Management Differences between Public and Private Sectors

… a core term in Governance and Institutions and Atlas100

Definition

As Wallace Sayre famously quipped (reference below), “public and private management are fundamentally alike in all unimportant respects,” and there are crucial differences in management requirements in public and private sectors.

Peggy Liu (reference below) reviews the literature on the differences between the public and private sectors. She notes that the differences stem primarily from:

Use of public authority – Unlike the private sector, the public sector often uses public authority in performing its functions. Citizens can be forced to comply with decisions, pay taxes, have their property compulsorily acquired, and are subject to sanctions deriving in the end from the coercive powers of the state. This coercive element also calls for fair and equitable treatment and restricts how far the public can be regarded as clients or customers. The coercive element, however, is not present in the private sector, at least in legal activities. On the contrary, private enterprises have great freedom to be arbitrary. They can charge different customers different prices, they can refuse to deal with them, and they can ignore normal procedures (Hughes, 1994: 257).

Difficulties in performance measurement – The goal of the public sector is to create public value while that of the private sector is to pursue profitability. However, in government there is rarely agreement on goals or measures of them. As a consequence, measurement and evaluation of efficiency are more difficult and perhaps less meaningful. The lack of suitable measurement may even enable parts of the public service to perform no useful function and to evade scrutiny. This might occur in the private sector but is much less likely. The reason is that the bottom line is generally accepted as an objective measure in the private sector. Despite the variation in goals, an overall agreement on the standards of performance, such as financial return and market share, does provide something in the private sector for managers to aim towards or to be judged against (Hughes, 1994: 258-9).

Political and organizational constraints – Public-sector organizations typically operate in fluid, highly politicized environments (Cohen and Brand, 1993: 61). As Moore (1995) observed, “close, continuing oversight by elected executives, legislatures, the media, and interest groups sharply limits their discretion (63). Politicians may require action that detracts from good management practice or may require administrative actions for quite blatant political reasons. Having a large part of the agenda imposed by the political leadership reduces the scope of action of a manager. In particular, public organizations are often more highly constrained in selecting goals and customers whereby choices are often made in advance by elected officials (Cohen and Brand, 1993: 62). In addition, many government functions, especially those pertaining to regulation and policy-making, are assigned because private firms are unwilling or unable to perform them. For example, private firms may be interested in delivering mail to crowded cities, but may not be interested in delivering to unprofitable rural areas; they can collect garbage, but they cannot arrest criminals (Cohen and Brand, 1993: 12). Furthermore, control and coordination within the public sector is a challenge because of its sheer size and diversity. There is often overlap, even conflict, between programs. For example, programs may exist to support tobacco farmers from one department, while another tries to reduce smoking for health reasons (Hughes, 1994: 259). All this is very different from an organization where the shared motivation at all levels of the organization is to make money (Hughes, 1994: 258). In short, there are many more constraints and complexities in the public sector than in the private sector.”

Topic, subject and Atlas course

Modernizing Government in Governance and Institutions and Atlas100.

Sources

Wallace Sayre (1958), Premises of Public Administration: Past and Emerging, Public Administration Review, 18, 2, pp. 102‐105. See also: Allison, G. 1984. “Public and Private Management: Are They Fundamentally Alike in all Unimportant Respects?” In Public Administration: Concepts and Cases (6th ed.), R. Stillman (ed.). Boston, MA: Houghton Mifflin: 289-307.

Peggy Liu (2002), Can Public Managers Learn from Trends in Manufacturing Management, International Public Management Review – electronic Journal at http://www.ipmr.net, Volume 3, Issue 2, pages 44-59, at http://journals.sfu.ca/ipmr/index.php/ipmr/article/view/200/200, accessed 19 November 2016.

References in the Liu citations are:

Cohen S. and R. Brand. 1993. Total Quality Management in Government. San Francisco, CA: Jossey-Bass.

Hughes, O.E. 1994. Public Management and Administration: An Introduction. Basingstoke: MacMillan Press.

Moore, M.H. 1995. Creating Public Value: Strategic Management in Government. Cambridge, MA: Harvard University Press.

Page created by: Ian Clark, last modified on 22 November 2016.