this feature of public choice theory that its critics most fervently attack. Many analysts argue that although individual self-interest no doubt motivates some decision making, it is simple-minded in the extreme to assert that it explains all of it. The explanation ignores genuine belief in public service, a sense of duty to country, or belief in the progressive role of the state. Public choice theorists hold that these concepts are essentially platitudes to conceal baser human instincts. Their critics hold that such sentiments are at the centre of public service.

Bureaucratic Politics Theory
Bureaucratic politics theory holds that institutional self-interest is the key to managerial decision making, as managers strive to promote the long-term best interests of their home institution. Most forcefully presented by Graham Allison (1940– ), the theory holds that governments comprise all sorts of departments and agencies, each with its own policy and program aims and objectives, and each advancing its own institutional interests. The same holds true with respect to sub-units within departments and agencies. As decisions have to be made, managers serve the interests not only of their organization overall but also of their particular branch. Decision making is thus contingent on position within the broader organization or, in Allison’s famous aphorism, “Where you stand depends on where you sit” (Allison 1971, 176).

The internal logic of this theory, of course, is that every government is a vast amalgam of organizations with competing interpretations of policy and preferences on how to implement them. Decision making is a grand competition between institutions as they vie for power and influence. Consequently, bureaucratic units and sub-units engage in a complex system of bargaining. Operational decision making will eventually emerge from the interplay as senior bureaucratic and political leaders make choices among contending forces, but leaders, in turn, serve the interests of their home institutions.

Certain actors will inevitably be more powerful and influential than others due to:

• the size of their home institution;
• the capacity and financial and personnel strength of the institution;
• institutional reputation;
• the historical role and responsibility of the institution;
• the quality of the policies and programs advanced and how well they match prevailing political and ideological interpretations; and
• the ability of the manager to set and maintain a broad strategic direction, working with allies and coping with competitors to build operational coalitions that support the interests of the institution.

A final decision often represents a compromise among policy and program objectives and initiatives agreed to by various actors. And conversely, sometimes it reflects the victory of one actor or group of actors over others.

Policy Network Theory
Policy network theory holds that institutions, groups, and individuals compete with one another in every policy field in an attempt to advance their own interests (Pross 1986). Groups and individuals interact with government departments or agencies that have decision-making jurisdiction over a given field in an effort to gain support for preferred policy and program approaches. Departments and agencies, in turn, possess an organizational duty to engage with all interested parties in order to manage the policy field. Every field is thus a network of private and public interests and forces, interacting and competing with one another in the quest for desirable policies and programs. And the key role of lead actors within each network is to distil all the interests with which they are confronted, and to apply their own considered judgment to determine where the broad public interest lies in relation to the policy field in question.

White Paper: Canadian Climate Change Policy

Dispatch Box: Humanizing Organizations

Case Study: Max Weber Helped You Get Your Driver’s Licence

1. Identify the functions denoted by POSDCORB and give an example of each.

Planning	Planning the security arrangements for a royal tour
Organizing	Organizing new training courses for the Canadian army based on lessons learned in Afghanistan
Staffing	Hiring personnel to work in the new prisons required by the government’s tough-on-crime agenda
Directing	Department of Health management directing staff to devote more attention to developing programs that measure wait times for core medical procedures
Coordinating	Agriculture and Agri-food officials coordinating their activities with those of provincial departments on agriculture over new measures to address cattle hoof-and-mouth disease
Reporting	Justice officials reporting to their deputy minister on Criminal Code amendments to target organized crime
Budgeting	National Defence financial management officials developing multiyear budgets to account for the purchase and maintenance of F-35 stealth fighters for the air force

2. Explain six major differences between the public and private sectors.

You could focus on any six of the following differences:

• serving citizens or serving customers
• providing commercial services or providing public services
• narrow economic goals or broad social goals
• judging success by profitability or by effective implementation of services
• being accountable to owners and shareholders or to elected leaders and citizens
• the private marketplace or the governmental-political realm as the operational environment
• one-dimensional or multidimensional management focus
• business-oriented or program- and policy-oriented management skills.

3. Define the organic-humanistic model of organizational theory.

Your response should make the following points:

• Organizations are complex living entities, populated by complex human beings.
• Organizations have formal and informal systems of communication.
• Organizations possess informal groupings of people.
• People in an organization possess complex motivations.
• Employees are an organization’s best resource.
• Management should structure its actions to maximize the innate potential of its human resources.
• Hierarchies within an organization should be as shallow as possible, allowing for ease of communication.
• Power and influence within an organization should flow both top-down and bottom-up.
• Participatory management is the ideal form of organizational managerial behaviour.

4. Define the structural-mechanistic model of organizational theory.

Your response should make the following points:

• Organizations are best understood in structural terms.
• Hierarchy is the best means of organizing a bureaucracy.
• The logic of an organization is to achieve ends by the most economical, efficient, and effective means possible.
• Institutional rationality is to be understood in instrumental means–ends terms: the use of the necessary means to achieve desired ends.
• Management should take a command and control role within the organization.
• Power should flow from the top down.
• Senior management is the driver of the organization.
• Employees are expected to faithfully execute the orders of management.

5. Identify the eight principles of a Weberian bureaucracy.

1. Hierarchy
2. Unity of command
3. Specialization of labour
4. Employment and promotion based on merit
5. Positions based on full-time employment
6. Decisions founded on impersonal rules
7. Work recorded and maintained in written files
8. Clear distinction between bureaucratic work responsibilities and the private interests of employees

6. Compare and contrast the merits of incrementalism and rationalism.

Incrementalism

Merits

• Decision making is easily understood by management and staff.
• Decisions can be made without significant time and resources or new and complex skills because current decisions are rooted in past decisions.
• Activities are institutionally viable, meeting defined goals that are simple and easily attainable.
• The model describes how organizations actually work.

Demerits

• The approach looks backward, privileging past practice.
• It lacks systematic planning.
• It fails to explain wholly new initiatives.

Rationalism

Merits

• All decisions are based on comprehensive planning, analysis, and critical thinking.
• Planning is based on clear objectives.
• Planning is based on ends–means/cost–benefit analysis.
• The system encourages forward thinking and strategic priority setting.
• The system requires careful analysis of all organizational activities to determine how well they conform to objectives.

Demerits

• Planning is overly complicated and time-consuming.
• Required priority setting invites organizational conflict.
• Ends–means/cost–benefit analysis is easier said than done.
• Supposedly objective results of rationalist planning are always open to subjective criticism.
• Rational planning is simply too hard to do, does not lead to organizational consensus, and divides and weakens organizations and their management.

1. Mintzberg (1973) divides management functions into three fields. They are

• a. information processing, decision making, developing funding
• b. decision making, making interpersonal connections, information processing
• c. handling crises, making decisions, inspiring staff
• d. none of the above

2. Which of the following is not an example of a staff function?

• a. providing legal aid to citizens
• b. conducting research on immigration law to be used in a pamphlet published by the department of Citizenship and Immigration to inform potential immigrants
• c. offering a seminar on financial management to workers in the Department of Immigration, Refugees and Citizenship
• d. preparing a policy paper on immigration for the minister of the department

3. Among the givens that determine bounded rationalist action are

• a. the history of the organization
• b. legal and constitutional frameworks
• c. limits to financial and personnel resources
• d. all of the above

4. Which of the following characterizes the public sector?

• a. Goods are provided through commercial activity.
• b. Service recipients are citizens.
• c. Profitability is a criterion of success.
• d. Management focus is one-dimensional.

5. Which of the following is not an obligation of the public sector?

• a. to treat all citizens equally
• b. to serve the political executive in developing public policy
• c. to ensure that all citizens have gainful employment
• d. to ensure that all citizens have the right to employment insurance

6. An organization with a narrow span of control is characterized by

• a. flatter hierarchical structure
• b. greater hierarchical structure
• c. fewer middle managers
• d. no middle managers

7. The Hawthorne studies broke ground by identifying

• a. the importance of command and control management
• b. the existence of formal groupings in organizations
• c. the existence of informal groupings in organizations
• d. the importance of participatory management in organizations

8. Public choice theory is noted for

• a. promoting public sector values in government decision making
• b. looking at how self-interest affects public decision makers
• c. assessing the influence of public opinion on the public service
• d. assessing the influence of the media on politics

9. In bureaucratic politics theory, the most important decision maker is

• a. the prime minister
• b. the clerk of the Privy Council
• c. cabinet committees
• d. an organization’s leadership

10. In policy network theory the most influential decision makers are

• a. news networks
• b. policy think tanks
• c. networks of like-minded interest groups
• d. networks of like-minded government organizations and interest groups

Chapter 5 Answer Key

• 1. b
• 2. a
• 3. d
• 4. b
• 5. c
• 6. b
• 7. c
• 8. b
• 9. d
• 10. d

Table 5.1 from Thinking Government 5e— Gulick’s Functions of Management

Table 5.2 from Thinking Government 5e— Private Sector/Public Sector Differences

Figure 5.1 from Thinking Government 5e— Broad Span of Control

Figure 5.2 from Thinking Government 5e— Narrow Span of Control

Figure 5.3 from Thinking Government 5e— Maslow’s Hierarchy of Needs

bounded rationalism
A theory of management in the middle ground between incrementalism and rationalism. As advanced by Herbert Simon, it suggests that policy makers should strive for the most rationalistic means to achieve desired ends within the constraints of pre-existing systems of organization and the limitations of time and knowledge. See also incrementalism; rationalism.

bureaucracy
Government as exercised through the power of office holders. Bureaucracy in the classic, Weberian sense is founded on hierarchy, unity of command, specialization of labour, merit, permanent employment, rules, written records, and professionalism. See also hierarchy.

bureaucratic politics theory
A theory of management in which actions undertaken in the process of policy making and program administration are understood as being conditioned by the interests, traditions, and values of the organization in which any given actor works.

citizen
For the purpose of public sector management, a person with a right to public services. Government institutions bear a legal obligation to provide citizens with high-calibre services without any cash transaction.

consumer/client
The recipient of government service(s) through a cash transaction. Consumers/clients, in contrast to citizens, do not necessarily possess a right to public services. A citizen, for example, has the right to publicly provided health care services as mandated through the Canada Health Act. In contrast, Canada Post has consumers who can make use of the mail system, provided they pay the fees set by this Crown corporation.

departmentalization
In organizational theory the concept that departments can be organized in various ways depending on function, location, clientele, and span of control. See span of control.

hierarchy
The concept that an organization should be constructed and managed in a pyramid structure, with managerial authority concentrated at the apex of the organization and with power flowing from the top down.

incrementalism
A theory of management contending that decision making is best done through small, measured steps, rooted in past actions, with the goal of making improvements to existing systems of organization.

organic-humanistic model
A school of thought holding that organizations are analogous to living entities, populated by human beings with multiple and complex motivations. The role of management is to understand the human dynamics of the organization, its people, and their modes of communication and to participate with employees in developing policy and programs.

participatory management
A form of management, seen as desirable in organizational theory, in which managers interact with employees, seeking their input and knowledge in the development and implementation of well-designed policy and programs, and also encourage employees to take a deep interest in the life of the organization.

policy network theory
A concept of managerial decision making that views every policy field as a network of public and private institutional actors and interest groups, all interacting and competing as each advances its own interests.

POSDCORB
An acronym developed by Luther Gulick to highlight the key functions of management: planning, organizing, staffing, directing, coordinating, reporting, and budgeting.

public choice theory
The management theory that the actions of politicians, public servants, and interest groups in the policy-making and program administration process can be understood in terms of economic and material self-interest.

rationalism
A theory of management holding that decision making is best undertaken through comprehensive planning, prioritization, ends–means assessments, cost–benefit analysis, and performance measurement. See also incrementalism.

rationality
In public sector management the concept that organizational behaviour should be rooted in ends–means relationships whereby the goal is to achieve a desired end by the most economical, efficient, and effective means possible.

scientific management
An approach to organizational theory championed by Frederick Taylor in which the role of management is to reduce work to clearly defined, objective practices and methods that can be constantly made more economical, efficient, and effective.

span of control
In organizational theory the concept that a superior can exercise effective control and direction only if the number of subordinates is limited. Organizations can be structured with a relatively wide or narrow span of control, depending on the functions of the organization.

structural-mechanistic model
A school of thought holding that organizations are best understood as analogous to machines, with a definite hierarchical structure, in which the task of management is to design and operate the organizational machine to maximize productive output.

Keith Rollag’s Website (Organizational Theory)

Organization and Management Theory Web