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National Audit Office’s Annual Report to Parliament 2020

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Auditor General Tytti Yli-Viikari: Resilient central government safeguards the building of the future

In many central government functions, 2020 will probably mark a watershed between the time before and after the coronavirus crisis. Central government has succeeded in operating extremely well in these exceptional conditions. The success is attributable to competent and committed people, as well as the new operating models developed in public administration. Central government will continue to need resilience, an ability to renew itself and to recover amid change. To promote this resilience, public administration should learn from its activities during the crisis, and adjust its structures and processes to ensure their flexible compatibility.

The coronavirus crisis does not eliminate the climate crisis, the expenditure pressures of public finances caused by the ageing population, the work revolution, or other change drivers that call for structural changes. The outlook of public administration is turbulent, as we will be facing extensive changes and new crises. It is therefore necessary to continue to further improve the resilience of central government.

It is excellent that central government is performing an extensive assessment of its operations during the corona crisis. Assessment is important, because in addition to its crisis-related activities, the public administration also continues to prepare internal reforms and decisions that are significant for society’s future. The situation shows how important it is to proactively maintain the public authorities’ crisis preparedness. It is especially important to agree clearly on the procedures of collaboration, management and division of labour, and to keep information up to date. This also applies to preparing for crises affecting the financing system.

Overhauling the operating models in the public administration would also benefit the societal objectives of central government. For example, discussions concerning the establishment of special assignment companies have made it evident that issues of common concern should be managed more quickly and flexibly than is possible in the present agency model. This reflects the need to overhaul the management practices, HR policy, and steering and decision-making processes in central government.

Long-term decision making builds on information that is supplemented later

When the economy is stimulated after the coronavirus crisis by extensive infrastructure projects, it is important to consider the permanent lifecycle costs caused by the investments. A new transport infrastructure will increase maintenance costs in the future. Optimal lifecycle management of the transport network requires long-term funding. This makes it possible to plan and implement maintenance efficiently so that the transport network can benefit society when the conditions change.

In addition to managing the corona crisis, the public administration continues to prepare decisions that are significant for the future.

The public administration also prepares long-term investments, based on information that is updated gradually, e.g. in the ongoing strategic capability projects of the Finnish Defence Forces. Access to information is particularly important in the preparation of projects that progress in steps: it is important that Parliament is always provided with the necessary and correct information. In the HX Fighter project, a challenge for the preparation and decision making is that information related to the lifecycle costs is specified only in the final tenders and may remain uncertain even after that.

Policymaking is guided by projections and sustainability assessments for general government finances. However, these are not stable and accurate indicators to which fiscal policy could be tied in advance or during a parliamentary term. It is important that the selected measures take general government finances in the desired direction, and that the implementation takes account of changes in the operating environment. Long-term policymaking would be promoted by the preparation of a long-term growth strategy for central government to improve productivity and competitiveness.

The work revolution is accelerating – information is needed on the impacts of employment measures

The coronavirus crisis is accelerating the work revolution. The development of the economy is uncertain, which increases the number of part-time jobs. At the same time, the amount of full-time work is reducing. The situation challenges the employment services to make reforms. Previously used measures do not necessarily increase long-term employment on the open job market, even if the figures in the employment register have improved. We therefore need more comprehensive information on the impacts of employment policy measures. When completely new measures are introduced, their impacts should be examined through carefully planned experimental designs, systematic monitoring of the results, and comparable assessments.

As a result of the corona crisis, employment services customers have increased in both number and diversity. To make the measures applied by the employment services more suitable for people in different situations, it should be possible to introduce new employment measures linked with social security. The legislative amendments this requires are currently being deliberated in the preparation of the social security reform. Supporting people’s subsistence and employment calls for flexibility, which has been increased by adjusted unemployment aid and adjusted adult training aid. The introduction of the Incomes Register has made it easier to adjust the amount of the benefit paid to the customer only when they have been paid for their work.

Employment services serve an increasingly diverse customer base.

In the present situation, TE Offices, i.e. the public employment services, do not necessarily have sufficient resources to develop their operations. A good example of a more extensive reform of employment services is their performance-based funding model, which encourages service providers to provide individual service to jobseekers and promote permanent employment.

The renewal of public administration should be supported by blue thoughts and blue networks

The Finnish central government has been built on specialist administrative branches. Its efficiency is attributable to the deep expertise accrued by public officials and the strong mutual trust between different institutions. The operating models and the increase in competence have been based on linear thinking, i.e. on things progressing on a familiar track. This has led to the creation of silos in the public administration, and over time, to bridging these silos.

However, the continuous change of the operating environment and the diversity of political issues challenge the present structures and operating models. Linearity should be replaced with a network-based approach. Cooperation and mutual trust continue to be an important element in a well-functioning public administration.

“If you were by a big open lake, you could see further and might catch a blue thought…”

Veikko Huovinen: Havukka-ahon ajattelija
(quotation translated at the National Audit Office)

Klaus Schwab, the founder of the World Economic Forum, aptly describes the impacts of the fourth industrial revolution on legislative work and policy preparation by underlining that we need resilient governance, based on extensive interaction and networks, and public officials’ continuous renewal and understanding of the changes in the operating environment. Schwab states that decision makers are too fixated on traditional linear thinking. Their time is spent on constant crisis management. They therefore lack the time to think strategically about how the forces shaping our future will impact our operations. We need more space to think blue thoughts like the thinker of Havukka-aho.

In his research on strategic foresight, J. Peter Scoblic has highlighted the need for continuous strategic thinking and scenario planning, i.e. institutionalising imagination. According to Scoblic, in a continuously changing unpredictable operating environment, organizations should change their ways of thinking and establish processes that allow top managers to build permanent but flexible bridges between their actions in the present and their thinking about the future.

The change in the operating environment and the diversity of political issues challenge the public administration to replace its structures with open networks.

In addition to blue thoughts, we will also need blue networks. Charles Galunic, a professor at the international business school and research institution INSEAD, has studied the impact of networks on innovation management. He discusses blue networks, i.e. open and renewable networks that provide their members with an opportunity for multifaceted learning and new thinking. Such networks support innovativeness, because they make it possible to combine ideas and insights in a new way. They are multidimensional, helping organizations to prepare and anticipate future risks.

The opposite of blue networks is red networks, where all the network members know each other. Such closed networks function extremely well in acute crisis management because of strong mutual trust. However, they are not particularly resilient when the operating environment becomes more turbulent, and the need for continuous change grows. The weakness of closed networks is that they are conservative and slow to obtain and combine new insights.

A closed network consists of people who know each other and share the same knowledge.  An open and renewable network consists of people who do not all know each other and who are at the sources of different knowledge.
Figure 1: The members of blue networks gain new insights and a wide body of knowledge. Source: Lecture by Charles Galunic, 2020, Insead.

The resilience of the public administration and governance should be supported by investing in public officials’ competence development and goal-oriented networking. Staff mobility, collision of expertise, and cross-pollination of insights are tools by which the public administration can improve its resilience and learning. The public administration should also network with the private and third sector, and national think-tank and research activities. It should also encourage people to get involved in more diverse personal networks.

Auditing supports the renewal of the public administration

The National Audit Office continues to renew its operations in a controlled manner, taking into account the above changes in the operating environment. In the 2020s, auditing will anticipate Parliament’s need for information, provide a timely service, and be based on competence development and the sharing of expertise.

I want to thank our stakeholders for using the audit information we have produced in improving the resilience of the public administration. I also want to thank the staff of the National Audit Office for their enthusiasm in learning and creating diverse networks. In this way, we are acting in accordance with our vision: “Together – a sustainable future and shared knowledge”.

The following publications and articles have been utilized in the review

Schwab, Klaus 2015: “The Fourth Industrial Revolution: What it means, how to respond”, Foreign Affairs, 12 December 2015

Ronan, Simon – Galunic, Charles 2004: “More than network structure: How knowledge heterogeneity influences managerial performance and innovativeness”, Strategic Management Journal 25.

Collan, Mikael – Michelsen, Karl-Erik (eds) 2020: Technical, Economic and Societal Effects of Manufacturing 4.0 Automation, Adaption and Manufacturing in Finland and Beyond. Palgrave Macmillan.

Scoblic, J. Peter 2020: “Learning from the Future”, Harvard Business Review 07/2020

Further information

Tytti Yli-Viikari
Auditor General