The Organization Control Knob

1. The Organization Control Knob Marc J. Roberts Professor of Political Economy and Health Policy Harvard School of Public Health Africa Flagship Kigali, June 24,2010

2. Alternative Strategies For “Turning” the Organization Control Knob • Change what happens inside various organizations • Change the incentives on the various health sector organizations • Change who does what—how tasks are distributed across providers

3. To Improve Performance, Workers and Mangers Have to Behave Differently • Front line workers actually deliver services • Managers recruit, train, assign, organize, lead, reward and punish workers • Managers acquire non-human inputs To understand any reform, we have to ask, how will it influence workers’ and managers’ behavior?

4. What Determines Employees’ Behavior ? • They are influenced by what is outside them • The kinds of tasks they do • Their work environment • Incentives like pay and promotion • Contact with customers, peers and superiors • They are influenced by what is inside them • Culture, habits and beliefs • Goals, norms and values • Skills and capacities

5. Tools Available to Managers • Power and Authority: Acts on tasks, rewards, punishments outside workers • Leadership and Influence: Acts on values, attitudes and beliefs inside workers Given managers’ limited ability to monitor workers, and provide rewards and punishments, power and authority alone cannot produce good performance

6. The Six Keys To Organizational Performance • Incentives on the organization • Incentives for managers • Skills and attitudes of managers • Authority of managers • Incentives for workers • Skills and attitudes of workers

8. Applying the Six Keys to Understand Performance Differences • Consider the following comparisons: • A government hospital versus a missionary hospital • A government pharmacy versus a private pharmacy • How do the managers get selected in each case? What are their incentives and authority? How do the incentives on, and the attitudes of, the front line workers differ?

9. Getting Managers to Be Better Managers-- I • Change how we recruit managers—from patronage and payoffs to managerial interest and ability • Change how we reward managers—performance monitoring, recognition, promotion etc. [you need data to do this] • Change how we manage managers—need higher level managers who focus on job done by lower level managers [they need skills, incentives, authority and a sense that management is part of their job]

10. Getting Managers to Be Better Managers-- II • Develop the skills of managers—training requirements and opportunities • Develop professional identification of health sector managers—associations, rewards, journals etc. • Only by giving mangers authority and skills can we make managerial work rewarding to those who want to be managers

11. Internal/Managerial Strategies • Restructure The Public Sector • Decentralization • Autonomization/Corporatization • Contracting out • Improve The Public Sector • The “New Public Sector Management”

12. Decentralization Theory: Moving the accountability of managers to sub-national governments will improve performance • Managers will be more closely supervised • Political leaders will be more responsive to citizens’ concerns Reality: The outcomes of decentralization depend on the details of how it is carried out • The capacity and integrity of the governments that get new responsibilities • The scope of the authority delegated • The willingness of the central government to subsidize poorer regions

13. Autonomization/Corporatization Theory: Creating new entities partly outside government structures will lead to lower cost and higher quality Reality: Only effective if reforms are both extensive and consistent • New entities have to be freed of most budget and civil service limits • Effective governance is essential • As providers become more responsive to their incentives, patients who cannot pay will require government subsidy

14. Contracting Out for Selected Services Theory: Competitive private sector firms will provide some services more efficiently and with greater expertise Reality: Only works well when certain conditions are met • Multiple, competitive private sector suppliers • Those overseeing the contracting have both the skills and the incentives to perform well • Political leadership willing to pursue better service over patronage goals

15. “The New Public Sector Management” Theory: Many of the “six keys” can be changed within the public sector • Selection/promotion of hospital managers • Improved accountability • Increased authority Reality: These changes can be politically difficult given the attraction of patronage vs. good service • Can require change is basic public law/policies like civil service, purchasing regulations etc. • Public managers have been limited to prevent them from doing bad things—as a result they often cannot do any thing

16. Strategies for Changing Incentives • Improve Market Competition • Create Quasi Markets • Incentive Budgeting

17. Improve Market Competition Theory: Where substantial services are provided by the private market, the market will function better if there is increased competition • Encourage new competitors (e.g. local drug or vaccine producers) • Decrease regulatory barriers (e.g. licensing limits) • Enforce anti-monopoly laws (e.g. prosecute price fixing) Reality: Creating effective competition may not be easy • In non-urban areas there may not be enough demand to sustain multiple (or any) sellers • Buyers may not be sophisticated enough to shop effectively

18. Create Quasi-Markets Theory: Separate “purchaser” from “provider” functions within public sector • Government buyers or insurance funds can act as expert, bulk purchasers • Change payment system to have “money follow the patient” Reality: Requires an expert, politically protected, government buyer • Public sector managers need increased authority to respond to their incentives • Monopoly sellers (e.g. isolated hospitals) pose great challenges since buyer has no alternative

19. Incentive Budgeting—PBF,PBB,VBB,P4P Theory: Since traditional budget systems create no incentives for performance, change budgeting to create performance incentives • Do not have budget next year, just depend on last year • Use up-side bonuses and down-side penalties • Can include volume, quality, priority service components Reality: Must be combined with organizational changes to give managers flexibility to respond to their new incentives

20. A Caution on Incentive Strategies • Any effective use of quasi markets or incentive based budgeting requires reliable monitoring and reporting systems • Risks of distortion/deception in reporting are significant once performance-based incentives become significant • Agencies implementing these strategies will need new skills and capacities (e.g. collecting real time data, writing contracts, detecting collusion) that may be difficult to develop

21. Strategies for Changing Who Does What • Privatization: Shift activities from public to private sector--to NGOs or for-profit companies • Centralization to achieve economics of scale and specialization • Change organizational scope: integrated vs. vertical programs

22. Shift Activities From The Public to The Private Sector Theory: Public sector reform is politically impossible so the private sector will be more efficient. Reality: Some markets work better than others • How competitive will the resulting markets be? • Will consumers be sophisticated enough to shop effectively? • Will equity results be acceptable since poor will loose out • Does government have the capacity to regulate to counteract undesirable outcomes?

23. Centralize Certain High Cost, High Tech Services Theory: There are certain services where cost and quality will benefit from only being offered by expert, high volume providers • Argument applies not only to clinical services but also to support activities like purchasing or laboratory testing Reality: Centralization can create access barriers—especially for poor, rural or marginalized populations • Regional political leaders may oppose centralization • Elite institutions can become overly effective advocates for expanded government support

24. Integrate Vertical Programs Theory: Vertical programs divert resources from and weaken integrated primary care systems—which should be the means for delivering all care • Shared facilities and personnel can lower costs and allow “cross marketing” to increase use • Rural areas lack enough cases within feasible travel distances to support specialized services Reality: Vertical programs can benefit from narrow focus, measurable goals, motivated staff, and international resources • More complex organizational options may be needed: “diagonal” or “matrix” models

25. Points To Remember • Many reforms are complementary—organizations need both incentives to do better and the capacity to do better. (e.g. contracting plus autonomization) • Market-based solutions can create equity problems—although non-market based systems can also be unfair • If staff need new skills to fulfill new roles—pay attention to matching training to new responsibilities • Be realistic about your national situation: culture, legal system, customer sophistication, corruption, etc. • Match your strategy to your capacity

26. Final Thoughts • ‘Within strategy” variation may exceed “between strategy” variation • Specific design features and implementation are extremely important— “The Devil Is In the Details” • Using the organization control knob often requires more than one iteration. Be prepared to learn from, and readjust in response to, your mistakes