Chapter 4: Productivity
Improving the culture and capability of the public sector will increase service delivery for NSW’s people and communities.
One of the most important measures of public sector performance is productivity. This chapter discusses what productivity is, why improving labour productivity in the NSW public sector is so important and what needs to be done to measure this productivity. The discussion builds on the findings of recent research by the Productivity Commission82 and considers how the Organisation for Economic Co-operation and Development (OECD) guidelines could be used to measure the productivity of the NSW public sector.83
It also examines current and planned initiatives in the NSW public sector that will contribute to better labour productivity. These focus on the three major drivers of higher labour productivity:
- human capital (including skills development, stronger management capabilities and strategies to increase employee engagement)
- organisational infrastructure (including corporate culture, innovation and other systems, and work arrangements that increase efficiency)
- capital investment84 (including information technology).
One of the key objectives of the NSW Commission of Audit was to examine public sector management and service delivery issues to identify potential productivity improvements that could be made across the sector. A key starting point here is to accurately measure productivity.
The NSW public sector must address two major challenges when it comes to measuring productivity. The first challenge, discussed in this chapter, is that measuring labour productivity is a new development in public sectors around the world, not just in Australia. It will require technical data challenges to be overcome, such as collecting statistics in standardised and comparable ways, which is currently not being done.
As economists usually only measure productivity at an economy-wide level (rather than at an industry or enterprise level) and only measure productivity for market- based sectors (rather than general government), new standards to measure productivity must be established. This will take time and require close collaboration with clusters and agencies that collect data on the quantity and quality of their service outputs.
The second challenge, as noted by the NSW Commission of Audit Interim Report, is that the sector needs to improve how it measures its performance in general. For example, the NSW Commission of Audit Interim Report recommended that an integrated reporting framework be developed in consultation with clusters, specifying minimum data sets which directly link cluster and central data systems.
The NSW Commission of Audit also recommended the PSC lead the development of a common approach to data sets relating to people management issues. Data relating to service priorities and performance were to be led by the Department of Premier and Cabinet; economic and financial data by NSW Treasury; and data on corporate enablers (such as information and communication technologies and other assets) by the Department of Finance and Services.
This division of responsibility for improving productivity measurement across the public sector is summarised in Figure 14 overleaf.
Figure 14: NSW Commission of Audit Integrated Management Information Framework
Source: NSW Commission of Audit Interim Report (2012)
The PSC has a clear mandate to help the public sector better measure the labour productivity of individual agencies and the sector as a whole. This is a particularly significant responsibility given there were 401,703 employees in the public sector as at 30 June 2012, and that employee and superannuation expenses for the general government (budget) sector at that time was $29 billion (or 49.3% of total general government expenses). This chapter documents the initial PSC strategies and projects to measure labour productivity, as well as those planned for the future.
In the less than 12 months since the PSC was formed, it has considered its approach to collecting, measuring and reporting on labour productivity. The PSC’s initial focus has been on measuring the following:
- the number of employees in the NSW public sector and related issues, including hours of work used by employees to deliver services
- the values, ethics and corporate culture and practices of agencies that affect labour productivity
- staff engagement; that is, the level to which public sector staff are engaged in their job, team and organisation, and are capable of and work within the Ethical Framework
- executive leadership; that is, the extent to which clusters and agencies have leaders to manage, inspire, develop and sustain the workforce.
While this inaugural State of the NSW Public Sector Report documents some of the early results, productivity measures will be further developed over time by working with other central agencies and considering practices used in other jurisdictions.
Why productivity growth is essential
Measuring labour productivity
Strategies to improve public sector labour productivity
How the PSC is approaching productivity
Development of a NSW Public Sector Engagement Index