Contrasts between Public and Private Organizations With Special Reference to Activity Management Practices - Essay Example

?An Analytical Study of Contrasts between Public and Private Organizations With Special Reference to Activity Management Practices More often than not the edge of private over public sector organizations in terms of effectiveness and efficiency is considered a learned and known reality. In some cases the assumption may have support of logic and reason but in most cases the differences of culture in two sectors is attributed for the approach that each sector adopts in accepting, implementing and practicing new technologies and methodologies. The over whelming acceptance of the first assumption is often triggered in the absence of analytical studies of culture, operational requirements and difference of focus and approach in public and private sector organizations. There is an increased awareness at all levels of public administration to bridge the gap between the effectiveness and efficiency of a public and private organization. The awareness has given rise to comparative studies which can surface more logical and methodical approaches and technologies that can be useful to enhance the effectiveness and efficiency of public sector organizations. Theory of Activity Management practices has recently got huge focus in this connection and many researchers have critically analyzed the adoption trends of this theory in public and private sector organizations. Baird, K. (2007) has also described the critical analysis of the theory from public sector organizations perspective as the basis of his article, “The study addresses the gap in the literature examining the adoption of activity management practices in the public sector.” The activity Management is a multilevel theory with each level having a definite scope and range of accomplishments in terms of organizational objectives of efficiency and effectiveness. Activity Analysis (AA) is the first level of Activity Management. The Activity Analysis analyzes the scope and adoptability of various procedures and activities that can affect the product or service output through effective and efficient use of available resources, this may include the human resource, time, materials and any other resource that can have an impact on the productivity of the organization. In his article Baird (2007) has used the definitions of the Gosselin to describe various levels of the Activity Management. Gosselin defines Activity Analysis as process that is, “consists of identifying the activities and procedures carried out to convert material, labour and other resources into outputs” (Cited in Baird, 2007). Koopmans (1970) describes AA in these words, “Activity Analysis is concerned with the construction of the conceptual models to study and appraise criteria, rules, and practices for the allocation of resources.” The definition of Activity Analysis delimits boundaries for various resources in the organization. The actual contribution of a resource toward the final production of the service or product is the basic criteria which sets these boundaries. Therefore, the importance of human resource or a material can be described in terms of its role in the process of production. If a resource does not have any impact on the productivity or have least effect on it, it should be allocated with minimal or no resources at all. The exclusion of this resource from resource allocation is a step towards efficient and effective cost management of the resources which ultimately contributes towards the organizational effectiveness and efficiency. This efficiency, however, must not cause the reduction of any other production variable. “A combination of activities is called efficient if it does not permit increasing any net output without decreasing another, within the given limitations or primary factors.” (Koopmans). Therefore, despite being necessary, the decision of exclusion for a resource can only be efficient if every possible result is foresighted in terms of productivity and cost. However, the behavior towards inefficient resource management is usually different in public and private organizational setups. May it be a human, material or any other resource, managing it at a cost effective level is mandatory for better pricing strategies later on. There are built-in mechanism is private organizations which somehow eliminate that ineffective resource from the production process and public sector organizations tend to carry these less contributing factors in the processes and activities, thereby it spoils the productivity graph for the whole organization. The inability of public sector organizations to eliminate inefficient resource from the productivity process can be attributed to number of factors ranging from the organizational culture to the leadership characteristics of the its higher level manage. Public sector organizations most often have a culture of tolerance towards these ineffective resources and find it hard to fix the problem area in an efficient and effective manner whereas private organization are quick in fixing these problematic resources in a befitting manner. This highlights many other structural, cultural and organizational issues in public sector organizations but that is beyond the scope of this analytical study. However, it proves the validity and strength of Activity Analysis which is supposed to surface the problem areas in an organization that somehow affects the cost of its products or services. Edwards has identified the same role of AA in his study, “AA should assist public sector organizations in improving the effectiveness and efficiency of activities by increasing their understanding of the tasks they perform and the processes used to produce outputs” (Cited in Baird, 2007). Activity Cost Analysis (ACA) comes at next level of Activity Management. Reeve & Sakurai states that the Activity Cost Analysis (ACA) further improves the AA level by identifying “the costs of each activity and the factors that cause them to vary.” (Cited in Baird, 2007). ACA therefore, is bound to provide some insight into the business productions where it comes to the cost that is incurred by the organization for each resource it employs to enhance production. In producing cost effective goods the importance of ACA is evident from the fact that it can substantially control the cost of final product through learned decisions. ACA is also very important tool for the management to analyze factors that can be influential in changing the cost of various other factors of production. The adoption of ACA by public and private organization is an ultimate necessity to achieve the goal of production at affordable costs. In private sector organizations the cost of a product or service is an even more critical factor than in a public sector organization and that is why there is a high rate of ACA adoption in private sector organizations. ACA can help in identification of factors that are causing rise in the overall cost of the product or service and this identification can be helpful in finding an alternate resource to reduce the costs. In some cases a process may add too much cost in the overall production process or a procedure may cause the delay which later on contributes in the rise of costs. These ACA factor may be common in public and private organizations but these organizations approach the solution differently which make a difference of performance. Obviously, solution to these ACA factors may involve some process improvement, organizational restructuring, reengineering of some procedures or HR innovation where all of these activities have some cost of implementation. In a private sector organization these decision are considered mission critical and investment on these innovative ideas is considered to be long term but inevitable investment. However, the leaders in private sector take it as a survival option and to keep the flag high. While this might be tough decision in the beginning but it pay heavy dividends in the long run and keep the organization on track. Zilka (2010, p 184) has pointed out the importance of this courageous decision when he states, “As a leader, the best thing you can do when you leave or retire is to depart with a strong legacy and reputation for making the company a better place both financially and operationally. And is that not the name of game?” But, restructuring might be a difficult decision in a very large public organization. The dimensions of the decision in a large public sector organization may be too devastating to make a decision. While talking about the magnitude of implications Lindgren (2010) states, “The gross costs of bank restructuring are massive. Estimates put the public sector costs in the three crisis countries and Malaysia between 15 and 45 percent of GDP.” Of course, decisions of this magnitude are not easy for any organization and more often than not avoided through application of several other option in order to set things in a right direction. However, if restructuring is necessary for achieving the desired efficiency and effectiveness in production than not opting for it would certainly have an impact on the organization and cost in terms of production efficiency. It is not only the restricting but even reengineering of a process is not a simple decision in public sector organizations. It involves costs of training for reengineering a process, staff training for the reengineered process and allied organizational reengineering costs. These costs make the decision of reengineering a difficult one specially, in public sector where decision makers often does not have a direct impact of organizational inefficiency and ineffectiveness. In private sector the responsibilities are rather more clearly defined and decisions cannot be delayed indefinitely. Therefore, the size of the organizations, differences in organizational structures and cultures are the factors that should be taken into consideration before he Activity Management can be implemented in various organizations. In most cases there are wide differences in the culture and size of public and private organizations which can affect the adoption of Activity Management. Baird (2007) has discussed these factors in his article “by examining the association between the extent of activity management adoption and specific organizational (size and decision usefulness of cost information) and organizational cultural (innovation and outcome orientation) factors.” Larger organizations are considered favorite in adoption of Activity Management not only because of their capacity to adopt and practice it but also because its adoption can avoid the cost distortions in these organizations. (Baird) Similarly, the organizational culture delimits the boundaries to which the management can experiment new ideas and methodologies. The organizational culture is a behavior that is most important in the adoption of Activity Management but at the same time the culture is something that cannot be changed overnight. It has to be already there to accept the challenge of change. In public sector organizations the culture is perhaps the most resilient hurdle in adopting and practicing the Activity Management, which itself has its own culture and demand all out efforts to adopt it as whole not in the pieces. The human resource in Public sector opposes any change and prefers the status quo. This is because the adoption of Activity Management practices is purely an organizational change which does not offer any personal stimulus. Baird (2007) consolidated his hypothesis on the adoption rate of Activity Management practices by public sector organizations. The survey was conducted on 250 public sector organizations in Australia. This statistical population was selected from four major categories of public sector organizations which include government agencies, government business enterprises (GBEs), hospitals and universities. The survey was conducted to establish a comparison with a similar survey conducted to gauge the adoption rate of Activity Management practices in the private sector by Baird et al. (2004). Public sector adoption survey collected information on exactly the same scales as that of the Baird et al. (2004) had used. The only difference was the size of the statistical population which was negligible because the difference of actual number of private and public organizations that exists in Australia does have nearly the same ratio. There is gap of three year in two surveys but yet it can serve the purpose of a safe comparison. Albury, considers it a safe distance between the two surveys because of a slow rate of change in public sector organizations, “the diffusion of innovation across the public sector is arguably slower or more difficult than in the private sector, and the transformation of services and service delivery takes longer” (cited in Baird, 2007). The comparative results thus finalized are therefore statistically acceptable for research purposes and represents the actual population. The adoption of Activity Management practices by private sector organizations in each of the three levels (AA, ACA, & ABC) were found in higher proportions than those of public sector organizations. The comparative study of the two surveys also revealed the adoption of AA level was only negligible higher in private organizations. Another important inference drawn from the recent survey was that out of four public sector organizations categories selected for the survey, the universities category scored lowest on adoption of Activity Management practices in public sector. Rest of the three public sector categories had not shown any significant statistical differences. However, hospitals remained marginally ahead in adoption of ACA and ABC level of Activity Management. Some other inferences drawn from Baird (2007) recent survey for public sector organizations are enlisted below; The hierarchical regression showed little association between organizational culture and adoption of ACA and ABC levels of Activity Management. Size of the organization was only relative in adoption of ABC level of Activity Management. The usefulness of cost information was found significant in all three levels of Activity Management. The level of decision usefulness of cost information was found to be the most significant factor in all levels of Activity Management. No significant relationship was found in business cultural dimensions and adoption of any levels of Activity Management. The comparison of the two surveys represents various factors governing the adoption of the Activity Management by the Australian public and private organizations. The comparison collected adoption data on the basis of Activity Analysis (AA), Activity Cost Analysis (ACA) and Activity Based Costing (ABC). These are the levels to achieve Activity Management in an organization. The survey results also represent the correlation among three levels themselves. In public sector organizations the adoption trend for advance levels of Activity Management was found decreasing gradually and only 34.4 percent organizations reach the ABC level from 48.3 percent organization that initially started the adoption. This trend represents a lack of interest and effort for the implementation of second and third level adoption factors in public sector organizations. Two possible assumptions can be made on the basis of this trend. The first assumes that adoption of the Activity Analysis (AA) level by organizations, rectified most of the flaws and shortcoming that were made in cost allocations to various resources. A more appropriate allocation of cost to various resources resulted in the better performance for each activity of Activity Cost Analysis (ACA). The better cost allocations, process improvement and better costing at each activity reduced the resolve of smaller organizations to further pursue the ABC stage. The other assumption simply assumes the adoption trend for Activity Management trends gradually decreases as the level of difficulty increases in the implementation of these levels. It may also be said that the public sector smaller organizations did find it cost-effective to pursue the ABC stage after AA and ACA had streamed line their activities and costs. Whatever the case may Baird (2007) declares it a ‘surprising finding’ and states, “Such findings are surprising and suggest that public sector organizations might be engaging in cost-recovery-based pricing and competitive tendering processes based on inaccurate product/service costs.” On the other hand for private sector organizations Activity-Based Costing (ABC) is an important factor and they want to establish the actual cost they incurred on a product or service so that an effective pricing strategy could be adopted for each product and service. The first two levels of Activity management are equally important for private sector organizations because they get heavy returns on the investments these organizations made in AA and ACA. The improved cost allocation and activity based appropriate allocations results in better reengineered processes, reduced project costs and effective utilization of resources, these and many other benefits pay heavy dividends to these organizations and they find appropriate return on investment (ROI) which is a most important indicator for private sector organizations. However, it is important to note that the adoption of all three levels of Activity Management by private organizations is not homogeneous rather it also assumes the shape of pyramid towards the end of ABC level. Conclusion The public and private sector organizations are bound to organizational culture and practices. There are differences in their operating environments and approaches towards the change and innovation. Public sector organizations are more resistant to any change and if the change is innovative too, chances of public sector organizations to adopt and practice these changes is far too low when compared to private sector organizations. This resistant to change concept in public sector organization is neither new nor it is limited to a specific state or region. It is almost a universal phenomenon that is present everywhere with variable forms and degrees. However, it not only kills the competition but also emerges into inefficiency and ineffectiveness. The situation is aptly described in the volume edited by Sims (2010, p.85), “When public sector leader or managers fail to fill positions with most qualified individuals, are unable to suitably motivate public employees, and do not work towards the most efficient and effective public service, the opportunity and real costs for society are incalculable. ” The internal politics are considered a major factor in public sector organizations’ inability to compete with the private sector organizations. The most damaging impact of internal politics in public sector organizations is that they loss the vision and leaders entangles themselves with petty personal grudges even against the lower level staff. Ultimate result is chaos and frustration in this organization where change no matter how beneficial it may be cannot groom. Although, the research conducted by Baird (2007) does not show significant correlation in organizational culture and adoption of Activity Management levels, yet Baird admits the need of further probe into the results; “The results did not support an association between the cultural dimensions and any of the three levels of activity management allowing us to conclude that these two cultural dimensions have no impact on the adoption of activity management practices in the public sector. Such findings might reflect the unique cultural characteristics that exist within public sector organizations and warrants further study.” (Baird, 2007) The exclusion of public culture influence from the traces the research is not surprising because of research scale limitations and other allied limitations. Gandz & Murry have identified the same complexity of the problem and states, “As far the management theory is concerned, it became evident that gauging the political climate of a work unit is a complex task, but it is crucial for a better understanding of organizations, their effectiveness, and efficiency and general performance.” (Cited in Vigoda-Gadot, 1997, p. 56). Therefore, the effects of politics, bureaucratic culture and other dimensions of cultural influences on change and innovation acceptance in public sector organizational need to be investigated in thorough research assignment. The contrast between public and private sector organizations are multifaceted and while there is an increased acknowledgement of these gaps it must be born in mind that the each has its own cultural values rooted deep in to the respective environments of these organizations. Any change can be successful if it first targets the environment and culture of public sector organizations. Better workplace environment can make innovations easy into public sector organizations and can make them more efficient and effective. The role of Activity Management in achieving this efficiency and effectiveness is accepted widely by leaders and managers of public and private sector organizations. Both sectors have implemented the theory in varying degrees and the researches by Baird et. al (2004) and Baird (2007) have demonstrated an increasing trend of adoption for various levels of Activity Management. Although, private sector is leading in this adoption but public sector is also making considerable progress in the implementation of various levels of Activity Management. The research conducted by Baird (2007) bring us hope that public sector organization will show further interest in the adoption of Activity Management to ensure increased organizational efficiency and effectiveness. The public sector organizations also require a transition from cost-recovery pricing policies to Activity Based Costing for their services and products. This transition will further strengthen their efficiency and effectiveness by providing them solid financial footings. Moreover, this transition will enable them to compete in open markets with private sector organizations. States should also take measures to provide public sector organizations with liberty and freedom with which private sector organizations can make decisions with changing market trends. This liberty is essential for public sector leadership to act freely and make decisions which suit best to their organizational interests. The environment is well prepared for a change and its is the state and public sector leadership that need to step forward and embrace the change thoroughly to safeguard public interests at large. References Baird, K 2007, ‘Adoption of activity management practices in public sector organizations’, Accounting and Finance, Vol. 47 (2007), PP. 551–569 Koopmans, T., C 1970, " Scientific papers of Tjalling C. Koopmans, Volume 1: Activity analysis and its applications", Springer-Verlag, USA. Lindgren, C 2010, “Financial sector crisis and restructuring: Lessons from Asia”, IMF Publication services, USA. Sims, R (ed.) 2010, Change (Transformation) in Government Organizations, Information Age Publishing Inc, USA. Vigoda-Gadot, E 2009, Building strong nations: improving governability and public management, Ashgate Publishing Inc, England. Zilka, C 2010, Business Restructuring: An Action Template for Reducing Cost and Growing Profit, John Wiley & Sons Inc, USA. Read More