Business and Government: Lessons Learned - in conversation with Lord Browne

As Chief Executive of BP, Lord Browne worked and negotiated with governments in the UK and across the world. Now, as the government’s lead Non-Executive Director, he has direct insight into the workings of government.

Transcript of Lord Browne of Madingley's speech to the Institute for Government, Business and Government: Lessons Learned:

I have enormous respect for the work that you and others do at this place. The Institute for Government is a think tank which doesn’t just think; it speaks and performs. As a result the government listens, as do I and the other non-executive board members.

So this is a very appropriate place for me to reflect on my time at the interface between business and government. I am grateful to the Institute for Government for giving me that opportunity.

In my role as the government’s lead non-executive board member, my top priority has been to transplant some of the lessons I have learned from the private sector into a public sector context.

That has not been a straightforward task. Governments have never been entirely sure of their proper role alongside the engine room of economic development.

Over two thousand years ago, China’s best thinkers were summoned to Court to debate the relationship between business and government. Legalist scholars lobbied for the nationalisation of industry, defending it as a necessary intervention against apparently dangerous and obscene tycoons. On the other side, Confucians thought that the State was riddled with inefficiency and poor product quality. They made the Thatcherite case for privatisation, though with less success than the Iron Lady.

That debate has raged over the centuries since then, and we are not much closer to reaching a consensus. That is why the non-executives have not been asked to turn government into a business. Rather, we have tried to make government more business-like, and to help equip it with the new skills needed to deliver the intent of policy, whether that’s privatisation, nationalisation, or something else.

This point is important, because it represents a lasting contribution that business can make to government. Both politics and business are rather ephemeral. Even the so-called great companies come and go, much to the embarrassment of the academics who have lauded them. But the skills to deliver government policy will always be needed. Government should look to the private sector not to find out what to do, but to find out how best to get things done.

In my opinion, that exchange of knowledge, experience and methods is the foundation of a productive and sustainable relationship between government and business.

In 2011, I identified five themes to direct the work of the non-executives and their boards. These were:

• helping departments to operate with clarity about their strategy
• instilling commercial sense into those who deal with the government’s customers and suppliers
• managing the talent within the civil service, by providing people with a proper assessment of their achievements or failures, and having in place an appropriate system of career development and incentives
• having relevant and clear management information which allows departments to track the delivery of strategic goals
• and being more focussed on obtaining results, rather than just being content to have the right administrative processes in place, and hoping that results will follow.

These themes remain as valid today as they were two years ago. Many of them form the basis of present attempts to reform the civil service.

Tonight, I would like to develop three of these themes: strategic clarity; a focus on results; and commercial sense. Then I would like to say a little on learning and change.

Let me begin with strategic clarity.

In any organisation, everything else is pointless if people aren’t clear about the goal.

Strategic clarity requires a combination of purpose and direction. A department’s purpose is an output of the political process. It is certainly not for the civil service to decide the policy on immigration or the goals of the Department for Transport.

But to achieve that purpose, you need to set a clear direction. It is the task of officials to take a given government policy, and to work closely with ministers to set the direction their department must take to get there. And you cannot set direction without recognising the need to prioritise.

People work best when they prioritise a small number of manageable goals. But I was recently sent papers for a government meeting which contained seven agenda items, 11 so-called ‘work streams’, and 58 action points. And that was just for a sub-section of one small government department.

That is not the way to get the best out of your team. In business, 90 per cent of a commercial strategy is about avoiding strategic ambiguity, and deciding what not to do.

Take Coca Cola. It has a clear strategy: maintain a small number of quality brands, and focus on building one of the world’s best global distribution networks. By contrast, banks lost the plot because they tried to do too much, with no clear idea of the purpose that some of their activity served.

Prioritising just a few things will result in a clear direction of travel, so that people know where they're heading, why they’re heading there, and how they fit in to that journey

Leaders need to reinforce that direction regularly. People need to hear it over and over again so, that the day-to-day urgent cannot drive out the long-term important.

Setting priorities will inevitably upset some people. But it is the only way to achieve strategic clarity, the foundation of a successful organisation.

My second point is about the drive to get results from a policy, and not simply being happy that a process was in place to try.

The social scientist Daniel Kahneman talks about two modes of thought. One produces slow, deliberative and logical thoughts, while the other is where faster, more instinctive and more emotional responses come from.

You might call these the rational and the irrational, and they represent the two ways in which the private and public sectors are caricatured.

Government is often criticised for making supposedly irrational decisions, based on ideology or a single world-view, while business is presented as a paragon of rational, evidence-based analysis.

In my experience though, both the rational and the irrational are essential inputs in decision-making. The real challenge lies in exercising the judgement required to balance them.

The availability of computing power and so-called ‘big data’ has made it easier than ever for a leader to consult the facts, so there is no excuse for uninformed responses.

But decisions cannot be made just through an appeal to evidence. Of course you have to start with an objective analysis of the options available. But analysis is just that: analysis. It is a mechanical process, which must eventually lead to a subjective decision. Process cannot replace decision-making and judgement.

That is why I am suspicious of the term “evidence-based policy-making”. Of course policy must begin with the rational argument made by the evidence. That is an absolutely necessary condition for good decision-making. But it is not a sufficient condition. It must be accompanied by a willingness to exercise judgement.

The best leaders throughout history have shown an ability to do that, and to balance the rational and the irrational. For people like Andrew Carnegie, Margaret Thatcher and Steve Jobs, the rational argument made by the evidence was just the beginning of a decision.

To pursue their long-term vision, they also had to do what seemed like the irrational.

Carnegie, for example, would take a contract whatever the profit margin, and when demand slowed he would increase rather than decrease the output of his steel mills.

When Margaret Thatcher decided to defend the Falkland Islands from invasion, I doubt she conducted a cost-benefit analysis. Instead, she acted on a view about Britain’s place in the world.

And Apple certainly listens to its customers, but I don't think Steve Jobs ever released a product which was the lowest comment denominator from a focus group.

In government, many decisions run into difficulties because they lack a high-quality and objective appraisal of the options available, as well as a willingness to exercise judgement when the time comes to decide.

Take the government’s major projects portfolio. The non-executive directors have found that projects are too often begun without enough analysis to suggest that they will be successful, and without rigorous plans for what to do if things go wrong.

But getting that right is just the start, because decisions do not make themselves. When it comes to the expansion of London’s airports, for example, the answer cannot come just from weighing up the pros, cons and risks of different sites. It will also be the outcome of a subjective, emotional, and perhaps irrational argument about vision and purpose, informed all the while by objective analysis.

A leader’s job is to balance the two to come to a decision.

I have often been asked “what is the secret to great decisions”. My answer is simple: conduct great meetings in which you have the relevant people round the table, all with an equal voice. Get the rational done first, and then test the irrational.

Let me now change tack and talk about the need for commercial sense.

During my time advising many UK governments, I have been struck by the intelligence, professionalism, and loyalty of the civil servants I have met and worked with.

But there are certain things the civil service is now asked to do which require new skills. One is the leadership of projects. Around £20 billion a year goes into major projects, and probably double that amount goes into minor ones. Over the past decade world class corporations have improved the efficiency of this spend by at least 20 per cent. If the public sector could match even half that improvement the savings would be very significant.

As a result of a strong push from the non-executive board members, the Major Projects Leadership Academy was set up to provide civil servants with the commercial sense needed to lead on a level playing field with their private sector counterparts.

But it would take years to build sufficient capacity in the Civil Service to run the whole portfolio of major projects to the highest standards. And in any case, the Academy was not designed as a substitute for years of experience in project management or procurement.

That means that these types of people will need to be brought in from outside. That is usually where the world-class players are to be found. After all, why would they want to work in government and not in Boeing, BG or BP?

The good news is that they can be brought in temporarily to join a project team, which by its very nature is a temporary organisation designed for delivery. Major projects do best when they employ outside experts where needed, and when there is a degree of separation between the delivery team and the political process. That was the model employed for the Olympic Games, which are now rightly lauded as an example of excellent project management.

Outside expertise comes at a price though, and people need to be paid appropriately. But as soon as someone working in government is seen to be earning more than the Prime Minister, we criticise and vilify them. In doing so, we demonstrate a failure to understand incentives and the market for commercial skills.

Incentives are the key to unlocking change. We should recognise this, and use them to improve the performance of government. Denying a role for incentives will do exactly the opposite.

The final thing I want to talk about this evening could perhaps be the biggest single obstacle to progress in government. It is the question of organisational learning, in particular from experiences of failure.

Stories of success inspire people, as they highlight examples of excellence which should be emulated. But people have a limited capacity for propaganda which turns everything into some sort of achievement, as when people say not that something went badly, but that it went ‘less well’ than they had hoped.

In my experience, stories of failure are far more important. They keep you realistic about the challenges you face, and stop you from losing touch with reality on the ground. Most importantly, they are the only powerful mechanism for learning.

At BP, when I was about to give my first speech to our newly formed Russian company, one of my Russian business partners pulled me to one side and said: “I suggest you remember that after 70 Soviet years, these people can smell propaganda. I suggest you only talk about human failures and not glorious successes”.

We are yet to learn that lesson in government.

An obsession with successes is not the fault of individuals; it is the result of an organisation’s induced behaviour. To tell stories of failure, you need to record them. But why would a civil servant want to do that? The only consequence would be discovery through a Freedom of Information request, followed by a hue and cry to search for those to blame.

The Major Projects Authority recently published its assessments of the government’s major projects, and not all of them were good. That sort of transparency is highly encouraging, but it is only the beginning. Failure is still frowned upon, rather than seen as an inevitable and desirable consequence of informed risk-taking. This needs to change, because failure goes hand in hand with excellence. Perhaps if disclosure and discussion were more common, then Parliament and the press might start to judge failure in its proper context.

Ladies and gentlemen, those are four observations from my time in government, about strategic clarity, results, commercial sense and learning.

The non-executive board members are part of a wider set of instruments designed to tackle the problems I have described, and as my second annual report shows, we are making progress in some areas.

But there is only so much that independent directors and a reform plan can do.

They can make valuable and long-lasting changes within existing structures. But our system of public administration faces deeper, existential questions.

We now expect the state to deliver more, from a declining resource base, and with a staff which is being asked to do things they are not trained to do.

Sometimes I feel that we expect the civil service to do anything that is asked of it without the right behaviour or culture that comes from the appropriate incentives, pay, training, or overall structure in which to perform.

Our model of governance was built for the 19^th century, when government was small and uncomplicated. Today, the roles and duties of the permanent civil and wider public service need rethinking and realigning with a political system which has moved on considerably from the time of Northcote-Trevelyan.

The whole nature of departments needs to be reconsidered:

• Unproductive frictional costs arise as one silo rubs up against another
• The leadership of corporate functions like finance, IT and procurement needs to be defined and given a clear direction
• We need to future-proof the civil service by maintaining a clear strategic vision of its capacity and capability.

That would allow the government to cut the cost of departments, without reducing their effectiveness.

My friend and former colleague Nick Butler summed it up rather well when he wrote in the Financial Times that Whitehall is failing not because civil servants are lazy or incompetent, but because in the current outdated structure no one could succeed.

It is time to learn from experience and look more fundamentally at how we expect the Civil Service to behave and perform into the 21^st century. A comprehensive and independent review of the Civil Service’s structures, processes and lines of accountability is long overdue. So too is a thorough review of the roles and responsibilities of Ministers and Parliament when it comes to their relationship with the Civil Service. The Chairman of the Public Administration Select Committee has, for example, called for a Royal Commission, which would be the first independent examination of the Civil Service and our whole system of governance since the Fulton Committee of 1968.

If the result were a more effective, flexible and sustainable Civil Service fit for the modern world, then it would be time well spent. If it were just a report for the archive it would be very damaging.

Ladies and gentlemen, thank you very much.

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