It was emphasised in the previous chapter that as owner the government is interested not only in current outputs but in each department's potential to produce the services that may be wanted in the future. This capacity requires the department to plan for the future, adjust its objectives, priorities and resources to meet the opportunities and demands it may face, and make necessary changes in its organisation and operation. "Strategic capacity" refers to this process of purposeful, directed change.
Strategic capacity is the capacity of the government or a department to anticipate and plan for future changes in its environment, recast its objectives and programmes accordingly, define and specify desired future outcomes, reallocate resources to achieve them, evaluate results, and measure progress. The model used in this chapter divides strategic capacity into five elements:
(1) orienting the department to the future by planning and other processes;
(2) developing a multi-year framework so that current decisions can be taken in the light of medium-term (or longer) objectives;
(3) allocating resources in a manner consistent with that framework and planned objectives;
(4) specifying wanted outcomes and their means of achievement; and
(5) assessing the effectiveness of programmes and, when indicated, taking corrective action.
Ideally, these elements should feedback to one another, so that, for example, plans would inform budgets and results would influence plans. In practice, however, the elements often are somewhat disconnected.
The lack of attention to the question of strategic capacity was a serious flaw in the original design of the New Zealand reforms. The design flaw was not an oversight but derived from the strong emphasis on operational efficiency and accountability. This emphasis led to a sharp distinction between the political accountability of Ministers and the managerial accountability of chief executives, and between outputs and outcomes. The problem was recognised by the Logan Report, following which significant progress was made by the issuance of long and medium-term plans, enacting the Fiscal Responsibility Act, which prescribes a medium-term fiscal strategy, and by introducing the strategic and key result areas which have become effective means of articulating the government's priorities and channelling the performance of chief executives. Despite these welcome innovations, the New Zealand system still is geared more to the short-term production of outputs than planning for the long haul, and to account for what has been produced than to evaluate progress in achieving major policy objectives.
It is important that efforts to upgrade the strategic capacity of government be accompanied by changes that ease the informational and reporting demands on departments. This is not a case where strategic capacity can be grafted onto the existing management system. Transaction costs already are substantial; care must be taken that they not become even more burdensome.