How governments get efficiency wrong

First, what do we mean by efficiency?

“There are several types of efficiency, but in this context it’s about the ratio of inputs to outputs: how much resource is expended to achieve a given outcome? But the term is often abused. In the US, for example, the Department of Government Efficiency is cutting spending by cutting activity and changing government so that it does much less. It’s a legitimate policy choice, but not really about efficiency.”

Is efficiency even the right goal?

“Yes, I think so. Policymakers typically have lots that they want to achieve, and limited resources with which to act. So you want to consume no more than is necessary on any single objective, in order to maximise your wish list. Efficiency also matters because governments that are ineffective custodians of public money lose credibility on financial markets, and legitimacy among citizens. At a time when governments are going to be asking more of taxpayers, it’s important not to seem profligate."

“All that said, efficiency is never the only consideration. Running an efficient but ineffective service – one that systematically fails to achieve its objectives, even if it remains “within budget” – is clearly bad. And sometimes a degree of inefficiency is tolerable in pursuit of other objectives; for instance, if a more expensive option for delivering public services makes them more accessible to certain target groups or more resilient against shock events. Hospitals typically want to maintain some empty-bed capacity, for example, to meet an unexpected surge in demand.”

What are the most common ways governments try to make efficiencies – and are they the right ones?

“Top of the list usually is headcount. Government is labour-intensive, and so it’s natural to try to cut posts and redistribute responsibilities among those employees that remain. This is often done through reorganisation and abolishing or merging agencies. But unless you also have a credible plan for how to improve productivity thereafter, this can easily result in crude savings rather than genuine efficiency gains. Essentially, what you’ve got is fewer staff trying to achieve the same, if not more, policy objectives – using the “same old” tools and methods. This risks mistakes, burnout and staff turnover. “There are several ways of thinking about productivity. “One is to consider what does and doesn’t need to be done by a human, and make investments in AI (or less glamorous forms of digitisation). Really, the 200 years since the industrial revolution has been about increasing productivity through the mechanisation of labour, and AI is just the next step along that road." 

“Another option is to think about staff training and upskilling. A better-trained workforce can get through tasks quicker; spot potential problems before they arise; use software and equipment to their full (labour-saving) potential; and re-engineer processes to reduce inefficiencies, all of which conserve precious resources." 

“Relatedly, it’s important to empower those people buried in the middle of the bureaucracy to be able to innovate. Frontline staff and middle managers typically have better information about operational inefficiencies. But they need the authority, and the incentive, to trial, implement and refine improvements. If all changes must be approved by leadership, or, worse, in the central finance and reform ministries, it slows the process down and discourages local initiative and problem ownership – particularly if your team has been cut, your workload is growing, and the cost of mistakes is high.”

To make organisational redesign actually work you have to think really carefully about productivity. One key way to do that is consider what does and doesn’t need a human to do it, and make investments in AI (or less glamorous forms of digitisation).

Anybody who’s been involved in a reorganisation will have observed that it takes a lot of time and resource and attention. The argument is often made that the short-term pain will result in long-term gains. Is there any research on how long it takes to actually get a net benefit?

“Reorganisation is certainly very disruptive. It consumes a lot of mental bandwidth, as well as cash for management consultants, IT harmonisation, staff redundancies, etc. My work on local government reorganisation showed a clear deterioration in performance for the activities we analysed, lasting two years before normal service resumed. Other studies looking at employee health, wellbeing and absenteeism during reform programmes similarly show what has been termed 'repetitive change injury' – a clear negative impact resulting from frequent reorganisations." 

“So yes, the key question with any reorganisation is, is this short-term pain ultimately worth it to achieve long-term gain? In our research, the answer was no: the reorganised councils that we studied never outperformed the comparison group that didn’t reorganise, they only suffered worse performance in the short term. As already discussed, it takes more than reorganisation to improve productivity; just cutting posts and redistributing responsibilities is unlikely to suffice.”

Are there other approaches that governments should be thinking about to achieve efficiency?

“A systems thinking approach. That’s where, instead of focusing just at the organisational level, you ask how organisations interact with one another as a whole system, and how performance and behaviour in one part of the system affects other parts. A classic example is health and social care. In the NHS, something like 13% of hospital beds are occupied by people who are medically fit to discharge but are awaiting a care package to be put in place because they cannot immediately return to independent living. Potentially, you could make the NHS more productive by shifting some of its budget into social care, although that is politically challenging. So systems thinking is a really powerful tool for making wise spending decisions.”

What are the takeaway messages for governments from your research? 

“I think the first point is to have a really robust ‘theory of change’ for why the reform you’re contemplating will improve efficiency. Success is far harder than it first appears, so stress test the reform idea as much as possible. Be open to challenge, particularly from the frontline. Seek a wide range of advice, beyond relying only on consultants. Use the growing evidence base of what does and doesn’t work. And try to build in time to pilot, evaluate and improve before you proceed to full rollout. 

The reality is that reorganisation is a blunt instrument that tends to deliver far less than promised. 

“Set a high threshold before deciding to reorganise. Sadly, there’s a huge optimism bias in this area of public policy. The reality is that reorganisation is a blunt instrument that tends to deliver far less than promised. And if restructuring is necessary, think really hard about how to proactively equip staff to be more productive in the new organisation. 

“And finally, maybe it’s OK to discuss changes that purely result in savings, without dressing them up as efficiency. It’s healthy for organisations and governments to think through “Is there anything we shouldn’t be doing any more?” or “If we want to start doing this thing, what do we have to stop doing in order to invest in it?”. The current defence situation in Europe is forcing exactly this kind of discussion now.”

Interview May 2025

For more on why governments shouldn’t always aim for maximum efficiency, read Thomas Elston's latest article in JPART here.