Government's role as a stakeholder to administrations and agencies

As with some of the articles published in the past week, I've rewritten an article I wrote in 2009. I am trying to integrate all articles from the past into this blog, rewriting them where that appears necessary.

I am very surprised at how relevant it still feels, reading this more than three years after it was initially written. That said, I've rewritten quite a few key passages.

A reactive stance

Public administrations’ and public agencies' effectiveness, efficiency and economy are quite often an unintended victim of the existing interaction model with the elected representatives of the people, the government and the ministers. I’m talking about the often reactive stance which administrations and agencies are required to take with respect to ministerial or governmental decisions. This issue might be solved by a simple change in perception and related behavior at the side of the public administration or the agency, subject to acceptance of this changed approach by the elected representatives.

Striving for efficiency, effectiveness and economy

Public administrations and agencies look at government and ministers as active decision takers in their respective areas of responsibility. After all, the minister is politically responsible. However, the political decision process that guides and directs the government and its ministers can be and often is a bottleneck. This bottleneck in turn influences the speed and direction of actions of the public administration or agency and thus its efficiency, effectiveness and as a result its economy. Whereas this a a very common and traditional situation, this is likely not most optimal position of a public administration to ensure these three objectives.

A minister is not a CEO

Public administrations tend to see their ministers and government as CEO’s. They are not. They are chosen representatives out of an elected body. They are closer to a board of directors chosen from amongst the shareholders.

While they can significantly contribute to vision and mission, they should not adopt a day-to-day role in the strategic or – worse – operational activities of a public administration or an agency. The administration or the agency, which in essence should be a-political in nature and staffed with a competent management team, needs to be able to continue to execute a long term vision, which is being “tweaked” or “influenced” but not or only in very few cases dramatically changed by the government or the ministers.

Administrations and agencies need the flexibility to act now

This is not necessarily different from what is happening today, other than the fact that the administrations spend too much time in limbo, waiting for direction from the government. After all, most of the (operational) activities of the administration will not significantly change no matter what the government’s direction is. Taxes need to be collected, whatever the tax rate or tax structure. Vehicles still need license plates, whether the number is associated with a person or with a vehicle. Food safety needs to be assured whether or not it incorporates the Commission’s REACH objectives or not …

Thus, an administration can commit to a long term action plan of improvement and change, designed by its president and managers, presented to its stakeholders (minister, government, parliament and even the wider population) and tweaked, fine-tuned in view of their feedback. However, and administration should not wait to take action in its areas of responsibility pending a ministerial decision which may be bogged down in heavy political negotiations. This delay is not acceptable to its stakeholders (enterprises and citizens alike) as they have limited to no understanding of or appreciation for this process.

How Valve gets the new economy: treat your employees as the adults they can be

In a blog post about how Valve operations are significantly different from other environments he had worked for, Michael Abrash made some very astute observations about how our current creative economy is significantly different from anything that went before. He states:

"almost all the value was in performing a valuable creative act for the first time."

He continues to observe that this essential change results in rendering most of the existing command and control structures irrelevant. I quote him again:

"If most of the value is now in the initial creative act, there’s little benefit to traditional hierarchical organization that’s designed to deliver the same thing over and over, making only incremental changes over time. What matters is being first and bootstrapping your product into a positive feedback spiral with a constant stream of creative innovation.".

Hence, traditional command and control no longer works if you want to be successful in the current economic reality. Or if it still works, you're in reality one disruption away from irrelevance.

But traditional organizations, built on command and control, have a hard time doing what they should be doing: giving their responsible employees the trust that they will act as grown-ups and focus on what their most relevant contribution can be. Now, this is not easy for organizations, but it's a significant challenge for the employees as well. Mr. Abrash again, when speaking about that maturity and the responsibility it entails:

"That it is their responsibility, and theirs alone, to allocate the most valuable resource in the company – their time – by figuring out what it is that they can do that is most valuable for the company, and then to go do it."

However, and this is key, allowing your employees adulthood is also allowing them to make their own mistakes and allowing for the group to help them in correcting them. He states:

"Sometimes people or teams wander down paths that are clearly not working, and then it’s up to their peers to point that out and get them back on track.".

The challenge is therefore to allow your collaborators the freedom and give them the trust to fail, but also to succeed. Get out of their way and make them create.

I would like to extend this. The success of our future organizations will depend not on the level of command and control we build, but on the level of trust and allowances for useful failure we are willing to give our collaborators. This is the new economy, where the significantly reduced layers of management, if any, only exist to allow the collaborators to play for epic wins. For the rest, they need to get out of the way.

I encourage you to read the entire article here.

Thank you, Mr. Abrash, for some great insights.

The opposite of a bad system - an internal auditor's perspective

The opposite of a bad system

I recently read this statement, and I can't remember where I read it. It goes "The opposite of a bad system isn't chaos. It's a good system." The statement got me thinking about the fallacy inherent in the current thinking about the crisis and lessons learned from the internal audit profession which may be applicable to the problem at hand.

Whenever I am talking to people about the current economic crisis, I get the feeling there is an acceptance of the inevitability of the chaos we're descending into. People are so battered and bruised by the 2008 crisis that a certain lethargy appears to have taken hold in the minds. This is what it is, and this is what we will need to face and confront. Two issues I have with that:

1. I'm not sure either a descent into chaos or patching the current bad system are the only two options. They appear as the only two viable options because we keep starting from the same position in our assessment of possible solutions;
2. I'm not sure that a mere confrontation of the current chaos is the way out. Yes, conventional wisdom states "the only way out is through". This, by the way, is a Robert Frost quote, and is not the verbatim one either. He actually puts the words "The best way out is always through", in the mouth of one of his characters in A servant to servants. The other character agrees, but conditionally.

My issue with chaos

As the statement I started with reads, chaos is not the only alternative to a bad system. However, arguing chaos is the alternative allows for the incumbents to not have to confront the fundamental issues with the current, bad system. Putting the current, bad system in opposition to chaos is asking for a temporary solution at best. "Assist us with all your assets, then let us be, we'll fix it. Trust us." It's a traditional defensive move of an incumbent who wants to stay in power.

In "So long, and thanks for all the fish", Douglas Adams tells the story of a civilization of humans with a ruling political class of lizards. The humans only vote for lizards, not for humans, because of they would vote for a human they are afraid the wrong lizard may get in office. The book was written in 1984 and although it's light entertainment there are some very interesting ideas and positions in it. Among which is the one about the lizards.

The erroneous assumption

The assumption now, as the assumption by the civilization which Douglas Adams refers to, is that there is no alternative to the bad system but chaos. This argument was pushed to the limit and apparently abused in 2008. The banking system as an example of the 'bad system' needed to be rescued by massive money infusions as a hemorrhage would lead to chaos. So we patched the system. We all did. We effectively all paid for it. Once the bleeding had stopped on the outside of the patient, further intervention was not needed. Was actually refused by the patient. No real structural changes were implemented.

Think about the comparison to a patient: he comes into the ER bleeding profusely from multiple wounds. The doctors have clear indications there is massive internal bleeding going on as well. The patient, barely conscious, submits to some tests and emergency treatment. However, after a couple of days in treatment and feeling a bit better, the patient decides to leave the hospital, right before a more in-depth assessment is made. And leaves to continue on his traditional path, without really, fundamentally changing anything essential about his behavior.

Changing the diet

The point being that a fundamental life change often do increase the chances of survival of the patient. It will require a significant adaptation in lifestyle. It will require a change of diet, at least. It may not really be that enjoyable, especially when compared to a prior life of debauchery. But it will, in the end, lead to a better quality of life and longevity of both the patient and those around him invested in him. And that's what really matters.

So, think about it. The opposite of a bad system is not necessarily chaos. It can also be a good system.

Conditional treatment

Up to today, I have yet to see real conditional clauses being linked to treatment of a bank or a business in trouble because of lack of due diligence. That should change: we will save you, subject to certain behavioral changes on your part. Perhaps our banks, business and institutions need these clauses. Public means have been too readily available to bail out those who did not exercise due diligence. Let's be honest, due diligence has become a very empty concept. Future treatment should be subject to clauses which are measurably leading to a good system.

The internal auditor's approach

I'm an internal auditor. As an internal auditor, I usually see issues before they become common knowledge. I also know, from an experience point of view, how difficult it is to make people, departments and entire organizations change their behavior.

As internal auditors, our challenge is to ensure recommendations are implementable. They should not be too high level, because that makes them not implementable from a practical point of view. They should not be too distant from the daily reality either, even when concrete, because that would make them not implementable because they are not in line with current practices, which would make the change trajectory too complicated. And they should not be too determined by the incumbent responsible for the issue, as that would not create enough change to make a real difference and solve the problem.

The necessary steps - an internal auditors' perspective

I think the move from a bad system to a good system, avoiding chaos, will require the following aspects which are an integral part of the mindset of the internal auditor:

• We need to create awareness that a change is needed. For this, a thorough diagnosis of the entirety of the issues is needed, not based on opinion, but on facts and figures. What is going on, and how will it impact our future?
• We need to identify the deficiencies in the current system at the right level of detail. The right level is the level at which a change in the processes and procedures will result in a reduction of the exposure to the failures of the bad system.
• We need to co-develop solutions with the incumbents, without being influenced by their logical need to maintain the status quo. The systems needs to be improved, and in some cases it will result in a significant redefinition of the current process.
• We need to plan the improvement actions in an overall approach to fixing the systems. These improvement actions and the overall plan needs to be transparent and communicated to all stakeholders.
• We need to closely monitor the execution of the improvement actions.

In conclusion, there is an alternative to chaos. It will however be bad tasting medicine for the incumbent bank and business owners. They will not like the taste. However, their responsibility is social as we all partake in saving them. They therefore need to be held to very clear objectives which will structurally improve their functioning. Even if it means significantly changing their business models.