Differences between Public Administration and Private Sector Management - Literature review Example

Public Management and Leadership Differences between Public Administration and Private Sector Management Name Course Name and Code Date Introduction Various comparative studies with regard to private and public sector organizations have come to a similar consideration that these are forms of organizations with dissimilar tasks or business purposes: nonprofit service or government regulatory agencies are often referred to as the public sector (Scott and Falcone, 1998). Profit making business firms are in most cases called the private sector. The main differences between these two types of organizations are wholly tied to the decision making processes and the way they conduct their daily operational activities. Private, for profit organizations in this regard have smoother or organized decision making process while the public sector organizations are prone to interruptions, recycles, and conflicts. These differences have been attributed to the roles that the private and public sector play in the society. For example, private sector organizations are tasked with selling products and services to consumers with a singular objective of making profits and thus creating wealth. The government sector organizations on the other hand are general purpose, tax-supported and hence are not linked to neither profit making nor wealth creation. These differences are distinct and hence they vastly affect the kinds of expectations together with accountability demanded from these types of organization and thus they call for different decision practices. This research paper discusses the difference between the public administration and private sector management. In order to meet this broad objective the paper will singularly compare public and private sector decision making practices. In this regard, the paper explores the differences between mid-level managers in the two sectors in view of prospects approval together with risk in simulated budget decision. Sector, Culture-Based Decision Making and Controversy Experts have observed that the context within which an organization operates has massive influence on its decision making process. Contextual influences result from the roles that the firm play within the society, for instance, like taking part in public policy or can act as an avenue for wealth creation for shareholders (Bright, 2008). This role significantly demands for the different governance structures required in exercise control with regard to different types of owners; this can be elected officials or shareholders (Lane, 2009). The approach to governance for this matter directs managers from each sector to experience varied demands and expectations which largely impact and influence their decision making process. For example, following this reasoning, the role for each sector calls for dealing with different users and clients in dissimilar ways; this also vitally affects the manner in which decisions are made. Different researchers have found out that the demands placed on private and public organization vary given the fact that each sector is tasked with roles and practices. Organizations that are considered public are less empowered with their features constrained in a way that limit the manner in which they can make strategic decisions (Wright and Robert, 2010). The choice taken by a public organization is subject to disclosure; the numerous legislations attached to them constrain their budgets which entirely limit and even prohibit them from committing substantial resources including money in the collection of data and information for decision making. For this reason, managers of public sector organizations are obligated to report to the oversight organizations which are mainly made up of political appointees who are prone to leaking vital information to unauthorized personnel (Riccucci, 2010). These actions negatively affect or limit planning where initial lines of inquiry are explored while searching for ideas. From this discussion, it is paramount to note that these actions coupled with other influences make the decision making in public sector to vastly differ from private, for-profit making organizations. Sector Differences Schemes of different varieties have been used to differentiate public organizations from private organizations. Environmental, transactional and process factors have been widely used in depicting these differences (Boyne, 2002). These factors are also fundamentally used in this paper to demonstrate the strategic decision making processes. The table below demonstrates how the identified factors impact on the market, availability of data, cooperation/competition, constraints, security, political influence, ownership, goals, and authority are key factors that limit decision making process in public organizations as compared to a privately owned organization. For instance, the operations of public organizations are dependent on tax revenues that are mainly provided by oversight organizations like the legislature (Andersen, 2009). The private organizations on the other use fees paid by customers or business clients to run their business. For this reason, it has been affirmed that the increase in the use of tax revenues by an organization, the more the organization takes on public sector characteristics (Starling, 2010). Environmental factors that affect the organization are those factors that arise outside the organization and they include factors like data availability, markets, cooperation and competition, as well as political influence. For private organization, the purchasing behaviour of customers determines the effectiveness of the organizational actions (Nutt, 2006). On the other hand, a public organization lacks a sufficient market to provide revenues, however, the operating capital is derived from one or multiple oversight organizations which allocate the funds to the agency or set reimbursement regulations for the services provided. In this regard, the appropriation of funds is independent of market mechanisms (Brown, 2008). Given this fact, it is contended that this allows public organizations encounter immense of pressure to improve their efficiency and effectiveness in service delivery (Radin, 2012). The budget allocation in public organizations follows historical precedent; given this understanding, public sector decision makers have to determine the expectations of individuals serving in authority networks as alternatives are sought. The table below shows uncovering alternatives in public, private, and third sector organizations Factors Private Organization Public Organization Impact On strategic Decision Making Environmental Market The market is defined by the buying behaviour of customers The market is made up of oversight organizations (Denhardt, 2010) Decisions in public organization are determined by oversight bodies. Views of oversight bodies largely impact on the way decision makers in this sector make decisions. Cooperation vs. Competition There is heightened competition among organization offering a given product or service Organizations offering the same service are required to collaborate. Collaboration is a must among public organizations, in this regard; each of these organizations has a role in suggesting alternatives. Data Availability Data with regard to Performance and intelligence is readily available Intelligence and performance data is scarcely available Scarcity of performance and intelligence data constrains decision making process in public organization. Constraints Autonomy and flexibility are only constrained by law, in this regard internal consensus is required. Autonomy and flexibility are limited by the mandates and obligations. (Milakovich and Gordon, 2011) Increased consensus is required in public organizations (Reddick, 2011) Political Influence Political influence is largely indirect and internal (Denhardt, 2010) Political influence is direct and comes from authority networks and users Extended period of time is required in order to balance the needs of users with demands of oversight bodies. Transactional Security Sequestering of ideas development is possible Cannot sequester for ideas development Alternatives are more appropriate to disclosure as they are identified in public organizations Ownership Shareholders own the business organization and their main objective is to make profits and is often interpreted by financial indicators. The primary owners are the citizens who pressure these organizations to offer efficient services. More people are involved in decision making and hence more time is required. (Denhardt, 2010) Organization Process goals There are clear goals which are agreed upon and efficiency is the dominant concern Goals are always shifting, sophisticated, conflict ridden and hard to specify; equity is the dominant objective As the clarity with regard to the desirability of alternatives declines results into increasing the time needed to make a decision Authority Limits The power is vested in authority figures with authority to search Stakeholders are beyond the authority of leaders’ cannot influence the search for ideas. Search time and resources are limited in public organizations (Denhardt, 2010). From the table above, public organizations are highly prohibited from competing for customers; this is so because, the service is stipulated and regulated by oversight organizations and hence cannot be nurtured by marketing activities (Mort, Weerawardena and Carnegie, 2003). Organizations in this sector are dictated to collaborate with other public organizations offering similar services rather than competing with them for resources. Competition in this regard, is not recommended as it results into duplication of services, something that is undesirable universally (Brocke and Rosemann, 2010). In this perspective, public organizations strategic decision makers always work to enhance collaboration and cooperation by empowering the key players with an opportunity to suggest alternatives. Contrary to this, the private sector organizations hold ideas discretely and hence experience minimal demands to disclose the information they privately hold and above all there is absolutely no need to collaborate. The table above also evidently exhibits that public organizations performance and intelligence data are limited and virtually difficult to collect. This is due to the fact that they are discouraged and prohibited from using funds dedicated towards service delivery to collect new data and information with regard to new and emerging trends in that service delivery. Accordingly, if the information is readily available professionals working within the public sector organizations are reluctant to collect that data. In the same line of discussion, augmentation of relevant performance and intelligence information is highly practiced. Following, this evidence, decisions in public organizations are made based on comparatively less information support which significantly limits the knowledge about useful alternatives (Pandey et al., 2008). Private sector organizations on the other hand spend huge amount of money through research and development in order to acquire relevant performance and intelligence data, which is vastly useful in the development and generation of useful ideas. Decision makers in private sector organizations have clarity when making strategic decisions, in contrast, decision makers in public sector organizations have less or blurred clarity when making strategic decisions. The public organizations’ external environment is highly influenced by political considerations. For instance, legislation manipulation by legislators, the views of opinion leaders, together interest groups as well as opposition to the agency determine the decision making process (Feeney and Bozeman, 2009). The disagreements, quid pro quos and reciprocity in most cases occur at any time and can thus affect public decisions. The main role for political appointees is to uphold the policies of the administration and/or change the policies of the previous administration which culminates into derailing the operations and management of public sector organizations. It has been established that few political appointees focus on the real management of the organization. Private sector organizations are not extremely affected by the mentioned political issues. Given the above understanding, private sector organizations’ motivations extensively differ with those of public sector organizations; this is strongly based on the fact that these organizations operate in different environments and contexts (Taylor, 2008). As already established, private sector organizations are associated strongly with market forces, rather are determined by market forces while the public sector organizations are shaped and influenced by political factors. For instance, public organizations tend to be influenced by two forces: government and business where one tends to centralize while the other decentralizes. These dissimilar operational environments dictate the types of decisions that are made within organizations in these sectors. Decision-Making Practices and Controversy Culture is another vital factor that determines how things are done in a given organizational scenario. Culture is usually made up of a set of values, beliefs or ideas that are not innate; however, they are learned and shared. Attributes of culture are said to mark off a group and distinguish from other groups (Luechinger, Meier and Stutzer, 2010). These attributes have a lasting and enduring quality, which is usually observed in the rituals, ceremonies, together with rites used by organizations. Private organization treat culture holistically as it is used to capture the key aspects of the organization (Frank and Gregory, 2004). Culture provides distinctive features in the image of the organization; for example, personnel practices, management successions, together with the impetus for strategic change, codes and behaviour, and the origin for accounting rules are usually classified or planned in a particular way. Culture has a symbolic importance for organizations and is essential revealing the ideologies that are incorporated in decision making. Similarly, strong organizational culture produces strong and high performing organizations. However, it should be noted that, culture does not act decisively to foster change. Differences in management The ideas and facts that private sector and public sector differ were first expressed in the organizational theory. The management differences between public sector organizations and private sector organizations is fully supported by the differences in their working environments and the manner in which the organizations in these sectors strive to meet their goals and objectives (Aldridge and Stoker, 2002). Public organizations tend to operate on objectives that are hard and difficult to measure; the private sector organization work based on measurable objectives, they operate in an economic efficiency model. With regard to this, it is much easier to manage a private sector organization as compared to a public sector organization. In accordance to the above, a private sector organization can set clear objectives with regard to the number products the firm should produce and sell together with establishing a clear bottom line (Alonso et al., 2001). The objectives are clear, understandable, joy-by-job, top to bottom objectives in private organizations. Public sector organizations, this is not possible due to the blurred or not straightforward goals and objectives and hence there is no clear bottom line (Delfgaauw and Robert 2007). For example, if a public leader calls for poverty reduction and the mission objectives are not set clearly; for instance, not defining the measure against which poverty will be measured, then, it is almost impossible to realize initial objective (Kim, 2009). Public sector and private management regardless of sharing the similarities in management methods, they are not similar at all (Khan, 2008). For instance, by accepting that the means of administration are dissimilar than the end results; this wholly implies that the values of the private sector completely differ from those of the public sector. The values for the public sector are serving the political compromise and public interests, contrary to this, private sector organizations values profitability. There is a huge difference with regard to accountability between private and public sector organizations. Managers with public sector organizations serve wider number individuals and hence have extended accountability, which is mainly influenced by those people they are accountable to. This has a significant effect on the role their decision making process as public managers and they are constantly under immense public scrutiny. They hold complex position as public managers. For this matter, organization commitment in public sector is weaker as compared to private sector. Private sector organizations are rarely subjected to public scrutiny; their managers operate without checks and balances of the public sector. For them, they are accountable or answerable to shareholders and their singular focus is to maximize on the bottom line. Private sector managers have less people to manage and hence they are subjected to few responsibilities as compared to public sector mangers (Ring and Perry, 1985). Consequently, the private sector organizations are less transparent than the public sector organizations; there are set mechanisms that ensure public organizations do not transform into powerful entities that can easily overshadow the abilities of organizations in the private sector to function as required. From an organizational level, the main feature of the public sector is the large number of formal processes, which appear essential that ensures its functionality. There are many regulations and procedures that organizations in the public sector must comply to; this is a burden to these organizations with no efficacy. These organizations are also divided into three main branches: executive, legislature, and judicial. In order to ensure that there is no abuse of power as well as transparency in the public organizations, the degree of formalization is extremely high as compared to the private sector organizations Managers of the public sector organizations significantly differ with those of the private sector organizations particularly through decision making processes. In private sector organizations, conflict is regarded as a negative sign as it shows that some members of the organization do not believe the outcomes of the strategic action are positive (Hondeghem and James, 2009). Conversely, conflict in the public sector organizations is taken positively as it indicates that different stakeholders are actively participating in the strategic decision making process. The public sector managers, value consultative practices when making decisions specifically those related to budgets (Mgbeke, 2010). Analytical practices are preferred particularly by private sector managers. Following this explanation it is evident that public sector managers’ ultimate goal is to maximize the collective value while private sector managers adopt a rational choice theory in order to maximize the shareholder’s interests. Public sector employees in general terms place high value on performing tasks that are great use to the society as compared to the private sector employees. The private sector value economic rewards they receive rather than the society’s well being (de Graaf and van der Wal, 2008). The public sector employees are unique; for instance they have a strong commitment towards serving individuals and communities, they are committed to accountability they emphasize open access to information. In the same line of discussion, they have the capacity to support universal access; they fully understand the special responsibility to support the service users’ rights in any environment. Conclusion The above discussion fundamentally provides strong evidence with regard to the differences between management in the public sector and private sector. The explanation with regard to differences in decision making processes in the public and private sectors wholly justifies the differences in management. Public sector decisions for instance are characterised as being bottom up, unforeseen, and reactive; decisions in this scenario are made when they need to be instead of being effectively sought. The sector has more structured decisions making procedures, which are particularly necessitated by the political context. This has virtually resulted into satisfactory contextual information quality specifically with regard to timelessness; however, political influences deter better position outcomes. The private sector on the other hand, the decision making process is essential and enables the growth of the company together with its competitiveness. The decision making process in the private sector is characterized as top-down, foreseen and above all productive. Private sector managers due to the foreseen nature of the decision making process, they collect performance and intelligence earlier and timely. References Aldridge, R., and Stoker, G. 2002. Advancing a New Public Service Ethos. London: New Local Government Network. Alonso, P., and Gregory, B. 2001. Public Service Motivation and Job Performance: Evidence from the Federal Sector. 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