Carrots, Sticks, and Sermons Are Not Enough: Productivity in the UK's Public Sector

Imagine you have a donkey. He is friendly and good natured. You are fond of the donkey, but you really want him to become a racehorse. To begin with, you offer an attractive range of carrot-based incentives on condition that your donkey transforms itself towards triumphing at the next Grand National. This doesn't work, so next you introduce threats about the punishments that will be inflicted if things don't improve. Finally, when all else has failed, you take to delivering sermons to the donkey. These focus on the ethical importance of becoming a racehorse and the shame of choosing to be a donkey. You also point to the copious advice (including clear guidelines and indeed a productivity plan) on the required steps that donkeys should take on their journey to the racecourse.

Just to be completely clear, I am not comparing the UK public sector to a donkey, but I am talking about how difficult it can be to transform something designed for one purpose into something designed for another.

Productivity improvement across the UK public sector has stalled in recent years. By most measures, productivity has fallen by almost 6 percent since before the COVID-19 pandemic. National Health Service (NHS) spend and staffing have both increased since 2019, yet outcomes are worsening. Jeremy Hunt's budget for the United Kingdom announced substantial future productivity gains of over 0.5 percent a year across the public sector, intended to partly bridge the gap between service availability and rising demand. The NHS is expected to increase productivity by 1.9 percent a year, much of this coming from the deployment of IT. An extra £3.4bn has been allocated to the NHS over five years to achieve this productivity improvement. However, no detailed plans have been announced. Nor is there evidence that lessons have been learned from the largely unsuccessful efforts to use IT to 'modernise' the NHS in the 2000s.

Year	Annual productivity
1997	100
1998	100.9
1999	100.5
2000	99.7
2001	100.7
2002	99
2003	98.8
2004	99.3
2005	99
2006	99.9
2007	99.8
2008	99.1
2009	98.1
2010	97.8
2011	99.2
2012	100
2013	101.1
2014	101.3
2015	101.3
2016	102.5
2017	103.3
2018	103.1
2019	104.6
2020	88.7	88.7
2021	102.1
2022	104.3

Note: Index 1997=100

Source: Office for National Statistics

There are two main ways to address this productivity puzzle. First, by reducing costs. For example, using a cheaper skill mix to deliver some services or introducing new technology to improve throughput and reduce costly errors. Depending on the impact on service quality, these might be worthy aims to be pursued where possible, but there is limited headroom for cost reduction at the scale required and anticipated in the budget.

Another route is innovative system change focussed on delivering more value with the same inputs. This sounds grand, but is not necessarily complicated. It is about embedding new technologies in new ways of working, like making public services more accessible, engaging users with them, targeting them to where they are most needed, and improving back-office efficiency. In health care, this could mean better triage and directing so patients access the right level of care earlier, improving patient flow so that the sequence of care can be delivered more quickly and safely, and sharing information across public sector providers to avoid duplication and to focus on the whole person. This should not be conflated with simply introducing new technologies into old systems (the old adage is that introducing expensive kit into dysfunctional systems simply results in expensive dysfunctional systems).

What is less well–understood is the importance of ensuring that the organisations themselves are geared towards making new technologies successful. A deep understanding of how to create the appropriate 'landing zones' that innovations need is the most likely way to improve productivity.

So, what do we know about change of this sort? Can it be delivered and, if so, how? RAND Europe has been evaluating the Health Foundation's Innovation Hubs for two years and we will publish a final report this summer. The four hubs are intended to act as centres of expertise and support to help local health systems adopt innovation. They are also intended to add to the knowledge available to the wider health care system.

We met with the people running the hubs at a learning event organised by the Health Foundation just a few days after the budget announcement. The event reinforced something we were finding throughout our evaluation—the importance of understanding how innovation systems sit within other systems that together comprise the health and care ecosystem. These systems support things like financial integrity, patient safety, regulation, and professional independence. Together these make up the 'landing zone'. Helping systems to nest within and alongside each other and to be mutually reinforcing is not achieved by accident. In health care, at least, this will decide both how and how far innovations can drive productivity improvement. Our initial findings suggest that key actions include:

• Involve agencies and patients in codesigning the innovation and its landing zone
• Create incentives to participate by ensuring that innovations meet the needs of multiple organisations.
• Re-energise the mandate from system leaders—don't assume that once the mandate is given it will be sufficient.
• Secure support (possibly from an external provider) to ensure you have the skills and capacities needed to sustain intentional change.
• Learn to love the problem and not the innovation—be driven by meeting unmet needs and not simply doing what is technically possible.
• Get started somewhere small, evaluate, learn, and adapt until you grow an evaluation system that is balanced, complete, and well nested with other systems; discover the path by walking it.

These are key things to consider in supporting innovation, but they also need to be oriented towards productivity. We know of many innovators with technically brilliant ideas which are not grounded in meeting the needs of patients or strengthening efficiency. A central repository of 'what works' examples might help, along with the centre engaging with wider parts of the 'landing zone' like professional autonomy, regulation, inspection, and financial controls to create a better balance between the need for innovation and the other requirements of a well-functioning health care system.

A quote dubiously attributed to Henry Ford states, “If I'd asked customers what they wanted they would have said faster horses.” Without flogging the metaphorical donkey from the first paragraph to death, we will not get far by requiring exhausted staff using inadequate technology to work even harder and faster. Our aim should be new racetracks, with different ways of working sustained by well-designed organisational settings, rather than faster horses. A productivity plan for the NHS is an opportunity to think differently, take innovation out of its siloes, and locate it in relation to other systems comprising the health care ecosystem. For example, it would be unwise to think that a detached 'digital transformation' would work without a well-prepared 'landing zone' in place. This has been a repeated failure in the UK NHS. The same is true for other tech-based solutions. Research suggests that policymakers should spend more time on the landing zones than with the technologists in order to come up with more effective solutions than carrots, sticks, and sermons.

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Tom Ling is a senior research leader at RAND Europe.