AUTUMN 2013
FMI
*
IGF JOURNAL
9
At a time when resources are tight and
public services are under pressure, there
is growing interest by accountancy
bodies in finding out about how financial
managers are coping with the pressures
and implementing strategic financial
management, as well as ascertaining what
support they could provide for financial
managers in the future. In order to find
out, the Association of Chartered Certified
Accountants
(ACCA)
commissioned
research from Nottingham Business
School to review the evidence, initially
across public services in the UK. However,
its findings will have resonance for those
countries suffering severe austerity and
those that just need to tighten their belts.
Strategic financial leadership is important
in relation to strategy in public services.
Public services themselves are important
to all citizens and in most countries they
account for a third of GDP. The finance
functions within public bodies are also
financed from public funds and subject
to the same austerity measures as other
public services, which means that there is a
greater emphasis on them to demonstrate
what value they are adding.
Since 2008/09 a large proportion of the
world economy has suffered an economic
recession the scale of which has not been
seen since the great depression in the 1930s.
From 2008 the UK economy was in reces-
sion for six quarters. Since 2009 economic
growth in the UK has remained more or
less zero and has not reached the levels of
growth obtained in previous decades. The
economic pattern across Europe is similar
or much worse with some countries expe-
riencing financial bailouts. In comparison,
Canada has not experienced the financial
crisis to the same degree, and has suffered
no major bank failure or collapse because of
a strong regulatory system, which limited
exposure to bad debt in the housing mar-
ket. Nevertheless, there are still challenges
to meet as Canada is experiencing public
service budget pressures – an emphasis on
achieving more with less or the same – and
the cost of servicing interest payments on its
debt with an annual growth of 9%.
Although both countries are on the
blocks at different starting points,
the challenges for strategic financial
management are similar. Public sector
organizations are having to plan for
a future where financial resources for
public services will continue to contract
for a number of years to come. Better
financial management will be required as
well as new solutions to the provision of
public services. The lack of public money
will mean that a greater focus will be
placed on considering how existing funds
are being used and how changes can be
made to cope with funding reductions.
The challenges for finance managers are
immense as most have worked in a period
of growth and not resource constraint.
The Nottingham Business School
research focused on how public bodies in
the UK are applying strategic financial
management approaches and solutions to
problems. It focused on: what were the
key challenges faced by public bodies; how
public bodies were responding to austerity;
how might effective strategic financial
leadership assist with dealing with the
challenges; and how this was being applied.
A range of public bodies took part in the
research including local government (the
equivalent of municipalities), health bodies
and further education colleges. Anecdotal
evidence was taken from ex civil servants
from central government.
But what do we mean by strategy and
strategic leadership? There is a wealth of
academic literature about strategy and how
it is defined. But loosely it implies three
criteria:
1. It tends to be longer term (three to
20 years);
2. Has some sort of vision, for example,
to create a better place to live and
work, and be educated; and
3. Necessitates significant organiza-
tional change.
In considering what sorts of strategies
organizations should be pursing it is
important they are supported with an
appropriate financial strategy and financial
forecasts. It is equally important that the
strategies are economically, socially and
environmentally sustainable.
Strategic
leadership
is
usually
distinguished from the management
of organizations according to Kotter, a
leading academic in the field. He argued
that managers are responsible for ensuring
order and the efficiency of organizations,
while leaders were responsible for having
a vision of the future and facilitating
an organization to adapt. Historically,
research focused on the traits of leaders,
but now research suggests that effective
leadership is dependent up on the situation.
For example, an authoritarian leadership
style may be better suited to a public
body in crisis, whereas a more democratic
leadership style may be better suited where
there is a need to build consensus and
possibly where an organization is growing.
Arguably, this is a simplistic view.
Other academics viewstrategic leadership
as not the domain of one charismatic figure,
but rather as the collective leadership of the
management team. The picture of strategic
leadership becomes a little more complex
when applied to multi-agency working
where to lead means that a leader will have
to predict how multiple stakeholders will
be affected by decisions.
The research highlighted that the leaders
within the public sector organizations
interviewed largely felt that the budget
reductions imposed on them – sometimes
up to 30% of budgets - had largely been
achieved through significant reductions in
support services, commissioning of services
and sales of fixed assets. This had not been
an easy task as there have been significant job
reductions and reconfiguration of services to
protect front-line services. However, what is
perhaps the most worrying finding from the
research is the lack of vision and strategic
thinking beyond 2015. Some interviewees
had some initial ideas for the long-term,
but there was little detailed analysis and few
long-term financial projections. Also, some
of the strategic themes appeared to contain
detrimental shortcomings.
Most leaders interviewed had spent their
careers in a period of growth and were used
Is the Public Sector Bereft of Strategic
Financial Leadership?
Gillian Fawcett
