Taking Care of Tomorrow, Today: A Discussion of the Government's Ownership Interest

Part 1

Executive Summary

The paper presents the results of the work of the interdepartmental working group on ownership since January 1995. The purpose of the paper is to begin a consultation process with chief executives, with a view to developing a consensus on managing the ownership interest within the public service.

Ownership gives the Government a say over what departments do and how they do it. The what concerns achievement of the Government's social and economic objectives. The how concerns the values and ethos of good government and the requirements of public accountability, both essential to sustaining the devolved management system.

Explicit attention to the ownership interest should lead to an agreed, long term view on departmental direction and ensure that that view is reflected in decisions about departmental capability, capital and cost. A longer term perspective is also essential to planning for change and managing risk.

In the view of the working group, the Government's ownership interest in departments can best be represented by the following four requirements:

1. strategic alignment;

2. integrity of the public service;

3. assurance of future capability; and

4. cost effectiveness over the long run.

Ministers, chief executives and central agencies all have a role to play in meeting the four requirements. Chief executives have prime responsibility for managing the ownership interest present in their department, within agreed parameters. To perform this role, chief executives need to have sufficient management discretion, transparent and workable systems for the provision and control of resources, and real responsibility for action.

The ownership initiative provides an opportunity to articulate a framework which brings together the many different expressions of the ownership interest. Improvements can be made to the overarching context within which chief executives can formulate strategy and make decisions about capability, capital and cost. A clearer ownership context could prompt both better quality flows of ownership-relevant information and chief executives' participation in an on-going strategic dialogue with a whole-of-government focus.

There are already a number of mechanisms and incentives in place to achieve ownership objectives: in particular Key Result Areas (KRAs), strategic business plans in support of capital proposals (SBPs), and departmental forecast reports (DFRs). However, better integration of related information about resource management, capability and strategic direction would improve strategic planning in departments and enable the central agencies to achieve a risk-based overview. The working group does not envisage the creation of any new accountability requirements as part of the annual cycle.

The working group envisages that chief executives would normally meet their ownership responsibility by strategic management of their department, which would then shape the department's response to the Government's ownership objectives, via relevant instruments. For their part, central agencies should adopt a set of principles to inform their approach to their ownership responsibilities.

In the view of the working party, an effective approach to ownership monitoring by central agencies would comprise a combination of minimum standards, good practice guidance, and monitoring appropriate to the level of risk. For effective monitoring, central agencies will have to develop a basis for assessing risk. Although self-management of risk within departments is clearly preferable to intervention, Ministers require central agencies to have the capacity to intervene to secure the ownership interest.

Improving attention to the ownership interest will provide benefits to all participants in government. In particular, better ownership-relevant information will lead to an improved context for planning and performance management within departments, better decisions in support of the Government's objectives, and a more accountable, effective and efficient public service. The ownership dimension should also reinforce recent initiatives to place relationships between departments and central agencies on a more strategic, predictable and constructive footing.

Responses from chief executives to the discussion paper will have a major influence over further work on the ownership initiative. The paper includes a set of discussion points to assist chief executives in framing their responses.

Introduction

1 This paper presents the results of the work undertaken by the interdepartmental working group on ownership over the past few months. The working group was convened by the State Services Commission late last year in response to a recommendation contained in the Review of Accountability Requirements and to earlier comments by the Commissioner to chief executives on the nature of the ownership issue.

2 The purpose of the paper is to begin a consultation process with chief executives, leading to a consensus on the meaning and management of the ownership interest within the public service. The working group does not envisage the creation of any new accountability requirements as part of the annual cycle. The group has been determined from the outset to develop an approach to ownership which generates considerable benefit for the major contributors to good government - Ministers, Parliament, chief executives and central agencies - with little additional cost. The immediate focus of the paper is on departments, but the approach should translate fairly readily to the rest of the public sector.

3 The discussion paper has three main sections:

1. The Meaning of Ownership (paragraphs 6 - 29);

2. A Framework for Managing Ownership (paragraphs 30 - 39); and

3. Conclusion (paras 40-42).

4 The paper includes a set of discussion points to assist chief executives in framing their responses.

5 The members of the working group are: Helen Algar (Forestry); Rob Brown (Social Welfare); Geoff Dangerfield (Prime Minister and Cabinet); Susan Hitchiner (Education Review); Keith McLea (Labour); Maria McKinley (Inland Revenue); Paul Maxwell (Statistics); Richard Morris, Karen Erenstrom and Paul Brabin (Treasury); Brenda Tahi (Audit); Michael Wiles (Environment); Jeanette Schollum (chair), Colleen Sweeney and Gerald Scanlan (State Services Commission).

The Meaning of Ownership

Public Sector reform

6 Ownership in the public service defies simple definition. Public sector reform brought new thinking to bear upon the relationship between what the Government wishes to achieve and how it achieves that. An important element of that relationship can be termed the "make or buy" decision, which suggests that ownership is a strategic decision and not necessarily a prerequisite. The unbundling of the purchase and ownership interests enabled the transition to output-based budgeting, and s to provide a framework for significant decisions about the scope of government, the forms of government organisations, and the design of accountability mechanisms.

7 While the intent of ownership is reflected in the objectives of the State Sector Act 1988 and its definition of the responsibilities of chief executives, the public sector reform process focused initially on the Government's purchase interest and regulatory role.

8 More recently, attention has been given to the Government's ownership interest. The introduction of Strategic and Key Result Areas, capital contributions criteria, the Fiscal Responsibility Act, departmental forecast reports, and guidance on ethics, all reflect a concern to pay more systematic attention to the ownership interest. The underlying concern is to create an environment which encourages a longer term perspective in decision-making in respect of departmental capability, capital, and cost, in line with Ministers' views of departmental direction. Such an environment should mean that:

1. resources, including an appropriate level and mix of investments across agencies, are applied effectively to the Government's strategic priorities;

2. strategic priorities receive coherent attention across the public service;

3. fiscal and performance risks are managed in a timely way; and

4. a balanced approach to accountability is developed, which incorporates both the collective and departmental obligations of chief executives.

Core concepts

9 In thinking about what ownership means, the working group has found the following ideas helpful:

1. The Government's purpose in owning departments is to achieve its social and economic objectives, in a manner reflecting the values and ethos of good government and the requirements of public accountability, both essential to sustaining the devolved management system.

2. The Government's ownership of the present group of departments reflects a number of needs: the institutional needs of democratic and constitutional government (eg; systems for justice, taxation and border control); the need for guaranteed supply of specialised goods and services, often in the presence of thin or monopoly markets or agency problems (eg; advice on social and economic policy, provision of national statistics, and maintenance of a defence force); and the need to retain both domestic and international confidence in the integrity and capability of government (eg; managing the conservation estate, and observing international labour conventions). The value or return which the Government obtains from its investment in departments derives from their contribution to both the what (the impact of a stream of outputs on the Government's objectives) and the how (the manner of their performance).

3. At portfolio level the exercise of ownership in government has similarities to the exercise of governance by a diversified corporate over its portfolio of businesses. The range of conventional governance functions includes decision rights over strategy, capital allocation, portfolio development, appointment and performance management of chief executives, and corporate policy and reputation.

4. The 'diversified corporate' analogy also underlines the fact that the Government is a single enterprise. The fact of singular ownership means that the common elements which hold the Government's portfolio of departments together are as important as their discrete features.

5. The Government's ownership interest in Crown companies receives written expression through a combination of strategic outlooks, statements of (corporate) intent and business plans. The contents of those documents provide a reference point for further development of the Government's ownership interest in departments.

6. Effective attention to ownership depends on chief executives taking responsibility for strategic thinking and management within their departments, and working with other chief executives whose departments contribute to related priorities of the Government, and with central agencies.

7. Benefits from more systematic attention to the ownership interest will arise both in the established context of the bilateral Minister/chief executive relationship and in the emerging portfolio or 'whole of government' context. In both contexts, better attention to ownership will help secure the Government's longer-term purchase interest, notably its interest in those dimensions of the purchase of outputs which are difficult to capture in an annual contract.

Discussion Point Any comments on the relevance and utility of the core concepts?

 

Ownership requirements

10 Consistent with this set of ideas, the working group considers that the Government's ownership interest in departments can best be represented by the following four requirements:

1. strategic alignment;

2. integrity of the public service;

3. assurance of future capability; and

4. cost effectiveness over the long run.

11 Strategic alignment provides assurance that strategic thinking and management within and across departments is informed by a common understanding of the Government's priorities, so that available resources are applied effectively to achieving those priorities.

12 Considerable progress in strategic alignment has been made in recent years with the advent of long term vision statements from the Government, the agreement of Strategic Result Areas for the public service and their integration into Key Result Areas. KRAs provide a key link between the Government's strategy and departmental action. Other recent developments include the requirement for strategic business plans to support capital bids, designed to improve the linkage between the department's strategic intent and its production and investment strategies; and departmental forecast reports, designed to link together the budget process, departmental capacity, strategic goals and departmental action.

13 These developments are all relatively new and are still being bedded down. In particular, there is probably a need for better integration of various elements such as the timing of SRAs, KRAs and the budget process. There is also a need for better linkage between internal information requirements and external documents, and between the external documents themselves. This needs to be achieved in a way which reduces overall duplication and compliance costs. Nevertheless, the incentives for strategic alignment are much stronger than previously with the advent of KRAs linking overall strategy to chief executives' responsibilities.

14 Integrity of the public service provides assurance that departments reflect both the particular style of the Government and enduring aspects of public value associated with good government. The integrity of the public service reinforces the legitimacy of the Government's authority and, by building public trust and confidence, reduces the transaction costs associated with government.

15 There are currently a number of instruments in existence to preserve the reputation of the public service. These range from constitutional conventions, and the New Zealand Public Service Vision Statement, through to the State Sector Act 1988, the Cabinet Office manual and Treasury instructions. In addition, the Audit Office conducts regular reviews on behalf of Parliament to provide assurance that standards of probity are maintained. Departments have fairly strong incentives to maintain standards in order to avoid more intrusive controls or monitoring and to avoid public notoriety. Although Ministers need assurance that standards are maintained, there is probably room to develop a more positive approach to this dimension of ownership.

16 Assurance of future capability provides confidence to the Government that departments can meet expected future demand for outputs. Future capability depends on how well management systems, human resource policies and other resourcing decisions support the department's strategic objectives. Future capability also depends on departmental proficiency in risk management and change management.

17 The balance sheet is the main source of information on long term capacity, but is not designed to provide information on the people asset, which for many departments is the main issue of future capability. A new source of information on long term capacity is developing around the requirement for departments to provide additional information supporting proposals for capital injections. A number of departments have written ownership issues into chief executive performance agreements, either as KRAs or departmental management initiatives. Chief executive relationship and expectations letters also mention change management issues, relating to capacity to deliver in the future. As departments use instruments such as the chief executive performance agreement and forecast reports to make their assumptions on future capacity more explicit, a more fully informed portfolio view about the likely future capacity of the public service will emerge.

18 Cost effectiveness over the long run provides assurance to the Government that departments' costs are appropriate in terms of both output pricing and their on-going viability. The Government's ownership interest in appropriate long-run capability complements its purchase interest in least short-run price. The Government's interest here is to ensure that short-term price reductions do not translate into higher long-run costs because departments failed to make timely adjustments to capability such as training and development, information technology or asset maintenance. Long-run costs are affected by both the appropriateness and flexibility of resources. The Government is interested in ensuring that departments are not inappropriately locked into long term costs such as investments, commitments such as leases, and maintenance.

Assessment

19 From this brief overview, it is clear that there is room for a better fit between ownership requirements and the existing means and incentives for meeting those. Improvements should also be sought in terms of integrating related information, connecting resource management, capability and strategic direction within departments, and comparing costs and capital utilisation across departments. Those improvements would lay the groundwork for consolidating information on a portfolio and/or sectoral basis, leading to a reliable overview of the public service's contribution to the Government's objectives.

Discussion Points Do you agree with the group's list of ownership requirements? Would you suggest alternative or additional requirements? Any comments on the paper's analysis of each requirement?

Roles

20 Ministers, chief executives and central agencies all have a role to play in meeting the four requirements.

Ministers

21 The collective role of Ministers is to determine and articulate an overall vision, decide on a strategy to achieve that vision and set the 'rules of the game'. By determining strategy collectively, Ministers convey their priorities across the portfolio of departments.

22 Responsible (or ownership) Ministers can establish specific ownership expectations of chief executives in particular departments, typically through the performance agreement. Ownership concerns of particular importance might be expressed as KRAs.

23 Ministerial interest in the detailed management of the ownership interest will normally be satisfied by receiving assurance from chief executives on the four requirements (para 22). Where Ministers perceive an unacceptable level of risk, they might wish to involve central agencies in providing such assurance.

Chief executives

24 The Government empowers chief executives to exercise primary responsibility for leading and managing their department. To perform this role, chief executives need to have sufficient managerial discretion, transparent and workable systems for the provision and control of resources, and real responsibility for action within agreed parameters.

25 The responsibilities of chief executives then are to lead and manage their department in formulating and implementing a strategy consistent with the Government's objectives. They should expect to engage in dialogue with other chief executives, including those of central agencies, on strategic alignment matters where there are cross-portfolio linkages. That might involve discussion on the combination of KRAs needed to make an effective response to SRAs.

26 The chief executive's ownership responsibilities extend to providing assurance that all of the Government's ownership requirements are appropriately managed within their department. A programme of self-review which incorporates the ownership requirements will strengthen that assurance.

Central agencies

27 Central agency roles in government, ownership included, derive from the propositions that government is a single enterprise, and that three Ministers - the Prime Minister, the Minister of Finance and the Minister of State Services - have distinct managerial responsibilities within that enterprise.

28 Central agencies have distinct roles in support of their respective Ministers. The Department of Prime Minister and Cabinet manages the process for setting and communicating the Government's priorities and strategy. The Treasury assures the integrity of financial management across the system, by analysing financial performance and managing the process for resource bidding and allocation. The State Services Commission sets and manages the employment framework for chief executives and advises the Government on the structure of government and the conditions necessary to sustain its devolved management.

29 In addition to their individual roles, central agencies are required by Ministers to exercise a collective function. Dimensions of the central agency collective function include:

1. developing an environment that enables chief executives to manage strategically and engage in strategic dialogue on key portfolio matters;

2. providing strategic advice to the Government on the overall design of systems, alignment of portfolio interests and associated risks;

3. providing a 'portfolio' view of the public service in terms of overall structure and capability, such as whether the overall management of policy advice is adequate for likely future needs, and advice on restructuring, investment and divestment;

4. adding value to departments by developing and monitoring against common management standards and communicating good practice, thereby reducing system-wide costs by enabling departments to benefit from each other's innovations; and

5. assisting the Government to meet its accountability for probity, effectiveness and efficiency.

Discussion Points Do you agree with the paper's characterisation of the respective roles? Is the balance between the roles about right?

A Framework for Managing Ownership

Ownership context

30 The ownership initiative provides an opportunity to articulate a framework which brings together the many different expressions of the ownership interest. Improvements can be made to the overarching context within which chief executives can formulate strategy and decisions about capability, capital and cost. Currently, chief executives must discern signals about the Government's ownership intentions and expectations. There might be value in considering further the merits of a fairly high-level statement about ownership which would provide an accessible account of the main ideas, principles and interests (such as the operation of the devolved management system, and the relationship between government and markets) which should inform ownership-related decisions by chief executives. A more deliberate and focused ownership approach, building on this paper, could prompt both better quality flows of ownership-relevant information and chief executives' participation in an on-going strategic dialogue with a whole-of-government focus.

Discussion Points Would you find a discrete statement about ownership intentions and expectations helpful? If so, what should such a statement include?

Meeting ownership requirements

31 Chief executives bear prime responsibility for managing the ownership interest for the Government, since they are closest to the source of the information and insights upon which effective management of the ownership interest depends. The working group envisages that, within the broader framework, chief executives will normally meet their ownership responsibility by strategic management of their department, which shapes the department's response to the Government's ownership objectives, via relevant instruments.

32 The following tables present the working group's initial view of the critical factors against which chief executives could assess their department's performance on ownership, to assure themselves of their appropriate management of the Government's ownership interest. The relevant instruments through which chief executives currently demonstrate that performance are listed.

a) Strategic alignment Ensuring goal congruence and a shared vision between government and its departments, and between and within the departments themselves. Critical factors Does the Chief Executive ensure that the department: Periodically reviews its purpose and the nature of its business to ensure they still fit with the Government's strategic direction? Focuses on and prioritises outputs which deliver the greatest benefit in terms of Government's desired outcomes? Selects its KRAs in association with other contributing departments? Selects milestones that are critical to the achievement of KRAs, and can demonstrate their achievement? Demonstrates the contribution of outputs to outcomes, either individually or collectively as appropriate? Current Instruments Strategic Result Areas Estimates - Part A Chief Executive Performance Agreement (Key Result Areas) Strategic Business Plans (for capital contributions) Departmental Forecast Report (statement of objectives) Finance and Expenditure Committee questionnaire

b) Integrity of the Public Service Ensuring that the collective interest requirements are maintained, in recognition that the value and credibility of the public service as a whole depends on public and Ministerial confidence in every part of the portfolio. Critical factors Does the Chief Executive ensure that the department: Promotes legal and ethical conduct in all activities, and positively contributes to the reputation of the public service, consistent with the New Zealand Public Service Statement of Vision, Purpose, Principles and Values? Incorporates the good employer requirements into all its human resource and management systems? Maintains adequate and transparent financial reporting and audit systems? Actively supports the fundamental public service responsibilities of the Chief Executive: eg; senior management development, free and frank policy advice, support for Cabinet processes, and protection of tax payer interests? Current Instruments State Sector Act Public Finance Act Cabinet Office Manual Collective interests as outlined within the Chief Executive Performance Agreement Treasury Relationship Letter State Services Commission Expectations Letter (draft) New Zealand Public Service documents Statement of Vision, Purpose, Principles, Values Guidance on Principles, Conventions and Practice Guide to Governing with Proportional Representation (forthcoming) SSC EEO Planning and Reporting Requirements Code of Conduct

c) Future Capability Ensuring that the public service as a whole and departments individually have the capacity to deliver on expected future demands. Critical factors Does the Chief Executive ensure that the department: Actively manages risk in the areas of financial and human resource management, policy development, and operational/regulatory activities? Aligns its organisational values and human resource management with departmental strategic directions and performance objectives? Clearly articulates the range of expected future demand for outputs as a basis for adjusting areas of critical capability (such as structure, people with appropriate skills and technology) to meet changing requirements? Adopts effective change management strategies to ensure minimal negative impacts from change processes, and evaluates the effectiveness of these strategies? Successfully manages the collection of information essential to effective strategic management, using appropriate technology? Protects the Government's investment in assets? Current Instruments State Sector Act Public Finance Act Treasury Relationship Letter State Services Commission Expectations Letter (draft) Strategic Business Plans (for capital contributions) Chief Executive Performance Agreement (Ownership KRAs) Departmental Forecast Report Annual Report SSC EEO Planning and Reporting Requirements

d) Cost effectiveness over the long run Ensuring that departments produce the outputs required by the Government cost effectively over time. Critical factors Does the Chief Executive ensure that the department: Explores cost choices in relation to decisions on whether outputs are produced in-house or by third parties? Ensures that its costing system generates reliable and useful information on costs? Ensures that the level and robustness of third party revenue is appropriate? Explores ways of comparing costs against other businesses or areas of business? Explicitly identifies and manages risks in relation to departmental costs? Identifies the level and type of assets and capital appropriate to support its business now and in the foreseeable future, and adopts strategies to achieve that level? Considers any major investments or commitments against the expected future demand for its outputs and any changes anticipated? Current Instruments Public Finance Act Treasury Relationship Letter Strategic Business Plans (for capital contribution)

Discussion Points Would the prompts listed help you to meet your ownership responsibilities? Are there any additional costs in demonstrating the above critical factors? Would the benefits to you in terms of departmental performance management outweigh any additional costs? What improvements would you suggest to the current instruments for assuring government on its ownership interests (eg timing, design, processes)?

Process principles

33 Giving the ownership dimension the attention it deserves depends on sharpening the focus of current instruments, and clarifying the interactions which might occur around those instruments. Accordingly, the working group considers that central agencies, whether operating separately or collectively, should adopt the following:

1. avoid 'one size fits all' templates, but rather recognise the diverse roles, structures, risks and capabilities of departments;

2. recognise that chief executives have prime responsibility for looking after the ownership interest of their respective departments, in line with the long term view of departmental direction agreed by Ministers;

3. tailor incentives (including low compliance costs) and information flows (including good practice) to support that responsibility;

4. clearly define and adopt a risk-based approach to monitoring and intervention; and

5. build on and integrate the ownership-relevant features of existing information requirements.

Discussion Point Any comments on the suggested principles for central agencies' approach to their ownership responsibilities?

Ownership information

34 Ministers require assurance that departments have identified, and are actively managing, risks to the ownership interest. The prime responsibility for providing that assurance lies with chief executives. The best way of providing assurance is through appropriate objective setting and reporting to Responsible Ministers, driven off a system of self-review.

35 The Government, as owner of the public service, requires assurance that the portfolio makes sense in terms of its objectives, and that the separate entities contribute to and strengthen the whole in the most effective manner. The prime responsibility for providing this assurance lies with central agencies, but largely depends on the information provided by chief executives.

36 The working group considers that an effective approach to ownership monitoring by central agencies, consistent with the principles outlined above, would comprise a combination of minimum standards, good practice guidance, and monitoring appropriate to the level of risk. The context should be one of a shared commitment to a constructive relationship, based on principles such as those contained in the Treasury relationship letter. Routine reporting would where that requirement already exists in respect of ownership-relevant instruments, such as the chief executive performance agreement. Central agencies' assessment of risk, and consequent monitoring and intervention, should adjust according to circumstances. For departments with high inherent risk, due to the size or nature of their business, a change in the base level of monitoring should be triggered only by the presence of unusual risk factors, and should adjust as those factors recede.

37 For effective monitoring central agencies will have to develop a basis for assessing risk, which recognises that risks often represent opportunities for constructive change. Risk factors would include:

1. The strategic significance of the department with respect to the achievement of the Government's goals.

2. The extent of expected change, which might include a proposal for a major capital investment, a significant change in the level or scope of business activities or a restructuring proposal. Significant change would probably trigger a specific requirement to demonstrate appropriate management of the change.

3. The replacement or re-appointment of the chief executive.

4. The reputation of top management, together with performance history. The significance of the risk would also relate to the dollar size of the entity in terms of assets or turnover, and the complexity and spread of business activities.

38 Risks might also arise in respect of the integrity of the public service as a whole. There is potential for significant systems risk, arising f

rom evidence of failure or of Ministers' concerns about the reputation of the public service (eg, the recent credit card issue).

39 Although self-management of risk within departments (through self-review or good practice guidance, for example) is clearly preferable to intervention, Ministers require central agencies to have the capacity to intervene to secure the ownership interest. Central interventions should be justified by evidence of one or more of the risk factors. Forms of intervention would include establishing a positive reporting requirement and exercising provisions in the chief executive performance system.

Discussion Points Any comments on the suggested approach to ownership monitoring? Any comments on the list of risk factors? What additions/deletions would you suggest?

Conclusion

40 Several key themes recur in this discussion paper:

a. ownership is an important interest of the Government, which focuses attention on its objectives, the means of obtaining those, and on fundamental attributes of the public service, essential to good government;

b. the tools for managing the ownership interest already exist, but there is a need to be smarter and more strategic in the way in which these tools are used;

c. Ministers, chief executives and central agencies all share responsibility for securing the Government's ownership interest. Prime responsibility rests with chief executives, within agreed parameters. Central agencies have a role in advising their Ministers on the system as a whole and on the performance of individual agencies.

41 Improving attention to the ownership interest will provide benefits to all participants in government. In particular, better ownership-relevant information will lead to better decisions in support of the Government's objectives, and a more coherent, accountable, effective and efficient public service. Timely and perceptive information will enable chief executives to engage in dialogue over shared contributions to the Government's objectives, and provide strategic advice within a whole-of-government context. Similarly, the ownership dimension should prompt better linkages between discrete documents such as the chief executive performance agreement, purchase agreement, departmental forecast report and annual report, and a more coherent context for planning and performance management within departments. Last but not least, the ownership dimension should also reinforce recent initiatives to place relationships between departments and central agencies on a more strategic, predictable and constructive footing.

42 Responses from chief executives to the discussion paper will have a major influence over further work on this initiative. From the working group's perspective, further work might need to be done on:

a. refining the expression of the public service ownership context (refer paragraph 41);

b. improving the design and use of existing ownership-relevant instruments to enhance strategic planning, avoid duplication and reduce overall compliance costs;

c. establishing the process for strategic dialogue among chief executives and central agencies;

d. developing critical factors for self-review of ownership by chief executives;

e. defining the collective function of central agencies;

f. implementing a risk-based approach to ownership monitoring; and

g. extending the ownership initiative to non-company Crown entities.

 

Summary of Discussion Points

Core concepts

Any comments on the relevance and utility of the concepts?

Ownership requirements

Do you agree with the group's list of ownership requirements?

Would you suggest alternative or additional requirements?

Any comments on the paper's analysis of each requirement?

The contributory roles of departments and central agencies

Do you agree with the paper's characterisation of the respective roles?

Is the balance between the roles about right?

Ownership context

Would you find a discrete statement about ownership intentions and expectations helpful?

If so, what should such a statement include?

Meeting ownership requirements

Would the prompts listed help you to meet your ownership responsibilities?

Are there any additional costs in demonstrating the above critical factors?

Would the benefits to you in terms of departmental performance management outweigh any additional costs?

What improvements would you suggest to the current instruments for assuring government on its ownership interests (eg timing, design, processes)?

Process principles

Any comments on the suggested principles for central agencies' approach to their ownership responsibilities?

Ownership information

Any comments on the suggested approach to ownership monitoring?

Any comments on the list of risk factors?

What additions/deletions would you suggest?

The Ownership Interest: A Composite Record of the Discussion Sessions Among Chief Executives and Senior Managers - July 1995

Introduction

This is a composite record of discussions among Chief Executives, some senior managers and members of the Ownership Working Group over the course of three sessions on July 12, 13 and 14. The purpose of the discussions was to test the concepts in the Ownership document: Taking Care of Tomorrow, Today, and to consider the implications for the participants as managers of the Government's business. The Working Group hoped that the sessions would allow Chief Executives to influence the shape of the ownership initiative at a critical stage of its development.

The three sessions were chaired respectively by Dr John Valentine (Ministry of Forestry), Mr Len Cook (Statistics New Zealand) and Dr Judith Aitken (Education Review Office). There were 53 participants in the sessions (excluding members of the Working Group), drawn from 33 departments. Seventeen Chief Executives took part in the discussions.

Ownership Concepts

There were three comments about the way in which the Working Group had unbundled and presented the ideas present in the notion of "the ownership interest".

The first concerned the lack of reference in the document to complementary or alternative views on ownership stemming from a Maori perspective. The view advanced was that the document should reflect a bicultural understanding of elements of ownership such as good government, devolution, partnership and responsiveness. The document should also refer to the role of Te Puni Kokiri as a source of strategic oversight and advice.

The second comment concerned a distinction between 'big' and 'little' ownership. 'Big' ownership might refer to what are essentially Ministerial decisions: does the Government have a legitimate interest in a particular bit of business and, if so, does the Government need to own an organisation through which to conduct that business? 'Little' ownership then follows from the decision to own: how to ensure that the business operates in a manner consistent with the owner's interests? According to this distinction, the ambit of the discussion document is 'little' ownership. The distinction is valuable because it highlights the need for a thorough foundation for 'little' ownership by way of a principled and consistent approach to resolving 'big' ownership issues.

The third comment concerned the relationship between ownership and purchase interests. The view advanced was that there is an inherent tension between the interests, reflected in Ministerial arrangements to manage those interests, which is likely to undermine any attempt to put an ownership spin on instruments with primarily a purchase orientation. According to this view, ownership and purchase interests lend themselves to separate (although related) instruments, processes and accountability mechanisms. The rejoinder offered to this view was that a core function of the Government is making trade-offs between its ownership and purchase interests. Those decisions are best made from a balanced perspective, when issues are presented to Ministers with an assessment of both ownership and purchase implications, and a clear sense of strategic fit with the Government's objectives.

The Four Ownership Dimensions

Overview

Participants expressed a high level of agreement with the Group's definition of the key dimensions of ownership. The dimensions were labelled "self-evident" and "common sense". Participants preferred to refer to them as "dimensions" or "elements" rather than as "requirements". Participants recognised that the four dimensions have both department and sector-specific implications as well as portfolio or whole-of-government implications. There was a concern that portfolio considerations should not 'crowd out' other perspectives on the ownership interest which might have more specific relevance to individual departments or particular groups of departments. There was some debate about the 'boundaries' between the dimensions, in recognition of the degree of connectedness between them. A view emerged that the four dimensions did not adequately capture the important idea of maintaining constructive relationships with stakeholders and specific publics who are essential to departmental effectiveness. Participants suggested that a diagram illustrating the linkages between the four (or more) dimensions would aid understanding about the key ideas behind ownership.

Specific observations

Strategic alignment seems a quite distinctive, and perhaps superordinate, dimension. Participants considered that the accent on strategy in recent years has been a major development in public sector management. However, it is a problematic development, in the sense that it marks the transition between politics and administration. Therefore, the owner's strategy horizon is likely to be shorter (and probably more focused) than its perspective on the other dimensions. To ensure alignment, departments should state their assumptions about the future more explicitly (such as the 'going concern' assumption), and should build flexibility and responsiveness through attention to the other dimensions. In the first instance, the owner is likely to be interested in whether each department is being strategic, and want to see evidence of that in terms of factors such as anticipating customer requirements and fostering innovation.

One session considered whether integrity of the public service should be replaced by integrity of government. The latter arguably better represents the essential idea that attitudes and behaviour within the public service can reinforce or undermine public confidence in government. The same session proposed that stewardship of assets (whether designated departmental or Crown) should have greater prominence in the description of what constitutes integrity, particularly where resource-use decisions have inter-generational implications. There was broad agreement with the proposition that each part of government has an interest in the integrity of the whole. This poses the challenge in a diversified and devolved business context of enabling individual organisations to pursue different priorities and initiatives while maintaining overall cohesion and a strong, unified 'brand'.

There was strong agreement that capability is a key component of the ownership interest. Several Chief Executives commented that they give particular attention to human resource capability, and are conscious that they are developing a resource both for their own department and for the wider public service, particularly at the senior level. Participants disputed the importance and relevance of the balance sheet as a source of information on capability issues, suggesting that off-balance sheet items such as skills, reputation and relationships can have a more substantial influence on long-term viability than physical assets and level of capital.

Two sessions suggested that an important dimension of ownership was not adequately captured in the descriptions of the four categories, and sat between integrity and capability. The missing dimension concerns impacts upon, and relationships with, stakeholders, customers, communities, iwi and particular publics. Several participants offered examples of situations where public perceptions of government have been driven off particular interactions with one department. The point here is that the public does not make fine distinctions between different parts of government in forming a view about its confidence and trust in government overall. Adding a fifth dimension would also highlight the extent to which departmental effectiveness depends on external resources such as goodwill, willingness to comply, voluntary labour and self-regulation.

A further aspect of capability, which is particularly important for government but not yet adequately expressed, concerns attention to the risk of business continuance: that is, departments' ability to survive and recover from disaster. In some circumstances, the owner might also be interested in decisions about structure and place: how a department organises its business, and where it conducts it.

Cost effectiveness over the long run received relatively little attention in the sessions. Discussion focused on strengthening the meaning of effectiveness by emphasising its relationship to a longer time-horizon than applies to the Budget round, and by acknowledging the trade-offs implicit in the term, such as that between quality and cost.

Chief Executive Responsibilities

Overview

Chief Executives welcome the opportunity to give the ownership interest a higher priority and profile in meeting their responsibilities for managing the Government's business. Their principal concern is to find an appropriate balance between the owner's interest in a consistent approach by departments as a way of reducing its risk and Chief Executives' interest in a flexible approach to meeting and accounting for their ownership responsibilities. Chief Executives regard the prompts in the discussion document (with some amendments) as a useful means of reconciling those interests.

Specific observations

Participants were generally satisfied with the prompts listed in the discussion document and considered that they could serve a useful purpose as long as they were used as points of reference and a source of guidance. Participants warned against any tendency to apply the prompts as a rigid checklist or standard set of assessment criteria.

Some participants were sceptical about the possibility of stretching existing instruments to incorporate ownership dimensions. Their view was that existing instruments have been designed around annual planning horizons and vertical accountabilities, and tend to be task-oriented. Appropriate attention to ownership, however, requires a longer-term view, broader accountabilities and a strategic orientation. Those participants suggested that imparting a more strategic flavour to discrete annual instruments would be a poor substitute for a more coherent process of strategic planning within departments. Moreover, instruments tell only half the story: the owner is likely to be at least as interested in a department demonstrating processes for reflecting ownership considerations in its decision-making.

Two sessions raised the issue of transforming the decision-making environment within government from a fragmented and competitive one to one in which Chief Executives can collaborate more effectively. Several Chief Executives expressed a need for stronger signals and incentives to identify opportunities for closer cooperation among departments, with both fiscal and effectiveness benefits. Options might include combining or better integrating extension services of government (such as those provided by Labour, Social Welfare and Internal Affairs) or developing partnerships with the private or voluntary sectors, as various Crown entities have done.

Context for Ownership

Overview

Participants expressed considerable interest in the prospect of a simple framework for ownership within which to locate the Government's priorities as the owner and to assign responsibilities for achieving those. However, participants were sceptical about the willingness of the Government to declare its intentions for the public sector in an overt way (such as an SRA-type statement). Alternatives might include a high-level (but non-political) statement of ownership expectations or ownership principles.

Specific observations

There was a lengthy discussion of the issue of an appropriate context for ownership at one session. Participants there agreed with the proposition that accountability for the ownership interest is currently too diffuse and vague. The Chief Executives present expressed a preference for a more compelling and rigorous statement of what is at stake in respect of the ownership interest than is currently conveyed in the pro-forma Performance Agreement and the associated letter of expectations signed out by the Deputy State Services Commissioner.

One option discussed is an SRA-type statement of the Government's intentions for the public sector (touching on aspects such as size, shape and relationship with the private sector), which would have the advantages of simplicity and a ready fit with an existing mechanism. The major objection to this option concerned the difficulty of engaging Minister's interest and involvement in any further elaboration of a framework to which they feel little attachment, particularly where the associated risks are more obvious than the likely benefits. A further objection was that the SRA/KRA/milestone approach sits more easily with the purchase interest than with the more enduring ownership interest.

A second option, which was more favourably received, is to present the various dimensions of ownership as linchpin statements about what the Government expects as the owner of the public service. That set of statements would make both expectations and responsibilities more explicit and would focus attention on related decisions about strategy, resource use and asset management.

A third option is a statement of ownership principles: high-level, non-political, and focusing on the requirements for good public governance. The discussion on this option was inconclusive about how such principles might be identified and confirmed. Views on what would constitute appropriate principles included the proposition that, as owner, the Government should insist on excellence; another was the suggestion that the principles should clearly define the collective interest.

Advocates of the various options pointed to potential benefits in terms of greater clarity about the meaning and significance of the ownership interest and more consistent decision-making across the public service in support of that interest. Sceptics pointed to doubts about political feasibility, and argued that signals about ownership, notably political signals, have been sufficiently clear and consistent over a number of years. There was also a question about whether a context statement would assume more homogeneity among departments than is actually the case.

Role of Ministers

All sessions considered the relationship between the ownership interest and Ministers' interests. A fairly consistent view emerged that officials face a challenge in making the various dimensions of ownership sufficiently relevant and accessible to Ministers to secure their interest in the topic. Participants recognised that the most problematic ownership decisions are those which stretch beyond the electoral mandate of a particular Minister or Government but which have significant implications for the shape and direction of one or more departments. One session speculated that, by prompting a better-informed context for ownership-related decisions, the ownership initiative will provide Ministers with deeper insight into departments and allow them to become more engaged in the process of securing the ownership interest.

The Tailored Approach

There was widespread agreement that strategic business planning is an essential business practice for any organisation which wishes to remain viable. Participants asserted that strategic planning has particular value as a means of promoting structured thinking about the department's business and guiding decisions about allocating limited resources. Participants also confirmed that strategic business planning is an appropriate way of responding to the various dimensions of ownership. There was a view that departments can use the planning process to inject some stability into an increasingly unstable operating environment. However, a note of caution was sounded about the relevance, and especially the timing, of a strategic business plan when there is a change in Chief Executive.

Despite the two-category depiction of the tailored approach by the Working Group, the view among participants was that business plans will gradually line up along a continuum, with no pre-determined point at which a plan must meet certain criteria. Some participants speculated that although central agencies might not wish to impose a template, Ministers might well expect one as a component of the quality assurance function of central agencies. Participants recognise the value of interacting with central agencies over their business planning, as long as department needs are not subordinated to central agency requirements.

The issue of what ownership monitoring would take place, and by whom, was touched on in each session. The view from Chief Executives was that their own internal monitoring should form the foundation of ownership assurance. Participants recognised that central agencies do have a monitoring role, but the goal should be one of progressively lifting the standard of strategic management in partnership with Chief Executives, rather than arriving at remote judgements upon them. One Chief Executive suggested that advisory boards could emerge as alternatives to central agencies as sources of ownership assurance, with the advantage of focused expertise in particular lines of business.

Relationships and Strategic Dialogue

Overview

Participants were strongly of the view that the success of the ownership initiative will largely depend on the quality of the relationships that central agencies are able to build and maintain with departments. Critical to the quality of those relationships will be the value that central agencies add due to strategic oversight and specific business insight. Chief Executives welcome the opportunity to participate in a broad-sweep strategic conversation, whether the scope is sectoral or whole-of-government. The initiative for sectoral conversations should come from the Chief Executives concerned in the first instance, rather than central agencies.

Specific observations

All three sessions considered how to convert good intentions about ownership into effective action. Participants were receptive to the idea of developing conversations as the means of making assumptions about the future explicit and prompting both departments and central agencies (acting for the owner) to ask the right questions at the right time. Conversations, whether with a departmental, sectoral or portfolio focus, seem to offer a constructive means of surfacing important information to allow decisions of interest to the owner to be taken in good time.

Participants emphasised that central agencies must get to know the business of departments better, by assigning sufficiently experienced staff members to the task of building relationships and ensuring that exchanges take place on a person-to-person basis as much as possible. Departments consider they have a right to expect central agencies to be up with the latest thinking on strategy and governance, to be able to participate competently in discussions about the management and delivery of a department's core business, and to be able to add value through challenging key assumptions, broadening a department's strategic context, and brokering information about good practice.

Participants welcomed the re-statement in the discussion document of the relationship and information-management principles first expressed in the Review of Accountability Requirements (October 1994). One Chief Executive cautioned that the hard part of relationship management is sustaining the relationship once it has been established. Central agencies risk considerable damage to goodwill if relationships are either not sustained or managed inconsistently, or if representations from departments do not receive an adequate response. There is also a need to strengthen incentives for high quality strategic thinking and management processes across the public sector.

Summary

Overall, participants expressed a high level of comfort and agreement with the ideas and suggestions contained in the discussion document. There was a clear consensus that the time is right for this initiative, and that it fits well with recent developments in the design and operation of the public management system. Chief Executives and senior managers view the initiative as a test of the capacity and willingness of central agencies to 'lift their game' and to adopt patterns of behaviour which are consistent with the twin objectives of a coherent, but devolved, approach to managing the Government's business.

• Key messages taken by the Working Group from the discussion sessions were:
• the importance of the distinction between the political dimension of ownership and the administrative dimension, even if in practice that distinction becomes blurred;
• the need to reflect obligations upon the Crown arising from the Treaty of Waitangi, and associated principles of good government, in our understanding of the ownership interest;
• the need to capture within the core dimensions of ownership the importance of maintaining constructive relationships with stakeholders and specific publics who are essential to departmental effectiveness;
• the importance of reconciling Chief Executives' interest in a flexible approach to meeting and accounting for their ownership responsibilities with the owner's interest in a consistent approach by departments as a way of reducing its risk;
• the strongly-held view that the success of the ownership initiative will largely depend on the quality of the relationships that central agencies are able to build and maintain with departments, based on a willingness to engage Chief Executives in an on-going and wide-ranging strategic conversation and a commitment to add value through both strategic oversight and business insight.

PART 2

Executive Summary

This is a companion paper to the discussion document Taking Care of Tomorrow, Today (June, 1995). At the conclusion of the previous round of consultation, the Ownership Working Group undertook to develop a 'tailored approach' to managing the Government's ownership interest that reflected the views proffered by Chief Executives and senior managers on the concepts and dimensions outlined in the discussion document. The purpose of this paper is to propose adjustments to the concepts and dimensions, together with the Ownership Working Group's suggestions for implementing these, and to prompt discussion with Chief Executives on how the Government's ownership interest might best be managed using a tailored approach.

The three cornerstones of the tailored approach comprise the prime accountability relationship of Chief Executives to their Responsible Minister, the responsibility of Chief Executives for managing the Government's ownership interest in their department in line with the direction agreed with the Minister, and the need for coordination of the Government's ownership interests across departments. The four ownership dimensions provide Chief Executives with a framework within which to develop their departmental ownership strategies.

Three core proposals are developed in the paper.

1. There are opportunities to supplement the priority-setting and signalling role of SRAs through a combination of:

a. a strategic conversation involving all Chief Executives, to develop a common view on the Government's priorities and requirements as a prelude to the sectoral and bilateral discussions which take place in the context of the Budget and KRA-setting processes; and

b. sectoral discussions among Chief Executives with a common focus on one or more SRAs, so as to coordinate business strategy.

2. Chief executives are responsible for identifying ways in which they will give attention to things which are important to the owner, in line with the department's circumstances and the views of the Responsible Minister. Key ideas here are:

a. Chief executives' responses can involve either external representations or internal initiatives, aligned to one or more of the ownership dimensions. Ownership KRAs and a business case in support of a capital bid are forms of external representation; a strategic business plan for organisational development purposes or a plan to improve staff skills would be forms of internal or management initiative.

b. Departmental reporting on progress with their external representations would feed into the existing reporting arrangements, and be subject to the existing central agency monitoring procedures. Chief Executives will decide whether to report progress on any management initiatives they undertake.

3. From time to time, the Government as owner will require attention to a specific feature of its ownership interest in a particular department. Its need for assurance will probably arise from a significant change in the Government's strategic requirements of the department; or a revised view of the level of risk in the department. The Government's reading of risk is likely to be based on such factors as Ministers' concerns, exceptional public disquiet, and the advice of central agencies and other affected agencies. Once the Government has established its need for assurance:

a. central agencies will take a close interest in a Chief Executive's strategy for managing the particular change agreed with Ministers, and might report separately to Ministers on progress on the strategy; and

b. that strategy would most probably be reflected in one or more KRAs, and its details would draw on a range of considerations outlined in Appendix Three to the report.

The key to a more concentrated focus on ownership lies in improving opportunities to develop and share strategic thinking consistent with the Government's objectives. A higher level of involvement of Chief Executives in this process will improve the quality of information flows within government and enhance strategic alignment. Such involvement is also consistent with the operation of a principled, devolved management system.

IMPLEMENTATION PROPOSAL

Introduction

43 This is a companion paper to the initial discussion document on the Government's ownership interest - Taking Care of Tomorrow, Today (June, 1995). For ease of understanding and cross-referencing, the two documents should be read in tandem. The purpose of the paper is to present the Ownership Working Group's proposal for implementing the concepts and approach outlined in the earlier document. The paper also provides an opportunity to demonstrate the effects on the Group's thinking arising from two sources: the consultation process following publication of the discussion document; and on-going developments in managing the public service, notably those subsequent to the Review of Accountability Requirements (October 1994).

44 The implementation paper comprises the following:

a. Response to Consultation (paragraphs 3-9);

b. Developing a Tailored Approach (paragraphs 10-25);

c. Conclusions (paragraphs 26-28);

d. Appendix One: The Four Ownership Dimensions;

e. Appendix Two: Ownership and the Treaty of Waitangi; and

f. Appendix Three: Responses to Specific Needs for Assurance.

Response to Consultation

45 Several weeks after the discussion document was distributed, three consultation sessions were held to obtain comment from Chief Executives and senior managers on the ownership interest, and its implications for them as managers of the Government's business. Overall, session participants expressed a high level of comfort and agreement with the concepts, definitions and suggestions contained in the discussion document. The key messages from the three sessions were:

a. recognising the distinction between political ('big') and administrative ('little') ownership responsibilities, even if in practice that distinction becomes blurred;

b. reflecting obligations upon the Crown arising from the Treaty of Waitangi in our understanding of the ownership interest;

c. capturing within the core dimensions of ownership the importance of maintaining constructive relationships with stakeholders and specific publics, essential to the effective performance of government;

d. reconsidering whether Integrity of the Public Service is the most appropriate label to apply to the dimension of public service behaviour and performance;

e. reconciling Chief Executives' interest in a flexible approach to meeting and accounting for their ownership responsibilities with the Government's interest in a consistent approach by departments; and

f. acknowledging that successful management of ownership will largely depend on the quality of the relationships between departments and central agencies, based on a mutual commitment to an on-going and wide-ranging strategic conversation.

46 The Working Group's responses to items (a) to (d) in that list are contained in this section of the report, plus Appendices One and Two. Items (e) and (f) have had a significant influence on the second section of the report, plus Appendix Three.

47 Appendix One comprises the four ownership dimensions, amended in response to external consultation and subsequent development in the Group's thinking. We have also altered the prompts for self-review (previously termed critical factors), and combined those with the description of each dimension, for easy reference

Distinguishing ownership responsibilities

48 One of the points which arose from the consultation sessions was the distinction between the respective ownership responsibilities of Ministers and Chief Executives. Ministers clearly have responsibility for making major ownership decisions and setting broad strategic directions. They properly expect well-informed advice on such matters from Chief Executives. That advice will be deficient if it is not based on a thorough analysis of the ownership issues at stake, from both a Governmental and departmental perspective. Strategic exchanges among Chief Executives are an important means of identifying and analysing relevant ownership issues and generating strategic advice for Ministers.

Ownership and the Treaty of Waitangi

49 The point was made in one of the consultation sessions that no discussion of the Crown's ownership interest would be credible or complete without considering the implications arising from a contemporary understanding of the Treaty of Waitangi, and the Government's policy response.

50 As part of the Crown, Government departments participate in the partnership with Maori created by the Treaty. Departments clearly have an important role to play in assisting the Government to implement its Treaty policy. Appendix Two demonstrates how the four dimensions of ownership can be used to identify specific ways in which Chief Executives can ensure that departments meet that responsibility.

The four ownership dimensions

51 Although largely in agreement with the Group's representation of ownership, participants in the consultation sessions debated the boundaries between the four dimensions. They also questioned whether the dimension termed Integrity of the Public Service adequately conveys the importance of meeting the needs of customers, stakeholders and other external parties. The Group's view is that a fifth dimension is not necessary; the concerns expressed during the sessions can be incorporated into a modified version of the Integrity dimension. The Group considered alternative labels for that dimension, but decided that the original term conveyed the full range of meaning better than any other.

Developing a Tailored Approach

Definition

52 A 'tailored approach' means that Chief Executives will typically tailor their department's response to the Government's ownership interests in line with both the views of the Responsible Minister and the department's particular circumstances. Where the Government has identified a significant need for assurance about the management of its ownership interest, any decisions by the Chief Executive regarding the department's response will be taken in consultation with central agency Chief Executives, and confirmed by Ministers.

Principles for developing a tailored approach

53 The Group has identified three fundamental and complementary principles on which to build a tailored approach to managing ownership:

a. Chief Executives have prime responsibility for managing the Government's ownership interest in their department, in line with the long term view of departmental direction agreed with the Responsible Minister;

b. Chief Executives are primarily accountable to their Responsible Minister for meeting their ownership responsibilities; and

c. as a single enterprise, the Government has a need for overall coordination of its ownership interest and, in some circumstances, for a high level of assurance about the management of a specific aspect of that interest.

54 The tailored approach to ownership shares common ground with the Review of Accountability Requirements, the Treasury relationship letter, the State Services Commission's expectation letter 1995/96, and the guidelines for Chief Executives on reporting performance to Ministers (STA (95) M 8/1). The key ideas which define that common ground can be broadly described as the necessary conditions for operating a devolved management system. They include:

a. Sustaining a balanced government management system requires a commitment to due process on the part of all the participants. Aspects of due process include operating constructive and open relationships among departments (including central agencies); respecting each participant's distinctive arena of competence and responsibility, and the associated accountabilities; respecting the common interests which give the system its unitary character; and basing any judgments about, or interventions in, a department on clear and contestable evidence.

b. The government management system depends on a comprehensive, timely and reciprocal flow of information between departments and central agencies. Clarity, relevance and significance are important attributes of the information needed for an effective management system.

c. Performance and assurance requirements should be agreed in advance, and subsequent variance in either established by reference to that prior agreement, or relevant common standards. A more demanding standard of assurance will apply to demonstrating the achievement of KRA milestones than to collective management obligations, for which the weight will tend to fall on reliable management systems, effective self-review and exception reporting.

Developing the strategic context

55 The greatest potential for driving improvements in the performance of the government management system lies in bolstering the strategic phase in the annual planning cycle. The key point of reference for that phase is the process of strategy formulation that Ministers undertake, currently known as the Premier House discussion. The Department of the Prime Minister and Cabinet coordinates informal discussions among Chief Executives around the Government's SRAs as a contribution to the Ministerial discussion.

56 At present, there is no systematic process for informing Chief Executives about the results of the Ministerial discussion. Better feedback should encourage a more interactive process for strategy setting across government and provide Chief Executives with a more accessible and well-rounded basis for strategic planning.

57 There is an opportunity to engage Chief Executives in a strategic conversation following the Ministerial strategy formulation process. That conversation would foster a shared assessment of the key strategic issues likely to affect departments over the planning period, drawing on both the main messages from the Ministerial session, and presentations by Chief Executives on major policy issues. The conversation should result in a common understanding of the Government's priorities as a foundation for framing KRAs and ensuring strategic alignment.

58 Achieving the goal of strategic alignment is likely to depend on Chief Executives identifying and managing the linkages between departments necessary for effective attention to each SRA. 'Sectoral dialogue' is one way of describing the process by which Chief Executives can coordinate business strategy, centred on delivery of their respective KRAs.

59 Discussions on sector issues also provide an opportunity to consider matters such as adjusting the boundaries of departments' business, shifting priorities to strengthen strategic alignment, and joint venture activity. Other issues might include a focus on achieving outcomes within the sector, and generating information about joint impact on outcomes.

Tailoring ownership management

60 The Group envisages that Chief Executives would take responsibility for developing their departmental ownership strategies, taking into account any communications summarising the main issues identified by the Government, and related cross-government discussions. Chief Executives can invite central agency involvement in the development of their ownership strategy, on a basis suitable to both parties.

61 Chief executives' responses can involve either external representations or internal initiatives, aligned to one or more of the ownership dimensions, and associated prompts (see Appendix One). Ownership KRAs and a business case in support of a capital bid are forms of external representation; a strategic business plan for organisational development purposes or a plan to improve staff skills would be forms of internal or management initiative.

62 From time to time, the Government as owner will require attention to a specific feature of its ownership interest in a particular department. Its need for assurance will probably arise from a significant change in the Government's strategic requirements of the department; or a revised view of the level of risk in the department. The Government's reading of risk is likely to be based on such factors as Ministers' concerns, exceptional public disquiet, and the advice of central agencies and other affected agencies.

63 Once the Government has established its need for assurance, central agencies will take a close interest in a Chief Executive's strategy for managing the particular change agreed with Ministers, and might report separately to Ministers on progress on the strategy. Appendix Three outlines a range of important considerations which a Chief Executive should bring to bear in developing the strategy, which would most probably be reflected in one or more KRAs.

Monitoring and reporting

64 The Group assumes that monitoring and reporting of the ownership interest will be integrated into existing instruments and processes. Chief Executives will probably monitor the progress of their ownership strategy using a process of self-review, and will feed that information into the reporting arrangements agreed with the Minister.

65 Central agencies will monitor progress based on departmental reports and information provided within the normal course of relationships with each department. Central agencies might report occasionally to Ministers on matters of particular significance to the Government. Consolidating the information provided by departments will enable central agencies to gain a better perspective on the whole business of government, for the benefit of subsequent strategy formation by Ministers and Chief Executives.

The central agency role

66 Central agencies are required by Ministers to provide a collective assessment of the major ownership issues facing the public service in the medium term. The dimensions of the collective central agency role were outlined in paragraph 29 of the first discussion document. The collective function includes advising on:

a. the business portfolio - the scope, structure and boundaries of departments' business(es), the configuration of the whole of government, and the implications of trends and likely future developments for that configuration;

b. investment/divestment decisions - the extent to which Government needs to own the suppliers from whom it purchases goods and services, and the appropriate level of that investment;

c. resource planning and utilisation - the management of strategically important resources, notably skilled and knowledgeable people, information and the technology which supports its use, and financial management systems; and

d. the collective interest - collective standards of performance in respect of key accountability instruments, support for Cabinet processes, risk management, and public sector ethics.

67 The development of more constructive relationships with departments should enable central agencies to undertake their collective role in a way that strengthens Chief Executive responsibility for leading and managing departments within the devolved government management system. Interactive strategy setting and good practice guidance are two specific ways in which central agencies can contribute to Chief Executives' leadership and management responsibilities.

Conclusions

68 The key to a more concentrated focus on ownership lies in improving opportunities to develop and share strategic thinking consistent with the Government's objectives. Opportunities are present at three levels:

a. Developing a whole-of-government view of ownership issues relevant to the Government's objectives, including a view of the relative risks associated with those issues.

b. Coordinating strategies within sector groupings of departments, with shared responsibility for effective attention to each SRA. While in some sectors coordination is already strong, opportunities exist for building consistently strong sectoral relationships.

c. Fostering a richer array of strategic responses by individual departments, based on the perspectives gained from whole-of-government and sector discussions.

69 A higher level of involvement of Chief Executives in the process of developing strategies at each level will improve the quality of information flows within government and enhance strategic alignment. Such involvement is also consistent with the operation of a principled, devolved management system.

Adjusting existing arrangements

70 A more deliberate and inclusive process of strategy formulation should improve the foundation for major current processes around the Budget and the Chief Executive Performance Agreement. The Group considers that some adjustment to existing arrangements will reinforce the ownership proposal and ensure a more integrated approach to the management of the ownership interest.

The Chief Executive Performance Agreement

a. The Performance Agreement provides the opportunity to develop an agreed longer term strategic view of the major direction and issues facing a department and its chief executive over a three to five year period. Accordingly, the period covered by the Agreement could coincide with the tenure of the employment contract.

b. The collective interests currently outlined within the Performance Agreement are not of equal weight and do not require equal attention. The Group supports a move to prioritise those interests and incorporate the most significant ones into the four ownership dimensions. A reference to the four dimensions in the preamble of the Agreement would provide a clear statement of the interests of the Government, underlying the more specific issues pertaining to a particular chief executive. The self-review prompts could then be detailed in some form of letter of appointment or as an attachment to the State Services Commission relationship letter.

Relationship letters

c. The Treasury and State Services Commission letters should reflect a common approach to relationship management, a shared understanding of the department, and common protocols for managing information provided by departments.

d. The letters should reinforce the idea of the shared responsibility of the senior management team within the department for managing its ownership responsibilities.

e. Each letter should be agreed by both parties and should represent a joint undertaking for the relationship over the stated period. Relationship letters should not create new obligations or accountabilities other than in respect of the conduct of the relationship itself.

The capital bid process

f. The need for adjustments to capital should be established during the phase of developing departmental strategies in line with the Government's priorities, and the bid should be closely aligned to those priorities.

g. The instructions for preparing capital bids (CO (94) 18) should be amended to indicate that any bids should be integrated into the broader process for managing the ownership interest.

APPENDIX ONE

THE FOUR OWNERSHIP DIMENSIONS

Strategic Alignment Ensuring that the goals and vision of the Government are fully and consistently shared by its departments. Strategic alignment provides assurance that strategic thinking and management within and across departments is informed by a common understanding of the Government's priorities, so that available resources are applied effectively to achieving those priorities. In that way, strategic intent cascades down through the system of government, ensuring multiple levels of contribution to a common set of objectives. Whole-of-government and sectoral dialogue will be important means of building common understanding, and 'brokering' the necessary coordination of effort to achieve the Government's desired outcomes. Each department must ensure that it has substantive information to be able to advise Ministers on the right 'basket' of outputs with which to achieve those outcomes.  Does the Chief Executive: Periodically review the purpose and lines of business of the department to ensure they still fit with the Government's strategic direction? Select KRAs in association with other Chief Executives contributing to the same SRAs? Target and achieve milestones that are critical to the achievement of KRAs? Coordinate management or business decisions which have implications for other departments, or for government as a whole? Ensure that the department monitors the effectiveness of its outputs with respect to the Government's desired outcomes, including those relating to Maori, whether separately or in conjunction with other departments?

Integrity of the Public Service Ensuring that the public service collectively behaves and performs to a high and constantly demanding standard, since the reputation and credibility of government as a whole depends on public and Ministerial confidence in every part. Integrity of the public service provides assurance that departments reinforce important values through their behaviour and performance. A public service with a reputation for integrity strengthens the legitimacy of the Government's authority and reduces the transaction costs associated with government. Integrity in behaviour requires attention to the values of legality, honesty, probity and political neutrality which are the foundation of good government, both now and into the future. Integrity in performance requires attention to the willingness and capacity of the public service to respond to the changing requirements and priorities of the Government, the public, and particular communities of interest and place. Public trust and confidence in government, expressed in ways such as community goodwill and active contribution to the Government's initiatives, are essential to government effectiveness.  Does the Chief Executive ensure that the department: Promotes legal and ethical conduct in all activities, and positively contributes to the reputation of the public service, consistent with the New Zealand Public Service Statement of Vision, Purpose, Principles and Values? Fulfils core public service responsibilities such as free and frank policy advice, support for Cabinet processes and decisions, and stewardship of the interests of both current and future generations of New Zealanders? Reflects the Crown's status as a Treaty partner in the way it consults, develops policy, and delivers services? Meets statutory requirements for public service employment and financial management? Attends to members of the public fairly and equitably, providing them with accessible services, timely and accurate information, and means of redress when disputes arise? Understands and responds to the particular aspirations and needs of various communities, including clients and stakeholders, with skill, courtesy, timely consultation, and care for cultural values and norms of behaviour?

Future Capability Ensuring that government as a whole, and departments individually, have the capacity to deliver on expected future demands. Assurance of future capability provides confidence to the Government that departments can meet expected future demand for outputs. Future capability depends on how well management systems, human resource policies and other resourcing decisions support the department's contribution to the Government's strategic objectives. Future capability also depends on departmental proficiency in risk management and change management. Does the Chief Executive ensure that the department: Forecasts changes in future demand for outputs as a basis for making adequate investments in critical sources of capability, such as structure, people with appropriate skills, information, and technology? Actively manages risk in the areas of financial and human resource management, policy development, and operational and regulatory activities? Plans for the need to continue government business in the face of adverse events? Aligns its organisational values and human resource and other management systems with departmental strategic directions and performance objectives? Manages change effectively, with minimal negative impacts from change processes? Contributes to the collective capability of the public service by investing in senior management development?

Cost Effectiveness over the Long Run Ensuring that departments produce required outputs cost effectively over time. Cost effectiveness over the long run provides assurance to the Government that departments' costs are appropriate in terms of the price paid for outputs by the purchaser, business viability, and value-for-money. To achieve its outcomes, the Government is interested in fitting price to cost in a way that satisfies two objectives. It wants to purchase outputs at the lowest price consistent with its quality, volume and timing specifications. Equally, it wants the price paid to allow appropriate investment in long run capability, so as to avoid unnecessary costs in the future. The Government is interested in ensuring that departments operate as viable businesses, by employing resources commensurate with their current and anticipated business needs, and avoiding investments or commitments which generate unwanted future liabilities, such as inflexible lease agreements or costly asset maintenance requirements. Long run cost effectiveness therefore depends on departments exercising good judgement about likely business conditions beyond the horizon of the purchase agreement. Value-for-money is a measure of the long run relationship between costs and results. The Government is interested in ensuring that, over time, the claims on its limited resources yield the best possible returns in terms of achieving its desired outcomes. Does the Chief Executive ensure that the department: Exerts pressure on costs to both the department and the Crown through devices such as benchmarking, cooperative cost reduction initiatives, and examining the option of contracting out non-core functions? Identifies and manages risks to the purchaser such as the reliability of costing systems and the security of third party revenue? Can justify the future costs arising from current investments or commitments, with reference to longer-term business viability and expected future demand for its outputs? Monitors the results achieved for the Government from the department's use of resources, and uses that information to advise Ministers on the purchase and capital allocation decisions needed to achieve the Government's priorities?

APPENDIX TWO

OWNERSHIP AND THE TREATY OF WAITANGI

Ownership and the Treaty of Waitangi Assisting the Government to implement its Treaty policy. Strategic alignment The Government's strategic objectives relating to Maori particularly affect those departments with responsibilities for resolving Treaty claims, managing assets of significance to Maori (such as forests, fisheries and national archives), and redressing areas of disadvantage experienced by Maori. All departments have a responsibility for recognising, and responding to, opportunities for contributing to the achievement of those objectives. Integrity of the public service Chief Executives have a responsibility to ensure that the conduct and performance of departments is consistent with both the spirit and the substance of the Treaty. That would be evident in ways such as a bicultural dimension to the organisational arrangements of departments, and involvement of Maori in the design and delivery of programmes which affect them. Future capability The Treaty partnership is dynamic, consistent with the changing priorities and expectations of the two partners. For the department to meet the demands of the Treaty partnership, Chief Executives have a responsibility to anticipate change and equip their department to respond appropriately. Meeting that responsibility is likely to involve investments in such things as relevant skills, knowledge, networks, communication devices, service delivery structures and policy advice frameworks. Cost effectiveness over the long run Current decisions and actions which bear upon the Treaty partnership will have future consequences. Chief Executives have a responsibility to be mindful of those consequences in advising Ministers about current purchase decisions, and in developing bids for resources. Allocating resources in ways that deliver results for Maori is likely to depend on relevant and measurable objectives, an appropriate fit between problem and solution, and timely information about the effects of interventions, leading to adjustments if required.

APPENDIX THREE

RESPONSES TO OWNER'S NEEDS FOR ASSURANCE

Responses to Owner's Needs for Assurance Changes to the Government's strategic requirements of a department, or a revised view of the level of risk in a department, may be managed by that department using a number of different approaches, including the development of specific KRAs and strategic business planning. In such situations, central agencies will normally be interested in the outcome of the department's considerations around the following issues What circumstances have prompted the need for a change strategy? How well does the proposed strategy fit the Government's strategic requirements of the department? Is the department's organisational form and structure consistent with proposed changes to its business? What form and structure options has it considered, which does it prefer and why? How well do the department's assets fit its current business? Are any adjustments in assets (and therefore capital) needed to support proposed changes to the department's business? Does the department have the resource capability needed to carry out the proposed strategy? What impacts will the proposed strategy have on other departments or government businesses, and what consultation has taken place with those agencies? How will the department manage the change so as to ensure business continuance and minimise adverse effects on customers, staff and other stakeholders?