By Joshua.Chambers

01 Nov 2012

Stephen Kelly, the government’s new chief operating officer, is in charge of streamlining processes and pursuing efficiency on Whitehall. Joshua Chambers meets the man bringing business practice to the public sector

It isn’t just Stephen Kelly’s accent that’s transatlantic. The government’s new chief operating officer is British, but has the confidence and manner of an American. We’re quickly onto first name terms (“Is it Joshua or Josh?”), he’s not self-effacing when discussing his “very successful” private sector career, and as he sweeps through the open-plan office with a CSW journalist, a photographer and two press officers in tow, there’s something of the West Wing about the way he enthusiastically discusses public service reform while occasionally calling out “Hi, how are you?” to a passing staffer.

Kelly says he recently left the private sector for the civil service because he wants to apply his business experience to boost UK plc. When we meet, he’s only been in the job for 35 days, but he’s already developed plenty of plans to reform the civil service.

The £100m man
Until Kelly started working for the government in 2010, he’d spent his entire career in the private sector – working for software companies in New York and California, before becoming chief executive of FTSE-listed Micro Focus in 2006. He’s proud that it was “one of the top ten performing companies in the UK for the period of time I was chief executive” – and on the day he left its stock value plunged 30 per cent, costing the shareholders £100m.

Kelly joined the government 16 months ago to help with the supplier renegotiation process, and then was appointed as a crown representative with particular responsibility for establishing mutuals. 

Given his business background, what does he make of the civil service? “In terms of the talent pool we have in the civil service, it’s exceptional,” he says, but there’s an “emphasis on risk aversion that in reality slows down the speed of execution”. He believes that the private sector has a “greater appetite” for managed risk-taking, and says that on joining the civil service “what I saw was some fantastic people, but an environment where there wasn’t the reward around outputs, outcomes.” Kelly says he wants to make sure teams are well-equipped to be able to plan for success and take risks.

Civil servants might retort that it’s harder to take risks when it’s public money at stake, but Kelly demurs. “I used to say the same when I was running companies: ‘Treat the company’s money as if it’s your own’ – because that way you’ll drive the right behaviour.” Rather than making people more risk-averse, he believes that this mindset “allows you to have a much more considered view of managing risk” and ensures that people deliver against investments.

However, it’s also difficult to take risks in the public sector because – as Michael Gove argued in a speech earlier this month – the media and Parliament are very critical if the risk doesn’t work out. Kelly doesn’t see it this way: “The grown-up view of life is: if you do nothing, you’re taking risk. If you do something, you’re taking risk. It’s just a different type of risk.” Right now, he adds, the parlous state of the world economy means that “doing nothing is not an option”.

The new job
Kelly’s keen to change Whitehall’s culture; and while he stresses his respect for the public service ethos, he wants to build an “incentive culture”, “align people around a shared vision”, and “drive end-result planning”. He adds that “I think [my vision has] got a pretty good chance of success.”

He’s certainly in the right place to reform Whitehall, having taken over the management of the Cabinet Office’s Efficiency and Reform Group (ERG) – established to strengthen corporate control of civil service spending in order to cut costs.

In his second week in the job, Kelly shook up the ERG, restructuring the organisation around clusters focusing on outcomes such as ‘economic growth’, rather than processes such as ‘government communications and Directgov’ (see box). He believes that there’s “a really strong, renewed vigour from the ministerial team” following the reshuffle that introduced Chloe Smith MP to the department and gave ministers specific responsibilities around efficiency and reform.

Now, Kelly wants to “support the ministerial and civil service team to create a really strong, functional corporate centre.” His drive to strengthen and renew the ERG looks timely, given the Institute for Government’s call just last week for stronger corporate leadership of the civil service to equip it for further spending cuts (see feature).

After all, given the worsening economic outlook, austerity measures will need to continue into the next Parliament – as the chancellor admitted earlier this year. With further efficiencies required across Whitehall, Kelly plans for his ERG to be “closely aligned” with spending teams in the Treasury to help find the savings, although he’s careful to stress that his team will be acting as “a junior colleague.”

“Ultimately, it’s the Treasury’s choice as to how much they want to involve us. But we’re certainly here, available to the Treasury as their junior partner to understand how to implement granular savings,” he adds – making clear that the Treasury is responsible for setting out the overall amount of savings required. There is already a joint ministerial board for both departments, but it will take “time for them to get to know me, get to know the team and all of those sort of things,” Kelly says. “Rome was not built in a day but we’re certainly very committed to being a professional, collegiate partner to our Treasury colleagues.”

Swinging the axe
The ERG is working on a new business plan, he says, that will include aims for all government departments. Indeed, the group will be involved in developing future departmental business plans, putting shared efficiency and transformation goals alongside policy reform aims. In the future, he says, “if you look at a departmental plan, say if you picked the Department for Education or the Department of Health, within the context of that [plan] they will be driving some element of efficiency savings and improving their operational efficiencies. Within that [plan] there’ll be a part owned by the ERG, so that when you look at our business plan, it should be a collective view of the wider civil service.” 

Of course, Kelly stresses that his “team has to be very sensitive to the departmental priorities and policies that the permanent secretary community and the management teams in departments are driving”. And these efficiency aims will also sit “neatly” alongside the civil service reforms being pursued by his Cabinet Office colleague Katherine Kerswell, he believes.

Kelly ultimately wants the ERG to be seen as a positive force for change. “If you got an interview with the perm sec community in a year’s time, I’d like one word to come back: ‘Indispensable. The ERG is indispensable. They’re trusted business partners; they’re the experts that give us the ‘how’ to implement our policies, but at a fraction of the cost of the old world, allowing us to achieve our fiscal goals’.”

However, Kelly also says that the ERG will continue to oversee tight control regimes that restrict departmental expenditure on areas such as consultancy. Indeed, he points out that the regimes saved £3.75bn in their first year, and £5.5bn last year. The National Audit Office argued in February that the control regimes haven’t significantly changed long-term behaviours: more than half of the overall cost reductions achieved by government in the first two years of this Parliament came from simply stopping spending and cutting staff, it said, rather than through deep-seated reforms to services. But Kelly responds that you can’t change behaviours without first reducing spending. Asked whether the £3.1bn of savings already achieved this financial year has come from stopping spending or through reforming public services, he says “it’s a bit of both. The machinery of government is still purring away quite well, and we’re doing it at a lower cost than what was done two or three years ago. This year we’re after £8bn of savings, and after two years we want to make that sustainable, embed those savings within the culture and get it up to about £20bn.”

The problems with the West Coast Mainline would seem to suggest that the machinery of government isn’t always purring, however. Indeed, the Department for Transport’s interim report into the failure to properly award a railway franchise noted that “in implementing substantial cost savings, the DfT had significantly reduced both its headcount and its use of external consultants” – factors which, it said, contributed to the problem. Are there unintended consequences to the strict control regimes the ERG has put in place? “I don’t believe we’ve dropped the ball in government because of the control regime in any respect,” he replies, adding that “every time I sit down with you, there will be one instance of something that hits the newspapers for the wrong reasons.
That’s just life”.

Anyhow, Kelly believes that the ERG’s expertise should reduce departments’ need to use consultants as much in the future. “About 55 per cent of the folks [in the ERG] have more than 20 years’ very specialist private sector expertise. So we’ve got folks from corporate finance, we’ve got people who’ve done major mergers and acquisitions, and that expertise is available to departments… We have the expertise and competence to do these complex financial models,” he says.

New models
That’s the efficiency part of the ERG’s remit covered, but Kelly is also keen to discuss longer-term reform. Ed Welsh, the civil service’s lead on new delivery models, is currently speaking with departments to identify the biggest opportunities to introduce innovative forms of service delivery. He’ll also be working with them every time one of their public bodies undergoes a triennial review, to look for ways of delivering services more efficiently for the taxpayer.

In the past, Kelly says, the choice for public service delivery was too binary: state-run services or outsourced organisations. Yet despite his own experience setting up central government’s only joint-venture mutual, MyCSP, he says the ERG won’t be “dogmatic” when it comes to setting up new delivery models. Departments will not be forced to pursue the much-touted third way of mutualisation. Instead, the focus is simply on providing best value for the taxpayer, he says.

That will involve looking for ways to turn the government’s investments in public service reform into an income stream, he says: he’s looking for a private sector joint-venture partner to help develop and market the civil service’s emerging project management standards. Such Whitehall intellectual property assets, he believes, “could be elevated on a global platform if provided on a structure where people were incentivised to do that.” 

There are also big plans for shared services. In particular, he says, a new shared services platform for enterprise and resource planning – including financial and HR systems – will be announced in the next couple of weeks. He also highlights the good work done to tackle fraud, error and debt across government, and says to expect more of the same.

Getting the data 
As well as touting government expertise internationally, Kelly wants to be able to compare Whitehall with other nations’ civil services. “By 2015, 2018, I think we could sit here and have a comparison of Canada, the US, France, Germany, and [determine] how efficient the UK is relative to them,” he says. “I want to make sure the UK is top of the league.”

Kelly’s confident that there will be the information to do so by then, but acknowledges that management and financial data within Whitehall is not yet up to scratch. “We’ve got loads to do,” he says, adding that “a lot of work’s gone on, a lot of good people have done some fantastic work to improve it, [but] we’re still early in that journey and my experience of these things is [that it’s] typically a three to five year journey.”

The work on management information is being headed up by the ERG’s Katherine Davidson, and Kelly is already content with the quality of data in some areas of Whitehall spending – for example, on departmental spending on computers. Ultimately, though, he would like to see more sophisticated benchmarks introduced to allow better measurement of citizen services such as tax collection and benefit payments. 

One good benchmark of internal performance is the Civil Service People Survey, and this year’s results have already landed on the desks of civil service leaders. The head of the civil service, Sir Bob Kerslake, indicated to CSW earlier this month that there is dissatisfaction among more junior staff members with their incentives and the value placed on their performance.

Given the concerns the survey results raise about morale, is Kelly confident that the civil service can retain the best people? “Any large employer is always going to have some level of people leaving and moving to the private sector and coming back,” he replies. But he sounds optimistic, arguing that being involved in the civil service at this time is “very exciting” and “almost intoxicating” – something that’s important in attracting ambitious and talented people.

Indeed, he enthuses that “for people who are involved in that journey, it will be the best time of their career.” With that, the interview ends; Kelly has to dash off to another engagement. His final exhortation – in his trademark, transatlantic baritone – is a pertinent one: “I’m keen to be held to account.” CSW will be happy to oblige.

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