Evolution of the  Risk  Debate: Public V Private Sector

Jennifer Kroeker-HallJennifer Kroeker-Hall is the President and CEO of Sirius Strategic Solutions; a management consulting firm focusing on public sector governance, government relations, organizational development, policy and planning.  She has built Sirius into a collaborative venture focusing on road safety, justice and health policy. Over more than 20 years, she has held senior management and executive positions with the Province of B.C. and ICBC. In her most recent positions, Jennifer worked both nationally and internationally, being recognized by the Canadian Council of Motor Transport Administrators for her outstanding contributions; receiving the Jennie Howie Government Member Award in 2006. Jennifer has extensive public sector governance, policy and planning experience having been elected to, and chaired, the Board of the Institute of Public Administration of Canada (IPAC, Victoria Regional Group), the Alumni Board of the School of Public Administration, University of Victoria, and the Greater Victoria Police Victims Services Board. She has also served on the IPAC National Board and the Greater Victoria Public Library Board. Her skills and volunteer commitment are evidenced by her most recent role as the Vice-President of the Canadian Association of Road Safety Professionals. Jennifer holds both a MA (Criminology) from Simon Fraser University, a MPA from the University of Victoria and is currently working on her doctorate in public administration at the University of Victoria pursuing interests in public sector governance, policy and planning.

It has often been argued that preferences and work motivations of public sector employees differ from those of private sector employees.1 Historically, there has been a general perception that public servants are “risk-avoiders”. This article provides a high-level overview of the questions and current public sector context for risk-taking compared to the private sector. Arguably, the concept of risk in the public sector has evolved through a number of different streams, which have accompanied the shift from a traditional public service model to an emphasis on the infusion of private sector principles and values to the public sector. Where is this discussion now?
Empirical research on risk-taking has grown in the past three decades or so but few of the best studies systematically differentiate between public and private sector organisations.2 The definition of risk has evolved from private sector research to mean the exposure to the chance of loss from one’s actions or decisions. There has been much research looking at the appropriateness and value of private sector principles in the public sector, but less so on the concept of risk-taking. Some research has taken the view that people gravitate towards public service because they are risk averse.3 Studies from the 1980’s through to today appear to support this view often because employers in the public sector are seen to offer higher job security and less volatile wage compensation than employers in the private sector. Bloch and Smith (1979) demonstrated that the probability of becoming unemployed is considerably less for workers in the public sector than for those in the private sector.4 Although documentation is more limited, it appears that working conditions are also regarded as more favourable in public than in private jobs. However, the challenge for most research is in identifying data that determines how much risk people face.
Boyne (2002) tried to empirically measure the differences between public and private organisations founded on New Public Management (NPM) principles that suggest public sector organisations should import private sector solutions and principles. Based on a number of hypotheses outlining potential gaps, he found that the differences between public and private management were not as significant as they appeared and that there were more similarities on important aspects such as rules and bureaucracy, than anticipated. While risk-taking was not explicitly identified as a differentiating factor, he did look at related concepts such as managerial autonomy and bureaucracy. However, more recent research has found support for the hypothesis that public sector employees are more risk averse than private sector employees.5
So what motivates public sector workers and where does risk-taking fit?  Generally we think of concepts such as service, good public policy, social good, personal commitment to a cause, and serving the public interest. Employees have not been seen as externally motivated by profit but internally by altruism or serving the public good. The NPM framework has been based on the premise that efficiency and effectiveness of public sector organisations could be improved through private sector management techniques and hence the reinventing of government.It has refocused the discourse on employee motivation and managerial values such as risk-taking and innovation within the context of organisational change.
The processes of organisational change have been accompanied by an increased emphasis on flexibility, adaptability and performance management7 - but not by an empirical understanding of organisational culture. The literature suggests that public organisations have traditionally under-emphasized aspects of organisational culture because they have lacked an orientation towards adaptability, change and risk-taking – and the arguments become somewhat circular. Regardless, managing change and developing strategies requires an understanding of organisational culture. In the context of our increasingly complex and internationally inter-connected world, this has meant a shift from a traditional bureaucratic model with its emphasis on rules, procedures and stability, to a greater orientation towards change, flexibility, entrepreneurialism, outcomes, efficiency and productivity (Parker & Bradley, 2000).
What is lacking in the general discussion on implications of NPM – is a focus on risk-taking within organisational culture. “Risk- taking” or managing risk has been studied in a few narrow contexts such as public-private partnerships, outsourcing and financial policy, but less often with respect to general managerial approaches and organisational culture. Bozeman & Kingsley (1998) attempted to identify and explain differences between public and private organisations by focusing on the concept of risk culture. They describe risk culture as pertaining to managers’ perceptions that their peers and superiors take risks and promote risk-taking. Some of the factors they examined as possible determinants of risk culture include political control, nature of reward systems, levels of formalization and red tape, bureaucratic structures and goal ambiguity.
What Bozeman & Kingsley found was that a riskier culture is positively related to the willingness of top managers to trust employees and to the clarity of the organisation’s mission. Organisations with more red tape, weak links between promotion and performance and high involvement with elected officials, tend to have a less risky culture.
Others are not as convinced of the connection between risk-taking and effective public management (Osborne & Gaebler, 1992). Being entrepreneurial doesn’t necessarily assume risk-taking. This is an important idea when one thinks about “public entrepreneurship”8 and the prudence and accountability required when spending public tax dollars. Thus, some argue that our emphasis should be on public sector opportunities and innovation. Innovation should be a core activity of the public sector to help improve performance and increase public value; respond to citizen expectations; adapt to user needs; increase service efficiency and minimize costs.9
However, old assumptions of the public sector resurface in the debate and research about whether it is less innovative than the private sector. In the private sector, innovation is driven by profit, which provides incentive to innovate, to cut costs, improve market share and create new products and services. A key question is how transferable understandings, insights and approaches are between the two sectors. Research has looked at elements of management, structure, rewards and culture to explore the differences between public and private sector innovation. Some of the most consistently innovative organisations focus on clear outcomes, supported by the right rewards, tools and organisational culture. Barriers to public sector innovation include a culture of risk aversion and a focus on short- term delivery pressures, both of which can hinder organisational development and progress. Other reasons for stymied innovation suggest a lack of competition and incentives; bureaucratic conservatism; and a workforce that is unresponsive to and unwilling to change. What is clear, then, is that in the absence of a profit motive, and in the face of fast-paced change, other incentives must be provided for public sector individual and organisations.
Despite the arguments and research about the differences between public and private sector management and organisation,  there are also those who choose to look for the similarities and in doing so, hone ideas on the differences. The research and study stream of public entrepreneurship has evolved more recently from the work on innovation and other elements of private sector entrepreneurship. Based on the literature, the recurring themes that emerge include the idea that a process is involved, entrepreneurship is on-going and the end result is innovative, risk- taking and proactive behaviour.10
Entrepreneurship has been conceptualized as a means of creating value by bringing together a unique combination of resources to exploit an opportunity.11 Research has shown that while many similarities exist between private and public sector entrepreneurship, there are important differences related to key dimensions such as innovation, risk-taking, proactivity, political environment and complexity, among other things (Kearney et.al., 2009). Despite these differences there is a belief and some evidence that entrepreneurship within the public sector produces superior organisational performance.12 The challenge is to recognize the key similarities and differences; identify the entrepreneurial process that lead to beneficial public sector outcomes.
Following these evolutionary threads, then, I would argue that risk-taking in the public sector is not a dead concept. It has quietly subsumed a role within the larger framework of public entrepreneurship. However, its conceptual uniqueness should not be lost but be further explored in association with innovation. The limited research to date has shown some promise in understanding how these private sector concepts can be shaped in today’s public sector environment of increasing social economic and financial complexity fed by rapid technological change and global inter-connectedness. As go the problems, so go the solutions.
1 Bozeman, Barry & Kinglsely, Gordon. (1998). Risk Culture in Public and Private Organizations. Public Administration Review, 58(2), 109-118.

2 Ibid.

3 Buurman, Margaretha; Delfgaauw, Josse; Dur, Robert; & Van den Bossche, Seth. (2012). Public Sector Employees: Risk Averse and Altruistic? CESIFO WORKING PAPER NO. 3851. Found at http://www.CESifo-group.org/wp.

4 Bloch, Farrell & Smith, Sharon. (1979). Human Capital and Labor Market Employment. Journal of Human Resources, 14(2), 550- 60.

5  Buurman et al., 2012.

6 Osborne, D. & Gaebler, T. (1992). Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector. Addison-Wesley, MA.

7 Parker, Rachel & Bradley, Lisa. (2000). Organisational culture in the public sector: evidence from six organisations. The International Journal of Public Sector Management, 13(2), 125-141.

8  Bellone, C. & Goerl, G. 1992. Reconciling Public Entrepreneurship and Democracy. Public Administration Review, 52 (2),

9  Mulgan & Albury, 2003

10 Kearney, Claudine, Hisrich, Robert D., and Roche, Frank. (2009). Public and private sector entrepreneurship: similarities, differences or a combination? Journal of Small Business and Enterprise Development, 16(1), 26-46.

11 Stevenson, H.H. and Jarillo, J.C. (1990). A paradigm of entrepreneurship: entrepreneurial management”, Strategic Management Journal, 11,17-27.

12  Kearney, et al., 2009.