Leading Smart Transformation: A Roadmap for World Class Government

Leading Smart Transformation

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10.1057/9780230306493 - Leading Smart Transformation, Andrew Kakabadse, Mohammad Omar Abdulla, Rabih Abouchakra and Ali Jawad

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The opinions offered in this book are the personal views of the individuals indentified and the authors, but not of any govern-ment of organization.

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Leading Smart Transformation

A Roadmap for World Class Government

Andrew KakabadseProfessor of International Management Development,

Doughty Centre, Cranfield School of Management, Cranfield University, UK

Mohamed Omar AbdullaUndersecretary,

Department of Economic Development, Abu Dhabi, UAE

Rabih AbouchakraManaging Director, Office of Strategic Affairs,

Abu Dhabi Crown Prince Court

and

Ali Qassim JawadStrategic Advisor, Government

Visiting Scholar, Yale University, USA

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© Andrew Kakabadse, Mohamed Omar Abdulla, Rabih Abouchakra & Ali Qassim Jawad 2011Foreword © Lord Andrew Adonis 2011

All rights reserved. No reproduction, copy or transmission of this publication may be made without written permission.

No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS.

Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

The authors have asserted their rights to be identified as the authors of this work in accordance with the Copyright, Designs and Patents Act 1988.

First published 2011 byPALGRAVE MACMILLAN

Palgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS.

Palgrave Macmillan in the US is a division of St Martin’s Press LLC, 175 Fifth Avenue, New York, NY 10010.

Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world.

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ISBN: 978–0–230–24372–9

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Printed and bound in Great Britain byCPI Antony Rowe, Chippenham and Eastbourne

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To my wife Nada who tirelessly worked in the background to bring this project to reality and to Sophia and Reeves

who are already leaders in their own right.

Andrew Kakabadse

To those who guided me throughout the journey of my life. I dedicate this book with love, appreciation and recognition.

Mohamed Omar Abdulla

To my wife Nayla and children, Kinda, Nabil, and Ramzi for their inspiration and unconditional support

Rabih Abouchakra

To my family for their love and support

Ali Qassim Jawad

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Government: [noun]

1. The governing body of a state; 2. The system by which a state or community is governed; 3. The action or manner of governing a state, organization or people.1

The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all.

John Maynard Keynes2

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vii

CONTENTS

Foreword viii

About the authors x

Introduction xii

Part I The Context for Change

1 Leading through vision 32 Managing stakeholders 213 Driving the transformation 42

Part II The Transformational Cycle

4 Setting the strategy 635 Designing the operating model 916 Developing talent 1107 Making it happen 132

Part III The X-Factor

8 Distilling the X-factor 1719 Navigating the roadmap 199

Notes 214

Further reading 220

Acknowledgments 221

Index 223

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viii

FOREWORD

Can government change? The answer must be “yes” but not in the mold of previous reform efforts. Incremental, partial, short-term, unconnected initiatives never add up to the coherent, fundamental reform now required of governments across the world.

So where is the script on what to do and how to do it? Unfortunately, there isn’t one and my ministerial tenure taught me that no one problem is like the next; they all have unique characteristics that require an agile approach to finding ways forward. Governments are incredibly interconnected organi-zational structures. Policies and initiatives do not exist in iso-lation; many tentacles reach across organizational boundaries and country borders. The complexity in delivering change is immense. Add to this the reality that most political leaders have little experience of delivering change of this size and scope, and the task of transforming government can seem overwhelming.

Leading Smart Transformation: A Roadmap for World Class Government, is an excellent guide to the challenge of creating a highly adaptive and efficient government. The central concept of “Smart Transformation” does not support “Big” government but more efficient government, where the state and corporations take responsibility for finding a balanced “commercial model that is sustainable over time and produces outcomes that are in the best interest of the country’s citizens.”

Leading Smart Transformation reinforces tenets widely regarded as critical to managing change successfully; having a meaning-ful vision, setting strategy, managing stakeholders, and devel-oping talent. What sets it apart is the authors’ emphasis on the “X-factor leadership.” Through their global case studies they have observed a “superset” of unique leadership characteris-tics, sensitive to the particular context and point in time. This reflects my own personal experiences, where analytical and

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ixForeword

intellectual skills can design the change route but the difference between success and failure is the distinct emotional and inter-personal skills that leaders intuitively demonstrate in bringing about change.

A roadmap for world class government is well overdue and this book is a valuable contribution to this ambition.

LORD ANDREW ADONIS

Institute for GovernmentLondon, UK

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x

ABOUT THE AUTHORS

Andrew Kakabadse ([email protected]) is Professor of International Management Development, Doughty Centre, Cranfield University’s School of Management, UK. Recognized as a world authority on leadership and governance, Andrew has held and also holds visiting appointments at the Copenhagen Business School, Denmark, Universite Pantheon Assas, Paris, France, Centre for Creative Leadership and Thunderbird, the Garvin School of International Management, United States, University of Ulster, The Windsor Leadership Trust, UK, Institute of Management Economics and Strategic Research, Kazakhstan, and Macquarie Graduate School of Management, Australia. He has consulted and lectured in every region of the world. His bestselling books include The Politics of Manage-ment, Working in Organizations, The Wealth Creators, Leading the Board and Rice Wine with the Minister.

Mohamed Omar Abdulla joined the Department of Economic Development (DED) as Undersecretary in March 2007. Before joining DED, he assumed the position of Director General of the Abu Dhabi Chamber of Commerce and Industry from May 1997 to March 2007. His areas of specialization and expertise include law, banking, and economic development. In addition to his role at DED, Mr. Abdulla holds board positions in the following organizations: National Bank of Abu Dhabi, Abu Dhabi Media Company, Abu Dhabi Ports Company, Sheikh Khalifa Fund; National Drilling Company, and the Abu Dhabi Retirement Pensions & Benefits Fund.

Rabih Abouchakra ([email protected]) is the Man-aging Director of the Office of Strategic Affairs, at the Abu Dhabi Crown Prince Court. Previously, he was a Vice President and Partner of Booz & Company heading the “Organization and Strategy” practice in the Middle East and focusing on public administration modernization, policy formulation, and large-scale transformation. Prior to that Mr. Abouchakra worked

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mailto:[email protected]


xiAbout the authors

for Bain & Company in Canada and the United Kingdom. Mr. Abouchakra holds an MBA from INSEAD in France, a Master of Telecommunication Engineering and a Bachelor of Electrical Engineering from McGill University, Canada. He was awarded the British Medal of Great Distinction. Mr. Abouchakra is an active member of several boards and has authored several publi-cations addressing emerging public sector strategic challenges.

Dr. Ali Qassim Jawad ([email protected]) is a senior advi-sor to governments on strategy, organizational reform, and leadership. With a professional background that spans three regions—the United States, Europe, and the Middle East— Dr. Jawad has coached and mentored senior public sector offi-cials on major capacity development and institutional change projects. Dr. Jawad is the Strategic Advisor to the Abu Dhabi Department of Economic Development. He has also been involved in a number of research projects, including developing an organizational effectiveness framework for the public sector with Oxford University, and exploring the role of leadership in enhancing employee motivation and productivity with Professor Victor Vroom of Yale University. Dr. Jawad is a Visiting Scholar at Yale University.

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xii

INTRODUCTION

Today, transformation is on the agenda of governments through-out the world. Why? Simply and persuasively, it is increasingly clear that nations can no longer rest on their competitive lau-rels. In the 1990s corporations encountered what the American strategist Richard D’Aveni described as “hypercompetition.”3 Today, it is the turn of the world’s governments to encounter hypercompetition.

The rapid growth and emergence of the new economic power-houses of India, China, Brazil, and Russia demonstrate the shift-ing sands of competitive power. And while a national economy might once have relied on a gentle and gradual development of its place in the world, the new reality is likely to be far more brutal. The simple truth is that countries—and entire trading areas—can no longer take economic supremacy or even pro-gression for granted. Nor can they assume that long-standing government practices—and inefficiencies—can be supported by a vibrant private sector.

At the same time, there can be no doubt that governments will play an increasingly important role in creating, supporting, and nurturing the future competitive position of cities, regions, and nations. The size and scope of this role is the source of continuing debate. Recent events—especially governmental intervention to avoid an economic meltdown from the banking crisis—reinforce the point that governments have an impor-tant, sometimes vital, economic role. In an increasingly global-ized and connected world, governments will have to move more quickly to safeguard the future stability and prosperity of their people.

In part, this will depend on adopting forward-looking policies and effective regulatory regimes to stimulate business while also ensuring that the excesses of recent years are not repeated. This is not a call for yet more government. We do not believe in big

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xiiiIntroduction

government; we do believe in efficient government. (And we firmly disagree with Harry Truman’s quip that, “Wherever you have an efficient government you have a dictatorship.”)4

To some extent, what is now happening with government mir-rors what has already happened with the private sector in many countries. Amid the turbulence of recent times—technological, political, and economical—how corporations are run has been questioned and examined from every angle. As a result, many have transformed themselves from slow-moving behemoths to nimble global operators. Others have bitten the corporate dust.

But a much bigger issue lies ahead. While corporations have proved adept at change, governments have largely continued to govern according to established rules. And while many in government exhort captains of industry to embrace innova-tion, they have not done so in their own sector. While business leaders are berated for their slow adoption of new ideas, most governments remain ponderous, conservative, and slow-moving beasts: carefully preserved dinosaurs. True, e-government has begun to bring greater efficiency to some parts of government, but compared to the business world in particular, progress is painfully slow.

The banking crisis and global recession will continue to haunt regulators and policy-makers for many years to come. But it will no longer be sufficient for the drive for greater efficiencies to stop at the door of government. In future, competitive power will rest as never before upon the efficient and effective exercise of essential government activities. These include both services to citizens and to the business sector.

We are not talking about the privatization or hiving off of gov-ernment services—although that will inevitably be an option in some cases. Nor are we talking about the need for more vigilant and effective policy-makers—although clearly this will help. Rather, we are talking about the urgent need to overhaul the machinery of government to make the public sector work more effectively and become a true enabler of economic and social progress.

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xiv Introduction

The former Swedish Prime Minister, Ola Ullsten, put it this way when we talked to him: “One metaphor is the way our comput-ers talk to us. They say do you want to save the changes. You may have only moved a comma from one place to another, but everything you do means a change in relation to what it was before. It is the same thing with politics. Whatever you do in politics it means change.”

The art of balance

As recent experience has amply demonstrated, undirected, free market forces can lead to the sorts of excesses that nearly wrecked the global economy. Yet, capitalism and commerce have proved to be the most effective force for social progress. We believe that the coming debate will focus on how governments can curb the worst excesses of capitalism. The onus will be on government working in partnership with the wealth-creation sector, par-ticularly the banks, to facilitate social investment in infrastruc-ture projects. This will, hopefully, allow market forces to be an engine that is harnessed for the good of a government’s citizens. If governments fail to act in this way, the massive capital funds now waiting to be invested will go into exactly the same sorts of short-term financial instruments (albeit with different names perhaps) as before. If that happens, we will find ourselves back in crisis in a few years’ time.

At the heart of this book—and smart transformation—is the idea that government as well as corporations must take respon-sibility for finding a balanced business model—one that meets the needs of shareholders as well as other stakeholders, such as employees, customers, and local communities. In short, govern-ments must try to foster a commercial model that is sustainable over time and produces outcomes that are in the best interests of the country’s citizens.

To state that effective and efficient government is a prerequi-site for economic prosperity is a truism—at least that is how it appears to us. But, truths need constant re-stating if their full potential is to be realized. Governmental effectiveness and eco-nomic prosperity are inextricably linked.

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xvIntroduction

“The important thing for government is not to do things which individuals are doing already, and to do them a little better or a little worse; but to do those things which at present are not done at all,” the famous economist John Maynard Keynes observed.

We believe that the challenge facing governments everywhere is to put in place the systems and organization to provide services—everything from keeping the streets clean to provid-ing licenses for foreign investors—and to do so in a way that resists the suffocating growth of bureaucracy. Exactly what those systems and organization look like will vary from place to place. However they are configured, we believe they will have to answer a number of fundamental questions:

How can governments be both high performing and highly

responsive?How can you lead transformation in stakeholder organiza-

tions?How can you integrate stakeholder principles with shareholder

disciplines to create effective and efficient governments?

To answer these questions it will be necessary to create highly adaptive and efficient government that is both fleet of foot but also resolute of vision; that requires leadership with the cour-age to take the necessary steps now to transform government and safeguard the interests of citizens in the long term. We call this smart government—government that not only can deliver on specific, measurable, achievable, realistic, and timely goals, but also combines efficiency with agility in order to deliver social and economic objectives.

At a time of unparalleled change and uncertainty—from pan-demics to financial crises—the need for smart government could not be starker.

Smart transformation

If the challenge for leaders is to create smart government, creat-ing it requires smart transformation in the ways by which we understand government and how it acts.

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xvi Introduction

The challenge of achieving smart transformation is facing the governments of countries as diverse as Singapore, New Zealand, Qatar, and Saudi Arabia. At stake is the legacy for future genera-tions. Until now, however, leaders in those countries have had no clear pattern or model to follow. Leading Smart Transformation is our attempt to answer that need.

This book provides a model for smart transformation—and explains how to overcome the leadership challenges required to make it a reality. It is based on a combination of global research into government and hands-on experience in governing. We also describe the unique journey that writing the book has taken us on—and the lessons we have learned.

Transforming any major organization is never easy. And, we should say right at the outset, that transforming government is an even more sizeable and troubling challenge. “Even where big change is clearly needed, the history of reinventing government shows it is not easy,” observes the Economist with characteristic understatement.5

So how is smart transformation different to traditional change programs—or transformations? We believe the answer lies with leadership. Transforming government demands leader-ship. Smart transformation only occurs where the context for change is clearly articulated by leadership and the sequence of transformation has been understood, the conditions for its

Smart Transformation vs. Traditional Transformation

Characteristic Smart Transformation Traditional Transformation

Scope ComprehensiveHolistic

PartialAd hoc

Pace RapidParallel

RegularSequential

Change driver Strategic, objectives with internal and external pressures

External or short-term objective

Target state Flexible and dynamic Specifi c and staticApproach Leadership is critical and integral;

Stakeholders are fully engaged: bottom up and top down interaction

Leadership is important but peripheral;Stakeholders are driven in a top-down

direction by leadership;Transformation program is ad hoc,

as-you-goFlow Roadmap to link stages is well

defi nedPhases not clearly linked

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xviiIntroduction

success created, the strategy carefully prepared and executed efficiently.

In particular, the role of a competent leadership is central to a successful smart transformation—and is the primary building block of the smart transformation model.

Leading Smart Transformation describes a holistic, rapid, flex-ible, dynamic approach, where leadership is integral to the pro-cess; stakeholders are fully engaged; and last but not least, the transformation program is well planned with a clear roadmap linking the various components of the cycle.

Distinctive government

Above all else, this is intended as a practical book to help gov-ernment leaders of today tackle the challenges of tomorrow. It draws on a rich database of research—including best practice from more than a dozen countries—and is packed with real examples from the authors’ own experiences and those of lead-ers at the forefront of transforming governments throughout the world.

As the importance of creating efficient, agile government becomes increasingly clear, we hope that Leading Smart Transformation may in some small way inspire the leaders of the world’s emerging nations, as well as those seeking to better understand the real dynamics of leading transformation. It is a roadmap for public sector transformation.

There are a number of elements that we believe give the book a distinctive point of view:

Leadership required: First, it is more than just a book about rede-signing government for the twenty-first century. Leading Smart Transformation examines the catalytic power of leadership in cre-ating lasting change—and the monumental challenge of embed-ding leadership within institutions for generations to come.

In many ways, it is a deliberate attempt to provide an antidote to powerful toxins that course through the blood of governments. These can best be observed by the failures they engender.

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xviii Introduction

For example, many countries have tried to introduce change within the framework of existing government structures and have been derailed by bureaucracy and resistance. Leading Smart Transformation asserts the importance of redesigning govern-ment to achieve effective change. In one case, for example, 145 federal and local government entities were reduced to just 49.

Global best practice: Second, although every situation is differ-ent, there are lessons that can be learned from the experience of other countries. Leading Smart Transformation distils lessons from the experiences of a host of countries including: Canada, Australia, Germany, Sweden, Switzerland, Singapore, France, the United Kingdom, the United States, the Netherlands, Belgium, Botswana, the United Arab Emirates (UAE), Bahrain, Ireland, and Monaco.

X-factor leadership: Third, it advocates contextual sensitivity as the only viable strategy. In a world that some commentators claim is becoming ever flatter, we observe the opposite effect: globalization makes local context more rather than less impor-tant. Received wisdom suggests that there is a set of universal leadership capabilities required for successful transformation. We argue that this only gets you so far. The success of a smart transformation depends critically on a superset of unique lead-ership characteristics, which are relevant to the place and time. Together, these constitute the leadership X-factor. Being a suc-cessful leader of change in Singapore, for example, requires a dif-ferent style to that which works even in a neighboring country.

The discipline of change: Fourth, it is vital to complete the entire transformation cycle before embarking on the next phase according to a well-crafted roadmap. Transformation requires discipline and attention to detail as well as inspiration, passion, and belief.

Engaging stakeholders: Fifth, the traditional view is that a strong leadership mandate is sufficient to drive and sustain trans-formation. We argue that constant alignment of major stake-holders is required to prevent resistance that can otherwise ultimately derail the transformation effort. Here the concept of “soft power” is critical. Soft power is the ability to negotiate and gain through co-option and attraction. It is the opposite of hard power, that is, influence through cohesion, military interven-tion, and forcing payment

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xixIntroduction

Smart Tools: Sixth, an essential executing lever of smart trans-formation is the creation of Smart Tools. In effect, these provide a transformational SWAT (special weapons and tactics) team that acts as a catalyst to manage and maintain the momentum of transformation. The Smart Tools exist in parallel to the main government apparatus, and are free of the day-to-day sclerosis often characteristic of government.

Created with a specific mandate to drive the transformation, the Smart Tools oversee the implementation of projects that deliver on the smart criteria—specific, measurable, achievable, realis-tic, and timely goals. It also monitors progress and provides nec-essary support, eventually making themselves redundant.

Dynamic government: What unites these six strands is our firm conviction that governments can no longer adopt a business-as-usual approach to their own organization. In a volatile world, they must transform themselves to keep pace with the relentless surge of change. Dynamism and government can no longer be mutually exclusive. Today, efficiency and agility must coexist.

Smart examples: Throughout the book, too, we have included a number of case studies both at a national level and organiza-tional (or departmental) level that involve a major governmen-tal transformation. So, for example, we consider how countries as diverse as Ireland, New Zealand, and Singapore have used governmental leadership to transform (and damage) their economies—and societies. We also examine a number of gov-ernment departments and agencies. Among them: how the US Internal Revenue Service—one of the largest organizations in the world—restructured itself for the twenty-first century; how the Reserve Bank of New Zealand transformed itself for its new role as an independent central bank; and how in the United Kingdom the Financial Services Authority was formed by inte-grating eight financial regulators into one.

How the book is organized

The Smart Transformation model operates at two distinct levels. The first is at the policy-setting level of central government. It is at this level that the overarching national vision and strategy must be set. But that vision and strategy must then be cascaded

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xx Introduction

down to the next level of government departments, agencies, and other entities. It is at the departmental level that the real day-to-day work of government is carried out—the provision of services to the general population. Without the active involve-ment of central government, no vision or strategic direction can be set; but without the active engagement of government depart-ments, that central vision and strategy cannot become a reality. Throughout the book we have tried to describe how the model works at both these levels—and to distinguish between them. In effect, one can think of each and every department operating its own version of the model—all of which are aligned with and cascaded from the model at the center.

The book is organized as follows.

Part I explores how the context affects the transformational opportunity. Here the importance of creating a powerful vision of the future; managing the various stakeholders in the process; and translating leadership will and aspirations into executive action are examined.

Chapter 1: Leading through vision. Without a meaningful vision for the future, no transformation is possible. It is the vision of the leadership that provides the mandate and momentum for change. This chapter describes the galvanizing power of a strong leadership vision and how, by aligning the aspirations of a nation or a department the will of individual leaders is embed-ded into institutional leadership.

Chapter 2: Managing stakeholders. Transformation starts with a clear vision but that is not sufficient. Internal and external stake-holders have the power to resist or enable change. Successful transformation requires that leaders communicate strategic change with key stakeholders to ensure their buy-in. Sustaining their support requires ongoing, proactive engagement and dia-log. Critical leadership capabilities here include: teamwork; the nurturing of networks; role modeling and other elements of soft power; the willingness to learn from best practice; negotiating transition; handling ambiguity; and personal resilience.

Chapter 3: Driving the transformation. With a leadership vision and the stakeholders aligned, the enablers are in place and trans-formation is possible. The next step is to develop a program

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xxiIntroduction

of transformation that can be driven by the leadership. This requires the creation of a Smart Tool—the Project Management Office (PMO). The PMO is a catalyzing entity that executes the will of the leadership of the entity. Typically, it covers five key areas: project planning; project execution; content assurance; tracking and monitoring; and capacity building.

PMOs are essential at both central and departmental levels. At the level of central government, the PMO reports directly to the leadership. At the departmental level, the PMO provides guid-ance on entity management, priorities, and direction. It also monitors and regularly reports on progress, using objective per-formance measures, ensuring successful implementation. With the creation and activation of the PMO, the enablers are in place to pursue smart transformation.

The transformational cycle

Part I is all about creating a context that is ripe for change. Part II is about the transformational cycle that will make the change a reality. This requires working through each of four transformational disciplines. It is vital that none are overlooked and that the proper linkage is preserved and the sequencing is well orchestrated.

Chapter 4: Setting the strategy. The first discipline involves for-mulating a strategy that articulates the leadership vision by cre-ating a plan to turn it into reality. This involves setting strategic objectives to drive the transformation. The leadership vision is translated into strategy by central government and is then cas-caded to the relevant departments which each in turn create their own departmental strategies.

Part of the strategy is to build a self-sustainable business model aligned with the vision. The term business model has many interpretations. In this book, we use it to describe how share-holder value techniques can be leveraged for the purpose of pro-moting a stakeholder philosophy. In short, how business can be an economic engine that serves the long-term aspirations and best interests of a nation’s citizens. Indeed, the notion of build-ing a sustainable and transformative business model is crucial to creating and delivering transformation.

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xxii Introduction

In this context, “business” refers to the expertise and dynamism of the markets—which, in the right setting, may be used for gov-ernment advantage, and to create benefits for all citizens. It is also worth making the point that in today’s world government has to be business-minded. Not only does a healthy economy require a healthy business sector, a government that is hostile to business—or incompetent—will drive global business away. The simple fact is that in a global economy, capital can migrate to different parts of the world in a matter of hours. That is why building a business model for government is now essential.

We make no apology either for the fact that we draw on private sector experience as a key consideration. Indeed, how to best leverage market dynamics for the benefit of citizens will be a key challenge facing all governments in the coming years. This requires a pragmatic approach, with realistic expectations and a willingness to learn and leverage best practice from elsewhere. These are important leadership capabilities—but they also need to become core operational capabilities.

Chapter 5: Designing the operating model. With the strategy and economic engine in place, the third part of the cycle is to improve organizational structure and governance to support the effective delivery of services. What is the operating model? How is the organization structured to ensure it is fit for purpose today and tomorrow? This includes redesigning the organiza-tion and reassigning roles to ensure the transformation achieves momentum.

Chapter 6: Developing talent. Organizations are collections of people. To create and maintain momentum it is vital to build internal human capabilities. Transformation is built and deliv-ered by the people in the organization. This chapter examines how to develop a strategic talent management plan to ensure the successful transformation and post-transformation.

Chapter 7: Making it happen. Finally, it is necessary to roll out the transformation plan to execute on the strategic objectives within a well-defined time frame. Chapter 7 explains the real-ity of making change happen and the importance of validat-ing by monitoring and measuring to ensure key performance indicators are met. It includes case studies at both the central (national) and departmental level.

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xxiiiIntroduction

The X-factor

Parts I and II provide the mechanics of transformation. But there is more to achieving smart transformation than a simple model. One of our most striking findings is the importance that contex-tual leadership plays in the success or failure of organizational change. Initially, we identified a set of international (generic) leadership capabilities required for effective transformation. But these alone did not explain why what worked in one country or context sometimes did not work in another. We then discov-ered something truly fascinating—and new. Beyond the generic capabilities, we observed another level of leadership capabilities unique to that particular organization and environment.

Chapter 8: Distilling the X-factor. It turns out that that every economic transformation project has its own secret recipe. We call it the leadership X-factor—a unique set of capabilities that determine whether a leader will be effective in that part of the world and in that particular context at that time. In Chapter 8, we describe how this extra level makes a difference to the suc-cess or failure of transformation efforts.

Chapter 9: Navigating the roadmap. The final chapter has a two-fold message. On the one hand, it denotes the final phase of the Smart Transformation Model—the opportunity to step back and learn from the current cycle of change and to apply those learnings to the next transformation cycle.

It is also a chance to pull the threads of this book together to provide practical lessons and guiding principles for successful transformation. What are the leadership steps required to lead a smart transformation?

Taken altogether, we believe the Smart Transformation Model offers a process for transforming government. As with all good models, the whole is greater than the sum of its parts. It is also a dynamic open-ended model. Viewed in this way, it is clear that the transformation cycle is just that—a virtuous circle of trans-formation. Once a cycle is complete, and each of the four trans-formational disciplines in Part II has been applied, it is time to go back to the start and begin again.

This includes revisiting the context for transformation—Part I—to ensure that stakeholders remain aligned with the vision and that

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xxiv Introduction

the leadership capabilities are in place to drive the next phase of the transformation. The vision itself and the leadership X-factors also require periodic reappraisal—although they should be fairly consistent. Once the context is refreshed, then the strategic goals can be reset—with key performance indicators recalibrated—and another cycle of transformation begun.

The Smart Transformation Model allows government to trans-late the leadership vision into a workable and measurable stra-tegic plan. Equally importantly, it ensures that the necessary human talent, organizational design, and execution focus is in place to make the vision a reality.

Leading Smart Transformation is not the final word. Performance in government should always be in the process of being improved. But, we hope that it helps ignite a much needed debate about the purpose, shape, and leadership of governments in our global age.

ANDREW KAKABADSE, MOHAMED OMAR ABDULLA, RABIH ABOUCHAKRA, AND ALI QASSIM JAWAD,

Abu Dhabi, October 2010

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Part I

The Context for Change

One never goes so far as when one doesn’t know where one is going.

Johann Wolfgang von Goethe1

A vision goes beyond the numbers that are typically found in five-year plans ... It says something that helps clarify the direction in which an organization needs to move.

John Kotter2

No man that does not see visions will ever realize any high hope or undertake any high enterprise.

Woodrow Wilson3

I have a strong view. Like a good Minister, I think that if you have public service power, you want to use it for a purpose—and a purpose usually involves some sort of change.

Dr. Peter Shergold,Department of the Prime Minister and Cabinet,

Sydney, Australia4

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3

CHAPTER 1

Leading through vision

Yas Island, Abu Dhabi, November 1, 2009

The warm up lap had been completed and five red lights were illuminated. The distinctive starting sequence for a Formula 1 Grand Prix began. Four. Three. Two. One. A deafening roar as 24 state-of-the-art F1 racing cars screamed into action. The inaugural Abu Dhabi Grand Prix was underway. Years of antic-ipation and preparation had led to this moment.

The world was watching—some 600 million pairs of eyeballs tuned in via their television sets. The authors were among those watching with bated breath. Let us clearly state that we can claim no credit for the success of the event. We were not involved in the project. But like everyone else we were fascinated by it. Quite apart from the adrenalin pumping, ear-splitting mechani-cal cacophony that is F1, the finale of the 2009 season was note-worthy for several reasons. It was the first grand prix hosted in the United Arab Emirates (Abu Dhabi is the capital of UAE) and the first ever day and night F1 race. It was also the first time a debut track hosted the final race of the season.

In the hotels and streets of Abu Dhabi in the days leading up to the race, the buzz was audible—and infectious. The authors met several times in the week of the race to discuss the book. We vis-ited the Emirates Palace Hotel, a seven-star showcase for Abu Dhabi’s tourism, which was temporarily transformed into an F1 museum—with racing cars through the ages on display on loan from F1 supremo, Bernie Ecclestone’s, own private collection. The F1 glitterati hosted events for days at the city’s swankiest hotels and night spots.

Behind the scenes, the activity in the run up to the race was equally frenetic. When we visited the Yas Marina Circuit just



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4 Leading smart transformation

three days before the grand prix, the contractors were still add-ing the final touches. With 68 different contractors and 47,500 workers involved, the project required logistical organization of military precision. Even the sumptuous Yas Hotel was strewn with paint pots and ladders as every last detail was attended to. With security to think of and the sheer logistics of busing 50,000 spectators to the circuit, we wondered if everything would be ready in time. We needn’t have worried. The project leaders were not about to let anything spoil this particular coming out party.

By the time the racing cars streamed into the distance, for the people of Abu Dhabi, the important race had already been won. The brand new Yas Island race circuit was built in just 30 months. A barren island was transformed into a world-class motor rac-ing venue with more than 40 kilometers of roads and infrastruc-ture ready to receive the F1 circus and 50,000 spectators.5

The people of Abu Dhabi were proud—and rightly so. Hosting the F1 race was a huge achievement. But beyond all the glitz and glamour; all the petrol fumes and the celebrity sideshow; some-thing more significant was occurring.

The Abu Dhabi Grand Prix announced the emirate’s arrival on the world stage. Make no mistake, the F1 party was not just a celebration of fast cars and painstaking project management, it was also a celebration of a nation’s aspiration—and a vindica-tion of the vision of its leadership. Contemporary in its concep-tion, large in scale, fast in execution, and global in its reach, Yas Island is a tangible example of what visionary leadership can achieve and how smart transformation can shape governmental, organizational, societal, and personal agendas and behavior.

Begin with the future

The starting point of change is the future. Any individual, orga-nization, or government is only ready to change if it acknowl-edges that the current reality is not where it wants to be and then sets about creating a credible and persuasive future: a vision.

“The best predictor of the success or failure of organizational change is something I call readiness for change,” says Michael



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5Leading through vision

Jarrett of the international business school INSEAD and author of Changeability. “What do I mean by readiness for change? Readiness for change applies at the philosophical level—being open to and prepared to embrace change; but it also applies at the practical level. Readiness applies to those organiza-tions that have developed a set of core dynamic and internal capabilities that allow them to adapt when faced by external demands. Basically, successful change is a function of how well an organization’s internal capabilities—its management capac-ity, its culture, its processes, its resources, its people—match the requirements of its external environment, the marketplace. When there is an internal capability and external match, you are more likely to gain successful change. My research consistently shows that readiness for change is the single most reliable pre-dictor of successful change.”6

How can you express a readiness to change? There are many ways—dissatisfaction with the current status quo runs on a scale from silent discontent to fuming revolutionary—but the most powerful and compelling is to articulate a clear vision of the future. “Many of the great strategies are simply great visions. And great visions can be a lot more inspirational and effective than the most carefully constructed plan. Only when we rec-ognize our fantasies can we begin to appreciate the wonders of reality,” argues Professor Henry Mintzberg of Canada’s McGill University.7

Visions have been around for centuries. In modern times, think of Martin Luther King Jr.’s “dream” of racial equality or President Kennedy’s ambition to put a man on the moon. In the business world, remember Henry Ford’s aspiration to produce cars for the masses or Microsoft’s hope of putting a computer on every desk and in every home. But, only in recent years have the dynamics of visions and their role in achieving transformation been examined.

In the 1980s, the leadership researcher Warren Bennis embarked on a now famous study of 90 American leaders including for-mer astronaut Neil Armstrong and a tightrope walker. Bennis sought to identify and codify effective leadership. He offered a view of leadership based on four factors: vision, meaning, trust, and the deployment of self. Vision comes first. Indeed Bennis



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defined leadership as “the capacity to create a compelling vision and translate it into action and sustain it.”8

Without a vision of what you would like to achieve, what you do achieve has no benchmark of success. Henry Kissinger claimed: “Leaders must invoke an alchemy of great vision. Those leaders who do not are ultimately judged failures, even though they may be popular at the moment.”9

The meaning of vision

As a starting point for smart transformation, it is useful to explore the real meaning of what a vision is and how it should be constructed and used. In their influential book Built to Last, Jim Collins and Jerry Porras view the function of a leader as “to catalyze a clear and shared vision of the organization and to secure commitment to and vigorous pursuit of that vision.”10

Collins and Porras contend that vision has two main compo-nents: a guiding philosophy and a tangible image. The guiding philosophy is “a system of fundamental motivating assumptions, principles, values and tenets” that stems from the organization’s core beliefs, values, and purpose. Making up the tangible image involves a mission and a vivid description. The mission is “a clear and compelling goal that serves to unify an organization’s effort. An effective mission must stretch and challenge the orga-nization, yet be achievable.”

An alternative perspective comes from the American leadership researcher, Burt Nanus. He defines vision as “a realistic, cred-ible, attractive future for an organization.” Nanus continues: “It is a carefully formulated statement of intentions that defines a destination or future state of affairs that an individual or group finds particularly desirable. The right vision is an idea so pow-erful that it jump-starts the future by calling forth the energies, talents, and resources to make things happen. A visionary leader is one who has the ability to formulate a compelling vision for the future of his or her organization, gain commitment to it, and translate that vision into reality by making the necessary organizational changes.”11



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According to Nanus, the right vision can lead to a number of benefits for an organization:12

It attracts commitment and energizes people.

It creates meaning in workers’ lives, by making them feel they

are part of a greater whole.It establishes a standard of excellence and stimulates

improvement.It bridges the present and the future by focusing the organiza-

tion on its desired future state.

While Collins and Porras view mission as a component of vision, Nanus differentiates between the two. He comments: “A vision is not a mission. To state that an organization has a mission is to state its purpose, not its direction.”

In his influential work on the learning organization, Peter Senge emphasizes that a shared vision is a vehicle for building shared meaning in an organization, particularly if it is built in a partici-pative way.13 He sees a vision as representing the organization’s guiding aspirations. These are composed of:

Vision : an image of our desired futureValues : how we expect to travel to where we want to goPurpose or mission : what the organization is here to doGoals : milestones we expect to reach before too long

So, what does a vision mean in the context of smart transfor-mation in government? Borrowing from the definitions above, we believe that for transformational government, an effec-tive vision—a smart vision, if you will—meets the following criteria:

It acts as a catalyst—offering an alternative future that dis-

rupts the status quo and mobilizes commitment to change.It offers a tangible picture of a destination—a better place that

will be achieved via the transformation. In this way it provides the bridge from the present into the future.It attracts commitment and energizes people—by creating

meaning between workers’ lives and their work, by making them feel they are part of a greater whole.



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It establishes a standard of excellence and stimulates improve-

ment.It emerges from a considered process of thought, connection,

and communication. Visioning is an inclusive process—wit-ness the pages of interview at the end of Abu Dhabi’s vision.

It is these characteristics of the vision that make smart transfor-mation possible. By its nature, then, a vision cannot emerge fully formed. It is by working out the fine details—both at the level of strategy and at the level of how each individual will relate to it—that people engage with the vision to bring it alive. In other words, how we follow the vision in one government department will be different to another—not least because they start from slightly dif-ferent places. But both are moving toward a shared destination.

In the context of smart transformation, visions operate at two levels: the national level (central government) and departmental level.

National visions

Transforming performance is not something naturally asso-ciated with the mechanics of government. In most societies it is assumed that a change of ruling party is accompanied by changes to government behavior, processes, and performance. This is rarely the case. There is a premium on continuity in the mechanics of government rather than emphasizing the need for constant improvement. A political appetite for change cannot be assumed to be accompanied by a governmental appetite for change. Government tends to be focused on getting things done and, truth be told, on stopping other things from being done.

Given this, it is no surprise that visions are usually notable by their absence in governmental processes of change. Instead of the big picture there tends to be a focus on local initiatives. Changes in government are regularly seen in isolation rather than as joined-up parts of a coherent vision for a government and a nation. Or worse, they are seen as policy diktats imposed from on high and usually resisted on the ground. As a result, most countries have been through a long list of such initiatives.



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Open up any newspaper anywhere in the world on any day of the political week and you will find a lengthy list of such govern-mental initiatives. Most disappear with little trace.

Initiatives only work if they are sewn into a broader transforma-tional canvas. People are understandably questioning and cyni-cal. In the face of a request to change their thinking or behavior they are likely to ask why? To this the leader—any leader—has to have an answer. The answer is the vision.

For the moment at least, visions are more commonplace in the corporate world than at governmental or national levels. And yet any transformation, no matter what level, demands some sort of conceptualization of the desired destination. Visions are the vital starting point for any change in how an organization performs—whether it is a team, a division, a corporation, a gov-ernment department, or an entire governmental apparatus.

Singapore 21: A vision for a new era

As an example, think of how Singapore has used its vision to gal-vanize people and government departments to action. Thanks to its strategic location as a port, the tiny island of Singapore has developed into the world’s fourth most important financial center, playing a crucial role in international trade, and one of the richest states in East Asia. Singapore is the fourth-wealthiest country in the world in terms of GDP, and boasts the eleventh-highest quality of life. The country is a parliamentary repub-lic, with a system of government originally derived from that of Britain, its former colonial ruler.

Singapore’s material wealth and commercial acumen have never been in doubt. But in the late 1990s, its leaders felt that their country’s future should be about more than just prosperity. To thrive as a well-rounded nation, Singapore also needed “soft” strengths: social cohesion, shared values, political stability, and human capital—the kind of strengths, perhaps, that free mar-kets would not deliver if left to their own devices.

To give substance to their ideas, the Singapore government launched Singapore 21, tasked with creating a “vision for a new



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era” in 1997. Prime Minister Goh Chok Tong convened the Singapore 21 Committee, which comprised ten members of par-liament chairing five subject committees. In total, Singapore 21 committees comprised 83 members drawn from a broad spec-trum of society—business people, professionals, volunteers and many more.

Singapore’s vision had its roots in five dilemmas that the coun-try faced:

Less stressful life vs. retaining the drive

Needs of senior citizens vs. aspirations of the young

Attracting talent vs. looking after Singaporeans

Internationalization/regionalization vs. Singapore as home

Consultation and consensus vs. decisiveness and quick action

To find ways to resolve these dilemmas, the Singapore 21 Committee conducted consultations, forums, and online sur-veys, obtaining the views of over 6000 people. The content was distilled down to form five key ideas that lie at the heart of the Singapore 21 vision:

Every Singaporean matters. People are Singapore’s only resource, and they matter both collectively and individually. Every one has a contribution to make and a place in society. Our definition of success must include character, courage, commitment, creativity, and compassion as well as material wealth. Each Singaporean should set their own goals.Opportunities for all. As in the past, Singapore must be a place where people can find optimism, prospects, and ful-fillment—a global center where people, ideas, and resources come together. Talented foreigners should be welcomed, and Singapore must develop the potential of every citizen.Strong families. Families are the foundation of society, but cannot be taken for granted. As families become smaller and work more demanding, children will need more help to grow and learn. Government and employers must play their part in reinforcing family bonds.The Singapore heartbeat. As globalization gathers pace, Singaporeans need a stronger sense of belonging to their



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country and a common vision. Whatever their origins, citi-zens need to regard Singapore as their home.Active citizens. Singaporeans must be active participants in society—aware of what is happening and ready to express views and suggest solutions. The “people sector” should com-plement, and cooperate with, the public and private sectors. Consultation, mutual respect, and trust form the basis for this partnership.

These five themes were united in a single phrase: “Together, we make the difference.”

In April 1999, the Singapore 21 vision was officially launched. “More than a house, Singapore must be a home,” commented Goh Chok Tong foreshadowing the vision in a speech to the Singapore Parliament. “In the end, it is people who give feel-ing, the human touch, the sense of pride and achievement, the warmth. So beyond developing physical infrastructure and hardware, we need to develop our social infrastructure and soft-ware ... We need to go beyond economic and material needs, and reorient society to meet the intellectual, emotional, spiritual, cultural and social needs of our people.”14

Taking a cue from the private sector, Goh Chok Tong alluded to what the Sony Corporation calls “heartware.” (Several decades before Western businesses began using concepts such as Lovemarks to create experiences that resonated with con-sumers’ emotions, Sony used the theme “Not hardware, but ‘heartware’ for everyday life” to unite the diverse strands of its business. Instead of just making products to be bought, Sony wanted to create experiences that would be loved. Singapore applied a similar principle to its vision.)

In the years that followed, a broad range of initiatives, activi-ties, and events were carried out under the Singapore 21 banner, including exhibitions, community games, online forums, and many more. These took their cue from the themes identified in the Singapore 21 vision, focusing on community building, cul-tural development, family events, education, and celebrating Singaporean heritage.



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Flagging the future

Used in this way, visions are the banners around which com-mitted people gather—sometimes in unlikely places. The vision can provide an overarching message or idea to guide a country’s economic, social, and political development. For example, after a difficult period after its independence in 1963, and following Singapore’s exit in 1965 and race riots in 1969, Malaysia embarked on its New Economic Policy—intended to increase proportion-ally the share of economic wealth of the Bumiputras—the indig-enous people, which includes the majority of Malays.

Malaysia is now on its tenth five-year economic plan: the first of these dates back to the National Economic Policy of 1970. Over the four decades, the ten economic plans have seen a movement—a shift in emphasis—from a focus on pure poverty reduction and promoting investment, toward more industrializa-tion and building a knowledge economy in the past few years.

Guiding this change in Malaysia’s economic plans is its 2020 Vision of an equal, competitive, and growing economy. So, the ninth economic plan—2006 to 2010—represents the first of three plans, which form the National Mission to achieve Vision 2020. In keeping with that Vision, the aims of the ninth economic plan are to: move the economy up the value chain; raise the capacity for knowledge and innovation; address persistent socioeconomic inequalities; improve the standard and sustainability of quality of life; and to strengthen the institutional and implementation capac-ity. All of these are important steps toward achieving the Vision.

Or consider Botswana. A small, landlocked nation of nearly two million people in southern Africa, Botswana, Africa’s old-est democracy, was originally home to Bushmen, then Bantus. It became a British protectorate in 1886 and remained so until gain-ing independence in 1966. Its legacy from British rule includes English as an official language but, more importantly, a strong government that has acted wisely in almost every area over the years. In the latest Global Peace Index ranking, Botswana was the highest listed African nation.

The government’s careful management of the economy has changed Botswana from one of the poorest countries in Africa,



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at its independence, to one of the more rapidly growing econo-mies in the world. (As we write, two major investment services rank Botswana as the best credit risk in Africa.) Nobel Prize-winning economist Joseph E. Stiglitz says its economic strength is the result of “its ability to maintain a political consensus, based on a broader sense of national unity.”

Today, the once-poor nation of Botswana has a Gross Domestic Product (GDP) of $27.1 million and a per capita GDP of $13,900, compared with $70 in 1966. Moreover, its GDP growth over the past decade has been in double digits (except recently, a reflec-tion of the world economic crisis).15

Botswana’s economy has relied heavily on its major natural resource—diamonds—and the government invested its mineral revenues to improve social and economic conditions (e.g., build-ing its infrastructure), avoiding the trap of corruption that has kept many nations impoverished while its rulers grew rich. In addition to diamonds, Botswana has copper and nickel mines and grazing land that supports a strong cattle-raising industry. There is also a tourism sector that provides approximately 16 percent of GDP.

The major economic problem facing Botswana is that its dia-mond deposits will begin to run out over the next decade. Anticipating that event, however, the government developed its Vision 2016 plan, making diversification a strategic objective. Involving the creation of development hubs for such things as innovation, the plan has received praise and financial support from many international organizations and attracted private foreign support. Ericsson, one of the world’s biggest telecom-munications equipment providers, was one of the first tenants of the Botswana Innovation Hub when it opened in December 2010.

Naturally blessed

Or consider the vision of Abu Dhabi. Blessed with natural resources in the shape of abundant oil reserves, the challenge facing the emirate is to use its natural wealth to broaden and diversify its economic base and create a sustainable economy.



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The Emirate’s Economic Vision for 2030 sees: “Abu Dhabi as a sustainable, diversified, high value-added economy that encourages enterprises and entrepreneurship and well inte-grated into the global economy leading to better opportunities for all.”

That vision is set out in a document entitled the Abu Dhabi Economic Vision 2030. Simply writing a nation’s vision down can be hugely powerful. It gives everyone involved in govern-ment and the citizens of the nation a clear idea of what the lead-ership is seeking to achieve. It also means the people can hold their government accountable. A written vision can also com-municate beyond the country’s borders, sending a clear message to the rest of the world and especially trading partners and the global business community. One of the authors was recently on a fact-finding visit to Norway and, on meeting the head of a Norwegian government department, was impressed to discover on her desk next to the Norwegian flag a copy of the Abu Dhabi Economic Vision 2030 document. Clearly, the Norwegians had done their homework. National visions travel. They make a powerful statement about a country’s aspirations.

Departmental visions

But visions do not just occur at the level of central government. Beneath the national vision are departmental visions. These are inspired by the vision of the central government, but define what the department’s role in that future will be. Think of the national vision as a Russian doll. Inside the big vision is another smaller vision. In this way the same picture is translated down to ever-smaller levels of granularity. Each doll is an image of the first, only smaller. They fit together to flesh out the national vision to make it a reality.

So, for example, Singapore’s Infocomm Development Authority is leading a national effort to formulate and develop iN2015 (pronounced “in twenty-fifteen”). Built on the theme of creat-ing an Intelligent Nation, this is a ten-year master plan launched in 2006 to grow the information communications sector and to build a well-connected society. The year 2015 also marks the 50th anniversary of Singapore’s independence.



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“Singapore is in a competitive race with other countries. It is no longer a matter of moving first, but a matter of moving faster—ahead of others to stay relevant and competitive. It is all the more important that we take a look at the role that infocomm can play to help Singapore stay highly competitive to look ahead for the next ten years, and implement strategic initiatives that will keep Singapore to the fore,” says Lam Chuan Leong, chair-man of the iN2015 steering committee.16

Powerful visions have been repeatedly used by Singapore to fuel its growth. The country first embarked on the National Computerization Plan to computerize the civil service in the 1980s. There have been various plans to grow an IT industry and build connectivity within Singapore. These include the National IT plan, which saw the development of TradeNet, LawNet, and MediNet; IT2000 when Singapore ONE (One Network for Everyone) was developed; and, Infocomm 21 and Connected Singapore, which focused on the further developing Information Communication Technology (ICT) in the private and public sector, and promoting ICT among the public. All of these initiatives are part of a connected effort—or vision—to create an Intelligent Nation, a thoroughly modern and techno-logically sophisticated and connected society.

Cascading visions

As we have already seen, visions come in many shapes and sizes. They include grand designs for an entire nation but they can also be the level of an organization, department or even team. Indeed, a key element of any large-scale transformation is how the big vision is translated and cascaded down to the people on the ground. For a smart transformation, the leadership of each department or agency creates its own vision that supports the overall vision (see what happened at the Internal Revenue Service in the United States on page 160). So, as we saw with Singapore, the vision to become an Intelligent Nation is supported by a series of smaller visions that are steps toward that goal.

Enshrining the national vision in a widely available document also provides a point of reference for everyone in the government



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and beyond. In Abu Dhabi, for example, it is now commonplace to hear people begin any proposal with the phrase “in line with the 2030 vision ...” In other words, people have come to explain every initiative and project with reference to the national vision. It follows, too, that if the connection cannot be made with the broad aims of the vision, then the project should not be under-taken. This gives all government departments a clear frame of reference for their initiatives. Clarity begets clarity. If the national vision is well articulated then departmental visions are likely to be as well.

Among the most inspiring interviewees we encountered was Frank Ryan, CEO of Enterprise Ireland (for a case study of Ireland see page 138). He previously worked in the corporate world and with the country’s Industrial Development Agency (IDA Ireland) before leaving to lead Enterprise Ireland, the agency responsible for the development of industry and the internationalization of Irish business. “I came here with a very clear view that Enterprise Ireland would become the number one business development agency in the world. That Ireland would have, through Enterprise Ireland and IDA Ireland respec-tively, the No 1 indigenous and FDI development agencies in the world. So that was very clear in my mind. In order to move in that direction we would have to deliver transformational change in terms of the impact of our focused interventions on our client base and their performance.”17

The clarity of force of Ryan’s vision—“to be the number one business development agency”—shone through every word he said, his actions, and those of his colleagues.

The need for vision all the way down through government was brought home in an interview with Lord Michael Bichard. Former director of the Institute for Government in the United Kingdom, Lord Bichard passionately advocates the need for a powerful trinity of clarity, values, and vision:

You need clarity about what the change is and you need people to own that vision, that change, because without that you can’t judge progress, you can’t set milestones. I have seen many change programmes where people are simply not clear where they are trying to get to, where they are, how



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to measure the distance between the two points and how to track the milestones.I have always felt that as important as clarity around the vision is having clarity around the set of values—the things that drive this place, the way we do things around here. This has to be truly owned. These are not things that you can impose on people, so there has to be a considerable process of involvement and discussion. At the end there has got to be a clear, short, simple set of values.You have to be prepared to use the things that make the organization tick—the appraisal systems, the assessment sys-tems, the promotion criteria, things like capability reviews. If those don’t reflect the way you want the organization to behave then the staff and outsiders will come to the view that you are not serious about that and clearly will give it less priority.

In the early 1990s, Lord Bichard was put in charge of the UK’s Benefits Agency with 70,000 staff and a budget in the region of £2.5 billion. Here he was able to put his theories about how to achieve transformation to the test:

The benefits agency was a very complex organization. It was important to have a clear vision of what we wanted to do—what we wanted to change. In the past, it had not truly focused on clients and customers and, therefore, we made customer service and our clients central to the vision. It was an organization that had to get things right; so accuracy and getting things right first time, and quality were also central. It was an organization, which traditionally received and dealt with people in the most disgusting surroundings and it was also an organization in which people had felt insuffi-cient priority had been given to its staff. We provided staff with development opportunities. We were focused on clients and staff, on accuracy and quality.It was a team effort, but eventually I was able to walk into any benefit office in the country, and there were four or five hundred, and be confident that, if I started talking about the values, people would be able to quote them back at me. I would be able to see examples of how they had taken those values forward—things like caring for staff, quality,



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and competence. We enforced all of that by reviewing our appraisal process and making clear the kind of qualities and competencies we were looking for in the people we promoted. We deliberately pursued a process and it did have an impact.

The role of leadership

As Michael Bichard makes persuasively clear, no transforma-tion can occur without a clear vision from the top—be it the national leadership or the leadership of a single government department. In almost all cases, the initial vision comes from the overall leader—the president, prime minister, or monarch—or someone close to them. As we will emphasize throughout, in any smart transformation, leadership is vital.

Once the vision is clear it may be amplified and articulated by the executive arm. In government terms this is typically the cab-inet. To execute successfully on the vision requires leadership throughout the government.

The role of minister (or its equivalent) is therefore vital and piv-otal to successful transformation. Yet, somewhat strangely, this is a leadership role that has received very little attention from researchers. In part, this is because the role is frequently cloaked in secrecy and masked by mystique—both of which may be regarded as essential to the effective functioning of ministers. This attitude is outdated. It is only through a clear understand-ing of the leadership requirements of ministers that this critical role can be effective in supporting smart transformation.

We were struck in our conversations with more enlightened ministers and senior civil servants throughout the world that the leadership style they embraced was decidedly—and some-what surprisingly—contemporary. They were people who had thought long and hard about how they practiced leadership and the impact it had on themselves, their followers, and their organization. There was a reassuring frankness to many of their replies to our questions.

“There are two challenges,” the head of a government depart-ment explained. “First, the pace of the change. Second, the



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people—human capital.” But what kept her awake at night we asked? “External factors: a change of government direction; the inability to have commitment of the team throughout the jour-ney. The possibility that I push too hard—that I am too opti-mistic and discover later that there is a gap between my ideas and the resources available.”

One of the exemplary leaders we encountered was leading a wide-ranging governmental transformation. His leadership style was consensual. We arrived to talk to him with a junior official. Throughout the conversation he was at pains to bring the official into the conversation and to make him feel part of a team. He emphasized trust, transparency, and patience. First of all, however, he emphasized that change starts with the leader and the leader must set the example—constantly.

“I lead by example. When I ask them to be punctual, I am punc-tual. When I ask them to be committed, I am committed. So they believe and trust. I want and need them to believe that I am a trustworthy person leading them to do something useful and important for their country. They are part of the success,” he explained. “First, you have to be very consistent. Second, when you promise you have to deliver. Third, you have to be clever in your objectives and results have to be very well defined—so people can see them. Fourth, when you bring them in they have to believe that you are there for them—all the way. You cannot start the journey and then leave.”

We pressed him. How would he describe his leadership style? “As a facilitator who tries to facilitate to his team how they can see the challenges ahead and deal with these issues. Trying to make the challenge near to them and make them ready. In this way I will be able to make them engage, make the message consistent and make it clear that they need to lead. I hope in this way we can demonstrate that we are leading these changes. There is no time to waste. It is a big responsibility we have.”

“The most critical issue is to move quickly and move from one culture to another. The typical government culture moves slowly. I need to be an agent for change—and that needs a dif-ferent style of leadership. People have to believe in what they are doing—to create the right environment—to be an active player.



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They have to witness it. Initially, I saw some resistance but once they felt there was something for them, their families, the future of their children, they started to be very positive.”

Beyond vision

Creating the vision is an essential first step, but it is not enough on its own. Mapping out a vision without action is an empty and pointless experience. Inspiring leadership requires powerful management to make the leap from theory to fact.

The next challenge for the leadership is to translate the vision into meaningful measurable strategic objectives as well as tan-gible and symbolic actions. But first it is necessary to mobilize the support of the key stakeholders. Failure to do so will result in resistance that can derail the transformation process.

Smart questions

What is the vision for your nation, your department, your

organization?How have you made your vision inclusive?

Can you convey that vision in a single phrase?

Does it convey an aspirational element that you and your staff

can relate to? What will it mean for their children?Can you visualize it in a way that makes it real and

meaningful?How much time do you spend articulating that vision?

What do you and your leaders do to make that vision real?

What would be the tangible proof of it?What leadership role model do you provide that will inspire

the people who work with you?Which visions and leaders have inspired you?



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21

CHAPTER 2

Managing stakeholders

Leading the many

Smart transformation starts with a clear vision, but that is not sufficient. Internal and external stakeholders have the power to resist or enable change. A stakeholder is any individual or group that will be impacted by or is interested in the change. Successful transformation requires that leaders communicate strategic change with key stakeholders to ensure their buy-in. Sustaining their support requires ongoing, proactive engage-ment and dialog.

There is no easy formula for this. Even where executive power is greatest, it is impossible to mobilize resources unless the most influential stakeholders buy into the vision and are in agree-ment with the overall direction of the change agenda. Here again we see that there are two levels at which stakeholders must be engaged. The first is at the level of central government, and may include other governments; the second is at departmental level, and will certainly include other government departments. We will explore both. But first we consider the differences between the public and private sector, especially the importance of influ-encing skills.

In the business world, even though hierarchical authority has been reduced in many companies, the CEO or chairman can often rely on willing executives to implement his or her strategy. In the long run the market will determine the success or failure of a given strategy. But in reality, of course, the market outcome depends on a number of powerful stakeholder groups—in par-ticular, shareholders and customers.

With government transformations, the stakeholders are often less obvious but no less influential. Indeed, they are often even



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more important. A vital task for leaders is to identify key stake-holder groups—and individuals within those groups—and ensure that they remain onside. This takes time, energy, and persuasive leadership.

Leadership challenges

It is worth remembering that leadership roles in government are highly demanding. The leader of a national government is a lot more than just a figurehead. Ultimately, they are responsible for everything from the state of the economy to the defense of the realm. The buck stops with them—even though they cannot possibly have a detailed working knowledge of all the minutia.

Similarly, the head of a government department is the decision-maker, setting the policy agenda. They must take decisions concerning operations, the organization, and staffing of their department. They must promote accountability; defend their department and its policies under scrutiny from the media and other political leaders. They must lead and champion legisla-tion; take a lead on public relations, especially with increasingly hostile media; act as an advocate for plans, policies, and expen-diture; and provide constructive critical commentary on the policies and plans of other departments and ministers. They are also likely to need to take a lead role in promoting the country’s interests in the wider political world.

For the modern governmental leader, complexity comes with the job. The role of governmental leaders is becoming increasingly more difficult and challenging. They face growing pressure from a variety of stakeholders to meet performance expectations; increasing complexity as a result of globalization; demands to restructure and manage change; ever more demanding custom-ers and clients; difficulties in finding good people; and relent-less technological change, particularly in the use of information technology. In addition, there is increased scrutiny—and criti-cism—from a variety of audiences, and stakeholders.

“The job [of leader] is more complex,” says Warren Bennis of the University of Southern California. “There’s a more clogged cartography of stakeholders, unbelievable changes, disruptive



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23Managing stakeholders

technologies, globalization, inflection points no one would even think 10 years ago, and most of all, speed. It not only takes a strong stomach and a tough nervous system but a mind that can take nine points of view and connect the dots.”18

When it comes to government, the picture—and the sheer num-ber of dots that need to be connected—becomes ever more com-plex. “I think if you are leading complex organizations with so many different stakeholders, so many different pressures, so many different ways of judging success or failure, you need in-depth experience. I have seen many people left very exposed by being promoted into those positions without having that expe-rience and sometimes that is sad for the organization and the individual,” laments Lord Michael Bichard.

As challenging as this is—and governmental leadership roles are undoubtedly highly challenging—managing stakeholders is rarely afforded the attention it deserves. Yet, one of the most important factors in leading smart transformation is the abil-ity to win and retain the support of internal as well as external stakeholders.

We asked one minister what was at stake in the transformation he was trying to bring about in his department and who would be the arbiters of his success or failure. He barely paused before replying: “The people—our stakeholders—will tell us if we have achieved this. There is no good simply wishing for transforma-tion. Our biggest success must be our ability to look ahead and then to seize the opportunity. We must see the challenges and take the actions that are needed.”

To do so, the leaders of the future will need to use soft power.

Soft power

Soft power is the ability to negotiate and gain through co-option and attraction. It is the opposite of hard power, that is, influ-ence through coercion, force, or material payment. Soft power is a phrase that is in vogue in international affairs, but it can also apply to individuals and government departments as well as entire states.



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The phrase was coined by Joseph S. Nye, a professor at the John F. Kennedy School of Government at Harvard University, in a 1990 book, Bound to Lead: The Changing Nature of American Power.19 Nye further developed the concept in his 2004 book, Soft Power: The Means to Success in World Politics. The term is now widely used. For example, the US Secretary of Defense, Robert Gates spoke of the need to enhance American soft power by “a dramatic increase in spending on the civilian instruments of national security—diplomacy, strategic communications, for-eign assistance, civic action and economic reconstruction and development.” There have been calls, too, from China’s political leaders to make more use of soft power in their dealings with the rest of the world.

Soft power is dependent on individuals, institutions and nations, values, cultures, citizen sensitive policies and outward looking institutions. Soft power depends also on the reputation of indi-viduals and institutions.

The concept of soft power is also gaining attention in the business world. The logic was summed up in a 2004 Harvard Business School Working Knowledge for Business Leaders.20 “Soft power rests on the ability to shape the preferences of oth-ers. In the business world, smart executives understand that leadership is not just a matter of issuing commands, but also involves leading by example and attracting others to do what you want. Similarly, contemporary practices of community-based policing rely on making the police sufficiently friendly and attractive that a community wants to help them achieve shared objectives.”

Political leaders have long understood the power that comes from attraction. If a leader can get people to want to do what he or she wants, then they do not have to use carrots or sticks to make them do it. Soft power is a staple of daily democratic poli-tics. The ability to establish preferences tends to be associated with intangible assets such as an attractive personality, culture, political values and institutions, and policies that are seen as legitimate or having moral authority.

Simply put: If a leader represents values that others want to fol-low, it will cost less to lead.



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Soft power should not be equated simply with influence. Influence comes in many forms; it can rest on the hard power of threats or payments. Soft power, too, is more than just per-suasion or the ability to move people by argument, though that is an important part of it. It is also the ability to attract, and attraction often leads to acquiescence. In behavioral terms, soft power is attractive power.

Soft power uses a different type of currency—not force, not money—to engender cooperation. It uses an attraction to shared values, and the justness and duty of contributing to the achieve-ment of those values.

What makes soft power soft?

Soft power can be wielded not just by states, but by all actors in international politics, such as NGOs or international institutions.

The primary currencies of soft power are an actor’s values, cul-ture, policies, and institutions—and the extent to which these “primary currencies,” as Nye calls them, are able to attract or repel other actors to “want what you want.”

In 2008, Nye applied the concepts of hard and soft power to individual leadership in The Powers to Lead. In any discussion of power, he suggested, it is important to distinguish behav-ior (affecting others to obtain the preferred outcomes) from the resources that may (or may not) produce those outcomes. Sometimes people or countries with more power resources are not able to get the outcomes they wish. Power is a relationship between an agent and a subject of power, and that relationship will vary with different situations. The same principles apply whether talking about government department or an individual leader and his or her team.

Engaging with stakeholders

Soft power is especially important in managing stakeholders. Our experience suggests that failure to address the concerns—and



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win the support—of stakeholders is a surefire way to derail a transformation. The arena of stakeholder opinion is where the transformation must win approval if it is to succeed. Soft power is often more effective in this arena than hard power.

This means that a process of consultations with external and internal stakeholders is vital. Yet, this can all too easily be neglected by leaders who are anxious to make a start on the transformation. This is not surprising given the pressures placed on them.

Consultations need to be wide ranging simply because leaders of government departments have to manage a whole constel-lation of stakeholders. As well as direct stakeholders, such as government employees, these include semi-government enti-ties such as chambers of commerce and a wide variety of other groups with vested interests all seeking to influence government in their favor.

For example, there are industry groups and professional bod-ies, which lobby the government in an attempt to influence new regulations and laws to help their members. There are also social activists and other non-government organizations (NGOs)—everything from environmental pressure groups such as Greenpeace, which aim to protect the environment, to Amnesty International, which petitions governments on their human rights records.

Then there are other influential groups—the media, for exam-ple. In fact, one of the difficulties of governing is that media organizations—as well as a myriad other vested-interest groupings—are free to pursue their own, often conflicting, agendas. And while these legitimate stakeholders can and fre-quently do argue that they champion public opinion, there is no question that they also influence and shape public perceptions and public opinion. They may claim that they are just “the mes-senger” but often they are also the authors of the message.

At the same time, these external stakeholders exert varying degrees of influence over government policy. It would be naïve to suggest that all lobbyists are created equal or treated fairly. Governments respond to their stakeholders differently. The effectiveness of lobbying is linked not only to the strength of the



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case but also to the strength of the financial resources deployed. Lobbying is not a level playing field.

The leadership challenge this presents to government depart-ments should not be underestimated. The challenge for govern-ment is to shape the agenda—through change—bearing in mind the conflicting agendas of stakeholders, and their power to pur-sue their own agendas. This requires considerable skill.

Stakeholders are enablers of transformation. They can also be blockers. The transformative cycle can be likened to a wheel or dynamo that drives the transformation process. In order to turn, the wheel must be unobstructed by the forces surrounding it. The external stakeholders can be compliant—and supportive—of the transformation. If so, they allow the wheel to turn freely. Alternatively, if there is friction and resistance from the external stakeholders, they will act as a brake, slowing down the momen-tum of the wheel or preventing it from turning at all. At best, this will result in a lot of wasted effort and energy to drive the wheel; at worst it will stop it dead.

The metaphor makes it plain why managing stakeholders is so vital to smart transformation. The support of internal stake-holders—principally employees—is needed to set the wheel in motion and to drive it through the various phases of its cycle. But the support of external stakeholders is vital to allow the wheel to turn freely. The external stakeholders, then, can be viewed as the context or environment in which the government entity is seeking to transform itself. These external stakeholders can either act as an enabler or as a brake on the transformation. Similarly, neglect internal stakeholders and the brakes will be applied.

Auditing stakeholders

The first step toward managing stakeholder engagement is to identify who the key stakeholders are. For example, an obvi-ous stakeholder would be a government employee whose job is directly affected by the transformation, and whose role and responsibilities will change as a result. But other stakehold-ers are less obvious. For example, foreign companies may be affected by changes in business regulations introduced by the



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government—either making it easier or harder to set up a busi-ness. Or existing businesses may be affected if changes in reg-ulation make it easier for competitors to enter their markets. Alternatively, changes may require action. For example, efforts to remove discrimination in the workplace may require compa-nies to send staff on training courses. Similarly, non-government organizations (NGOs) may be interested in changes to central government policy or how those changes are implemented at the departmental level.

Stakeholders may actively (or passively) support and promote change; or they may oppose the change. For instance, they may be enthusiastic converts to new ways of working, sending their people for training or they may drag their feet or refuse to par-ticipate in the training initiative. In this way we can see that the vision of central government—for example, to boost national productivity or raise innovation—may be thwarted by disgrun-tled stakeholders at the grassroots.

A stakeholder analysis helps the transformational leadership team identify key stakeholders—and their attitudes toward the change. The aim is to ensure all the key players are on your radar and to identify what their concerns are. This allows lead-ers to develop strategies to communicate with them effectively. The objective must be to involve those stakeholders who sup-port the change, while helping to mitigate resistance from those who may oppose it. The key is to engage with stakeholders so that they feel part of the process—and can voice their point of view.

Once internal and external stakeholders have been identified, the next step is to use data gathering techniques, such as inter-views, surveys, and focus groups (we recommend these be with groups of eight to ten people), to learn more about stakeholders’ perceptions. This will generate useful information about their hopes and fears concerning the changes. Such data gathering is also an opportunity to explore with them how they stand to gain from the transformation. The high-priority stakeholders can then be identified—the ones whose behavior is likely to have the biggest impact on the success of the change program. Ultimately, the objective is to develop relationships with the key



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stakeholder groups so that they can provide support throughout the transformation. It is also helpful to identify potential allies among the stakeholder groups whose support can be used to create momentum for change. These individuals or groups can be powerful opinion formers among other stakeholders.

It is useful to analyze a variety of information about each stake-holder group. We recommend the following:

Roles and positions: Understanding the stakeholders’ roles and their positions on the key issues will help you understand how the changes might impact on them.Objectives: Identifying their objectives and what motivates them will help you anticipate whether they will support or resist the changes.Hopes and fears: Building a picture of their hopes and fears—what concerns them and how they might benefit from the changes will inform your tactics and the messages you communicate.Impact on success: Understanding how the stakeholder may impact on the success or failure of the change program enables you to prioritize initiatives and activities.

For a government department, external stakeholders will typi-cally include some or all of the following: foreign investors; busi-ness membership organizations and professional trade bodies; NGOs; educational institutions; the media; the general public (citizens); the private sector (business); as well as vendors and suppliers (trainers, consultants, IT providers and so on).

Internal stakeholders include: departmental leaders; managers; and employees.

Straddling the two are stakeholders who are outside the depart-ment but inside the government. These include: central govern-ment; leaders of other government departments; the cabinet or national leadership committee. Peer groups stakeholders are especially important here. If a government department can achieve credibility among its peer group as a role model for transformation, this is a powerful (soft power) lever for change and can act as a catalyst for transformation in other departments.



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Communication is glue

The need to win and maintain the support of internal and external stakeholders means effective communication is vital. Yet com-municating with a diverse group of stakeholders is problematic.

Much is said about the importance of consistent messages and behavior from leaders. But trying to be consistent in terms of policy statements and policy delivery when trying to negotiate through such a minefield of diverse interests is not easy. For one thing, different stakeholders are won over by different messag-es—depending on their own agendas. A strong commitment to reducing CO2 emissions may win you friends among environ-mental pressure groups but is unlikely to automatically please heavy industry, for instance.

Even when government tries hard to understand and consult with interested parties, things do not always run smoothly. Government bodies in several countries have been caught out by sending policies for public consultation, gaining acceptance from key interest groups and then finding when policies are made public those key interest groups go against their word and criticize the government. When government then responds to the requirements of these interest groups they are accused of being inconsistent by some; of double dealing by others who feel aggrieved that their interests have been let down; and criticized by still others who are naïve about the workings of government and interaction with stakeholders.

Managing stakeholders requires a clear idea of what the public sector leader is there to do: who and what does he or she serve? One of the most useful answers to this question lies with the notion of public value.

Creating public value

Creating Public Value by Mark Moore, a professor at the Kennedy School of Government at Harvard University, is the seminal work in its field—an innovative and thought-provoking look at the role of the public servant.21 It sheds useful light on the notion of who a government’s stakeholders are.



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Moore provides an example which highlights a dilemma fac-ing public sector managers, a dilemma that Moore’s concept of public value goes some way to solving.

In a town library, the librarian is concerned about the volume of schoolchildren that have suddenly begun visiting the library’s reading rooms after school at about 3.00pm, then disappearing again between 5.00pm and 6.00pm. An informal survey reveals that the library is being used as a substitute day care center for working parents. What should the public sector manager—the librarian—do about this?

There are a number of options. The librarian’s first instinct is to crack down on the situation, especially as the influx of children makes the library crowded, causes disruption, and leaves untidy piles of books all over the tables, creating extra work for the library staff.

Given that caring for children out of school hours is the respon-sibility of the parents or day care providers and not the library, the librarian considers sending out a letter to the local newspa-per reminding citizens of the appropriate use for the library, and if this fails, limiting access for children.

Next, the librarian considers that the additional influx of chil-dren might be used to claim more funds for the library, espe-cially as the library budget is tight. Alternatively, it might be possible to create a new program for the children and recoup the costs from the parents, although this would be problematical, especially apportioning direct and indirect costs, and balanc-ing the interest of the working parents and general taxpayers. Equally, the local authorities may want a say in whether it was appropriate to use the library for this type of program.

If obtaining funding was difficult, perhaps the service for the children could be provided through volunteering, with parents helping supervise and clean up afterwards. But, this is poten-tially complex and not obviously within a librarian’s remit.

Finally, the librarian considers that the needs of the children of working parents could be met from the library’s existing orga-nization. This would require some careful fine-tuning, staff rescheduling, special reading and the addition of enrichment



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programs aimed at the children. This could even be said to fall legitimately within the central mission of the organization—en-couraging reading and a love for books.

This last approach helped the librarian see the library in a dif-ferent light. Professional training encouraged a view of the library as a place where books were kept and made available for the public to borrow; but the library had evolved beyond that. It had extended its classification system, for example, to music CDs and film DVDs, there was an area designed for young chil-dren, societies met in the meeting rooms, and internet access was available.

Sense of purpose

This example highlights the situation many governmental lead-ers find themselves in. Where the purposes of the governmental enterprise are set out and mandated for in legislation, regulations and doctrine, the leader is accountable accordingly. Yet, what should they do in the many situations, which do not fit neatly within existing frameworks? And should government leaders only perpetuate the status quo according to existing rules, or should they act as agents of change, driven by some other equally valid purpose—in Moore’s case the pursuit of public value?

After all, if the actions of private sector leaders are driven by a need to maximize shareholder value, and this purpose guides their strategic decision-making, what drives the actions of their counterparts in government? Is there an equivalent overriding aim?

Moore argues that public value is the loose equivalent of share-holder value for the public sector. When an organization uses public authority or money from taxes, the value of the enterprise must be judged against the expectations of citizens for justice and fairness and also efficiency and effectiveness. This means that the creation of public value can come from the governmen-tal leader exercising authority and spending public monies to deliver products and services—providing healthcare to help improve people’s health—as well as helping to create a well-gov-erned and productive public body.



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Moore explores ways that leaders can be more of an asset to the society that they serve by “searching out and exploiting oppor-tunities to create public value.” His ideas are strongly rooted in the notion that context is critical. He seeks to provide a “general answer to the question of what public managers should think and do to exploit the particular circumstances they find them-selves in to create public value.”

Moore considers different options for how we can calculate the value of public value in an enterprise. One way of reckoning public value is to look at how satisfied the people in charge of the enterprise are with the way that is run. Another would be to use some form of evaluation to assess how the enterprise is achieving its mandated aims. A third method might be to use financial analysis to map the value to those who benefit against the costs of providing those benefits. Finally, customer satisfac-tion might, potentially, be a means of assessing value.

Visions of value

Each of the possible means of assessing public value has its mer-its, but also its disadvantages—the methods are, for example, not necessarily consistent with each other. Moore offers his own method of “envisioning value” by adapting corporate strategy for the purposes of the public sector. This new method of under-standing public value involves an integration of several elements: substantive judgments of what would be valuable and effective; an analysis of political expectations and a tough assessment of what is practically possible.

The three pillars of public value are presented as a strategic tri-angle of politics, substance, and administration, with govern-mental leaders focusing on three key questions when considering organizational purpose and their actions. First, is the purpose publicly valuable—are they producing something of substantive value to the stakeholders? Second, will it be supported, politically and legally—will it continue to attract money and support from political authority? And finally, is it administratively and opera-tionally feasible—are the objectives achievable? These are the necessary conditions for producing public value, says Moore.



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Using the strategic triangle also focuses the mind of leaders on the core aspects of their task. Leaders in the public sector must judge the value of their intended purpose, and then manage their actions in a way that acquires legitimacy from above, while also managing downwards to improve the organization’s ability to deliver its purpose.

What Mark Moore is suggesting is a radical departure from the concept of a governmental leader or civil servant as an adminis-trator merely deploying resources to deliver a mandated product or service, in a way that ensures that they are properly account-able. Instead, within Moore’s framework, they have the scope to define the organization’s overall purpose and mission, and act in a strategic and entrepreneurial way, detecting opportunities to cre-ate public value that would normally lie outside their mandate.

As Moore argues, the ability to mobilize support and resources for their organizations, while also obtaining the help of others in a position to assist them in furthering their aims, often beyond the scope of their direct authority, is an essential skill. Five approaches to political management include the management of policy development, public deliberation and leadership, pub-lic sector marketing, negotiation, and entrepreneurial advocacy. Managing downwards to motivate stakeholders lower down—primarily employees—is also essential.

Managing the media

Among the growing number of stakeholders governments need to understand and work with, several stakeholder groups in par-ticular bear closer examination: the media; the business com-munity; lobbyists; and internal stakeholders. We will address these in turn.

One of the most powerful stakeholders that impact on govern-ment transformation is what Thomas Carlyle called the “Fourth Estate,” the media.

Let us first consider the evolution of this phrase and its signifi-cance. The idea of dividing the state into branches, or estates, with separate and independent powers and areas of responsibil-ity has a long history. It was developed in Ancient Greece and



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used by the Roman Empire. Building on this idea, the French political thinker Charles-Louis de Secondat, Baron de La Brède et de Montesquieu argued for a threefold separation of powers (trias politica).

The separation of powers was highly influential in the writ-ing of the US Constitution. The US Federalists, whose leaders included James Madison, Alexander Hamilton, John Jay, George Washington, and Benjamin Franklin, embraced Montesquie’s governing philosophy of the threefold division—with the execu-tive, legislature, and judiciary forming the three estates. As they saw it, the separation of powers was an effective guarantee of the rights of minority groups who might otherwise be oppressed by an overbearing majority.

The Federalists argued that the benefits of national government, as formed by the Constitution, would flow to the people. But Thomas Jefferson, another of the founding fathers and the prin-cipal author of the Declaration of Independence, took a differ-ent view. He was concerned that a powerful central government could divert power away from the citizens. Jefferson believed in the concept of popular sovereignty, whereby the people them-selves needed to “exercise control with wholesome discretion.” His main thesis was that “if people were truly informed, they would not be often misled.” The successful operation of govern-ment, he said, depended on the education of the populace. For Jefferson, it was vital that the people remained informed.

To “inform their discretion,” as Jefferson put it, the people needed access to information that was not controlled by the state. Jefferson saw an informed and educated citizenry as the ultimate check on the abuse of power. It is from Jefferson that the notion of the importance of a free press can be traced. To the three estates was added Carlyle’s “fourth estate.” Together, these are meant to provide the vital checks and balances required to protect the rights of individual citizens.

Degrees of freedom

In many countries today, privately and publicly owned news-papers, television networks, and new media (online) channels



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can—and frequently do—criticize their governments. In many countries, too, the power of new media via the internet is increas-ingly potent.

A major issue with the media is always its degree of indepen-dence and objectivity. In the West, the commercial nature of most media organizations means that their survival and success depends on their ability to sell newspapers or attract viewers and advertisers. Inevitably, the desire to sell newspapers or air-time can put pressure on decisions about which stories to bring to the public attention. The stories that interest the public most may not be those that are most in the public interest. But which are the newspapers most likely to print on the front page? The answer, often, is the stories that will sell more newspapers.

None of this is especially new. Newspapers—and pamphle-teers—have always been less than perfect. Indeed, our real con-ceit in recent years has been to elevate the notion of a free press and imagine that this means a neutral or objective press. The real question with a free press is always about the degree of free-dom. Is there a sufficient spectrum of free and open opinion, or are there limitations caused by a concentration of ownership?

The fact is that without the support of the press—or at least the absence of outright press hostility—governments will always find it difficult, if not impossible, to achieve smart transformation.

And the press can be a very fickle beast. It may smile on you today only to bare its teeth and snarl at you next week. Leaders should not expect consistency from the media; it is rarely forth-coming. What is perfectly acceptable one day can be portrayed as a public outrage the next. But in this, the fourth estate is merely mirroring the rest of society.

Digital Utopia?

The evolution of the media is a powerful force and one that is being shaped by new technology. As we noted earlier, the inter-net makes it increasingly difficult for governments to censure information and news. And it is not just authoritarian govern-ments that are affected by the growth of online activism.



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Some commentators have argued that the advent of new technology—especially the internet—would herald a new era of more transparent and participative government. The notion of e-government was one of the big ideas of the past decade. The experience has been somewhat different.

In many ways, though, the creation of new ways of connecting people—with each other and with their governments—has opened a Pandora’s Box. New technology—primarily Information and Communication Technology (ICT)—can empower individual citizens. Scholars, entrepreneurs, and contemporary politi-cians alike have promoted ICT for its potential to engage the population—to create a “postindustrial” or “information soci-ety” that promotes a sense of community, educational opportu-nity, and more participative government.

The spread of technology also has a darker side—raising new issues for governments and citizens alike. In the United Kingdom, for example, the wiring up of public space with closed camera (CC) surveillance systems has been rapid and relentless. In just a few years, CCTV systems have been installed in city centers, schools, hospitals, libraries, car parks and roads, as well as in resi-dential and rural areas. Britons are now watched by more CCTV cameras than the people of any other country in the world. The average Briton is caught on camera 300 times a day. Some 10 per-cent of the world’s 30 million CCTV cameras are in Britain.22

Many find these developments alarming. They represent increas-ingly invisible, all-seeing, all-powerful, control mechanisms over citizens. For some commentators they are the embodi-ment of George Orwell’s Big Brother in his novel 1984 or the “Panopticon” envisaged by the British philosopher, Jeremy Bentham, in 1787, for social control in prisons, asylums, work places, and schools. Bentham’s notion of “Panopticon” has been used, both by novelists and scholars, as a metaphor to raise awareness of increased use and abuse of ICT in the collection of citizen’s information through overt and covert surveillance.

In the future, government leaders will need to find ways to balance the traditional and new media. We believe that, in the end, soft power rather than hard power will be more effective in managing these stakeholder groups. Similarly, soft power



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is the best way to engage with another increasingly powerful stakeholder—the business community.

The business community

The reality is that any government that is not business-friendly risks alienating the global business community. In a world where capital can migrate to different parts of the world in a matter of hours, this can be disastrous.

Fundamental questions need to be asked about the relation-ship between the public and private sector. As we will see, how governments seek to harness market disciplines is arguably the most important issue facing governments today. It is not a sim-ple issue. Current debate centers on the best way to use markets to improve the efficiency of public services—both in terms of improving quality and reducing costs. Such questions have pro-found implications for the future of capitalism as a system. They have become even more critical and pressing in the light of the recent financial crisis and are at the heart of the ongoing debate about public management.

Lobbies of power

In our age the business world reigns. Corporations and their lobby groups exert unprecedented power. This can be seen in:

The focus on microeconomic rationality (profit- maximization,

the pursuit of immediate economic self-interest) to the exclu-sion of macro-social realties.The retreat of the state (through privatization, outsourcing,

hollowing out) and the increased delivery of public services by private parties which exercise authority in their own name, rather than in the name of the law that transcends their own power.A blurring of the lines between public and private sectors.

In the face of such trends and new realities, governments are not powerless. They must constantly seek to engage and understand the different agendas at work. Being on the front foot requires



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that they establish relationships with as many stakeholders as possible.

In terms of lobbying, governments and government departments need to sprint to catch up and understand the complex dynam-ics now at work. Increasingly, multinational corporations are adept at lobbying power brokers. David Bach of IE Business School talks about the need for companies to have “nonmar-ket strategies” as well as market-focused strategies. Faced with more sophisticated lobbying, governments and government departments need clear and unequivocal expressions of where they are and where they are going.

Internal stakeholders

As well as the complex array of external stakeholders, smart transformation requires the willing—indeed enthusiastic—sup-port of internal stakeholders. Most of these stakeholders work for the government. But other groups, such as consultants and contractors, who might otherwise be regarded as suppliers may be seen as internal stakeholders; as may certain clients who work closely with government.

All of these internal stakeholders have a decision to make. They must decide whether to commit to the transformation. Inevitably, the reaction and level of engagement will vary across the stakeholder population depending on a variety of factors. But in order to make change happen, the organization must engage with its internal stakeholders. Without followers there can be no leadership—and no transformation.

The work of James McGregor Burns in the late 1970s led to the most significant change in the way we understand leadership. Burns viewed leadership as a relationship between leader and led. Leadership was, Burns said, “leaders inducing followers to act for certain goals that represent the values and the motivations—the wants and needs, the aspirations and expectations—of both leaders and followers.”

Burns identified two contrasting leadership styles: transactional and transformational leadership. In transactional leadership the relationship between leader and followers is based on an



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exchange of value that is mutually beneficial. It might be psy-chological, political, or economic in nature. Transformational leadership, however, does more than exploit and meet exist-ing needs or demands from followers. Transformational lead-ers try to understand the motivation that drives followers and meet that higher need. They seek to engage with the followers. Transformational leaders develop a binding and mutually stim-ulating relationship with followers.

The link here with government is through the vision. As we noted in Chapter 1, the vision acts as a catalyst—securing com-mitment to an end state that will be achieved via the transfor-mation. The vision, then, provides a bridge from the present into the future. An effective vision attracts commitment and ener-gizes people—by creating meaning in their work. When they are given good role models they aspire to a standard of excellence, which stimulates improvement.

It is not one way

“I think the biggest thing that you can have is ambition, the second biggest thing is leadership and followership. The world is full of leaders that nobody wants to follow,” says Frank Ryan of Enterprise Ireland. “You have to have a logic attached to what you are trying to achieve and clearly show that if people are prepared to commit their time and intelligence to a certain path what the conclusion of this can be and that it is an important result worth achieving e.g. it is valuable in business terms and valuable in terms of the impact it can have on Irish society.”

The vision must be clearly mapped out—as must the benefits for those who follow. Leaders have to continually think of their fol-lowers. But followers, too, have a more active role. They are not merely the recipients of leadership. Rather, they are active and responsible participants in leadership.

In her book Bad Leadership, Barbara Kellerman, the James MacGregor Burns Lecturer in Public Leadership at Harvard University’s John F. Kennedy School of Government, examines bad leaders who she categorizes as: incompetent; rigid; intem-perate; callous; corrupt; insular; and evil. As Kellerman points



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out, bad leaders often retain a hard core of followers even when their inadequacies are exposed. How do we prevent bad lead-ership? The answer lies in strong moral followership. There is an obligation on followers to exert a positive influence on their leaders, and reject patently bad leaders.

As this final point makes clear, managing stakeholders has to be a two-way process. All have to be connected with and listened to if transformation is to be achieved. And all have to be on board if transformation is to be driven and delivered—the sub-ject of our next chapter.

Smart questions

Who are the key external stakeholders you have to manage?

Who are the key internal stakeholders?What roles do your stakeholders play in your organization or

transformation program? What role would you like them to play?What are the most important aspects of the agendas of all

your stakeholders? What are their objectives or personal goals (that’s what motivates them)? What are their hopes and fears?How do you keep up-to-date with the evolving needs of your

stakeholders?To what extent do you need that support of your stakeholders

for the changes to be successful? Which stakeholders in par-ticular will impact on your success?Is it possible to win over critical stakeholders most of the time?

If not, what can you do about it? How can you use soft power to attract stakeholders to your cause?What does the notion of public value mean to you and your

stakeholders?Who do the stakeholder’s report to? Which leaders can influ-

ence them?Are you sufficiently resilient to withstand the criticism of

stakeholders when you know that you have made the best pos-sible decision under the circumstances?



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42

CHAPTER 3

Driving the transformation

Enablers, institutions, and processes

So far we have looked at the need for a vision to direct and inspire smart transformation, and the importance of engaging with stakeholders to enable it to occur. Now we turn our atten-tion to what drives that transformation. The simple reality is that strategic change rarely happens of its own accord: it requires momentum and energy and a governance model to drive it.

There are different models possible for the governance of a transformation process. In Singapore, for example, they favor a taskforce approach; while in other countries a steering com-mittee structure may be preferred; in yet other places, such as Malta, the transformation is driven by the Prime Minister’s Office. In Sweden the transformation is driven by the civil soci-ety and the political system. “It is a rather pragmatic system,” says Ola Ullsten, the former Swedish prime minister. “One method often used is that the government invites a bipartisan commission with representatives from major political parties and interest groups like trade unions and industry to prepare a proposal. In other cases smaller and independent task force groups are being used. These arrangements can be looked upon as complimentary to the parliamentary process. It is more easy to implement reforms if you have an overall idea of what the tension points are, which are the crucial things to achieve and how can it be done.”

Yet, whichever governance model is preferred, two main mod-els exist based on whether the transformation is championed from within the government machinery or from outside. Neither model is right or wrong. Rather, they suit different situations, cultures, and sets of circumstances.



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43Driving the transformation

The first model is driven from outside of the existing govern-ment machinery. This may involve a dedicated temporary steer-ing committee. We call this a Smart Tool. This is what happened in Ireland and Abu Dhabi, where a senior leadership commit-tee was established to make high-level decisions with a Program Management Office (PMO) overseeing the reforms. In these countries, the steering committee is the main decision-maker, with the PMO responsible for day-to-day implementation. In Ireland, for instance, the implementation of the change program is carried out by a dedicated program office working through sector centers and is overseen by the Cabinet Committee. The Cabinet Committee is chaired by the Taoiseach (Irish prime minister) and includes the ministers for finance; health and chil-dren; justice, equality and law reform; environment, heritage and local government; and education and science. To drive its transformation, Ireland underwent a 15-year program equipping government departments with strategic planning capabilities.

A variation on this model is provided by the United Kingdom, where transformation was championed by the Cabinet Office, which is responsible for high-level centralized decision-making with the follow-up provided by the PMO or at unit level.

The second transformation model is driven from within the existing government machinery. Again, there are two main variations of this model: through multiple or single entities. In Australia, Canada, and New Zealand, for example, key depart-ments within the government took the lead in introducing reforms. These countries use a partially decentralized approach, with the Treasury handling fiscal reforms; the Public Service Commission handling communication; and the Prime Minister’s Office responsible for general policy. In the case of New Zealand and Canada, these three main entities were involved in driving the transformation; in Australia, there were ten main entities involved.

Elsewhere, in Barbados, St. Lucia and St. Vincent and the Grenadines, for example, transformation was driven from within the government machinery but centralized through one government entity and usually mandated by the prime minister. The main owner of the reform in these places is the Ministry of Civil or Public Service.



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The choice of the model depends on the circumstances driving reform. If fiscal and economic crises are the catalyst, then the Treasury is likely to drive the model. In New Zealand a cen-tralized unit drawn from the Treasury, the Prime Minister’s Office, and the civil service drove change but lost momentum due to tension between departments and the dominance of the Treasury. The shape of the centralized entity matters and will impact the outcome.

The driving force

Our experience suggests that, regardless of which model is applied, effective governmental transformation programs require a central driving entity. This entity—which we prefer to call the Smart Project Management Office—acts as a catalyst, seeding the success of the transformation. The PMO sits between the top management or leadership of an organization and the traditional organizational chart. In effect, it exists in parallel—and provides a shadow management structure. Being separate from the pre-existing structure, the PMO is unencumbered by history or the agendas of existing fiefdoms. Its primary purpose is to drive the transformation—and to support and champion the new orga-nizational structure and priorities. In effect, the Smart PMO provides a lever for the leadership to enact its will upon the orga-nization. It balances two roles—process monitoring; and content delivery and assurance. The intelligent use of soft power is one of the most important levers available to the Smart PMO.

The master plan

At central government level the PMO is responsible for adminis-tering the entity’s strategic plans across six key activities:

Initiative proposal1. Initiative planning2. Required management decisions3. Managing change requests4. Tracking progress and reporting5. Managing communication6.



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So, for example, high-level PMO activities include:

1. Reviewing and approving newly proposed projects and initia-tives aimed at achieving the targets.

2. Helping to prepare project plans—including deliverables, milestones, and costs.

3. Identifying the management decisions (enablers) required to ensure projects are delivered on time and to cost.

4. Setting and maintaining a standard process for managing projects—including changes to scheduling and budget planning.

5. Tracking outcomes (jointly with the implementation team) to ensure projects and initiatives stay on track. This includes preparing consolidated weekly, bi-weekly, monthly, quarterly, and annual reports that set out progress against plans—and identify problem areas and help remedy them.

6. Communicating relevant messages to stakeholders.

Departmental PMOs

PMOs are also required at departmental or agency level. The roles and activities described above are repeated at the unit level. (Once again, the Russian Doll metaphor can be applied). The network of PMOs also provides an effective shadow organiza-tion, mirroring the structure of government at both central and departmental level and providing a clearly visible and account-able organizational framework. In this way, traditional chal-lenges associated with cascading initiatives are mitigated, and an effective set of levers are available to senior leadership. The PMO network also ensures an effective flow of reliable informa-tion both from central government to departmental level and from departments back to central government. (For more on how the PMO works see Chapter 7: Making it happen.)

Measuring sticks

With a leadership vision and the stakeholders aligned, the enablers are in place and transformation is possible. The next step is to develop a program of transformation that can be driven



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by the leadership. Smart transformation requires a yardstick for measuring the progress of individual government departments, agencies, and teams. The nitty-gritty of smart transformation lies with setting and monitoring hard-edged targets.

Creating appropriate measures and targets is only one part of the challenge. The other part is having the transparency and leader-ship will to hold people accountable for their performance. This should not be underestimated. Traditional civil services have been soft on targets, providing a safe sinecure for life. Smart transformation requires a degree of transparency and account-ability that many civil servants are not used to. A culture of under performance is not compatible with smart transformation and often represents the biggest obstacle to change.

Lord Michael Bichard, former director of the Institute for Government in the United Kingdom, has been at the forefront of change initiatives in government for the past 20 years. He knows from firsthand experience how difficult it is to take policy goals and translate them into targets—and a realistic assessment of the organizational capabilities required to achieve those targets.

“People are quite reluctant, perhaps through a lack of courage, to translate the vision into hard-edged competencies and to assess people on the basis of those. It’s almost as if there is a vision we articulate and a traditional set of characteristics, qualities and competencies which we allow to run on, so we won’t allow people’s careers to be affected by the fact that we now have a different vision and a different way of doing things. There is a tendency to be concerned more with people’s experience, the posts they have held, rather than whether or not they subscribe to the skills required for the new challenges.”

Lord Bichard continued, “Take customer service, I got fed up with the number of times I had intellectual discussions about whether or not we should call someone a customer or a client. People were interested in having the intellectual debate, what they weren’t very keen about was saying, well we have now decided we are going to be an organization that’s focused on cli-ents and therefore we are looking for people who have the skills and values to translate that into practical action. We are going to assess people on the contribution they make to improving client



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service, we are going to assess people on the contribution they make to innovation. It was almost as if people felt well that’s not very fair, that’s not what we joined the civil service for. Well it is fair because that’s what this organization is all about.”

As Lord Bichard observes, it is often easier to ignore the gap than to face up to the fact that an organization or government department is not fit for its new task. But being soft on people and failing to identify capabilities that are lacking is a recipe for mediocrity. And, of course, spelling out milestones with great clarity has implications for managers and leaders.

Milestones and measurement go together.

What gets measured ...

The act of measuring something focuses attention on its impor-tance and that in turn focuses the minds and efforts of those charged with achieving it.

“The success of our client companies is of paramount importance at Enterprise Ireland,” says Frank Ryan, CEO of Enterprise Ireland. “That’s how you know whether you are winning or los-ing. It can’t be success if you simply imagine you are moving in a positive direction; you have to have clear metrics and this is an agency which is now metric-driven. We have across the full agency about 85 metrics. No department or division has more than about five or six to focus on. Given the mandate and scope of different departments, each requires different metrics to monitor progress.”

Frank Ryan went on to say, “In 2003 we commenced the trans-formational change programme. Our indigenous exports had not grown for the previous 10 years. In the following five years total exports from Irish companies grew by 40 per cent, in other words by 4 billion euros. That was achieved by going back to basics by uncomplicated things, by saying look this is about markets; it’s about companies; it’s about international contacts at Government level and at business level; it’s about substantive R&D projects that are actually delivering new products and ser-vices to the market place; it’s about delivering what international



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customers want; it’s about delivering what our customer’s cus-tomer wants.”

Measuring the previously overlooked

The willingness to identify and use hard, standardized measures and objective milestones is critical to all successful smart trans-formations. One of the most important tasks of leadership is to set stretching objective targets. Without these it is all too easy for the leadership to declare victory when in reality it is losing the transformational war.

One common issue for governments and their agencies, espe-cially in emerging markets, is that there simply isn’t the appara-tus to measure any changes on performance and behavior. This is a significant problem as the truism that what gets measured gets done has never been truer. In Abu Dhabi this was identi-fied as an important issue in transforming the government and economy. Historically, statistics had simply not been captured nor communicated. There was nothing to go on.

The Department of Economic Development (DED) was charged with “providing for a dynamic, open and successful economy.” In what is an evolving and new role, the department is expected to become a policy-maker, facilitator, and monitor of economic development.

In most countries the policy infrastructure is already established, but for an emerging economy—and especially for one attempt-ing a smart transformation—there was no such luxury. While most economies look to compare the impact of policy with a base line for performance, in Abu Dhabi there were no reliable measures. Think about it. Without clear and reliable statistics, how could Abu Dhabi gauge its progress? An early task for the DED, therefore, was to create a government body capable of providing objective data.

In May 2008, in response to this issue, the creation of a sta-tistics center was announced.23 The Statistics Centre—Abu Dhabi (SCAD) is an autonomous body, which enjoys financial and administrative independence and legal competence as the



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sole agency for official statistics in the emirate. The center is based in Abu Dhabi and may open branches or affiliate offices. The center aims to develop and organize statistical work in the emirate and provide accurate and reliable information on the emirate’s social, economic, and environmental state to decision- and policy-makers, as well as to the public, media, businesses, research centers, and the international community.

Statistics are the dynamic pulse of transformation. Technology means that statistics can be instant and more accurate than ever before. In Abu Dhabi the latest wireless handheld devices are now used for compiling data.24 By the middle of 2009 SCAD was reporting on six major surveys for the year 2007–08 conducted in the emirate covering a wide range of economic activities including financial, industrial, services, construction, commer-cial, maintenance, in addition to transport, communication and storage activities.25 The surveys monitor the evolution of the dif-ferent sectors of the economy, and provide data directly obtained from the field on the volume and origin (foreign, Arab, or local) of investment capitals, on the size and costs (wages and other cash and in kind advantages) of manpower in every economic activity, and on the production of both goods and services. The outcome of the surveys makes the basic information and data on different economic activities available so that the added value of these activities can be calculated, as well as the overall GDP of the emirate and the contribution of each activity.

Measurement and milestones are important, but as we indi-cated earlier, there is a third leg to driving the transformation— accountability. It is one thing to set targets and measure progress toward them; it is quite another to hold civil servants accountable for their performance. How should performance be assessed?

Whose value?

As we saw in Chapter 2, the idea of public value advanced by Mark H. Moore as the Hauser Professor of Nonprofit Organizations and director of the Hauser Centre for Nonprofit Organizations, at the John F. Kennedy School of Government at Harvard University, is an important one. Moore has pioneered



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research on the way leaders of public organizations can engage communities in supporting and legitimatizing their work.

“The critical question is: who gets to be the arbiter of the value that is produced by a particular organization? As we began talk-ing about ‘customers’ in the public sector it began to sound as though the people who were in the position to arbiter the value of public sector operation were the same as those in the private sector—namely people who voluntarily chose to buy or not to buy a particular good or service,” said Moore in an interview. “An alternative way to think about it is that it isn’t an individual who is the arbiter of value, but a collective, acting through the instrumentality of representative government. You can use a lot of metaphors, society as a whole, society acting through the pro-cesses of representative government, but a crucial idea is that the individual who matters is not a person who thinks of them-selves as a customer but as a citizen.”26

A citizen, Moore says, focuses on the degree to which an effort being undertaken with collectively owned assets, like the money or authority of the state, advances their conception of what is a just, fair, and good society. There are two ways of looking at this, he says.

The first is the markets concept where things are good or bad according to how individuals value them. The second is that society gets together and constructs a social utility function that is not necessarily the same as the satisfaction of each individual in the society. So you have a social util-ity function, which is not the summation of individual satis-faction, but the degree to which the society is successful or unsuccessful in achieving a desired goal.

Moore illustrates his point with an example. He began his career doing evaluations of publicly supported drug treatment pro-grams. “If I had done the evaluations according to customer analysis, I would have asked the addicts if they liked the pro-gramme, and they would have said yes—so much so, they kept coming back for more. I could have filed a report that said it looked like we were doing a good job providing public goods and service because the customers liked it, and kept coming back for more—the market test in the private sector.”



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“But if I handed that report to a public accountability body, acting for society as a whole, they would have said that is not what ‘we’ had in mind. What ‘we’ had in mind when we taxed to produce money for this drug treatment programme, was that the addicts would stop using drugs, stop committing crime, get a job, and take care of their family. In that moment they would be specifying the social outcome that the collective had in mind, for the individuals that were the clients of the programme.”

Benchmarking for beginners

One of the most effective tools for improving performance is benchmarking. Benchmarking became popular in the business world in the 1980s and 1990s, and then spread to government. The idea is literally to benchmark performance against other companies or other departments. It involves the detailed study of productivity, quality, and value in different departments and activities in relation to performance elsewhere.

The principle behind benchmarking (or best practice bench-marking as it is also sometimes known) is very simple. If you want to improve a particular aspect of your organization or the service it provides, find someone else who is good at the activity you want to improve and use them as a benchmark to raise your own standards. In effect, it’s a way of pulling up performance by the bootstraps.

Typically, a database of relevant performance measures is drawn up from looking at similar activities in other parts of the gov-ernment and in other similar organizations. This information is then used to compare the performance of the unit or depart-ment being reviewed with the range of experience elsewhere.

Benchmarks can be set at the overall governmental level. So, for example, it might be helpful to benchmark against the Canadian states of Ontario and Alberta; Australia’s Queensland; the State of North Rhine-Westphalia in Germany; Zurich in Switzerland; or Singapore. Or it might make more sense to benchmark at a more functional level considering governance in municipalities. Even more specific baselines might look at specific governmental departments or agencies—the UK’s Cabinet Office; the Ministry of General Affairs in the Netherlands; Belgium’s Federal Public



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Service Chancellery; or Germany’s State Chancellery. In mon-archies, further useful organizational lessons might be drawn from the UK’s Royal Household; the Queen Support Functions in the Netherlands; or Monaco’s Prince Palace Organization.

There are three different techniques that can be used in benchmarking:

1. Best Demonstrated Practice (BDP) involves the comparison of performance by units within the same organization or gov-ernment. For example, the staffing levels or service respon-siveness in one location can be compared with the same statistic for an office in another, within the same government department, as can the unit cost of electricity, security, or any other cost for that matter. BDP usually throws up large vari-ances, some of which can be explained by lack of comparabil-ity, but much of which is due to superior techniques or simply greater efficiency at one site. That site can then be used as a challenge to lever up the performance at other sites.

2. Relative Cost: This analysis looks at each element of the cost structure (e.g. administrative staff cost) per dollar of service in organization X compared with the same thing in organiza-tion Y. Good analysis of this kind is very hard to do but very valuable, as much for its insight into alternative approaches as for cost reduction.

3. Best Related Practice is like BDP, but takes the comparisons into related (usually not competing) organizations, where dir-ect comparisons can often be made by cooperation between departments to collect and compare data. So, for example, the tax collecting department of one government might benchmark against the tax collecting organization in another country.

Organizations which take benchmarking seriously often have a web of benchmarking partners both within the organization and with outside partners across a wide spectrum of activities. So, for example, a national postal service might benchmark its transport and delivery performance internally across its differ-ent locations; against other government departments such as the tax office; and against a transportation specialist such as one of the international courier companies such as FedEx or DHL.



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The same postal service might also benchmark its accounting systems against a financial services company, and so on.

Benchmarking is not about trying to clone other organizations, or industrial espionage. Nor should it be measurement for mea-surement’s sake. Rather it is based on the logic: why waste time and effort trying to reinvent the wheel, when you can have a look at someone else’s wheel and refine its applications to fit your own needs.

Benchmarking typically involves:

Establishing what improvements would make an important

contribution to competitiveness.Identifying other organizations, or units, with superior per-

formance in the key area.Approaching those organizations to form benchmarking part-

nerships, enabling the study of internal processes.Determining meaningful measures of performance (metrics).

Setting new targets in the key areas based on those observed

in the benchmark organizations.Applying best practice from the benchmark organizations to

meet and if possible exceed the new targets.

Benchmarking—along with other techniques such as business process re-engineering—are useful tools. But they are no more than tools. On their own they are simply yardsticks by which an organization can monitor its performance and look to make improvements. It is only when such tools are used to set mean-ingful targets that significant progress occurs. That is the hard edge of transformation—and that requires leadership.

Global benchmarks

It is worth noting that there are a growing number of global competitiveness rankings, which provide ready benchmarks for many aspects of governmental performance. For example, the World Economic Forum has published its annual Global Competitiveness Report since 1979. It has become a benchmark for policy-makers seeking to improve the economic conditions for growth and competitiveness.



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The IMD World Competitiveness Yearbook also ranks the com-petitiveness of entire nations. Published annually since 1989, the IMD study examines the relationship between a country’s national environment and the wealth creation process—ranking “the ability of nations to provide an environment that sustains the competitiveness of enterprises.” The 2010 ranking covered 58 economies, ranking them from the most to the least com-petitive. (The top five were: Singapore, Hong Kong, the United States, Switzerland, and Australia.)

The interactions of four competitive factors are analyzed: eco-nomic performance; government efficiency; business efficiency; and infrastructure. Each category is broken down into five sub-categories, which are evaluated using multiple measures. In all, data are collated across 300 competitiveness criteria. Wide rang-ing in scope, these cover a multitude of measures from GDP per capita to levels of tax evasion; from Nobel prizes per capita to how open a national culture is to foreign ideas. Useful as they are, macroeconomic indexes are just that—measures of the total performance of a national economy.

Exposed by measurement

The thing about measurement is that it exposes hiding places. There is no escape. For many in government this is very difficult and uncomfortable. For others it is liberating.

“I think most organizations and people find accountability quite difficult. A number of our professions in the UK have shied away from accountability in the last twenty years, so I don’t think the civil service is particularly unusual in that,” observes Lord Bichard. “But, having said that, there are some particular issues in the civil service which make people reluctant to expose themselves and maybe also in the political process and the way some ministers behave reinforces that. I have worked with some brilliant ministers, but there are others who are very quick to blame, when blame perhaps is not justified, and less quick to learn and support.”

Key to success is the robustness of the debate surrounding the measurements. There is an enormous difference between



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blaming people when things go wrong and understanding what went wrong in order to learn from mistakes. The line between the two is often a very fine one and it is important to remain on the right side of that line—the learning side.

When things go wrong, it is normal for people to feel let down—angry even. They may also feel that they—and the changes that they are trying to bring about—are threatened. The more pas-sionately they feel about the matter, the more intense the emo-tions that are likely to be generated. It is clear, then, that when an element of a transformation goes awry, feelings can run high. With its reliance on a strong vision to mobilize emotions and energy, failure can easily tip over from a genuine desire to learn from errors into a witch-hunt.

The critical difference is the maturity of government ministers and public officials to deal with such comments and show that what they have is not a blaming culture but a learning culture. In other words, the notion of a learning government is similar to that of a learning organization.

The notion of the learning organization was popularized by MIT professor Peter Senge. In his seminal book on the sub-ject, The Fifth Discipline, Senge claimed that successful orga-nizations of the future would be learning organizations. What would distinguish these learning organizations from the tradi-tional “controlling organizations” would be mastery of certain key disciplines. Senge identified five new “competent technolo-gies,” which provide the vital dimensions in building organiza-tions that can truly learn.

These are:

Systems thinking —Senge champions systems thinking, rec-ognizing that things are interconnected. He introduced the idea of systems archetypes, to help managers identify unhelp-ful repetitive patterns and problems. He also explicitly recog-nized that organizations are complex—and messy—systems. Governments are even more so.Personal mastery —Learning is not a passive process. Senge grounds this idea in the familiar competencies and skills asso-ciated with management, but also includes spiritual growth—opening oneself up to a progressively deeper reality—and living



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life from a creative rather than a reactive viewpoint. It is only by exercising their will to learn that individuals can master the complex processes involved. This discipline involves two under-lying movements—continually learning how to see current real-ity more clearly—and the ensuing gap between vision and reality produces the creative tension from which learning arises.Mental models —Noting that many of the best ideas never get put into practice, Senge asserts that this is not the result of weak intentions but because the new ideas are in conflict with deeply held internal images of how the world works. The organization’s current view of the world and assumptions about reality get in the way. These “mental models” limit organizations to familiar ways of working. Senge alerts man-agers to the power of patterns of thinking at the organiza-tional level and the importance of nondefensive inquiry into the nature of these patterns.Shared vision —here Senge stresses the importance of cocrea-tion and argues that shared vision can only be built on per-sonal vision. At its simplest level, he says, shared vision is the answer to the question: “What do we want to create?” It may be inspired by an idea, but once it becomes compelling enough to acquire the support of more than one person, it moves beyond an abstraction. He claims that shared vision is present when the task that follows from the vision is no longer seen by the team members as separate from the self. “A shared vision is a vision that many people are truly committed to, because it reflects their own personal vision.” “Shared vision is vital for learning organizations because it provides the focus and energy for learning.”Team learning —this requires alignment of goals but also a clear understanding of two practices: dialog and discussion. The former is characterized by its exploratory nature, the lat-ter by the opposite process of narrowing down the field to the best alternative for the decisions that need to be made. The two are mutually complimentary, but the benefits of combin-ing them only come from having previously separated them. Most teams lack the ability to distinguish between the two and to move consciously between them.

Senge’s points are equally valid for government departments. All this requires maturity to behave and reflect in vivo so that



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the government learns as it acts. A good example of learning while driving transformation is Singapore.

The reinvention of Singapore

Having a vision and managing stakeholders are important steps toward achieving smart transformation. Yet few countries have managed to harness them to effectively drive through change. One plus one often fails to equal two. And, as Lord Bichard points out, even when the addition works it demands constant support and repetition.

One of the few that has successfully done its sums is Singapore. In the mid-nineteenth century, Singapore was one of the great fleshpots of the Orient. Opium dens, brothels, and bars lined its narrow, winding streets, attracting the sailors, adventurers and colonizers who used the bustling port as a jumping-off point for much of Southeast Asia.

Today Singapore is still one of the great entryways to the region, but instead of ramshackle bordellos and open sewers, visitors are now greeted by gleaming towers of glass and steel. The for-mer British crown colony boasts not only the world’s busiest port but also a strong free-market economy based strongly on exports of electronics and manufacturing and, increasingly, on finance. GDP is also high, with a per capita average of more than $25,000 for its population of approximately 4.6 million. The IMD World Competitiveness Index has ranked Singapore as the most competitive country on planet earth.

Singapore has successfully transformed itself. While its prog-ress has not been without bumps in the road—the Asian finan-cial crisis, for example—the country has driven a national change program that has delivered on its original vision. The decision to industrialize—and to do so rapidly—was a deliber-ate policy.

The Singapore approach can be distilled to two equations:

Vision + leadership = transformation.Milestones + measurement = accountability.



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Future proofing

The proof of the transformational pudding lies in the eating. Technological change and political considerations in the post-Second World War period—not least of all the nationalism that accompanied the quest for independence among the region’s European colonies—have combined to alter dramatically the economic self-perception and public policies of this diminu-tive island-state. By the late 1950s, it was obvious that prospects for economic growth would be severely limited if Singapore remained bound by its old economic role as entrepôt.

Initial emphasis in the government’s economic development program was on employment. The increasing trend toward economic self-sufficiency in neighboring Indonesia and Malaysia—and the steady retreat of the United Kingdom from defense responsibilities in the region as a whole (centered on its large Singapore naval and air facilities)—prompted the gov-ernment to focus completely on finding alternative employ-ment for the island’s highly skilled and disciplined workforce. By the end of the 1960s this problem was effectively solved with Singapore boasting one of the lowest unemployment rates in all of Asia.

The emphasis in the mid-1970s was on labor skills and technol-ogy, especially as these were identified with such modern indus-tries as machine tools, petrochemicals, electronics, and other precision work. A high level of participation by private foreign capital provided an important cornerstone to this development. In 1979, the Singaporean government abandoned its earlier pol-icy of stimulating low-wage industries and adopted a policy of encouraging capital-intensive and technologically sophisticated industries. Especially targeted for investment promotion in the 1980s were computers, computer peripherals, electronic medi-cal instruments, automotive components, specialty chemicals and pharmaceuticals, and optical and photocopying equip-ment. Following the recession of 1985–86, the government con-centrated on developing new markets and on turning Singapore into a manufacturing, financial, and communications cen-ter for multinational corporations. In the 1990s the economic



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development strategy emphasized both the manufacturing and service sectors.

The Economic Development Board (EDB), formed in 1961, has guided Singapore’s industrialization. Early emphasis was placed on promoting investment in manufacturing. The Strategic Economic Plan (SEP) announced in 1991 focused on education and human resources to enhance export competitive-ness. Emphasis on developing the service sector has been sup-ported and enhanced by the Operational Headquarters (OHQ) program, encouraging companies to use Singapore as regional headquarters or as a distribution center.

The Creative Business Programme promotes investment in the film, media, and publishing, arts and entertainment, textile, fashion and design sectors. Currently the EDB works toward Singapore’s vision of its future as a developed country through the promotion of business. Singapore’s globalization strategy hinges on making a transformation from a production-driven economy to an innovation-driven one. Other key elements of this strategy are the reversal of downward trends in productivity, and sustaining foreign investment in Singapore’s capital invest-ment. Singapore initiated the formation of a growth-triangle, linking Johor, Malaysia, Singapore and Indonesia’s Riau prov-ince focusing on Batam Island. Singapore benefits by tapping a supply of low-wage workers and offshore land to sustain its more labor-intensive industries.

The Asian financial crisis was only a temporary setback for the healthy economy of Singapore. Roadblocks to further economic development include rising labor costs; which have threatened investment in Singapore’s industrial sector, causing the govern-ment to implement strategies to cut costs and increase produc-tivity. The rise of Singapore’s currency has also prompted the dispersion of new industrial enterprises from the country, which the government has answered by promoting the development of high-capital industries.

It is tempting to look at the success—albeit qualified success—of Singapore and think that economic transformation is both inevitable and achievable. But Singapore’s success is built on



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relentless effort—and a willingness to use objective measures to push through bold visions.

Smart questions

What is the governance model that applies to your transform-

ation? Is it fit for purpose?Do you have a Smart PMO or equivalent to overcome barriers

and drive the transformation?Do you have clear lines of accountability for core activities;

project execution; content assurance; and capacity building?Do you have standardized processes and measuring sticks to

measure progress?Have you benchmarked your organization against other par-

allel organizations throughout the world to establish a base line?What are the key metrics of your transformation?

Do you have the resources to capture the vital metrics?

How do you go about understanding the needs of your

communities, citizens, and clients and do you service them accordingly?Are you consistent in the delivery of your services in terms of

promises made and actions undertaken, and if not how do you then communicate that with your stakeholders?How do you hold people accountable? Who has ownership of

an issue or challenge? What is the price of failure? Do you have processes in place to learn from mistakes?



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Part II

The Transformational Cycle

The strategist’s method is very simply to challenge the prevailing assumptions with a single question: Why? And to put the same question relentlessly to those responsible for the current way of doing things until they are sick of it.

Kenichi Ohmae1

We do not need magic to change the world, we carry all the power we need inside ourselves already: we have the power to imagine better.

JK Rowling2

You can’t out-Xerox Xerox. Don’t play the competi-tor’s game.

Costas Markides3



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63

CHAPTER 4

Setting the strategy

The art of translation

Part I was all about understanding and creating a context that is ripe for change. This relies on having a vision, understanding the multiple stakeholders involved, and using measures and gov-ernance to enable transformation to be pushed through.

Part II is about the transformational cycle that will make the change a reality. This requires working through each of four transformational disciplines. It is vital that none are overlooked and that the proper linkage is preserved and the sequencing is well orchestrated.

The first discipline involves formulating and translating a strat-egy. At a national level, that includes a clear idea of the role of the private and public sectors. At the departmental level, it includes a clarity of purpose and service offerings. In both cases, strategy must be focused on turning vision into reality. In particular, it is essential to agree on strategic objectives and set key performance indicators.

In the first instance, a government comes to power with a manifesto—which is its vision. But once it has a mandate to rule, it has to translate that vision into a strategy to make it a reality. At a national level, it has to translate its priorities into a high level budget, which sets the budgets and key objectives for all the government departments below it. That strategy is then cascaded down to each department or government entity, which then has to create its own departmental strategy.

The importance of strategy was brought home to us when we encountered a colleague who is a senior official in the Bangladesh government. He came to London on a study tour and was shown



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around the foreign office, the Treasury, the cabinet office, and so on. At the end of three grueling days of exposure to the way the British government operates he expressed his disappointment. He then went on to meet Scottish ministers and pubic servants in various departments at the new Scottish parliament and legis-lature. He was highly impressed by the Scottish parliament and the efficiency and effectiveness of its government. “What was the difference?” we asked. “Clear structures and clear strategy,” he replied, going onto observe that this contrasted with what he had found in London which he described as “out-dated thinking, unpleasant inward looking politics and no appetite for change.”

That phrase “an appetite for change” goes to the heart of smart transformation. Our own experience suggests that there are pockets of appetite everywhere—including London. So how do you translate a vision into a strategy that can be executed by those with the required appetite for change?

Back to the beginning

Let’s first rewind a little to consider what we mean by strategy. The word derives from the Greek for generalship, strategia, and entered the English vocabulary in 1688 as strategie. According to James’ 1810 Military Dictionary, it differs from tactics, which are immediate measures in face of an enemy. Strategy concerns some-thing “done out of sight of an enemy.” Its origins can be traced back to Sun-Tzu’s The Art of War from 500 BC. Indeed, Sun-Tzu makes periodic returns to the bestseller lists. His book is full of neat aphorisms which seem to shed light on the mysterious world of strategy. They are reassuring, if not always appropriate.

The traditional view is that strategy is concerned with mak-ing predictions based on analysis. Predictions, and the analy-sis which forms them, lead to security. The bottom-line is not transformation—it is survival. If, by using strategy, we can increase our chances of predicting successful methods, then our successful methods will lead us to survival and perhaps even improvement. So, strategy is to do with getting it right or, as the more competitive would say, winning. Of course it is possible to win battles and lose wars and so strategy has also grown up



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65Setting the strategy

in the context of linking together a series of actions with some longer-term goals or aims.

This was all very well in the 1960s and for much of the 1970s. Predictions and strategies were formed with confidence and opti-mism (though they were not necessarily implemented with such sureness). Security could be found. The political and economic environment appeared to be reassuringly stable. Governmental objectives could be set and strategies developed to meet them in the knowledge that the overriding objective would not change. This approach became known as Management By Objectives (MBO).

In practice, MBO demanded too much data. It became overly complex and also relied too heavily on the past to predict the future. The entire system was ineffective at handling, encourag-ing, or adapting to change. MBO simplified strategy to a ques-tion of reaching A from B using as direct a route as possible. Under MBO, the ends justified the means. The organizational equivalent of highways was developed in order to reach objec-tives quickly with the minimum hindrance from outside forces.

“The confusion of means and ends characterizes our age,” the Canadian strategist, Henry Mintzberg observes and, today, the highways are liable to be gridlocked.4 When the highways are blocked people are left to negotiate minor country roads to reach their objectives. And then comes the final confusion: the destination is likely to have changed during the journey. Equally, while MBO sought to narrow objectives and ignore all other forces, success (the objective) is now less easy to identify. Today’s measurements of success can include everything from environmental performance to meeting equal opportunities tar-gets. Success has expanded beyond simplistic measures of more of the same.

Another fatal flaw in the conventional view of strategy is that it tended to separate the skills required to develop strategy in the first place (analytical) from those needed to achieve its objectives in reality (practical). The divide between analysis and practice is patently artificial. For governments set on transformation, strategy does not stop and start, it is a continuous process of redefinition and implementation.



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In his book, The Mind of the Strategist, the Japanese strategic thinker Kenichi Ohmae says:

In strategic thinking, one first seeks a clear understanding of the particular character of each element of a situation and then makes the fullest possible use of human brain power to restructure the elements in the most advantageous way. Phenomena and events in the real world do not always fit a linear model. Hence the most reliable means of dissecting a situation into its constituent parts and reassembling them in the desired pattern is not a step-by-step methodology such as systems analysis. Rather, it is that ultimate non-linear thinking tool, the human brain. True strategic thinking thus contrasts sharply with the conventional mechanical systems approach based on linear thinking. But it also contrasts with the approach that stakes everything on intuition, reaching conclusions without any real breakdown or analysis.5

When the future could be expected to follow neat linear pat-terns, strategy had a clear place in the order of things. Now, the neatness is being upset, new perspectives are necessary. Even attitudes to time are being questioned. Western admiration of the BRIC economic miracle makes Eastern notions of time intriguing. The East tends to use a cyclical conception of time not driven by achievement or by short-term objectives. Instead, it is deterministic and fatalistic.

Linear thinking has tended to make Western governments opportunistic rather than strategic. For example, governments are inclined to assume that the private sector is a given. Yet, as the recent financial crisis confirms, there are profound questions that governments need to ask themselves about the nature and relationship of the private and public sectors. We shall explore these later. But our main theme in this chapter is to examine how a central government sets a strategy, and how this strat-egy is translated from a country level to a government entity or departmental level.

As we have seen already, a country’s strategic plan should be set based on a long-term vision, which is then translated into a strategic plan which cascades all the way down to target and priority areas across government.



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At the departmental level, government entities then develop five-year and two-year strategic plans, along with related per-formance measures and financial plans. These should align with the overall government policy agenda.

As we will see the vision shapes the strategic levers that may be used. The last part of this value chain is the business model itself. So, for example, when we consider attracting Foreign Direct Investment (FDI) or creating clusters (see later in this chapter) these are examples of strategies utilized in order to achieve the overall vision. These can be seen along a spectrum of possible policies utilized depending on the overall government strategy/vision. For example, at one end of the spectrum are government visions with pure private sector orientation (business model) and at the other end are pure government (public sector mod-els). In between are different options of policies of which cluster-ing could be one, social capitalist policies another.

Model building

Viewed in this way, a key task in creating a strategy for transfor-mation is to foster an economic model aligned with the vision. In other words, how do I economically organize my society or my department to achieve my objectives? What is my model? It sounds straightforward, yet it is anything but.

Long-term(20 years)

Medium-term(5 years)

Short-term(2 years)

COUNTRY VISION

KPIs

INITIATIVES

STRATEGIES

5-YEAR TARGETS

PRIORITY AREAS

THEMES

GOALS

CountryPolicy

Agenda

GovernmentStrategic

Plan

GovernmentBusiness

Plan

2-YEAR TARGETS

The strategy cascade model



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For one thing, it raises the question of what we mean by our business or operating model. For governments worldwide, the answer is increasingly that we are concerned with leveraging shareholder value techniques for the purpose of promoting a stakeholder philosophy within government. This means using the expertise and dynamism of the markets for the benefit of public services—both to make government more efficient and also to drive transformation.

So, what sorts of market forces do we want to encourage and harness? What sort of private sector do we want to foster? How can and should you economically organize your society, govern-ment, and department?

Answers differ. Many countries have tried to create an eco-nomic engine for change. But no two situations are identical. Abu Dhabi, for example, is blessed with natural resources in the shape of abundant oil reserves. The challenge facing the emirate is to use its natural wealth to broaden and diversify its economic base and create a sustainable economy.

The emirate’s economic vision for 2030 sees: “Abu Dhabi as a sustainable, diversified, high value-added economy that encour-ages enterprises and entrepreneurship and well integrated into the global economy leading to better opportunities for all.” The strategy set out in the Abu Dhabi Economic Vision 2030 involves moving from a resource-based economy to a knowledge-based economy. To achieve this aim, the vision has been translated into two clear economic policy priorities: Policy one is to build a sustainable economy. Policy two is to ensure a balanced social and regional economic development approach that brings ben-efits to all the emirate’s population.

Beneath these policy priorities are five specific core objec-tives. So, under policy priority one, it is important to reduce GDP volatility through diversification away from its depen-dence on oil. The second strategic objective is to enlarge the enterprise base—encouraging entrepreneurship to support a dynamic private sector. The third objective is to enhance com-petitiveness and productivity—by bolstering the SME sector but also by raising the game of underperforming sections of the economy.



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Supporting policy priority two are four more strategic objec-tives. These are: to equip the emirate’s youth to enter the work-force by investing at all levels of the education system especially tertiary education and vocational education; to maximize the participation of national women in the workforce; to attract and retain skilled workers; and, finally, to stimulate faster economic growth in the regions by creating incentives for businesses to set up in the more remote areas of the emirate.

To achieve the economic growth required to make its vision a reality, the government has identified a number of sectors as the “engines of future economic growth.” Among them are energy; petrochemicals; metals; transportation and logistics, including aviation and aerospace; pharmaceuticals, biotechnology and life sciences; tourism; healthcare; education; media; financial services; and telecommunications.

Other countries, such as Ireland, have sought to kick-start economic growth in a number of ways as circumstances have changed (see case study on page 138). The simple fact is that there is no silver bullet for creating a sustainable business model for a country.

“In the history of economic success, no two countries have ever followed identical paths,” R. Glenn Hubbard and William Duggan, two leading scholars in business finance, observe in an article in strategy+business.6 “Nations rise out of poverty when elements of a thriving business sector replace the previous eco-nomic system.”

This may be true of Western countries. Yet many Asian econo-mies grew in much more closed economic settings where gov-ernments were major drivers. This luxury may not be open to governments in the future. As globalization becomes an ever more powerful force, governments will face increasing pres-sure to open up their borders rapidly. They will find it hard to delay regulatory reform that attracts private sector compa-nies. Making it simple and straightforward to do business is a fundamental requirement for many governments. At an opera-tional level, since 2004, the World Bank has tracked the reali-ties of doing business each year in countries around the world for its Doing Business report.7 The report specifies ten forms of



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government regulation that affect the various phases of a com-pany’s life cycle:

Starting a business

Obtaining licenses

Employing workers

Registering property

Getting credit

Protecting investors

Paying taxes

Trading across borders

Enforcing contracts

Closing a business

The fewer obstacles that government places before entrepre-neurs in any of these areas, the faster the process involved, and the less it costs (for fees or bribes), the more business-friendly the country is deemed to be—and the more prosperous. In 2009, Singapore ranked first out of 181 countries on the list. It was fol-lowed by New Zealand, Hong Kong (China), the United States, and the United Kingdom. The Central African Republic ranked last.

Strategy levers

So far we have looked at how a national vision can be trans-lated into strategy at a national level. But beyond this is the next step—translating the national strategy of central govern-ment into strategy for individual government entities or depart-ments. As an example of how the central government strategy cascades down to the departmental strategy, consider the Abu Dhabi Chamber of Commerce and Industry. In response to the strategic objective to enlarge the enterprise base and encourage foreign investment, the Abu Dhabi Chamber of Commerce has transformed itself into a one-stop shop to serve its members and investors. The ground floor of the Chamber’s building is a hive of commercial activity. A wide variety of organizations now offer services to Chamber customers through its Members’ Services Center. They include the Ministry of Justice, the country’s health insurance provider, the Naturalization and Residence



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Department, the National Bank of Abu Dhabi, the Ministry of Labor and Labor Affairs, the Businesswomen Council and oth-ers. Red tape is not eliminated, but a lot of it can be relatively simply untangled in one building.

But if the benefits of being business-friendly are so clear, ask Hubbard and Duggan, why hasn’t every country and every government jumped on the bandwagon? The answer, they say, provides a critical insight into the travails of poor economies. “Countries often have a competing system—either a powerful and arbitrary government or an entrenched oligarchy, or both—that resists the adoption of pro-business elements. And in coun-tries that remain poor, that competing system is still winning.”

Other factors also play a part. For one thing, it is not so clear-cut that adopting the pro-business regime advocated by the World Bank will bring greater prosperity. The reality is more subtle. Smart government is about fostering a business model—or private sector—that is in step with the long-term vision of the country. It would be naïve for the government of any emerg-ing country to allow business to operate entirely unconstrained. The result is likely to be disastrous for the local population.

As we have seen, no two situations—or countries—are identi-cal. But there are some strategic issues that are common to all modern governments. Among them are macro issues such as a nation’s strategy on energy generation. In the light of the 2010 BP oil spill in the Gulf of Mexico, this is now moving up govern-ment agendas and was included in President Obama’s first Oval Office address, when he urged Americans to see the oil spill as a reason to move toward sustainable energy sources. Clearly, its stance or strategy on energy is linked to a country’s stance on its environmental footprint. Other macro issues include infrastruc-ture policy—especially transportation.

Any one of these (and many other) macro strategy issues could fill a book on their own. So it is not our intention to describe the issues in great detail. Suffice it to say that they will be increas-ingly important in the coming years. But, there are a number of macro strategy levers that demand our attention. These include: cluster creation; New Public Management; and espe-cially considerations of the form of capitalism or private sector



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governments should seek to foster—shareholder or stakeholder capitalism, or possibly a new paradigm of socialized capitalism. We will examine these in turn.

First, cluster creation.

Creating talent magnets

An example of a strategy lever to achieve an overall vision is the decision by some governments to encourage the formation of specialized clusters of economic activity. Cluster formation policy goes to the heart of the government/economy relation-ship and the need to create a sustainable business model and economic engine. Some governments also see it as a strategic lever to attract talent and build educational infrastructure.

Visit the fast expanding development of Masdar City in Abu Dhabi and you will witness the reality of a business model at first hand. The rising city will be home to 40,000 people in ten years. It is part of the wider Masdar Initiative, an ambi-tious commitment to renewable energy. In oil rich Abu Dhabi, Masdar is a huge investment in repositioning. In 2008 the emir-ate’s government allocated US$15 billion to the project. Already, it has attracted the headquarters of the International Renewable Energy Agency. A new university is planned as Abu Dhabi seeks to create an environmental legacy.8

Masdar is probably alone in the sheer scale of its ambition, but not in its objectives. In their attempts to foster productivity and economic dynamism, governments have always looked toward the most successful economies. In doing so many policy-makers have tried to emulate the success of the US economy in driv-ing technological progress. A recurring aspiration has been attempts to replicate the economic benefits of clusters, such as Silicon Valley, through governmental support.

Clusters are dotted around the industrial world and occur in vir-tually all industries. The Hollywood film industry and the auto-motive industry around Detroit are famous examples. Clusters create a virtuous circle of investment and development. Above all, they act as talent magnets attracting the brightest and best



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minds. But, for all the glittering successes there are many white elephant developments throughout the world where would-be clusters have failed to take off.

Whether and to what extent, public policy can be a catalyst for cluster formation remains a topic of debate. The most useful role for government is often to remove regulatory obstacles that hinder the free working of capital and talent markets.

Making sense of clusters

It is worth remembering that clusters of specialized compa-nies are not new. Some clusters have existed for centuries. Long-established examples include the Italian leather fashion cluster, which includes Ferragmo and Gucci and a host of spe-cialized suppliers around Milan; the flower-growing cluster in the Netherlands; and the financial district in London’s Square Mile.

The phenomenon was first observed by the Cambridge econo-mist Alfred Marshall in the nineteenth century. He noted a ten-dency for specialized companies to cluster together in a way that produces geographic concentrations of expertise and economic activity. (Economists refer to them as neo-Marshallian nodes.)

Marshall’s analysis, however, overlooked the importance of the role of entrepreneurs. In the twentieth century, the Harvard economist Joseph Schumpeter identified the role of self-inter-ested economic agents, who took risks in order to generate sub-stantial profits. In Schumpeter’s model, entrepreneurs created new products, services, methods of production, and new ways of organizing economic activity to create new markets. This, he argued, created a technology push mode of innovation.

More recently, Stanford’s Professor Paul Romer has developed a model, which suggests that technology progress is caused by the search for new ideas by researchers interested in profiting by their innovations. Although Romer doesn’t explicitly equate entrepreneurship with innovation, his theory interprets growth as a process through which the research sector and other inter-ested parties produce new products for the market and obtain



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monopoly profits from new ideas. Romer did not consider entre-preneurship explicitly as a mechanism through which R&D is transformed into economic activity, but the model does provide a theoretical underpinning for high-tech clusters.

Harvard’s Michael Porter’s research confirms that clusters of specialized companies enjoy unusual competitive success. Porter suggests that clusters encompass an array of linked indus-tries and other entities important to competition. They include suppliers of specialized inputs, and providers of specialized infrastructure. They also extend downstream to channels and customers and laterally to manufacturers of complementary products and to companies in industries related by skills, tech-nologies, or common inputs. Clusters often include governmen-tal and other institutions—such as universities, standard-setting agencies, and think tanks, and providers of specialized training, education, information, research and technical support.

What is harder to explain is why geographic proximity should continue to confer a competitive advantage in the global econ-omy. The success of Silicon Valley and other high-tech clusters highlights what Porter calls the “paradox of location.” Despite suggestions that in a connected world geographic location is no longer a significant competitive factor, for high-tech firms, the reverse appears to be true: proximity to other technology com-panies is more vital than ever.

“Paradoxically, the enduring competitive advantages in a global economy lie increasingly in local things—knowledge, relation-ships, and motivation that distant rivals cannot match,” Porter has noted.9 In other words, in the global economy clusters are more important than ever.

Although what happens inside firms is important, the cluster effect indicates that the immediate business environment out-side companies plays a vital role as well. The proximity of orga-nizations within clusters appears to affect competition in three broad ways. First, they increase the productivity of companies in the region. Second, they drive the direction and pace of inno-vation. Third, they stimulate and trigger the genesis of new busi-nesses within the cluster.

“Clusters are knowledge communities,” says Dr. Mark Jenkins, of Cranfield University in the UK, who has studied the



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phenomenon.10 “A cluster is a way of doing things that is a lot more durable than the know-how of a single company. It’s more than just co-location. I’d use the term knowledge architecture. It’s know-how, but it’s also know-who.”

Jenkins argues that three levels of specialist knowledge exist in certain global industries. These are at the firm; the cluster; and the industry level. Although there are important firm-specific and industry-specific forms of knowledge, cluster level knowl-edge is the most significant source of competitive advantage.

“The region as a whole is successful more than are the individ-ual firms within it,” says Jenkins. “In many respects, then, it is the regional cluster rather than the individual firms that consti-tute the significant resource and unit of analysis. This fact raises important issues about how we view the nature of competitive success.”

Lessons in clustering

What is particularly interesting is when clusters are used as a means of educating and training an indigenous workforce. Several education-focused hubs have been established in the Middle East, for example, and are attracting the attention of some of the world’s leading business schools.

Dubai’s Knowledge Village is a learning community with state-of-the-art facilities. It includes the Dubai Knowledge Universities campus, allowing international universities to have a presence in Dubai. There is a similar move in Qatar, where the Qatar Foundation for Education, Science and Community Development has created Education City, a 2500-acre campus near Doha.

The government of Abu Dhabi has also wooed leading edu-cational providers, including INSEAD, which has established a permanent campus in the emirate, and is launching an Abu Dhabi section of its Global Executive MBA (GEMBA) program. The Abu Dhabi government also has an international agreement with the Paris-Sorbonne.

“The government of Abu Dhabi considers advancement in educa-tion to be an integral part of its social and economic development



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plans,” Director General of Abu Dhabi Education Council (ADEC), H.E. Dr. Mugheer Khamis Al Khaili, observed. “We are currently implementing a range of strategies to deliver edu-cation excellence and are particularly proud of our partnership with INSEAD. With this and other strategies in place, Abu Dhabi looks forward to becoming a hub for higher education.”

India is also following the learning cluster model with its own Education City, located on a 60-acre site near Delhi International Airport. Lancaster University Management School is working in partnership with GD Goenka Educational Trust, which owns Education City, to deliver a range of programs, including a two-year Global MBA.

Education clusters are seen as a way to help transform emerging economies into knowledge-based economies. Of course, in edu-cation, Oxford and Cambridge universities have followed the cluster principle for centuries. Indeed, being part of an already established education cluster gives their much younger business schools an important advantage at home—and with the emer-gent educational hubs.

The Said Business School at Oxford University, for example, has benefited from its strong brand recognition in the region, winning executive education projects with both Abu Dhabi and Saudi Arabia. The Abu Dhabi Oxford Leadership Development Programme was launched in January 2008 to deliver a develop-ment program for more than 200 of the emirate’s leading civil servants.

Oxford also works with other countries in the Middle East. The Saudi Oxford Advanced Management and Leadership Programme, for example, is a joint initiative between Said Business School and the North Development Programme of Rakisa Education, in association with the Saudi Arabian General Investment Authority. The program provides a forum for developing senior leaders from Saudi public and private sec-tor organizations.

These various developments even though small are significant in their general impact. Such educational clusters can provide the rocket fuel for transformation: knowledge.



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If knowledge is one of the super fuels of change, then another is money. Recent events have shown just how exposed govern-ments can be to financial volatility. The banking crisis of 2008 raises important and urgent questions about an increasingly potent strategic lever—the nature of global capitalism that gov-ernments seek to foster.

Crisis? What crisis?

At a micro level there appears to be general agreement on the role of government in developing a country’s economy. It should facilitate the easy practice of commerce. (Or as the Abu Dhabi Chamber of Commerce and Industry’s mission puts it: “We are the private sector representative working to advocate policies, connect businesses and expand member opportunities by pro-viding world-class member services, with an aim to contribute to Abu Dhabi’s sustainable economic development.”)

Now, take a step back and let us contemplate the bigger picture: what is the macro role of government in global commerce?

This issue was brought to the forefront of ministerial minds when the world’s financial systems teetered on the brink in 2008. The IMF estimates that the total cost of the 2008 banking crisis was $10 trillion. It is a truly staggering bill. What went wrong and what can be done to prevent it happening again has been widely debated. To this we would add a couple of points.

First, it is tempting to attribute the causes of the crisis to a mis-firing of the engine of capitalism or worse to a confluence of unpredictable global events. This is dangerous. It is also to miss the opportunity that the crisis presents.

A 2009 survey of professional risk managers makes interesting reading.11 It concludes that the crisis was entirely avoidable. Only 3 respondents out of 563 agreed with the then UK Prime Minister Gordon Brown that the most important cause of the crisis was “global economic circumstances beyond anyone’s control.”

The most remarkable finding of the survey was that most risk professionals—on the whole a highly analytical group—believed



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the banking crisis was caused not so much by technical failures as by failures in organizational culture and ethics.

The picture that emerges from the survey is clear. Most risk pro-fessionals saw the technical factors, which might cause a crisis, well in advance. These included easy availability of global capi-tal, excessive leverage and accounting standards, which permit-ted over-valuation of assets. The risks were reported but senior executives chose to ignore their warnings and to prioritize sales. The reason that they did so is put down to individual or col-lective greed, fuelled by remuneration practices that encour-aged excessive risk-taking. That they were allowed to do so is explained by inadequate oversight by nonexecutives and regula-tors and organizational cultures, which prevented effective chal-lenges to risk-taking.

Equally clear views are found on what needs to change, both inside firms and in regulation. Internally, the most important area for improvement, say the risk managers, is the culture in which risk management takes place (including vision, values, management style, and operating principles), starting with the adoption of remuneration policies, which discourage short-term risk-taking.

The simple fact is that we cannot trust banking executives to govern themselves and that drastic action is still needed. While major regulatory renewal is taking place in the United States, the EU and elsewhere, so far little has changed.

Nothing will really change without cultural change, because the effectiveness of risk management, governance and internal con-trols depends heavily on the climate in which they take place. Risk culture and ethics need to be at the top of the agenda, both of boards and governmental regulators.

Beyond shareholder value

Beyond its immediate causes, the banking crisis revealed deep cracks in the edifice of shareholder capitalism. In particular, it illustrated the limitations of free markets to deliver social investment. If it is allowed to, a pure capitalist system would



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reward the owners of capital above all else. This in itself is prob-ably not desirable for the best interests of a society. However, as many critics have pointed out, the recent excesses cannot even be accurately described as pure capitalism. In many cases, the markets rewarded professional managers and traders for taking huge risks with shareholder’s funds.

“The economic crisis has revived the old debate about whether firms should focus most on shareholders, their customers or their workers,” argued the Economist.12 But, strictly speaking, what was operating was not shareholder capitalism. The cult of shareholder value that began in the mid-1970s has been much maligned, when in fact what took place was a distortion of it.

The obsession with shareholder value began in 1976, Roger Martin, dean of the Rotman School of Management at the University of Toronto, wrote in the Harvard Business Review.13 He traces its rise to an article by two economists, Michael Jensen and William Meckling, entitled “Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure.” In it, Jensen and Meckling argued that the owners of companies—shareholders—were often poorly served by professional manag-ers running the businesses they owned. The article was widely cited and prompted a move to get managers to focus on creat-ing value for shareholders. Advocates of shareholder value had little time for other people with a stake in the business such as employees, customers, suppliers and society at large.

As the Economist noted: “American and British value-max-imizers reserved particular disdain for the stakeholder capi-talism practiced in Continental Europe in countries such as Germany.” Roger Martin argues that the failure of shareholder capitalism—as evidenced by the financial crisis—means that it should give way to “customer-driven capitalism.” Other com-mentators prefer to emphasize another stakeholder group. In his book, Employees First; Customers Second, for example, Vineet Nayar, CEO of HCL Technologies, a fast-growing Indian busi-ness process outsourcing company, suggests that the interests of employees should come before even customers.14

But, before we write off shareholder capitalism entirely, the Economist questions whether it has really failed. “The financial



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meltdown has certainly undermined two of the big ideas inspired by Jensen and Meckling: that senior managers’ pay should be closely linked to their firm’s share price, and that private equity, backed by mountains of debt, would do a better job of getting managers to maximize value than the public equity markets,” it says. “The bubbles during the past decade in both stockmar-kets, and, later, the market for corporate debt highlighted seri-ous flaws with both of these ideas, or at least with the way they were implemented.”

“A firm’s share price on any given day ... can be a very poor guide to long-term shareholder value. Yet bosses typically had their pay linked to short-term movements in share prices, which encouraged them to take measures to push the share price up quickly, rather than to maximize shareholder value in the long run (by when they would probably have departed). Similarly, private-equity firms took on too much debt during the credit bubble, when it was available on absurdly generous terms, and are now having to make value-destroying cuts at many of the companies in their portfolios as a result.”

Government forces or market forces?

So why is the fervent interest in shareholder capitalism of con-sequence for those in government? Simply, government must set the tone and direction of what matters in a society and what it wishes to achieve and by what means. What we have seen in recent years is governments throughout the world broadly embracing markets without really fully articulating where the boundaries and limitations of markets lie and their bigger purpose.

Much has been written in recent years about New Public Management (NPM). Basically, it describes the wave of public sector reforms around the world that started in the 1980s. The fundamental idea underpinning NPM is that market discipline and orientation in the public sector will make government more efficient. NPM was meant to use competition to reduce costs without reducing service provision. The logic was that by expos-ing public sector organizations to the rigor of market forces, unnecessary bureaucracy and duplication would be stripped



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out, leading to leaner and more streamlined government. In particular, NPM was supposed to remove the inefficiencies and high costs associated with monopolistic practices. It led to a spate of privatizations and outsourcing of public services across the globe.15

The struggle for balance bedevils governments around the globe. The pendulum continues to move—and in different directions in different parts of the world. Privatization of government remains prominent in Australia, Scandinavia, Eastern Europe, and various Asian and Middle Eastern countries, for example. But elsewhere there are those who believe that NPM has peaked and is now in decline.

In the United Kingdom and the United States, for example, the so-called Third Way and ideas associated with Public Value Theory are coming to the fore. These focus on citizenship, net-worked governance, and the role of public agencies in work-ing with citizens to cocreate public value, generate democratic authorization, legitimacy and trust, and stress the domains within which public managers are working as complex adap-tive systems with different characteristics from simple market forms, or private sector business principles.

Next year’s model

The current debate about the optimal model is timely. We believe that the business model is central to Smart Transformation for two related but separate reasons. The first is that without an eco-nomic engine to power it no transformation can succeed. Very simply, change requires money and resources and they have to come from somewhere. It is absolutely integral to the vision for any country to foster a vibrant and sustainable business model. Public and private sectors need to be in sync.

The second reason is a more subtle one. The characteristics of the desired business model will influence the transformation itself. In other words, if a pure shareholder value business model is the goal, then changes in government operations should aim to sup-port the interests of shareholders—through increased tax incen-tives, for example. If, however, a pure shareholder model is not



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the intended outcome then shareholder interests will be balanced with the interests of other stakeholders. This goes to the heart of what the leadership of the country is seeking to achieve.

Some believe that the financial crisis was caused by poor imple-mentation rather than a misguided model.16 But we believe there are more deep-rooted issues to address here. Smart transforma-tion is about making a lasting improvement to the machinery of government in order to benefit the citizens of a country. Many of those citizens will be employees, customers, and suppliers. Some will also be shareholders, but not all. The danger with shareholder capitalism is that it elevates the best interests of shareholders above the rest of society. That is even when it is well implemented. When it is poorly implemented, as we have seen in recent years, it has a distorting effect not just on how wealth is distributed but also on how capital is invested. Much is made of how free markets are more efficient, but this is simply not the case when it comes to making the best investments for society. Investment in social infrastructure projects—including roads, hospitals, airports, and education—is often neglected by the operation of untrammeled markets. Such investments take time and often do not yield the best returns to investors.

The most striking failure highlighted by the financial crisis is the tendency for the current system of capitalism to maximize short-term benefits for the individuals making investment deci-sions. Such a system is unlikely to be in the best interests of ordinary citizens. This raises serious questions about the sort of business model—or model of capitalism—governments should seek to foster and support.

So, while it is clear that a robust and dynamic business sector is vital to smart transformation, there are very good reasons to consider carefully the nature of that business model. In particu-lar, it is becoming increasingly clear that short-termism can do a great deal of harm. As the debate moves toward notions of more sustainable business—in terms of environmental impact and the impact on local communities—it is also time for govern-ments to think hard about what a sustainable business model will actually mean going forward. The point to understand here is that the business model and the incentives it creates underpin society.



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To understand this better, let’s step out of the current context and rewind 4500 years.

Business models of the Ancients

As we have observed earlier, a dynamic business model is essen-tial to a progressive society. According to Columbia Business School’s Glenn Hubbard and William Duggan, it has been that way since the dawn of recorded history.17

Starting around 2500 BC in Mesopotamia (modern day Iraq), archaeologists have found evidence of a vibrant private sector—including records of loans between individuals; advances paid to citizens by governments for tax payments; and financing merchants for trade. These practices were later adopted by the Phoenicians, Greeks, Persians, and Romans—giving rise to the growth of thriving towns. These commercial centers were the engine of mass prosperity. They enabled large numbers of peo-ple to live in relative wealth even while most of the world’s popu-lation was struggling to eke out a living. Economic prosperity, stable government, and private business, then, have always gone hand in hand.

Interestingly, too, the two most peaceful centuries of the Roman Empire coincide with a business-friendly attitude from Rome. As Hubbard and Duggan point out: “Starting a business was apparently easy. Anyone, including women, non-Romans, and slaves could open one without a restriction. In practice, of course, it was far easier for free Roman men to open a busi-ness than for anyone else; the mainstream leaders favored one another, just as they often do today.”

“Licencing was also relatively business-friendly. Romans could make, buy, or sell anything without a licence. There was only one major exception: government monopolies. The empire oper-ated its own mines for salt, metal, and marble; bought and dis-tributed grain; and produced uniforms, weapons, and other supplies for its army.”

Rome’s legal system also made it relatively easy to register prop-erty, and raise finance through credit. The Roman institore



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was the equivalent of the modern business manager, running an enterprise for an absentee owner. Although Rome had no equivalent to the corporation that protected investors, it did have a form of business entity—a “society” that collected taxes for government and offered a predictable and stable investment. Romans were able to buy and sell shares in these societies.

The Roman business model had its faults, of course. Chief among these, to modern eyes, were its dependence on slavery and its tendency toward judicial corruption. It also suffered from draconian bankruptcy rules, which could force failed entrepre-neurs into slavery if they were unable to pay their debts. But, for its time, the Roman business model was extremely developed and enabled the empire to flourish.

So what went wrong with the smart Roman government? In the end, arguably, it was the crippling effects of taxes raised to pay for wars that undermined the Roman business model—and ulti-mately brought the empire to its knees.

Global business model

Fast forward to today and it is clear that having an effective busi-ness model remains a major factor in social progress. Empires have come and gone. The most enduring—including the British Empire and more recently, the American Empire—have been founded on commerce. The nature of commerce, however, con-tinues to evolve. We have moved from imperial trade routes to global trade.

International trade is as old as nations themselves, but in recent decades, advances in technology have changed the scope and method of international trade. Today, when a trader on the New York or one of the other international stock exchanges executes a billion-dollar currency transaction in Hong Kong, his or her actions can have a completely unintended and unconscious impact upon the people of New York, London, Hong Kong or the rest of the world. The increase in international trade and the ease with which it is conducted is one aspect of what we understand as globalization. It goes hand in hand with the lib-eralization of financial markets, which in turn is also increasing



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the economic integration between countries, eroding trade bar-riers and increasing the mobility of goods and services to move between countries.

Globalization—often encouraged by the World Bank and the International Monetary Fund (IMF)—has given more power to transnational corporations. It has also weakened the sovereign power of governments. One consequence is that national eco-nomic policies can no longer be decided by government officials alone, but must take account of the interests of multinationals. Some believe that these developments have further exacerbated the shortcomings of shareholder capitalism as it has been prac-ticed in recent years.

We believe that there is a growing case for a shift to a new para-digm of socialized capitalism—where the role of capital is for the public good rather than for the enrichment of a selected few.

How governments have so far responded to the financial cri-sis, by injecting huge amounts of public funds to reestablish the security of financial markets, is not addressing the funda-mental issue of the role of capital. Rather, it reveals that profits are privatized, and if and when they are jeopardized, losses are socialized.

Toward social capitalism

Research by one of the authors (Andrew) suggests that the cur-rent model of capitalism as practiced in Anglo-Saxon cultures such as the United States and the United Kingdom in particular, poses a threat to the ability of sovereign governments to drive social progress.18 Globalization encourages the good of capital against the rights of individual nation states to determine their destiny in a similar manner that human rights challenge the rights of the state in favor of the rights of the individual.

The “invisible hand” of the market so vividly depicted by Adam Smith cannot be trusted to bring about social justice.19 As Nobel Prize-winning economist Joseph Stiglitz observes: “The reason that the invisible hand often seems invisible is that it is often not there.”20



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Adam Smith himself was well aware of the limitations of “free” markets. He recognized that markets, by themselves, often destroy the possibility of a decent human existence “unless gov-ernment takes pains to prevent” that from happening.21 Smith argued that moral will was required to direct market forces. He acknowledged that markets are never perfect, suggesting that an “optimal” range of government interventions can lead to supe-rior, later to be termed Pareto, outcomes.

The fact of the matter is that market forces are just that—forces created by the operating rules of the market. The ques-tion, then, is who makes the rules? The way that most markets operate reflects the best interests of their architects. As such they are imperfect. Most are created by the powerful and favor them. Indeed, the rhetoric of free markets is one way that power elites protect their advantage. Certainly, we should not expect markets to deliver social justice unless they were designed with that purpose in mind. That does not mean we should ignore the need for governance; in fact, the opposite is true. The imper-fect nature of markets makes good governance all the more important.

Traditionally, we have looked to shareholders and their repre-sentatives to provide that governance. Yet there is ample evi-dence that this is inadequate.

Reform of institutional arrangements such as corporate control and governance arrangements often challenges the influence of those groups wielding power so they have an incentive to block change. This is one reason why markets might not adjust sufficiently to changes in economic conditions or the needs of the economy. The power of vested interests distorts the process of evolution—undermining the idea of economic Darwinism. The survival of the fittest is not the reality. Rather, what we see is the survival of the powerful—which is not quite the same thing.

Capital flows and liberalization

Clearly, when it comes to shareholder value, market forces, and responsible governance, governments have a role to play. What



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that role is, is open to debate, but governments need to have as transparent and clear a position as possible. Governments need to make it clear what they value and what their vision is. Rather than express a coherent and wide-ranging vision and strategy, govern-ments often settle for initiatives and campaigns to attract foreign investment. This is seen as a good thing. The reality is that, as with other received economic wisdom we have discussed, it is also worth considering the disadvantages, as well as the advantages, of direct investment in determining the wealth of the nation. Foreign direct investment (FDI) refers to the flow of investment from one country to another. For example, when a foreign com-pany buys a UK company investment is seen to flow into the UK. This usually involves participation in management, joint venture, transfer of technology, and expertise. On the other hand, if a UK company invests overseas the FDI effect is negative.

Direct investment sounds attractive but in fact it may be unsus-tainable and unpredictable. As we have seen with Ireland, FDI is a double-edged sword. It can bring economic growth but it can also lead to increased financial volatility. The key issue is how easy it is for investors to exit—in other words how easily they can get their money out. The greatest advantage is gained from infrastructure investment—such as rails, roads, drainage, and so on, which allows that nation to keep the wealth that comes out of the investment.

Generally, when a government removes barriers to inward invest-ment, it pursues a business model luring foreign investment and the accompanying benefits. But this also leads to the disruptive impact of foreign-capital mobility during distress conditions, as experienced by Mexico between 1994 and 1995; East Asia (1997–98), Russia (1998), and Brazil (2000). All of these nations experienced the down side of rapid, capital mobility.

As financial markets become more integrated so they become more vulnerable to systemic failure. At the same time, this inte-gration creates global oligopolies, which control the basic deci-sion-making of the world economy. There are clear signs that world markets are increasingly linked and are moving together. These oligopolies are not exclusive to the financial sector but are also involved in industrial production, services, transport and the like.



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Some commentators see the issue of sovereignty as a key road-block to achieving complete market integration, or globaliza-tion, of the economy. There are signs too that some markets are moving in the opposite direction—seeking to decouple them-selves from the global ebb and flow. These pockets of resistance may offer the most effective safety valve on a global financial crisis. Some critics of globalization even argue that the collapse of globalization has already begun and that the reinvention of the “world” is occurring.

More regulation is not the answer. Rather, basic, common law principles need to be respected. Regulators do not need more power; they need the will to use the power they already have.

Markets drive people in business to pursue market share and profits and, in turn, drive business people to respond to these pressures by focusing on ever-shorter time horizons as every business aspires to become a monopoly. Two critical compo-nents of effective markets—market vibrancy (competition) and market integrity—ensure the role of the regulator in prevent-ing monopolistic behavior. Concentrated economic resources readily translate into political influence. This situation was one which even the eighteenth-century mercantile economy (see Table 1) recognized. Political power exercised by economic interest is dangerous.

Table 1 Paradigm shifts

System

1. Mercantilism (eighteenth century)

2. Laissez-faire capitalism (Adam Smith’s design for the nineteenth century)

3. Neo-liberal capitalism (late, twentieth century)

4. Social capitalism (proposed for the twenty-fi rst century)

Structures Centralized Decentralized Decentralized Regionalized/decentralized

Political system Authoritarianism Representative Representative Participative Markets Monopoly Competitive Oligopoly Social Role of capital Autarky (economic

self-suffi ciency)International

interdependence through spatial division of labor

International interdependency through movement of capital

Public good (Socialized capital)

Producer–consumer relationship

Producer push (appropriation of the social surplus)

Demand pull (consumer sovereignty)

Intermediary (through leveraging of debt)

Poly-mediary (multiple interest sustainability negotiated)

Source: Knyght, P.R., Kakabadse, N. K., Kouzman, A., and Kakabadse, A., Chronic Failure in Globalized, Oligopolistic Markets: An Urgent case for Socialized Capital, Society and Business Review, to be published 2011.



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In social capitalism the role of capital is socialized for the benefit of all stakeholders and investment horizons are long term—20 to 100 years and beyond. This model considers capital, as well as corporations, as social entities responsible and accountable to a broader set of actors than just owners—employees, suppli-ers, local communities and others affected by the behavior of the company. In this view of capitalism, the measure of a com-pany’s usefulness is not whether it creates individual wealth but whether it helps society gain a greater sense of the meaning of community by honoring individual dignity and promotion of overall welfare. If a government aspires to this model, its vision and strategy must be in step with those aspirations.

Smart questions

What is your strategy? How is it related to your vision?

Does everyone internally understand your strategy? Do they

understand how it relates to the vision?Do external stakeholders understand your strategy? Have you

made it clear how it relates to the vision?How able and willing are you to change strategy if necessary?

How are your agencies organized?

Are your political leaders sufficiently in touch with the real-

ity of how strategy is put into action on the ground to make it effective?Can they change or adapt political direction because they lis-

ten to their senior civil servants and heads of agencies?How should the fragile space between market and nonmarkets

be governed/navigated?How do you minimize “the abuse of entrusted power for pri-

vate gain”?How do you go about business planning in government?

What sort of culture have you created in government—is it

entrepreneurial, professional, ad hoc, partnership, bureau-cratic?How has government balanced the freedom for wealth cre-

ation with the meeting of citizen needs?What industry or sector does your region want to be a talent

magnet?Has government entered into social partnership arrange-

ments with the financial services sector guaranteeing major



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projects over longer-term duration for the benefit of all in the community?Is there the political will to integrate fast money and slow

money or is government browbeaten by the large private cap-ital funds to meeting only their needs?



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91

CHAPTER 5

Designing the operating model

Replumbing government

With the strategy in place and a clear idea of the characteris-tics of the macro and micro strategic levers, the second part of the cycle is to improve organizational structure and governance to support the effective delivery of the operating model in line with the strategy. The key question the leadership needs to ask is: how should the government be structured and operated to ensure that it is truly fit for purpose today and tomorrow? This includes redesigning the organization and reassigning roles to ensure the transformation achieves momentum.

The reality is that governments sprawl. Departments morph into other departments. Clear reporting lines become blurred by the processes of time, ambition, and bureaucracy. It is very hard to take a step back and to consider how an effective orga-nization should be organized and against which benchmarks governments should be measured.

In countries around the world a root-and-branch review of the apparatus and organization of government is now required. In one case, a government department was asked to carry out an overview of the existing government to design a blueprint for the future based on best practice models around the world. In designing the new organization structure, the designers derived lessons from more than ten countries.

The result was that more than 140 existing federal and local gov-ernment entities were reduced to less than 50. The new structure target was approved. It sought to address a number of key issues and to embed the policy imperatives. These were:

1. Local government should become more efficient and effective.



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2. Local government should be empowered and held account-able for results.

3. Local government should focus on core activities and seek to outsource/privatize all noncore activities.

4. Clear roles and responsibilities should be put in place, dupli-cations eliminated, and customer service levels improved.

5. Local government should seek to attract high-caliber employees.

The study also identified the blockers to turning these issues into reality. Our studies and experience suggest they are com-monplace. They include:

Centralized decision-making: too many operational deci-

sions were escalated to cabinet level, resulting in delays in the decision- making process.Lack of local representation: Limited or no representation of

selected federal ministries and entities.Uncommon status (authority versus department): executive

government consisted of two types of entities. Authorities had been created to circumvent financial/administrative con-straints in the government.Ineffective grouping of functions: Government functions were

not grouped in a way that aided their efficient functioning. The grouping of sector planning, regulation, and operational activities was highly ineffective.Fragmentation and duplication: activities across several gov-

ernment entities were highly fragmented, leading to dupli-cation in some areas—and redundancy in support services across all government entities.Lack of interdepartmental coordination: lack of formal inter-

departmental coordination and communication between departments.

Changing structure

Once again, in considering the structure of government, it is useful to make a clear distinction between those parts of the civil service that are involved in policy development and those



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93Designing the operating model

engaged in service delivery. In other words, we need to distin-guish again between the two levels of central government and government departments, agencies, and other entities.

For example, one can think of the traditional civil servant as a man in a dark suit who works in London’s Whitehall. But the reality is that most UK civil servants work in service delivery roles—for example, in job centers and benefits agencies deal-ing with the unemployed and those entitled to benefits, or tax offices dealing with tax payers. Smart transformation will more often involve the latter group of civil servants in any country.

In the UK, recent reforms to the civil service were driven by a need to break it up into more manageable parts. The central civil service would continue to service ministers and manage departments, but other activity would be conducted by execu-tive agencies that would be responsible for service delivery. Each agency would have a chief executive who would be answerable to the minister under the terms of a framework document, which would be published. By 2000 there were 137 executive agencies responsible for some 80 percent of the civil service. They vary enormously in size from the Employment Service with 45,000 civil servants to the National Weights and Measures Laboratory with just 45.

This delegation and decentralization of function was designed to “bring a new, more customer-focused approach to individual executive (service delivery) functions within government,” leav-ing their parent departments to concentrate on policy develop-ment. Executive agencies do not usually have their own legal identity, but operate under powers that are delegated from min-isters and departments. They have a chief executive who reports to the minister against specific targets. Most agencies receive their funding from their parent department and, although they are required to publish and lay before Parliament separate accounts, these accounts also form a constituent part of their parent department’s accounts.22

The creation of these agencies was part of an overall strategy that saw the introduction of “quasi-market structures into the public services,” to be achieved by privatization, market testing, and contracting-out.



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According to the political commentator and academic W.J.M. Mackenzie-Bogdanor, the basic logic for these developments was the simulation of a business situation. “The fundamental leitmotif of the reforms was that efficiency in the public services could be achieved by adapting the methods and practices of the private sector.”

Out, out

This vision of a more market-oriented public service has been the dominant model for the past two decades in many parts of the world. Central to this has been the outsourcing of public services.

There is nothing fundamentally new in public bodies out-sourcing services. In the United States, the Massachusetts Bay Company incorporated the private Water Works Company to supply drinking water to Boston 350 years ago. According to the National Council for Public-Private Partnerships, the average US city now calls on private entities to help deliver 23 of 65 basic municipal services—everything from wastewater handling to urban development.

In Europe, too, the concept of a working partnership between the private sector and public bodies is well established. Compagnie Générale des Eaux (CGE), launched in 1853 and the founders of Veolia Environnement, was contracted to supply water to the city of Lyons. The company was awarded a 50-year contract to supply water to Paris in 1860 and in 1867 won a contract with the municipality of Nantes to clear the streets of manure and refuse and to convert it into fertilizer.23

Public-Private Partnerships (PPPs)

Combining public and private sector resources is often the most effective way—and sometimes the only way—to structure very large-scale infrastructure projects. For example, when London hosts the 2012 Olympic Games, it will be the culmination of a huge public-private sector initiative. The scale of the modern Olympic Games demands public-private partnership to a degree



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few other projects can match. The Games are simply too large in every dimension—technological, organizational, broadcast-ing, project management, merchandizing—for either public or private sectors to take full responsibility. Only the public sector has the financial means to fund substantial capital infrastruc-ture projects; only the private sector has the organizational and entrepreneurial capabilities to make the Games happen against an unmovable deadline. Other large-scale initiatives also require a judicious blending of both sectors.

Private-public partnerships (PPPs) are a special kind of out-sourcing used by governments. A PPP is basically a transfer of responsibility for a public service project—such as the con-struction of a large bridge or road network—to a private agency where a government acts as contractor. PPP’s combine the resources of a public sector organization and a private company to provide improved efficiency, better access to capital, as well as compliance.

Public-private partnerships are increasingly widespread. In the UK, for example, they have been extensively utilized in improv-ing the performance and infrastructure of the country’s National Health Service.

The past 25 years have seen a new phase in the development of PPPs. PPP toll tunnels were built in Hong Kong in the 1970s and American private prison companies were among the first in pri-vate provision of correctional facilities in the early 1980s. Today, PPPs are growing fast across the world. When it comes to their usage, the UK is ahead of all other nations.

The UK’s use of PPPs has been at the heart of its public service reform agenda. PPPs are a contractual relationship between a government body and a private sector agent to complete a proj-ect according to clear criteria.

There are three basic types of PPPs:

Type 1: Design-build-finance-transfer. With this sort of PPP, the private sector finances and constructs the asset or project (for example, a large bridge or tunnel), incentivizing the firms involved to complete the project on time and within budget.



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Type 2: Design-build-finance-maintain. With the second sort of PPP, the private sector is responsible for the design, build-ing, and maintenance of the asset, thus taking a much longer-term strategy. Type 3: Design-build-finance-operate. In this case, the pri-vate sector designs, builds, and finances a new facility and then manages its operations.

Along with their obvious advantages, PPPs also bring some challenges—in particular balancing the need for profit to incentivize the private sector contractors with the require-ment to get value for money from government investment. This balance has not always been achieved. In particular, PPPs have been criticized for failing to deliver value, with a number of concerns directed at private sector operators. For example, contractors sometimes refinance their loans in order to increase their profit but without sharing this windfall with government. The terms of interest for the PPP may also be set too high. Government may be held to ransom by each PPP contract because the private contractor can threaten to walk away leaving the government having to spend much more to get in another contractor to repair the situation.

Despite these very real challenges, PPPs will become more wide-spread in future. The critical concern for PPPs is whether there is sufficient political will to support this form of public/private sector financing or not. Without political will PPPs don’t work.

Best of both

Combining the strengths of both sectors is essential to the work-ings of modern society. With technological change and a drive toward greater value for money, outsourcing (including the spe-cial case of PPPs) can be a powerful tool for improving effec-tiveness in public service. Progress, however, comes at a price. There will be failures along the way.

From the mid-1980s the Australian Federal Government embarked on a policy of public service and industry reform. By 2000, the Australian government had outsourced most of its IT



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services. Along the way, there were some notable failures. The Auditor General reported that three contracts, worth a total of AU$732 million failed to achieve the projected savings, being two years late in being implemented and three times the original budget.

The OECD reports that an array of services are now being out-sourced—including international airport operations (outsourced by the city of Indianapolis); IT-based activities outsourced by the UK’s Inland Revenue and tax services elsewhere in the world; cleaning services in Copenhagen hospitals and so on.

Research by Cranfield School of Management sought to get to the reality of whether outsourcing actually delivered.24 The research covers public service enterprises in the United States, the United Kingdom, and continental Europe. It found that public service managers are highly skilled in managing out-sourcing contracts. But, they remain divided as to the benefits of outsourcing.

Truth be told, outsourcing gets a great deal of negative cover-age. Sometimes this is entirely justified. The Australian Federal Government’s Department of Immigration and Multi-Cultural Affairs, for example, found that the outsourcing vendor was costing the department more than the cost of maintaining ser-vices in-house.

Various pieces of research, including the Cranfield study, report that public service managers feel that accountability to the pub-lic has been undermined by the disruption arising from what they regard as unnecessary outsourcing of noncritical processes and activities which nevertheless still have a significant effect on the functioning of the organization. Until public service manag-ers think that the process works to the benefit of the commu-nity, as well as to the enhancement of public service enterprise, their disillusionment with outsourcing is likely to remain.

What is increasingly clear, too, is that outsourcing is only part of the solution. An important element of the operating model is also looking at the reorganization of entities internally. For any organization to be formed—or reformed—a number of funda-mental areas need to be addressed. Chief among them are as follows.



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The organizational structure design itself

How should organizational structures be designed? What

should be the guiding principles? (For example, should they be customer based; service/product based; geographical expos-ure based?)What is the best way to minimize reporting lines and establish

synergies between the different divisions?Where does one entity end and another start? Are there oppor-

tunities to share capabilities? (There is evidence to suggest that greater efficiency occurs in government restructuring where governments deploy shared services to established cross gov-ernment synergies.)

Processes

What processes should be codified? How much discretion

should be allowed?

Infrastructure

What IT infrastructure should the entity develop—and to

what extent is it desirable to outsource that infrastructure?What physical infrastructure is required?

Governance

What committees should exist to ensure effective governance

of the entity? (mandatory and sector specific)What should be the board composition and responsibilities?

Manpower planning

What capabilities and competencies are required for the

future?How can we manage talent? (We consider these issues in the

next chapter.)



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It is only by addressing these issues that government entities can be constantly reconfigured to ensure they are fit for purpose. But it is important to recognize that organizational redesign does not happen in a vacuum. Again, the notion of soft power is essential to achieve the required change—opening doors and avoiding opposition that could otherwise derail the transforma-tion process.

Fast forward—2035

So what’s next? What is the vision for the organization of the public sector in the next two to three decades?

Dr. Peter Shergold, the Australian academic and former Secretary to the Department of Prime Minister and Cabinet, presented his view in a speech (entitled “The Australian Public Service in 2035: Back to The Future”) in which he made a num-ber or predictions about the Australian Public Service (APS). These included the predictions that:

The size of public services would continue to decline—with

the APS declining to a workforce of about 100,000 employees in 2035.Innovations in technology would enable more to be done with

less.The development of “a blended, multi-dimensional work-

force” in which full-time and part-time employees would work with contract providers and consultants “bound together by the work they do, not their working conditions.”Women would represent approximately 75 percent of the

APS—and would be represented across all levels of the service.The problem of relativity of pay between the private and

public sectors would remain. The Australian Public Service Commissioner, Lynelle Briggs, has also referred to “the gen-erally lower level of remuneration of APS staff compared with equivalent staff in the private sector.” The career public ser-vice would remain.All APS employees would be graduates. In Shergold’s words:

“Managing an all-graduate service will present new challenges.



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The process of dismantling hierarchy as the basis of author-ity will have continued, driven by similarities in the education level of the workforce, workplace aspirations, flat job struc-tures and communications technology. Employees will all, in a real sense, be managers—managing knowledge, contracts and projects to develop and deliver policy for the government of the day. They will all be expected to behave as leaders.”

Shergold also argued that the influence of technology will be uncertain and difficult to envisage, adding: “I do not think it will all be for the better. Dealing with the wicked complexity of public policy will be as slow and difficult as ever but the flow of information and responses to it will be ever more immedi-ate ... Governments and their public services will find it increas-ingly difficult to meet the expectations of citizens as to what government action can achieve and how quickly ... The job of public servants to identify and promote a national interest may have become even more challenging.”

Some things will remain largely unchanged, in his view. For example, the nature of the public service itself—he was of the view that the merit-based and apolitical public service would remain the best model well into the twenty-first century. The Australian Public Service Commissioner, however, noted that decisions would need to be made about the balance between in-house and external work. In her words:

As public servants, we need to identify where collaborations with external stakeholders will add the most value and where work should be done in house. We also need to think about how we can try to loosen some of our controls and guidelines to facilitate more flexibility, innovation and effectiveness on the ground, while retaining high standards of accountabil-ity. The more we reduce unnecessary red tape, the better our arrangements will be for everyone.

Shergold’s prediction was for: “A professional administrative class, willing and able to serve successive governments in a non-partisan manner, accountable through ministers for ensuring that decisions are taken and implemented in a lawful manner and responsive to the directions set by elected government—these, I



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suggest, are values which will retain their virtue in the decades ahead.”

Redesigning government

The idea that has largely informed the move to outsourcing and the restructuring of government is reengineering (or business process reengineering as it is also known). This was brought to the fore by James Champy, co-founder of the consultancy com-pany CSC Index, and Michael Hammer, an electrical engineer and former computer science professor at MIT. The roots of the idea lay in the research carried out by MIT from 1984 to 1989 on “Management in the 1990s.”

Champy and Hammer’s book, Reengineering the Corporation, was a bestseller which produced a plethora of reengineering pro-grams; the creation of many consulting companies; and a deluge of books promoting alternative approaches to reengineering. (Thanks to the popularity of reengineering, CSC also became one of the largest consulting firms in the world.)

More recently, the concept of Business Process Management (BPM) has gained major attention in the corporate world and can be considered as a successor to the BPR wave of the 1990s. BPM’s driving logic is the quest for process efficiency supported by information technology. Like BPR before it, BPM is now accused of focusing on technology and disregarding the people aspects of change.

The basic idea behind both BPR and BPM is that organiza-tions need to identify their key processes and make them as lean and efficient as possible. Peripheral processes (and, therefore, peripheral people) need to be discarded. BPR took a more brutal approach. “Don’t automate; obliterate,” Hammer proclaimed. Champy and Hammer defined reengineering as “the fundamen-tal re-thinking and radical re-design of business processes to achieve dramatic improvements in critical measures of perfor-mance such as cost, quality, service and speed.”

BPR was the sword to cut the Gordian knot of bureaucracy that had become institutionalized in many companies. In particular,



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it advocated that peripheral processes and by implication periph-eral employees should be stripped away.

To start the revolution, it was suggested that organizations take a blank piece of paper and map out their processes. This is undoubtedly a useful exercise. It encourages organizations to consider exactly what are their core activities and what pro-cesses are in place, and need to be in place, to deliver them effi-ciently. It also encourages organizations to move beyond strict functional demarcations to more free-flowing organizational forms governed by key processes rather than fiefdoms.

Inevitably, the optimum processes involved more effective uti-lization of resources. Functional organizations (as opposed to process-based ones) tend to contain elements of self-serving protectionism. Different functions do not necessarily share knowledge or work to the same objectives as other functions. Clearly this is, at best, inefficient. As a result, some stages in processes are eliminated completely. Others are streamlined or made more effective through the use of information tech-nology. Having come up with a neatly engineered map of how their organizations should operate, government departments and other organizations can then attempt to translate the paper theory into concrete reality.

The blank piece of paper problem

While its relative simplicity makes it alluring, actually turning reengineering or BPM for that matter into reality is more dif-ficult than its proponents suggested.

The first problem is that the blank piece of paper ignores the years, often decades, of cultural evolution which led to an organization doing something in a certain way. Such precon-ceptions, and often justifiable habits, are not easily discarded. Functional fiefdoms may be inefficient, but they are difficult to break down.

The second problem is that reengineering can appear inhumane. Reengineering, as the name suggests, owes more to visions of the organization as a machine than a human, or humane,



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system. The human side of reengineering has proved its great-est stumbling block. To reengineering purists, people are objects who handle processes. Depersonalization is seen as the route to efficiency. (Here, the echoes of Frederick Taylor’s manage-ment by dictatorship are most obvious.) Similarly, BPM with its emphasis on using technology has also been criticized for dehumanizing work.

The third obstacle is that government organizations and the civil servants who populate them are not natural revolutionar-ies. Instead of casting the reengineering net widely they tend to reengineer the most readily accessible process and then leave it at that. Related to this, reengineering usually fails to impinge on management. Not surprisingly, managers are all too willing to impose the rigors of a process-based view of the organiza-tion on others, but often unwilling to inflict it upon themselves. In response, James Champy has suggested that reengineering management should tackle three key areas: managerial roles, managerial styles, and managerial systems.

Case study: Reinventing the Bank

As an organizational example, let us consider the story of the UK’s Financial Services Authority (FSA).

In the general election of May 1997, the new Labour govern-ment swept to power in the UK with an overwhelming major-ity. One of the new government’s first bold actions was to make the Bank of England independent to set monetary policy. In effect, the new government was restoring the Bank of England’s freedom from political interference that had been lost when the Bank was nationalized in 1946. Within three weeks of coming to power, the new government also announced that the eight exist-ing financial regulators in the UK would be merged. In the pro-cess the Bank of England would lose responsibility for banking supervision, leaving it free to pursue its primary aim of setting monetary policy.

At the time, the new regulator did not have a name—it started life under the title of Newco—and had only one employee—its first chairman and chief executive, Howard Davies. In June 2008,



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the new regulator, now called the Financial Services Authority, opened for business. The FSA was intended to be a one-stop-shop for banking supervision.

Prior to its creation, eight different “principal” regulators over-saw operations in the banking, securities, and insurance markets. For large financial services groups, with operations spanning several different financial markets, this meant separate relation-ships with multiple regulators. A conglomerate such as HSBC, for example, had relationships with four or five different regula-tors. One regulator acted as the “lead” regulator and coordi-nated with the other concerned or interested regulators. This process wasted resources for both the industry and regulators and often created conflicts between entities.

By 1997, the Bank of England had a specialist bank supervision department staffed by about 450 people (the largest it had been in decades).

Context of change

By the late 1990s there was a growing sense that the Bank of England should focus on monetary policy (and abandon bank supervision). It was also clear that having one regulatory entity accountable to Parliament would be easier than tracking the operations of eight different agencies.

In 1997, empowered by its electoral triumph, the new Labour government announced the merger of the existing eight finan-cial regulators. The vision was clear and simple: Carve a niche role for the FSA and define how things will work.

From the outset, Howard Davies, the leader of the newly created unified regulator, recognized the importance of the key stake-holders. These were: the Bank of England; the newly created FSA; the Treasury; and the financial institutions (effectively its clients).

These clients were heavily engaged through advisory panels, consultation mechanisms, and partnerships in studies. But the FSA often failed to communicate to institutions the role of the EU in the regulatory framework.



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Michael Foot worked at the Bank of England from 1969 to 1998, and on the creation of the FSA from its announcement at end of May 1997 while still a director at the Bank of England to its formal creation in June 1998. He was then appointed as one of three managing directors of the FSA, an appointment renewed in 2001. In writing about his experiences at the FSA, Foot was keen to capture the lessons from the transformation for others embarking on a similar journey.25

“I am a great believer in public/private sector discussion and co-operation at every stage,” he noted. “The word may now be somewhat passé; but the quality and cost of financial regula-tion matter a great deal to the industry and its consumers—they are the key stakeholders. I have not had time to write about the array of advisory panels, consultation mechanisms, cost-benefit studies and all the rest that the FSA surrounded itself with. But in helping to find the manpower to create a new regulator while keeping the old system running and to build support from the industry and consumers (who eventually will end up paying for the new regulator), the time and effort spent on consultation pays for itself many times over.”

The role of leadership

In 1997, when Howard Davies was appointed chairman of the newly formed regulator, it had no name, no employees, and no law governing its operations. Yet, despite this difficult start, Davies managed the long transition period as a member of the tripartite committee until the 2001 Act empowered the FSA. During that period, Davies had to absorb the eight entities and shape the creation of the FSA, while closely coordinating with the two powerful and established partners—the Bank of England and the Treasury. His leadership clearly defined what the FSA would become.

“I was not a great believer in ‘leaders make history’ until I worked with Howard Davies in the creation of the FSA,” Michael Foot observed. “There I saw at first hand the value of his insistence in defining what the new body was to be (in the sense of its culture, ‘how we do things around here’) and how this helped us to carve out a new existence. From the first, the FSA was consciously set



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up not to be the ‘Bank of England in exile’, or an extension of the old Securities & Investment Board or any of the predecessor bodies.”

The transformation consisted of merging eight financial regulators—and integrating them into one entity. A year into the merger, the new entity was given the name the FSA but no legislation was enacted to empower the FSA which remained a body in transition for almost 3.5 years (the necessary law was not enacted until 2001). For most of that time, the transforma-tion was governed by a memorandum of understanding (MoU) between the three main stakeholders—the FSA, the Bank, and the Treasury—signed in 1997. A tripartite committee was cre-ated and successfully oversaw the transition.

The MoU between the three parties included four basic tenets: clear accountability; transparency; no duplication of effort; and regular information exchange. (These tenets are worthy of con-sideration as the basis of any organization.)

The FSA created economies of scale during and after the tran-sition, combining the resources from HR, IT, and support ser-vices, for example. As a result of this and other efficiencies, the FSA also managed to keep its fees at a competitive rate.

As Michael Foot noted: “The new FSA managed to find some very significant economies of scale even in transition. The eight previous regulators had all had support services for IT and human resources that were just too small. It also proved much easier and far more effective for the FSA to represent UK inter-ests in Brussels and at the huge range of international regulatory meetings than it had been for individual regulators to do so. As a result, and despite operating in a strong financial market where salaries were rising far faster than inflation, the FSA in its early years managed to keep the increase in its fees to no more than the rate of inflation.”

Ambidextrous organizations

In any process of change—such as that at the FSA—trying to foster a culture that is supportive of innovation and change means wrestling with two diametrically opposed organizational



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qualities—adaptability and alignment. Adaptive organizations have the ability to respond to change, to be nimble, to progress. Alignment is about maximizing the present, leveraging existing ideas, and exploiting markets.

Organizations that successfully balance the two qualities have been called ambidextrous. The key to success is to empower individuals to make the choices in their day-to-day work that allow them to find the balance.

Balance will be an increasingly important quality in government. Indeed, nowhere will balance be more vital than in navigating a particular type of challenge—multiagency collaboration. This is where a large number of agencies work together on a local, national, or global basis.

Tackling wicked issues

Multiagency intervention and cooperation is an attempt to effec-tively combine resources, time, and skills that several organiza-tions can bring to bear on a common problem. Originally, the concept came from particular community developed projects. Today, a multiagency approach is increasingly seen as the only way to address a special type of issue—so-called wicked issues.

“The idea of the ‘wicked issue’ has become part of the contem-porary currency of public administration and management,” notes an influential 1997 paper on the subject.26 “... they [wicked issues] suggest a special class of policy problem; one without an obvious or established (or even common sense) solution, defy-ing normal understanding—and often not sitting conveniently within the responsibilities of one organization.”

Wicked issues include such disparate challenges as addressing criminal activity, urban regeneration, health inequalities, sub-stance misuse, climate change, and homelessness.

Take crime, for example. It has become apparent that crime is a social problem that is best tackled by several organizations (or agencies) working together. Furthermore, collaborative work-ing, where two or more organizations work on a problem simul-taneously and in close cooperation, can result in a combined



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outcome that is more effective than that of any one organization working in isolation.

Examples of multiagency collaboration from the UK include the Wolverhampton Community Safety Partnership, which is supported by the Probation Service, the local authority, the voluntary sector, and the police. Its directors are drawn from these agencies and the Wolverhampton Chamber of Commerce; Wolverhampton University; the Race Equality Council; Victim Support; the Town Centre Association; City Challenge; the Federation of Tenants Associations; and other bodies.

Another example of a multiagency approach is the Thames Valley Partnership. In 1992, the determination to initiate a major crime prevention program brought together senior members of the Thames Valley Police, the Probation Service, the Crown Prosecution Service, the Prison Service, the courts and the local government. These organizations were convinced that progress could best be achieved by partnership between their agencies, together with representatives of voluntary community groups and with the support of the business world.

The value of this sort of collaborative approach lies in the com-bination of resources, time, and skills that several organizations can bring to bear on a common problem or target. After all, no one agency has the monopoly on resources, information, or expertise. There are definite advantages but serious difficulties to this way of working.

Multiagency collaboration involves liaison, coordination, coop-eration, partnership, and even consortium. Above all, though, it requires the will to tackle important but seemingly intractable challenges—and the leadership to balance multiple interests and stakeholders.

Smart questions

Is your organization fit for its purpose? How would it have

to change to meet the new expectations and demands placed upon it?Have you defined an operating model?



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What would your organization look like if you started with a

blank sheet of paper?How hierarchical is your organization? How many layers of

management separate you from the customer/citizen?Could your organization be simpler and leaner? What would

have to happen to achieve that?What is stopping you changing your organizational

structure?Which services that you provide are core and which could be

outsourced to deliver better value?Do you face “wicked issues” that require multiagency collab-

oration? Which other agencies would you need to collaborate with? How could you start that conversation?



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110

CHAPTER 6

Developing talent

Talent scouts

Organizational structure and design is critical for smart trans-formation. But the structure is merely the vehicle for human capital. Like a well-designed car, it is pleasing to the eye but will not take you anywhere without people to drive it. To create and maintain momentum it is vital to build internal human capabili-ties. Transformation is built and delivered by the people in the organization.

The quality or talent of the people working in government departments and agencies is probably the single biggest factor in determining the success of the transformation. The talent chal-lenge spans the entire organization—from the most senior leader down. Many a good leader sees their transformational ambitions thwarted by a lack of talent lower down the organization. It is not enough to simply hope for the best. Effective leaders man-age the talent issue to ensure they have the right people and the right capabilities in place to drive change. Just as importantly, they put a strategy in place to ensure that the organization is building the talent and capabilities for the future to sustain the smart transformation. This includes having recruitment targeted at and training for the right skills, but, critically, it also means developing and deepening institutional capabilities especially leadership.

This chapter examines how to develop a strategic talent man-agement plan to ensure the successful transformation and post-transformation.

There are two important points to make right at the start. First, it is already clear that in the future the public sector will have to compete with the private sector for talent as never before.



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111Developing talent

The days when individuals chose to pursue a career solely in the public sector—typically in the civil service—are largely over. Today’s leading graduates are bombarded with opportunities. The question is no longer whether to join the civil service or, say, a leading management consulting firm. Rather the issue is when and for how long to work in the private sector before switching to a career in the public sector for a time and then perhaps mov-ing back to the private sector again. Indeed, many talented indi-viduals will spend their careers moving continuously between the private, public, and even the not-for-profit sector.

The second point, which follows from the first, is that if pub-lic sector organizations are to compete for talent with private sector organizations then they cannot hope to win on financial compensation alone. The private sector is more flexible and often better resourced and therefore able to pay a premium for talent. This places special requirements on talent strategies with government entities. In particular, it is vital that they find ways to tap into the ethos of public service to attract, motivate, and retain talent. Soft power once again has an important part to play in attracting and retaining talented individuals.

A third point to make at the outset is that a transformation by its very nature will change the capabilities and skills required of the people involved. In other words, the talent that got you here will not get you to where you need to be. It is essential therefore that any talent management plan recognizes the need to con-tinuously develop and “retrain to retain” talent.

Delivered by people

“What have you learned?” we asked one minister. He paused before replying: “You have to be very patient. Experience is a real treasury—you can anticipate the problems ahead. I was very lucky to have a variety of experiences when I was younger. My advice to my subordinates is to get experiences. And be patient—don’t jump to conclusions or to results too quickly.”

Lord Michael Bichard laments: “I think there is a reluctance to learn. I have been struck by how many people find them-selves in daunting leadership positions without really having



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had the experience you need. One of the things that the civil service should have done was to not even consider someone for a promotion to the senior civil service until they have eighteen months of solid operational leadership experience. That’s when you are really tested as a leader. If you are running a benefit office you don’t have the luxury of a week or two to consider the challenge that’s facing you on a Monday morning. You have to make a decision for the good of your staff and customers, and you have to make that decision on the basis of the information you have before you because people can’t wait. A lot of people find that quite difficult when they get into leadership.”

“It helps hugely if you work for one or two people who act as a mentor whether they do it formally or informally. I would have got nowhere in my career had it not been for my first boss who thought I had talent and was prepared to give me quite a lot of space and support. Every now and then when I overstepped the mark he would almost get me by the collar and say do that again and you are out. You need people at different times, with differ-ent skill sets, who really do care about you as an individual. I have always remembered that in trying to manage young people in my organizations. I try and give young talent real space to develop and be creative while setting some boundaries. I see a lot of people who are so desperate to control the organization and people that they don’t do that.”

“So I think it is a matter of experience, advice, having a men-tor and, crucially, a willingness and desire to learn. We learn in different ways but I am constantly even now thinking about how I can learn from situations, observing how other people have handled situations, particularly politicians. Why do they do that? What information were they using? How would I have handled it? You have got to be prepared to learn from the good things that happen as well as the bad things. Some people only learn from the mistakes, sometimes it’s important to reflect on why did that go so well? Why did I get that right?”

Talent management

In the private sector, talent management is about organizational investment in people in order to create competitive differentia-tion. It focuses on the key people who are not just contributing



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to the day-to-day running of the organization, but are also add-ing a differentiating edge. So what are the key elements to talent management in the public sector?

In a public sector organization while the intense focus on com-petition is lacking, the need for talent management is equally great. In an organization such as the United Kingdom’s National Health Service (NHS), for example, it is necessary to ensure that the general public—the consumer of healthcare services—gets the best the NHS has to offer; and that the NHS continues to attract the very best staff.

Dr. Phil Smith is a specialist in organizational behavior, for-merly at Cranfield School of Management. He also runs a con-sultancy specializing in talent management and has extensive experience of working with public sector organizations. “I tell people in the NHS and other public sector organizations that even though they are not in the same kind of competitive envi-ronment as say a private corporation, they are nevertheless, competing to improve their services and their reputation on a continuous basis,” says Smith.27

He points to the Patient’s Charter, the National Clinical Assessment Authority, the National Patient’s Safety Agency, and other bodies that monitor and vet the service provision of the NHS. What these bodies are interested in is the ability of the service provider to deliver on its promises to its clients, and to the national population, on a continuously improving basis.

Filling the talent pipeline

Talent management has been on the agenda of most large orga-nizations in the public and private sectors for some time now. The focus, however, has moved from a general approach to a more specific targeted one. It is no longer a crude war to find, attract, develop, and retain very talented people. This is because organizations now understand that the definition of “talented” varies widely, depending on the organization.

“Organizations are getting extremely clever and very specific about the talents and the capabilities that they want to drive their organizations forward,” says Smith. “It is not just about



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the top five per cent or 10 per cent, it’s about people who are highly capable in quite specific ways.”

Organizations need to create a talent pipeline. This means advanced planning. Where are you going to need talented peo-ple in the future? Where are you going to find them? How can you make sure that they are the “real deal”? What are you going to do with them once they have arrived? These are the questions that organizations should be asking in the planning stages of their transformation.

Questions don’t necessarily provide easy answers and some pub-lic sector organizations still misdirect their recruitment activities. A good example is the Hertfordshire Constabulary’s campaign, started in 2000, to recruit 400 new police officers by 2003.28 Against the backdrop of a national campaign to recruit more police, Hertfordshire managed to recruit just 9 new officers every 5 weeks against a target of 25. At that rate it would have taken seven years to reach its target rather than the three anticipated.

Consequently Hertfordshire launched a local campaign target-ing passive job seekers and others who might not have normally considered a job as a police officer. Its advertising emphasized the less formal and community-minded approach Hertfordshire policing had compared with some more metropolitan areas. The result was a 150 percent increase in applications within six months, from 50 per month to an average of 125 per month.

This more targeted approach to talent recruitment is likely to become commonplace. Especially as organizations begin to reassess their ideas about what constitutes talent.

“Some public sector employers, including the NHS, have some really innovative ideas on leadership, but need to broaden their concept of talent,” says Julia Oliver, head of practice for public services at recruitment firm Bernard Hodes. “They could be more proactive, for example by adopting a talent scout ethic. It happens in private sector recruitment, so why not in the public sector?”

Hiring difference

Even if organizations are able to identify and recruit talented employees, many are not up to the challenge of meeting the



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needs and expectations of these people once they are onboard. By definition talented employees are not average. Often they have unorthodox demands.

“When you find someone who is talented they may not respond as well to standard run of the mill procedures and processes,” says Cranfield’s Phil Smith. “So we have to be inventive about how we performance manage key people. We have to be particularly clever about how we reward them and careful that in handling things differently for them, we don’t upset everybody else.”

One solution is to devise flexible development programs. Everyone in the organization is offered development opportuni-ties, but the range and scope is more diverse for high-potential people. Equally the total benefits and reward package must be structured to suit the needs of different people.

So where do organizations go wrong? One area where many organizations—public and private sector—are weak is in mak-ing a thorough diagnosis and analysis of what talent the orga-nization needs and what talent it already has. The organization must ensure that there is enough talent waiting in the wings to fill any gaps that materialize.

Assessing the quality and depth of the internal talent pipeline is essential. Often it is comparatively easy to judge how the senior executives are doing. Their performance is scrutinized, measured, and publicized whether they perform well or badly. However, it is more difficult to assess the bench strength the further down in the organization you go.

The problem is that the most important people are sometimes the least aware of what it is that makes them special. What are their managerial strengths and limitations?

The identification and assessment of talent needs to be as objec-tive as possible. The standard battery of psychometric tests that are usually employed is useful, but no more than that.

Talent management requires organizations to take a series of steps. In particular it requires them to implement a struc-tured system within the organization for evaluating what kind of “talent” is required, where that talent is required, and what talent already exists. The organization then needs to design



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performance measurement, personal and professional develop-ment, and benefits and reward systems that are flexible enough to cater for the diverse talent mix.

To do this requires top level buy-in, and recognition at board level of the importance of talent management, and of securing and maintaining adequate bench strength. It also requires an appetite in the organization to do something about it.

The next war for talent

It is difficult to attract and keep top talent, acknowledges Douglas Ready, professor at London Business School, but he believes that an organization’s culture and climate are key ele-ments for creating a system that works.29 “By definition, great people have a great many options,” notes Professor Ready. “Even in difficult economic times, organizations must develop talent policies that will attract, motivate and retain the best tal-ent; but I would argue that today’s talent challenges are tougher than ever before.”

“They don’t just feel tougher; they are tougher. A variety of fac-tors are at play that present challenges for top teams and HR professionals looking to attract and retain the talent they need to get and stay out in front. Taken individually, these factors, while formidable, don’t appear to be overwhelming. But when we look at the factors as a series of forces coming together at the same time, we can see that a perfect storm is brewing in the global race for talent.”

Doug Ready identifies three major forces that are converging to make the contest for talent more challenging:

Globalization: Globalization means that the barriers to travel are falling making the flow of talent around the world far more fluid than ever before. This presents government departments with a double-edged sword, in that they are able to attract expa-triate workers to boost their talent pool but also have to com-pete with the private sector for talent.

Digitization and the knowledge economy: The second force impact-ing on talent management is the advent of new technologies.



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In a world in which social networking communities such as LinkedIn and Facebook have become ubiquitous, and an iPhone or BlackBerry enables us to share experiences with people thou-sands of miles away, technology has become an enabler that allows talent to connect across national boundaries.

Deloitte, the professional services firm, conducted a survey of approximately 125,000 of its employees and found that, on any given day, more than 70,000 of them are on Facebook. A genera-tion ago this might have been viewed as a pervasive employee engagement problem. To Deloitte, it is an acknowledgment that its employees are finding new and creative ways to stay con-nected with their communities of interest—globally. The tal-ent management challenge becomes one of understanding how technology can be used in sourcing, developing, engaging, and retaining great people. We are seeing employee blogs that eclipse a company’s traditional engagement surveys and YouTube vid-eos being used to attract key prospects on college campuses.

The influence of demography and ideology: The third force affect-ing talent management is the demographic time-bomb. Much has been written about the prevailing demographic trends, espe-cially in the Western world. In America and Western Europe, the very large generation of Baby Boomers is moving into retire-ment; it will have to be supported by a much smaller Generation X. Generation Y is another very large generation but one that is yet to fulfill its potential in the talent pool. The newest cadre—what many are referring to as the Facebook Generation or Gen F—those people growing up in a world where social net-working is commonplace—will present even more challenges to HR managers.

The challenge for governments is to create talent management strategies that appeal to all these different generations. One of the primary attractions of a traditional civil service job was job security and predictability of career trajectory. But in a world where talented individuals know their own worth and can migrate across continents seemingly at will, those aspects are no longer compelling. The challenge will be to replace a dull but secure career offer with one that is both exciting and imbued with greater meaning. Smart transformation potentially offers such a talent platform but only if the leadership is able to articulate



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a clear and compelling vision and back it up with progressive career development policies and training.

A new talent compact

“With so much emphasis on understanding the differences brought on by globalization, technological innovation and cross-generational perspectives, it is easy to overlook the fact that there is perhaps more that binds us together than separates us. Throughout the world, no matter where business is con-ducted, we all strive to find meaning in our lives. We all want to be connected to our communities, and we all want working environments that offer challenge and fairness.

As such, the hallmarks of the new talent compact must be char-acterized by the dual principles of promises made and promises kept,” says Doug Ready.

“Promises made” reflects the organization’s sense of purpose, and the opportunities it provides for talent to grow and develop at a pace in keeping with the growth of the enterprise. “Promises kept” reflects the culture and climate that the organization has created that will enable it to keep its promises.

According to Professor Ready, while important, promises made and kept is about more than providing a compelling sense of pur-pose in organizations: it is about creating cultures characterized by authenticity, connectivity, and meritocracy. An organization with a high authenticity culture is one that is true to itself in its policies and practices, including, of course, its talent manage-ment practices. High connectivity is about placing a premium on collaboration, enabling voice, boundary spanning, and break-ing down silos. A culture of meritocracy is one in which people believe that their efforts and results will be rewarded regardless of where they reside in their organizations.

By better understanding the forces that are forming this perfect storm, and by creating, executing, and living up to a new talent compact, we can begin to set a proactive talent agenda that will enable our organizations to be game changers rather than pas-sive participants in the global war for talent.



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Global talent management

Talent management is moving into a new era. “Too many orga-nizations are wasting their resources—their people and their financial leverage—by perpetuating outdated approaches to talent management,” observe DeAnne Aguirre, Laird Post, and Sylvia Ann Hewlett, authors of Top Talent.30 “They struc-ture jobs rigidly, forcing many people to work 9.00 am to 5 pm, Monday through Friday, workweek. They focus their training on functional skills, not on aligning employees’ capabilities with the strategic objectives of the business. For leadership develop-ment and career advancement, they rely on long-standing train-ing courses that don’t reflect the contributions that people can make in today’s flat, flexible, and entrepreneurial organiza-tions. And their compensation systems do not adequately link to performance or hold managers accountable for developing the talent of their staff and their direct reports. In short, the tal-ent management in these organizations is not arming them with the decisive, experienced, globally minded visionaries that they need at every level.”

The criticisms are well made. In particular, the private sector—and more recently the public sector—has been overly concerned with so-called competencies. Human resources departments all over the world have spent the past decade or more creating lists of competencies their organizations require for the future and then trying to justify their own existence by developing those skills. This has largely been a tick box exercise in many organi-zations and has come at the cost of understanding the need for capabilities. It is capabilities rather than competencies that will define the talent pool of an organization.

According to Aguirre, Post, and Hewlett, organizations need to switch to a global talent management model, comprised of four elements or priorities.

Differentiated capabilities

The differentiated capabilities that distinguish one organization from another vary widely according to context. A capability is



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not the same as a functional capacity—such as forecasting, or budgeting. Rather, it is cross-functional, extending across disci-plines, offices, and even departments.

To understand and prioritize the critical capabilities, organiza-tions need to: review their strategy and capability requirements, and then take an inventory of current skills, profiles, perfor-mance, and critically, potential. This should enable them to identify high-priority gaps and develop talent strategies to close them.

Most employees fall into one of four groups: Pivotal employees—the most crucial group—are those with specialized skills and abilities that contribute directly to fulfilling the orga-nization’s objectives. The second group consists of core employ-ees who are critical to executing on strategy. The third group are support employees whose contribution is important but could be delivered by other means such as outsourcing. Finally, there are noncore employees with skills that can be easily replaced. Once the four groups are identified, retention and development strategies can be developed to attract and retain the three most desired groups. For the pivotal and core groups, the organiza-tion should aim to offer competitive packages including innova-tive and flexible job design, strong leadership, and good career progression opportunities.

Performance acceleration

Smart transformation relies on creating momentum. That in turn requires a ratcheting up of individual performance. More of the same will not achieve the desired results. Accelerating performance requires a number of steps. First, you can’t accel-erate what you don’t measure. It is therefore essential to capture performance—that is to say outcomes not just activities. That requires a well-designed system of performance measures and milestones. Individuals who perform well against these objec-tive criteria should be fast-tracked for career development. So, for example, it is useful to keep a tally of all those people who are “ready now to succeed their boss,” rather than simply have the training or potential.



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Second, it is vital to recognize and reward merit rather than mediocrity. Priorities should be reinforcing meritocratic pay and promotion decisions in alignment with employee capabilities so that capabilities and performance are continuously improved.

Leadership development

As indicated throughout this book, the capabilities that define a world-class leader have evolved in recent years. Talent manage-ment practices need to reflect that fact. In particular, leadership development requires the following steps.

First, most organizations have created fairly narrow and generic lists of competencies. A broader and more action-oriented set of leadership capabilities/competencies should be identified. These should take account of both the long- and short-term objectives of the organization.

Second, promote and develop people who match those capa-bilities. Look beyond the traditional leadership talent pool to identify people who may be lower down the hierarchy but are delivering significant performance. It is also worth looking out-side the organization, to consultants and other contracted talent who might be recruited.

Third, strengthen the leadership bench strength. It is important that the current leadership—including the most senior leaders—are involved with leadership development, providing strong role models, and emphasizing the value of the next generation of high-potential leaders.

Fostering a talent culture

The previous point speaks directly to the need to foster a talent culture. Such a culture is made up of the values, beliefs, behav-iors, and environment required to attract, engage, and retain committed and talented employees. A talent culture comes from the senior leadership. There is no greater contribution that a leader can make in a smart transformation than role model-ing the leadership style and talent culture of the future. When



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we spoke to the next generation of high-potential leaders in one case, they pointed to a single individual leader who had had a profound influence on their own leadership style—even adopt-ing his habit of walking visitors to the elevator as a way of show-ing respect.

This talent model allows a much broader group of people to take on positions of responsibility. But it requires leadership to put such a model in place. “The highest-performing organizations don’t leave talent performance acceleration to HR alone; they make leaders at all levels directly accountable for improving the capability and performance of their people. HR provides the nec-essary tools and programme support; leaders oversee the process and determine the outcomes,” note Aguirre, Post, and Hewlett.

Case study: Accountability for change

Now let us consider the transformation of the US Government Accountability Office (GAO), which was largely driven by human capital reform.31

Rather than delivering services direct to the American people, the GAO provides a unique oversight role within US govern-ment. It is the audit, evaluation, and investigative arm of the United States Congress, overseeing the use of public funds and making recommendations for improving the economy or effi-ciency of public sector organizations and projects. Unlike coun-terpart agencies in other countries, the GAO has a broad remit that encompasses performance reviews as well as purely finan-cial audits. The GAO is headed by the Comptroller General of the United States, a nonpartisan position appointed by the pres-ident under advice from Congress. Comptrollers General tend to be long-serving, giving the GAO stability and continuity in terms of its leadership and management.

Originally created in 1921 as the General Accounting Office, the GAO organization evolved over the following decades to a shift-ing set of circumstances and demands. From its inception until the Second World War, the GAO oversaw every financial opera-tion in the US government machine, and its working environ-ment was intense and highly supervised, with armies of clerks



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examining transactions at a relatively low level. After the Second World War, the GAO focused on broader financial management and underwent large-scale downsizing and restructuring. When it became swamped with financial records, auditors replaced the clerks, and the focus of the organization moved toward higher-value, expert analysis rather than clerical monitoring.

In the early 1970s, the GAO went through another major reorga-nization. Its large government-focused divisions—for example, the Defense Department—were replaced with smaller, function-ally focused divisions such as procurement and logistics. The GAO’s personnel became still more professionalized, with more experts from specific disciplines joining the workforce.

Then in 1980, the GAO Personnel Act was introduced. Seen by some at the time as revolutionary, the Act offered the GAO far more freedom in defining the structure, organization, and com-position of its workforce, as well as the methods by which they would be assessed and rewarded for their efforts. Specifically, the GAO could now set some employees’ pay independently of the federal government, and establish a performance-based pay system for some employees. This step, radical at the time, laid the groundwork for the transformation of the GAO.

Budget cuts from 1992 to 1997 forced the GAO to reduce its workforce by 40 percent, freeze new hires, and limit the infu-sion of new talent. Changing perceptions, along with stretched resources, led some members of Congress to begin questioning the GAO’s credibility, and other agencies (and non-government organizations) started to compete with it to provide the same or similar functions.

In 1998, Dave Walker was appointed as the new Comptroller General. He inherited a highly hierarchical and segmented orga-nization, which was considered unfit to meet its purpose in the new millennium. As we have seen, this type of organizational sprawl is commonplace, particularly in large organizations that have evolved gradually or incrementally, over many decades, without cogent strategic direction.

In Walker’s eyes, the challenge was twofold: to restore the GAO’s reputation for high standards of professionalism; and



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to build the capabilities that would transform the GAO into a model organization that other government agencies would want to emulate. His vision was to use human capital management to drive this transformation and make GAO a world-class profes-sional service entity.

For the first time in the GAO’s 70-plus-year history, a strate-gic transformation plan was introduced. Walker also pushed for the GAO Personnel Flexibilities Act of 2000, which allowed for large-scale reforms to the human capital management approach at the GAO, including a new system to attract and retain skilled staff.

The key stakeholders included the Comptroller, management and—perhaps most importantly—the GAO’s own staff. Walker recognized from the start that any transformation driven by human capital would rely critically on the buy-in of GAO employees. As he noted before the change began: “You’re only as good as your people. Your value walks out the door every day, and you hope it comes back tomorrow.” Unless staff and managers had a voice in the process—and felt they would be treated fairly—Walker knew that the transformation could not succeed. So particular attention was given to improving employ-er-employee communication, starting with the creation of an employee representation group.

However, some actions had to be taken quickly and without achieving full consensus beforehand. Because of the speed of the transformation, employees were not fully on board in terms of shaping and implementing all of the changes. Walker tried to ensure that lines of communication to the leadership remained open, with employees having access to the Comptroller. However, listening and responding are two different things, and in the event employees’ voices were not always taken into account when leadership had strong opinions.

As the leader, Walker led the rapid transformation of the GAO. His leadership was both visionary and proactive. He opted for a sweeping change rather than incremental changes. The clear objective of the change program was to transform the GAO into a model professional services organization that other agencies



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would regard as an exemplar in terms of organization, manage-ment, and service standards. To achieve these aims, the leader-ship pushed for a direct mechanism to bring new talent into the organization. Their efforts led to the 2000 Act.

Transformation program

Once the enablers were in place, a strategic transformation plan was introduced. This included a significant reorganization and a powerful performance management tool.

The Comptroller was instrumental in the creation of the GAP 2000 Personnel Act. This Act offered employees early retire-ment incentives and improved remuneration to attract and keep skilled staff, among other innovations. (The GAO Human Capital Reform Act of 2004 made these changes permanent and also changed the legal name of the organization—from General Accounting Office to Government Accountability Office.) With its new powers secured, the GAO introduced a comprehensive Strategic Workforce Plan. The vision was clear—the next step was to translate it into a workable strategy.

In order to accomplish the high-level vision, two themes of change were developed. The first was to develop a comprehensive strate-gic plan aimed at rebuilding GAO’s reputation. The second was to develop GAO’s most important asset—its human capital.

The program of reforming human capital within the GAO had to deal with five challenges. First, it had to break down silos within the organization, dissolving traditional boundaries between business functions, an inward-looking culture, and a strong focus on process rather than results. This was achieved by removing management layers, consolidating teams, and reducing the number of offices. Team leaders were also given much more responsibility. Second, the GAO needed more flex-ibility to manage and reward staff—this was delivered by the Act of 2000. Third, management capacity had to be developed, with weak middle management being identified as a key con-cern. The fourth area of change was employee evaluation, with a completely new system aimed at delivering better objectivity



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and accountability. Finally, a new pay system helped to link per-sonal performance with rewards.

The GAO also needed to consider how it would build and develop its human capital, and here activities centered on three main areas. First, an organization-wide human capital assessment was carried out. Second, extended development programs for entry hires were created and implemented. The workforce plan included training and development programs and knowledge-sharing strategies. Third, the agency’s recruitment programs were revamped and reinvigorated.

At the same time, a performance management tool was intro-duced to track and calibrate progress toward the stated goals.

A strategic planning process was introduced for the first time after 1998, followed by two-year human capital strategic plans.

In their report—The Transformation of the Government Account-ability Office: Using Human Capital to Drive Change—Jonathan Walters and Charles Thompson identify five basic lessons for other government agencies from the GAO experience:

The need to move cautiously when driving major human cap-1. ital change—and especially the importance of involving staff in the process. Change can be stressful, and the antidote to that stress is a sense of involvement.The need for strong workforce planning. The GAO’s strategic 2. human capital plan aims to ensure that its staff reflects its mission in the future.The need to emphasize smarter, more targeted recruitment, 3. hiring, and retention policies. This is key for attracting younger staff and giving them a reason to stay.The need to beef up investments in systems for the selection 4. and training of managers. Middle managers put human cap-ital strategies into action at the level of day-to-day work, and it’s essential that they have the skills to manage and develop people effectively.The importance of allowing staff to voice their concerns and 5. grievances—especially the need for a fair, unbiased, and transparent system for hearing employee appeals—including protection for junior employees.



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Talent starts young

It is tempting to believe that development programs for people already in the workforce are the answer to talent issues. They are part of the solution, but it is important that any long-term transformation is backed by suitably equipping people at a young age.

In Abu Dhabi the role and responsibilities of Abu Dhabi Education Council (ADEC) were restructured in 2008. Under the new law, ADEC took responsibility for the management, processes, and operations of the three educational zones in the emirate and became responsible for 305 public schools and 145 private schools. This means that ADEC is now responsible for the management of the schools’ financial and administrative affairs, human resources management strategy, and the devel-opment and implementation of standards that will govern all authorized education entities in the emirate.

The objectives of this change were:

To improve the learning outcomes of all students in govern-

ment schoolsTo improve the quality of teachers and teaching methods

To improve the quality of principals and administrators so

that schools are managed effectivelyTo replace the existing curriculum with a new one that is based

on international standardsTo upgrade information technology in schools

To improve the standards of school buildings and facilities

To strengthen parent and community relations

To graduate students of the highest caliber who will be able to

compete on merit as equals in a global marketTo establish quality higher education institutions that offer

pathways for students wishing to follow a technical, college, or university education

In June 2009, ADEC outlined a ten-year strategic plan designed to deliver excellence in schools across the emirate of Abu Dhabi. It set out an agenda to improve the delivery and administration of education in the emirate across the education system.



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The strategy includes both a long-term plan that will migrate the Abu Dhabi education system from its current state to one of very high quality, and a short-term plan that addresses immedi-ate imperatives. The long-term strategy involves migrating the schools to a new school model, in phases, beginning in kinder-garten, and proceeding to grade 12 by 2015–16. The new school model addresses everything from teacher qualifications and curriculum learning outcomes to classroom layout and school facilities.

The short-term strategy focuses on cycle 3 (grades 10–12) stu-dents who will experience a series of measures that will seek to give them the extra support, skills, and confidence they require to meet the entry criteria for university and college.

Targets and Key Performance Indicators (KPIs) have been set for each initiative and will be continually assessed and moni-tored to ensure ADEC is on track.

Talent in government

Sound political leadership is vital for economic growth and sta-bility. Yet some observers question whether a political career still appeals to the best and the brightest. As the pressures on political leaders intensify, the rewards seem increasingly out of step with the opportunities offered by business. At the same time, there is evidence of growing disaffection with politics in Western democracies.

Engagement with politics—including voter turnout—appears to be declining in many developed countries.32 Some commenta-tors argue this is due to an erosion of confidence in the workings of government, with many young people feeling that the politi-cal process is increasingly irrelevant to their lives. An alternative view is that there is absence of good political leaders to inspire young people.

Those considering a career in politics are bound to consider the financial and security implications. While there is no guarantee of tenure as a senior executive of a major corporation there are substantial financial benefits to offset the uncertainty. This is often not the case in politics. The salary of the president of the



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United States is $400,000 a year, that of the prime minister of the United Kingdom £163,000 ($255,047); the average Fortune 500 CEO earned $20 million in 2000. At best, a successful US president can remain in office for two terms, while a corporate chieftain such as Jack Welch may stay in post for decades.

The long hours, constant media intrusion—and potential per-sonal risk—that go with political leadership are not for the faint hearted. For many, the world of business offers a more alluring prospect. As the war for talent intensifies, the opportunity cost for the most able leaders is increasing.

Harvard professor Rosabeth Moss Kanter has identified another growing pressure on political leaders. She points to a ratcheting up of expectations that makes it increasingly difficult to deliver on campaign promises. “We expect heroes ... Politicians often get in because they promise to do something their predecessor didn’t do, so they often get in through criticizing so it becomes harder to deliver on some of the promises because these are highly difficult and complex problems.”

Ultimately, it may be the inability to make a difference that is the biggest disincentive to a career in politics. In first past the post political systems where the party in power has a sizeable majority, politicians on the losing side can spend years in pow-erless, ineffectual positions. Compare this with the freedom to make management decisions and the lack of restriction on ten-ure; it is little surprise that many of the brightest and the best head for business.

Even those whose sense of civic duty is strong may find the demands on their personal lives too great to justify placing themselves literally in the firing line. US Secretary of State Colin Powell has revealed that his decision, announced in November 1997, not to run as a Republican presidential candidate for the 2000 election was due to the concerns of his wife and family that his life would be in jeopardy.

The personal challenge

Talent is personal and starts with the individual leader. “I have to work hard to be one of the best under secretaries in the



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world. One day when you go to Singapore, we have to be able to compare and be equal to them,” one interviewee confided. And it was clear that the leaders involved in smart transfor-mations were committed to improving their own performance as well as that of their department or broader organization. Here, too, the use of soft power to attract talent should not be underestimated.

The need for self-development was constantly emphasized. “It’s a matter of constantly trying to learn about yourself, the situ-ation you are in,” says Lord Michael Bichard. “For any leader, one or two people actually act as their bridge. I worked for a sec-retary of state who was sometimes difficult. I acted as a bridge between the civil service and him and vice versa. I have had people in my career who have taken the same view, you know this guy is worth having, some private secretaries, one in par-ticular, I will act as a bridge for this guy and I will make some of the connections that he won’t naturally make.”

Developing those at the very top of the transformation process is given great emphasis. In Ireland, Enterprise Ireland has a lead-ership for growth program, run in conjunction with Stanford. This puts the top 90 CEOs in particular sectors through a rig-orous development program in which they are exposed to very successful role models in the United States, the Middle East and emerging markets such as Brazil, India, and China. Frank Ryan of Enterprise Ireland provides a neat summary of the tal-ent agenda for governments worldwide: “The strength of the senior management team is the key differentiator in any orga-nization, the idea is to change mindsets then set specific targets for growth.”

Smart questions

What have you done to create and build a learning organiza-

tion?What are the key capabilities for your organization now and

in the future?What are you doing to develop and retain talent? What are

you doing to create and nurture a talent culture?



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How do you compete with the private sector for talent? What

do you offer in terms of job satisfaction and meaning that pri-vate sector firms cannot?How have you tried to make your people capable of being able

to manage change? How are you developing future leaders?Do you have a talent management policy in place?

How do you continually develop your own professional skills?



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132

CHAPTER 7

Making it happen

Roll out

Finally, it is necessary to roll out the transformation plan to execute on the strategic objectives within a well-defined time frame. Now we look at the reality of making change happen and the importance of validating by monitoring and measuring to ensure key performance indicators are met.

It is a truism to say that making it happen demands the com-mitment of those involved. But, what exactly does commitment mean and, more to the point, how do you achieve it?

The underlying notion of commitment concerns an ability to maintain focus on an initiative from its inception to its delivery. But, commitment can be viewed and tackled from an array of different angles. For example, some proponents of change man-agement initiatives and administrative reform view commitment as the need for strong political backing. This implies that com-mitment is more of a top-down, leadership type of issue. Others view commitment from the bottom up. They see commitment as the need to command the attention of employees to the initiative and to sustain it over time, achieving this through involvement and participation, and the development of a trustful relation-ship between managers and employees as well as politicians and civil servants.

Building commitment requires these elements:

Visibility: People are more likely to commit to a policy program if it carries a high profile. Of course, a policy can gain such a profile in a number of ways. It could be high on the government’s agenda. It might influence a large or important segment of soci-ety or it may be a contentious issue. Irrespective of the reason, a



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133Making it happen

high-profile policy will be associated with greater risk in terms of the potential political fall-out. Given this, politicians tend to be keener to see a policy through and will, as a result, subject civil servants to greater degrees of pressure and accountability. Feeling the pressure, civil servants dedicate more attention to the policy, either to avoid failure, and the repercussions associ-ated with it, or to excel in an effort to position themselves favor-ably. Thus, the higher the visibility of the project, the greater is the pressure for change.

Does this mean that low-profile projects are inevitably doomed? Not necessarily, but raising their profile should influence political and administrative reaction to improve the likelihood of success. Critics may argue that this sounds logically flawed. Why attract attention when success can never be guaranteed? The answer lies in the fact that a self-confident government is one capable of pro-jecting a message of confidence in its ability to deliver. A sound marketing strategy can help project that image while simultane-ously fostering the type of commitment required.

Visibility can be influenced by decisions regarding its leader-ship. A policy publicly backed by the prime minister is instantly more persuasive. The ability to personify a policy provides sym-bolic, if not real, leadership. It projects a message of confidence and drives commitment toward successful implementation.

Ownership: Commitment must occur at multiple levels in the organization. First, there must be political and administrative commitment. Politically, at one level this must emanate from the executive arm of the government. It must also exist from a party perspective. In addition, there is a need for ownership to exist at both an individual and collective level. With politicians vying for attention and resources, the principle of ministerial collec-tive responsibility may often be hard to accomplish. A major contributor to the success of any policy is usually related to the ability to muster some notion of collective responsibility for it. Traditional lines of demarcation arising from different political portfolios can be overcome if commitment is owned. Resources are then shared and deployed as necessary.

Reach: As we have seen, commitment to a policy implementa-tion program must also reach as many stakeholders as possible.



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The wider the audience, the more diffused is the policy and the more difficult it is for specific lobby groups to rally strong oppo-sition. Key to making it happen is the ability to identify and properly manage all affected stakeholders. Implementation pro-grams often fail either because stakeholders are not adequately defined or because it is only the interests of one or a few select groups that are accounted for. Broadening a policy’s reach should demonstrate a government’s will to maintain and foster social integration.

Tangible: Commitment must also be built in tangible ways. Reach must be supplemented by the active involvement of stake-holders, so as to further diffuse opposition and, more impor-tantly, to develop a following for, and ownership of, the policy. Policy leaders must be actively involved in implementation. Leaders must orchestrate the various elements of a program, and must also be prepared to get personally involved in imple-mentation. Commitment must be backed by investment of time and energy.

Durable: Commitment must be long term. It must be present throughout the process and must also be consistent. Commitment cannot grow when things are going right and wane when the odds take the upper hand. Durability can be helped via formal project management structures, regular meetings and debriefing sessions, motivational seminars for participants and continuous marketing and promotional campaigns to maintain external sup-port and internal encouragement and determination. Projecting an air of confidence helps to sustain momentum.

Action-oriented: As is clear, building commitment is an action-oriented activity. Implementation often fails because decisions are postponed or not made; or when taken, they are too late and ineffective. Policy implementers must, therefore, be assertive in their actions and confident in the outcomes of their decisions.

Supportive environment: A supportive environment is the final element in building commitment. This can be achieved via three potential strategies. The first is to create a demand for the policy to be implemented. A policy should not be implemented unless the ground has been prepared beforehand. Various measures



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may be undertaken—marketing activities, educational and awareness campaigns, debates and so on. Ultimately, the objec-tive is to get the audience to receive the policy, to reflect on it, talk about it, question it, add to it by proposing ideas and, hope-fully, end up demanding it.

This leads to the second strategy. This concerns the develop-ment of the necessary pressure to instigate change. Every pol-icy will somehow influence the status quo. The best way to overcome such resistance is to bombard it with enough pres-sure from all angles that it becomes easier for stakeholders to embrace the new policy than it is for them to hold true to an existing policy.

Finally, it is important that policies are not implemented in a vacuum, with little regard for what is happening in other areas of government. Policies need to be supportive of one another. The often-held idea that policies should be implemented inde-pendently from one another, so that failure in one does not taint the potential success of another, needs to be turned on its head. Governments should project confidence by bundling policies together. If managed properly this should help chan-nel resources and strengthen interorganizational dependence. Again the notion of soft power is critical here.

Managing execution

As indicated above, effective leadership is vital to make things happen. In particular, leaders who achieve transformation work hard at soft power—attracting and engaging willing supporters, and overcoming resistance to get things done. The other criti-cal factor is a well-structured execution management approach. Such an approach can yield substantial benefits, and organiza-tions which have formal execution processes have been shown to outperform those that don’t. A strategic management execution process orchestrates the execution activities across the entire organization with a structured approach.

Improved execution effectiveness means that the organization focuses on what really matters. It is able to balance short-term performance pressures with longer-term value creation activities.



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This also leads to higher execution speed: regular reviews help maintain momentum; gaps and problems can be detected and resolved rapidly. Another advantage is that there are clear-cut opportunities for talented workers to work on strategic initia-tives to prove their capabilities.

Execution management is often driven by a separate execution management office, which can be set up as a Smart PMO, tak-ing over responsibility for specific strategic initiatives.

In its content delivery and assurance role, the Smart PMO pro-vides “quick response” teams to handle urgent requests or proj-ects for which there are insufficient internal resources; helps project leaders analyze the risks in implementation and develop remedies; advises top management on issues and obstacles fac-ing implementation and recommends solutions; reviews outputs of projects to ensure they are aligned with the strategy; identi-fies and mitigates the impact of project changes on other con-current initiatives.

The Smart PMO is engaged in four different types of activities: core activities; project execution; content assurance; and capac-ity building:

Core PMO activities include: project planning; progress track-ing and reporting; risk management; issue management; project change management; and communication management.

The PMO is involved directly in execution where there is either a high impact level; or a large gap in current capabilities. Typically, such an approach is structured along four dimensions: gover-nance structure; progress monitoring; accountability mecha-nism; and strategy communication.

Governance structure: this involves defining clear roles, 1. responsibilities and decision rights; and assigning the execu-tion management office with a cross-functional remit.Progress monitoring: this requires multilevel reporting sys-2. tems and a regular, formal system that tracks progress.Accountability mechanism: this links individuals’ contribu-3. tions to strategy execution. It is captured in performance appraisal, with out-performers being rewarded.



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137Making it happen

Strategy communication: it is essential to leverage and link 4. internal and external communication to ensure management and employees’ ongoing commitment and focus on strategy implementation.

The process monitoring role includes: monitoring and report-ing on the progress of projects and initiatives; highlighting proj-ect overlaps and interdependencies; establishing and policing project planning, management, coordination and delivery of quality standards; ensuring that accountabilities and responsi-bilities are clear; creating transparent processes and structures to support and guide the execution; defining and executing on communication priorities and the change management strategy.

The PMO works closely with the project managers on content assurance, reviewing and challenging approaches and recom-mendations; reviewing and validating benchmarks and assump-tions; testing deliverables; and managing communication of deliverables.

When it comes to the fourth activity—capacity building—the PMO is involved with knowledge transfer; delivering training; the deployment of new skills and capabilities; advising on the design of internal capacity-building initiatives (such as a leader-ship development program).

The PMO also acts as a sounding board to the leadership team, providing guidance about issues such as the priorities and direc-tion of government entities. It provides regular status reports and underlines key recommendations—working with the affected government departments and other entities to ensure the recommendations are implemented. It also acts as a project air traffic controller—managing the flow of initiatives and proj-ects to ensure they take off and land in a timely and sequenced manner and don’t collide with each other.

The PMO can also act on special requests from the leadership team and can advise on the most effective execution plan. Finally, the PMO is responsible for overseeing progress—reviewing key deliverables and targets and offering robust opinions about progress.



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Case study: Tiger, tiger

To better understand how a joined-up strategy can inform and shape an economy at a national governmental level, con-sider Ireland. An island with a population roughly the size of Connecticut was one of the great economic success stories of the 1990s. The Celtic Tiger, as Ireland quickly became known, became a hub of high-tech activity, attracting many of the big-gest names in computing, and reinventing itself from an agricul-tural laggard to a software savant.

By the end of the 1990s, Ireland had established itself as a major exporter of software. The influx of high-tech multinationals began in 1989 with Intel’s decision to site its first European plant at Leixlip—a former stud farm in County Kildare, just west of Dublin. Intel employed 4600 people at the 270 acre site, and the company invested more than $3 billion, with a future $2 bil-lion planned. An additional 600 home-grown software compa-nies, including the NASDAQ listed Trintech, also blazed a trail across the Irish economy.

Among the other high-tech arrivals were Compaq, HP, Microsoft, Oracle, Gateway, and SAP, which all set up shop in the region. Most of the high-tech industry was based around Dublin, which was reborn as a high-tech capital. A number of technology parks were established, including Citywest, located on the western fringe of the city, which covers 330 acres, and was designated as Ireland’s National Digital Park.

All of this meant that, for a period in the late 1990s, the Irish economy was growing faster than any other European econo-my—expanding at three times the rate of the US. In that period, total output grew at more than 8 percent for five consecutive years; and unemployment tumbled from 15 percent in the early 1990s, to below 5 percent by the end of the decade.

There was more to come. Whereas in the 1990s commentators hoped for a gradual shrinkage of the difference between the Irish and average EU GNP per capita rate, 2005 saw Ireland’s GNP per capita rate second only to Luxemburg. Growth rates in excess of 7 percent per annum were seen as normal. Gone was emigration. In its place came the strange though welcome phe-nomenon of people coming to Ireland to work. Many were from



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139Making it happen

Eastern Europe, especially Poland and the Baltic states. They brought with them numerous skills.

The new affluence enjoyed by Irish people was welcome. It led to a massive surge in spending and consumption and with it inflation. This was particularly noticeable in the construction sector, and was aided by a sometimes-incautious approach to lending by credit institutions. The resulting construction boom would not have been possible without a vast and flexible supply of immigrant labor.

Inflation was a problem in the domestically traded service sec-tor and this had a corrosive effect on Ireland’s competitiveness. Ultimately, as we shall see, Ireland became a victim of its own economic ambitions. The factors that brought it success also rendered it vulnerable to the banking crisis. But before we look at Ireland’s recent economic travails, it is important to under-stand how the Celtic Tiger was unleashed.

To understand how Ireland vaulted from agrarian backwater to high-tech highway is to understand how the aspiration of a country was translated into action through far-sighted govern-ment policy combined with dynamic execution. Ireland’s renais-sance was a triumph of strategy and of being able to transform strategy into reality. Equally, its more recent travails in the face of global recession offer lessons in not becoming too carried away with success when it happens.

Celtic isolation

Ireland is a country poor in mineral resources. Industry was con-centrated in the northeast of the island, which opted to remain a part of the United Kingdom in 1921 as Northern Ireland. In the rest of the country, agriculture, marked by inefficiency and low output, was the only show in town. Ireland’s only significant export was its people. Tourism was a significant earner for its economy. Ireland was an island behind an island, sheltered from the outside world by the industrial might of Great Britain.

Not surprisingly, the country’s lack of industry was viewed as a weakness by its first leaders. Political independence sat awk-wardly with economic dependence. Industrial development was



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a political issue, to be tackled in political ways, by the state. Government economic policies owed much to writers such as Friedrich List who advocated the build-up of indigenous indus-tries behind high tariff barriers. What’s more the state was the only stakeholder with sufficient resources. There was insuffi-cient indigenous capital, so the state became a large player in the business and industrial sector. It established business monopo-lies in areas like sugar refining. These were managed by para-statals. They were often over-manned, and suffered from low productivity. Business imperatives, like earning a profit, were secondary.

The political elements of industrial development reflected the country’s representative structures. In the Irish Republic parlia-mentarians were elected in local constituencies. Their electoral fortunes depended on populist, local policies. It was impor-tant that industrial or commercial enterprises were located in the constituencies of government supporters. These enterprises would provide local employment and the employees would show their gratitude to the local political boss at the next election. Micro geopolitics were more important than commercial pre-requisites such as adequate infrastructure, distribution net-works, or skilled workers in deciding locations of state-owned enterprises, or the awarding of finance to foreign firms wanting to invest in Ireland.

The first step

Ireland’s first strategy was to devolve power for industrial devel-opment. In 1949 a separate Industrial Development Authority (IDA) was established. But, agencies responsible for driving industrial development remained very bureaucratic. They were heirs of the old British Civil Service culture, hide-bound by con-vention. They were highly ethical but their ethos was a million miles away from the needs of the business world. Decisions were never made in a hurry, and those who made them had never been in business.

In the 1960s the prospect of Ireland joining the European Economic Community gave a new impetus to industrial develop-ment. Development agencies came to be staffed by people with a



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141Making it happen

keener awareness of economics and international business. The promotion of Ireland as a location for Foreign Direct Investment was adopted with much more professionalism. Government policies to attract FDI included the provision of establishment grants, as well as construction of serviced “advance factory” sites. Foreign companies were lured by incentives such as a ten-year moratorium on the payment of corporation tax. Education was also extended, with a growing number of Ireland’s rising number of young people receiving third-level education. The education system was increasingly in sync with the demands of the business sector.

Ireland’s industrial base grew significantly, as did the number of people employed in industry. Emigration, a historical scourge in Ireland, was halted in the 1960s and 1970s. But structural problems persisted and were left un-addressed. These included chaotic infrastructure and poor transport facilities. In the late 1970s telephone communications in wide areas of the country were little better than in some undeveloped nations. The IDA was not free of its political masters. Certain locations were spon-sored above others for noneconomic reasons. Not all sectors of enterprise developed at the same rate, and the service sector was on the whole overlooked. Many firms merely established sub-sidiaries in Ireland, and once the tax moratoria came to an end it was not uncommon to see them downsizing or pulling out altogether.

In the 1980s emigration returned, but unlike the emigrants of the past, those leaving were often college graduates or diploma holders, with levels of education far higher than their parents. Fortunately the improvements made in the education sector were not rolled back, even though it sometimes seemed as if Ireland was spending money to train people for export. It was fortunate that the 1980s were also marked by improvements in infrastruc-ture, such as the national roads network, and most significantly, in the telecommunications field.

The next strategy

The economic situation improved in the later 1980s but by the next decade there was a sense that Ireland was still



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underperforming in promoting industrial and commercial devel-opment. Emigration, though lower, was still a worry. The gov-ernment responded by establishing an Industrial Policy Review Group, chaired by businessman Jim Culliton. Its report, pub-lished in 1992, stressed the importance of the enterprise sector in wealth creation in Ireland, as well as the need to promote yet greater improvements in the population’s skills.

The government was quick to act on these recommendations. Meanwhile in 1994 a new agency Forfás was established to carry out research on the needs and trends of Ireland’s enterprise sec-tor. It also advises on industrial and commercial policy. Through its painstaking research and reports Forfás continued to under-pin the development of Ireland’s enterprise sector.

One of Forfás’ earliest initiatives was a comprehensive follow-up document to the Culliton report, entitled Shaping Our Future—A Strategy for Enterprise in Ireland in the 21st Century.33

This aimed to provide a long-term though realizable strategy for the development of the enterprise sector. It stated: “A dynamic and expanding enterprise sector is an essential foundation in achieving a rate of social and economic progress in Ireland that has not previously been attained.”

Ireland, the report argued, already had significant strengths. These needed to be built upon and expanded. Progress depended on a positive partnership between the public and the private sec-tors. Government still had a vital role in putting the infrastruc-ture and skills base in place that the private sector could use. Its role in creating and pursuing macroeconomic policies conducive to enterprise development could never be overlooked.

It was a truism that the world was changing. Ireland’s success in this maelstrom demanded that it be proactive, not reactive. By the time the full impact of changes in the business world had been fully understood, it was often too late to do anything worth-while. Success depended upon anticipating the next wave and jumping onto it. The report stated: “The framework required is one that systematically monitors and anticipates significant changes in the global markets in which Ireland competes and that identifies the actions required in public policies to support



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143Making it happen

the competitiveness of the enterprise sector in the face of these changes.”

Opportunity on the line

Ireland’s vision was to create a dynamic enterprise culture that would encourage what it saw as a “smart economy.” The busi-ness sector would provide an engine for social change. The Irish strategy was basically to use a government policy framework that would create an environment for business that was fertile for change. Opportunities would arise and the Irish would be equipped to seize them.

Ireland identified opportunities in communications technology and the free and fast passage of data and information. A vital part of business services was the call center. There were other opportunities available in the growth of outsourcing and back-office procedures. The world of distribution and logistics was seeing transformation and Ireland could be well placed to take advantage. The world of work was changing too, away from stereotypes of 9 to 5 employment toward more flexible models. This had a downside, as the old certainties of life-long employ-ment were becoming distant dreams.

Examining the enterprise landscape, the report found that too much of existing industry was in areas dominated by low technology inputs. These industries faced tough competition from low-wage economies. Margins and wages were low. There was little left over to invest in innovation or R&D. Most firms responded with a very short-term mindset, chasing dwindling profits through increased volumes. Many players had ignored export opportunities and concentrated on a small domestic market. They too were being squeezed out by competition. Irish indigenous manufacturing seemed trapped in a downward spiral. In contrast, industrial activities using high-technology inputs employed skilled workers rewarded with higher wage lev-els. These industries often carried out extensive research and development work and process innovation.

On the whole manufacturing industry had good prospects for growth. Improvements had been made in productivity but this



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had seldom been translated into higher profits. There had to be greater spending on research and development and innovation, as well as repositioning in the value system away from the low-wage, low-skills zone toward more technology-driven produc-tions with higher profits and wages. Improved margins would make investment more attractive. Most importantly, industry had to look outwards toward new export markets. Success here would depend on “a deepening process of innovation, quality enhancement and responsiveness to customer needs rather than on price competition alone.”

Industry resulting from FDI was very important, compris-ing over 56 percent of Ireland’s industrial output, 45 percent of the country’s industrial workforce, but most significantly 75 percent of exports. Rather than rely solely on FDI in “green field” investments, investment through mergers, partnerships and joint ventures that followed on from previous involvements were encouraged. Foreign companies were also urged to move toward a deeper embedding of their operations in Ireland. The country’s strengths were promoted even more aggressively. In addition, Ireland realized it no longer had to compete just with low-wage economies but with postindustrial regions of Europe anxious to attract inward investment. A more strategic approach was demanded. There were growth areas in manufacturing such as life sciences and biotechnology. These could be targeted and attracted through bespoke incentives.

Says Enterprise Ireland’s Frank Ryan: “We have a need now to create jobs. We are not the lowest labour cost country in the world, we are not the highest either, but we are not the lowest. We compete globally in the value added sectors but we must generate jobs and we are focused now on elements of software, life sciences, green technology, financial services, education ser-vices, and travel services. It’s amazing how the internet and the web has changed what we do. One Irish company was recently bought by an overseas company for over 100 hundred million dollars. We have an increasing number of companies that use modern business models and we can scale those models faster.”

The Forfás report was certain that Ireland’s future prosperity would result from services. Already the country had advan-tages. It had a diverse mosaic of service companies, many of them Irish-owned, and many recently established by returned



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145Making it happen

emigrants who had benefited from skills transfers and contact acquisitions overseas. These companies had been born with their eyes on overseas markets. Government could assist through direct financial help, but this had to be focused, especially at areas like internationally traded services promising highly paid employment and profitability. It was also vital that the govern-ment not crowd out investment in the area, by supplying finance to areas that would attract it anyway. There were some emerg-ing service industries, and with research, flexibility, and daring, Ireland planned to be a nursery of “early movers.”

Cinderella story

Ireland’s economic prosperity in the years following the publica-tion of the report was due to the ability to pursue and implement its strategy. In some areas the change has been outstanding. Research and development spending, for so long the Cinderella of Irish industry, jumped by healthy multiples. The health of domestic industry and enterprise was reflected in the estab-lishment of Enterprise Ireland, a separate development agency established in 1998 to develop and support indigenous enter-prise, especially in the export sphere.

As with all strategies, external factors, not all economic, have been influential. In 1998, the conflict in Northern Ireland was finally brought to an end. The Good Friday Agreement34 was signed in Belfast on April 10, 1998—Good Friday—by the British and Irish governments and endorsed by most Northern Ireland political parties. On May 23, 1998, the Agreement was endorsed by the voters of Northern Ireland in a referendum.

Ireland as a whole is now a peaceful place. Investors, whether foreign or domestic, can rest assured that the reassuringly mun-dane activity of making money will not be disrupted by those intent on making war. The end of hostilities meant the demili-tarization of the border between north and south. Goods and people could move safely and secretly. There was consequently an increase in north-south trade.

In 1999, Ireland became a full member of the euro zone. The pros-pect of a borderless European market, where goods and services could freely trade, became a reality. With it came the benefits



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of belonging to a single European currency—the euro—aided comparison of prices and costs. Eurozone governments were also compelled to sign up to stringent economic rules regarding public sector deficits. The full impact of Irish eurozone member-ship has not been fully realized. Great Britain, which remains Ireland’s biggest trading partner, stays outside, and any appre-ciation in euro exchange rates can hit Irish exports. As a conse-quence of Ireland’s spectacular growth rates since the mid-1990s, the country is no longer eligible for European Community struc-tural funds. Their benefit to the Irish economy is still debatable. While this new membership of the rich men’s club was widely welcomed, there were those who found the removal of structural funds, and the related hand-out culture, uncomfortable.

The needs of enterprise have remained central to Irish politi-cal debate. Strong leadership in this sphere has been an essen-tial component. The people appointed to the important post of Enterprise Minister have been senior politicians with consider-able experience. Richard Bruton, an economist, was minister at the time of the publication of Shaping Our Future; Mary Harney at one time combined the posts of Enterprise Minister with that of deputy prime minister; the present deputy prime minister, Mary Coughlan, is also Enterprise Minister. The minister is ulti-mately responsible for deciding on government policy, though in consultation with the various development agencies such as IDA Ireland, Enterprise Ireland, Forfás, and two regional agen-cies, as well as some other advisory bodies. The minister sets the pace for policy pursuit and implementation. It also appears that a new generation of politician has emerged in Ireland. These ministers understand the needs of an enterprise society based on information flow. Interestingly the electoral system has not changed, though the Irish people and their politicians have obvi-ously matured.

The Irish achievement can be seen by the fact that for the first time Irish companies are actually winning in global competi-tion. Today if you go in for a cardiovascular procedure, 80 per-cent of the minimally invasive devices used for the procedure come from Ireland. If an American visitor to London goes into Harrods and uses their credit card, the dynamic currency con-version software that houses the transaction is handled by an



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147Making it happen

Irish company. If you go through American immigration and they take your fingerprints and photograph your eyes, the bio-metric software that enables that to happen is supplied by a Dublin-based company. “We now have over 3000 Irish small to medium enterprises exporting services world wide,” says Frank Ryan. “We didn’t have those ten years ago. So during the boom we built a venture capital industry in Ireland.”

It is a sad but seemingly inevitable fact of life that booms don’t last forever. The Irish economy has suffered more than most in the recent global recession. There are many reasons for this—some of them outside the control of the Irish government. But it is also true that the seeds of recent Irish problems were sown, partly at least, by the strategy—especially the heavy reliance on cheap credit.

The Celtic Tiger at bay

At the time of writing, the Irish economy was groaning under the weight of two years of deep recession. Faced with severe eco-nomic pain, the Irish government slashed its budget by around 6 percent using a combination of spending cuts, pay cuts, and tax rises. The policy was not popular but it was necessary. This marked a milestone on the road to Ireland’s recovery.

The next milestone was a move to clean up its prostrate bank-ing system. Ireland’s banking problems in the wake of the credit crunch are well documented—with Irish banks facing a short-fall of 80 billion euros. This prompted some commentators to wonder whether Ireland might be the next Greece. But the actions of the Irish government in setting up the National Asset Management Agency (NAMA) or “bad bank” to tackle toxic property loans sent an important message about the country’s willingness to tame out-of-control lending and spending.

“The aggregate hole in the banks’ balance sheets relative to the size of Ireland’s economy, while not Icelandic, was huge, as was the economy’s contraction,” said the Financial Times.35

In truth, Ireland was caught at a bad time (as was Dubai—although the models followed and the problems facing the two



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are very different). Like Dubai, Ireland paid a high price for its rapid economic expansion. The extent of the pain is becoming clear. In 2009, its GNP shrank by 11.3 percent.36

Traumatic though this all is, Ireland appears to be coping so far. Its reversal in fortunes—from Celtic Tiger to Kitten—has led to more realistic expectations. The reality is that many migrant workers have left Ireland, many Irish have left Ireland and many Irish have been caught with negative equity on their properties. Yet despite these difficulties, to date, stakeholders have been mostly kept on board. Workers have shown their dissatisfaction via go-slows rather than outright strikes; and government and unions have maintained a positive dialogue.

“The core resource Ireland has to offer is an English- speaking, highly adaptable, well-educated and young workforce,” obser-ved Neil O’Leary, chairman of Ion Equity, a private equity house.37 “Taken together, and with the right policy tweaks, this could offer Ireland a route back to the authentically Tigerish 1990s rather than the long recession of the 1980s.”

So what are those required tweaks?

According to a report by the National Economic Social Council (NESC), Ireland’s crisis was caused by five interrelated factors. These five areas represented risks that the country was simulta-neously exposed to that its economic strategy did not protect it from. Indeed, in part it was the country’s national policy frame-works, institutions, and processes—or strategy—that made it more vulnerable to the knock on effects of these risks.

“The current national crisis has five closely related parts,” the report stated, “banking, fiscal, economic, social and reputa-tional. It is important to understand what has happened in each area and why it has happened so quickly. The crisis poses pro-found challenges to many existing theories and models, at both the national and international level. The high degree of uncer-tainty—particularly about the impact of conventional policy measures—provides further reasons for constructive, collective discussion of the problems and the solution. Countries capable of conducting such a dialogue and implementing a coherent and agreed response quickly are likely to come through current dif-ficulties better than those which do not.”



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The report continues: “International assessments now being made about Ireland can be dispiriting. Yet the kinds of diffi-culties Ireland is now experiencing have been shared, at vari-ous times, by states and societies that recovered and went on to record impressive social and economic achievements (such as Sweden, Denmark, Finland, and the Netherlands.). We can learn, in particular, from their commitment to innovation, radi-cal reform of the public sector and social solidarity. To do so we must re-create our common purpose. This common purpose must include a willingness to fund public systems and a relent-less insistence that public bodies respond to the changing and diverse needs of individuals, families, neighbourhoods, enter-prises and sectors.”

“Ireland’s future economy will be different, but that’s all the more reason to retain and develop our ambition to have a smart economy and developmental welfare state, even in an uncertain world.”

The report calls for an integrated national plan to tackle the five elements of the crisis. An effective Irish response would address all five dimensions; it would be based on social solidar-ity and a positive perspective of future Irish prosperity; it would combine high-level coherence with maximum engagement and local problem solving; it would take short-term measures that have a long-term logic. In short, a global crisis requires a smart response.

Irish lessons

A number of lessons—good and bad—can be drawn from the Irish experience. On the positive side, it shows the power of a forward-looking economic strategy. But it also points up the dangers of pursuing economic growth in an increasingly vola-tile global economy.

To some extent, Ireland’s problems stemmed from an impossi-ble and thoroughly modern dilemma: if its banking system had not participated in the financial instruments that contributed to the financial crisis—and which resulted in the Irish economy racking up a huge debt, 80 billion euros or so as reported in



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the press, then Ireland would have missed out on the poten-tial opportunities that other countries were experiencing. This would have created an environment which was seen as finan-cially backward and unsophisticated, and less attractive to business. Yet, in participating in these financial experiments, Ireland was drawn into the maelstrom. It was a case of being damned if you do, and damned if you don’t. What made the situation worse for Ireland was its vulnerability due to its very rapid economic growth.

Ireland is not the only country to get caught by the convergence of risk factors. Dubai is another good case in point. The danger of a sprint for growth is that it leaves you vulnerable to external shocks. These are likely to become more rather than less of a risk in future unless governments can find new ways to insu-late themselves from the vagaries of global market forces—and crises.

At the time of writing, the authors are gathering evidence that the very substantial cost cuts being made by the Irish govern-ment are having the intended effect. It is too early to be sure, but based on our earlier work and knowledge of the internal work-ings of the government, we believe that Ireland will successfully overcome its current difficulties. In particular, we believe that the skills and innovation that the Irish public sector has acquired through its lengthy reform process will stand it in good stead. The question is: will the new Irish capabilities in these critical areas—and the wealth of leadership talent and experience it is able to draw on—be sufficient to see it through?

Some of the more positive lessons from Ireland include:

1. The power of simple policies. Ireland’s policy formula was straightforward. The roaming of the Celtic tiger during the boom years from 1995 to 2007 was facilitated by low interests rate, a low rate of Corporation Tax, and an emphasis on partnership with most of the dominant stakeholders in the economy.

The government invested in education and made attracting for-eign investment a priority. In 1981, corporate taxation for high-tech, pharmaceutical, and financial services was slashed from 46 to 10 percent, and a number of technology-friendly laws were



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introduced. Among them were a digital signature bill (making electronic signatures binding to kick-start e-commerce); a tele-communications bill that encourages sharing between opera-tors; and a copyright bill that addresses intellectual property issues.

Simplicity of execution was matched by inspirational transpar-ency. “I think the most important thing is that there is great clarity and vision for what we are doing, what we are trying to do and how we are allocating our resources to achieve that and why. Then we spend more time explaining that to everybody in the organization so everybody understands why they are asked to do what they are doing, what the result is and what the con-tribution of that is to our client companies and therefore to Ireland’s economy,” says Frank Ryan. “In terms of our mandate which is to increase exports and export creative employment it’s easy enough to convey and for everybody to see the importance of it.”

2. The importance of equity investment. One problem identi-fied as early as the time of the Culliton report was a lack of equity investment. This was often a reflection of indigenous firms’ low profitability. The report suggested that future finan-cial assistance from government should not be wholly in the form of financial transfers but should take the form of equity investment. The growing prosperity of the Irish economy in the late 1990s prompted an improved equity climate. The rela-tively small Irish Stock Exchange responded by establishing a Developing Companies Market. Lower interest rates were also helpful. Direct government assistance continued, but it has been channeled at those enterprises with export potential. It includes financial assistance for initial research such as feasibil-ity studies, as well as export credit insurance. It has also been targeted at addressing weaknesses among Irish exporters. As a consequence of scale, many enterprises are smaller and lack “in-house” marketing expertise.

3. Targets need to be continually reset. The importance of the service sector in Ireland, highlighted in the mid-1990s, is now evident. But Ireland cannot afford to be complacent. The Irish government established a Services Strategy Group. Its recommendations were largely a restatement of Shaping Our



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Future, emphasizing the need for skills enhancement, sector identification, and intensified commitment to and support for innovation.

4. Transformation is a talent issue. As noted earlier, the authors believe that Ireland’s newfound leadership and entrepreneurial capabilities are one of its greatest strengths. In the coming years, they will play a crucial role. It is clear to us that one of Ireland’s greatest assets is a young population that has acquired skills and knowledge vital to an enterprise society. The country’s edu-cation system has always been relatively open to students of all social and economic categories. It operates to very high stan-dards. Science and technology subjects have always played an important role. There was a sense, enunciated in Shaping Our Future and elsewhere, that the links between education and enterprise must be continually improved. Science Foundation Ireland (SFI)) was established to channel government funds earmarked to assist research in areas such as biotechnology, information technology, and sustainable energy. Even so, the Irish education system is still inflexible. The pursuit of life-long learning often seems like a pious ideal, and it can be difficult for older people to gain entry.

5. Transformation must be inclusive. The National Development Plan 2000–06 established the first National Spatial Strategy. This recognized five existing centers of population as gate-ways for investment and transport: Dublin; Cork; Galway; the Limerick/Shannon conurbation; and Waterford.

The development needs of those areas where Irish is still the ver-nacular are catered for by the bespoke Gaeltacht Authority—Udarás na Gaeltachta. Local grievances about being left out of development continue, but they play a much lesser part in dis-cussions. Regional differences regarding skills have been leveled through education and infrastructure, so no area can feel at a disadvantage any more.

6. Attracting outside investment is only stage one. Foreign Direct Investment delivered huge benefits for Ireland. More recently the work of Enterprise Ireland has focused on combining FDI with the development of Irish businesses. “Look around the world in the United States, the UK, Japan, France and elsewhere and



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you can see how strong local companies are the backbone of the economies, not FDI. My vision for Ireland is that we would have both: a very strong indigenous sector and strong levels of FDI, that’s the ultimate objective,” says Enterprise Ireland CEO Frank Ryan.

Ryan cites comparator locations as Israel and Finland, cities such as Vancouver and Toronto, and states such as Victoria in Australia. Ireland has a relatively small number of very large companies such as CRH and the Kerry Group, followed by a large number of small and medium enterprises. “That’s where we look for innovation to come from,” he says. “Technology driven Irish companies are flexible, they can take advantage of the strength of the education system and they have access to a 400 million person European Union market place. In addi-tion, they have access to foreign direct investment in Ireland and the standards that those companies have brought in terms of world class manufacturing. They represent Ireland’s long term future.”

7. The government agency as consulting firm. Enterprise Ireland is notable in that it basically works as a consulting firm offer-ing very specific expertise to growing companies. The agency has a scaling division charged with helping companies move from 5 million to 50 million euros turnover, as fast as possible. Typically, 50 companies are involved in this at any time. They receive special attention for their development, both in Ireland and internationally. Enterprise Ireland has 33 offices overseas located around the world with 150 staff and is involved con-stantly in Irish trade missions worldwide.

Beyond the Tiger

The experience of Ireland proves that strategy is essential, but it has to be a strategy which is adaptive and flexible, able to anticipate change and adapt as circumstances change—as they surely will.

In their book, Strategic Speed, Jocelyn Davis, Henry Frechette, and Edwin Boswell extol the virtues of strategic speed— implementing strategies both quickly and well.38 Their research



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has identified four critical leadership practices which put strate-gic speed into motion. These are:

Affirm strategies: Ensure everyone knows the destination and wants to go there

Drive initiatives: Create real momentum and behavior changeManage climate: Increase confidence, motivation, and teamworkCultivate experience: Harness employees’ insights and capture

learning

These are a useful checklist in translating strategy to action. When it comes to strategy, forearmed is forewarned.

The next example looks at the transformational process at a departmental level. It recognizes that while speed of execution is not always possible, clarity of direction and firmness of pur-pose are essential.

Case study: RBNZ: No small change

The example of Ireland examines the reality of making trans-formation happen at the macro level. The following example considers it at the departmental level. It also reminds us that transformations don’t always happen overnight. The story of the Reserve Bank of New Zealand (RBNZ) is one of slow and steady but very far-reaching change.

The RBNZ was established in 1934. Before its creation, bank notes in New Zealand were issued by the main trading banks—the country had no central bank that could issue cur-rency. In the early twentieth century, the British were keen for New Zealand to set up its own central bank, modeled on the Bank of England. However, it was not until the Depression emphasized the need for better control over exchange rates and foreign reserves that the New Zealand government finally relented. Following three years of preparation, the bank began operations on August 1, 1934. On the same day, one of the largest checks ever written in New Zealand changed hands as the RBNZ acquired the trading banks’ currency. Initially partly owned, the bank was nationalized in 1935 and given the authority to underwrite loans.



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For the first 50 years of its existence, the RBNZ was a central bank managed in the same way as its counterparts in other coun-tries. However, by the 1970s it had fallen behind other central banks in terms of its monetary policy implementation, largely as a result of political constraints placed upon it by the govern-ment. As a result, the RBNZ did not keep up with international best practice.

During the 1960s and 1970s, the RBNZ was unable to operate effective monetary control because decisions were made at the New Zealand Ministry of Finance rather than by its own board or governor. Fiscal policy took precedence, and RBNZ did not have a clear mandate to direct bank supervision of monetary policy. Some changes were introduced during the 1970s and early 1980s: a reserve ratio system (1973), partial interest-rate deregulation (1976–77), a crawling-peg exchange regime (1979), and open market operations (1983). However, the 1970s were a challenging time for the global economy, with the profound impact of oil crises, and for New Zealand specifically as it dis-engaged from the United Kingdom as a major market. Inflation was a rampant and, it seemed, intractable problem.

The 1984 general election saw David Lange’s Labour Party defeat long-standing Prime Minister Robert Muldoon of the National Party. The change in government ushered in signifi-cant changes to the RBNZ: the exchange rate was floated and interest-rate controls and liquidity ratios were removed. The Reserve Bank Act of 1986 introduced bank registration and pru-dent supervision—for the first time. In just a few short months, the RBNZ did some serious “catching up” with monetary poli-cies around the world.

However, the management structure and system of accountabil-ity at the RBNZ were not changed. The minister remained in control, albeit advised and supported by the board of the RBNZ. As a result, policy targets and accountability remained unclear. By 1989, the bank had caught up with conventional central bank practice—but it still needed to change the way it was run at a strategic level. To achieve this, it embarked on a series of radi-cal reforms, some still ongoing, that revitalized central bank-ing in New Zealand and influenced many other central banks internationally.



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Visionary banking

While the changes of 1984 had been significant, the transforma-tion of 1989 and the following years was even more profound. The vision for RBNZ was both clear and daunting. Sound mon-etary policy depended on the central bank having clear policy objectives, backed up by an institutional structure that would give it the flexibility, accountability, and credibility to achieve them.

The key stakeholders were identified as the governor of the bank; the minister of finance; the board; the nonexecutive chair of the board; the technical (and administrative) staff; and the wider banking sector. Extensive work was carried out within RBNZ to define its future direction, with a project team created specifically for the purpose. Throughout the change process, performance and accountability were carefully monitored by stakeholders—including the board and the minister.

In the ten years following the 1989 RBNZ Act, the bank gradu-ally transformed itself into a lean, focused organization that was much more in tune with the new demands placed on it and with the public sector management practices being adopted across New Zealand at the time—as well as the worldwide trend toward much tighter and more economical organizational structures.

The changes were organizational, operational, and—equally importantly—cultural. Hierarchical structures were disman-tled, efficiency was improved, and functions best performed elsewhere were removed from the RBNZ mandate. Debt man-agement, for example, was transferred to the Treasury.

Culture flows from the top, and an early requirement of the transformation was the clarification of leadership responsibili-ties. Under the new model, the minister of finance and the gov-ernor set policy objectives together—but the governor alone is responsible for implementing the monetary policy. It is for the governor to provide operational leadership and ensure execu-tion of the policy targets.

The governor’s dual role as chair and chief executive was also split into two separate posts, and a nonexecutive chair post was



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created. Now, the bank’s governor is its chief executive—but is no longer the chair of the board. The minister now appoints the board, which is chaired by a nonexecutive director. The board oversees policy and bank management.

The new approach was designed to ensure a clear separation between politics and monetary policy, preventing politicians from manipulating the RNBZ’s operations for their own pur-poses. While the government sets objectives, it is up to the bank to optimize the monetary instruments to achieve them.

The idea dated back to 1984 when the then-incoming minister of finance, Roger Douglas, had wanted to design a new insti-tutional structure to govern the RBNZ. His objectives were twofold: to ensure first, that no future politician interfered in monetary policy; and second, that price stability became its pri-mary objective. Five years later, his vision began to be fulfilled.

As a result of these and other changes, the bank’s culture was transformed in the 1990s from a “social club” with entrenched levels of authority into a much more professional, goal-focused entity. The management culture was also transformed thanks to a trend toward greater accountability and efficiency that swept across the country at the time.

Fighting inflation

In terms of the outcomes that the RBNZ would be charged to deliver, the key target was inflation. It was declared the enemy of economic stability, and the 1989 RBNZ Act required that mon-etary policy be “directed to the economic objective of achiev-ing and maintaining stability in the general level of process.” After 1989, inflation-targeting and disclosure-based supervision (introduced in 1994) became the centerpiece of monetary policy and bank regulations.

The vision was to entrust the RBNZ with an independent mon-etary policy and set price stability as its primary objective. The strategy included the delineation and clarification of mandates between the ministry and the RBNZ, with agreements signed on a regular basis between the two entities. Targets were agreed by



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both parties, but the RBNZ was solely responsible for achieving the targets.

New governance

Under the RBNZ’s new governance model, the minister and the governor had to sign a “Policy Targets Agreement” identifying the objectives that the governor, now solely responsible for mon-etary policy, had to meet. Similarly, the two parties had to sign a five-year funding agreement to manage RBNZ resources.

Since the 1989 Act, the budget is defined by the five-year fund-ing agreement signed between the governor and the minister of finance—ensuring accountability is maintained and resources are properly managed. Transparency, reporting, and policy implementation oversight were also introduced.

Changing capability

Before 1984, the RBNZ had invested heavily in building its eco-nomic capacities. A cadre of economists was consolidated and a link with external scholars established. Changes in its remit led to staff reductions of 50 percent between 1983 and 2004. However, RBNZ also hired new staff with skills in budgetary control and management.

Post-transformation, the core services handled by the RBNZ include: economic analysis; econometric modeling; bank super-vision; and other support services. At the same time, many business systems and operations were automated; operations streamlined, and some functions relinquished altogether.

Transforming banking

The RBNZ’s transformation program redefined the organiza-tion’s mandate, establishing a new institutional structure and planting the seeds of a new working culture. It also set new and clear objectives centered on price stability and disclosure-based bank regulation. The effect of the changes was to modernize monetary policy and bank regulation tools.



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It is also a clearly established principle that the RBNZ provides a public service, and is not a revenue-generating entity. Its operat-ing cost is largely composed of the remuneration of staff, train-ing activities, and other related items.

The policy and funding agreements now direct annual work plans. Policy implementation is reviewed by the board; and annual reports are overseen by a parliamentary committee. The overall effect of these changes has been to increase accountabil-ity; improve efficiency; and significantly raise the effectiveness of the RBNZ.

Exemplary excellence

The RBNZ’s policy-making capability has continued to evolve. New Zealand is now recognized as a world leader in the field, particularly in terms of its policies on targeting inflation and the governance and accountability structures of its central bank—although other central banks have also innovated in these areas.

RBNZ is particularly admired for its operational efficiency. According to a study of RBNZ’s transformation by John Singleton, Arthur Grimes, Gary Hawke, and Frank Holmes, four scholars from the Motu Public Policy Research Institute, and the School of Government at Victoria University of Wellington: “Possibly the most unique aspect of the RBNZ’s development since the late 1980s is its internal management. In 1983, at the height of the regulated economy, the bank employed 650 staff. A reduction in regulatory functions and improvements in effi-ciency led to a reduction in staff to 321 by 1993. Since then, with broadly the same functions, the bank has trimmed its staff to 210 by 2004.”39

Between 1990 and 2004, the bank also reduced its annual expen-diture from NZ$55.5 million to NZ$27.6 million—a reduction of 61 percent in real terms. But the transformation of RBNZ was more profound than numbers. The academics conclude: “The culture of the bank, that had once resembled a social club with an interest in finance, was transformed through the 1990s into an organization focused on achieving set goals in an effi-cient manner. ... Hierarchical structures were dismantled so that by the 1990s, the governors routinely ate in the staff common



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room and were called by their first name, in contrast to the situ-ation even in the late 1980s whereby senior managers ate in a separate dining room and jackets had to be donned to visit the governors.”

IRS: A taxing transformation

The story of America’s Internal Revenue Service (IRS) is another good example of how the smart transformation model can be put into practice.

Americans have a somewhat ambivalent relationship with the taxman. The War of Independence was sparked by local resis-tance to a British tax on tea imposed in 1764. Colonists objected to the Tea Act because they believed that only their own elected representatives had the right to levy taxes on them. Resistance to the Act led to the infamous Boston Tea Party in 1773, when the Sons of Liberty, a group of colonists disguised as Native Americans, boarded British ships and dumped more than 300 crates of tea into the Boston Harbor. Their act of defiance sparked a revolution. But once established as an independent nation, the United States quickly recognized that it needed to raise taxes from its citizens in order to function—and the right of the government to demand taxes from American citizens was duly enshrined in the US Constitution.

However, taxes remained a controversial topic. In 1791, anger over a tax on whiskey led to excise collector Robert Johnson being tarred and feathered in Washington County, Massachusetts. The so-called Whiskey Rebellion was brutally suppressed in 1794 by a 12,000-strong militia on the orders of President George Washington. Income tax was first introduced in 1861 and ruled unconstitutional in 1872, before being reinstated and repealed several times. Finally, in 1913, it stuck with the ratification of the Sixteenth Amendment—belatedly confirming Benjamin Franklin’s famous observation in 1789 that “nothing is certain in life, but death and taxes.”

Given their initial resistance to the whole concept of tax, it is perhaps surprising how many American taxpayers pay up voluntarily. The United States has one of the highest rates of



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voluntary compliance in the world. People voluntarily paying their taxes account for more than 85 percent of total revenues—compared with just 7 or 8 percent in many countries in South or Central America, where the vast majority of tax revenue is col-lected through enforcement rather than voluntary payment.

Modern tax

In July 1862, during the American Civil War, President Lincoln and Congress created the office of Commissioner of Internal Revenue. The function of this organization was to oversee the collection of the newly created income tax. Income tax was first introduced by the Revenue Act of 1862 to pay for war expenses, originally as an emergency and temporary measure. However, it proved indispensable as a revenue source for successive govern-ments, eventually becoming permanent in 1913. The position of Commissioner of Internal Revenue still exists, as head of the Internal Revenue Service, or IRS. (Originally called the Bureau of Internal Revenue, it formally changed its name in 1953.)

The IRS collected the money that ran the government of the United States. As such, its revenues funded everything from war, public education and transport infrastructure through to foreign aid and space exploration. The IRS grew throughout the twentieth century to become one of the largest organizations in the world. The confirmation of income tax as a permanent component of tax revenue in 1913 signaled a huge step-change in its work volume—even though taxpayers completed their own forms and the IRS merely checked them, its workload jumped by a factor of 10. By 2001, it employed around 100,000 people and had a budget of $8 billion.

Inevitably, the size and complexity of the IRS resulted in inef-ficiencies. The first attempt to restructure it was in 1952, when the agency was transformed into a geographically organized entity with regional and local offices. Functions were central-ized, but the 40 regional districts were managed independently of one another. Call centers were also run quasi-independently. This regional “silo” approach had the advantage of allowing each local office the autonomy to make its own decisions, but the IRS paid a heavy price: there was no centralized policy or



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procedure to follow, and inconsistent service caused an increase in repeat calls flooding the system.

During the 1960s, the IRS used microfilm to store tax records. Their easy accessibility was a factor in the leaking of President Nixon’s tax records during the Watergate scandal. Following this disclosure and its impact, most presidents opted to release their tax returns rather than attempt to keep them private.

In 1986 a modernization initiative aimed at introducing more up-to-date information technology was launched. But the pro-gram was unwieldy and disjointed, with myriad uncoordinated projects failing to deliver any organization-wide benefit. Ten years later, $4 billion had been spent to little effect and the proj-ect had still not been completed. Congress was unimpressed—and unwilling to fund any further development. Instead, it cut the IRS’ budget by 11 percent, resulting in the loss of 2000 jobs.

By the mid-1990s, public concern with the IRS performance had reached critical levels, with stories of taxpayer abuse surfacing regularly. Customer service was incredibly poor, with an aston-ishing 500 million callers getting the busy tone when they called the IRS during 1995. Part of the problem was the complexity of the queries that were posed by the typical caller, which made it a challenge for many employees to deal with problems there and then—an issue that was further exacerbated by the IRS’ aging and inadequate systems.

Culturally, the IRS had become rather inward-looking, partly as a result of bad feeling among its customer base (either because of resentment over paying taxes, poor service, or both). Employees were loyal and often stayed with the IRS for several decades. However, partly as a result of this low staff turnover, the organization could be static, insular, and defensive, resist-ing change.

The growing criticisms spurred the creation of several presidential and congressional committees. Across the board, most observers shared one view: the IRS had to change—and quickly.

In 1996, change at the IRS was mandated by law, when President Bill Clinton charged a presidential commission to examine the



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163Making it happen

organization. The findings were presented to Congress in 1997 and many of the recommendations were written into law in the Restructuring and Reform Act (RRA) of 1998. The RRA directed the IRS to focus on serving its customers, as opposed to merely collecting taxes.

Charles Rosotti became Commissioner of Internal Revenue in October 1997. When he joined, he found over 5000 separate rec-ommendations in the report of the task force that had examined the IRS. But he quickly realized that small, incremental changes would never be enough—instead, a major transformation was required. Rosotti also recognized that since its previous reor-ganization in the 1950s, the IRS’ customers had fundamentally changed. During the 1950s, the economy was based on one-income families, locally based businesses, and a population of 100 million people. Half a century on, there were 266 million Americans. Who earned money, and how they did so, had fun-damentally changed. The tax office that served them needed to change too.

In realigning the organization and operations of the IRS with these changed realities, Rosotti followed the basic tenets of our smart transformation model.

Vision

The vision was to ensure IRS customers received a good, con-sistent service provided by a well-managed agency that was effi-cient in the same way as a private sector organization needed to be. This was encapsulated in a new mission statement: “Provide America’s taxpayers top-quality service by helping them under-stand and meet their tax responsibilities and by applying the law with integrity and fairness to all.”

Stakeholders

Three key stakeholder groups were identified: IRS’ leaders; its employees; and public and private institutions.

The new mission statement was created after consultations with all three groups. A detailed communication plan was developed



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to ensure employees felt aware and involved as major changes were taking place. Progress toward realising change goals was communicated via a bi-weekly newsletter, in addition to meet-ings, interactive broadcasts, training videos, and other tactics.

A steering committee of managers and union representatives was created to provide input and oversee the change.

Leadership

Rosotti had all the skills and expertise required to lead and drive a process of thoroughgoing reform. A Harvard and Georgetown graduate, he had extensive private sector and leadership experi-ence. In 1970 he had founded American Management Systems, an international business and IT consulting firm that devel-oped systems for large organizations who needed to manage their customer relationships more effectively. By 1998, AMS employed 8000 people and had revenues in excess of $1 billion. Clients included many government agencies, giving Rosotti crucial experience of the culture and working approach of the American public sector.

In the late 1960s Rosotti had held various positions in the Office of Systems Analysis—part of the Office of the Secretary of Defense. He described his appointment as 45th Commissioner as “an opportunity to bring about fundamental change at an agency that really needed it, to have an impact on a key function of government, and to make life easier for our tens of millions of taxpaying customers. To me it seemed like a very interesting challenge.”

In addition to his own impressive leadership skills, Rosotti was also guided by the RRA, which he had helped to create.

Strategy

The transformation program for the IRS involved a complete overhaul of the organization structure, the way in which the IRS provided services to its customers, and its IT infrastructure, in addition to a workforce planning strategy.



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165Making it happen

Five levers of change were identified that would act as guiding principles for the transformation:

Customer-focused operating divisions

Management roles with clear responsibilities

Revamped business practices

New technology

Balanced measures of performance

A three-phase approach was adopted in order to ensure an orderly, manageable change process. In Phase I, which lasted for six months from March 1998 to August 1998, a small group of IRS experts worked with external management and business consultants in order to assess the modernization concept, define the new architecture of the organization, and outline the trans-formation program. Phase II, which followed immediately on from the first phase in September 1998, focused on creating a more detailed design, and involved some 1500 IRS employees. This moved into implementation planning—Phase III, which began in October 2000. A new post—Deputy Commissioner for Modernization—was also created.

The transformation of the IRS was, without doubt, a major undertaking. The success of the change strategy depended on breaking this Herculean task into more manageable work steps and “smaller pieces” that were easier to handle in isolation.

Business model

The two key aims of the IRS transformation plan were to improve service to its clients and, as a result, enhance the public image of the IRS as an institution. To achieve these aims, the business model was to be reorganized, centralized, and driven by new IT solutions. New systems, including technologies for e-filing and call routing, were introduced.

Implementing such a root-and-branch change to the business model of a major organization was truly daunting, as David Mader, Assistant Deputy Commissioner of Operations at the IRS, explained.40 “Before I came to Washington 11 years ago, I



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was the assistant director for taxes in the state of New Jersey,” he recalled. “We had responsibility in New Jersey for taxpay-ers that ranged anywhere from Johnson & Johnson to AT&T to individual taxpayers to mom-and-pop shops to small business start-ups. You can’t focus on any one of those market segments when you’re trying to service a population that diverse. A big corporation is going to ask very different questions than a free-lance writer.”

Organization model

The IRS was reorganized into four divisions. Functions were centralized, the number of management positions was reduced, and call centers shifted to a joint operation center. Reversing the change made during the 1950s, the IRS was transformed from a geographically decentralized entity back into a centralized organization.

Talent

There was one regard in which the IRS transformation was not as effective as it might have been: the importance of human cap-ital was not sufficiently emphasized. The manner in which peo-ple were brought into the organization, and retained once they were there, did not change. Recruitment strategies and tactics as well as career development paths were not revamped to support the new organizational structure. In later years, this omission manifested itself in an aging workforce and a low retention rate among recently hired staff. The IRS remained an organization where a certain type of person could comfortably spend their entire career, but such a culture wasn’t so attractive to younger, livelier, or more ambitious staff.

Operations

The phased approach to transformation was fully mapped out before implementation began. The Deputy Commissioner for Modernization oversaw a multibillion dollar plan to modern-ize internal and external systems. Processes were reengineered



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167Making it happen

and new performance measures put in place to ensure they were delivering the required results.

Call centers were a particular focus for the transformation. Under the new mode of organization, telephone services were to be regarded as being under “one call center roof,” even though there were still, in reality, 26 physical locations where taxpayers’ calls were dealt with. Calls were routed to available and appro-priate representatives around the country as opposed to local staff. Using new software, managers in an on-site monitoring room could see the status of calls and calls waiting in real time.

“With the software we also know how many people are on the phone. We issue reports every day as to proper staffing. The management information available to us now is 1,000 times greater than we had before,” explained Ron Watson, chief of the Joint Operations Centre.41

The authors of a 2002 Harvard Case Study of the IRS transfor-mation, Harvard Professors Amy Edmondson and Frances Frei, conclude: “The goals were set and the objectives now obvious, but it was like shoveling snow off a glacier, the tactical elements were on such a large scale. Nevertheless, achieving his vision of superb customer service and efficient, reliable systems was not impossible, Rosotti was sure of that.”42

Smart questions

Do you understand the window of opportunity that you have

for change?Do you have a clear implementation roadmap—with key

milestones—right from the start?Do you have a risk management strategy in case things go

wrong—one that allows for flexibility and the need to adapt to changing circumstances?Can you generate sufficient energy to create a momentum for

change?How will your transformation cascade down the organiza-

tion?Do you have the political capital—visibility, commitment,

and reach—to make the change bite?



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No matter how challenging, can you clearly communicate the

nature and reasons for the tough decisions that need to be made?Can you mobilize the resources and influence to overcome

resistance?Do you have the right human capital—including leaders—to

achieve a lasting change?



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Part III

The X-Factor

I probably know little of these years through which I busily work and live.

William Gladstone, British prime minister 18681

New ministers come in with very little knowledge and a great deal of energy and leave with a great deal of knowledge and very little energy.

Former British cabinet minister, Tony Benn2

There are times when you need a great man, and there are many times when you don’t. So in a sense it is all a matter of what are the circumstances under which leadership is required.

Nigel Nicholson, professor of Organizational Behaviour at London Business School3

Of the best leaders,People barely know that they exist;Next come those who are loved and praised;Next those who are held in awe;And lastly those who are despised.By not trusting people enough,We make them untrustworthy.Great leaders are silent workers:When their work is done,People say, ‘We did it ourselves.’

Best Leaders, Lao Tzu



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171

CHAPTER 8

Distilling the X-factor

Unique recipes

Parts I and II provide the mechanics of transformation. But there is more to achieving smart transformation than adhering to a single model. One of the most striking findings in our review of best practice is the importance that contextual leadership plays in the success or failure of any transformational endeavor.

Initially, we identified a set of international (generic) leader-ship capabilities required for effective transformation. But these alone did not explain why what worked in one country or context sometimes did not work in another. We then discovered some-thing truly fascinating—and new. Beyond the generic capabili-ties, we observed another level of leadership capabilities unique to that particular organization and environment.

It turns out that every economic transformation project has its own secret recipe. We call it the leadership X-factor—a unique set of capabilities that determine whether a leader will be effec-tive in that part of the world and in that particular context at that time. In this chapter, we will describe how this extra level makes a difference to the success or failure of transformation efforts.

The maelstrom

Being servants of government, servants of the law, and servants of the public, public servants have traditionally been advised to act in the public interest; be politically neutral; guard confiden-tial information; protect the privacy of citizens and employees; provide efficient, effective, and fearless advice; avoid conflicts



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of interest; and be accountable. In the contemporary context, such advice causes several difficulties, stemming from the ambi-guities and contradictions in such expectations.

For example, being accountable and efficient is difficult to achieve. Maintaining loyalty and confidentiality and, at the same time, acting in the public interest when they need to imple-ment what is, in their opinion, misguided policy, is extremely difficult. Striking a balance between representative public ser-vice and an efficient and effective public service; and between old (public service) and new (market) values remains a consid-erable challenge. Public servants now need to operate in newly constructed agency structures, which require, in addition to a unique system of recruitment, promotion, reward, recognition, and financial management, the adoption of a new set of values (flexibility, teamwork, risk taking and so on).

To this can often be added the fact that public servants may be subject not only to their government’s code of ethics but, also, to codes developed for their profession and codes developed by professional associations of public servants. In addition, the proliferation of IT and the associated ease of information shar-ing; flattening of hierarchies and increasing formal and infor-mal networks pose difficulties for traditional confidentiality.

Make no mistake, leadership on the governmental stage is often impossibly demanding. Many leaders and managers find it chal-lenging to operate and work in the multiple environments they are involved in. The challenges come from rapid and signifi-cant changes occurring in societies—such as societal behaviors toward innovation and change; changes in authority; and new roles for leaders as change agents rather than administrators.

“You need a lot of energy. The day is long, very long. You have to cope with a lot of pressure. The paperwork is overwhelm-ing. Even the menus for dealing with foreign dignitaries were given to me to decide,” one minister in Tony Blair’s government confided.4

The key issues for ministers are often:

Accountability—what are they responsible for and to whom?

Resilience—can they cope with the workload?



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173Distilling the X-factor

Handling of ambiguity—can they cope with ethical and polit-

ical grayness rather than black and white judgments?Role transition—can they get up to speed quickly?

Networking—can they assiduously maintain their old and

new networks?

Many leaders we encounter tackle these challenges simply by doing more. They rack up 100,000 miles and flying points every year. They spend hours on long-distance calls and emails. They live in hotel rooms rather than at home. And all the time they are forging new relationships in new environments; losing contact with their cultural grounding and their community at home; adapting and developing entirely novel behavior in differ-ent multicultural settings; and forging relationships with com-panies, communities, and enemies. It is a continual maelstrom, an assault to senses and emotions.

The Australian way5

Research by the Australian Public Service has identified the job-related values and attributes in senior leadership roles.

Senior executive service values and attributes Senior offi cer values and attributes

1. Eff ectiveness Communication 2. Communication Teamwork 3. Integrity Professionalism 4. Professionalism Integrity 5. Competence Probity 6. Accountability for powers/privileges Respect 7. Teamwork Quality 8. Quality Opportunity 9. Probity Excellence10. Respect Responsibility11. Commitment Recognition12. Honesty Competence

Street’s ahead

One of the most interesting conversations we had during our research was with Dame Sue Street, formerly an under secretary



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in the UK’s Department of Culture, Media and Sport. We started by exploring the difference between step-by-step change and large-scale change.

“I have always regretted the incremental approach,” she said. “Wherever I have taken it I have been sorry. I have always felt we could have done more, we could have been bolder. Whenever I have taken a bolder transformational approach, I have never met my own ambition, it still turned out to be more incremental than I hoped. I don’t know whether that is about my failures as a leader or that in the end it’s never as fast, wonderful or bold as you had hoped.”

We asked if she could recall when she took an incremental approach. She went back to when she first arrived in her depart-ment. “We needed to shift to a much more flexible project-based approach, to form teams with the skills we needed for particular projects, deliver them and disband. I was there five years and it took me two and a half years to get any kind of traction. Once we got it, it was brilliant, so that tells me I should have gone faster. The reason I didn’t was I wasn’t able to persuade my top team and the unions sufficiently that this was actually good for people and business. I was literally alone. I was the only one who had ever worked in a project-based, flexible team-based organization. I wasn’t able to clarify the vision sufficiently for people to want to do it and in the absence of that I didn’t think it would succeed.”

“Later, I sent people in groups of 30, 40 and 50 to other organi-zations to see how it could work. This was a big resource com-mitment, a couple of days on project-based training, so we had a shared language. It did work in the end, but I wish I had done it quicker. The counter to this is that as a single person with a vision, you can’t do it alone, you can talk about it but you can’t make it happen.”

What about an example of a transformational change? Sue Street took us back to the Labour victory in the United Kingdom’s 1997 election. Labour had promised that it would halve the time it took to bring young offenders to trial from the moment they were arrested. This was achieved. Sue Street explained how and why this bold initiative worked.



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“It involved a very clear goal—it was 142 days so we had to hit 71 days. It involved support from the Home Secretary so there was the space from the political leader and the trust, to say do it your way I am not going to ask you again, just do it legally and within financial constraints. Then it involved pick-ing the right team of top people from every part of the criminal justice system—the top policeman in the country, the director of public prosecutions, the top judge, the top person from the probation service and other staff. It was quite a simple mech-anism. I put 8.00 am on a Wednesday morning in my office into their diaries. Everybody was there, every Wednesday for many months until we made it happen. We took all the excuses off the table, we banged heads together, we felt we were in it together. We divided the country into 10, there were 10 of us, we travelled, we did everything that it took, everything, noth-ing was too small and nothing was too big for our attention. At another time in my career I led the department which sup-ported the bid for the London 2012 Olympics, and that’s how Seb Coe who led the bid, approached it as well. He approached it like winning a race, no detail was too small and nothing was too big. It’s not about micro management but it’s about know-ing what you are trying to do and really understanding what it takes to deliver.”

These seem very different examples. The tone and mood of the teams described by Sue seemed fundamentally different. We were interested in what made them so different. The answer, she said, lay in her own approach as a leader. “The truth is that it is about the leader themselves. You have to be able to make them ready. You have to find the key for everyone to feel very power-ful as a group and very committed at what we are trying to do. They didn’t arrive ready to be led, but I arrived ready to lead. Maybe that is the difference.”

Key leadership capabilities

Leadership makes the difference. It is the factor that can ignite an apparently disparate group of people into a team, the spark which turns a collection of departments into a transformative government.



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One minister told us: “At my department, we realized we are the promise of the leadership to the citizens of the country so we must deliver on this promise. We must be about how we deliver the promise of leadership. We have to use modern tools and techniques. We have to be modern in our approach or there would be a mismatch between the tools we are using and what we are trying to achieve.”

The former UK Labour prime minister, Harold Wilson, recog-nized the nature of the ministerial leadership challenge through his analogy of a driver—the leader—and the car waiting to be driven—the institution—“Whichever way it is steered, the machine will go. What matters is the driver.”6

In this global and complex world, leadership is critical. Thriving in government demands leadership. Yet, time and time again, we have witnessed significant cultural and governmental blun-ders thanks to indifferent and insensitive leadership.

Our experience of smart transformation indicates that a num-ber of key leadership capabilities are required. These can be regarded as enablers to smart transformation. While they are not sufficient on their own to guarantee success, they are always present when a smart transformation occurs.

Having a whole leadership philosophy: While traditional leader-ship focuses on skills such as motivation and decision-making it ignores the emotional component of leadership. Alternative leadership models offer a more rounded—“holistic”—view of leadership.

The best leaders have thought through the leadership styles and contexts which work for them. They know what they stand for and know how their own leadership skills and style can link their values to their vision. As leaders they are multidimensional.

Belief in teamworking: The new emphasis must be on fostering relationships between individuals, teams, and organizations. Governments (as well as corporations) need alignment and min-imal friction to continue to be competitive. And, they have to achieve these things in an often bewilderingly complex world.

“Team spirit is very important. You have to refresh the issues again and again. Be with them always and all the way. I have to



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be seen there all the way. We celebrate successes and they get excited and apply themselves again,” one minister told us.

The UK’s Cabinet Office offers guidelines to ministers. These advocate shared responsibility and personal accountability. This contrasts with the previous individualistically held perspective of the role of a minister in which they were akin to a baron pre-siding over their policy domain. Now, the reality is that much of the business of government is carried out in cabinet and other committees.

“A lot of leadership is having a good team around you who are driven by the same values,” says Dame Sue Street. “I had peo-ple who led the publicity campaigns, people who made sure the money was flowing to the right places. Once you have the right top team, it’s all about keeping your foot on the accelerator and not letting anybody pause once you have the route mapped out. You really can’t brook excuses for going slower which I think is a really endemic disease in public service; it just moves too slowly. So drive, in a word, is what you need.”

The reality is that leadership in a modern government is highly complex and it is increasingly difficult—sometimes impossible—to find all the necessary traits in a single person. In the future it is likely we will see leadership groups rather than individual leaders. “None of us is as smart as all of us,” says Warren Bennis. “The Lone Ranger is dead.”7

Not everyone, of course, is a team player. Indeed, research shows that 33 percent of top teams are divided on the vision for the future of the organization. Inevitably this leads to a lot of infighting. Also 66 percent of top teams find it very difficult to raise this uncomfortable fact. Little wonder that negative and untrustworthy cultures abound.8

“I worry about cabinet government,” one member of Tony Blair’s cabinet confided. “The potential for rivalry is high. You need to work as team players, not just explaining the message, but in actually developing the message in cabinet. I think it might be personality driven and this is the problem. Each cabinet mem-ber is so concerned with his or her own area of work, which is enormous. They just turn off listening to what’s going on, even though they could make a useful contribution.”



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In fact, in the Blair government study shows that discussion and critique in cabinet was minimal. Cabinet members indicated that positioning arguments and influencing others often happened informally outside of cabinet. Intrigue rather than discourse acted as the basis for political teamwork. Equally, even mildly challenging colleagues in cabinet was unwise as was being seen as talking too much in meetings. Political rivalry emerged as the predominant dynamic.9

Interestingly, Eastern cultures are often less concerned with what an individual thinks as long as their behavior conforms to the accepted social rules. They are less concerned with control-ling what people think as long as they do what they are expected to do. You don’t have to believe as long as you adhere to the norms of behavior.

This gives rise to different attitudes. In the West, we talk about “singing from the same hymn sheet.” In other words, we have to have the same beliefs. But the equivalent idea in the East could be expressed as “singing in harmony with the choir.” In Eastern cultures, it matters less what we believe as long as we are all act-ing together.

This explains why Japanese companies moving into the West have routinely encountered challenges to their approach. When they first came to the United Kingdom, Japanese managers in car plants in the north east of England told workers what to do. But, being told exactly what to do irritated the English workers. They could do the job, they said. The Japanese managers realized that a style of leadership that worked in Japan was not working in the United Kingdom. So they changed their approach. That is a sign of intelligent leadership.

Beyond the cult of personality: “I learnt that leadership doesn’t come from charisma alone,” says Peter Shergold who led the Department of the Prime Minister and Cabinet in Australia.

“I assumed for some time that the power of my rhetoric would be persuasive enough. What you discover is it has an immediate effect but it actually achieves nothing in itself. You’ve really got to work slowly at cultural and structural change. I discovered that sometimes you do have to sweat the small stuff. The only



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way I was able to bring about reform that really changed things was getting on top of the small stuff. You have to have that atten-tion to detail as well as the big picture because one of the things is that most politicians don’t really understand what public ser-vants do. You think you’re managing a significant department, they think you’re someone who is giving them advice—usually you get very little credit for the way in which you manage your department effectively unless you stuff [mess] something up. I started to understand that persistence and doggedness are prob-ably as crucial as strategic brilliance or charisma in terms of bringing about organizational change.”

Another view comes from Lord Michael Bichard: “I think you have to have the experience, because that gives you the confidence—not arrogance—and gradually you begin to under-stand that there is not a lot that is going to faze you. If that slips into arrogance I think you are in trouble. I think you need to be confident in your self that there are not many things that anyone is going to throw at you which you have not seen before.”

Among the leaders we encountered in governments throughout the world, plain unadulterated charisma was in short supply. It is not that leaders in government are without charisma, but it is usually one part of their leadership toolkit rather than a ham-mer they use for every task.

A useful antidote to the leadership-as-charisma approach comes from Jim Collins, author of Good to Great (and co-author of Built to Last). Collins has championed something he calls Level 5 Leadership. The highest level in a hierarchy of executive capabilities, Level 5 is a potent blend of selflessness, humility, and iron will. Those who exhibit it are typically “quiet leaders” rather than the larger-than-life figures traditionally associated with transforming organizations.

Humility is a key ingredient. According to Collins, the simple formula is Humility + Will = Level 5. “Level 5 leaders are a study in duality,” notes Collins. “Modest and willful, shy and fearless.”10 They are more likely to attribute their success to luck than any heroic leadership qualities. They are ambitious for the broader organization rather than for themselves. They tend to leave a more durable legacy when they step down.



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True leaders, according to the Taoist philosopher Lao Tzu, are “silent workers.” They perform their assignment naturally and silently. They have the true power—the power that empowers others. They have the true ambition—the ambition that elevates others. They do so because they have understood that, in the ultimate scheme of things, there are no “others.” In their pres-ence you feel that you can accomplish more. They benefit the world; they make it a better place to live, just by being in it. Their “self” is so inconspicuous that when the work is done and their mission accomplished, people say, “We did it ourselves.”

Understanding your real self: The best leaders make the most of the qualities they already possess. They trade on their strengths and understand their weaknesses. These qualities must be real, perceived by others, and significant. What leadership is not about is adopting the styles or traits of other successful leaders.

Says Lord Michael Bichard: “We lead in different ways and we all have to adapt ourselves to leadership. I am quite a shy per-son and found it very difficult initially to present, communicate, and relate to people. I am, some would say, quite cold on occa-sions. I think that’s part of my shyness, but leadership is about making emotional connections and I think you have to find a way of making an emotional connection. That’s more difficult for some of us than others.”

Authentic leadership requires introspection and heightened self-awareness. Leaders who skip the necessary stages of self-devel-opment could adopt “false” personas that are not true to their own values or beliefs. Such leaders can be damaging to organi-zations particularly if they are compensating for perceived per-sonal shortcomings through their leadership.

In his book Geeks and Geezers (co-authored with Robert Thomas), Warren Bennis considers the effects of experience in fashioning leaders. He examines a selection of “geeks”—leaders between the ages of 21 and 35—and “geezers”—men and women between the ages of 70 and 93.

Bennis’ message for would-be leaders is that leadership is founded on deeply felt experiences. Youth may not be an obstacle to becoming a leader, but only if you have been through a crucible



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and emerged unscathed on the other side. For many of the older leaders, the Second World War and the Great Depression of the 1930s were crucibles in which their values were formed. By “cru-cibles” Bennis means, “utterly transforming events or tests that individuals must pass through and make meaning from in order to learn, grow, and lead.”11 The trouble for youthful leaders is that crucibles are rare and cannot be artificially reproduced. You can’t re-create Nelson Mandela’s Robben Island.

Transformational and transactional: Leaders that transform are driven by their vision of the future. In realizing that vision, they exhibit personal qualities such as persistence, courage, and energy, to share and embed their vision among their followers. These leaders circumnavigate paradoxes—such as powerful drive vs. sensitive listening, and the confidence to act vs. the humility to learn from one’s errors.

But, Edinburgh University’s J.M. Burne concluded that trans-formational leaders can only be so if they attend to detail and, in a disciplined way, focus on the more mundane, daily trans-actions of working life.12 To not do so leaves the leader vulner-able to the charge of incompetence and not being in control. The managing and review of budgets and keeping projects on track are learnt skills—operational competencies. In contrast, leading through change and redefining the paradigms of reality demands as much emotional intelligence as intellect. For us to misread the runes of context spells failure in the role of change agent and for the change process.

Competencies vs. capabilities: A critical distinction in determining the nature of leadership is that between competencies and capa-bilities. Competencies refer to clusters of distinct skills, which equip the individual to undertake particular tasks. Capabilities concern the effective harnessing of skills to address specific chal-lenges. In recent years, human resources departments have been preoccupied with the importance of competencies. In particular, competency frameworks—whereby the skills required by an orga-nization are codified—were seen as a valuable tool to improve the day-to-day running of the enterprise. But, our experience confirms that transformational leadership is usually achieved through outstanding application of capability. In other words, it



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is not simply whether a manager is competent at using the latest communications technology that determines success; it is whether they are capable of using the technology in a persuasive way to meet a particular challenge. This is an important distinction.

One prime minister clarified this by asking: “How capable are you of using your skills and competencies to make a difference here today?”

It is not enough, then, to be competent to act; you also have to be capable of acting. Very few leaders today have the hierarchical power to ride roughshod over the views of their colleagues and subordinates. In government, and indeed in most modern orga-nizational contexts, the actions of managers are constrained by the need to persuade others and carry them with you. This in turn requires an understanding of their differing agendas. So management—all management—is a political activity. The notion of capabilities recognizes this reality. Building support for decisions and strategies is part and parcel of an individual’s capability.13

In research among Tony Blair’s last cabinet, ministers emerged as transactionally competent. But the research raised fundamental questions about their transformational capability. While study participants were in broad agreement about the capabilities of political leadership, they expressed varying views concerning their application. In fact, ministers of state of all ranks iden-tified extensive deficiencies in themselves and their colleagues concerning the capability for leadership.

The participants in the study of Tony Blair’s cabinet identified the exercise of parliamentary accountability, policy development and design, attending to constituency needs and the managing of the minister’s office as competencies requiring particular knowledge and skill. Overall, they considered themselves com-petent in these areas, with the exception of needing to better manage the minister’s office.

But, in terms of ministerial leadership that really makes a differ-ence, a different opinion emerged. The study participants indi-cated that the six areas of leadership capability they considered as critical for masterful performance—teamwork; the nurturing



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of networks; role modeling; negotiating transition; handling ambiguity; and personal resilience—were poorly developed, not only among themselves, but among their contemporaries (see Figure 1). The participants viewed themselves and their col-leagues as deficient in one, or, often, more than one, of the six capabilities. Few, even at the level of secretary of state, displayed accomplishment across the six leadership capabilities.

No one and no team is perfect. But, being a senior government leader requires that you balance competencies and capabilities as much as possible. This balance was something manifestly miss-ing in Tony Blair’s cabinet. Even so, despite adverse comment in the media, the one individual the study respondents identified as accomplished in both the spread of operational transactional competencies and leadership transformational capabilities was the former Prime Minister, Tony Blair.

Gaps in competences are often easier to remedy than a lack of capability. Training in one or other skill is usually possible. Capability development, however, requires self-reflection, the inviting of feedback, the sharing of understanding of context

Transofrmational deficit of Tony Blair’s Cabinet

Transactional

CREDIBILITY

Accountability Policy Constituency Managing the Minister’s Office

Teamwork Nurture Networks Role Model Negotiate Transactions Handle Ambiguity Resilience

LEADERSHIP

Transformational

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Figure 1 The Transactional/Transformational balanceSource: Kakabadse, Andrew P. and Kakabadse, Nada K., “Minister of state: Transactional politician or transformational leader?” unpublished paper.



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and most of all, self-disclosure at both an individual and team level. Only after personal exploration can the individual and their colleagues jointly move forward.

For capability development, coaching, and team development go hand in hand. Teams that expose themselves to capability development tend to perform better. Because they are better at negotiating their way through situations, they are also more likely to take account of what is happening around them—and be open to external influences. It is interesting to note that in the run up to the global financial crisis many of the banks and financial services institutions that were implicated shunned leadership development for their top teams and as a result suf-fered from inhibited debate, which in turn, knowingly allowed bad practice to continue.

In government, too, there tends to be less focus on leadership, and, especially, team development. This is slowly starting to change as government departments recognize the importance of leadership capability. But there is a distinct reluctance at min-isterial level to allow for team development. Individual coaching is generally seen as a positive experience enabling each minister to do a better job. Yet, there is a general reluctance to make use of coaching and the quality of dialog underlying policy design tends to be damagingly wanting. The fear to open up in front of colleagues is widespread in government.

Those in government are not alone. Top leaders in other walks of life find it an uncomfortable experience to examine what they regard as the undiscussable. But, leaders who allow themselves and their teams to be helped, personally benefit from team devel-opment and more open dialog and, as a consequence, enhance the performance of their organization.

Leadership is about change: Leadership studies often focus on leading change. Why? Because it is at these times of governmen-tal stress that effective leaders can make a significant and highly visible impact. Change and leadership are increasingly recog-nized as walking hand in hand.

Rosabeth Moss Kanter of Harvard Business School has exten-sively researched the subject of turnaround leadership. She



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suggests that information and relationships are crucial aspects of turnaround leadership. A turnaround leader must facilitate a psychological turnaround of attitudes and behavior before organizational recovery can take place. She identifies four essential components of the turnaround process: promoting dia-log, engendering respect, sparking collaboration, and inspiring initiative.

A related concept is the idea of tipping point leadership. The notion of the tipping point entered public consciousness thanks to Malcolm Gladwell’s influential book, The Tipping Point. Gladwell, a former science writer for The Washington Post, observed how fashions take hold. He noticed that “ideas and products and messages and behaviours spread just like viruses do.” It only takes one or two people acting as carriers to spread a cultural infection. Once it takes hold, it shows up as a dra-matic upward curve. The point at which the curve hits critical mass is the “tipping point.”

In an article in the Harvard Business Review entitled “Tipping point leadership,” W. Chan Kim and Renée Mauborgne, profes-sors at the international business school INSEAD, point to the work of New York police chief William Bratton as an example of tipping point leadership. In New York in the mid-1990s Bratton cut felonies by 39 percent, murders by 50 percent, and theft by 35 percent in two years.

According to Kim and Mauborgne, Bratton’s leadership is built around four elements—the cognitive (communicating and ensur-ing managers are in touch with the problems); politics (keeping internal foes quiet and isolating external ones); resources (ini-tially concentrating on trouble areas); and motivation (matching messages to various levels within the organization).

Tapping into the context

But there is one element of leadership that really stands out. It is the X-factor in the modern practice of leadership: the ability to adapt to context. Different situations and contexts require dif-ferent styles of leadership. Winston Churchill was an effective leader in wartime, but not in peacetime.



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The most effective leaders are able to alter their behavior and messages according to different contexts. They tap into the con-text and then shape a new context.

Just as Chris Bartlett and Sumantra Ghoshal talked about the evolution toward a transnational corporation in their book Managing Across Borders, so we believe there is a continuum of leadership—from regional, to national, to multinational (typi-cally just a colonial view), to international, to transcultural or global. Understanding this is vital if you are to lead any part of government in an economically globalized world.

As the world has seemed to become more homogenous, our dif-ferences have actually become more important than ever. This is the paradox at the heart of globalization: As business and gov-ernment has become more global the need to be more sensitive to local nuances has increased.

The world is more heterogeneous than the rash of global brand names across cityscapes suggests. Consumption patterns may be coalescing, but that does not mean that individuals are any more alike now than they were a century ago. Just because we wear the same jeans, eat at the same fast food restaurants, drive the same cars, and even wear the same designer spectacles does not make us see the world in the same way.

What does this mean for practicing leaders? This uncomfortable reality has two implications. First, only those with the curiosity to go beyond cultural generalizations will thrive. Second, a key ingredient of this is the ability to sense different situations.

Tapping into cultural leadership

Leadership is a dynamic concept. One style might work in one Eastern area, while there is no guarantee that it will work in another Eastern area. What works in a government department in Malaysia may not work in Singapore. So, a successful leader-ship style must be flexible. The style that individuals use will be based on a combination of their values, beliefs, and prefer-ences, as well as the organizational culture and norms, which will encourage that style.



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It is worth remembering, too, that leadership is also affected by economic circumstance. For example, Taiwan was severely influenced by the Asian Financial Crisis of the 1990s. Although it has a highly disciplined culture, its recent economic dynamism was originally built on a newfound entrepreneurial energy. This led to a host of small firms, which as they grew embraced the cultural norms of discipline and strict adherence to rules. In combination these two behaviors helped the gradual develop-ment of larger business corporations. However, faced with the uncertainty caused by the Asian financial crisis many people in the country ceased to act entrepreneurially and reverted to a more traditional cultural norm. The entrepreneurial flair dimin-ished. People in Taiwan became prone to obeying rules from their superiors. This underlines how an underlying cultural ten-dency can be accentuated by a crisis.

In mainland China, the situation is quite different. Economic development has been accelerating fast and the labor market is very dynamic—people have more choices in their career path. Taking account of this situation, a rigid leadership style might curb individual motivation, and an open leadership style is likely to be preferable.

Laura Tyson, former dean of London Business School, and for-mer GE executive Nigel Andrews, led a research project into the emerging training requirements of organizations based on more than 100 face-to-face interviews with executives from global companies across a variety of industries and geographies. They concluded: “Globalization is not simply about the transfer of work to emerging economies. Globalization is an art—an art of human relations which, like other arts, is premised on insights gleaned from teaching and from experience, and honed by con-tinual practice, day in and day out, in the executive suites of the world’s corporations. Globalization is about the exercise of management and leadership, on a worldwide scale.”14

The research at London Business School observed that organi-zations require executives with what they label, global business capabilities—“the power to think, decide and act efficiently and innovatively in an unpredictable global business environment.” This is a neat summation of what is now required of governmen-tal leaders.



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It is worth bearing in mind that notions of “world citizenship” and cosmopolitanism have been discussed for centuries. It was Socrates, Aristotle, as well as the Stoics such as Diogenes and Zeno, who proclaimed themselves to be “citizens of the world.”

In the modern era, Immanuel Kant furthered the cosmopolitan agenda. Kant argued that: “since the narrower or wider com-munity of the people of the earth has developed so far that a vio-lation of rights in one place is felt throughout the world, the idea of a law of world citizenship is no high-flown or exaggerated notion.” Given that he was writing in the eighteenth century, the prescience of his words is astounding. Kant’s work led to three principles of cosmopolitanism—individualism, universal-ity, and generality.

We believe that cosmopolitanism has never been more relevant. It encourages broad political latitude for the expression of var-ied values and ideologies in a rapidly evolving local and global environment. Cosmopolitanism is locally grounded while being world-oriented.

Many leaders and managers find it challenging to operate and work in the multiple environments they are involved in. The leadership agenda is complex and demanding but, for all those entrusted with transformation, it is the agenda.

Program development

If that is the leadership agenda what does this mean for govern-ments and for those who work for them and lead them?

Simply, governments must now look to develop a new cadre of leaders. These need to be leaders attuned to the new realities of economic and governmental life. This, in turn, requires sophisti-cated and broad ranging leadership development. Indeed, lead-ership development is a vital ingredient in any transformation. Development provides the vital bridge between the theories of transformational leadership and the contextual reality.

The authors have all had personal experience of the dynamics of leadership development in this situation during the early years of transformation in Abu Dhabi.



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Let us put this into context and then consider the process of creating tomorrow’s leaders.

Having reached key development goals in terms of living stan-dards, GDP and infrastructure, Abu Dhabi’s leaders turned to the next challenge: to build a diversified, globally competitive economy defined by its dynamism, high value-added industries, and strong connections across all dimensions of the global busi-ness community. To help achieve those and other ambitious goals set by the government, Abu Dhabi’s public sector began the chal-lenging task of restructuring and transforming its institutions to better reflect the latest thinking and best practices of effec-tive government. Within this, the government’s Department of Economic Development launched a major transformation that would see its leaders taking on bigger challenges and greater responsibilities.

In order to reach the ambitious economic and institutional goals that had been set, DED needed to groom a cadre of high- performing executives. To do so it created a world-class leader-ship program called LEADS.

Getting here

To fully understand the depth and breadth of the change that Abu Dhabi’s economy and DED executives in particular are fac-ing, consider the emirate’s recent history.

For centuries, the people of Abu Dhabi survived off the land and sea. Families living off the land settled inland near date palm oases in farming communities. Others lived a nomadic life, surviving off of desert plants and animals, often caught with the aid of trained falcons. Those near the sea made their living pearl diving and fishing. This economic model centered on date farming, pearling and fishing did not bring much wealth, but it was viable until the forces of the twentieth centu-ry’s technological advancement and globalization started erod-ing this way of life.

The first major shift for Abu Dhabi’s economy came with the innovation of pearl cultivation. In the 1920s, the Japanese



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commercialized cultivation technology and began exporting cultivated pearls—at a much lower price than pearls harvested from the wild. Virtually overnight, one of Abu Dhabi’s most important sources of revenue disappeared. It was clear that the people of Abu Dhabi would need to adjust their way of life to an economic landscape defined by rapid change, technological advancement and global connections.

The second major economic shift occurred in the 1950s when geological exploration revealed substantial petroleum reserves and the 1960s when oil field development accelerated and began to yield revenues. Abu Dhabi’s young and charismatic ruler, Sheikh Zayed bin Sultan al Nahyan, became the steward of this new economic course.

Sheikh Zayed’s first priority was to improve conditions for his people. He accelerated oil exploration and invested the returns in the emirate’s infrastructure, healthcare and education. But this priority was closely followed by a vision to put in place the foundations of an economy that would secure the future for many generations to come.

In 1976, he began to funnel surplus income into an investment fund so that the emirate’s wealth could be tapped by future gen-erations. Over the next three decades, Sheikh Zayed presided over an unprecedented period of development in Abu Dhabi as well as its sister emirates. New infrastructure was built, schools and hospitals were opened, and Abu Dhabi’s people traded the harsh sea and desert life for a more modern lifestyle.

At the start of the twenty-first century, Abu Dhabi’s core infra-structure was well developed and citizens of the UAE enjoyed one of the world’s highest standards of living. The emirate had largely succeeded in fulfilling Sheikh Zayed’s top priori-ties. In 2005, Abu Dhabi’s new generation of leaders—Sheikh Khalifa bin Zayed al Nahyan, President of the UAE and ruler of Abu Dhabi, and Sheikh Mohammed bin Zayed al Nahyan, Crown Prince of Abu Dhabi and Supreme Commander of the UAE Armed Forces, signaled their commitment to expand on their father’s vision to build an economy that would outlast the nation’s finite resources by exploring new avenues for economic growth and progress in Abu Dhabi.



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Approximately 40 percent of Abu Dhabi’s GDP now comes from nonoil industries—the Department of Economic Development is working to expand that share.15

An ambitious vision

Having set the goal of diversifying Abu Dhabi’s economy, the emirate’s government and business leaders turned to the task of defining how that diversification would occur. They formed a taskforce comprised of key stakeholders and economics experts to frame and analyze the issue and determine the emirate’s posi-tion on questions such as:

What are the economy’s main strengths and potential areas of

improvement?How is the ideal future economy segmented—what percent-

age of GDP should be nonoil based?What sectors should the emirate focus on growing?

What is required at the legal and regulatory levels to enable

this growth?What other steps need to be taken to enable this growth?

The taskforce analyzed Abu Dhabi’s economy and studied other notable economic transformations—such as those of Norway, Ireland and Singapore—to derive lessons and define a frame-work for setting and enabling the emirate’s economic develop-ment goals. The taskforce also identified growth targets and sectors as well as high-level economic policy and regulatory changes required to achieve those targets.

The analysis and results were formalized in the “Abu Dhabi Economic Vision 2030,” endorsed by Abu Dhabi’s leadership and shared with government and business stakeholders.

The Economic Vision 2030 sets out Abu Dhabi’s targets for oil and nonoil revenues. By 2030, the emirate aims to increase its nonoil revenues from 41 to 64 percent of GDP.16

In addition, the task force conducted an analysis of global and regional growth sectors in the context of Abu Dhabi’s strengths and its potential to enjoy a competitive advantage in each of



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those areas. The team identified 12 focus sectors along two dimensions: sectors in which Abu Dhabi can become compet-itive globally and sectors in which Abu Dhabi can become a regional leader. In addition, they identified five “enabling” sec-tors to support the growth of the 12 priority sectors.

Having set the growth targets and defined the key sectors that will be responsible for nonoil GDP growth until 2030, the task-force then set about identifying the areas of policy focus and regulatory and other changes necessary to reach these goals—many of which are closely linked to the Department of Economic Development.

Since the push toward economic diversification in Abu Dhabi is relatively recent, there had been little reason to prioritize enact-ing a policy and regulatory framework designed to support a competitive, best practice business-enabling environment posi-tioned to compete in a global market. The existing policy and regulatory framework was analyzed and compared with those of the world’s most dynamic and competitive economies.

The taskforce identified seven areas of economic policy focus that the DED and other government entities will need to work toward in order to achieve the Vision 2030:

Build an open, efficient, effective and globally integrated busi-

ness environmentAdopt disciplined fiscal policies that are responsive to eco-

nomic cyclesEstablish a resilient monetary and financial market environ-

ment with manageable levels of inflationDrive significant improvement in the efficiency of the labor

marketDevelop a sufficient and resilient infrastructure capable of

supporting anticipated economic growthDevelop a highly skilled, highly productive workforce

Enable financial markets to become the key financiers of eco-

nomic sectors and projects

As the emirate’s central economic policy and regulatory body, DED is positioned not only to shape the institutional environ-ment to support the vision’s economic and policy goals, but also



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to act as the vision’s chief champion and driver of the evolution from an oil-based economy into a diversified, dynamic economy equipped to compete.

From development to transformation

As the dedication to building a diversified, globally competi-tive economy was growing, at the same time Abu Dhabi’s lead-ers were reevaluating all of their government institutions. Abu Dhabi’s leadership had set the ambitious goal of modernizing and restructuring its entire public sector with the goal of mak-ing Abu Dhabi’s public sector one of the world’s top five per-forming governments.

Leaders throughout government began to study the public sector landscape to identify potential areas of improvement and start the hard work of transforming key government institutions.

In the economic sphere, multiple government entities had been established to support economic development, including invest-ment and development companies such as the Mubadala and the Khalifa Fund, among others. Each entity had its own mis-sion and was generally dedicated to contributing to the emirate’s growth, but no single entity was formally mandated with suffi-cient authority to centralize and oversee the overall economic development strategy and plans for the emirate or to coordinate the activities and plans of all entities engaged in economic devel-opment. The Department of Planning and Economy (DPE)—(the predecessor of DED) had a wider mandate than some of the others, but lacked the policy and regulatory authority that would enable it to act as the central engine behind the nation’s growth.

As a result, the DPE focused primarily on its core strengths of business licensing and promotion of business and trade. Abu Dhabi’s leaders recognized that achieving the goals set out in the Vision 2030 would require a transformation in the govern-ment institutions tasked with achieving the vision. What Abu Dhabi needed was a strong, central economics institution that could aggregate, analyze and recommend needed changes in policies related to the economic and business environment, as



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well as stimulate and activate economic growth in areas critical to achieving the vision.

Adopting best practice

Having recognized the need for establishing a strong, central umbrella institution that could oversee the emirate’s economic development, the first step was to benchmark the government institutions of high-performing economies. What are the roles, responsibilities and authority of a central economic institution? Which kinds of entities report to that institution? What are the relationships between various entities such as development com-panies and advocacy bodies?

To answer these questions, the DPE sponsored an in-depth analysis of 19 high-performing economies in developing, transi-tion and developed countries. A picture of a general framework emerged, giving the DPE a solid idea of the transformation that Abu Dhabi’s economics institutions would likely need to undergo.

The DPE was reincarnated as the Department of Economic Development. The DED’s mandate was expanded so that it would act as the central policy and regulatory institution that oversees multiple operational entities (such as business licensing and export promotion) and coordinates economic policy with key actors involved in the emirate’s economic development.

With the expanded mandate came greater visibility both at home and abroad, new responsibilities and a need for more specialized knowledge. DED therefore faced two challenges simultaneously: to complete a major institutional transformation successfully and to ensure that Abu Dhabi’s economy reaches the ambitious goals set in the Vision 2030.

The leadership imperative

With the twin goals of achieving the Economic Vision 2030 and completing DED’s transformation, DED’s executives were faced with a dramatic expansion of their future roles and



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responsibilities. While they were competent in their current positions and had exceeded expectations in many areas, they were being positioned to take on much more specialized and higher profile roles than before. Equipping them with the lead-ership skills and techniques that had proven so successful for the world’s top leaders in business and government was imperative.

This reasoning naturally yielded a number of questions, such as: What distinguishes high-performing leaders? What are the skills and competencies of high-performing leaders? How does someone become a high-performing leader?

Leadership experts agree that high-performing leaders tend to have certain attributes in common. First, they are effective at managing themselves. They are highly self-aware, meaning they know their own strengths and weaknesses, understand the rea-sons underlying their own behaviors and attitudes. They know how to balance conflicting demands, have an advanced ability to learn and adapt their behavior, and tend to display values like honesty, integrity and positivity which inspire trust and confi-dence from others. Second, they have advanced social capabili-ties. They can build and maintain good relationships, are able to work effectively in groups, have advanced communication and listening skills, and know how to diagnose other people’s development needs in order to provide appropriate feedback and encourage changes in behavior.

They also have highly developed organizational capabilities. This includes management skills such as setting goals and devis-ing plans for achieving those goals. They are also able to think and act strategically and have a long-term vision of a desired future. They are creative thinkers who can see new possibili-ties and make connections between seemingly disparate ideas. Finally, they are able to initiate and implement change through their ability to identify where major changes needs to occur and influence and convince others to support the change.

High-performing leaders excel in all three of these areas: self-management, social and teamwork capabilities, and organiza-tional capabilities.

While a leader may be naturally gifted in some of these areas, high-performing leaders acknowledge that there is always room



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for improvement. Programs based on the latest research in areas such as behavioral psychology, organizational development, and human development, among others, are designed to help lead-ers isolate improvement areas and facilitate progress in those areas.

Even the highest-performing leaders benefit from a well-designed leadership development program. DED LEADS was designed to draw on the latest thinking and research in leadership devel-opment yet be tailored to the needs of DED and its executives. With this objective set, DED began to identify the executives and managers who would participate in the program.

Selecting the cohort

DED chose to focus the DED LEADS program on its 10 high-est level executives and directors with a view to cascading the program to junior managers at a later stage. This cohort was comprised of three executive directors, who manage divisions with an average size of 120 employees, and seven directors, who manage units with an average size of 20 employees. The budgets (excluding salaries) overseen by the executive direc-tors range in size from approximately $(US)1.5 million to $18 million. All delegates were proficient in English, and each had obtained the equivalent of at least a bachelor’s degree either in the UAE or abroad. Eight of the delegates were men and two were women.

In addition, between the 10 delegates they held a total of eight master’s degrees. While there was a significant divergence in knowledge, skills and abilities within the cohort, the goal remained to expose the entire group to the best and bright-est thinkers in leadership in order to challenge even the most advanced delegates.

The program was designed to equip delegates with the leadership skills necessary to play a critical role in DED’s internal trans-formation or to lead one of the operational agencies that DED would be setting up and that would directly support the goals of the Economic Vision 2030. Moreover, there was a hope that some of the delegates would become role models within DED



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and change agents who would enable a new economic paradigm to take shape in Abu Dhabi.

Leadership beyond DED

While Abu Dhabi’s Economic Vision 2030 and DED’s trans-formation were the “burning platform” for DED to invest in a world-class leadership program, the DED LEADS program team and the department’s leadership recognized that the ben-efits of this program could extend beyond the department. The emirate’s ambitions are increasing the demand for effective lead-ership development throughout Abu Dhabi.

The emirate is aiming to become one of the most dynamic and attractive places in the world in which to live, work, study, con-duct research, invest and do business. These ambitions lie at the heart of the emirate’s proclaimed goal of becoming one of the world’s top five performing governments. Among the many fac-tors needed to achieve this, there is a profound need for dynamic individuals in both business and government who can not only convince others to adopt new ideas and paradigms, but who can serve as real role models for future generations.

To achieve its ambitious goals the emirate will need an even greater number of high-caliber leaders, change agents and innovators.

In addition, Abu Dhabi will need to build one of the highest-performing cadres of civil servants in the world. As change is known to begin at the top, bringing the best and brightest minds in leadership to Abu Dhabi is a good place to start. Mindful of the need for quality leadership development throughout Abu Dhabi, DED chose to design a best-in-class program that could serve as a prototype for future leadership programs throughout Abu Dhabi’s public and private sectors.

In the end is the beginning

Leadership—and the development of leaders—is at the heart of any smart transformation. Simply put, without leaders nothing happens.



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Smart questions

How do you define leadership?

How would you describe your leadership style?

Are you a global leader? If not, why not?

What is the leadership X-factor in your organization? Who

are the role models?How do you set priorities in hectic times?

How do you alter your leadership when you work in different

places?How do you give credit to people?

Which of the characteristics of global leaders do you need to

work at?How has your leadership style changed?

What new leadership capabilities do you need to develop to

become more effective?



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199

CHAPTER 9

Navigating the roadmap

Lessons in transformation

What are the leadership skills required to lead a smart trans-formation? It is a simple enough question, and yet the answer as we have seen is elusive. That is partly because the answer will vary from place to place; from organization to organization; from situation to situation; and even from one time to another. However, that said, we believe that the preceding chapters offer a tour of the key issues that impact on government transforma-tion. Throughout the book, too, we have tried to provide ques-tions to stimulate and provoke the leaders of the future as they embark upon this journey.

In this final chapter, we have gathered all of those questions together in one place. In this way we hope to provide some foot-steps in the sand that leaders can follow—or at least some sign-posts that they can consider along the way.

The smart roadmap

By answering the following questions you can begin to create your own roadmap for smart transformation.

Leading through vision

At the heart of any smart transformation there needs to be a precise vision. That means one with a clear goal that is forward looking in nature. A vision is only real if it is tangible and can be implemented. It must be attainable—even if it is a long-term horizon. The vision also needs to be inclusive in nature, taking into account the different views and sensitivities of stakeholders.



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Moreover, a vision evolves over time and is adaptable to the dif-ferent circumstances that arise.

At the core of any vision is a leader, a visionary one who knows how to learn from others and absorb their best traits while also learning from their mistakes. An inspirational leader is also capable of rallying those they work with and persuading them to adopt their vision.

What is the vision for your nation; your department; your

organization?Generalities will not do. Be precise!

How have you made your vision inclusive?

This requires intimacy with relevant stakeholders and also a sensitivity about how they should be approached.

Can you convey that vision in a single phrase?

It means little if you cannot.

Does it convey an aspirational element that you and your staff

can relate to?It must be exciting but also stretching.

Can you visualize it in a way that makes it real and meaning-

ful?A vision must be practical and something that others can eas-ily relate to.

How much time do you spend articulating that vision?

This is a continuous process which requires constant rein-forcement.

What do you and your leaders do to make that vision real?

What would be the tangible proof of it?The way you and the other leaders live the vision is critical.

What leadership role model do you provide that will inspire

the people who work with you?The model must be inspirational and must make sense for the organization.



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201Navigating the roadmap

Which visions and leaders have inspired you?

Whoever and whatever these are, say why they mean so much to you.

Managing stakeholders

At the heart of any successful transformation is the realization that lasting change can only be achieved by bringing on board all the stakeholders involved in the reform. The first step is to identify the different types of stakeholders. These include inter-nal and external stakeholders as well as an understanding of the elements of the transformation, which are critical to the overall success of the reform. To manage stakeholders it is necessary to know what their current roles are as well as their aspirations and goals. The leader of the transformation needs to envision the future roles for those stakeholders. These need to be adaptable to changing circumstances just as the vision is.

Part of winning over stakeholders—especially critical ones—is understanding who and what their allegiances are to; and design-ing a communication strategy to win them over. Soft power plays a vital role here—especially, leading by example.

Who are the key external stakeholders you have to manage?

Who are the key internal stakeholders?Think about who these are and then be specific.

What roles do your stakeholders play in your organization or

transformation program? What role would you like them to play?Make it clear what the reality is now versus what you want the reality to be.

What are the most important aspects of the agendas of all

your stakeholders? What are their objectives or personal goals (that’s what motivates them)? What are their hopes and fears?Think about this one—don’t get it wrong.

How do you keep up-to-date with the evolving needs of your

stakeholders?Be clear on your priorities; keep up-to-date with theirs!



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To what extent do you need the support of your stakeholders

for the changes to be successful? Which stakeholders in par-ticular will impact on your success?Think about this one too—make sure those stakeholders know how critical they are to you.

Is it possible to win over critical stakeholders most of the time?

If not, what can you do about it?No, not always, so be creative about communication.

What does the notion of public value mean to you and your

stakeholders?This requires considerable thought and dialog.

Who do the stakeholders report to? Which leaders can influ-

ence them?Make sure you know; it stops you going up blind alleys.

Are you sufficiently resilient to withstand the criticism of

stakeholders when you know that you have made the best pos-sible decision under the circumstances?You do really need to know yourself.

Driving the transformation

Any transformation requires an explicit governance set-up that reflects the purpose of the transformation itself. Irrespective of the institutional arrangements, there needs to be a central unit, which works on monitoring and ensuring effective execution of the reform (this is the equivalent of the Smart PMO).

All roles and responsibilities within the transformation gover-nance set-up need to be outlined with clarity and transparency about accountability and cooperative relationships. To track the progress of the transformation it is possible either to set key per-formance indicators (KPIs), or benchmark with other equiva-lent entities. This requires specialized resources that are capable not only of setting performance metrics but also of evaluating them.



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Measuring performance is one aspect; but what remains is the ability to take action and to have checks and balances that can reward success or highlight under performance.

What is the governance model that applies to your transform-

ation? Is it fit for purpose?Answering this requires admitting to yourself the governance reality of your organization/government.

Do you have a Smart PMO or equivalent to overcome barriers

and drive the transformation?An aspirational response is not good enough.

Do you have clear lines of accountability for core activities;

project execution; content assurance; and capacity building?Know the difference between a straight line (accountability) relationship and a dotted line (cooperative) relationship.

Do you have standardized processes and measuring sticks to

measure progress?The answer here is a straight yes or no; ‘maybe’s simply high-light a problem.

Have you benchmarked your organization against other paral-

lel organizations throughout the world to establish a base line?Again, yes or no, and if you have, what have you learnt?

What are the key metrics of your transformation?

And are all relevant parties familiar with these metrics?

Do you have the resources to capture the vital metrics?

Yes or no, and if no, what are you going to do about establish-ing them?

How do you go about understanding the needs of your

communities, citizens, and clients and do you service them accordingly?This requires thought and the necessary investment for prob-ing deeply.



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Are you consistent in the delivery of your services in terms of

promises made and actions undertaken, and if not how do you then communicate that with your stakeholders?To some degree, everyone is inconsistent in the delivery of objectives. The question is are you aware of your inconsistency and are you prepared to do something about it?

How do you hold people accountable? What is the price of fail-

ure? Do you have processes in place to learn from mistakes?Much depends on your courage and personal resilience to hold others to account. It is really not easy.

Setting the strategy

A strategy is derived from a vision. In fact the first step of trans-lating any vision into reality is outlining a high-level strategy. The strategy needs to be cascaded down from central govern-ment to government entities and all the way down to the people who will implement it.

A strategy needs to be disseminated to all parts of the organi-zation. You simply cannot do too much to check whether the strategy and vision and how the two are interlinked is under-stood throughout the organization. Never, ever assume they are. Just as the vision evolves over time, so, too, must the strategy. It needs to be sufficiently flexible to change but always remain-ing true to the vision. Core to any strategy is openness to dialog and willingness to listen to feedback especially from those most affected by the transformation. All transformational leaders require the twin qualities of humility and judgment.

Strategies also need to be reflected by clear business models that show the government’s orientation. The business model could reflect a need to emphasize social partnerships or to empower private sector players. It could also be driven by central govern-ment. A business model could also evolve over time, including industrial champions who become exemplars of the vision.

What is your strategy? How is it related to your vision?

Linking strategy to vision is the outcome of a no-holds barred conversation at top team level.



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Does everyone internally understand your strategy? Do they

understand how it relates to the vision?You simply cannot check out enough whether all in the orga-nization understand the strategy, the vision and how the two interlink.

Do external stakeholders understand your strategy? Have you

made it clear how it relates to the vision?Ditto.

How able and willing are you to change strategy if necessary?

Flexibility is one thing; clear thinking and open dialog at top team level are the vital factors.

How are your agencies organized?

There is no clear-cut best practice model; it all depends on your vision, strategy, and clarity of thinking behind them.

Are your political leaders sufficiently in touch with the real-

ity of how strategy is put into action on the ground to make it effective?This depends on the openness of dialog between citizen, pub-lic servant, and politician. The culture of feedback is deter-mined by the political leaders.

Can the leaders change or adapt political direction because they

listen to their senior civil servants and heads of agencies?For a leader there is no escape from the twin qualities of humility and wisdom.

How should the fragile space between market and nonmarkets

be governed/navigated?All is dependent on the appetite for social partnership.

How do you minimize “the abuse of entrusted power for pri-

vate gain?”There is also no escaping the fact that people are heavily influenced for good or bad by the example from the top; just remember all leaders are seen for what they really are.



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How do you go about business planning in government?

Yes, just how do you go about business planning in govern-ment?

What sort of culture are you creating in government—is it entre-

preneurial, professional, ad hoc, partnership, bureaucratic?There is no point in looking back to find out what culture you have created. Look forward and proactively nurture a positive culture.

How has government balanced the freedom for wealth cre-

ation with the meeting of citizen needs?Definitely a debate for every agenda, of every political and public/private sector leader.

What industry or sector does your region want to be a talent

magnet for?It does not matter what; just be clear which.

Has government entered into social partnership arrange-

ments with the financial services sector guaranteeing major projects over longer-term duration for the benefit of all in the community?Whatever your answer, just be honest because the likely answer is no. We are at the stage of lobbying and not so ethical lobby-ing at that!

Is there the political will to integrate fast money (shareholder)

and slow money (social capitalism) or is government browbeaten by the large private capital funds to meeting only their needs?The answer is probably closer to government being brow-beaten.

Designing the operating model

With the strategy in place and a clear idea of the characteris-tics of the desired business model, the second part of the cycle is to improve organizational structure and governance to sup-port the effective delivery of the business model in line with the



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strategy. The key question the leadership needs to ask is: how should the government be structured to ensure that it is truly fit for purpose today and tomorrow? This includes redesigning the organization and reassigning roles to ensure the transformation achieves momentum.

It is very hard to take a step back and to consider how an effec-tive organization should be organized and against which bench-marks governments should be measured.

Is your organization fit for its purpose? How would it have

to change to meet the new expectations and demands placed upon it?Fit for purpose is all about role and value adding contribution, a question that bedevils every organization of every sector.

What would your organization look like if you started with a

blank sheet of paper?Probably 90 percent of leaders cannot give a convincing answer to this question.

How hierarchical is your organization? How many layers of

management separate you from the customer?Just count, do not justify!

Could your organization be simpler and leaner? What would

have to happen to achieve that?The answer is always yes; how to achieve that? Well that’s the next question!

What is stopping you from changing your organizational

structure?Probably thousands of reasons, but the most likely is just you.

Which services that you provide are core and which could be

outsourced to deliver better value?What is core, what is critical, and what is nice to have never stays the same; review the balance between the three because what you outsourced before may now need to be in-sourced!



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Developing talent

The quality or talent of the people working in government departments and agencies is probably the single biggest factor in determining the success of the transformation. The talent challenge spans the entire organization—from the most senior leader down.

This requires a strategic talent management plan to ensure the successful transformation and post-transformation.

A transformation by its very nature will change the capabilities and skills required of the people involved. In other words, the talent that got you here will not get you to where you need to be. It is essential therefore that any talent management plan recog-nizes the need to continuously develop and “retrain to retain” talent.

What have you done to create and build a learning organiza-

tion?Yes, just what have you done?

What are the key capabilities for your organization now and

in the future?Be clear! Do not confuse generic competencies with capabili-ties; what you need to focus on are critical skills that make the difference, right here, right now.

What are you doing to develop and retain talent? What are

you doing to create and nurture a talent culture?To answer this question much depends on whether you have a capability mindset.

How have you tried to make your people capable of being able

to manage change? How are you developing future leaders?Focus on the reality of how your organization functions. Build your value adding capabilities around that.

Do you have a talent management policy in place?

Yes or No.



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How do you continually develop your own professional

skills?This depends on whether you have a continuous professional development (CPD) practice in place.

Making it happen

Finally, it is necessary to roll out the transformation plan to execute on the strategic objectives within a well-defined time frame. This is the reality of making change happen; it under-lines the importance of validating by monitoring and measuring to ensure key performance indicators are met.

Do you understand the window of opportunity that you have

for change?If no, talk it through with the leadership team. If yes, talk it through with your leadership team.

Can you generate sufficient energy to create a momentum for

change?Can you? More to the point, do you want to?

How will your transformation cascade down the organization?

This requires serious thought as you need to have your people aligned behind the vision and strategy of the organization. Identify the misalignment tension points in the structure and then deal with them.

Do you have the political capital—visibility, commitment,

and reach—to make the change bite?Just be honest with yourself. If not, nurture that political capital.

No matter how challenging, can you clearly communicate the

nature and reasons for the tough decisions that need to be made?Yes, you need to be resilient as a person to do so, but most of all you need to clearly think through what decisions need to



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be made as you can be certain that you will be scrutinized for what you are going to do.

Can you mobilize the resources and influence to overcome

resistance?Again, this requires deep thinking as well as the personal qualities of resilience.

Do you have the right human capital—including leaders—to

achieve a lasting change?This is one of the most critical human resource (HR) strategy questions that needs answering so that sustainable change can be realized.

Distilling the X-factor

One of the most striking findings in our review of best practice is the importance that contextual leadership plays in the success or failure of any transformational endeavor. We identified a set of international (generic) leadership capabilities required for effective transformation. But these alone did not explain why what worked in one country or context sometimes did not work in another.

Every economic transformation project has its own secret rec-ipe: the leadership X-factor—a unique set of capabilities that determine whether a leader will be effective in that part of the world and in that particular context at that time.

How do you define leadership?

Born with; totally developed; style; qualities; intellect; the sit-uation makes the leader—the range of answers are extensive. What is important is that you have a definition you are com-fortable with.

How would you describe your leadership style?

Not through your eyes, but through the eyes of others.

Are you a global leader? If not, why not?

Be informed, challenge, think—these are the critical compo-nents that make the global mind set.



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What is the leadership X-factor in your organization? Who

are the role models?Not many can clearly answer this question; more feel the X-factor, which means that by not fully understanding it, most do not harness it.

How do you set priorities in hectic times?

You do have to be a disciplined person.

How do you alter your leadership when you work in different

places?Whatever you do, do not walk around with a mindset of suc-cess of the past. Do not answer the question, “what are you going to do here,” by stating what you did somewhere else, long ago.

How do you give credit to people?

How you give credit to others is important, but more impor-tant is that you consciously give credit to others where it is due.

Which of the characteristics of global leaders do you need to

work at?Yes, it is a fascinating thought—just which and why?

How has your leadership style changed?

Allow time for real reflection before answering this one.

What new leadership capabilities do you need to develop to

become more effective?Having considered the two questions above, now also consider your organizational and stakeholder context and emerge with an interested view.

Change is at the heart of government

And so, finally, the journey of this book is at an end. But smart transformation does not end here. Like change itself it is a con-tinuous process, and a process that is necessary in government.



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Why? Because we believe that leading transformation in gov-ernment is important and ultimately rewarding work. In fact, it is some of the most important work currently being undertaken anywhere in the world. We also recognize that it is difficult, unrelenting, and often poorly rewarded compared with similar work in the private sector. But don’t give up. It is worth it.

The excitement of driving a change agenda

Our intention throughout this book has been to be practical. We hope, too, that we have given some idea of the excitement and power that transforming government can create. As Peter Shergold, of the Department of the Prime Minister and Cabinet in Australia, observes: “Wherever I have been in public service there has always been the excitement of driving a change agenda, sometimes it has been in policy, sometimes in legislation and sometimes in administration, but always really what has excited me about the job has been the opportunity for reform.”

“When I was in education it was working with the Minister on new higher education policy. Of course, working for the Prime Minister inevitability you get caught up in day-to-day respon-siveness to emerging crises. Perhaps the most significant change I achieved, against the odds, was getting the government, all be it very late in its fourth term, to accept the reality of cli-mate change and to embrace an emissions trading scheme. The Howard government was persuaded, as a result of a task force that I lead, to embrace emissions trading.”

Shergold’s advice to the leaders who follow?

Try if possible to keep all options on the table when you are trying to achieve change. That’s quite hard in politics, because increasingly politicians try and control the media spin twenty-four seven. If something emerges publicly which is an immediate problem often the response is to try and then and rule it out because its much easier to rule things out and say no, we are not even contemplating that—it relieves the short-term political pain, but often at the expense of long-term reform.



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Here are some more observations, insights, and inspirations.

The stakes are high and should never be forgotten or underestimated

It is easy to become blasé or simply to underestimate how high the stakes are. What is at stake we asked one minister? “That we will not be one of the best governments in the world. We will miss the opportunity for a better life for our people. We will not maximize the opportunity that we have.”

Every situation is unique

Says Enterprise Ireland’s Frank Ryan: “Every country is unique. So you have to be careful about very quick answers and quick results. It is really important that you sit down and indepen-dently analyze what your strengths and weaknesses are. SWOT analysis quickly develops into an action plan. It doesn’t have to be a massive step forward. The first step in any long journey is to take the first step.”

It is that heady combination of excitement, high stakes, flexibil-ity, and uniqueness, allied with a sense of purpose and public service that will ultimately determine the success of government transformation. It will not be easy. But the prize is alluring—a better future for our countries and our people. We wish you luck and strength of purpose on your journey.



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NOTES

Preliminary Material

1. Compact Oxford English Dictionary. 2. Keynes, John Maynard (1926) End of Laissez-Faire. 3. D’Aveni, Richard (1992) Hypercompetition, Free Press. 4. Truman, Harry S., lecture at Columbia University, April 28, 1959. 5. “The size and power of the state is growing, and discontent is on the

rise,” Economist, January 23, 2010.

Part I The Context for Change

1. Crainer, Stuart, (1998) The Ultimate Book of Business Quotations, Capstone.



4. All unattributed quotations are from interviews by the authors. 5. Yas is unique among race circuits. Designed by legendary Formula 1

circuit designer and architect, Hermann Tilke and inspired by tradi-tional Arabian culture, it extends over 5.5 kilometers with 9 right turns and 11 left turns, which are driven anticlockwise. Only at the Yas circuit can guests watch the action from their yachts moored in an exclusive state-of-the-art marina. Visually, too, it is spectacular—fusing modern architecture and materials with the traditional desert and ocean land-scape, with the curvaceously opulent Yas Hotel (one of eight hotels), and a 10,000-seat concert venue inaugurated by Beyonce Knowles two days before the race. The race circuit is one part of a sporting, retail, residen-tial, and leisure development including Ferrari World Abu Dhabi, the world’s first Ferrari theme park.

6. Jarrett, Michael, (2009) Changeability, FT Prentice Hall. 7. Crainer, Stuart (ed.) (1998) The Ultimate Book of Business Quotations,

Capstone. 8. Crainer, Stuart (ed.) (1998) The Ultimate Book of Business Quotations,

Capstone. 9. Sidey, Hugh (1980) “The task of the leader,” Time, October 20, p. 39.10. Collins, James C. and Porras, Jerry I. (1996) Built to Last: Successful

Habits of Visionary Companies, HarperBusiness.

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215Notes

11. Nanus, Burt (1996) “Leading the vision team,” The Futurist, 30 (1 May).

12. Nanus, Burt (1992) Visionary Leadership, Jossey-Bass.13. Senge, Peter, Roberts, Charlotte, Ross, Richard B., Smith, Bryan J., and

Kleiner, Art (1994) The Fifth Discipline Fieldbook: Strategies and Tools for Building a Learning Organization, Nicholas Brealey Publishing.

14. Singapore 21: Vision for a New Era, Excerpt from a speech made in Parliament, June 5, 1997, National Library Board of Singapore, Annual Review 1997.

15. “Where next?” Business Strategy Review, Summer 2010.16. iN2015 Masterplan and iN2015 Steering Committee Fact Sheet.17. Unless otherwise stated, quotes without references are drawn from our

interviews.18. Bennis, Warren, in Brown, Tom; Crainer, Stuart; Dearlove, Des,

Rodrigues, Jorge N., “Business Minds”, FT Prentice Hall, London 2002.

19. The idea of attraction as a form of power can be dated back to such ancient Chinese philosophers as Laozi in the seventh century BC, but the modern development dates back only to the late twentieth century.

20. “The benefits of soft power,” Harvard Business School Working Knowledge for Business Leaders, http://hbswk.hbs.edu/archive/4290.html

21. Moore, Mark H. (1997) Creating Public Value: Strategic Management in Government, Harvard University Press.

22. The Week (2004a) “Statistic of the Week,” Issue 460, May 15, p. 19.23. www.uaeinteract.com, “Law to set up Abu Dhabi statistics center”

posted on 05/01/2008.24. www.uaeinteract.com Statistics Centre Abu Dhabi to use CN50 Wireless

PDA’s posted on 10/21/2009.25. www.ameinfo.com, Press Release, “The Statistics Center-Abu Dhabi

announces today results of economic surveys,” July 19, 2009.26. Singapore 21: A New Vision for A New Era, National Library Board of

Singapore, Annual report, 1997.

Part II The Transformational Cycle

1. Ohmae, Kenichi (1982) The Mind of the Strategist, McGraw Hill, New York.

2. Rowling, JK, “The fringe benefits of failure and the importance of imagination”, speech to the Harvard Alumni Association Annual Meeting, 6 May 2008.

3. Markides, Costas (2010) Business Strategy Review, Summer. 4. Mintzberg, Henry in Brown, Tom; Crainer, Stuart; Dearlove, Des,

Rodrigues, Jorge N., “Business Minds”, FT Prentice Hall, London 2002. 5. Ohmae, Kenichi (1982) The Mind of the Strategist, McGraw Hill, New

York.



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http://hbswk.hbs.edu/archive/4290.html

http://www.uaeinteract.com

http://www.uaeinteract.com

http://www.ameinfo.com

http://hbswk.hbs.edu/archive/4290.html

216 Notes

6. “Roots of prosperity,” R. Glenn Hubbard and William Duggan, strategy+business, Spring 2010, Issue 58.

7. “Doing Business 2010: Reforming through difficult times, by the World Bank and the International Finance Corporation,” Palgrave Macmillan, London 2010.

8. Cavanaugh, Melissa Master (2010) “A renewable oasis,” Strategy+Business, Summer.

9. Michael E. Porter, “Clusters and the New Economics of Competition,” Harvard Business Review, November–December 1998.

10. Author interview.11. “The RiskMinds 2009 risk managers’ survey: The causes and implica-

tions of the banking crisis,” designed and conducted by Moore, Carter & Associates, with Professor Andrew Kakabadse.

12. “Shareholders vs. stakeholders: A new idolatry,” Economist, April 24, 2010.13. Martin, Roger, “The age of customer capitalism,” Harvard Business

Review, Jan–Feb 2010.14. Nayar, Vineet (2010) Employees First; Customers Second, Harvard

Business School Press, Boston, Mass.15. One of the early exponents was Margaret Thatcher. As one of our

interviewees, a UK-based academic, observed: “Margaret Thatcher was elected Prime Minister in 1979. One year before we had a Labour administration which ran the country through top heavy government-owned, completely insensitive, expensive, bureaucratic organizations that stifled innovation and essentially were leading the country to bankruptcy. Some 32 years later, namely today, we have highly sensi-tive, market-driven organizations led by sharp witted, at times ruth-less, individuals who seem to be over concentrated on cost and they in turn are driven by a financial services sector that uses short term financial instruments to speculate and gamble with the citizens and nations money and resources.” “In 32 years, which in terms of history, is a very short period of time, we have swung from one total extreme to the other. The question that faces the British government which they seem reluctant to address is why we cannot find a sustained bal-anced approach between quick term investment, innovation and sharp responsiveness to market and also sustained more short term, but defi-nitely much firmer, long term growth. This balance is really a chal-lenge to any government.”

16. “This is a phoney war between shareholder capitalism and stakeholder capitalism as we haven’t really tried shareholder capitalism,” observes Anne Simpson, who oversees corporate governance activism for Calpers, America’s biggest public pension fund. “Rather than give up on share-holder value, let’s have a real go at setting up shareholder capitalism.”

“Shareholders vs. stakeholders: A new idolatry,” Economist, April 24, 2010.

17. “Roots of Prosperity,” R. Glenn Hubbard and William Duggan, strategy+business, Spring 2010, Issue 58.

18. Kyght, P. R., Kakabadse, N. K., Kouzman, A., and Kakabadse, A., “Chronic failure in globalized, oligopolistic markets: An urgent case



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217Notes

for socialized capital,” accepted for publication in Society and Business Review, forthcoming 2011.

19. Smith, Adam (1776) The Wealth of Nations.20. Default Recovery Rates and LCD in Credit Risk Modeling and Practice:

An Updated Literature and Empirical Evidence; Edward I. Altman, November 2006.

21. Smith (1759/2002; 1776/1976).22. This followed a seminal report, Improving Management in Government:

The Next Steps, by Sir Robin Ibbs in 1988.23. http://www.veoliaenvironnement.com/en/group/history/24. Kakabadse, Andrew and Kakabadse, Nada, “Outsourcing in the public

services,” Public Administration and Development, 21, 2001.25. “Restructuring financial supervision: the UK experience,” by Michael

Foot CBE, chapter 6 of Central Bank Modernization, edited by Neil Courtis and Peter Nicholl, Central Banking Publications Ltd., 2005.

26. M. Clarke and J. Stewart (1997) “Handling the wicked issues—A chal-lenge for government,” University of Birmingham, School of Public Policy Discussion Paper, University of Birmingham.

27. In View (The Journal from the NHS Institute for senior leaders), Issue 15, October 2007.

28. In View (The Journal from the NHS Institute for senior leaders), Issue 15, October 2007.

29. Douglas A. Ready (2010) Business Strategy Review, Autumn.30. DeAnne Aguirre, Laird Post, and Sylvia Ann Hewlett, “The talent

innovation imperative,” Strategy+Business, August 27, 2009, Autumn 2009, Issue 56.

31. The Transformation of the Government Accountability Office: Using Human Capital to Drive Change—Jonathan Walters and Charles Thompson, Human Capital Management Series, IBM Center for The Business of Government.

32. In the US elections of 1996 some 51 percent of the eligible electorate didn’t vote—the highest percentage of nonvoters since 1924 and the continuation of a downward trend that started in the 1960s. The situ-ation was only marginally improved in 2000 when the turnout was 51 percent. In the UK 2001 general election the 59 percent turnout was the lowest since 1918.

33. http://www.Forfás.ie/publication/search.jsp?yr=199634. The Good Friday Agreement is also known as the Belfast Agreement,

and occasionally as the Stormont Agreement.35. Financial Times, “Signs of Celtic Tiger clawing back growth” By David

Gardner in Dublin. Published: March 30, 2010.36. Brown, John Murray, “Ireland’s woes deepen as economy shrinks,”

Financial Times, March 26, 2010. The Irish economy appeared to have emerged from recession in the third quarter of 2009. Some economists were more gloomy. Alan McQuaid, an economist with Bloxham stock-brokers, said: “Not only did Ireland not come out of recession in Q3, but it actually went into a deeper downturn in the final quarter.” He calculated that the cumulative decline in GDP since the end of 2007 was



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http://www.veoliaenvironnement.com/en/group/history/

http://www.Forfs.ie/publication/search.jsp?yr=1996

218 Notes

a “staggering” 12.7 percent, which he said was more than double the rate of the slowdown in the eurozone.

37. Brown, John Murray, “Ireland’s woes deepen as economy shrinks,” Financial Times, March 26, 2010.

38. Jocelyn Davis, Henry Frechette, and Edwin Boswell, Strategic Speed, Harvard Business Press 2010.

39. “Twenty Years of Modernization: the Reserve Bank of New Zealand,” by John Singleton, Arthur Grimes, Gary Hawke, and Frank Holmes, from Central Bank Modernization, edited by Neil Courtis, and Peter Nicholl, Central Banking Publications, 2005.

40. Amy C. Edmondson and Frances X. Frei, Transformation at the IRS, Harvard Case Study, 9-603-010, Rev. 12 November 2002.



Part III The X-Factor

1. Jenkins, R. (1995) Gladstone, Macmillan, London. 2. Benn, T., Quoted by Sir Patrick Nairne in BBC Radio 4’s “Times past,

Time future,” January 17, 1996. 3. Nicholson, Nigel, “How hardwired is human behavior?” Harvard

Business Review, Vol 76, July–August, 1998. 4. Kakabadse, Andrew P. and Kakabadse, Nada K., “Minister of state:

Transactional politician or transformational leader?” Unpublished paper.

5. Kakabadse, Andrew, Korac-Kakabadse, Nada, and Kouzmin, Alexander, “Ethics, values and behaviours,” Public Administration, Vol. 81, Number 3, 2003.

6. Quoted in Coates, 1975: 143, Coates, D. (1975) The Labour Party and the Struggle for Socialism, Cambridge University Press, Cambridge.

7. Bennis, Warren in Brown, Tom; Crainer, Stuart; Dearlove, Des, Rodrigues, Jorge N., “Business Minds”, FT Prentice Hall, London 2002.

8. Kakabadse, Andrew and Kakabadse, Nada (1999) Essence of Leader-ship, International Thompson, London.

9. Kakabadse, Andrew P. and Kakabadse, Nada K., “Minister of state: Transactional politician or transformational leader?” Unpublished paper.

10. Collins, J., “Level 5 leadership: The triumph of humility and fierce resolve,” in Best Of HBR, HBR, July–August, 2005, pp. 136–146.

11. Bennis, Warren and Thomas, Robert, Geeks and Geezers, London.12. Burne, J. M.13. Interestingly, in a comparative, international study of cabinet ministers,

Jean Blondel, Professional Fellow at the European University Institute,



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219Notes

found that more autocratic regimes include a larger number of “expert” ministers in government than do democratic states. The implication is that where influencing skills are less important, the more “competent” (in terms of expertise or specialized knowledge) the cabinet can be. Greater competence, however, comes at the cost of being less politically capable. In contrast, political judgment, the essence of political leader-ship, is a contextually determined capability.

14. Tyson, Laura and Andrews, Nigel, “Global business capabilities,” Business Strategy Review, Winter, 2004.

15. Abu Dhabi Statistics Yearbook 2006.16. Abu Dhabi Economic Vision 2030, Abu Dhabi Council for Economic

Development.



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FURTHER READING

Abramson, Mark. Getting It Done: A Guide for Government Executives (Lanham, MD: Rowman & Littlefield Publishers, Inc., 2009).

Colosi, Thomas R., On and Off the Record: Colosi On Negotiation (Dubuque, IA: American Arbitration Association, 1993).

Daly, Peter H., Michael Watkins, and Cate Reavis. The First 90 Days in Government: Critical Success Strategies for New Public Managers at All Levels (Boston: Harvard Business School Press, 2006).

Goleman, Daniel, Richard Boyatzis, and Annie McKee. Primal Leadership (Boston: Harvard Business School Press, 2002).

Gryskiewicz, Stan and Sylvester Taylor. Making Creativity Practical: Inno-vation That Gets Results (Greensboro, NC: Center for Creative Leader-ship, 2003).

Jacobs, T. Owen. Strategic Leadership: The Competitive Edge (Rev. ed.) (Washington, D.C.: National Defense University, 2006).

Lundberg, Kirsten. “Telling the Boss He’s Wrong: George Shultz and Iran/Contra” (Harvard Kennedy School of Government, Reprint 16-94-1254.0, 1994).

Paul, Richard and Linda Elder. The Miniature Guide to Critical Thinking Concepts & Tools (4th ed.). (Santa Rosa, CA: The Foundation for Critical Thinking, 2006).

Kakabadse, Andrew P. and Kakabadse, Nada K. “Minister of State: Trans-actional Politician or Transformational Leader?” Unpublished paper.

Kaplan, Robert S. and David P. Norton. Execution Premium (Boston: Harvard Business School Press, 2008).

Kidder, Rushworth M. How Good People Make Tough Choices (New York: Harper Publishing Co., 1995).

Kotter, John and Dan Cohen. The Heart of Change (Boston: Harvard Busi-ness School Press, 2002).

Ostroff, Frank. “Change Management in Government.” Harvard Business Review 84, no. 5 (May 2006): 141–147.

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ACKNOWLEDGMENTS

We are grateful to all those who agreed to be interviewed for this book. Most of them prefer to remain anonymous and we respect their wishes. Indeed, it was the promise of confidentiality that allowed them to offer candid and often insightful responses to our blunt questions.

A few individuals, however, were happy to offer their comments on the record. We would like to offer our heartfelt thanks to:

Lord Michael Bichard, Ola Ullsten, Frank Ryan, Dr. Peter Shergold, and Dame Sue Street, whose candor and insights made a major contribution to the thinking behind this book.

We would also like to acknowledge the following sources, whose insights and analysis was invaluable.

Restructuring Financial Supervision: The UK Experience, by Michael Foot.

Creating Public Value: Strategic Management in Government, by Mark H. Moore, Harvard University Press, 1997.

Twenty Years of Modernization: the Reserve Bank of New Zealand, by John Singleton, Arthur Grimes, Gary Hawke, and Frank Holmes, from Central Bank Modernization, edited by Neil Courtis and Peter Nicholl, Central Banking Publications, 2005.

Transformation at the IRS, by Amy C. Edmondson and Frances X. Fre, Harvard Case Study, 9-603-010, Rev. 12 Nov. 2002.

The Transformation of the Government Accountability Office: Using Human Capital to Drive Change, by Jonathan Walters and Charles Thompson.

This book would not have been possible without the support and professionalism of a team of exceptional individuals. In particular,

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222 Acknowledgments

Dr. Joey Ghaleb; Zeina El Kaissi; Dr. Mazen Najjar; and Chadi Moujaes were instrumental in developing and refining the Smart Transformation model. We would also like to thank Nayla Abouchakra (formerly at the DED) for kick-starting the project and refining the overall approach.

Huge thanks are also due to all those at the DED’s Business Academy—Vinaya George, Kathrine Shamraj, and Kristin Malte.

Dr. Mona Hammami from the Crown Prince Court Abu Dhabi provided unparalleled support in reviewing the book, and pro-viding valuable insights and creative content.

Professor Nada Kakabadse was a constant source of academic feedback and new insights; our deepest thanks to Madeleine Fleure who patiently provided continuous secretarial sup-port to all of us; and Des Dearlove and Stuart Crainer of CrainerDearlove provided invaluable support throughout the book’s long gestation period, helping to give our ideas more impact.

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Abu DhabiDepartment of Economic

Development, 48, 194, 196–7Department of Planning and

Economy, 193–4economic development in, 189–91education clusters in, 75–6governance model, 43leadership, 193, 194–7Masdar City, 72measurement of change in, 48–9policy priorities, 68–9program development, 188–9transformation of, 193–4vision for, 13–14, 68, 191–3

Abu Dhabi Chamber of Commerce, 70–1Abu Dhabi Economic Vision, 14, 16,

68, 191–3Abu Dhabi Education Council

(ADEC), 127–8Abu Dhabi Grand Prix, 3–4accountability, 49–51, 136, 172Aguirre, DeAnne, 119ambidextrous organizations, 106–7ambiguity, 173ambition, 40, 180Amnesty International, 26Andrews, Nigel, 187The Art of War (Sun-Tzu), 64Asian financial crisis, 187Australia, 43, 96–7Australian Public Service (APS),

99–100, 173

Baby Boomers, 117Bach, David, 39banking crisis, 77–80, 82, 147–9Bank of England, 103–6Barbados, 43Bartlett, Chris, 186benchmarking, 51–4, 202–3Benn, Tony, 169Bennis, Warren, 5–6, 22–3, 177, 180–1

Bentham, Jeremy, 37Best Demonstrated Practices (BDP), 52Best Related Practice (BRP), 52Bichard, Lord Michael, 16–18, 23, 46–7,

54, 111–12, 130, 179, 180Blair government, 177–8, 182–3Blondel, Jean, 218n13Boswell, Edwin, 153Botswana, 12–13BP oil spill, 71BPR, 101–2Bratton, William, 185Bruton, Richard, 146Burns, James McGregor, 39–40business community, lobbying by, 38–9business models, 67–70, 81–5

ancient, 83–4global, 84–5IRS, 165–6

Business Process Management (BPM), 101

Cambridge University, 76Canada, 43capabilities, 119–20, 181–4, 187capacity building, 137capital flows, 86–9capitalism

laissez-faire, 88neo-liberal, 88shareholder, 78–80, 82, 216n15social, 85–6, 88, 89

Carlyle, Thomas, 34Celtic Tiger, see IrelandCentral African Republic, 70Champy, James, 101, 103change

see also transformationgovernment and, 8–9, 211–12incremental, 174large-scale, 174–5leadership and, 18–20, 184–5readiness for, 4–5vision for, 16–17

INDEX

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change agenda, 212–13charisma, 178–9China, 187citizenship, world, 188civil service, 92–4clarity, 16–17closed camera (CC) surveillance

systems, 37clusters, 72–7codes of ethics, 172Collins, Jim, 6, 179commerce, 77–8, 84–5commitment, 132–5communication

with stakeholders, 30strategy, 137

competencies, 119, 181–4content assurance, 137context, 185–6core employees, 120corporations, lobbying by, 38–9cosmopolitanism, 188Creating Public Value (Moore), 30–2Creative Business Programme, 59crime, 107–8cult of personality, 178–80cultural leadership, 186–8

Davies, Howard, 103, 104Davis, Jocelyn, 153DED LEADS, 196–7demography, 117departmental PMOs, 45departmental strategy, 70–2, 154–60departmental visions, 14–15Department of Economic Development

(DED), 48, 194, 196–7Department of Planning and Economy

(DPE), 193–4depersonalization, 103Detroit, 72differentiated capabilities, 119–20digital media, 36–8digitization, 116–17Doing Business report, 69–70Dubai, 75Duggan, William, 69, 71, 83

Ecclestone, Bernie, 3economic Darwinism, 86

Economic Development Board (EDB), 59

economic models, 67–70, 81–5education, 127–8education clusters, 75–6emerging economies, 48energy strategy, 71Enterprise Ireland, 16, 47, 130,

144, 153equity investment, 151ethical codes, 172euro zone, 145–6execution management, 135–7executive agencies, 93–4experience, 111–12external stakeholders, 26–7, 29

Facebook Generation, 117Favis, 105–6Federalists, 35The Fifth Discipline (Senge), 55financial crisis, 77–80, 82, 147–9, 187financial markets, 87–8Financial Services Authority (FSA),

103–8followers, 40–1Foot, Michael, 105–6Ford, Henry, 5foreign direct investment (FDI), 87,

152–3Forfás, 142Fourth Estate, 34–5Frechette, Henry, 153freedom, of the media, 35–6free markets, 78–80, 82, 85–6future, vision for, 6, 12–13

Gates, Robert, 24Generation X, 117Generation Y, 117Gen F, 117Ghoshal, Sumantra, 186Gladstone, William, 169Gladwell, Malcolm, 185global benchmarks, 53–4global business capabilities, 187global commerce, 77–8, 84–5Global Competitiveness Report, 53Global Executive MBA (GEMBA), 75globalization, 85, 116, 187



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225Index

goals, 7Goethe, Johann Wolfgang von, 1governance models, 42–4, 98governance structure, 136government

see also public sectorchange and, 8–9, 211–12local, 91–2market forces and, 80–1, 86–9operating model for, 91–109program development, 188–9redesigning, 101–3role of, in global commerce, 77–8structure of, 92–4, 98talent in, 128–9

Government Accountability Office (GAO), 122–6

governmental leaders, 128–9see also leaders/leadershipchallenges for, 22–3issues for, 171–3sense of purpose and, 32–3use of soft power by, 23–5

governmental transformation, see transformation

Greenpeace, 26Grenadines, 43guiding philosophy, 6

Hammer, Michael, 101hard power, 25Hewlett, Sylvia Ann, 119high-performing leaders, 195–6high-tech clusters, 74hiring practices, 114–16Hollywood, 72Hong Kong, 70Hubbard, R. Glenn, 69, 71, 83human capital, 19, 110

see also talenthumility, 179

ideology, 117image, 6IMD World Competitiveness

Yearbook, 54India, 76Indonesia, 58Industrial Development Agency (IDA

Ireland), 16, 140–1

industry groups, 26inflation, 157–8Information and Communication

Technology (ICT), 37initiatives, 8–9INSEAD, 75, 76Intel, 138Internal Revenue Service (IRS), 160–7internal stakeholders, 29, 39–40International Monetary Fund

(IMF), 85international trade, 84–5internet, 36–8invisible hand, 85Ireland, 16

economic growth in, 138–9, 145–7FDI in, 87governance model, 43high-tech industry in, 138Industrial Development Agency

(IDA Ireland), 16, 140–1isolation of, 139–40lessons from, 149–53policy priorities, 69recession in, 147–9, 217n35transformation strategy, 138–53

IRS, see Internal Revenue Service (IRS)

IT infrastructure, 98

Japan, 178Jarrett, Michael, 4–5Jefferson, Thomas, 35Jenkins, Mark, 74–5Jensen, Michael, 79, 80

Kant, Immanuel, 188Kanter, Rosabeth Moss, 184–5Kellerman, Barbara, 40–1Kennedy, John F., 5Kin, W. Chan, 185King, Martin Luther, Jr., 5Kissinger, Henry, 6knowledge, 76–7knowledge economy, 116–17Knowledge Village, 75Kotter, John, 1

laissez-faire capitalism, 88Lao Tzu, 169, 180



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226 Index

leaders/leadershipin Abu Dhabi, 193–7bad, 40–1challenges, 22–3change and, 18–20, 184–5competencies vs. capabilities, 181–4context and, 185–6critical practices for, 154cultural, 186–8development, 121experience needed for, 111–12factors in, 5–6functions of, 6high-performing, 195–6IRS, 164key capabilities, 175–85managing execution and, 135–7messages from, 30philosophy, 176political, 128–9role of, 18–20self-understanding and, 180–1tipping point, 185transactional, 39–40, 181transformational, 39–40, 181turnaround, 184–5use of soft power by, 23–5vision and, 5–6, 18–20, 40, 199–201X-factor, 171–98, 210–11

learning communities, 75–6learning organizations, 55–6Leong, Lam Chuan, 15Level 5 Leadership, 179linear thinking, 66lobbyists, 26–7, 38–9local government, 91–2

Mackenzi-Bogdanor, W.J.M., 94Malaysia, 12, 58Malta, 42Management by Objectives (MBO), 65manpower planning, 98market forces, 68, 80–1, 85–6, 88market integration, 87–8Markides, Costas, 61Marshall, Alfred, 73Martin, Roger, 79Masdar City, 72master plan, 44–5Mauborgne, Renée, 185

McQuaid, Alan, 217n35measurement, of transformation, 45–9,

54–7, 202–3Meckling, William, 79, 80media, 26

freedom of, 35–6management of, 34–5new, 36–8

mental models, 56mentors, 112mercantilism, 88Mesopotamia, 83milestones, 47–8The Mind of the Strategist (Ohmae), 66Mintzberg, Henry, 5, 65mission, 6, 7Moore, Mark, 30–2, 33–4, 49–51multiagency collaboration, 107–8

Nanus, Burt, 6–7National Economic Social Council

(NESC), 148National Health Service (NHS), 113national visions, 8–14, 16neo-liberal capitalism, 88networking, 173new media, 36–8New Public Management (NPM),

80–1New Zealand, 43, 44, 70

Reserve Bank of New Zealand (RBNZ), 154–60

NGOs, see non-government organizations (NGOs)

Nicholson, Nigel, 169noncore employees, 120non-government organizations

(NGOs), 26, 28Norway, 14Nye, Joseph S., 24, 25

Ohmae, Kenichi, 61, 66Olympic Games (2012), 94–5online activism, 36–8operating model, 91–109, 206–7organizational model, of IRS, 166Orwell, George, 37outsourcing, 94, 96–7ownership, 133Oxford University, 76



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227Index

Panopticon, 37paradigm shifts, 88paradox of location, 74peer groups, 29performance acceleration, 120–1performance assessment, 49–51,

202–3personality, cult of, 178–80personal mastery, 55–6pivotal employees, 120PMO, see Program Management Office

(PMO)political leaders, see governmental

leadersPorras, Jerry, 6Porter, Michael, 74Post, Laird, 119Powell, Colin, 129power

hard, 25soft, 23–5, 37–8

PPPs, see public-private partnerships (PPPs)

press, see mediaprivate sector

in ancient times, 83–4lobbying by, 38–9relationship between public sector

and, 38, 94, 96–9privatization, 81, 94pro-business environment, 70–1program development, 188–9Program Management Office (PMO),

43–5, 136–7, 137progress monitoring, 136public interest, 171–2public-private partnerships (PPPs),

94–6public sector

see also governmentfuture for, 99–101market-oriented, 94outsourcing by, 94, 96–7relationship between private sector

and, 38, 94, 96–9talent management in, 110–31

public value, 30–4, 49–51purpose, 7, 32–3

Qatar, 75

reach, 132–3readiness for change, 4–5Ready, Douglas, 116, 118recruitment, 114–16reengineering, 101–3regulation, 88relative cost, 52renewable energy, 72Reserve Bank of New Zealand

(RBNZ), 154–60resilience, 172role transition, 173Roman Empire, 83–4Romer, Paul, 73–4Rosotti, Charles, 163, 164Rowling, JK, 61Ryan, Frank, 16, 40, 47–8, 130, 144,

147, 213

Saudi Oxford Advanced Management and Leadership Programme, 76

SCAD, see Statistics Centre--Abu Dhabi (SCAD)

schools, 127–8Schumpeter, Joseph, 73self-development, 130Senge, Peter, 7, 55–7shared vision, 56shareholder capitalism, 78–80, 216n15shareholder value, 78–80Shergold, Peter, 1, 99–101, 178, 212–13short-term benefits, 82Silicon Valley, 72, 74Simpson, Anne, 216n15Singapore

business environment, 70Economic Development Board, 59governance model, 42Infocomm Development Authority,

14–15reinvention of, 57–60vision for, 14–16

Singapore 21, 9–11Smart Project Management Office,

44, 136Smart Tool, 43smart transformation, see

transformationSmith, Adam, 85–6Smith, Phil, 113–14, 115



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228 Index

social capitalism, 85–6, 88, 89social control, 37social infrastructure, 82social networking, 117soft power, 23–5, 37–8Sony Corporation, 11sovereignty, 88stakeholder capitalism, 79stakeholders

auditing, 27–9business community as, 38communication with, 30engagement with, 25–7external, 26–7, 29internal, 29, 39–40IRS, 163–4management of, 21–41, 201–2media as, 34–5

statistics, 48–9Statistics Centre – Abu Dhabi (SCAD),

48–9Stiglitz, Joseph E., 13, 85St. Lucia, 43Strategic Economic Plan (SEP), 59strategic plan, 44–5Strategic Speed (Davis et al.), 153–4strategy

cluster creation, 72–7departmental, 70–2energy, 71IRS, 164–5meaning of, 64model building and, 67–70setting, 63–90, 204–6traditional view of, 64–7

strategy cascade model, 67strategy communication, 137Street, Dame Sue, 173–5St. Vincent, 43Sun-Tzu, 64support employees, 120supportive environment, 134–5Sweden, 42systems thinking, 55

Taiwan, 187talent

analysis of, 115–16attracting, 116–18

case study, 122–6education and, 127–8in government, 128–9importance of, 110, 152at IRS, 166management, 112–13, 115–16,

119–22personal challenge and, 129–30pipeline, 113–14recruitment of, 114–16

talent compact, 118talent culture, 121–2talent development, 110–31, 208–9targets, 45–9, 151–2taxation, 160–7Taylor, Frederick, 103team learning, 56teamwork, 176–8technology, media and, 36–8Thames Valley Partnership, 108Thatcher, Margaret, 216n14Third Way, 81Thompson, Charles, 126tipping point leadership, 185Tong, Goh Chok, 10, 11trade, 84–5transactional leadership, 39–40, 181transformation

see also changecase studies, 138–67drivers of, 42–60, 202–4future proofing, 58–60inclusive, 152measurement of, 45–9measurement of change in,

54–7roadmap for, 199–211role of leadership in, 18–20in Singapore, 57–60stakeholders and, 21–2, 27talent and, 152

transformational leadership, 39–40, 181

transformation planexecution of, 135–7roll out, 132–5, 209–10

transparency, 46turnaround leadership, 184–5Tyson, Laura, 187



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229Index

Ullsten, Ola, 42United Kingdom, 16–20, 37

business environment, 70Financial Services Authority (FSA),

103–8governance model, 43multiagency collaboration in, 108Third Way, 81

United Statesbusiness environment, 70IRS, 160–7

US Constitution, 35

valuearbiters of, 49–51public, 30–4, 49–51shareholder, 78–80

values, 7visibility, 132–3vision

of Abu Dhabi, 13–14, 16, 68, 191–3benefits of, 7of Botswana, 12–13cascading, 15–18clarity of, 16–17

departmental, 14–15future and, 12–13for IRS, 163leadership and, 18–20, 40, 199–201of Malaysia, 12national, 8–14, 16readiness for change and, 4–6of Singapore, 9–11, 14–16of value, 33–4

Walker, Dave, 123–5Walters, Jonathan, 126Whiskey Rebellion, 160wicked issues, 107–8Wilson, Harold, 176Wilson, Woodrow, 1work environment, 118World Bank, 85world citizenship, 188

X-factor, 171–98, 210–11

Yas Island, 4, 214n5

Zayed bin Sultan al Nahyan, 190



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Documents

Leading Smart Transformation: A Roadmap for World Class Government