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The road to privatization: TQM and business planning

Bennington, Lynne, Cummane, James. The International Journal of Public Sector Management. Bradford: 1997.Vol.10, Iss. 5; pg. 364

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Public sector, Total quality, Business plans 9179 Asia & the Pacific, 9130 Experimental/theoretical, 9550 Public sector Australia Bennington, Lynne, Cummane, James Feature The International Journal of Public Sector Management. Bradford: 1997. Vol. 10, Iss. 5; pg. 364 Periodical 09513558

ProQuest document 117542507 ID: Text Word Count Document URL: 5808 http://proquest.umi.com/pqdweb?did=117542507&sid=1&Fmt=7&clientId=16601&RQT=309 &VName=PQD

Abstract (Document Summary)

Provides an overview of the literature on public sector reform, total quality management (TQM) and strategic planning. Traces the change efforts and road to privatization of Asset Services, which is a maintenance contractor with about 2,000 staff and a business unit of a large Australian government department. Describes how, during the period 1989-1996, Asset Services undertook a process which illustrates the integration of customer focus, quality principles and strategic business planning. Introduces the concept of the business improvement leader, and discusses some of the many TQM and business planning activities undertaken to the point of being fully commercialized. Identifies a number of factors influencing the success of this business unit.
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Copyright MCB UP Limited (MCB) 1997 Lynne Bennington: Department of Management, Monash University, Clayton, Australia James Cummane: The Value Creation Group, Eltham, Australia Introduction Background Governments worldwide have been involved in the reform of their public sectors since the late 1970s. The reform processes have been driven by various factors but Mottram (1995) states that the desire for improvement in the quality of public services, along with resistance to higher taxes, has acted as the catalyst for change. By the 1980s, privatization, one type of reform, had become an international phenomenon (see Dawkins, 1995; Hamid, 1995; Kaul and Collins, 1995; Mills and Ghosh, 1994; Quah, 1993; Samson, 1994). Notwithstanding the many objections by unions, employees, citizens and some politicians (Chaston, 1993; Eggers and O'Leary, 1994; Naff, 1991), and the evidence of mixed, if not

negative, fiscal and social outcomes (Parker and Martin, 1995; Quiggin, 1995), this reform movement appears to be gathering pace and its impact becoming more widespread (Miller, 1994). The reform efforts have tried to achieve an output orientation in which the needs of the users are of paramount concern; improved performance of staff; the establishment of a better balance between service, quality and cost (de Coninck-Smith, 1991); and, almost universally, market mechanisms have been introduced to provide user choice and improve customer satisfaction (Mottram, 1995; Osborne and Gaebler, 1992). In Australia, over recent years, the type of structural reform undertaken ranges from commercialization at one end of the spectrum to privatization at the other end. Commercialization is characterized by a policy to "introduce fees for services based on full costs, devolution of budgetary appropriations for service provision from service providers to client agencies, and the opening of markets for common services to private sector competition" (Mellors, 1993,p. 329). Privatization varies mostly only insofar as ownership structure is concerned; for example, from the outright sale of assets to contracting for services (Ghosh, 1994; Mills and Ghosh, 1994). Even though there is little research on how organizations are prepared for privatization, nor on how activities are managed differently as a consequence of privatization (Parker, 1994), the question of when performance improvements occur (that is, pre- or post-privatization) might be asked. In an endeavour to be more efficient, more responsive and more attuned to the needs of the society (either to try to avoid privatization or, alternatively, to become more attractive prospects for potential purchasers), the road to commercialization and privatization has seen a number of government departments turn to both business planning and TQM (total quality management) - as will be seen in the case study of Asset Services. Asset Services, a business unit of the Department of Administrative Services (DAS), is a very large maintenance contractor with approximately 2,000 staff (of whom about 1,450 are trades people), operating in 75 locations across the nation, with over 2,000 organizations as customers and revenue of $230 million in 1995-1996. The time period covered by the case study will be 1989 to 1996. During this period, Asset Services was gradually commercialized and, recently, the government has announced that it is to be privatized in the middle of 1997. Key concepts TQM TQM, for the purpose of this paper, will be used as the overarching term which subsumes customer service, total quality service and value creation. Strategic/business planning Strategy has been defined variously (see Ivancevich et al., 1994; Quinn, 1980) and may be seen to be created using different approaches (see McDonald, 1996; Mintzberg, 1993; Smith et al., 1994). Generally, though, strategic decisions are concerned with the long-term direction of the organization; defining what business the organization will engage in; matching the activities of the business to the environment so that there is a minimization of threats and a maximization of opportunities; and matching the organization's activities to its resources (McDonald, 1996). Typical components of a strategic plan might be seen in the model described by Albrecht (1994). TQM and strategic planning Shadur (1995) has argued that quality management is a key method for improving organizational performance, but acknowledges that there are many other variables which influence performance, including environmental factors, financial strength of the organization, marketing strategy, organizational design and organizational climate. These are just some of the factors to be taken into account in the strategic planning process. Fuchs (1993) has identified a lack of focus on strategic planning as one of the main reasons why TQM has not had the desired effect on competitiveness. Others, too, have pointed to the importance of the integration of quality management into strategic business planning processes (for example, Albrecht, 1993; Godfrey, 1993; Perry et al., 1995; Peters, 1994; Redman, 1995; Shani et al., 1994; Timmers and van der Wiele, 1992). The Baldrige Award, albeit criticized for the manner in which strategic planning is addressed

(Garvin, 1991), also acknowledges the importance of such integration (Dean and Evans, 1994). Although there is little debate about the need for integration of quality thinking with planning, little research effort has been directed towards this issue (for example, Hemmasi et al., 1994; Pruett and Thomas, 1996). Nevertheless, on the basis of the literature, there will be a number of issues expected to arise in practice from this combination of strategic planning and TQM in the public sector. Issues in implementing TQM and strategic business planning Numerous writers have pointed out the barriers to effective strategic planning and TQM implementation. Some argue that the major problem is not in creating the strategic plan but in the plan having any real impact in the organization (Eden, 1993). Communication, a key element in both business planning (Albrecht, 1994) and TQM (Exterbille, 1996), seems to be an issue as the need for communication in simple messages which cannot be distorted as they "pass down the line" (Fogelberg, 1992) and for wide and repeated communication of business goals (Mellors, 1995) have been raised. Not surprisingly, an Australian study (Chapman et al., 1993) found that few managers believed that their organization's mission was clearly communicated. Both TQM and strategic planning are about managing change so this literature, which emphasizes the requirements for the creation of a "felt need" for change, a clearly articulated vision, and "magic leaders" (Graetz, 1996), needs to be considered. Others have written on the requirements for commitment and leadership from the top of the organization (for example, Dean and Evans, 1994; Fuchs, 1993; Huntsman, 1994; McDonald, 1996; Persico, 1991; Powell, 1995). Moreover, on the basis of research showing that 80 per cent of TQM programmes fail, Harding states that successful total quality programmes share four characteristics: "an emphasis on tangible results; an insistence on performance measurement; an integrated programme; [and] a clear commitment from top management" (Harding, 1995, p. 101). McDonald (1996) has divided the problems with planning into two categories: cultural and cognitive. Many writers have emphasized the cultural elements required for successful change programmes (for example, Bennett et al., 1994; Wright, 1996), and the time, training and costs involved (Powell, 1995; Spitzer, 1993), but fewer have written on the cognitive requirements. Interestingly, though, Lu and Sohal (1993) indirectly refer to the cognitive element - they found that successful TQM organizations were characterized by managers who typically had tertiary qualifications, highly skilled workforces, and had used external consultants. Morgan and Murgatroyd (1994) have specifically focused on the barriers to implementation of quality programmes in the public sector. These include: the belief (supported by evidence) that public sector managers are more resistant to change due to an over-commitment to regulation and precedent; the need for change not being seen as obvious; and commercially-oriented changes being seen to be at odds with the ideals of the public service. The concerns of the public sector unions about potential job losses resulting from efficiencies, the effect that any improvement in management-staff relationships will have on their effectiveness (and survival), and equity issues in respect to pay and responsibility levels should not be overlooked in this process, either. Thus, cultural and attitudinal change, and sensitive management of the stakeholders need to accompany any change programme. Case study: Asset Services Methodology The data for this study was collected via action research; examination of reports; interviews with both the general manager, Asset Services, and the ex-secretary of the DAS (who held the position equivalent to chief executive officer (CEO) during the first few years of the change process); and through the involvement of the second author in a long-term consultancy project with Asset Services. Context for strategic planning and TQM initiatives The initial impetus behind Asset Services' transformation was the "Reform to Government Agenda" mandated by the then Hawke Labour Government. The reform, which began in earnest in 1989, was meant to improve efficiency, achieve cost recovery where comparable commercial services were provided, and result in public sector organizations providing "value for money" services to their customers. Cultural

change that imbued messages about customers and choice, real cost and prices, and people and performance, was expected in the transformation. Although its functions were already being performed in the DAS, Asset Services (Assets) was established as a separate business unit within DAS in February 1990. The DAS vision of change, formulated by the CEO, was the philosophical underpinning of Assets' transformation. This vision not only emphasized the customer as the driving force for business success, but also the need for leadership development, cutting edge financial management systems, staff involvement and development, and the need for a well thoughtout change process. The early years and the DAS influence The period 1989-1991 was one of significant DAS influence, and one in which Asset Services introduced accrual accounting and developed key financial management systems, created an awareness of commercial business principles throughout the organization, and began to make the customer the driving force for organizational alignment. This period also heralded a major change in which the government decided that the user departments, rather than Asset Services, should receive the government appropriation - although they were still required to buy services from Assets. Being able to choose other suppliers was to come later! Thus, the early change efforts by Asset Services were driven by this impending transfer of funds to their customers in mid1991. The conceptual frameworks for the change process at this stage were the Customer Relationship (CR) model, an adaptation of the Service Triangle originally described by Albrecht and Zemke (1985), and the Total Quality Service model (described in Cummane and Bennington, 1996). The ongoing improvement of the financial management process was followed by basic customer and market research (that helped establish the marketplace boundaries and a baseline for customer measurement). Simultaneous efforts were begun to define a business strategy and educate Assets' staff in customer thinking and commercial principles. The change approach in these early years was not well integrated. Even though parts of the CR model were being addressed, they were being managed in isolation and dealt with at a fairly superficial level. For example, there was no complete strategy framework only an attempt at developing a vision for the business. The education process did not attempt to connect the people to early customer data or strategy, but rather send the message that "you needed to be nice to customers". Financial management systems were fairly global and not yet producing operational unit or customer specific financial performance information. In late 1991, the CEO decided to accelerate the change process by introducing the "guru" element to raise the profile of the TQM change effort among all of DAS staff (including Assets' staff). This decision was also made to communicate to customers that the DAS business units knew the world was changing and that they were going to change to provide better service that would ultimately win customers' business. The "guru" was Karl Albrecht, who, with the CEO, visited all parts of Australia, speaking to large numbers of staff and customers about the quality service revolution that was beginning in DAS. Simultaneously, a group of DAS leaders from all the business units were introduced to a service leadership philosophy in a number of workshops run by members of the Albrecht team. Both these efforts proved to be an impetus for the adoption of a specific total quality service change methodology by DAS in early 1992. Along with the development and adoption of a corporate strategy framework, the methodology promoted business planning in all of the DAS business units and used an organization support team and consultants to assist the DAS businesses' drive for strategic business planning. The middle years and the wake-up call In July 1992, Asset Services developed a complete strategy framework (adapted from Albrecht, 1994), tied to customers and to the marketplace, and so began the middle years (until mid-1994) of its change effort. This was the first time they had thought of themselves as a business and had planned as a business. Their first substantial business plan, in the 1992-1993 financial year, embraced the customer as the driving force for the business' direction and clearly identified Asset Services as being in the maintenance

services/solution business. Significantly, it also recognized the need to move out of the construction business, even though it accounted for 70 per cent of its revenue. The business plan resulted in a set of initiatives that ranged from quality assurance and the development of maintenance management systems to workplace change and business leadership development. Unfortunately, providing a logical and well thought-through strategy by the senior management did not result in the integrated customer-driven change effort that was badly needed. Staff were doing a "good technical job" but did not perceive themselves as having customers. Various groups owned the initiatives, but never the organization as a whole. In fact, there was little attempt to demonstrate the difference they could make and how they should fit together. For example, a big drive took place to become "quality assured". This systems improvement mainly documented what Asset Services was already doing and did not attempt to identify new and better processes linked to customer information. The continued lack of integration of the many positive steps Assets had embarked on was demonstrated by the early financial performance after customers were untied and given choice in July 1993 (indicated by a $12 million loss in 1993-1994 after an $8 million profit in 1992-1993). The mediocre performance was another wake-up call in the change process and another signal to the general manager that the staff were not being connected to the organization's strategy. Management at all levels had failed to connect those servicing the customer to where they had decided the business should go. For example, the early operating unit business plans in the 1992-1993 to 1993-1994 period of the change process were developed to meet corporate expectations and in isolation of those working in the operating units. This circumstance helped Assets realize that, like DAS, it needed a change process/structure across the business to help tie all the elements of the customer relationship model together. The new dawn - and time to design the change process Asset Services formally agreed on a change methodology after a corporate management conference in November 1993. This conference refined the organization's strategy framework with particular emphasis being placed on the statement of business strategy. Assets specifically identified in this statement how it would access its customers, how it would create value for its customers, how it would operate to grow and be profitable. There was a concern at this stage that perhaps the wrong people were in some of the key jobs and that, to provide training to these people and put them back into the same environment, would be ineffective (keeping in mind that removing staff was not an option at this point in time in the public sector), so the general manager proposed a new role in the company that he labelled the Business Improvement Leader (BIL). The emphasis on the BIL role was facilitating change in the operating unit, spending 80 per cent of their time in the BIL role working in partnership with the operating unit manager. The BIL was trained to be proactive and to focus on developing strong relationships with key people in the business unit. It was agreed that a person at any level in the organization could assume this role, provided they met certain selection criteria. The result of this decision was a group of BILs from all levels in the business with at least one in every operating unit. The BIL process, as it became known, was established in an environment of initial resistance. Notably, resistance mostly came from operational unit managers who thought their power might be usurped. Resistance did not come from the unions which saw the concept very positively. In time, the operational unit managers came to see that the BIL role only had the power provided it by the various levels of management in the operational units - hence the need for a partnership. It also took some time for a number of the resisters to see that such a role could benefit the operational unit. The BIL process. The first step in the BIL process was to workshop the idea across the business. The general manager decided that all key decision makers should have the right and responsibility to argue the pros and cons of the BIL process and come up with a better idea. This step, although delaying the introduction of the BIL role for a few months, not only identified ways to improve the process but helped win enough support to ensure the process was a success. The next step in the BIL process was selection of the BILs. The selection process involved an interview and testing process that let everyone know that being a BIL meant meeting very high standards. A training process was established that involved all the BILs from across Australia coming together three times a year for a total of eight days. This training was supplemented by the support from an internal team (the service development team) within Asset Services reporting directly to the assistant general manager for operations.

This team was developed and supported by external consultants. The early education process was built around the need to establish participatory business planning as part of the culture in all operation units. Early assessment of the BILs' impact involved review of the plans and the ability of operational units to achieve or exceed budget. The BILs became key in all phases of business planning; the BILs facilitated involvement of the whole unit in the business planning process. Some were more successful than others and, where the BILs were evaluated as performing their role at or above expectations, operating units performed at higher levels than in instances where this was not the case. The biggest impact on BIL performance seemed to rest in the strength of the relationship developedwith the most senior operational unit manager. This influence on success became so apparent that resistant operational unit managers were eventually changed! As the BIL process gathered momentum, it was embraced in a range of different ways by the business; for example, the head of the internal support group joined the national management team and BILs were often appointed to cover for the most senior operations unit manager when he or she was on leave, or absent from the operation unit. As the BIL process has developed, the quality of business planning at all levels in the business has improved dramatically. In addition, business planning has been simplified. A key aspect of simplification has been the recognition through the planning process that Assets is "one business" across its many sites. This has meant that the national framework, down to and including the key result areas, has been assumed by every operational unit. In the early days of the BIL process, operational units all thought they were so different that all the components of the strategy framework needed to be different for their specific site and circumstances. Customer and market research. In conjunction with the introduction of the BIL process, Assets placed a greater emphasis on understanding its customers and measuring performance. An ongoing measuring process has been upgraded and refined each year, based on new insight developed through customer research within the various regions and with various customer segments. Assets has employed value focusing which involves both customers and staff, and the use of technology (see Bennington and Cummane, 1996) to determine if customers' expectations have changed and how expectations are likely to change. This constant effort to stay abreast of what is important to customers is used to update measurement instruments and for strategic planning. It is notable that at one time, in 1993, Assets' performance was worse than competitors on most criteria, whereas, today, its performance is better on most criteria. Sales and marketing. Developing an effective sales and marketing system has been a primary concern of the general manager and others since the move to commercialization. Efforts were made in a number of areas in the early and middle years of the change effort. However, the lack of expert direction and the resistance of a culture that had always seen commercialism as foreign ensured two major early efforts failed to make a significant impact. The improvement in business planning previously described, advice from consultants, feedback from customers and potential customers, and the knowledge that Assets' significant improvement in customer satisfaction was not helping maintain and increase sales, created an urgency in late 1995. After a sales and marketing audit, Assets set in train a number of organization-wide steps that have resulted in a marketing system that is beginning to drive sales increases. The importance of sales and marketing has been reflected in the organizational structure, for example, the national sales and marketing manager became a member of the national management team; professional salespersons, great emphasis on account management, and customer teams were introduced; and, all titles in operational units and some at national office had "service" or "customer" included in them. Initially, some senior members of the national management team objected to the changes in title, often on the basis that customers and staff would not accept the changes. Research suggested this would not be the case and hindsight has shown the changes to have been accepted by both customers and staff. The graphic business plan. To help further connect everyone to the business direction, Assets developed a very innovative pictorial, or graphic, plan "for business success". The plan shows the evolution of Asset Services from having no separate identity in an environment of political uncertainty to having an identity and facing commercialization and deregulation. It also shows the core values needed to face the competition, what customers value, key result areas and the objective to become a viable organization with long-term customer contracts; and some of the processes used to achieve the goals (for example, service blueprints, BILs, marketing, etc.). It is simple enough to be used by people at all levels and is available electronically.

The accompanying explanatory notes to the plan acknowledge the changes in Assets and the fact that the livelihood of a percentage of the workforce is being affected. It points out that the needs of government departments (customers) are changing and that staff must refocus in order for Assets to remain a viable entity. Current status The government has announced that Assets will be sold into the private sector by mid-1997, but the resultant process and structure is yet to be determined. A great deal of change has occurred, although some things are yet to be completed (for example, a plan to align information systems with customers has taken longer than expected). However, by the end of 1997, it is expected that most of the key change processes will be complete. Although Assets has taken its customer research process to high levels, it is only just beginning to do indepth analysis of marketplace potential with a view to expanding its present commonwealth, state and local government markets, and entering the private markets. Assets has gradually been winning private sector work in recent years and winning back public sector work lost at the introduction of full competition. It is important to note that full competition, begun on 1 July 1993, meant that all Assets' public sector work was open to private sector firms; however, the government of the day and private sector firms through their lobbying made it very difficult for Assets to pursue new markets. The decision in the most recent (government) budget has created the potential for Assets to pursue an additional five billion dollar private sector maintenance market. Concluding comments Just as space has prevented the inclusion of all of the TQM and business planning activities of Assets, necessarily, the analysis will also be restricted to outlining the key features of the case. The first is that the requirement for establishing the "felt need" for change, or the type of impact required, was perhaps one of the most difficult for a workforce that did not perceive the existence of customers and the importance of customer satisfaction. This took quite a long time (in private sector terms). Also, the problems of integrating the quality and planning activities, and connecting the workforce in an effective way to these was difficult but handled very creatively. The factors which probably make this case a success include: the "customer focus" vision and leadership shown by the CEO, and possibly his organizational development background which made him different from many public sector CEOs; the "customer focus", leadership, determination to succeed, and willingness to take risks on the part of the general manager; the concerted effort made to link every staff member to the customer through the use of various techniques; the major redefinition of the type of business Assets needed to be in - from construction to maintenance; the development of clear and measurable targets; the union co-operation and support; the significant reduction of more than 50 per cent of staff during the change period, while productivity rose by over 25 per cent; the considerable emphasis and resources spent on training, such that a number of staff are targets for the private sector; the recognition of the importance of good quality customer data in driving the change process (in the period 1992-1993 to 1993-1994, many Assets managers believed they were changing adequately; however, customer data showed them that this was not the case); and, overall, the integration of TQM and business planning approaches.

Other interesting, although not closely connected, points worthy of note include: the incredible complexity of the environment indicated by government as a major stakeholder, as well as, initially, 16 unions (later reduced to nine), and 2,000 customer organizations as stakeholders; the limited benefit obtained initially from quality assurance accreditation years until it was seen as a tool to improve the business; the need to keep constancy of leadership at the top in a difficult change process; the difficulty of bringing about major change in the public sector compared to the private sector, but this case shows that it is worthwhile; and the fact that performance improvements have been evidenced well prior to privatization. Asset Services has gone through considerable change since 1989, transforming itself from a lumbering public service organization with no competition, to a flexible organization with competition and fewer public service trappings, while still generating $2 billion in revenue and $12 million in losses. The relatively limited losses have occurred in the context of a necessary 180 degree change in direction that required a massive staff restructure and nearly 50 per cent reduction in sales while exiting an unprofitable and cyclical business. Overall, Asset Services can be regarded as a success story in public sector management and in integrating TQM with strategic planning. References 1. Albrecht, K. (1993, "Total quality service", Quality Digest, January, pp. 26-8. 2. Albrecht, K. (1994, The Northbound Train, AMACOM, New York, NY. 3. Albrecht, K. and Zemke, R. (1985, Service America!, Irwin, Homewood, IL. 4. Bennett, R.H., Fadil, P.A. and Greenwood, R.T. (1994, "Cultural alignment in response to strategic organizational change", Journal of Managerial Issues, Vol. 6 No. 4, pp. 474-90. 5. Bennington, L. and Cummane, J. (1996, "Customer driven research - a new way to establish the service value hierarchy", Proceedings of the First International Research Conference on Quality Management, Monash University, Melbourne, pp. 241-57. 6. Chapman, R.L., Murray, P.C. and Mellor, R. (1993, "Strategic management perspectives of quality and continuous improvement in Australian companies", paper presented at the ANZAM Conference, Geelong.. 7. Chaston, I. (1993, "Performance improvement intervention: privatized and public sector organizations", Leadership and Organization Development Journal, Vol. 14, pp. 4-8. 8. Cummane, J. and Bennington, L. (1996, "Quality mapping and the service-profit chain", Proceedings of the First International Research Conference on Quality Management, Monash University, Melbourne, pp. 353-65. 9. Dawkins, J.S. (1995, "Achieving improvements in economic transitions: the Australian experience", Public Administration and Development, Vol. 15, pp. 237-44. 10. Dean, J.W. and Evans, J.R. (1994, Total Quality Management, Organization, and Strategy, West Publishing Company, Minneapolis/St Paul. 11. de Coninck-Smith, N. (1991, "Restructuring for efficiency in the public sector", The McKinsey Quarterly,

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