Public Sector Organizations’ Strategic Management

Abstract

This paper is concerned with the topic of implementation of strategic management in organizations belonging to the public sector. Whereas strategic management is widely utilized by private companies, its use by public institutions is a relatively new trend. This paper shows that employing strategic management in these institutions can provide numerous positive outcomes and significantly better the performance of the named establishments. To accomplish this, a literature review has been conducted; the chosen materials are mainly comprised of scholarly articles and books related the topic, as well as of various reports, primarily from government organizations, related to the utilization of strategic management in the public sector; literature related to public policy was also used.

It has been found out that strategic management indeed has the potential of increasing the performance of public organizations, although due to certain peculiarities of these organizations, caution should be taken and strategies ought to be carefully selected. The possible strengths of this paper may be related to the fact that both the theoretical knowledge has been summarized and the examples have been provided, whereas one of its weaknesses originates in the scarcity of theoretical and evidence-based knowledge on the topic. The recommendations based on this study include the implementation of strategic management in public organizations combined with caution and careful analysis.

Introduction

In the contemporary world, the social and technological changes occur rapidly. Thus, it is becoming increasingly important to properly address these changes to turn them to the benefit of society rather than allow them to result in various adverse consequences for people. To accomplish this, the efforts of organizations of all kinds, and particularly of the institutions of the public sector, are required. However, while the methods for increasing the effectiveness of private companies have achieved significant development in literature, for public organizations there might sometimes exist a dearth of tested and practically approved tools aimed at the enhancement of their performance.

To address this problem, attempts were made to develop new instruments and to learn to implement the tools used by private companies in the public sector. A significant example of such a tool is strategic management; while it was initially utilized in private enterprises, attempts have been made to use it in the private sector. In this paper, we conduct a literature review to show that employing strategic management in public institutions leads to favorable outcomes. Some examples of successful use of strategic management in public organizations of the United Arab Emirates (UAE) are also provided.

Strategic Management, Its Effectiveness, and Benefits for the Public Sector

Definition

Strategic management is the process aimed at the creation of long-term goals and objectives of an organization, as well as the general methods needed to achieve them (Steiss, 2003, p. 1). The long-term goals are formulated according to the purpose of the existence of the organization; in businesses, such a purpose is usually getting profits, whereas in public organizations the purposes may vary (Fard, Moshabbaki, Abbasi, & Hassanpoor, 2011).

For further clarity, it also should be stressed that strategic management is distinct from operational management. While strategic management defines the strategy, that is, generally, long-term aims and objectives on a broad scale, operational management deals with the problems related to the efficiency of activities which are currently carried out by an organization, and to the control of finance, also making the steps taken by the institution agree with the general strategy.

While strategic management is a common tool in private businesses, its utilization in public organizations is relatively new and has been quite limited. The research of its implementation in public organizations is also not robust (Ugboro, Obeng, & Spann, 2011, p. 88). However, Meier, O’Toole, Boyne, & Walker (2006) confirm that the use of strategic management in the public sector results in a significant favorable difference in the performance of the organizations employing it (pp. 357-358).

Evidence of Effectiveness of Implementation of Strategic Management in the Public Sector

Meier et al. (2006) provide examples of the effectiveness of the implementation of certain types of strategies in public organizations, thus confirming the positive impact of the use of strategic management in these institutions. The scholars cite the model created by R. Miles and C. Snow in the 1970s, according to which there exist four main “ideal types” of organizational strategies. These comprise

  1. “prospectors,” or companies that constantly watch out for market opportunities and carry out experiments related to the current trends, thus initiating the development of new products and services;
  2. “defenders,” or organizations that conservatively perceive the development of new products and generally only strive to better the quality of the existing operations;
  3. “analyzers,” which share the features of both mentioned types, closely watching the market for new ideas and trying to quickly implement them,
  4. “reactors,” or companies where the leadership often changes, and an actual strategy is lacking (also see Table 1) (Meier et al., 2006, p. 358-359).

A concrete organization may often be characterized as a mix of the described “ideal types.”

The evaluation of this model took place in the first decade of the 21st century, and it was found out that English local authority organizations which most closely correspond to the “prospectors” type outperform “defenders”; the latter, in turn, scale higher than “reactors” (also see Table 1). Therefore, it is stated that the choice of the “prospector” strategy may be of significant importance not only for private organizations but for the public sector companies as well, even though there is a dearth of empirical data which would allow for unequivocal extrapolation of these results on all the public institutions (Meier et al., 2006, pp. 359-360).

However, the significant influence of a chosen strategy on the performance of a public organization is stated to be beyond doubt (Meier et al., 2006, p. 373), which means that strategic management (even though it might be hard to determine which type) may greatly improve the performance of an organization belonging to the public sector.

Interestingly, in contrast to this, Walker (2013) in a more recent study concludes that a mix of Miles and Snow’s “ideal types” of strategies may be more effective than the implementation of a single type. These conclusions are also stated to be possibly limited to a particular region (Walker, 2013, p. 683), but the significant impact of strategies further confirms the claim that the use of strategic management by public organizations can positively influence the performance of the latter.

Comparison of the “prospector,” “defender” and “reactor” strategies.
Table 1. Comparison of the “prospector,” “defender” and “reactor” strategies formulated by R. Miles and C. Snow (Walker, 2013, p. 676).

The Benefits of Strategic Management Implementation in the Public Sector and Some Issues Addressed by It

The implementation of the strategic management methods in the public sector is very often initiated due to the existing need to establish a concrete policy and identify the general direction of the organization’s activity, to respond to the pressure of the authorities aimed at decreasing spending, and “as a symbol of personal leadership” (Ugboro et al., 2011, p. 91). It is also reported that the utilization of strategic management allows for easier communication and participation, at the same time permitting to reconcile dissimilar values and opinions. It also lets the organizations to better reconcile their aims with the external demands that often change at fast paces; to more efficaciously distribute resources thanks to the existence of clearly defined priorities; and to engage in more stable and reliable resource acquisition practices (Ugboro et al., 2011, p. 91).

Employing strategic management in the public sector also brings other benefits. For instance, it allows for a more conscious approach to creating and promoting organizational culture appropriate for the needs and aims of the institution.

It also provides a framework using which various resources, primarily human resources, can be managed more effectively. Another benefit is the possibility to choose the most effective structure of the organization itself, allowing the latter to create the departments adequate for the chosen strategy and pursue its goals in a more efficacious way. However, changing the structure of a public institution may be extremely difficult due to the red tape which binds virtually any public institution, as well as to the external policy demands regarding the organization’s functioning (Moran, Rein, & Goodin, 2008, p. 565). It is stressed that the creation of a strategy and a structure in an organization should occur simultaneously (Cerniauskiene, 2014).

Another important positive outcome that should be discussed separately is the fact that the use of strategic management also enables an institution to create an efficacious budget specifically targeted at the pursuit of the established aims and planned projects. Traditionally, budgets of public institutions simply relate their expenses to organizational units.

However, the explicit formulation of strategy allows for the clearer establishment of priorities, which, in turn, causes the organization to create projects aimed specifically at the attainment of the key goals; the priorities also provide guidelines regarding the funding of particular projects. The explicitly distributed finances let the institution to more precisely determine its capabilities, therefore setting achievable objectives; more transparent functioning of the organization also becomes possible (Cerniauskiene, 2014).

Counterarguments and Their Refutation

It is noted that the implementation of strategic management in public organizations significantly differs from that in private businesses due to several reasons (Fard et al., 2011). First, it is highlighted that both the purpose and the mission of a public organization is defined not by the organization itself but by some external entities. Second, the standards and criteria following which the performance of the public sector organizations is assessed have several essential differences compared to those according to which the efficacy of private corporations is estimated; while the main criterion for a business is profit, the criteria for public organizations are often much more complex and diverse.

Third, the entities in the public sector are more overloaded with bureaucratic issues than private enterprises; in particular, they are significantly bound by externally determined regulations and codes. Fourth, the public sector is greatly affected by the existing political situation in the country, and is subject to the current policy of the government and other authorities; in practice, this means that when new authorities come to power, a strategy that is being implemented in an organization might be canceled. Several other similar complications also exist (Fard et al., 2011, p. 386).

While these peculiarities may indeed complicate the implementation of strategic management in public organizations, strategic management is still capable of allowing for better performance of these organizations. For instance, it is indeed the fact that the purpose and the mission of the public sector organizations are determined by some external entities, but the formulation of the organization’s purposes is not exactly the area of competence of strategic management. As long as these purposes are stable, it remains possible to identify and implement a strategy aimed at fulfilling these purposes.

As for the difficulties faced by a public entity while evaluating its effectiveness, it should be stated that they indeed hinder the process of strategy creation, for it becomes harder to distinguish successful strategies from unsuccessful ones; however, the strategies can still be developed. Similarly, being bound by a red tape may reduce the number of options available to an organization in its activity, which complicates the strategizing process, but excludes neither its theoretical nor practical possibility. Finally, the fact that the change in authorities may lead to a situation when the currently carried out strategy is cut short indeed poses a significant problem, but still makes strategic management not impossible but merely more complicated and, perhaps, more short-term.

Examples of Impact of Strategic Management on Public Sector Performance

Dubai Electricity and Water Authority

An example of the successful implementation of the methods of strategic management can be provided by the Dubai Electricity and Water Authority (DEWA), Dubai, United Arab Emirates. This organization is owned by the government; it utilizes strategic management by creating a strategic plan, which is then explained, communicated, evaluated and executed in the company; it is also noteworthy that the update of this strategic plan is carried out on the annual basis (Dubai Electricity & Water Authority [DEWA], 2016b).

It is worth discussing the framework utilized by DEWA in more detail. In the first phase, the strategic plan according to which the organization is to function for seven years is created by the top management of this public agency. In the second phase, the strategy is communicated to the employees of the company, which allows them to better comprehend the strategic path chosen by the leadership of the organization and to more effectively strive to help it to implement its goals and objectives.

This also advances strategic culture among the workers of this institution. In the third phase, the connections between the company’s structural divisions are established or adjusted to enable these divisions to work and collaborate in an efficacious manner. Each department is linked to the Strategy Map and the Balanced Scorecard of DEWA, which allows us to comprehend the role that each of the components should play in the implementation of the new strategy.

The fourth phase is comprised of the implementation and execution of the strategic plan; each department does what it has to do according to the plan, and the whole process is overseen by the performance management team of the company. Phase five includes the estimation of the strategic plan and its review according to the new findings, needs, and the performance of DEWA so far; at this step, the effectiveness of each of the divisions is also assessed. Finally, the sixth phase consists of integrating various innovations and adjustments in the strategic plan to meet the institution’s standards of excellence. It is also worth pointing out that the leadership of the company endeavors to take into account the newest findings regarding the best strategic planning practices (DEWA, 2016a).

It should be stressed that the creation and implementation of strategic plans allow DEWA not only to provide its customers with high-quality service but also to implement technological innovations in a planned, organized fashion. For instance, it is reported that DEWA has started utilizing renewable energy sources (such as solar energy) to produce electricity (Everington, 2016). The organization developed the Dubai Clean Energy Strategy 2050, which has been recently launched.

The strategy aims to provide 7% of energy for Dubai by using clean sources by 2020; this figure is to rise to 25% by 2030 and to 75% by 2050 (Everington, 2016). The creation of the plan has been possible thanks to the implementation of the strategic management; if not for the latter, a strategic plan would not have been developed, and the efforts to transfer to clean and renewable energy sources might have been occasional and not coordinated if they even had taken place.

It is noteworthy that DEWA’s strategic plan which includes the transfer to clean energy can be regarded as an example of best practice; furthermore, this practice can be regarded as one that corresponds to the ethical principles of nonmaleficence and beneficence (Syracuse University School of Education, n.d.), for the use of clean energy is aimed at reducing the adverse impact of the industry on the environment, and benefits primarily the population of the country and the world rather than the company of DEWA.

Emirates Identity Authority

Another example of the implementation of strategic management is provided by the Emirates Identity Authority (EIDA), a government organization that was created in 2004 to “develop and implement a national identification infrastructure” (Emirates Identity Authority [EIDA], n.d., p. 18). EIDA is known for designing and carrying out strategies to better achieve its purposes. For instance, this institution created a strategy for 2010-2013, the aim of which was the development of innovative national identity tools. Among the examples of the organization’s goals were the development and the implementation of the Population Register and ID Cards (PRIDC) system, which was aimed at covering every citizen of the country (EIDA, n.d., p. 20).

The creation of the strategy followed the general schema of strategy development that is utilized by the federal government of the UAE (see Appendix). Before using this schema, EIDA carried out the PESTLE analysis, SWOT analysis, stakeholder analysis, and identified the main inputs of the new strategy. The schema was also aligned with the Federal Government’s UAE Vision 2021; also, a comparison with international practices was carried out (EIDA, n.d.).

The President of the UAE, His Highness Sheikh Khalifa Bin Zayed Al Nahyan, stressed that “the Population Register and ID Card program is a quality addition to the UAE’s strategic projects that will reinforce the social and economic development achieved across the UAE’s economic, social, political and security sectors” (as cited in EIDA, n.d., p. 5). And indeed, the implementation of PRIDC enabled the government of the UAE to carry out the public policy of creation of an effective ID controlling tool; this tool is also known for winning certain international awards, such as the Information Security Award (“UAE’s PRIDC Programme Wins the ‘Information Security Award,'” 2007). It is apparent that the creation and utilization of a clear, carefully designed strategy have provided EIDA with the necessary support and allowed for the implementation of this highly innovative program.

Conclusion

To sum up, it should be stressed that the implementation of strategic management is likely to significantly better the performance of public organizations. Even though strategic management was initially developed to be employed in companies belonging to the private sector, evidence shows that its utilization is capable of greatly enhancing the performance of institutions of the public sector as well. Of course, there exist several peculiarities which are characteristic of public organizations; these peculiarities might become a hindrance to the introduction of strategic management in these institutions.

However, despite additional difficulties, the employment of certain strategies has been shown to positively affect the practices carried out inside the walls of public companies by making them more effective. Also, the existence of clearly established goals provides an explicit perspective for an institution, allowing it to better reach its aims. Of course, care should be taken while implementing strategic management, for the utilization of wrong strategies, especially combined with certain complications characteristic of the public sector, may adversely impact the company’s performance. And still, both the theoretical data and the examples provided in this paper clearly show that it is worth for public organizations to implement strategic management to increase their efficacy.

References

Cerniauskiene, N. (2014). Strategic management of public sector institutions: Student workbook. Web.

Dubai Electricity & Water Authority. (2016a). Strategic planning & execution framework. Web.

Dubai Electricity & Water Authority. (2016b). Strategy management system. Web.

Emirates Identity Authority. (n.d.). Strategic plan: Handbook. Web.

Everington, J. (2016). Dewa invites proposals to develop Dh100 billion clean energy fund. Web.

Fard, H. D., Moshabbaki, A., Abbasi, T., & Hassanpoor, A. (2011). Strategic management in the public sector: Reflections on its applicability to Iranian public organizations. Public Organization Review, 11(4), 385-406. Web.

Meier, K. J., O’Toole, L. J. Jr., Boyne, G. A., & Walker, R. M. (2006). Strategic management and the performance of public organizations: Testing venerable ideas against recent theories. Journal of Public Administration Research and Theory, 17(3), 357-377. Web.

Moran, M., Rein, M., & Goodin, R. E. (Eds.). (2008). The Oxford handbook of public policy. Oxford, United Kingdom: Oxford University Press. Web.

Steiss, A. W. (2003). Strategic management for public and nonprofit organizations. New York, NY: Marcel Dekker Inc. Web.

Syracuse University School of Education. (n.d.). Ethical principles. Web.

UAE’s PRIDC Programme wins the ‘Information Security Award.’ (2007). Web.

Ugboro, I. O., Obeng, K., & Spann, O. (2011). Strategic planning as an effective tool of strategic management in public sector organizations: Evidence from public transit organizations. Administration & Society, 43(1), 87-123. Web.

Walker, R. M. (2013). Strategic management and performance in public organizations: Findings from the Miles and Snow framework. Public Administration Review, 73(5), 675-685. Web.

Appendix

The general schema of the process of strategy development used by the UAE Federal Government (EIDA, n.d., p. 26).

Federal Government Strategy