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This abstract concludes to Boyne's (2002) paper as the starting point an effort is shown by me which support on the following statement, "Private and public sector management differ only in context, but this difference is significant" and underpin the theoretical perceptions with help of empirical literature of the subject. The theoretical portion will cover some theories related to public sector and private sectors and uncomplicated differences to explain the related concept such as simple definitions, ownership issues, control issues etc. While the empirical portion will includes review of literature on public and private sector management and their difference. The paper indicates that there is significant level of difference in the public sector management and private sector management although in the current scenario the public sector adopted the managerial technique of private sector as a New Public Management in which public sector management have to cut the cost as well as improve the performance. This uplifted the overall performance of the public sector but still in comparison to private sector public sector is lacking behind in making profit as an example British Gas.
The focal margin among the private sector and public sector can be effortlessly understood by going through their formal unit ownership. Nonmarket units possessed by government and government owned corporations (government control and regulation) are those that come under public sector ownership. For the possession of any entity it is essential to have an economic ownership rather than majority ownership. The allocation to public and private sector of different entities such as public-private partnership, joint ventures, social insurance funds etc. can be unambiguously done by comparing to standards of (IPSA) international public sector accounting standard. The private and public sector is different in the context although today for some segments the private and public sector are having the same function such as in health care sector etc. but still they differ in many ways.
In United Kingdom the economy is divided in two major sectors which are explained below;
1. Private sector and
2. Public sector
THE PRIVATE SECTOR
The private sector is defined as the portion of the domestic economy which comprises the private enterprises. This embrace two elementary segments the household sector and the corporate sector which also include NGO's and therefore it is also indulge in allocating the larger portion of resources within the nation, normally as the privately owned enterprises (POE) are incorporated by law Kanamori T., & Zhao Z., (2004). This sector of the economy comprises all the business and households which are owned by individual or shareholders in the western economy this sector is approved to be dominant sector and the rest left is termed as public sector Brabanti, V.J. M., (1995). This sector is further divided into five major groups:
Sole traders: The business which is run managed and controlled by an individual or by a single person is a sole proprietorship form of organisation and owner of the firm is sole proprietor Kauffman, E.M. (2008).
The partnership: This concept came into existence to overcome the problems and limits of sole proprietorship. In this form of business basically two or more than two people join to form partnership business with the common objective to earn profit. The persons are known as partners and the firm is known as partnership firm. Partnership is liable for annual return of income, employment taxes such as Social security, Medicare taxes, income tax withholding, federal unemployment (FUTA) tax, depositing employment taxes and excise tax while an individual partners are liable to pay income tax, estimated-tax, self-employment tax IRS.gov (2010).
Cooperatives: this is a type of society is run and controlled by group of peoples with a common interest of earning profit, success and management. The group may be the producer, worker or even customers FSA (2010).
4.Private limited company: it is basically for small and medium enterprise and usually runs by small group of people with common interest. They have their own objectives and goals and other pre decided interest of members commonly profit. They have a limited liability to the shareholders and share can't be listed on stock exchange businessdirectory.com (2011).
Public limited company (PLC): this is a company with a limited liability that is over £50000. It is the company which quote their shares on stock exchange.
THE PUBLIC SECTOR
The corporation and authority involved in the public sector may fluctuate from country to country. The demarcation status of public and private mainly depends upon the development route of individual state. Though still the public sector is defined as the portion of the domestic economy which is concerned with providing basic goods and services that are not provided by private sectors or private sector do not have authority to provide them. It includes national as well as state government and their agencies and other government bodies' European commission (2009).
The Ownership Concept
It is very crucial to understand the possession concept of public and private sector. It refers to the right of the possessor to control the unit or property and to manage it in the way he wants these actionable rights are protected by law. Here unit is considered as anything such as real estate, land, organization, and asset financial and non-financial both.
If the standard of allocation among two sectors is ownership than a four way economy division table is given:
The Concept of Control
If the concept of control is unclear for corporations, than the focal margin between the public sector and private sector would be hazy. As economic ownership is a legal ownership therefore it is possible that internal policies of private sector could be regulated by government or even government can be a policy setter. So it is important to distinguish and understand the concept of control.
According to the International Federation of Accountants (IFAC), the corporation is under control of government in the condition when government has the power to administrate the operating and financial policies of that corporation so as to yield good benefit by it, in this the emphases is mainly on the financial control IFAC (2008).
The concept of governing the private enterprise by government is determined by several aspects like if in any enterprise the share of the government increased by 50% of the total share of that enterprise, it will be classified as a public sector enterprise. Whereas in an organization in which government does not hold majority of shares but have people representing in the board of director or for implementation of specific policies when it require government instruction or intervention than the entity will be under the control of government and will be included in public sector.
Typical control establishing figure
Further the control concept could be explained in several points so as to make it more understandable. For this the control is divided into two major groups:
The power element: in which some entity (government) have an authority to regulate the operating and financial policies of other unit. Conditions given below:
Majority of voting: when an entity own majority of votes directly or indirectly on other entity.
Authority to hire and fire associate: when an entity have the authority to hire and fire the member of other entity.
Casting majority vote: when an entity have the authority to control or to cast majority of votes in the meeting of board of directors or general meeting of any entity.
Miscellaneous powers: these include points such as power on deciding the budgets, decisions and other legal commands.
The benefit element: in this an entity (government) has a controlling power on another entity or entities to yield benefit from that entity:
Desolation power: when an entity has the authority to liquefy any entity and get optimum benefit from it than the later one is controlled by the earlier.
Authority to control asset and liabilities: when an entity has an authority to distribute the asset and liabilities of any entity than the later entity is under the control of earlier.
Miscellaneous benefits: this comprises benefits like title to the net equity or assets IFAC, (2008).
Comparing both sectors in general
The private sector vends goods and services for their revenue. They have to face the competition among themselves because customers always have variety of options among which they can chose to buy Vroom, G., & McCann, B.T., (2010)these units basically run to maximise their profit. The public sector units also deliver goods and services. But also relates two major differences:
They don't exactly have any competition therefore they enjoy the monopoly and also customers neither have alternatives nor any choice to buy or not Econ (2004).
The finance of these sectors is under the control of elected officers, legislature or board of directors Brown, J., & Jacob, M., (2011). The basic responsibility of the public sector is to deliver the public good and key factor for them is how they can deliver the goods within the budget got.
The comparison of risk and rewards
Both the sectors are very different in context of risk and reward
The main aim of the private sector is to minimize the cost and maximise the profit. If one unit can successfully reduce the production cost than it is ahead of other who lack behind cutting cost Elder, K.L., & Garman, M.R., (2008).In case of public sector if it continue with the current programme the risk will be very low as it serves the basics to consumer and people are at no place to negotiate therefore public sector continues to enjoy monopoly type of competition but another type of risk exist in public sector if wrong decision is taken the consequences in public sector will be very bad because they have to do everything in their given budget as well as they even cannot stop there production as it is necessity for the public Gary, H., &Wolff, P.E., (2004).
Motivations to decision makers and accountability
In public sector the decision makers like managers does not mostly get paid etc. as a positive motivation weather they do something good for organization or not but negative motivation is always present their as if wrong decision is taken in private sector it affects the industry severely. But in the case of private sector the decision makers are motivated positively by rewards and negatively by salary deduction or demotion both Kondalkar, V.G., (2006). In case of private sector accountability is always limited to the internal board or internal upper authorities. But the public sector is accountable to the public for every decision taken by the company.
Taking Boyne, G., A., (2002) as an introducing point to the organizational environment: There are several circumstance involved with public organizations.
The complexity nature: An organization has to face variety of unforeseen situation from stakeholders and different governmental agencies
The permeability nature: "Private sector chief executive or boards of directors, may ignore most constituents demand for direct impact to the policy formulation and implementation process'' Ring, P., & Perry, J., (1985). In contort to this a Public organization gets highly influenced by Public Behaviour, therefore their manager have to keep good control & see it that the organization series well to public.
The instability nature: Due to political instability a Public organization has to change its policy from time to time Burt, L., (1998) which brings a huge tour in functioning of the organization in short run.
No competitive pressure: In a Market Public organization enjoys the maximum share and sometime full market share. Due to which there is no sense of competition which acts as de-motivator for most of the time. The value of growth and innovation stops and quality of the product become stagnant.
In the private sector, organizational structure hinge on three basic groups which refers to as directors, shareholders and officers. The owners of the private sector unit are the shareholders of that unit though they do not directly manage the affairs of the company but control through indirect way by casting their votes to either elect or remove the directors of the company or voting for any further chief business matters. They can serve the company as a director or as an officer. The board of directors are the main decision maker of the company they basically take big decisions and appoint the other officers who can go through the day to day activity of the business Guinnane, T., ET. Al, (2006). This appointed officer under the supervision of board of directors who keeps an eye on the day to day activity specifically to polish the business so that it can run more slickly.
The public sector is either financial or non-financial therefore it comprised into three different economic sectors these are government, financial and non-financial GFSM (2001).
A public corporation could be defined as a legal entity created to perform governmental functions and produce goods for market under the government control. That is further divided into two sub division financial and non-financial Lienert, I., (2009).
The General government produces goods which are necessities or important to maintain the living standard, these productions are chiefly a non-market based goods. The general government comprises two different part in it the first one is normal general government unit and second is all non-profit institution(NPI) both of these are funded and administrated by government Spiller, K., (2002).
The public sector
Source: Figure 2.2, IMF, 2001.
According to Boyne, G.A., (2002) the organisation Structure followed in the public sector could be seen in three derivative ways:
Bureaucratic: Public organisations have very formal procedure to take any major step. In contrast private organisation is not so formal and they have more risk taking tendency, therefore their growth is very aggressive Lan, Z. & H. Rainey (1992). They work in a much more effective and efficiently compared to Public organisation. As the procedures of Public organisation are very formal and lengthy, it adds on the de-motivator.
Red-tapism: According to Bozeman, B., & Scott, P., (1996) the Red Tape can be regarded as a bureaucratic side effect which implies an un-necessary and detrimental obsession with rules of outcomes. Red Tape is a comprehensive which refer not only to rules and procedures themselves but to the delays and subsequent irritation caused by formalization and stagnation.
Lower marginal autonomy: In Public organisation managers have very less freedom in handling situations. But the positivity it has that people have more joule security there type of organisation. The procedures are so lengthy to do anything or get any chance Meier, K., & O'Toole, L., (2002). People tend to avoid then till the lost extent. In contract private organisation mangers have lots of freedom at work, they can develop different strategies for work, which they thing is more suitable. They also function in a pretty organized manner as they work in a tightly structured hierarchical organisation.
Regulation and control
If the public and private sector have to be separated or distinguished on the basis of regulation and control than there will be the visibility of the difference among them. For the private sector there is no regulatory law in existence relating to which they can run under their own corporation control but in case of public sector every process is done under law Lyon, M., (2004).
Special legislation: -- this considers to be adopted to introduce specific type of public enterprise. With the general legation which is common for every type of enterprise. In most cases where there are some special law has passed for specific type of companies or organization which indicates the legal right of government that exercise to control the enterprise.
State enterprise laws:-- the following laws are mend to deliver the broad framework for every public corporation and to specify the right of the state David, E.M., & Gregory, J., (2003). The state enterprise law is exercisable even if it holds shares less than 50 % that means the stated law applies going beyond the line of shareholding.
The public enterprise law Djibouti 1998 describes public enterprises as an enterprise in which legal entities such as state government holds shares more than 50% of the total shares, the main motive was found ideological not economic efficiency dominant motive was ideological rather than economic efficiency Cook, P., & Kirkpatrick, C., (1998). According to law it is clear that the public sectors are related to ministry and are mend to clarify that all strategies and policies related decision are to be taken by the governing board rather than state, therefore the Djibouti clearly declares the law which makes public sector appearance unambiguous Lienert, I., (2009).
The organizational goals in public sectors according to Boyne, G.A., (2002) the public managers have multiple goals to achieve. As they have the responsibilities to satisfy all stakeholder.
A Public Organisation distinctive goals, like quality one account ability. This approach does not exist in private sector, as their only goal is to make profit Farnham, D., & Horton, S., (1996). This is the reason why Public organisation has to put in extra effort to maintain balance with in their own organisation and deal effectively with conflicting objectives.
As we know Politics has great impact on Public organisations so the many goals of the organisation are vague. In setting of goals, managers have no role to play; this is also a reason why Public organisation is not that efficient like private organisation.
There is a huge difference between the objectives of private sector and public sector Mohnot, S. R. (1993). The private sector's objectives are considered as "over-riding" as the private sector is always trying to produce with of point of view to stretch the distance between firm total revenue and total cost as a result shareholders get a big dividend Glinskaya, E., and Lokshin, M., (2005). In order to gain a competitive advantage today private sectors have started the policy of asset maximization rather than profit maximization therefor these firm increased the quality of their product and also increased their market shares. Private firms also have objectives to improve their image so they do many activities to show themselves as socially active since it attracts customers.
The objectives of the public sectors is concerned to providing rather than profit maximization taking British gas as an example they are providing gas to people although going through severe loss powerswitch.com (2006). The main focus is on the providing the customer service to every people without caring about loss. Although in 80s and 90s the government actually sold utility companies such as British Telecom, British Gas, and electricity board to the private sector. Today the main aim of public sector is to provide product and services with improved quality and reduced cost.
The managerial values
Public manager are believed to be less moved by lucrative material is tic offer like financial records. Hence performance related pay, bonuses etc. are unlikely to enhance staff commitment or improve organisational performance.
Public manager tend to be more public friendly and have a stranger desire to save public. There Public organisation take care of Public welfare to a great extent. The kinds of service or product they serve, is essential and concern a huge section of the society.
Lastly in a Public organisation the level of commitment is very low. This is mainly because of formal lengthy procedures, everyone has very limited power in their hands and no rewards are given to motivate their staff and many more. It is Exacts opposite for private organisation.
So, it is obvious that public and private organisation differ in many ways. This difference acts as barrier in the transfer of management technique.
In recent times public sector organisations has seen a dramatic restructuring along the values of managerialism. Public sector has witnessed a recent restructuring which is based more on managerial practice than the bureaucratic dependence.
According to Kimber, M., & Maddox, G., (2003), key characteristics of managerialist practices have included decentralization, performance, efficiency and accountability, outcome based focus etc. whereas public sector organization are based on bureaucratic model.
The rise of the NEW PUBLIC MANAGEMENT
During the last two decade there has been a huge economic reform in order to acquiesce more from public sector through adopting the management technique of private organization Cook, P., & Kirkpatrick, C., (1988) this managerial reform is especially for New Zeeland and UK. Although the viewpoint and objective of the private sector is very distinct to the public sector as public sector runs for completing the social requirements of the nation while private firms runs for their commercial profit Tooley, J., (1999) the public sector have to achieve the mix target of profit and social both therefore they are in the middle of social and commercial objectives Laporte, R., & Ahmed, M.B., (1989). In the decade the public sector has adopted the new technique which comprise of technique followed for private sector management this is a hybrid technique and this practice distinguishes as NEW PUBLIC MANAGEMENT (NPM) Levy, R., (2010).
Reasons for the change
In early 80s most of the developed and developing countries has felt the economic and fiscal pressure on their government Ewins, R., (2003). This stress occurred as the result of imbalance in the external trade, deficits by the public sectors, growth in the obligations etc. and this stress further act as the milestone for this reformation and restructuring of public sector. This also prepared developing countries to reshape their government role Polidano, C., (1999). NPM is the step taken to control the fiscal deficits, for privatisation and restructuring of public sector.
The next reason which delivers from public according to public choice theorists the public started criticising the public sector since they are incapable to deliver the public goods and services due their inflexible administration and red-tapirs within the organization. The administration is felt slowly, due to lot of rules hindrance at work etc. That supports the administration to look for alternatives Larbi, G.A., (1999). Some other reasons which can be taken into consideration are the globalization of the economy, modern information technology etc. so as to be in the same pace as other.
Stages of NPM and its key component
Due to the excessive pressure for the change in the management policies, this pushed countries into five different stages of NPM. They are:
Remodelling and refining the delivery process to public,
Reconsidering and redesigning the role of government with reference to public sector,
Reframing systems of performance, routine and answerability of the sector,
Reformation and relocating the organizations and their structures and
Stimulating the man power and organizational performance Bonina, C.M., and Cordella, A., (2008).
NPM has been taken as the bundle of management technique and approaches. And most of them are taken from private sector Ferlie, E., et al. (1996). According to Pollitt, C., (1990), it is an ideological thought used in the private sector and now adopted by public sector.
The major mechanisms of NPM are:
Decreasing bureaucracies by simply decentralising the office process that means allotting the work into different-different sectors. This also involves decreasing the roll of politics from production and delivery process. When there is less involvement of politics in the sector than the work will not hinder and public will enjoy efficient and uninterrupted facilities from public sectors.
The public sectors have now adopted the latest hierarchy of organizational structure that is flatter organizational structure this type of structure is more flexible and rapidly processed in this structure the sectors are moulded around unambiguous procedure Kondalkar, V., G., (2006).
The old bureaucratic structure
Source: Kondalkar, V. G., (2006)
The new Flatter Organizational Structure
Major knocks of NPM
The separation among funding and purchasing of services: Implementing the separation process clearly between significantly showing the needs paying for the services providing hand on hand. This actually means that through NPM ways open for the government in which they provide finance for the services but in actual services are provided by private sector Mises, L.V., (1944).
Decentralising: Within public agencies, all levels of management should be segregated so that they may exist semi-autonomously and should me more responsible towards the role they are mostly involved in. This way the top management will have freedom to work more aggressively with a greater insight.
Budget: and financial control should be decentralized and entrusted to some independent units like budget centres and spending units etc. This type of allocations gives some flexibility to managers to consider alternative methods of ensuring the provision of required services
Devolving budgets and financial control to decentralised units; creating budget centres/spending units. Delegation of financial responsibility gives managers some leeway to consider alternative methods of ensuring the provision of required services.
There should be a cap on budgets and more transparency in accounting, which should involve combination of output oriented budgeting and making managers more aware of the balance between operations cost and the capital invested. This way the managers are aware of the capital invested by the company at all levels and are more concerned with the company finances apart from the things which are their core competencies.
In this assignment I have attempted very ambitious and challenging thing to do. And I do believe that I made some contribution to the literature review and ethics of the topic. The research objective which is taken in this assignment was lead to dual outcomes. The first idea was to measures the extent of significant difference between public sector management and private sector management and the second objective is to explore the level of privatisation, reasons and the managerial technique of private sector adopted by public sector this also include the analysis of New Public Management. The literature review is particularly focusing on the impact of the New Public Management and the difference among private and public sector.
In this research it has been found that the traditional public sectors have lot of loopholes in it. As it has to provide services which are important for human being but they are not able to provide in the way it has to be. This is because of typical bureaucratic structure of traditional public sector where as private sector always provide good facilities due to being more flexible it is possible for them. But in last two decades the public sector improved there management technique with adopting the private management technique and mixing it with public sector objectives the New Public Management came into existence this make the public sector to work in the better way as they have now objective to provide the services and goods to public in improved way, more efficiently with cost reduction.
Due to the political control of ministers and other high profile leaders in the public sector the ethical consideration become more important to build up the structural frame work of any public sector environment. The study of ethics in case of public sector has increased recently and this is totally not surprising. The major reason for this is the lack of trust of common public in public sector government organizations. The public sector has the most complex type of environment and structure where managers are supposed to do best performance and do all work within the given budget these things made it more complex in nature Cooper, T.L., (1998).
At the end it can be said the NPM technique has uplifted the public sector performance up to the mark but the management due to obvious reasons can never match up to the level of private sector as private sector works for profit maximization while public sector runs to provide goods and necessities which is important for the public in that case they cannot stop or slow down their production in any circumstances. So public management and private management differ from each other, and cannot run on the equal pace.