IV. Organisational Capacity

The structure of public institutions is important because it affects the performance of government. But designing the right organisation is only one element of governmental effectiveness; managing the departments is another.

Government departments and other public organisations are entities in which money, people, legal authority, and other resources are concentrated. The basic responsibility of managers is to organise and use these resources in ways that enhance the organisation's performance. Management is the value added through leadership, strategic guidance, the skilful use of physical and human resources, the mobilisation of outside support and the maintenance of organisational morale, the prudent investment of capital and other resources to ensure the organisation's continuing effectiveness, and the strength and willingness to change what the organisation does and how it goes about its work. An effective manager makes a difference by shaping the organisation to his or her will. Strong managers are leaders who monitor the outside environment, identify changes in demands on the organisation and in the opportunities they face, and make appropriate adjustments in policies and operations. Managers put their stamp on the organisation by giving it a sense of purpose and direction and by creating a collective capacity that is greater than that of the individuals who work in it. These managers often confront an organisational culture which, if not challenged, can limit their effectiveness.

The New Zealand reforms are utterly dependent on robust, entrepreneurial, risk-taking managers. At every turn, the reforms are built on the expectation that empowered managers will take initiative in revamping operations, reallocating resources, and pointing the organisation in new directions. Further, top managers will actively recruit others who are willing and able to take charge and will shed workers who shirk responsibility or are unproductive. Without strong management, New Zealand departments would be about the same after reform as they were before, but with high transaction costs and greater risk to the government. With capable leadership, departments should be poised to efficiently perform today's responsibilities while preparing for tomorrow's as well.

The State Sector Act reflects the importance accorded effective management by providing for chief executives the broad authority to run their organisations. Precisely because it relies on managers to lead, the Act hardly says anything about how departments are to be operated; instead, it leaves these matters to the discretion of the chief executives, who are given authority to recruit senior and middle managers, use appropriated funds and organise operations to produce agreed outputs, decide on the mix of inputs, and report on what they have accomplished.

Arguably, the New Zealand model places undue reliance on the performance of chief executives. After all, even in a pool of highly talented and motivated persons, some chief executives will seek to uproot the inherited organisational culture, while others will accommodate to it; some will impose a strategic perspective on the departments, while others will see themselves principally as the producers of current outputs; some will have the drive to purge low performers, while others will tolerate less-than-the best workers. It is essential, therefore, that assessment of the performance of chief executives and other managers be rigorous. Otherwise the New Zealand reforms would be a prescription for unevenness in organisational performance.

But the role of the chief executive is not the whole story in organisational capacity. Other elements include the organisation's culture, the strategic direction given it by the government and its Responsible Minister, attention to the government's ownership and collective interests, and internal management controls. In fact, many of the elements of New Zealand reform, and most of the issues discussed in subsequent chapters of this report, pertain to the question of how well departments are prepared for the tasks expected of them - now and in the future. This chapter considers organisational capacity from the perspective of the government and the Responsible Ministers who represent its ownership interest. As owner, the government monitors the capabilities and performance of the departments. These ownership responsibilities are considered in the present chapter. Others pertaining to strategic direction, financial resources, and accountability are reviewed in subsequent chapters.

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