What’s the role of finance at the centre of any complex sets of organisations? Sir Nick Macpherson recently set out a clear view in regard to the Treasury. It ‘sets the public expenditure totals,’ said the permanent secretary. It does not involve itself in ‘the efficiency improvements necessary to maintain services at a time of falling public spending.’
For anyone familiar with the evolution of corporate Britain, this sounds like a distinctly odd position for a finance ministry to take. The financial leadership at the heart of major companies, exemplified by the role of the chief financial officer, has been taking an ever more strategic hue.
Over 90% of CFOs would see themselves as centrally involved in cost management – the process of linking costs to outputs and outcomes, so that sustainable improvements in efficiency can be identified and delivered. And a similar percentage would see the measuring and monitoring of divisional performance, through both financial and non-financial data, as a critical part of the job.
So for our corporate friends, the need for stronger financial leadership in Whitehall is blindingly obvious.
Many familiar with Whitehall will recoil from the idea that private sector practices can simply be transferred into the heart of government. ‘Insane – it simply does not work like that’ is a well-worn refrain, which usually contains a fair degree of truth. Certainly nobody wants the Treasury micro-managing efficiency initiatives across SW1.
But this counter argument is too quick. It is worth looking a little beyond our shores. The detachment of the Treasury also appears to be an outlier compared to many other centres of government. The Institute for Government’s new publication, Financial leadership for government, highlights some interesting points.
Perhaps the most striking difference between the UK and countries with similar institutional structures is in the role of the most senior finance professional. In the UK this is a part-time role acting as a ‘first among equals’; in the other countries we looked at, it is a full-time, senior role within the finance ministry.
These foreign finance ministries also play much clearer roles in supporting the rest of the centre to performance manage departmental top teams. All these systems contain their rough edges – inevitable when big ‘P’ political considerations are part of the mix. But they do at least exist, and a lot of thought goes into how to improve them.
All this matters. To take just one example, as the IfG argued in Improving Decision Making in Whitehall, weaknesses in departmental management information can be traced to a lack of demand.
A good performance management system drives you to create metrics which aid, rather than substitute for, meaningful appraisal conversations. These conversations simply work better when they start with agreed measures shedding light on clear objectives.
All this in turn creates fundamental incentives to manage more through data than hunches. For me, it’s blindingly obvious that it’s in the Treasury’s interests to look at how such systems might help them achieve their overriding mission – sustainably lower expenditure, with a politically acceptable level of service.