Managing Mixed Economy - Essay Example

Managing in Mixed Economy Introduction One of the issues that characterize conventional management is public-private partnership (PPP). In a mixed economy where the role of the private and public sectors cannot be underestimated, there is a growing need for the two sides to partner so as to ensure the realization of their objectives. As such, PPP describes a private business venture of government service operated or funded through a partnership between a private sector company and the government. There are usually a number of arrangements describing PPP. In most cases, there is a contract in which the private venture provides a public service and thereby assumes technical, financial, and operational risks. In other types of contracts like the private finance initiative, the private sector makes the capital investment through a contract by the government while the government might wholly or partly bear the cost of providing the service. In the UK, PPP has had a long history. In 1992, the private finance initiative (PFI) was introduced by the Conservative government. This was the first official and systematic program aimed at encouraging public-private partnerships. Over the years, this initiative has been expanded to create efficiency and to enhance the realization of “value for money.” It must be emphasized that PPP has been successful in a number of ways throughout the UK. Various programs have successfully been accomplished through this initiative and the trend continues. In the same way, the initiative has had is fair share of challenges (Dodgson & Gann, 2008). Some of the programs initiated through the private finance initiative have run out of budget without giving the value for money. The core objective of PPP is to ensure a proper partnership without diminishing either sector. In a world where innovation and strategy implementation seems to be the only way forward, it is indeed important for the private and public sector to collaborate in offering services to the people. London Underground One example of PPP is the London Underground which is a metro transportation system serving a larger portion of the greater London. Spanning over 402 kilometers with 270stations, the Tube is a subsidiary of Transport for London. Presently, 91% of the operational expenditure of the system is covered by fares paid by the passengers. Under the PPP, there were three infrastructure companies which were responsible for the renewal and maintenance of the London Underground. Indeed, it is realized that the PPP was a great step in enhancing the efficiency of the rail system and learning some of the issues which should be a dressed in order to improve such future partnerships in the country. In a way, the London Underground PPP is a classic case of a public private partnership which realized a number of successes and was also plagued with many challenges. In the context of strategy and innovation, it is realized that partnerships are an important way of benefiting through the good strategy and innovation in the private sector and the mechanisms of the government. The essence of this partnership was basically to develop and create an efficient infrastructure for London which could become a model across the world. As such, the London Underground Limited was created as the public sector mandated to operate and maintain this metro system in London. PwC was in charge of reviewing the options available in terms of strategy and funding while also ensuring the continual development of the initiative. At the end of the review process, the PPP was clearly outlined. It involved a ?37.7 billion of investment spanning a period of 30 years in addition to a ?4.6 billion of private funding. Private sector consortiums were therefore allowed to take charge of the rehabilitation and maintenance of the Underground system in order to enhance its performance and ensure innovation and proper strategy implementation. In addition to the private financing, the government provided annual grants and the whole contract was supposed to commence from 2004. Like most PPP, the London Underground was characterized by a number of issues relating to the management and success of such partnerships. From the beginning it was felt that the initiative would ensure a better vale for the money than if the whole process was managed wholly by the government. The major goals for implementing the contract were therefore to ensure that the Tube had a much reliable funding environment which was indeed crucial for its success in the increasingly challenging transportation sector. This was very important given that this rail system had suffered over the years from poor funding which was always a result of government bureaucracy and other inefficiencies related to government funding (Hardy, 2003). The contract was also geared towards enabling the private sector to have a management interest in the projects over a period of thirty years. This would essentially be geared towards providing the effective management in the private sector to benefit this important transportation system in London. More importantly, the there was a need to deliver the projects in an efficient and effective manner as opposed to the initial methods of delivery (McKevitt, 2007). Management Indeed, the growing popularity of PPP has made their management an important concept in the modern age. There must be a proper way of leveraging the different synergies between the private and public sectors against the risks and challenges realized in these two areas. A critical look into most public private sector initiatives indicates that challenges have always arisen with respect to management. Like in the case of the London Underground, these challenges can always lead to the collapse of the whole project or much inefficiency in the process. Nevertheless, it is noted that managing such partnerships requires a number of strategies and skills. The effects of the recent economic downturn have created the need for proper PPP especially across Europe. The majority of these partnerships are geared towards funding innovation and research in the critical areas of construction, manufacturing and automotive. The need to boost competiveness is always an important consideration which guides the management of such projects. In the London Underground, the role of the private sector was not therefore limited to the provision of funding but also in creating a research and innovation environment which would make the system as much efficient as possible (Fallis & Murray, 2007). The government certainly believes that the skills and innovation realized in the private sector can play a significant role in enhancing service delivery to the people. For a long time, public services have suffered from inefficiencies and other manner of challenges while the private sector continues to thrive. Joint ventures are therefore an appropriate way of addressing management of public services. As a manger in such an arrangement, it is important to understand the risks and challenges inherent in both the public sector and the private sector. The introduction of the PFI was therefore an important step in enhancing this mutual engagement by assisting the private sector to design, maintain, build and operate many services in the public sector. The essence in this regard is to give value for money paid by the taxpayers. An analysis of the PFI indicated that many projects through PPP have greatly benefited from good management skills, risk management and innovation which are always challenges in the public sector. In the same way, there is a proper maintenance of assets and the provision of services in timely and efficient manner. Innovation and strategy Collaboration between sectors is an important strategy in overcoming the challenges in this century. The increase in social and economic challenges with respect to management has created the need for increase in innovation. While the borders that define different fields, industries and sectors are still important, it becomes important to cross most of these borders in the process of innovation and finding solutions to the problems realized. In the case of the London Underground, this was essentially the thinking behind private sector involvement (Grimsey & Lewis, 2004). In this regard, proper partnerships have to be formulated in order to create the appropriate environment for innovation. Innovation largely depends on funding and the availability of quality human resource. Such human resource in the management sector is usually available in the private sector while the government could provide the funding. In this respect, a partnership between the government and the private sector on the account of enhancing innovation in a specific sector will always be appropriate. The multi sector partnerships usually demonstrate a lot of promise not only with regards to the improvement of management in such fields but also in providing the right resources and environment for innovation. The London Underground had for many years suffered from outdated structures which made the whole system rather inefficient. The move towards public sector partnership would therefore bring on board a number of private consortiums which would be critical in providing solutions to the many challenges that had bedeviled the organization (Spiering & Dewulf, 2006). Indeed, the rail transport system can greatly be enhanced through innovation. The provision of efficient services largely depends upon the strategies implanted and the whole operational process. As PwC noted in the review process, the partnership would provide the impetus through which the system could be expanded and made more efficient. The idea to make London Underground a model across the world was largely dependent upon the new resources that would be gained through the partnership. Over the years, innovation at London Underground has had its challenges. There is always a need to improve the quality of the project proposals and to strengthen the engagement in order to address competition. The two areas which have presented challenges and have therefore become the focus of the innovation strategies include customer service transformation and system reliability improvement (Davis, 2006). Considering that the rail serves a huge population of Londoners in a single day, the aspect of customer management is a very important area which should be keenly addressed. The conventional mechanisms of customer management have not always worked effectively in this area given the large number of people and the nature of the business. As such, innovation was identified as an important element in order to improve customer service delivery and enhance the quality of operations. One of the areas where innovation has played a major role is in the introduction of a Planned and Unplanned Emergency Response Unit. Much has indeed been carried out in this area and the result is a very efficient emergency program which serves the great number of people. Enterprise is an organization involved in the innovation process and it seeks ways and means to ensure that all operations in the rail system are improved in all aspects. The work of this organization has always focused on the need for innovation, flexibility and efficiency. In a way, it is seen that innovation has played a major role in the improvement of all services at London Underground. While challenges continue to emerge by the day, the innovation process is also continuous and seeks to address any issues that might arise. More importantly, such unique transportation system can only be improved through proper strategy implementation. As such, the management of London Underground is focused and committed in all manners. In light of the public private partnership, there is always a general feeling that the private sector plays a much important role in the overall process. Indeed, the efficiency associated with the private sector cannot be overemphasized. This is further supplemented by several opportunities created with the public sector which opens many opportunities. The public sector can always borrow money easily at very low interest rates unlike the private sector. In this respect, innovation is greatly enhanced given that funding will always be available. In the case of the London Underground, there was an option for bond financing in order to provide much of the funding that was required to enhance the efficiency of the system. The private sector further provides the guidelines on how the funding can effectively be utilized to realize the maximum value. Indeed, it was estimated that the partnership would create a lot of efficiency in the management of funds to the extent of 20% in the form of savings. In addition, the introduction of private funds into the public process creates the need for greater accountability which subsequently leads to an improvement in the quality of service delivery and operations. The concept of innovation will always be driven by different aspect in the public and the private sector. In the private sector, innovation is always a product of competition and arises as firms compete aggressively and seek to dominate the market. On the other hand, innovation in the public sector is always a function of different situation. It can be policy-driven whereby recommendations are made by the central government on the need to improve operation in a particular sector. In the same way, public organizations might innovate in order to meet the challenges realized or to address specific challenges. Innovation in the public sector can also be driven by the changing demands of the society or a change in the general trends realized in different areas (Wolmar, 2004). In the course of its innovation process, London Underground has faced a number of challenges. Bureaucracy is normally major issue in most matters relating to the public sector. The implementation of new strategies within the system is always hampered by a lot of formalities on the way. The need to safeguard the transportation sector has led to the introduction of a lot of red tape which greatly affects the implementation of strategies. Similarly, there is a lack of organizational flexibility given the large consortium of partners. By bringing together a number of public and private sector firms in the management of the London underground, it was realized that flexibility of managing operations could not be achieved. This arose due to the large number of people who had to be involved in the strategy formulation process and the constraints involved. Radical changes can only be implemented in the presence of effective organizational structures. In this respect, the London underground could not implement a number of effective innovative strategies which had been formulated (Flynn, 2007). It was similarly seen that innovation was hampered by the lack of any models on which to base the strategies. Indeed, it is always a major challenge when seeking to create a world model service. In this case, there is no model elsewhere from which to borrow information. Considering the interest of the public in the whole process the risk of public accountability can also hinder proper innovation in the organization. The metro system is one of the most important utilities in the city and a lot of interest is therefore directed towards its operations. The people in charge of innovation are therefore never free to implement many structures within the system as any failures can cause a lot of criticism (Sauber & Tschirky, 2006). In addressing some of these challenges, it is important for corporate governance to be enhanced to ensure maximum transparency and create a proper working environment between the two partners. All the partners should work towards the formulation of better strategies and sharing of risks in the most effective way. The presence of many agencies in the whole program should be an advantage as opposed to a cause of challenge. The London Underground is therefore a clear case where the lack of proper management data and the lack of proper oversight can present many challenges in public private partnership. However, it is noted that the program would have been very beneficial in many ways. As a lesson to PPP, it is important to ensure that the firms collaborating must always form consortiums on either side. It becomes much easier to collaborate when there are only two major players on the table. The presence of many different private sector organizations in the project led to a lot of management challenges. In any case, decision making becomes a challenge in a situation involving such many players. In conclusion, it is seen that PPPs are a sure way of creating efficiency and enhancing the operations in the public sector. Public sector management has always been associated with a lot of challenges and this creates the need for partnerships. In creating such partnerships, it must be understood that the focus is to enhance efficiency and better service delivery. In the case of the London Underground, several challenges emerged as a result of a number of mistakes which had been done in the formulation of the whole program (Urio, 2010). Nevertheless, the whole program would have been very beneficial towards improving service delivery. Innovation and proper strategy implementation is further seen as crucial element in promoting efficiency in such projects. However, public sector innovation is always subject to a number of challenges which can be addressed through proper partnerships. References Davis, P. (2006). Public-private partnerships: improving urban life. New York (2852 Broadway, New York 10025-7885): Academy of Political Science. Dodgson, M., & Gann, D. (2008). The management of technological innovation strategy and practice (New ed.). Oxford: Oxford University Press. Fallis, G., & Murray, A. L. (2007). Housing the homeless and poor: new partnerships among the private, public, and third sectors. Toronto: University of Toronto Press. Flynn, N. (2007). Public sector management (5th ed.). London: SAGE. Grimsey, D., & Lewis, M. (2004). Public private partnerships the worldwide revolution in infrastructure provision and project finance. Cheltenham: Edward Elgar. Hardy, B. (2003). London Underground rolling stock. Stanmore: Capital Transport Pub.. McKevitt, D. (2007). Public sector management: theory, critique and practice. London: Sage. Sauber, T., & Tschirky, H. (2006). Structured creativity: formulating an innovation strategy. Basingstoke [England: Palgrave Macmillan in association with the European Institute for Technology and Innovation Management. Spiering, M., & Dewulf, G. (2006). Strategic issues in public-private partnerships: an international perspective. Oxford, UK: Blackwell Pub.. Urio, P. (2010). Public private partnerships success and failure factors for in-transition countries. Lanham, MD: University Press of America. Wolmar, C. (2004). The subterranean railway: how the London Underground was built and how it changed the city forever. London: Atlantic. Read More