Addressing public sector risk aversion

The public sector is notoriously risk averse. Bozeman and Kingsley (1998) found that three of the strongest determinants of risk averse cultures are political control, bureaucratic structures, and red tape; given the current political environment outlined in my previous article, the degree of risk aversion in the Australian public sector has worsened in recent times.

A cultural predisposition across the Australian public sector to avoid rather than appropriately manage risk manifests as over-regulation, excessive internal consultation, formulation of overly cautious policy advice, and a regime of administrative compliance. This leads to managerial ineffectiveness, stifles innovation, negatively impacts organisational performance, and acts as a barrier to developing high-performing teams.

At a more individual level, my research found that risk-aversion is experienced by employees as elevated decision-making and micromanagement, which creates perceptions of distrust and under-utilisation, leading to reported decreases in levels of motivation and engagement. This is particularly apparent at the middle management level.

So why is the public sector risk averse? Leaders are a primary driver of risk aversion. In some instances, leaders are seen to be risk averse as a result of political and media scrutiny, which places increased importance on ‘getting things right’. In other instances, it has been suggested that managing risk and controlling process is more comfortable than driving innovation and challenging the status quo, and as such it is seen as a more appealing alternative. There are three other, more specific issues that my study found related to public sector risk aversion: operating in silos, bureaucratic innovation, and the perceived management of change.  

Operating in silos

Christensen and Laegreid (2007, p. 1063) suggest that the division of labour and specialisation are inevitable features of organisations. However, in contemporary public management, this has led to an introspective siloed mentality with a narrow focus.

Within the Australian public sector, there is a limited sense of ‘one agency’ or ‘one service’. Whilst these phrases are espoused by central agencies, it appears to be more rhetoric than realisation, or otherwise appear to be done with intent but not purpose. In addition, this study found that senior executive performance management and budgeting processes are contributing to the prevalent siloed mentality as they are channeled vertically through individuals and divisions, rather than horizontally across agencies.

Bureaucratic innovation

Innovation is patchy across the sector and occurs in pockets within agencies. Whilst leaders appear to support the idea of, and intent for, innovation, it is largely not supported by the required systems, processes and culture. Innovation is seen to be inhibited in many instances by excessive red tape with a strict adherence to bureaucratic processes, as well as employees self-reporting that they are not being given the time to be innovative, which is compounded by the risk averse culture.

In addition, my research found that innovation in the public sector is primarily viewed as, and limited to, continuous improvement. Whilst innovation is revolutionary, continuous improvement is simply evolutionary. Therefore, by adopting the notion of continuous improvement as innovation, agencies are augmenting existing practices which, according to findings from this study, is contributing to a perceived pressure of needing to ‘do more with less’.

The perceived management of change

The public sector is subject to continual change. However, there is an overwhelming sense that change is not managed well. This is captured by Schofield and Pegg (2010, p. 203), who stated that whilst “the concept of change is nothing new… it is the increasing pace of change that is a particular challenge”. This study found that one of the reasons change fails is the perception that employees are not adequately consulted about change. Another reason is that there is an apparent and overt focus on managing the administrative aspects (such as property considerations, operating structures, and information technology access) and ‘just getting it done’ at the expense of managing the cultural change implications. This can result in disengaged employees and failed change initiatives, which neglect long-term sustainable outcomes (Fuda, 2009; Kotter, 1996). Further, it was found that the political instability and continual changes in ministerial arrangements do not allow for sufficient time to embed and realise the benefits of change, before a new minister arrives and diverts both attention and resources towards new ideas and priorities.

How do we try and overcome risk aversion?

Risk aversion is in part attributed to systems, processes, and workforce management practices. But it is also embedded in culture, which as we know is enduring and can take a long time to change. However, there are some things agencies can look to be doing now to address this.

First and foremost, public sector leaders look to provide greater autonomy to employees and devolve delegations and decision-making authority to the lowest possible level. Schofield and Pegg (2010) argue that doing so is not just a means for countering risk aversion but a necessity. They argue that “as the public sector becomes increasingly complex, it needs to devolve power… to those delivering”, which “has profound implications for the ways in which we develop our leaders” (p. 212). To support this, public sector organisations are encouraged to utilise job evaluation methodologies to ensure that the work value of a given role, including its delegations and accountabilities, is aligned to the appropriate classification level. It is also recommended that public sector leaders drive a culture that is less focused on process and more focused on outcomes, shifting the risk frame from one of risk aversion to risk tolerance. Public sector leaders are therefore advised to pursue the development of the appropriate tools, policies, and frameworks that support risk tolerance – providing a safe environment for employees to take educated risks, fail, and learn from said failures without fear of consequence. This is supported by former Department of Foreign Affairs and Trade (DFAT) Secretary, Peter Varghese, who argued:

“Public service leaders need to encourage more risk-taking. Not ‘crazy brave’ risk-taking but risks which have been carefully studied and then launched. And once launched, public service leaders need to stand by those who may fail. Ministers also need to back them because abandoning someone who took a reasonable risk is the surest way of ensuring a public service culture rooted in precedent and incapable of finding fresh approaches.” (Varghese, 2016, p. 4)