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Report: How governments can up productivity, cut costs on the cheap

April 19, 2017 (Photo Credit: Andrew Burton/Getty Images)
Improvements in productivity efforts could potentially save the world’s governments as much as $3.5 trillion a year by 2021, according to a look at 200 case studies plus interview insights by the McKinsey Center for Government.

In a new, aptly titled report, “Government Productivity – Unlocking the $3.5 Trillion Opportunity,” MCG analyzes the public-sector productivity initiatives of 42 countries that account for around 80 percent of global gross domestic product. The discussion paper looks at how they approach the demand for core public services on increasingly strained budgets.

Among the conclusions is that following the lead of top-performing nations could add not only to revenues, but also years to citizen healthy life expectancy and school system performance, among other opportunities for improved outcomes.

Using a methodology that focuses on seven major sectors — health care; primary, secondary and tertiary education; public safety; road transport; and tax collection — MCG looked at spending and found more cost per unit did not always result in improved outcomes.  

Policy changes, the adoption of digital technology and advanced analytics, and better data, processes and talent management contributed to both reduced spending and citizen-minded improvements in tax collection and public safety. However, a significant increase in spending accompanied the increase in life expectancy, Programme for International Student Assessment scores and road transport return value.  

While low- and medium-income countries show the potential to achieve rapid gains while maximizing cost effectiveness, high-income countries exhibit more diminishing returns from increased spending.  

The report puts forth four best government practices to achieve dramatic improvements:

  • Support financial leadership to provide the information, insights and incentives for public funds to be budgeted dynamically and spent to deliver the strongest possible returns.
  • Cultivate commercial capabilities so that areas such as procurement, major projects and information technology are actively managed for value.
  • Use digital technology and data analytics to transform citizens’ experience, reduce waste and drive gains.
  • Have a strategic human resources approach to ensure the entire government attracts and develops the talent needed to deliver better outcomes for less.
According to MCG, a compelling vision, a clear strategy for change and a consistent process to manage implementation can help sustain momentum and enable profound change by tackling societal challenges without exceeding fiscal constraints.

The entire report, with extensive country benchmarking and tool kit analysis, can be viewed on McKinsey.com.

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