Thesis on Management
Introduction
Historically in America two different institutional approaches to management science have developed: one in the private sector and one in the public sector. Recently, this conventional taxonomy has been challenged, and around the country there has been emerging a more generic approach to management. In response to this, public administration theorists have developed a new body of literature emphasizing the differences between the two sectors. The central purpose of this paper is to explore the relationship between public sector and private sector management within the context of available literature. As such, the key substantive issue discussed here is whether there is an inherent conflict between the rational, private management model with its criteria of economic efficiency and the political public management model with its criteria of consensus and compromise.
A central element of recent reform efforts associated with “reinventing government” is that public organizations should import managerial processes and behavior from the private sector (Box, 1999). In particular, these efforts suggest that public managers should seek to emulate the supposedly successful techniques of their private sector counterparts. Indeed, this formula for public sector success predates recent reform movements, and has been a recurring theme in public policy. For example, the reform movement in American municipal government during the early decades of the twentieth century emphasized the benefits of business-like behavior (Welch and Bledsoe, 1988).
However, the adoption of private sector models has been viewed with much skepticism in the literature on public administration and public management. The core objection is summarized in Sayre’s (1953, p. 102) view that public and private organizations are “fundamentally alike in all unimportant respects.” This phrase has been given wider currency by Allison who proceeds to argue, “the notion that there is any significant body of private management practices and skills that can be transferred directly to public management tasks in a way that produces significant improvement is wrong” (Allison, 1979, p. 379).
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The argument of this thesis paper is that Sayre’s assertion is clearly supported by theoretical evidence from several prominent researchers in the field of public administration. This paper begins by providing definitions of public and private organizations. Following the definitions, the discussion will continue with an examination of the similarities between public and private administration. Since both public and private sector administration involve the management of organizational resources, elements of the managerial environment will be the same for both public and private managers. The discussion of similarities will be followed by an examination of the important differences between the two administrative settings. Although some administrative activities are common to both public and private sectors, major differences are also evident.
In this paper, the theoretical arguments on the differences between private firms and public agencies are reviewed and four hypotheses are identified on the impact of public administration on organizational environments, goals, structures, and managerial values. Evidence from several theoretical studies of differences between public agencies and private firms is critically evaluated. All four of the hypotheses are supported by a majority of the theoretical arguments.
Throughout this thesis paper, the terms “management” and “administration” are used synonymously to indicate managerial activity in either sector. Management is commonly defined as ‘the accomplishment of purpose through the organized effort of others” (Bower, 1977, p. 132).
Evidence of the distinctiveness of public management was gathered in two main stages. First, a “keywords in title or abstract” search was undertaken through the MDUSA database search engine through the University of Baltimore’s Langsdale library information system. Second, journal articles, books, and book chapters cited in the sources identified in stage one were obtained. This search strategy means that unpublished papers on public/private differences are omitted from the analysis. The results summarized below may, therefore, overstate the distinctiveness of public organizations, on the assumption that papers are more likely to be published if they present differences rather than similarities.
Definitions of Public and Private Organizations
Public and private have been used for centuries in relation to fundamental issues and values in society (Perry and Rainey, 1988). Dictionaries cite the origins of public in the Latin word for people, and define it as referring to matters pertaining to the people of a community, nation, or state. Private derives from the Latin word for deprived or set apart, as in being deprived of public office or set apart from government as a personal matter. Accordingly, public organizations often have been equated with governmental agencies and private organizations have been identified as all other organizations, particularly business firms.
Similarities and differences between the public and private sectors have frequently been debated in the literature on public administration, politics, and business. The main conventional distinction between public and private organizations is their ownership (Rainey et al, 1976). Whereas private firms are owned by entrepreneurs or shareholders, public agencies are owned collectively by members of political communities. This distinction is associated with two further public/private contrasts. First, unlike their private counterparts, public agencies are funded largely by taxation rather than fees paid directly by customers (Walmsley and Zald, 1973). Secondly, public sector organizations are controlled predominantly by political forces, not market forces. In other words, the primary constraints are imposed by the political system rather than the economic system (Dahl and Lindblom, 1953).
A critique of the comparative literature shows that a majority of authors regard ownership as a crucial distinction between government and private organizations. For government organizations, ownership rights cannot be transferred among individuals, and risk (at least capital risk) is therefore highly diffused (Perry and Rainey, 1988). In the private sector, management is treated as a productive input and is efficiently valued in the market. In the public sector, the distribution of managerial ability among organizations has little correspondence to its value as a productive input (Clarkson, 1980). The authors generally agreed that public ownership more heavily subjects an organization to the institutional controls of government, as opposed to economic markets and other nongovernmental control processes.
It is important to distinguish between these three variables of ownership, funding, and control because they have different theoretical effects on organizational behavior. For example, the economic theory of property rights suggests that common ownership leads to lower efficiency in the public sector. In private organizations, owners and shareholders have a direct monetary incentive to monitor and control the behavior of managers. Similarly, managers themselves are likely to benefit from better performance, either because they own company shares or because their pay is linked to financial success. By contrast, public sector managers do not usually obtain direct financial benefits from higher organizational efficiency.
The significance of the funding dimension of public organizations is emphasized by public choice theory. According to this perspective, organizations that receive revenues from political sponsors are likely to be unresponsive to the preferences of the people who receive their services (Boyne, 1998). Finally, organizations that are subject to political rather than economic controls are likely to face multiple sources of authority that are potentially conflicting. Bozeman (1987) argues that political control is the essence of public organization: “all organizations are public because political authority affects some of the behavior and processes of all organizations…. Public pertains to the effects of political authority.”
These three dimensions of the distinctness of public organizations represent the highest level in this evaluation of the differences between public and private administration. The discussion now turns to specific similarities and differences between management in the two sectors.
Similarities
Many elements of public administration have their roots in the private sector. In both settings, managers and those to whom they are accountable have an interest in running programs and other activities that are properly designed, appropriately directed to meeting their intended goals, efficient in expenditure of organizational resources, and effective in their impacts. Public and private managers both are concerned with meeting their staffing needs, motivating subordinates, obtaining financing, and otherwise conducting their operations so as to promote their programs’ survival and maximum impact. Each of these similarities is discussed more fully below.
POSDCORB
Luther Gulick and Lyndall Urwick’s Papers on the Science of Administration, published in 1937, identified a set of seven general management principles that have become professional watchwords for management in any setting: planning, organizing, staffing, directing, coordinating, reporting, and budgeting (collectively known by the acronym POSDCORB). Gulick and Urwick reemphasized earlier references to the importance of these administrative concepts, declared their applicability to almost any human organization regardless of what the organization was or why it existed, and stressed the fundamental desirability of efficiency as the underlying goal for administrative science (Gordon and Milakovich, 1995). This section draws heavily on Gulick and Urwick as cited in Gordon and Milakovich’s Public Administration in America.
Planning. All managers engage in a set of activities designed to work out in broad outline the things that need to be done and the methods for doing them to accomplish the purposes set for the enterprise. This includes formulating a product/market strategy to allow the organization to exploit its core competencies to meet the demands of its external environment.
Organizing. Whether in the public or private sector, managers must establish a formal structure of authority through which work subdivisions are arranged, defined, and coordinated for the defined objectives. This includes aligning the organization's administrative, responsibility, and account structures with its strategy.
Staffing. All organizations require people to perform work. Therefore, managers in both sectors are concerned with the whole personnel function of bringing in and training the staff and maintaining favorable conditions of work. This includes motivating and inspiring people to serve the interests of the organization, recruiting, training, and indoctrinating them, and coordinating their activities.
Directing. Managers in both settings are also concerned with the continuous task of making decisions and embodying them in specific and general orders and instructions and serving as the leader of the enterprise. This includes creating a culture and a web of personal relationships that strengthens and maintains the organization's core competencies and reinforces its formal structures.
Coordinating. Work in all large organizations is complex. Therefore, both public and private sector managers are concerned with the all-important duty of interrelating the various parts of the work. This includes integrating the work of divisions, departments, and functions to most efficiently and effectively complete the work.
Reporting. Communication is essential to any enterprise. As such, all managers must keep those to whom they are responsible informed as to what is going on, which includes keeping themselves and their subordinates informed through records, research, and inspection. This includes reporting to higher-level authorities on environmental forces and surprises, opportunities and threats, strengths and weakness, efforts and accomplishments.
Budgeting. All managers are concerned with obtaining financing to promote their programs’ survival and maximum impact. Financing includes all that goes with budgeting in the form of fiscal planning, accounting, and control, including assessing alternative investments and policies, programming the consequences of investment decisions and policy commitments, and target setting.
At the root of Gulick and Urwick’s POSDCORB synthesis was a cogent plea for building an effective, efficient administrative system right up to the highest governmental levels, the Executive Office of the President (Stillman, 1999). Their synthesis shared basically the same doctrinal premises as other public administration theorists of the time that public administration is equated with management as (1) a single process, (2) not law but management, (3) an art in transition to scientific principles, and (4) the central business of government (Stillman, 1999).
With various additions, amendments, and refinements, similar lists of general management functions can be found throughout the management literature. These common functions of management are not isolated and discrete, but rather integral components separated here for purposes of analysis. The character and relative significance of the various functions differ from one time to another in the history of any organization, and between one organization and another (Allison, 1979). But, whether in a public or private setting, the challenge for the general manager is to integrate all these elements so as to achieve desired results.
Differences
The POSDCORB formulation is cited often in the available comparative literature as the primary, but relatively unimportant, similarity between public and private administration. The neutral POSDCORB principles omit from consideration many of the realities of public organizational life. According to Lutrin and Settle (1992, p. 163), they “ignore personality factors, say little about economic policy or the public interest, and fail to address a number of vital managerial problems. These include the importance of internal power struggles, of mechanisms for defining problems, of generating alternatives, and of problems relating to the culture and subcultures within which administration operates. They also fail to consider the problems of dealing with diverse and conflicting social values and the legacy of previous organizational experiences as guides to current practice.”
While there is a level of generality at which management is management, whether public or private, functions that bear identical labels take on rather different meaning in public and private settings (Allison, 1979). Several of the comparative authors pointed out that most individuals who have been general managers in both business and government judge public management as both different than private management and harder than private management.
In this section, arguments on the distinctiveness of public management are analyzed. These arguments are derived from a variety of academic sources that contain claims concerning the distinctiveness of public management (Allison, 1979, Box, 1999, Bozeman, 1987, Fottler, 1981, Perry and Rainey, 1988, Rainey, 1989, Rainey et al, 1976). Reported below are several observations and propositions that were stated by many authors with enough similarity in phrasing and intent to make it seem reasonable to group them together. Four main theoretical differences between public and private management were identified in the literature. These concern the relationship between public administration and organizational environments, organizational goals, organizational structures, and the values of managers. According to Fottler (1981, p. 4), these variables create “differences in how the basic functions of management are carried out” in the public and private sectors.
Organizational Environments
A number of assertions by authors can be fairly characterized as involving factors that are environmental, in the sense that they are external to organizations, and are largely out of their control. The majority of the authors cited in this paper who contend that “public management is different” have drawn attention to several aspects of the external circumstances of public organizations:
Complexity. Public agencies face a variety of stakeholders, each of whom places demands and constraints on managers. Metcalfe (1993, p. 174) argues that “government operates through networks of interdependent organizations rather than through independent organizations which simply pursue their own objectives.” Furthermore, the requirements of the various external constituencies are likely to be conflicting (e.g. taxpayers and service groups, consumer groups and producer groups).
This complexity is reflected in a fundamental constitutional difference between public and private management. In business, the functions of general management are centralized in a single individual: the Chief Executive Officer. The goal is authority commensurate with responsibility. In contrast, in the U.S. government, the functions of general management are constitutionally spread among competing institutions: the executive, two houses of Congress, and the courts. The constitutional goal was “not to promote efficiency but to preclude the exercise of arbitrary power,” as Justice Brandeis observed (quoted in Allison, 1979, p. 389). Indeed, as The Federalist Papers make starkly clear, the aim was to create incentives to compete: “the great security against a gradual concentration of the several powers in the same branch, consists in giving those who administer each branch the constitutional means and personal motives to resist encroachment of others. Ambition must be made to counteract ambition” (quoted in Allison, 1979, p. 389).
Thus, the general management functions concentrated in the CEO of a private business are, by constitutional design, spread in the public sector among a number of complex, competing institutions and thus shared by a number of individuals whose ambitions are set against one another (Allison, 1979). Since most public services are actually delivered by state and local governments, there is a further array of complex interactions and diversity of objectives and decision criteria.
Permeability. Public organizations are “open systems” that are easily influenced by external events. Indeed, it is the responsibility of public managers to protect and promote this permeability of organizational boundaries, in order to ensure that services are responsive to public needs. By contrast, “private sector chief executives or boards of directors may ignore most constituents’ demands for direct input to the policy formulation and implementation processes” (Ring and Perry, 1985, p. 277).
Most public organizations suffer from diffuse responsibility, often resulting in absence of accountability for decisions made (Gordon and Milakovich, 1995). Separation of powers is one factor in this, but a fragmented executive branch in most large governments, including those at the local level, is another. In contrast, centralized executive responsibility is a key feature of many profit-oriented organizations. Also, unlike private organizations, public organizations entrust a fair amount of decision-making responsibility to citizen groups, courts, and various types of boards or commissions (Gordon and Milakovich, 1995). Thus, an absolutely clear chain of command is not possible because of numerous opportunities for outside pressures to influence the power hierarchies.
The diffuse nature of public organizations allows more external sources of formal influence to enter into public decision-making. In addition, there is a greater fragmentation among those external sources of influence. In government, managers often seek to mediate decisions in response to a wide variety of pressures and must often put together a coalition of inside and outside groups to survive (Allison, 1979). By contrast, private management proceeds much more by direction or the issuance of orders to subordinates with little external influence. Governmental managers tend to regard themselves as responsive to many superiors while private managers look more to one higher authority (Allison, 1979).
Media relations. According to Allison (1979, p. 387), “governmental management must contend regularly with the press and media; its decisions are often anticipated by the press.” Private decisions are less often reported in the press, and the press has a much smaller impact on the substance and timing of decisions in the private sector.
As opposed to the business executive, who can function with near anonymity, the public executive must manage the flow of information about his or her agency so that he or she can get on with the task of achieving goals (Bower, 1977). Press stars must produce news that sells daily. They do not want stories about the slow, careful turnaround of an organization or about the delicate conversion of an establishment to new ideas (Bower, 1977).
This increased press interest tends to expose public managers to increased public scrutiny and require public managers to be more open regarding their management processes. In contrast, private business management is subjected to less public scrutiny. As a result, private management processes are more internal and less exposed to public review (Allison, 1979).
Moreover, governmental organizations are able to keep fewer secrets than businesses, and are subject to more outside monitoring. Actually, a number of the previously stated arguments concerning political influences could be interpreted as relevant to public scrutiny; they refer to the mechanisms of oversight and accountability, and to the multiplicity of representatives involved in the consideration of a public organization’s actions.
Closely related to public scrutiny propositions are a number of references to the unique role requirements of public organizations and public managers. According to Wamsley and Zald (1973), a basic difference between public and private organizations is that public organizations are perceived as being owned by the state and citizens; citizens therefore have rights and expectations they do not have in relation to private organizations. Therefore, citizens expect more of public administrators in the way of integrity, fairness, responsiveness, and accountability.
Instability. Political constraints result in frequent changes in policy, and the imposition of short time horizons on public managers. According to Bozeman (1987, p. 20), the political cycle means that “there is constant pressure to achieve quick results – results that can help the agency receive a larger share in the next round of appropriations; results that may be possible only so long as congressional allies remain entrenched; results that can help reelect a president.”
The length of service of politically appointed top government managers is relatively short, averaging no more than 18 months recently for assistant secretaries, while private managers have a longer tenure both in the same position and in the same enterprise (Allison, 1979). A recognized element of private business management is the responsibility to train a successor or several possible candidates while the concept is largely alien to public management since fostering a successor is perceived to be dangerous. As a result, government managers tend to have relatively short time horizons dictated by political necessities and the political calendar, while private managers appear to take a longer time perspective oriented toward market developments, technological innovation and investment, and organizational building (Allison, 1979).
Absence of competitive pressures. Public agencies typically have few rivals for the provision of their services. Even when competition is present, public managers frequently enjoy a dominant position in the market, for example in education. Thus Stewart and Ranson (1988, p. 1) conclude that “it is not meaningful to think of the competitive stance of the public sector except in certain fields.” Nutt and Backoff (1993, p. 214) also argue that “public sector organizations often are expected to collaborate with other organizations offering similar services and not compete for customers. To do so would be seen as creating a duplication of services, universally regarded as undesirable in the public sector.”
Many references cite differences between public and private management that are related to involvement or lack of involvement with the economic market as a source of resources, information, and constraints. Rainey et al (1976, p. 235) argue that “ as a source of revenues and resources, the market enforces relatively automatic penalties and rewards, and thus provides incentives to cost reduction, operating efficiency, and effective performance.” On the other hand, organizations which obtain resources through an appropriations process in a political context (public agencies) are less subject to such influences; cost reductions might be avoided or deemphasized on a number bases, such as political influences or a number of multiple, vague criteria of a public interest nature (Rainey et al, 1976).
Organizational Goals
The authors cited here frequently argued that public agencies have distinctive goals, such as equity and accountability that are absent in the private sector. These goals stem from the common ownership of public organizations and from attempts to control their behavior in order to achieve collective purposes. Such purposes, in turn, are believed to require distinctive management processes and values in the public sector (Ranson and Stewart, 1994).
Multiple goals. Public managers often have multiple goals imposed on them by the numerous stakeholders that they must attempt to satisfy. Gordon and Milakovich (1995, p. 19) argue that private firms must pursue the single goal of profit: “it is success – or failure – in the market which is ultimately the measure of effective private business, nothing else.” By contrast, public agencies are pushed and pulled in many directions simultaneously. It is therefore especially important for public managers to be able to balance and reconcile conflicting objectives.
In governmental management, great emphasis tends to be placed on providing equity among different constituencies, while in private business relatively greater stress is placed upon efficiency and competitive performance (Allison, 1979). In the public sector, concerns about achieving results must compete for managers’ attention with political and procedural concerns. Values such as participation and public accountability make it necessary for public managers to divide their attention between the results they seek and how to obtain those results. It is difficult to achieve maximum economy and efficiency while keeping an eye on possible political repercussions – and many public administrators must do just that (Gordon and Milakovich, 1995).
Vague goals. Objectives in the private sector often can be reduced to clear, concise, and quantifiable statements. Many public organizations must deal in social intangibles such as the right to privacy, increased political participation, or improving quality of life. Those goals are difficult to articulate in any clear specific way.
As a result, goals of public organizations are often more vague than those of their private counterparts. This is because organizational purposes are imposed through the political process, rather than selected by managers themselves. In order to get policies adopted, it is necessary for politicians to build support among diverse groups. Policy ambiguity is an asset in this context since the more crisp and clear the goals, the more likely that they will prove unacceptable to some members of a political coalition. According to Nutt and Backoff (1993, p. 223), “this ambiguity provides a sharp distinction between strategic management in public and in private organizations.” The consequence for public managers is that performance targets are inherently unclear and that private sector techniques such as Management by Objectives are likely to be inappropriate.
In contrast to the profit-oriented concern shared by most of management in the private sector, there are often conflicting incentives among citizens, elected representatives, and public administrative supervisors and leaders (Gordon and Milakovich, 1995). If a consensus is lacking on what is to be done, why it is to be done, and how it is going to be done, an organization will not function with the same smoothness as it would were incentives agreed upon.
Organizational Structures
The authors cited here have also drawn attention to the distinctiveness of the internal characteristics of public organizations. Four common themes emerged regarding public sector organizational structures.
More bureaucracy. Organizations in the public sector have more formal procedures for decision-making and are less flexible and more risk-averse than their private sector counterparts (Bozeman and Kingsley, 1998). These characteristics of public agencies reflect “the lack of rewards or incentives for successful innovations and the penalties for violation of established procedures” (Fottler, 1981, p. 5).
Bureaucratic structures may also stem from the requirements of monitoring bodies and from demands for accountability in the public sector. As Rainey et al. (1976, p. 238) note, “the coercive nature of most governmental actions might be cited as a fundamental justification for constitutional checks and balances and extensive formal control mechanisms.”
In positing differences in public and private organizations in the United States, a number of authors focus on the impact of the formal, legal environment of government organizations, especially as it relates to their autonomy and flexibility. While private organizations need only obey the law and the regulations of regulatory agencies, government organizations tend to have their purposes, methods, and spheres of operation defined and constrained by law and legally authorized institutions to a much greater degree (Rainey et al, 1976). Others note a tendency toward legalism in the public sector – a proliferation of formal specifications and controls by statute, court rulings, and hierarchical superiors. Dahl and Lindblom (1953) attach significance to the fact that public agencies are subject to hierarchically or bureaucratically administered external controls. Several authors, in citing the fragmentation of authority in government and governmental organizations, see it as a result of multiple formal checks and institutions.
More red tape. A number of authors have made observations that focus on the dysfunctions in government organizations. Dahl and Lindblom (1953) asserted that public agencies suffer more than private enterprises from red tape, buck-passing, timidity, and rigidity. Much of the red tape that public administrators deal with arises from taxpayers’ demands to know how their money is being spent. Extensive audits or disclosures of how all money was spent are required in government.
Bozeman and Scott (1996) regarded red tape as a pathological side effect of bureaucracy. The existence of red tape implies an unnecessary and counter-productive obsession with rules rather than results and with processes instead of outcomes.
Bozeman et al. (1992, p. 291) argue that “just as the original annoyance with red tape resulted from the delay caused by untying and tying the tape surrounding official documents, red tape today refers not to rules and procedures themselves but to the delays and subsequent irritation caused by formalization and stagnation.”
Less managerial autonomy. Managers in public organizations have less freedom to react as they see fit to the circumstances that they face. Allison (1979, p. 388) claims that “private management proceeds much more by direction or the issuance of orders to subordinates by superior managers with little risk of contradiction.” Similarly, Weinberg (1983, p. 107) notes that “private sector executives….are often assumed to be able to formulate and carry out ‘rational’ strategies because they control tightly structured hierarchical organizations.” By contrast, public managers have the costs of hierarchy (rules and red tape) without the benefits (the freedom and power to manage their subordinates). All of the authors cited here argue that public manager’s discretion on personnel issues is especially low because civil service rules on hiring, firing, and promotion are inflexible. For example, “public employees enjoy greater job security because the procedures for taking greater punitive actions are so complex and time consuming that few people choose to pursue them” (Baldwin, 1987, p. 183).
In addition, some authors related the lack of managerial autonomy in public organizations to the ability of subordinates to bypass hierarchical superiors by appealing to alternate formal authorities or political constituencies, thus making for weaker, more fragmented authority than is usually found in business. The multiple legal, statutory, and procedural controls noted earlier obviously decrease the autonomy and flexibility available to public managers in making their decisions. Inability to specify clear objectives and performance measures makes it harder to supervise and control subordinates, and results in reluctance to delegate, in multiple levels of review and approval, and in a proliferation of regulations (Rainey et al, (1976).
Closely connected to managerial autonomy is the “accountability factor.” The accountability factor is the degree to which an institution is responsible to others for its actions. Several authors agreed that the business sector operates in relative, although not complete, autonomy and perhaps secrecy; free of the checks and balances of the public arena. The public sector, on the other hand, is subject to the pressure of the press and to public scrutiny since it operates in a “goldfish bowl.”
Personnel constraints. In government there are two layers of managerial officials that are at times hostile to one another: the civil service (including the Senior Executive Service) and the political appointees. Unionization of government employees exists among relatively high-level personnel in the hierarchy and includes a number of supervisory personnel (Allison, 1979). Civil service, union contract provisions, and other regulations complicate the recruitment, hiring, transfer, and lay off or discharge of personnel to achieve managerial objectives or preferences. By comparison, private business managers have considerably greater latitude, even under collective bargaining, in the management of subordinates. They have much more authority to direct the employees of their organization. Government personnel policy and administration are more under control of staff, including staff outside of an agency, compared to the private sector in which personnel are much more subject to line responsibility (Allison, 1979).
Personnel management in the private sector is relatively simple; employees are recruited and developed in order to achieve organizational strategic goals and objectives. Personnel management in the public sector is much more complicated. Public personnel management may be seen as the continuous interaction among four fundamental societal values that often conflict (Klingner and Nalbandian, 1993). The goal of much public policy making is to develop compromises among two or more of these values. The goal of those who must actually carry out the policies is to develop and implement rules, regulations, procedures, and practices that will effectively fulfill personnel management functions within a spirit of compromise.
These four fundamental societal values further distinguish public personnel management from private personnel management (Klingner and Nalbandian, 1993):
1. Responsiveness is the belief that government answers to the will of the people expressed through elected officials. Political and personal loyalty to elected officials is ensured through an appointment process that considers political loyalty, along with education and experience, as indicators of merit. Often, in order to promote responsive government, the filling of a number of public jobs is made the prerogative of authorized elected officials. Private managers rarely have to consider responsiveness to the will of the people when filling vacancies.
2. Efficiency is the desire to maximize the ratio of inputs to outputs in any management process, whether public or private. This value is captured by the phrase “the biggest bang for the buck.” In the personnel world, efficiency means that decisions about who to hire, reassign, or promote should be based on the knowledge, skills, and abilities of applicants and employees. Since public personnel systems are designed to be responsive to the public, the value of efficiency significantly complicates public management. In fact, efficient service is often best achieved in the public sector through privatization and contracting out, rather than through public agencies and employees, because the private sector’s profit motive and emphasis on the bottom line enables it to provide services more cheaply.
3. Individual rights emphasize that individual citizens will be protected from unfair actions of government officials. These rights are protected by the Bill of Rights as well as the Fourteenth Amendment to the Constitution. In addition to these legal protections, public employees’ rights are maintained through job security and due process (civil service) and through merit system rules and regulations that protect public employees from inappropriate partisan political pressure. As a result, public employees enjoy much greater protection from arbitrary management decisions than private sector employees.
4. Social equity is the belief that individuals should be accorded preference in selection and promotion in public positions based on previous sacrifices (veterans) or discrimination (women and minorities) that prevent them from competing fairly for jobs. Social equity emphasizes fairness to groups like women, racial minorities, the disabled, and veterans, groups that would otherwise be disadvantaged by a market economy. Managers in the private sector are concerned much less with social equity. As a result, they have much greater freedom in hiring, promoting, and compensating employees.
Managerial Values
The final broad difference identified in the literature between public and private organizations concerns the attitudes and aspirations of employees, both towards work and to life in general. Various authors have characterized this distinctive set of values as a “public sector ethos.”
Motivation. The majority of the authors cited here believed that public managers are less materialistic than their private sector counterparts, and, as a result, are less likely to be motivated by financial rewards. So, policies such as performance-based pay or promises of financial bonuses are unlikely to enhance public employee commitment or improve organizational performance.
Private managers are motivated and measured by several performance indicators related to the bottom line. These include profit, market standing, and financial ratio measures. Since governmental managers rarely have a clear bottom line, there is little, if any, agreement on the standards and measurement of performance to appraise a government manager – financial return, market share, performance measures for executive compensation – are well established in private business and often made explicit for a particular managerial position during a specific period ahead (Allison, 1979).
Public managers are subject ultimately to evaluation by outside forces, especially the legislature, the chief executive, the courts, and often the public, and it is those outside forces – not open markets – that have the critical last word in judging how well a public organization fulfills its responsibilities. Public managers, moreover, have been evaluated in somewhat nebulous and ill-defined terms. According to Gordon and Milakovich (1995, p. 19), “many [public] managers have had more incentive to focus on satisfying interested clienteles and on holding and expanding political support, than on substantive performance by itself.”
Public service. The literature also reflects a sense that managers in public agencies have a stronger desire to serve the public than managers in the private sector. This concern to promote the public interest has been contrasted with the desire of private firms to meet the demands of individual customers. Box (1999, p. 40) argues that “the decision rule of ability to maintain or change a service in accordance with the majority view of public interest is different from the market-driven service rule that uses individual preference as the basis for governmental response.” Public officials are often seen as driven by a strong sense of vocation, reinforced by the presence of strong self-regulating professions with their own ethical codes of practice. The term “reinforced” is particularly important here: clearly, professionals such as doctors and teachers work in both public and private organizations. The assumption in this argument is that public employment is associated with an especially strong concern by professionals to promote public welfare.
Organizational commitment. Surprisingly, the literature reviewed for this paper reflects a belief that the level of organizational commitment is lower in the public sector than in the private sector. This is related to the inflexibility of personnel procedures and the weak link between performance and rewards in public organizations. Perry and Porter (1982, p. 92) note that “it is especially difficult for many public agencies to instill employees with a sense of personal significance. One reason is that it is often difficult for public employees to observe any link between their contributions and the success of their organizations. The absence of this linkage is the result of a variety of factors, among them the sheer size of the government, the pluralistic composition of policy implementation networks, and the lack of clear-cut performance indicators or norms.”
In sum, the available literature provides considerable theoretical evidence that management in public and private organizations differs in a variety of important respects. Furthermore, these differences act as barriers to the transfer of management techniques from the private to public sector.
The main hypothetical contrasts between public and private administration are:
H1: Public managers work in a more complex environment.
H2: The goals of public organizations are distinctive.
H3: Public organizations are more bureaucratic.
H4: Public sector managers have distinctive values.
The theories contained in the majority of the literature on the relationship between public and private management clearly validate these hypotheses. The general pattern of arguments reflects a strong support for a difference between public and private management. Obviously, only empirical research that employs statistical methods can fully validate these hypotheses. However, the theoretical constructs provided here do point to a significant difference between public sector and private sector management, both in scope and in quality.
Conclusion
In this paper, I have attempted to compare the context and environments of public and private sector management. I have relied heavily on recent published articles that primarily detail the differences between public administration and private management.
The technical aspects for “reinventing government” depend partly on whether private sector management principles and processes are likely to work in the public sector. The dominant view in the public administration literature is that public and private organizations are so different that private sector management processes are inappropriate for the public sector. Management techniques cannot be exported successfully from one sector to another because of differences in organizational environments, goals, structures, and managerial values. These variables represent a set of contingencies that require different approaches to management in public agencies and private firms.
In sum, the available evidence provides clear support for the view that public and private management are fundamentally dissimilar in all important respects. This is not to argue that there are no similarities between public and private organizations. Indeed, several similarities were identified in this thesis paper. For example, public and private managers both are concerned with meeting their staffing needs, motivating subordinates, obtaining financing and otherwise conducting their operations so as to promote their programs’ survival and maximum impact. Other differences that have not been identified in the literature on the theoretical differences between public and private management may also exist. Nevertheless, there are several theoretical reasons for rejecting the application of private management practices to public organizations.
Historically in America two different institutional approaches to management science have developed: one in the private sector and one in the public sector. Recently, this conventional taxonomy has been challenged, and around the country there has been emerging a more generic approach to management. In response to this, public administration theorists have developed a new body of literature emphasizing the differences between the two sectors. The central purpose of this paper is to explore the relationship between public sector and private sector management within the context of available literature. As such, the key substantive issue discussed here is whether there is an inherent conflict between the rational, private management model with its criteria of economic efficiency and the political public management model with its criteria of consensus and compromise.
A central element of recent reform efforts associated with “reinventing government” is that public organizations should import managerial processes and behavior from the private sector (Box, 1999). In particular, these efforts suggest that public managers should seek to emulate the supposedly successful techniques of their private sector counterparts. Indeed, this formula for public sector success predates recent reform movements, and has been a recurring theme in public policy. For example, the reform movement in American municipal government during the early decades of the twentieth century emphasized the benefits of business-like behavior (Welch and Bledsoe, 1988).
However, the adoption of private sector models has been viewed with much skepticism in the literature on public administration and public management. The core objection is summarized in Sayre’s (1953, p. 102) view that public and private organizations are “fundamentally alike in all unimportant respects.” This phrase has been given wider currency by Allison who proceeds to argue, “the notion that there is any significant body of private management practices and skills that can be transferred directly to public management tasks in a way that produces significant improvement is wrong” (Allison, 1979, p. 379).
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The argument of this thesis paper is that Sayre’s assertion is clearly supported by theoretical evidence from several prominent researchers in the field of public administration. This paper begins by providing definitions of public and private organizations. Following the definitions, the discussion will continue with an examination of the similarities between public and private administration. Since both public and private sector administration involve the management of organizational resources, elements of the managerial environment will be the same for both public and private managers. The discussion of similarities will be followed by an examination of the important differences between the two administrative settings. Although some administrative activities are common to both public and private sectors, major differences are also evident.
In this paper, the theoretical arguments on the differences between private firms and public agencies are reviewed and four hypotheses are identified on the impact of public administration on organizational environments, goals, structures, and managerial values. Evidence from several theoretical studies of differences between public agencies and private firms is critically evaluated. All four of the hypotheses are supported by a majority of the theoretical arguments.
Throughout this thesis paper, the terms “management” and “administration” are used synonymously to indicate managerial activity in either sector. Management is commonly defined as ‘the accomplishment of purpose through the organized effort of others” (Bower, 1977, p. 132).
Evidence of the distinctiveness of public management was gathered in two main stages. First, a “keywords in title or abstract” search was undertaken through the MDUSA database search engine through the University of Baltimore’s Langsdale library information system. Second, journal articles, books, and book chapters cited in the sources identified in stage one were obtained. This search strategy means that unpublished papers on public/private differences are omitted from the analysis. The results summarized below may, therefore, overstate the distinctiveness of public organizations, on the assumption that papers are more likely to be published if they present differences rather than similarities.
Definitions of Public and Private Organizations
Public and private have been used for centuries in relation to fundamental issues and values in society (Perry and Rainey, 1988). Dictionaries cite the origins of public in the Latin word for people, and define it as referring to matters pertaining to the people of a community, nation, or state. Private derives from the Latin word for deprived or set apart, as in being deprived of public office or set apart from government as a personal matter. Accordingly, public organizations often have been equated with governmental agencies and private organizations have been identified as all other organizations, particularly business firms.
Similarities and differences between the public and private sectors have frequently been debated in the literature on public administration, politics, and business. The main conventional distinction between public and private organizations is their ownership (Rainey et al, 1976). Whereas private firms are owned by entrepreneurs or shareholders, public agencies are owned collectively by members of political communities. This distinction is associated with two further public/private contrasts. First, unlike their private counterparts, public agencies are funded largely by taxation rather than fees paid directly by customers (Walmsley and Zald, 1973). Secondly, public sector organizations are controlled predominantly by political forces, not market forces. In other words, the primary constraints are imposed by the political system rather than the economic system (Dahl and Lindblom, 1953).
A critique of the comparative literature shows that a majority of authors regard ownership as a crucial distinction between government and private organizations. For government organizations, ownership rights cannot be transferred among individuals, and risk (at least capital risk) is therefore highly diffused (Perry and Rainey, 1988). In the private sector, management is treated as a productive input and is efficiently valued in the market. In the public sector, the distribution of managerial ability among organizations has little correspondence to its value as a productive input (Clarkson, 1980). The authors generally agreed that public ownership more heavily subjects an organization to the institutional controls of government, as opposed to economic markets and other nongovernmental control processes.
It is important to distinguish between these three variables of ownership, funding, and control because they have different theoretical effects on organizational behavior. For example, the economic theory of property rights suggests that common ownership leads to lower efficiency in the public sector. In private organizations, owners and shareholders have a direct monetary incentive to monitor and control the behavior of managers. Similarly, managers themselves are likely to benefit from better performance, either because they own company shares or because their pay is linked to financial success. By contrast, public sector managers do not usually obtain direct financial benefits from higher organizational efficiency.
The significance of the funding dimension of public organizations is emphasized by public choice theory. According to this perspective, organizations that receive revenues from political sponsors are likely to be unresponsive to the preferences of the people who receive their services (Boyne, 1998). Finally, organizations that are subject to political rather than economic controls are likely to face multiple sources of authority that are potentially conflicting. Bozeman (1987) argues that political control is the essence of public organization: “all organizations are public because political authority affects some of the behavior and processes of all organizations…. Public pertains to the effects of political authority.”
These three dimensions of the distinctness of public organizations represent the highest level in this evaluation of the differences between public and private administration. The discussion now turns to specific similarities and differences between management in the two sectors.
Similarities
Many elements of public administration have their roots in the private sector. In both settings, managers and those to whom they are accountable have an interest in running programs and other activities that are properly designed, appropriately directed to meeting their intended goals, efficient in expenditure of organizational resources, and effective in their impacts. Public and private managers both are concerned with meeting their staffing needs, motivating subordinates, obtaining financing, and otherwise conducting their operations so as to promote their programs’ survival and maximum impact. Each of these similarities is discussed more fully below.
POSDCORB
Luther Gulick and Lyndall Urwick’s Papers on the Science of Administration, published in 1937, identified a set of seven general management principles that have become professional watchwords for management in any setting: planning, organizing, staffing, directing, coordinating, reporting, and budgeting (collectively known by the acronym POSDCORB). Gulick and Urwick reemphasized earlier references to the importance of these administrative concepts, declared their applicability to almost any human organization regardless of what the organization was or why it existed, and stressed the fundamental desirability of efficiency as the underlying goal for administrative science (Gordon and Milakovich, 1995). This section draws heavily on Gulick and Urwick as cited in Gordon and Milakovich’s Public Administration in America.
Planning. All managers engage in a set of activities designed to work out in broad outline the things that need to be done and the methods for doing them to accomplish the purposes set for the enterprise. This includes formulating a product/market strategy to allow the organization to exploit its core competencies to meet the demands of its external environment.
Organizing. Whether in the public or private sector, managers must establish a formal structure of authority through which work subdivisions are arranged, defined, and coordinated for the defined objectives. This includes aligning the organization's administrative, responsibility, and account structures with its strategy.
Staffing. All organizations require people to perform work. Therefore, managers in both sectors are concerned with the whole personnel function of bringing in and training the staff and maintaining favorable conditions of work. This includes motivating and inspiring people to serve the interests of the organization, recruiting, training, and indoctrinating them, and coordinating their activities.
Directing. Managers in both settings are also concerned with the continuous task of making decisions and embodying them in specific and general orders and instructions and serving as the leader of the enterprise. This includes creating a culture and a web of personal relationships that strengthens and maintains the organization's core competencies and reinforces its formal structures.
Coordinating. Work in all large organizations is complex. Therefore, both public and private sector managers are concerned with the all-important duty of interrelating the various parts of the work. This includes integrating the work of divisions, departments, and functions to most efficiently and effectively complete the work.
Reporting. Communication is essential to any enterprise. As such, all managers must keep those to whom they are responsible informed as to what is going on, which includes keeping themselves and their subordinates informed through records, research, and inspection. This includes reporting to higher-level authorities on environmental forces and surprises, opportunities and threats, strengths and weakness, efforts and accomplishments.
Budgeting. All managers are concerned with obtaining financing to promote their programs’ survival and maximum impact. Financing includes all that goes with budgeting in the form of fiscal planning, accounting, and control, including assessing alternative investments and policies, programming the consequences of investment decisions and policy commitments, and target setting.
At the root of Gulick and Urwick’s POSDCORB synthesis was a cogent plea for building an effective, efficient administrative system right up to the highest governmental levels, the Executive Office of the President (Stillman, 1999). Their synthesis shared basically the same doctrinal premises as other public administration theorists of the time that public administration is equated with management as (1) a single process, (2) not law but management, (3) an art in transition to scientific principles, and (4) the central business of government (Stillman, 1999).
With various additions, amendments, and refinements, similar lists of general management functions can be found throughout the management literature. These common functions of management are not isolated and discrete, but rather integral components separated here for purposes of analysis. The character and relative significance of the various functions differ from one time to another in the history of any organization, and between one organization and another (Allison, 1979). But, whether in a public or private setting, the challenge for the general manager is to integrate all these elements so as to achieve desired results.
Differences
The POSDCORB formulation is cited often in the available comparative literature as the primary, but relatively unimportant, similarity between public and private administration. The neutral POSDCORB principles omit from consideration many of the realities of public organizational life. According to Lutrin and Settle (1992, p. 163), they “ignore personality factors, say little about economic policy or the public interest, and fail to address a number of vital managerial problems. These include the importance of internal power struggles, of mechanisms for defining problems, of generating alternatives, and of problems relating to the culture and subcultures within which administration operates. They also fail to consider the problems of dealing with diverse and conflicting social values and the legacy of previous organizational experiences as guides to current practice.”
While there is a level of generality at which management is management, whether public or private, functions that bear identical labels take on rather different meaning in public and private settings (Allison, 1979). Several of the comparative authors pointed out that most individuals who have been general managers in both business and government judge public management as both different than private management and harder than private management.
In this section, arguments on the distinctiveness of public management are analyzed. These arguments are derived from a variety of academic sources that contain claims concerning the distinctiveness of public management (Allison, 1979, Box, 1999, Bozeman, 1987, Fottler, 1981, Perry and Rainey, 1988, Rainey, 1989, Rainey et al, 1976). Reported below are several observations and propositions that were stated by many authors with enough similarity in phrasing and intent to make it seem reasonable to group them together. Four main theoretical differences between public and private management were identified in the literature. These concern the relationship between public administration and organizational environments, organizational goals, organizational structures, and the values of managers. According to Fottler (1981, p. 4), these variables create “differences in how the basic functions of management are carried out” in the public and private sectors.
Organizational Environments
A number of assertions by authors can be fairly characterized as involving factors that are environmental, in the sense that they are external to organizations, and are largely out of their control. The majority of the authors cited in this paper who contend that “public management is different” have drawn attention to several aspects of the external circumstances of public organizations:
Complexity. Public agencies face a variety of stakeholders, each of whom places demands and constraints on managers. Metcalfe (1993, p. 174) argues that “government operates through networks of interdependent organizations rather than through independent organizations which simply pursue their own objectives.” Furthermore, the requirements of the various external constituencies are likely to be conflicting (e.g. taxpayers and service groups, consumer groups and producer groups).
This complexity is reflected in a fundamental constitutional difference between public and private management. In business, the functions of general management are centralized in a single individual: the Chief Executive Officer. The goal is authority commensurate with responsibility. In contrast, in the U.S. government, the functions of general management are constitutionally spread among competing institutions: the executive, two houses of Congress, and the courts. The constitutional goal was “not to promote efficiency but to preclude the exercise of arbitrary power,” as Justice Brandeis observed (quoted in Allison, 1979, p. 389). Indeed, as The Federalist Papers make starkly clear, the aim was to create incentives to compete: “the great security against a gradual concentration of the several powers in the same branch, consists in giving those who administer each branch the constitutional means and personal motives to resist encroachment of others. Ambition must be made to counteract ambition” (quoted in Allison, 1979, p. 389).
Thus, the general management functions concentrated in the CEO of a private business are, by constitutional design, spread in the public sector among a number of complex, competing institutions and thus shared by a number of individuals whose ambitions are set against one another (Allison, 1979). Since most public services are actually delivered by state and local governments, there is a further array of complex interactions and diversity of objectives and decision criteria.
Permeability. Public organizations are “open systems” that are easily influenced by external events. Indeed, it is the responsibility of public managers to protect and promote this permeability of organizational boundaries, in order to ensure that services are responsive to public needs. By contrast, “private sector chief executives or boards of directors may ignore most constituents’ demands for direct input to the policy formulation and implementation processes” (Ring and Perry, 1985, p. 277).
Most public organizations suffer from diffuse responsibility, often resulting in absence of accountability for decisions made (Gordon and Milakovich, 1995). Separation of powers is one factor in this, but a fragmented executive branch in most large governments, including those at the local level, is another. In contrast, centralized executive responsibility is a key feature of many profit-oriented organizations. Also, unlike private organizations, public organizations entrust a fair amount of decision-making responsibility to citizen groups, courts, and various types of boards or commissions (Gordon and Milakovich, 1995). Thus, an absolutely clear chain of command is not possible because of numerous opportunities for outside pressures to influence the power hierarchies.
The diffuse nature of public organizations allows more external sources of formal influence to enter into public decision-making. In addition, there is a greater fragmentation among those external sources of influence. In government, managers often seek to mediate decisions in response to a wide variety of pressures and must often put together a coalition of inside and outside groups to survive (Allison, 1979). By contrast, private management proceeds much more by direction or the issuance of orders to subordinates with little external influence. Governmental managers tend to regard themselves as responsive to many superiors while private managers look more to one higher authority (Allison, 1979).
Media relations. According to Allison (1979, p. 387), “governmental management must contend regularly with the press and media; its decisions are often anticipated by the press.” Private decisions are less often reported in the press, and the press has a much smaller impact on the substance and timing of decisions in the private sector.
As opposed to the business executive, who can function with near anonymity, the public executive must manage the flow of information about his or her agency so that he or she can get on with the task of achieving goals (Bower, 1977). Press stars must produce news that sells daily. They do not want stories about the slow, careful turnaround of an organization or about the delicate conversion of an establishment to new ideas (Bower, 1977).
This increased press interest tends to expose public managers to increased public scrutiny and require public managers to be more open regarding their management processes. In contrast, private business management is subjected to less public scrutiny. As a result, private management processes are more internal and less exposed to public review (Allison, 1979).
Moreover, governmental organizations are able to keep fewer secrets than businesses, and are subject to more outside monitoring. Actually, a number of the previously stated arguments concerning political influences could be interpreted as relevant to public scrutiny; they refer to the mechanisms of oversight and accountability, and to the multiplicity of representatives involved in the consideration of a public organization’s actions.
Closely related to public scrutiny propositions are a number of references to the unique role requirements of public organizations and public managers. According to Wamsley and Zald (1973), a basic difference between public and private organizations is that public organizations are perceived as being owned by the state and citizens; citizens therefore have rights and expectations they do not have in relation to private organizations. Therefore, citizens expect more of public administrators in the way of integrity, fairness, responsiveness, and accountability.
Instability. Political constraints result in frequent changes in policy, and the imposition of short time horizons on public managers. According to Bozeman (1987, p. 20), the political cycle means that “there is constant pressure to achieve quick results – results that can help the agency receive a larger share in the next round of appropriations; results that may be possible only so long as congressional allies remain entrenched; results that can help reelect a president.”
The length of service of politically appointed top government managers is relatively short, averaging no more than 18 months recently for assistant secretaries, while private managers have a longer tenure both in the same position and in the same enterprise (Allison, 1979). A recognized element of private business management is the responsibility to train a successor or several possible candidates while the concept is largely alien to public management since fostering a successor is perceived to be dangerous. As a result, government managers tend to have relatively short time horizons dictated by political necessities and the political calendar, while private managers appear to take a longer time perspective oriented toward market developments, technological innovation and investment, and organizational building (Allison, 1979).
Absence of competitive pressures. Public agencies typically have few rivals for the provision of their services. Even when competition is present, public managers frequently enjoy a dominant position in the market, for example in education. Thus Stewart and Ranson (1988, p. 1) conclude that “it is not meaningful to think of the competitive stance of the public sector except in certain fields.” Nutt and Backoff (1993, p. 214) also argue that “public sector organizations often are expected to collaborate with other organizations offering similar services and not compete for customers. To do so would be seen as creating a duplication of services, universally regarded as undesirable in the public sector.”
Many references cite differences between public and private management that are related to involvement or lack of involvement with the economic market as a source of resources, information, and constraints. Rainey et al (1976, p. 235) argue that “ as a source of revenues and resources, the market enforces relatively automatic penalties and rewards, and thus provides incentives to cost reduction, operating efficiency, and effective performance.” On the other hand, organizations which obtain resources through an appropriations process in a political context (public agencies) are less subject to such influences; cost reductions might be avoided or deemphasized on a number bases, such as political influences or a number of multiple, vague criteria of a public interest nature (Rainey et al, 1976).
Organizational Goals
The authors cited here frequently argued that public agencies have distinctive goals, such as equity and accountability that are absent in the private sector. These goals stem from the common ownership of public organizations and from attempts to control their behavior in order to achieve collective purposes. Such purposes, in turn, are believed to require distinctive management processes and values in the public sector (Ranson and Stewart, 1994).
Multiple goals. Public managers often have multiple goals imposed on them by the numerous stakeholders that they must attempt to satisfy. Gordon and Milakovich (1995, p. 19) argue that private firms must pursue the single goal of profit: “it is success – or failure – in the market which is ultimately the measure of effective private business, nothing else.” By contrast, public agencies are pushed and pulled in many directions simultaneously. It is therefore especially important for public managers to be able to balance and reconcile conflicting objectives.
In governmental management, great emphasis tends to be placed on providing equity among different constituencies, while in private business relatively greater stress is placed upon efficiency and competitive performance (Allison, 1979). In the public sector, concerns about achieving results must compete for managers’ attention with political and procedural concerns. Values such as participation and public accountability make it necessary for public managers to divide their attention between the results they seek and how to obtain those results. It is difficult to achieve maximum economy and efficiency while keeping an eye on possible political repercussions – and many public administrators must do just that (Gordon and Milakovich, 1995).
Vague goals. Objectives in the private sector often can be reduced to clear, concise, and quantifiable statements. Many public organizations must deal in social intangibles such as the right to privacy, increased political participation, or improving quality of life. Those goals are difficult to articulate in any clear specific way.
As a result, goals of public organizations are often more vague than those of their private counterparts. This is because organizational purposes are imposed through the political process, rather than selected by managers themselves. In order to get policies adopted, it is necessary for politicians to build support among diverse groups. Policy ambiguity is an asset in this context since the more crisp and clear the goals, the more likely that they will prove unacceptable to some members of a political coalition. According to Nutt and Backoff (1993, p. 223), “this ambiguity provides a sharp distinction between strategic management in public and in private organizations.” The consequence for public managers is that performance targets are inherently unclear and that private sector techniques such as Management by Objectives are likely to be inappropriate.
In contrast to the profit-oriented concern shared by most of management in the private sector, there are often conflicting incentives among citizens, elected representatives, and public administrative supervisors and leaders (Gordon and Milakovich, 1995). If a consensus is lacking on what is to be done, why it is to be done, and how it is going to be done, an organization will not function with the same smoothness as it would were incentives agreed upon.
Organizational Structures
The authors cited here have also drawn attention to the distinctiveness of the internal characteristics of public organizations. Four common themes emerged regarding public sector organizational structures.
More bureaucracy. Organizations in the public sector have more formal procedures for decision-making and are less flexible and more risk-averse than their private sector counterparts (Bozeman and Kingsley, 1998). These characteristics of public agencies reflect “the lack of rewards or incentives for successful innovations and the penalties for violation of established procedures” (Fottler, 1981, p. 5).
Bureaucratic structures may also stem from the requirements of monitoring bodies and from demands for accountability in the public sector. As Rainey et al. (1976, p. 238) note, “the coercive nature of most governmental actions might be cited as a fundamental justification for constitutional checks and balances and extensive formal control mechanisms.”
In positing differences in public and private organizations in the United States, a number of authors focus on the impact of the formal, legal environment of government organizations, especially as it relates to their autonomy and flexibility. While private organizations need only obey the law and the regulations of regulatory agencies, government organizations tend to have their purposes, methods, and spheres of operation defined and constrained by law and legally authorized institutions to a much greater degree (Rainey et al, 1976). Others note a tendency toward legalism in the public sector – a proliferation of formal specifications and controls by statute, court rulings, and hierarchical superiors. Dahl and Lindblom (1953) attach significance to the fact that public agencies are subject to hierarchically or bureaucratically administered external controls. Several authors, in citing the fragmentation of authority in government and governmental organizations, see it as a result of multiple formal checks and institutions.
More red tape. A number of authors have made observations that focus on the dysfunctions in government organizations. Dahl and Lindblom (1953) asserted that public agencies suffer more than private enterprises from red tape, buck-passing, timidity, and rigidity. Much of the red tape that public administrators deal with arises from taxpayers’ demands to know how their money is being spent. Extensive audits or disclosures of how all money was spent are required in government.
Bozeman and Scott (1996) regarded red tape as a pathological side effect of bureaucracy. The existence of red tape implies an unnecessary and counter-productive obsession with rules rather than results and with processes instead of outcomes.
Bozeman et al. (1992, p. 291) argue that “just as the original annoyance with red tape resulted from the delay caused by untying and tying the tape surrounding official documents, red tape today refers not to rules and procedures themselves but to the delays and subsequent irritation caused by formalization and stagnation.”
Less managerial autonomy. Managers in public organizations have less freedom to react as they see fit to the circumstances that they face. Allison (1979, p. 388) claims that “private management proceeds much more by direction or the issuance of orders to subordinates by superior managers with little risk of contradiction.” Similarly, Weinberg (1983, p. 107) notes that “private sector executives….are often assumed to be able to formulate and carry out ‘rational’ strategies because they control tightly structured hierarchical organizations.” By contrast, public managers have the costs of hierarchy (rules and red tape) without the benefits (the freedom and power to manage their subordinates). All of the authors cited here argue that public manager’s discretion on personnel issues is especially low because civil service rules on hiring, firing, and promotion are inflexible. For example, “public employees enjoy greater job security because the procedures for taking greater punitive actions are so complex and time consuming that few people choose to pursue them” (Baldwin, 1987, p. 183).
In addition, some authors related the lack of managerial autonomy in public organizations to the ability of subordinates to bypass hierarchical superiors by appealing to alternate formal authorities or political constituencies, thus making for weaker, more fragmented authority than is usually found in business. The multiple legal, statutory, and procedural controls noted earlier obviously decrease the autonomy and flexibility available to public managers in making their decisions. Inability to specify clear objectives and performance measures makes it harder to supervise and control subordinates, and results in reluctance to delegate, in multiple levels of review and approval, and in a proliferation of regulations (Rainey et al, (1976).
Closely connected to managerial autonomy is the “accountability factor.” The accountability factor is the degree to which an institution is responsible to others for its actions. Several authors agreed that the business sector operates in relative, although not complete, autonomy and perhaps secrecy; free of the checks and balances of the public arena. The public sector, on the other hand, is subject to the pressure of the press and to public scrutiny since it operates in a “goldfish bowl.”
Personnel constraints. In government there are two layers of managerial officials that are at times hostile to one another: the civil service (including the Senior Executive Service) and the political appointees. Unionization of government employees exists among relatively high-level personnel in the hierarchy and includes a number of supervisory personnel (Allison, 1979). Civil service, union contract provisions, and other regulations complicate the recruitment, hiring, transfer, and lay off or discharge of personnel to achieve managerial objectives or preferences. By comparison, private business managers have considerably greater latitude, even under collective bargaining, in the management of subordinates. They have much more authority to direct the employees of their organization. Government personnel policy and administration are more under control of staff, including staff outside of an agency, compared to the private sector in which personnel are much more subject to line responsibility (Allison, 1979).
Personnel management in the private sector is relatively simple; employees are recruited and developed in order to achieve organizational strategic goals and objectives. Personnel management in the public sector is much more complicated. Public personnel management may be seen as the continuous interaction among four fundamental societal values that often conflict (Klingner and Nalbandian, 1993). The goal of much public policy making is to develop compromises among two or more of these values. The goal of those who must actually carry out the policies is to develop and implement rules, regulations, procedures, and practices that will effectively fulfill personnel management functions within a spirit of compromise.
These four fundamental societal values further distinguish public personnel management from private personnel management (Klingner and Nalbandian, 1993):
1. Responsiveness is the belief that government answers to the will of the people expressed through elected officials. Political and personal loyalty to elected officials is ensured through an appointment process that considers political loyalty, along with education and experience, as indicators of merit. Often, in order to promote responsive government, the filling of a number of public jobs is made the prerogative of authorized elected officials. Private managers rarely have to consider responsiveness to the will of the people when filling vacancies.
2. Efficiency is the desire to maximize the ratio of inputs to outputs in any management process, whether public or private. This value is captured by the phrase “the biggest bang for the buck.” In the personnel world, efficiency means that decisions about who to hire, reassign, or promote should be based on the knowledge, skills, and abilities of applicants and employees. Since public personnel systems are designed to be responsive to the public, the value of efficiency significantly complicates public management. In fact, efficient service is often best achieved in the public sector through privatization and contracting out, rather than through public agencies and employees, because the private sector’s profit motive and emphasis on the bottom line enables it to provide services more cheaply.
3. Individual rights emphasize that individual citizens will be protected from unfair actions of government officials. These rights are protected by the Bill of Rights as well as the Fourteenth Amendment to the Constitution. In addition to these legal protections, public employees’ rights are maintained through job security and due process (civil service) and through merit system rules and regulations that protect public employees from inappropriate partisan political pressure. As a result, public employees enjoy much greater protection from arbitrary management decisions than private sector employees.
4. Social equity is the belief that individuals should be accorded preference in selection and promotion in public positions based on previous sacrifices (veterans) or discrimination (women and minorities) that prevent them from competing fairly for jobs. Social equity emphasizes fairness to groups like women, racial minorities, the disabled, and veterans, groups that would otherwise be disadvantaged by a market economy. Managers in the private sector are concerned much less with social equity. As a result, they have much greater freedom in hiring, promoting, and compensating employees.
Managerial Values
The final broad difference identified in the literature between public and private organizations concerns the attitudes and aspirations of employees, both towards work and to life in general. Various authors have characterized this distinctive set of values as a “public sector ethos.”
Motivation. The majority of the authors cited here believed that public managers are less materialistic than their private sector counterparts, and, as a result, are less likely to be motivated by financial rewards. So, policies such as performance-based pay or promises of financial bonuses are unlikely to enhance public employee commitment or improve organizational performance.
Private managers are motivated and measured by several performance indicators related to the bottom line. These include profit, market standing, and financial ratio measures. Since governmental managers rarely have a clear bottom line, there is little, if any, agreement on the standards and measurement of performance to appraise a government manager – financial return, market share, performance measures for executive compensation – are well established in private business and often made explicit for a particular managerial position during a specific period ahead (Allison, 1979).
Public managers are subject ultimately to evaluation by outside forces, especially the legislature, the chief executive, the courts, and often the public, and it is those outside forces – not open markets – that have the critical last word in judging how well a public organization fulfills its responsibilities. Public managers, moreover, have been evaluated in somewhat nebulous and ill-defined terms. According to Gordon and Milakovich (1995, p. 19), “many [public] managers have had more incentive to focus on satisfying interested clienteles and on holding and expanding political support, than on substantive performance by itself.”
Public service. The literature also reflects a sense that managers in public agencies have a stronger desire to serve the public than managers in the private sector. This concern to promote the public interest has been contrasted with the desire of private firms to meet the demands of individual customers. Box (1999, p. 40) argues that “the decision rule of ability to maintain or change a service in accordance with the majority view of public interest is different from the market-driven service rule that uses individual preference as the basis for governmental response.” Public officials are often seen as driven by a strong sense of vocation, reinforced by the presence of strong self-regulating professions with their own ethical codes of practice. The term “reinforced” is particularly important here: clearly, professionals such as doctors and teachers work in both public and private organizations. The assumption in this argument is that public employment is associated with an especially strong concern by professionals to promote public welfare.
Organizational commitment. Surprisingly, the literature reviewed for this paper reflects a belief that the level of organizational commitment is lower in the public sector than in the private sector. This is related to the inflexibility of personnel procedures and the weak link between performance and rewards in public organizations. Perry and Porter (1982, p. 92) note that “it is especially difficult for many public agencies to instill employees with a sense of personal significance. One reason is that it is often difficult for public employees to observe any link between their contributions and the success of their organizations. The absence of this linkage is the result of a variety of factors, among them the sheer size of the government, the pluralistic composition of policy implementation networks, and the lack of clear-cut performance indicators or norms.”
In sum, the available literature provides considerable theoretical evidence that management in public and private organizations differs in a variety of important respects. Furthermore, these differences act as barriers to the transfer of management techniques from the private to public sector.
The main hypothetical contrasts between public and private administration are:
H1: Public managers work in a more complex environment.
H2: The goals of public organizations are distinctive.
H3: Public organizations are more bureaucratic.
H4: Public sector managers have distinctive values.
The theories contained in the majority of the literature on the relationship between public and private management clearly validate these hypotheses. The general pattern of arguments reflects a strong support for a difference between public and private management. Obviously, only empirical research that employs statistical methods can fully validate these hypotheses. However, the theoretical constructs provided here do point to a significant difference between public sector and private sector management, both in scope and in quality.
Conclusion
In this paper, I have attempted to compare the context and environments of public and private sector management. I have relied heavily on recent published articles that primarily detail the differences between public administration and private management.
The technical aspects for “reinventing government” depend partly on whether private sector management principles and processes are likely to work in the public sector. The dominant view in the public administration literature is that public and private organizations are so different that private sector management processes are inappropriate for the public sector. Management techniques cannot be exported successfully from one sector to another because of differences in organizational environments, goals, structures, and managerial values. These variables represent a set of contingencies that require different approaches to management in public agencies and private firms.
In sum, the available evidence provides clear support for the view that public and private management are fundamentally dissimilar in all important respects. This is not to argue that there are no similarities between public and private organizations. Indeed, several similarities were identified in this thesis paper. For example, public and private managers both are concerned with meeting their staffing needs, motivating subordinates, obtaining financing and otherwise conducting their operations so as to promote their programs’ survival and maximum impact. Other differences that have not been identified in the literature on the theoretical differences between public and private management may also exist. Nevertheless, there are several theoretical reasons for rejecting the application of private management practices to public organizations.
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