By Matt Ross

20 Nov 2014

As the government’s chief operating officer Stephen Kelly returns to the IT industry, he tells Matt Ross that the civil service is being transformed by changing systems, inspirational leaders – and ‘the great reformer’

It’s hard to think of anyone less like the stereotypical Whitehall mandarin than Stephen Kelly. Instead, imagine a high-flying, go-getting businessman straight out of central casting, and you’ll get pretty close. For Kelly is a senior executive from the corporate end of the IT industry, with a career spanning both sides of the Atlantic – and he looks, acts and sounds the part. 

The government’s chief operating officer arrived in Whitehall in 2011, fresh from rescuing troubled software firm Micro Focus – and on 5 November he rejoined the private sector, starting his new job as chief executive of the giant accounting IT firm Sage Group. For two years, though, the tall, carefully-groomed Kelly has led the Cabinet Office’s Efficiency and Reform Group (ERG) as it works to improve capabilities across the civil service. And he’s almost messianic in the way he describes Whitehall’s restoration to glory, preaching an uplifting tale of renewal and rebirth dotted with colourful metaphors. He can do specifics when pressed, but his message is a broader one: a civil service that had lost its way is, he believes, on the road to salvation.

“For 50 years, people talked about changing the civil service, but that hadn’t materialised,” he says. “When I came in, public sector productivity had either flatlined or declined in the prior 15 years.” Meanwhile, government’s capabilities in IT, project management and commercial work had been steadily eroded: “We had a 20-year period when we deskilled a lot of the civil service, and valued generic rather than specialist skills,” he argues – and the result was declining performance and delivery failures, sapping civil servants of enthusiasm and self-belief.

“I found a civil service where there’s brilliant people, deeply tattooed with the public service ethos – that sense of doing the right thing, making a difference,” he recalls; but there was “an incredibly risk-averse culture, and in terms of the reform plans probably an organisation that lacked the capability around the specialisms and expertise we needed to be able to execute.” Civil servants, he says, “felt a bit battered” by media criticism; suffered from “analysis paralysis”; and spent too much time in meetings. “In the early days, I’d go to meetings and it was like a remake of Ben Hur,” Kelly comments. “I’d always be saying: if we can do something with two people, then why get 20?”

Much of what has been achieved since then, Kelly says repeatedly, is down to Cabinet Office minister Francis Maude: “Shame on us in the civil service: it took a minister to come in and grab the bull by the horns and say: ‘We can do much better. We can change’.” It was Maude, he points out, who “put together the five key reform programmes and said: ‘The civil service can be much stronger, much more digital, more commercially-aware’”.

Kelly’s approach was to work out exactly what needed doing to realise ministers’ goals and deliver for the public, then build a three-year plan. “It was very outcome-based, with clear end results,” he says. “We report every quarter on a dashboard and it’s green or red, success or failure – there’s no amber. If we didn’t do it, there’s no point explaining why not: it’s red.” 

Officials were constantly exhorted to focus on “putting citizens and the taxpayer at the heart of government,” Kelly continues. “Every time we go into a meeting, we should have our stakeholders on our shoulder; especially the taxpayer, because we should be treating the government’s money as if it’s our own”. The aim, he explains, was to create a “golden thread” linking ministers’ aims to delivering better services and lower costs for citizens: “In reality, what we’ve done is appeal to civil servants’ good nature and their public service ethos.” 

Meanwhile, the ERG created a “teaching hospital” to build capability across the civil service, fostering improvements that “start shifting heads, and people start following success – and as we grow our confidence, we get to showcase the successes better and that does start changing the culture.” The result, he believes, is that “the civil service has got its mojo back.” And again, he praises Maude: the minister has been “inspirational in terms of the architecture of the reform plans, and set the high-level strategy and allowed us as the executive to get on with it and work across Whitehall very collaboratively”.

In full flow, Kelly is hard to halt: after 25 minutes, he’s answered four questions. But this picture of a unified, happy civil service raised up by an inspirational leader won’t resonate in every quarter: some officials have resented ministers’ tendency to criticise the civil service. Was that criticism constructive? There’s a “massive disconnect” between the reality and the media portrayal of relationships inside government, Kelly replies – but he does note that “in the early days there was a lot of resistance” to aspects of the reforms. “It seems almost surreal now that we had quite heated discussions within the civil service about buying paper in bulk,” he recalls – some departments wanted to retain control of every aspect of their procurement operations.

“It takes tremendous resilience to challenge the status quo,” Kelly continues, “and you have to have some pretty quick successes. If you come in and say: ‘There could be a different way’, but then fail to deliver in the first six months, a cynical point of view could prevail”. And here readers may discern an answer to the question: Maude had to highlight the civil service’s failures, Kelly, suggests, in order to build support for change – and thus create early wins that won doubters over to the cause.

Since those days, much has indeed changed – not least in the creation of 100 ‘mutuals’: Kelly’s first remit in government, before he was made chief operating officer. Looking back, he sounds amazed that all 100 new, spun-off service providers are still standing: “If you took a cross-section of 100 businesses – whether SMEs or mid-market players – failure and insolvency is a fact of life,” he comments. “To have these mutuals thriving, and in many cases growing, has been a revelation.” 

Many mutuals have been protected by big new partners in the private and voluntary sectors, he acknowledges – but he presents this as evidence of the government’s pragmatic, non-dogmatic approach to shaping services. “Prior to the minister for the Cabinet Office coming in, there was a much more binary model: it was either in-house or effectively privatised”, Kelly comments. “Now, we sit back and say: ‘What’s the best business construct to achieve the right outcomes for citizens? And how do we connect the employees of that organisation with the people they’re serving?’”

Kelly’s enthusiasm for the ERG’s work is unstinting, evangelical – but he’s not panglossian. Asked why government finds itself so dependent on a few big suppliers of outsourced services, he argues that for 20 years government “threw the keys of the castle across to the private sector”: government steadily lost expertise, while passing ever more business to a handful of fast-growing businesses. “We probably didn’t spend enough time ensuring there was competition in the marketplace,” he says. “But in any business, competition drives innovation and value, so we’ve tried to make sure we’re on a corrective course. We love companies to make profit out of government business, because we want them to invest in government – but we don’t want them making supernormal profits”.

Historically, Kelly says, civil servants have built complex procurement systems, but “we haven’t done a great job of market development, and we’ve not done a great job all the time on contract management – and that’s where all the value is”. So the ERG has streamlined procurement: “We want industry’s best people – their Red Adairs, their A-teams, their caped crusaders – working on the delivery rather than the sales campaign.” And it’s working to improve contract management: “Do we have the competence and capability to examine an open book contract? Probably not.” The Crown Commercial Service is, he says, working with the CBI Strategy Group to improve both the use of open book contracts, and civil servants’ ability to understand what they’re looking at.

Civil servants’ own IT also needs improvement, Kelly acknowledges – though even here, characteristically, he finds an upbeat note to hit: “We can actually leapfrog a generation of technology,” he says. “In the Cabinet Office, within the next six months all the officials will be on technology that’s much closer to the stuff we – or our kids – use at home.”

So Kelly isn’t blind to the challenges facing civil servants and the reform agendas – but his focus is firmly on the positive. “Because of the successes of the reform programmes, in some respects we’ve defied gravity,” he argues: the decades-long “narrative of more public money, better public services” has been replaced by a recognition that “we can drive much better public services with less money. There are 20% less civil servants today than there were four years ago, but the outputs of what we’re getting done and the excellent work by frontline civil servants continues.” Programmes like, he says, demonstrate that citizens can be better served at lower cost – “and that platform has created tons of jobs in the SME community”.

We’re now in year four of the efficiency programme, though, and “the large-scale transformation we’ve got will probably take a decade.” One key goal, in his opinion, must be to “align the incentive structures to ensure the outcomes”: people’s public service ethos helps in focusing their attention on delivery, but “bonuses and performance rankings and management of lower performers” must also be built more closely around organisational objectives. “We’ve started a performance structure where we’re shifting from a culture of patronage to one of performance,” he says, but “it doesn’t happen with the wave of a magic wand.” This journey will involve “blowing up the hierarchies,” he adds. “Four thousand years ago the Egyptians buried people in pyramids, and we’ve got to stop doing that in modern organisations.”

This work will fall to John Manzoni, the newly-appointed chief executive of the civil service and Kelly’s replacement as ERG chief: whilst cabinet secretary Sir Jeremy Heywood sets the strategy, “it’s down to John to deliver it, working very closely with the permanent secretaries across government. All the permanent secretaries have a line to John, and he’s involved in recruitment and performance management and objectives”. Kelly argues that with the election looming, “John’s been appointed at a pivotal time to keep heads focused on delivery – so it’s a period of acceleration where without this it could be a period of distraction.”

Kelly announced his departure three weeks after the CEO job was advertised. Didn’t he want it? “It’s time for me to go back to the private sector,” he replies. “I’ve always aspired to hire people who are better than me, and I’m very proud that I was lucky enough to attract John to join the civil service. I think he’ll do a better job of taking the civil service to the next level”.

Just in case CSW missed it, Kelly reiterates his praise for Francis Maude: “History will look very favourably on the minister for the Cabinet Office, and give that individual huge credit as the great reformer.” He’s also careful to praise “the people at all levels of the civil service, who’ve blown me away. Their talent and dedication is tremendous.” In between lie “a combination of great visionaries, inspirational leaders, and that’s allowed us to have huge aircover and a really strong mandate to move forward.”

The result, Kelly believes, is effective programmes and strengthening capabilities – producing the “poster children of success” and “a renewed sense of confidence”. And here can be found the drivers behind Kelly’s determinedly upbeat, enthusiastic take on today’s civil service, and his almost messianic belief in the rectitude and efficacy of Francis Maude’s reforms. For changing the civil service – as many less impactful reformers have found – requires both huge belief in the possibility of change, and loud proclamations of its reality. 

As he returns to the IT industry, Kelly says, “I can close this chapter with a clear conscience that the team have made a massive difference.” Many of the “changes around the mindset shift that had to happen are behind us, and there’s huge momentum around the reform programme. Mentally, the civil service has really transitioned itself at the very top: everybody gets it now.”

There are, though, many chapters to come. “We’re in the basecamp,” he comments. “We’re certainly beyond the foothills, but we’re still looking up at the mountain and we’ve got a long way to go.” Then, once again, he gets all motivational. “This is a really key moment in history, where the civil service has said: ‘We are ready for this’,” he concludes. “This is a crusade towards the most efficient executive of any government. We want to lead other governments around the world. We want to be more digital, run projects with flawless execution delivering outstanding quality outcomes, and drive structures that align better outcomes for stakeholders. The civil service is stepping up and taking the torch from the minister for the Cabinet Office and the government, to say: ‘This is forever part of the reform journey’.”

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