The difference is night and day…

during periods of severe weather in the UK a few years ago, Tesco managed to deliver almost 100% of their scheduled deliveries to customers homes across the entire country.  Most councils didn’t manage to grit the streets.

NandD-4664645354_1ec7b56f2aI hear people say that the debate about the difference between the Public and Private Sector is an artificial one; its not and those that are saying it are generally from the Public Sector. Yes, the debate which says Private=Good and Public=Bad is redundant; that is an unproductive debate because the words Public and Private in themselves mean little. It’s the different forces acting on them that separate them so widely and the major force is that of competition. Companies in the Private Sector compete and organisations in the Public Sector don’t; “so what” I hear you say (some of you anyway). Put simply it means businesses in the Private Sector must use a different mindset to institutions from the Public Sector.

The Private Sector and the competition it generates are not simply good things in their own right, the value of a vibrant Private Sector is the benefit it offers to its consumers through the presence of innovation and the resulting efficiencies that competing creates. It is widely accepted that where there is competition there is generally innovation, choice, lean prices and better service. One of the best explanations of why and how this works in practice is called the “Five Forces Model” of competition and it was developed by a leading business strategist called Michael Porter. At its most basic the model shows how the markets for goods and services become more or less competitive because of five forces that are at work in these marketplaces. The five forces are;

The power of suppliers…are there lots of companies giving great deals and competing hard for custom (mobile phones) or is there a single large monopoly or a few large suppliers (gas & electricity) that call the shots?

The power of buyers…do the buyers in this market have access to lots of choices (tinned food) which will mean their custom must be fought for, or can they be charged more because there is very little choice and few if any alternatives?

The barriers to entering the industry…is it easy to set up in this industry (i.e. becoming a taxicab driver), or are the regulations governing it complex and expensive to deal with (such as setting-up a healthcare centre)?

The threat of substitutes…are customers able to easily find alternative solutions (breakfast cereal versus eggs) or is it difficult for them to find an alternative to what is provided (bespoke software)?

The level of rivalry within the industry…how hard do businesses in this industry compete with each other; are they in a shrinking market (high street book stores) or a growing market (mobile phone applications) in which there may be room for them all to thrive?

Hopefully you can see that the nature of these forces and how much they might impact upon an industry has significant implications for customers. For example, if you deal with a company that has lots of suppliers, lots of customers and no competition, they will make great profits and consumers will get the level of service and prices that meets the companies needs and not theirs. Conversely, if you deal with a company that has lots of suppliers, a few customers and lots of competition, you are far more likely to get better service. How these forces combine to drive innovation and improvement in services seems entirely logical.

There are of course plenty of good reasons why the use of suppliers that operate monopolies does make sense in the Public Sector. After all, it would seem to be a waste of tax-payers money if there was more than one publicly funded refuse collection service in your area, or if there were competing job centres or tax collection offices situated next door to each other on the high street, or maybe a choice of emergency services to contact. You may have spotted at this point that I could have used the example of two competing councils; unfortunately this example would not have stood up to scrutiny as I live in one of many areas in the UK that has a two tier local authority. Importantly, when it comes to the provision of publicly funded services we can work with the assumption that most consumers don’t want a choice, they simply want an effective (not necessarily efficient) service.

In almost every area of our consumer society there is somebody somewhere creating commercial opportunities by recognising that things can be done better, cheaper, faster and differently; i.e. that they can succeed by competing effectively. This process of innovation is everywhere you look, you can’t help but notice that enterprising people have introduced innovations into every aspect of our lives; social media networks, on-line banking, groceries delivered to our front doors and medical diagnostics taking place over the internet. Therefore, if we accept that the five forces or even competitive pressures in general can combine to generate benefits for consumers and organisations, then when these forces are not present what are the means that are available to generate continuous improvement in Public Sector services? How to replicate the benefits that competing forces in the Private Sector create is the debate that we should be having in the Public Sector, not trying to deny that there is no difference between the two…

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