Paul Macmillan is the ?global public sector leader? for Deloitte Touche Tohmatsu Ltd, and he also leads Deloitte Canada?s public sector practice. He has served as a strategic advisor to governments across Canada for over 25 years, and is the Deloitte ?lead client service partner? for the government of Ontario. Macmillan, who was in New Delhi recently to attend the World Economic Forum 2012, is working on a book on the solution economy with colleague William D Eggers. The book titled, The Solution Revolution: How Business, Government and Social Enterprise are Teaming Up to Tackle Our Toughest Challenges will be published by Harvard Business Press in 2013. In an exclusive interaction with FE?s Verghis Chandy, Macmillan discusses the components of solution economy and the changing role of public enterprises. Excerpts:
You have been advocating the public sector to embrace the solution economy. What exactly are the suggestions?
Well, we have been researching the role of non-governmental parties in addressing and improving public outcome. Because, the gap between what government can deliver and citizens expect is widening. So we started to look at new players, with a new level of interest, then new models like impact investing and investing in outcomes, and a framework to help us study the topic. Impact investing is important because investing in achieving some social outcome and working for promoting sustainable businesses and attracting private capital into that process are important to meet citizen demand. Some estimates put the annual private capital economy at $500 billion. And social investment needs to be a more significant part of that. For example, though private financing of infrastructure has been around for a while, only now that it is making its way into the social services space through new solutions.
We speak of solution economy in the broader social programmes. The solution is powered by principle features like, one, new problem solvers who act individually and collectively to develop or motivate action in others; two, impact currencies that provide new sources of value and connect citizens; three, new technologies that are enabling new business models to evolving needs; four, disruptive business models that break traditional trade-offs and provide radical innovations in delivering public benefit…
In this respect, we think the government should be conscious of what all is happening around government programmes, and it needs to, because governments do not have the capacity to solve the problems.
Can public sector enterprises play a role in these outcomes?
Well, I guess it depends on the mandate that the public sector enterprises have been given on development. There are two components: one would be, what the mission of a public sector enterprise be, and, the second would be how much leverage that gives other participants to help achieve this. I can see this in two ways. One, why would the government establish a public sector to achieve policy objective and, two, what means are those enterprises using to achieve that objective. For example, whether that would be facilitating small business development activities or building capacity within a market place.
Public outcomes could be comparatively higher with partnership. Take the corporate social responsibility mandate, as an example. Delivering a CSR budget in itself does not lead to good outcomes, since most creative and innovative solutions are emerging from non-state players.
You mean to say that NGOs should be involved in service delivery?
Not exactly NGOs. Well, NGOs can help in convening or networking or connecting people. But it?s basically about involving social entrepreneurs; they may be small players, still they are motivated– on profit or not-for-profit?to bringing in a network of players to provide solutions.
Talking of solutions, many PSEs in India are unable to face competition from the private sector, because their performance is considered inferior. Do you have a solution to offer?
I think, it?s an execution challenge in terms of performance. There are obviously situations where a public enterprise has been created because of a feeling that it wouldn?t be economically viable for a commercial enterprise to provide that service. But this notion is now less common in many markets. Increasingly disruptive innovation and new business models make it more feasible for new entrants to serve the population. Interestingly, I?ve recently read about a study which talks about public ownership vs private ownership, or government involvement in economy versus not. It takes China?s state-owned enterprises example to those of other free commercial markets. The analysis was served on the lines that if you look at GDP growth over a 10-year cycle, there is no evidence that either one performs better just because of its ownership structure; it?s really in execution. You can have a well-managed or poorly managed public or private enterprise.
In places where a mixed economy works, performance comparisons are made. Take post offices, they compare themselves with postal services in other countries and they also compare themselves with private couriers, because that is what the customers are comparing it to. The days of an absolute monopoly in the business that you are in are no longer tenable. Because other players are able to provide alternative or better services. New developments and new technologies challenge a monopoly or a public enterprise through direct or indirect competition (as in the case of Air India and India Post, respectively, in India). When others players are able to provide same or better service, public enterprises are faced with a performance gap.
In such situations what should they do? How can they change?
I think it has a cultural dimension. Any organisation that?s undergoing a change in its marketplace has typically got to have significant cultural change in its way of operation. So you need to have management programmes, assessment programmes and equipment programmes that are aligned with your organisational goal. Moving a large workforce towards a a new performance expectation is a real leadership challenge, and again, I would say, the ownership structure is not necessarily a determining factor, only that in public sector you might have a longer period of grace to make the transition happen because of less chance of you going out of business on the non-sustainability of your business model. At the same time it is inevitable that replacement product and services would emerge.
We work with both private and public enterprises on performance transformation. Increasingly, more so in the last five years, we find that earlier our public sector clients wanted us to tell them how the other public sector enterprises are doing, because their business model is very different from the private sector?s. But now they want us to tell them how the private sector is doing, because they feel there is a widening gap in performance expectation from what their citizens and their shareholders want, and that they have to work on more competitive models. But you have the challenge of talent, recruitment, compensation schemes, business models, etc.
True. PSEs want to improve their performance, but they don?t know how to go about it. They are still groping for solutions.
Well, governance is an important aspect of that, in terms of getting the right balance between performance and reward, affordability of independent directors, getting talents from outside government agencies… The other thing, I think, is relevant is that increasingly public sector organisations are looking to partner with other investors. It is important for those organisations to understand what drives private sector decision-making so that there are equal playing fields. Even joint venturing between public and private organisations is a driver for continuing to invest in the capabilities of publicly owned enterprise managers.
You have done some work on public accountability implications for directors? What are the key components of it?
We wrote a piece a while ago on what we call new-age public accountability. It has been very interesting, because we actually have been approached by a series of private sector corporate directors who were concerned about what they see as the increasing government intervention in the economy, coming out of the financial crisis. We looked into this, what we found is that, you know, businesses are fundamentally being held to the same type of public accountability standards as governments are. We had to step back and think about it, because anybody who has a cellphone or internet access can become a co-governor for the government or a reporter.. So when corporations make statements about their social responsibility practices it is very easy to be held them accountable in the public domain in the same way governments are held accountable. So what we were highlighting for corporate directors was that the environment they are working in has a high level of public transparency to it.
Take the case of Apple products and its link to poor working conditions in China. Apple is being held accountable for practices in its supply chains. So it is that as a director you may feel your accountability is more to do with what you think is the enterprise mandate, but actually it extends to your supplier, and supplier?s supplier, and depending on your brand and your position, your accountability is much more extensive and immediate than what has been in the past. We have seen that this has found its way into public enterprises as well, because you see that Sarbanes Oxley and other such requirements of reporting on director salaries, officer salaries and toll compensation find their way into public enterprises, as people want to know why they are being paid and who approved what. So the corporate environment is not dissimilar to the public sector environment in terms of public demand for accountability and for transparency.
