Productivity is falling – why the public sector is part of the solution

The public sector faces shifting community expectations and demands for new services and support, while navigating rapidly changing circumstances. Recent major events and natural disasters, such as Bush Fire Response, Flood Response, and COVID community support initiatives, have highlighted the importance of rapid innovation and accelerated program delivery.

Speed of implementation and the ability to adapt to changing circumstances are now critical. Nevertheless, many public sector organisations still struggle to turn data and insights into action and outcomes. This is a crucial capability that public sector organisations need to build to enable quality decision-making and speed up the pace of delivery of business improvements and new services.

Australia’s Public Sector is one of the largest providers of services within the southern hemisphere, with an enormous workforce employed both directly and indirectly via labour hire arrangements.

At June 2022, the Australian Bureau of Statistics estimates that across all levels of government in Australia, approximately 2.1 million people were employed, with approximately $193 billion in direct annual wages costs paid for FY2021-2022. [1]

The scale of the public sector workforce means that it contributes very significantly to overall economic performance, and heavily influences the outcomes for Australia’s overall workforce productivity.

Recent figures from the Productivity Commission, demonstrate that productivity rates across the Australian workforce have been steadily declining for several decades. This has occurred during a period of rapid digitisation and automation in many areas of the private sector and can be attributed in part to the broader economic shift towards a services-oriented economy.

In a nutshell, many services are more labour and skills intensive than traditional manufacturing, resource extraction, and primary industries.

As Australia’s economy has progressively shifted away from manufacturing, towards a services focus, workforce productivity improvements have not kept pace.

This is particularly true for many parts of the public sector, which are heavily focused on services. Further compounding the issue is the “hyper acceleration” of customer expectations.

Uptake and usage of new service delivery methods and channels, and the focus on the use of personal phones as access devices for services, has also rapidly changed expectations.

This trend was cemented as the new baseline during the response to the COVID-19 pandemic.

New delivery methods and service channels are likely to continue to be a source of transformation and innovation. The public sector will, for the most part, still be expected to continue to provide traditional modes of interactions.

While some community members value being able to physically walk into a branch during standard business hours to interact with a government service, many, if not most, Australians prefer to interact with those services from their personal phone, at the time of their choosing.

As a result, public sector leaders now need to continually reassess and recalibrate services and service delivery against changing demographic, societal, economic, and technological circumstances. Amidst these complex challenges, government and policy makers are also facing considerable pressure to find new ways to reduce operational costs, lift productivity, and accelerate the introduction of new services.

In the short term, the public sector is expected to face significant budgetary pressures. Leaders will be expected to find ways of improving the efficiency and effectiveness of service delivery. This means reducing the costs involved in providing services, while improving quality of service, delivering in an inclusive and accessible manner, with satisfactory customer experiences and outcomes.

In addition, the public sector has consistently faced serious challenges relating to workforce recruitment, and workforce capability.

In combination, these factors point to a strong case for investment in workforce capability and technology tools, to enable a lift in productivity, and help address the challenges ahead.

[1] Source: Australian Bureau of Statistics, Employment and Earnings, Public Sector, Australia 2021-22 financial year

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