The Solutions of Institutional Reform class=

The Solutions of Institutional Reform

Doug Hadden, VP Products

Why haven’t we turned Public Financial Management (PFM) reform sequencing into a science? The PFM discourse seems to revolve around generalities and conventional thinking: “the country context is key” or “leadership is needed.” Some brave souls go so far as to suggest PFM reform is a forlorn hope. And, many observers shoe horn pet theories into the fray.

It is in this environment that The Limits of Institutional Reform by Matt Andrews is a welcome relief. Andrews goes further than diagnosing what works and doesn’t work. He proposes a solution called Problem-Driven Iterative Adaption (PDIA).

Limits is too rich a work to comprehensively review in one shot. I’ll add observations about the data, tragedy of best practices and impact of technology in further posts.

Complexity of Institutional Reform

Andrews delves into the soft underbelly of PFM reform. He describes how reform comes with “considerable expense, and with great anticipation” yet fails to achieve desired results despite decades of practical experience.  Improved management of public financials is accepted as an important element in improved governance. Andrews finds a gap between legal reform and informal practices.

This is where “country context” becomes critical in diagnosing reform paths. Andrews digs beyond the generalities of “context” to include “regulative, normative and cultural-cognitive elements” of reform. He describes how “informal elements of incumbent logics holding on even when regularive mechanims appear to change.” Legal reform is seen as “signalling” the international community that a government is in process of change – even though there could be very little real change in informal processes. Laws and senior leadership “buy-in” is not sufficient for institutions to change.

Andrews suggests that we shouldn’t attempt to simplify the complexities of institutional reform. There is no magic bullet – it’s a question of embracing the complexity to map a path to success.

Problem-Driven Iterative Adaption

Andrews provides a template for PFM practitioners. This isn’t “Project Management 101” – or “Change Management 101” for that matter. Limits provides some specialized tools that are critical for practitioners:

  • Identifying stakeholder problems that can be overcome by reform and identifying the likely change-agents. These change leaders are rarely at the top of government (more “functional leadership”) and rarely external to the government. And, many.
  • A method to dig into the real problems
  • A five stage process of institutional change consisting of deinstitutionalization, preinstitutionalization, theorization, diffusion and reinstitutionalization
  • The need for iteration to gain momentum: the “quick wins” that reduce organizational resistance to change.
  • Questioning the use of “isomorphic” solutions – those that worked elsewhere under completely different circumstance.
  • Determining the severity of PFM reform change required, and hence, the depth of effort required.

Resonating Analysis

FreeBalance has been involved in PFM reform in developing countries since the late 1990’s. We participate in conferences and share ideas and practices. Many of the ideas in Limits resonates with our experiences including:

  • More successful PFM reforms are driven by a cadre of change agents who have resilience to achieve sustainable changes.
  • Many PFM reforms are touted for “what will be achieved” as programs are rolled-out where many technology-enabled initiatives are delivered late, over-budget and fail to meet objectives.
  • “Big bang” approaches to change rarely work – iterative small steps are more likely to succeed in the long run.
  • Crises create an environment more ready to change. Disruption from other factors is more likely to create an internal viewpoint that change is needed.
  • PFM projects that begin with improved budget preparation and macroeconomic planning fail to improve spending. PFM reform typically should start with budget execution control.
  • Budgets for training, capacity building, professionalizing and certification are rarely sufficient. It’s a shame that so much is spent on technical assistance up-front followed by information systems and so little on creating a critical mass of expertise in government and effective incentives.

What’s so wrong some “signalling”?

I agree that legal reform often provides superficial change on the ground. Other PFM initiatives around transparency: budget, revenue and procurement – can be more than a signal. It’s more difficult to hide poor governance in this environment and very difficult to re-introduce opaque processes.

Signalling can be an important political incentive. Yes, change agents are required – but change agents have little influence without some political will at the top. My sense is that governance signals is part of the arsenal of reform. And, in this environment where the press is fast to blame corruption and mismanagement at the feet of developing countries, it could be a powerful tool.

Just another Book?

What is our reaction to Limits? A couple of book reviews and we’re back to our old ways?

We’ve been updating our i3+qM methodology to achieve improved reform results. This might seem a bit change for a software products company to focus on methodology – but we’ve learned that, although technology provides some reform solutions, comprehensive and holistic processes must be aligned with Government Resource Planning (GRP) software.

So, we’re in the process of updating the methodology to better prescribe public financial management solutions by identifying the country context better.

But, there is a lot of work to do. To break conventional thinking. For example, our recent survey earlier this month found a split of 51% to 49% on the idea that PFM reform is a science rather than an art form, while there was a split of 55% to 45% that PFM reform should be a science rather than an art form.