Chapter Two
The Rationale for Cross-Sector Collaboration
In Shrinking the State (1998), Feigenbaum, Henig, and Hamnett classified rationales for approaches to privatization under three broad categories: pragmatic, tactical, and strategic. This chapter outlines a similar set of rationales for why public, nonprofit, and private sector managers might want to engage in cross-sector collaboration (CSC). The three rationales are pragmatic, economic, and strategic. Thus, some CSCs occur for very pragmatic reasons—perhaps a public problem or service delivery issue that cannot be easily solved by one sector, so finding collaborators in another sector makes sense. There also are some sound economic reasons for CSC that revolve around the concept of comparative advantage: some sectors are better able to address certain problems or deliver certain services because that sector may have the skills, market know-how, capabilities, or contacts necessary to do so. Finally, increasingly all sectors are examining how CSC might address the long-term success of their organizations and are beginning to address this issue in a more strategic fashion.
The chapter also examines a key governance pivot that occurs in CSC and the implications of that shift. Most traditional government interactions with the private and nonprofit sectors are characterized by a principal-agent relationship. Government defines what it wants out of the relationship and then designs mechanisms to achieve that result, typically through a contract, a tax incentive, or imposition of regulations. In CSC, however, government moves from a principal-agent relationship to a principal-principal relationship. While this may occur for a number of pragmatic reasons, the effect is strategic, as other sectors become partners with government in the delivery of government goods and services. The consequences of this governance shift are profound. Sharing power, decision making, and risk with private or nonprofit organizations creates a risk-reward governance environment. The potential rewards, such as bringing innovation and expertise to a public problem, are significant, but risks of this approach are also real, including capture by private or nonprofit interests, loss of control, and failure of democratic accountability.
PRAGMATIC RATIONALE
Salamon (2002) represents the pragmatic viewpoint. He examines the new array of methods for government to deliver public goods and services and refers to a variety of CSCs—contracts, partnerships, networks, and other approaches—as simply different possibilities in a toolbox of government options. In this view, governments are increasingly facing new challenges and entering new policy arenas where they are required to provide services but often lack sufficient resources or staff to respond completely to the new requirements or mandates. They may find that expertise and resources are available in other sectors.
Consider the case of communities affected by a large-scale natural disaster. In the immediate aftermath of Hurricane Katrina, the Federal Emergency Management Agency (FEMA) struggled with the logistical demands of coordinating supply chains in service delivery for such a large-scale disaster. In contrast, Walmart was able to step into the void and provide basic food and hygiene articles to citizens displaced by the storm.1 Thus, it makes sense for FEMA to partner with organizations such as Walmart or Home Depot that have the capabilities to deliver the necessary supplies in an emergency. This is one major pragmatic reason behind the expansion of CSC; the expansive nature of these problems makes a solution without collaboration more difficult.
The complexity of social problems that public administrators must deal with now also demands new approaches to leading across public and private sectors and across multiple levels of government (Kettl 2006). Many of the issues facing government administration today cross the jurisdictional boundaries of state and local governments and often involve both the federal government and other sectors. For example, a social problem like childhood obesity is multifaceted and might be addressed by all sectors. The Centers for Disease Control (2013) estimates that 17 percent of children aged two to nineteen in the United States are obese. Making matters worse, the scale and scope of obesity has been increasing dramatically over the past thirty years, although a recent study found a reduction in obesity in children ages two to five, pointing to better nutrition and increased physical activity (Centers for Disease Control 2014). Any program directed at this problem inevitably draws heavily on local government and local school districts. Yet a wide spectrum of nonprofit providers also serves youths; corporations donate resources and time to youth causes as part of their corporate social responsibility efforts, and federal-level authorities have taken an interest in the issue, as evidenced by First Lady Michelle Obama’s Let’s Move campaign.
Problems like childhood obesity are wicked in the sense that they are difficult or impossible to solve because of their complexity, which often involves incomplete, contradictory, and changing requirements that can be difficult to recognize (Weber and Khademian 2008; Rittel and Webber 1973). Any effort at developing a solution is ongoing and iterative as responses to one aspect may reveal other problems. The various stakeholders in any kind of problem-solving effort are likely to view the issue in different ways. In the case of childhood obesity, these factors actually favor collaboration because we are still coming to terms with what this health condition means. Involving more collaborators may lead to innovative solutions to address this kind of emerging social problem. One such organization is the State of Washington’s Childhood Obesity Prevention Coalition, a coalition of organizations—public, private, and nonprofit—working to improve Washington’s overall environment so children can live a healthy, active lifestyle. Among collaborative approaches, they advocate for shared-use agreements between public and private or nonprofit organizations to provide space for after-school activities and provide a detailed tool kit for interested organizations (Childhood Obesity Prevention Coalition 2014).
Other complex, interdependent problems are apparent across other policy sectors in the United States, such as homeland security and emergency management, which include examples such as Hurricanes Katrina and Sandy and the Boston Marathon bombing. The BP Oil Spill provides another illustration of the need to address problems in a multisector framework. In these and similar cases, public leaders face emerging problems with very little precedence for how to adequately address them and a growing recognition that they are dependent on interorganizational structures for solutions—both within the governmental sector and across sectors. Organizations may not have worked together before and are often thrown together without adequate training and experience in collaboration.
PRIVATE AND NONPROFIT PERSPECTIVES
As we noted in chapter 1, the private and nonprofit sectors might want to collaborate with government for a variety of pragmatic reasons. For the private sector, government contracts or public-private partnerships provide additional revenue possibilities. Although the profit margins working with government are often less than other potential customers, there usually is less risk, and governments can provide a steady stream of revenue to complement other riskier (and potentially more lucrative) business opportunities.
More recently, we have begun to see business characterized as potential partners and collaborators with governments, nonprofits, and social entrepreneurs. Cast in this role, business is viewed as a positive actor that contributes to solving social problems, redressing or avoiding damage to the environment, and developing innovative solutions to persistent problems such as global poverty. Such portrayals reflect a dramatic change in how businesses are perceived and their impact on society (Nelson 2005).
This view is in stark contrast to a more conventional view of business presented by public management textbooks and frequently assumed in public policy analyses: businesses are fundamentally profit seeking—more succinctly, the business of business is business.2 Of course, not all businesses are enlightened; many do take a narrow and self-serving view of their social responsibilities. However, more and more businesses are coming to believe that participating in collaborations with governments and nonprofits can be beneficial (Chandler and Werther 2014). A good illustration of this is private sector collaboration with government in emergency management situations, providing food, water, and other essential supplies. While often ad hoc, such collaborations provide goodwill that enhances employee and customer feelings about the company, which ultimately benefits the company in terms of new customers and less employee turnover.
For the nonprofit sector, collaborating with government is often essential for the organization to operate. Many nonprofits rely on funding, at least to some extent, from grants, contracts, or other forms of collaboration with the government. This provides revenue to nonprofits and assists them in fulfilling their mission. In addition, sometimes the nonprofit will be successful in a particular area and may see collaborating with government as a way to expand its mission to related areas of concern to its members, including employees and donors.
ECONOMIC RATIONALE: COMPETITIVE ADVANTAGE
As we noted in chapter 1, political support for government spending on public services, especially federal government spending, has declined, and arguments that the private sector and nonprofit organizations could do a better job than the government have become more popular (Sclar 2000). Academics such as Buchanan and Wagner (1977) supported this viewpoint, as did proponents of New Public Management (Osborne and Gaebler 1993; Pollitt and Bouckaert 2011). Underlying this argument is a set of economic ideas concerning the competitive advantage that the private (or nonprofit sector) may have over government. This notion gained force with conservative political leaders in the United States in the 1980s and is sometimes referred to as a neoliberal perspective. Neoliberalism is a political and economic philosophy whose advocates support economic liberalization, free trade and open markets, privatization, deregulation, and decreasing the size of the public sector while increasing the role of the private sector. This economic argument largely rests on the theory that, in general, private markets are often superior to public sector action in allocating resources.
Market Failure and Government Failure
Proponents of neoliberalism concede that sometimes markets fail, and market failure is a justification for government intervention in the economy. Market failure occurs when the private sector’s pursuit of its own interests leads to an allocation of resources that is not considered efficient. Examples of market failure include public goods (goods that are nontrivial and nonexcludable and therefore cannot be produced by the private sector at a profit), externalities (positive or negative spillovers that may distort the price of a good—for example, not considering the costs of pollution when producing a private good), and information “asymmetry,” where consumers do not have sufficient information to judge the value and efficacy of a private good (e.g., the safety of drugs). Market failure provides a rationale for government intervention, which might occur in many forms: public provision (national defense), regulation (amounts of allowable pollution), subsidy (certain health care programs), and prohibition (unsafe products).
At the same time, neoliberals and some other economists argue that governments also often fail to achieve their objectives. Governments may be inefficient for a number of reasons. They may be unable to overcome bureaucratic limitations to find an innovative solution to emerging public problems. They may fail because political leaders have conflicting goals and objectives for a government program, providing mixed signals to public managers and employees working on those programs. They may fail because even “benevolent” public managers and employees have weak incentives to invest in cost reduction or quality improvements because they are not owners and gain only a fraction of a return on their efforts. In addition, governments may fail because elected officials cannot always ensure that public managers will perform efficiently or to their maximum ability.
In an influential paper, Wolf (1978) provided a theory of nonmarket failure—the idea that individuals and institutions constituting the government often fail to achieve the results that policymakers seek when developing public programs. Some of the reasons he cited included the difficulty of describing the desired output or outcome of government programs; the inability to measure the quality of government goods and services; the lack of competition in government provision, leading to problems of monopolistic services; and reward structures that do not favor efficient resolution of problems. While nonmarket (or government) failure does not necessarily imply that government should never act, it does provide a cautionary framework suggesting that citizens may not always achieve a desired outcome from government provision of goods and services. Thus, in terms of CSC, it suggests the possible advantages of using the private or nonprofit sectors in achieving government objectives rather than a government-only approach.
Property Rights Theory
Property rights theory (or ownership theory) explores how various ownership structures affect incentives and behaviors of employees (Demsetz 1967; Hoffman et al. 1994). The two most common types of ownership are private ownership and public ownership. Private owners are able to transfer (or sell) their rights to another party; because of this, it is argued, private ownership leads to a more efficient allocation of resources and a superior incentive system for employees. The principal feature of this argument is that private ownership of resources will be concentrated on individuals who have a comparative advantage because of their knowledge, resources, or superior management ability. They are better able to prevent “employee shirking” because of their intense interest in productivity and making a profit from their ownership.
In contrast, government ownership is diffused. We all “own” our governments—federal, state, and local—but our individual interests are not strong enough to demand an efficient allocation of resources by the government. Tiebout (1956) theorized that people vote with their feet and will locate in a jurisdiction that best meets their willingness to pay taxes and desire for services. Tiebout’s theory has significant limitations, including the lack of mobility for some taxpayers and incomplete information on the fiscal circumstances and productivity of various governmental jurisdictions where people might reside.
Property rights theory, however, has limitations. Often the management of a private firm is separate from ownership (corporate officers versus stockholders) and management may have its own interests, such as larger salaries and bonuses, which may end up diverting a portion of the owners’ profits to the managers’ own ends. Private ownership itself may be diffused, especially in large corporations, with individual stock owners having limited interest in monitoring corporate efficiency. Stockholders do of course monitor stock prices and dividends, one indirect indication of whether a firm is using its resources efficiently.
The Principal-Agent Problem
The principal-agent problem, or agency dilemma, concerns the difficulty of ascertaining whether an agent is acting in the best interests of a principal rather than in the agent’s own interests. Most private firms and all governments are characterized by the separation of ownership and management. This results in an agency situation, where the owners (the principals) delegate the work to others (the agents). The principal-agent problem is centered on the issue of how or whether the principals can ensure that the agents carry on the work in an efficient manner that will maximize gains for the principals. The two major issues with the principal-agent problem are asymmetrical information and diverging goals and objectives. Because the agents are closest to the customers or clients and the public issue or the problem, they are much more likely to know whether they are responding to that customer or client or to that issue or problem in a cost-efficient manner. Agents also may hide information for their own purposes or may have their own goals and objectives, such as shorter work hours, higher pay, and bigger budgets, which may run counter to the interests of the principal. This last argument is at the core of the public choice school of economics, whose scholars argue that it is in the public managers’ or employees’ best interest to maximize the agency’s budget, not to find the most cost-effective solution (Downs 1967; Niskansen 1971).
In order to solve the principal-agent problem, principals attempt to design mechanisms and incentive structures that both monitor and encourage behavior that is in the interests of the principals. Because of extensive employee protections and limited incentive structures in the public sector, many argue that it is difficult, if not impossible, to overcome the principal-agent problem in government. The private sector, it is argued, has more tools for owners or principals to induce their agents to work toward efficient outcomes. But again there are limitations to that justification. Many public employees join government because of their commitment to some public cause or activity and thus may be motivated in the public interest beyond their own self-interest. In addition, the asymmetry of information can be a problem in both the public and private sectors. Private agents may find that it is in their interests to hide information to maximize their own self-interest within the firm.
An additional issue in principal-agent relationships stems from transaction costs. In order to get the agent to conform to the principal’s objectives, the principals have to design employment contracts or provide other incentives to ensure compliance with the intent of the principals. This is one reason that some nations, such as New Zealand, have moved toward performance contracts with their top public managers: managers are rewarded based on achieving predefined goals or outcomes. The design of such contracts is not simple and does not necessarily ensure best efforts. If a public manager is to be judged based on performance, it would be in his or her best interest to set the performance targets as low as possible, and because the public manager may have more information on what is possible, the principals (elected officials) may not know enough to set the performance bar high enough. In contrast, private principals and agents may have a stronger incentive to reduce costs and raise quality because agents are more likely to achieve personal gains that they view as significant and worth their effort. Agents may receive bonuses, pay increases, promotions, profit sharing, stock options, or other personal gains that reward them for innovative and efficient behavior.
Competition
Classic microeconomic theory also stresses the role of competition in achieving allocation efficiency. Competition is prevalent in the private sector and to some extent in the nonprofit sector, but virtually nonexistent in the public sector. Similar to the effects of property rights theory, competitive forces push prices toward their optimal marginal costs, thereby allocating resources to their highest value. Weak firms with poor management or that lack innovation will find their products are noncompetitive. They either will go out of business or be bought by others who believe they can operate the firm more efficiently.
Public sector provision is essentially monopolistic. Government decides what it will provide and typically has a one-size-fits-all attitude toward their clients/citizens/taxpayers. It is true that citizens can vote their elected officials out of office and vote in a new group of officials whom they hope will be more responsive to their needs. Elections, however, except perhaps at the local level of government, are seldom about the efficient operation of government programs. Elections are more likely to be about ideological policy disputes, such as national health care, or referenda on the likability of the candidates.
While competition is a compelling force in achieving efficiencies and innovation, public managers cannot always ensure that this will occur with collaborations with the private or nonprofit sectors. A classic problem in collaborations with defense contractors (through contracts or partnerships) is the oligopolistic nature of the defense industry. Replacing a public monopoly with a private monopoly will not achieve the desired competitive environment. Similarly, governments may reach out to nonprofits for their local knowledge or experience with a given clientele. However, since there may be few nonprofits working in a particular area, competitive forces are unlikely to exist.
The Nonprofit Competitive Advantage
Nonprofit service delivery organizations also may have a competitive advantage in addressing specific social needs that may not be covered by government. The public sector is under pressure to provide social programs that meet the needs of the “median voter,” or the dominant coalition influencing legislation (Steinberg 2006). Because of this, the interests of specific minorities may not receive specialized attention from the government. Nonprofits fill in this role by offering smaller coalitions the opportunity to mobilize resources for causes they deem important. In this way, nonprofits have the potential to address social needs that may be overlooked or underresourced by the government.
The reliance on private donations and, in many cases, fees for services in the nonprofit sectors also creates more opportunities for constituents with a direct interest in a given set of goods or services to devote their own resources to those programs. While there is contention over the extent to which nonprofits serve the needs of their donors or exhibit “downward accountability” to those receiving their services (Baur and Schmitz 2012), the very nature of nonprofit governance brings attention to their constituents in ways different from their private sector counterparts. For-profit firms are governed by shareholders who prioritize the generation of profits and influence organizational behavior with that goal in mind. Nonprofits are governed by a board of directors who generally share a commitment to the social or cultural needs that the organization is working toward (Steinberg 2006). The implication for government leaders is that the existing social commitments of human service nonprofits may argue for creating a collaborative relationship that directly aligns the nonprofit actions with government priorities. This also is true for other nonprofit actors in other areas, such as protecting the environment, where nonprofit goals align with government policies and priorities.
A STRATEGIC APPROACH TO CSC
Increasingly all three sectors—public, private, and nonprofit—are striving to move beyond ad hoc or pragmatic forms of collaboration to more strategic approaches that have the potential to significantly assist organizations and managers from all sectors. Strategic collaboration has been defined as “an intentional, collective approach to address public problems or issues through building shared knowledge, designing innovative solutions and forging consequential change” (Norris-Tirrell and Clay 2010, 2).
The increasing prevalence of collaboration across levels of government and sectors suggests important strategic objectives to such collaborations. Norris-Tirrell and Clay (2010) categorize those strategic objectives under three major areas of impact:
- Deliverables and outcomes: This might include enhancing operations, attaining goals, or achieving better overall results.
- Increased capacity and competence: This might result in greater capacity for individuals, the organization, or the community.
- New resources and opportunities: This might lead to new funding opportunities for new markets or program areas and the potential for further cross-sector collaboration.
In viewing CSC as a strategic rather than a pragmatic or economic choice, managers can see collaboration as part of their overall organizational strategy that could help them to better meet organizational needs.
Strategic Considerations for the Private Sector
Businesses have long used strategic alliances to improve their competitiveness and advance their own strategic goals (Uddin and Akhter 2011). Strategic alliance success requires cooperative behavior from all partners. More specifically, alliance success depends on several factors, such as active involvement of all parties in problem solution, building trust, creating value by combining partner resources and capabilities, and cooperating in and coordinating activities to promote compatible organizational behavior (Mowla 2012). Large and fast-growing enterprises such as Microsoft, Philips, and Unilever rely heavily on alliances to support their growth strategy. The data clearly show that companies are becoming more and more dependent on strategic alliances to sustain global competitiveness (Kale and Singh 2007; Kanter 1994; Steensma et al. 2005). Collaborations with governments and nonprofits have become a logical extension of this experience, and firms seek out such collaborations with the same goals as they do in other strategic alliances: increased competitiveness.
Corporate Social Responsibility
Corporate social responsibility (CSR) is a concept supporting the idea that businesses should act in a way that contributes to society and its inhabitants. The principal assertion is that business has an obligation to take actions that have a positive effect on the communities where they operate. This may require that businesses forgo full profit maximization in order to uphold their responsibilities to society. Optimally a firm can achieve both its CSR obligations and maximize profits (Baron 2013). Among the reasons given to firms that it is a good idea to be active in CSR activities include these (Lawrence and Weber 2014):
- Bolsters business reputation
- Improves stakeholder relationships
- Promotes long-term profits
- Discourages government regulations
CSR activities can take many forms: encouraging employees to develop and implement local community projects (IBM); reducing the firm’s carbon footprint through energy efficiency practices and addressing climate change (Walmart); reducing water use through recycling and replenishing water sources in developing countries with water shortages (Coke); and using recycled products that comprise 85 percent of materials used in automobiles to take pressure off landfills (Ford). These and other CSR activities can be controversial because such programs generate benefits for the firms as well as society. Some view such programs as self-serving for the firms since the efforts may be carried out only to improve the reputation of the company among potential customers; others, however, see them as simply good business that fits into the company’s overall mission (Baron 2013).
Shared Value
Beyond CSR, Porter and Kramer (2011) argue that businesses can advance their strategic business goals and create social value at the same time. The central premise behind creating shared value is the mutual dependence of the competitiveness of a company on the health of local communities near its locations. Recognizing these connections between economic and social progress and business competitiveness has the potential to stimulate local and global growth.
Companies can create shared value opportunities in three ways (Porter and Kramer 2011):
- Reconceiving products and markets. Companies can meet social needs while better serving existing markets, accessing new ones, or lowering costs through innovation.
- Redefining productivity in the value chain. Companies can improve the quality, quantity, cost, and reliability of inputs and distribution while simultaneously acting as a steward for essential natural resources and driving economic and social development.
- Enabling local cluster development. Companies do not operate in isolation from their surroundings and can assist their communities. To compete and thrive, for example, they need reliable local suppliers, a functioning infrastructure of roads and telecommunications, access to talent, and an effective and predictable legal system.
Standard approaches to CSR can be seen as a cost of doing business, with concerns over program costs and the loss of potential profits. Creating shared value acknowledges the trade-offs between short-term profitability and social or environmental goals. However, it also emphasizes the opportunities for competitive advantage that can come from building a social value proposition into a broader corporate strategy. The increasing numbers of companies that are incorporating CSR imply that many private sector organizations (particularly potential partners for government) do not care about profit alone; they may also have social objectives underlying their overall strategy. Given such changing attitudes, there are more opportunities for governments to participate in cross-sector collaboration that can advance public and private interests in ways that are not only compatible but also mutually reinforcing.
Strategic Perspectives of the Public and Nonprofit Sectors
Just as private sector organizations are beginning to think of CSC as a strategic initiative, the same dynamic is beginning to occur in the public and nonprofit sectors. While most public and nonprofit managers currently view CSC as a pragmatic approach to leverage resources and expertise to address particular problems, some managers are trying to be more proactive, seeing CSC as a fundamental part of their organizational strategy.
To assist public and nonprofit managers, Norris-Tirrell and Clay (2010) identify a five-step process or “life-cycle of collaboration” critical for strategic implementation of CSC:
- Exploration: Setting the stage for strategic collaboration
- Formation and implementation: Shaping the strategic collaboration
- Growth and evaluation: Strengthening the collaboration
- Maturity: Achieving results, achieving shared value, making a difference
- Endings or renewal: Letting go when you have achieved your objectives or renewing the collaboration with existing or new partners
While a triggering factor in CSC may be some event or crisis, such as a loss of funding, a new state or federal mandate, or a natural disaster, public and nonprofit managers might effectively use that event or crisis as a basis for considering CSC as a strategy for the long-term success of the organization.
The process of strategic thinking about CSC is applicable to all sectors, with some differences. The private sector begins the process by thinking about how to create shared value or become more competitive through corporate social responsibility as ways of boosting the organization’s bottom line. The nonprofit sector begins by thinking about how it can leverage its resources, stabilize its fiscal environment, and expand its impact on behalf of its constituencies or its members. Thus, it is clear that the motives of private organizations will differ from those of nonprofit organizations. Nonetheless, CSC can both improve the financials of for-profit and nonprofit organizations and at the same time create value for the general public, improving the capability of both public and nonprofit organizations to meet their public missions.
The public sector necessarily starts with the question of what is in the public interest. While public managers may find that they must collaborate to be successful, they may be limited in terms of the types of collaborations that are possible. However, by exploring options with private and nonprofit organizations, public managers may find new approaches to better achieve the results the public desires. The evolving nature of many companies’ approaches to CSR, and the overall social orientation of many nonprofits, suggests there are many areas of full convergence among public, private, and nonprofit organizations for working together collaboratively.
Whether collaborative results or outcomes meet the diverging objectives of private or nonprofit organizations is not the critical issue for the public manager as long as the collective results are in the public interest. Thus, it does not matter if different organizations are engaging in a CSC for different reasons (such as a private firm pursuing profits on a toll road or a nonprofit youth services organization serving a particular demographic in the community) as long as the overall effect of the effort improves collective social value. Collaborations will not last long unless the needs of all organizations are met, and much of the work of the public administrator in a CSC is to understand what those different needs are and how individualized incentives need to be incorporated in order to serve the wider public interest.
FROM A PRINCIPAL-AGENT TO A PRINCIPAL-PRINCIPAL RELATIONSHIP
Overseeing the governance of CSCs is complicated because it draws the public sector into a relationship that portends more power sharing and more discretionary authority to nonstate actors. The significance of these two complementary governance conditions of public-private-nonprofit relationships can be better understood when considered in respect to the principal-agent problem.
Traditional public administration operates within the framework of principal-agent relationships. With government provision of services, public managers and their employees are agents of the elected officials (the principals) who establish policy through legislation and executive actions. Elected officials are themselves agents of the general electorate. There are some good reasons for this relationship: elected officials are responsible to the general electorate; public managers are responsible to the elected officials; public employees are responsible to the public managers. A clear line of democratic accountability provides affirmation to public administration scholars and the general public. There is a long-standing debate over the degree of discretion to give public managers and a concern that public managers might become too entrepreneurial (Moe 1994, 2001). However, there also is recognition that administrators—from the street level on up—in fact have a significant amount of discretion in the execution of policy (Lipsky 1980; Lynn 2006). That discretion is traditionally thought to exist within the scope of authorities delegated through vertical lines of accountability.
The Principal-Principal Relationship
Collaboration, whether in certain types of contracting, partnerships, networks, or IPSPs, changes the governance dynamics of principal-agent relationships as they are traditionally conceptualized in public administration. In many ways, collaboration involves interactions between two principals: the public manager (acting for government) and the collaborator—the entity or entities involved with the public manager in providing public goods and services. All parties to the relationship act more as principals since they each influence the terms of the relationship. As a consequence, public sector organizations involved in collaborative efforts are more susceptible to the influence of stakeholders outside their traditional boundaries (Agranoff 2012), since nongovernmental actors weigh in on the content and conditions of the policies and programs jointly implemented.
The very nature of CSC is that there are varying levels of integration through which two or more parties agree to work together. The possibilities could be considered along a spectrum of options (Crosby and Bryson 2005), since in some agreements, members have very little influence over one another while in others they have more. Numerous factors affect the level of integration in collaborative structures, such as the depth of interaction or the overall level of cooperation. The extent of collaboration is conceptualized in figure 2.1.
Figure 2.1 Levels of Integration in Collaboration
Source: Selden, Sowa, and Sandfort (2002).
In moving from coordination to collaboration, the actors accept a greater degree of mutual influence over how they will operate. Collaboration transforms the nature of a principal-agent model through the formalization of the relationship among public and nongovernmental entities and the sharing of power among parties in the relationship. In the most explicit structure of a principal-agent relationship (as in a traditional contract), a principal determines the most specific elements of an agent’s behavior. These specifications of behavior are detailed in the terms of the agreement, offering more leverage for a supervising principal to correct the work of an associated agent. The reality of many forms of CSC is that the specification of expectations is left rather open-ended, with more room for the relations among the partners to the agreement rather than written rules to govern the collaboration. To varying degrees, personal relationships fill the void of formal role definitions, and informal understandings become more important than legal contracts to guide the communications and decision making among organizations in the collaboration (Gazley 2008). The less formalized the specifics of the agreement are, the more discretion each party is able to exercise in the collaboration and the more influence they have in determining what is produced.
The second characteristic that shapes the characteristics of CSC is related to the extent of relational governance: the amount of power sharing among the involved members (Donahue and Zeckhauser 2011; Huxham and Vangen 2005). In the most explicit form of principal-agent relations, a principal is assumed to have superior influence over the participating agent. In CSC, a single authority is replaced by a model of cogoverning (Agranoff 2012), a more reciprocal set of relations among the parties to the collaboration (Bryson, Crosby, and Stone 2006).
The extent that power is shared can be considered with respect to vertical and horizontal relationships. The former defines relations where one party holds more explicit, formal authority over the other, and the latter indicates relations where power is more evenly distributed among the parties. The horizontal linkage necessitates a different type of management skill and the ability to negotiate with other principals. Put in the context of public administration, the public manager remains democratically accountable in a vertical fashion to the elected officials (or other relevant stakeholders), as well as horizontally to the other organizations in the collaboration, which act not as agents of government but as principals with their own set of goals and objectives that must be blended with government objectives.
Taken together, these two characteristics, formalization and power sharing, can differentiate levels of integration achieved in various structures of CSC, displayed in table 2.1.
Table 2.1 Dimensions of Integration in CSC
| High Formalization | Low Formalization | |
| Limited power sharing | Traditional contracting Traditional management in public provision Formula and competitive grants to nonprofits |
Block grants Foundation grants for nonprofits Service delivery networks (noncentralized) |
| Reciprocal power sharing | PPPs for infrastructure Emergency response networks (under FEMA’s Incident Command System) Collaborative contracting Centralized service delivery networks |
Government-nonprofit partnerships Nonprofit advocacy networks Emergency response networks (ad hoc) Independent public-services providers |
The more formalization there is, the greater the degree of control public managers are able to exert in the relationship. The more power sharing there is, the greater the potential is for innovative solutions, but the greater the necessity for public managers to engage in nontraditional communications and negotiations with the collaborators. In the top-left quadrant of table 2.1, where there is high formalization and limited power sharing, collaboration is minimal; about all that is expected is coordination or consultation. All of the other quadrants involve various degrees of collaboration, with the lower-right quadrant (low formalization and reciprocal power sharing) requiring the greatest degree of collaboration, communications, and trust building.
THE GOVERNANCE CONSEQUENCES OF CSC
As more and more governments engage the private and nonprofit sectors in various forms of CSC, there are very real social, political, and structural challenges that make it much more difficult for the public sector to ensure that the public is well served. Much of this concern has been investigated through the literature on government accountability (Behn 2001 and Lynn 2006) and that of collaborative governance (Forrer et al. 2010). The more collaborative forms of cross-sector exchange challenge norms of traditional government administration; they also challenge the norms of how public managers should engage the private and nonprofit sectors (Entwistle and Martin 2005). They move out of their reliance on rule-bound governance to an environment that depends on acting outside those guidelines and creating more discretion for and power sharing with the collaborators (Agranoff 2012). The increased discretion afforded the nongovernmental parties involved in CSC, however, creates a number of potential problems that the public manager must manage.
Challenges of Private Sector Involvement
Engaging the private sector in government programming is very much a double-edged sword. The private sector offers incentives, resources, and capabilities that can transform the work of government programs. However, a focus by the private sector on profit can create an “excludability” problem, where portions of a population who desire access to a product or service are denied access by their inability to pay. A prime example is the impact of congestion pricing in roadway design, which prices out consumers who are unable to pay the fees necessary to access the higher-speed lanes.
Challenges of Nonprofit Sector Involvement
While it also is clear that nonprofits have certain competitive advantages in serving certain populations, nonprofits, by their very nature, also involve a number of challenges that can inhibit the successful delivery of public goods and services. Salamon (1987) explains the administrative challenges of nonprofit management in respect to “voluntary failures.” These failures are illustrated in respect to four areas: philanthropic insufficiency, philanthropic particularism, philanthropic paternalism, and philanthropic amateurism.
Philanthropic insufficiency relates to the danger that attention to specific issues by nonprofits might crowd out the resources that organizations from other sectors provide for those same needs. A well-established nonprofit child care provider in a community, for example, may encourage government authorities to invest less in the same types of programs. This issue is particularly problematic in low- and middle-income countries where public agencies operate in already fiscally constrained environments and may ignore certain problems if they believe nonprofits are addressing them.
Philanthropic particularism explains the tendency of nonprofits to address the needs of narrow constituencies, in contrast to government, which must respond to issues that affect the entire populace. HIV and AIDS prevention programs in many parts of Africa, for example, have long been a priority of international nonprofits, but some research suggests that these programs address the social needs of a relatively small segment of the society and are gaining attention at the expense of wider health goals such as basic services (Shiffman 2008).
Philanthropic paternalism refers to the problem that nonprofits may adopt a “we know best” approach toward services for their key constituents, which can distort an understanding of what constituents really need. Philanthropic amateurism explains the tendency of many nonprofit organizations to attract professionals who care more about the programs that they are supporting than the administrative resources to deliver those programs effectively (Salamon 1987); thus, they may ignore building staff with technical and managerial abilities.
Negotiating Divergent Interests
Administrative action is purposive in that it is goal driven and directed around objectives that relate to some central vision or guidance (Senge 2006). The challenge in any form of cross-sector exchanges is that organizations that operate under much different motivations are tasked with cocreating some form of shared purpose. Collaborators will often pursue a common objective or result for different reasons, that is, they may have differing overall individual goals. Negotiating a common aim or result out of these individual aims creates a level of complexity that is absent in more authoritative and formal modes of exchange (O’Leary and Vij 2012; Huxham and Vangen 2005). Organizations are driven by different motivations and aims based on the institutional logics inherent in their legal status or designation as a public, private, or nonprofit organization (Bryson et al. 2006). An inherent challenge in public-private collaborations is ensuring that private sector values, such as profit maximization or protection of intellectual property, do not compromise public sector values, such as equal access and transparency (Hodge and Coghill 2007: Bozeman 2002, 2007).
Overcoming the divergent motivations in collaborations not only involves developing a common vision across sectors, but also one that relates to both the individual and collective interests of the parties. The literature on organizational missions and visions, for example, emphasizes the cultivation of internal working norms to drive collective behavior (Senge 2006). CSC requires considering not only one’s own mission, but also the mission of the wider collaborative structure. Thus, working in CSC requires attention to shared as well as individual goals (Wood and Gray 1991). This often requires an iterative process of managing the needs of one’s internal responsibilities with those of a wider network or partnership (Milward and Provan 2006). A shared orientation is particularly important to encourage the sharing of information across the parties in the collaboration (Thomson and Perry 2006).
Operating Under Different Legal Constraints
The founders designed the US federal system of government to control its various constituents. The elaborate system of checks and balances across three branches of government and between the federal and state governments laid the foundation for overlapping authorities designed to control administrative behavior. There is little question that the American desire to limit bureaucratic self-interests comes at a cost to efficiency. The bureaucratic red tape of public administration often drives up the costs of managing programs, stifles innovation, and develops redundancy. Yet that very framework also scrutinizes the behavior and actions of government in an effort to ensure the public’s interests are met.
Nonprofit and private sector organizations operate outside these institutional checks and balances (Schooner 2001). Government contractors, for example, are not under the same human resource restrictions as their public sector counterparts. The same is true for nonprofit organizations, which serve primarily under the standards that their donors put in place and those of their boards (Axelrod 1994; Brooks 2002). Public managers may need to create their own system of institutional controls within the context of the collaborative agreement.
THE LOSS-OF-CONTROL PROBLEM
One of the most-cited problems with delegating responsibility to private or nonprofit organizations is that government loses control over the public good or service once it is “outsourced” to a partnership or network. The issue of control is important; under traditional public administration, control is exercised through a hierarchical system of delegation, approvals, reporting relationships, and audits. In reality, control under traditional hierarchical relationships is often illusory. Why? First, we know that street-level bureaucrats often have significant discretion in how and to whom public goods and services are delivered (Lipsky 1980). The public servant who interacts directly with the public does need flexibility to interpret the public interest in a way that is consistent with the legislative framework and also makes common sense. Second, we know that public program delivery is affected by the so-called principal-agent problem. The principals may have a difficult time in monitoring the actions of their agents in order to “maintain control.”
It is true that when public managers engage collaborative contractors, partnerships, networks, and independent public-services providers in the private or nonprofit sector, they give up some control. The public manager’s focus therefore must be on the results desired and less on the process of how to get there. By becoming more results oriented, managers are governing what is most important. By relinquishing some control, they recognize that other organizations and actors might have a more innovative and superior approach to achieve the results desired. However, some processes, such as ensuring equal employment opportunity, may remain essential. Thus, a blending of control based on process and legal regulation with control based on results achieved may be more important and consistent with the public interest. Where process is important for equity or other legitimate reasons, those elements themselves can be addressed as one of the measurable results.
This is a challenging area for public managers. The danger is that in the rush to collaborate, the manager may be captured by private or nonprofit interests or the manager may not have the management skills necessary to balance the competing needs of the collaborators while protecting the public interest. In addition, effective collaboration takes time to develop, and public managers often are torn between the need to address the problem now, perhaps appearing more responsive to their political principals, or spending the time and effort to build a collaborative structure that might be more effective in the long term.
HOLLOWED-OUT GOVERNMENT
One of the challenges for public managers working with organizations outside government is the danger of hollowing out expertise within government (Milward and Provan 2000). That is, the more that the functions of government are carried out by organizations outside government, the greater potential there is for public managers to decrease their own internal expertise in program areas. The question any public manager must ask when choosing among in-house or collaborative solutions is the potential impact over time that the decision will have on maintaining the expertise of government employees.
The National Aeronautics and Space Administration (NASA) provides an illustration of how important governance systems are to CSC. NASA is one of the great public success stories, despite the tragedies. The United States was first to land a man on the moon, and the success of that effort and the many technological spin-offs are an example of American entrepreneurship and drive. However, NASA was, in reality, operating through a series of contracts and partnerships. The number of federal workers in NASA was dwarfed by the contract employees. In 1966, at the peak of the program, there were 36,000 federal employees and about 300,000 private contract employees often working side by side with their public sector counterparts (Adams and Balfour 2004). Private sector contractors and partners produced rockets, satellites, and even the space shuttle. It would have been impossible for NASA to have succeeded otherwise.
We also know that the two shuttle disasters, and perhaps the earlier Apollo One fire tragedy, happened in part because of an organizational culture and a disjointed leadership style that ignored or overlooked important safety information that could have and should have prevented the deaths of those astronauts. “How many different groups of professionals,” ask Adams and Balfour, “most of whom would think of themselves as embodying professional ethics—were nonetheless drawn into actions and nonactions that led first to unacceptable risk and finally to the tragedy of fourteen unnecessary deaths?” (2004, 116–17). The death of an automobile passenger in the new Boston I-90 tunnel (referred to as the Big Dig) resulted from similar failures to take action in the face of a clear design flaw (US National Aeronautics and Space Administration 2008). The critical question in both cases is whether government lacked the technical expertise to understand and address the potential risks appropriately.
CONCLUSION: ADDRESSING THE GOVERNANCE CHALLENGES IN CSC
Despite the challenges and risks inherent in CSCs, a number of administrative techniques are available to address them. Public managers must recognize the “normative, legal and regulatory elements” that set the norms for organizational legitimacy (DiMaggio and Powell 1983). Understanding the wider institutional environment helps managers to identify the value of structures and processes, as well as individual leadership capabilities, to make things happen in collaboration (Huxham and Vangen 2005). A short list of critical items is necessary for the appropriate and ethical use of private and nonprofit partners in public service (many of which are amplified in later chapters):
- Public organizations that use CSC for critical public functions should be led by individuals who are public stewards and encourage stewardship throughout the organization and by collaborators (Kee and Newcomer 2008; Kass 1990). Such stewardship entails a commitment to the public interest and protection or conservation of ethical values (Cooper 1990; Terry 1995).
- One way to strengthen the protection of key public values is to develop an ethos or ethics of public service to govern all those who do the work of government, not just the civil service (Guttman 2011).
- Public organizations need to retain sufficient in-house expertise to appropriately supervise private partners and contractors, including both procurement and specialty professionals. Adams and Balfour (2004) identified the problem for NASA: they no longer had “sufficient scientific and engineering capacity to make sound judgments about myriad technical decisions and choices made by contractors” (114).
- Public organizations need to engage all interested parties in the decision-making process. The more complex the problem and the greater the number of actors (public, private, and nonprofit), the more important it is that public leaders engage and give voice to the general public (Allen 2010).
- Developing a clear accountability structure is essential (Forrer et al. 2010).
At first, working with collaborators might seem more problematic than the hierarchical principal-agent relationships in traditional public administration. However, regardless of the motivations or individual goals of CSC participants, if collaborators agree to specific objectives, outputs, or outcomes that benefit all parties to the collaboration, they are more likely to share information to achieve that outcome, eliminating a major problem with principal-agent relations. Collaboration eliminates some transaction costs—the development and monitoring of contracts or employment relations—but adds others, for example, time spent developing the collaboration and ongoing interaction with CSC participants.
Authentic collaboration may provide greater combined strength in attacking a public sector issue or problem. Nearly a century ago, Mary Parker Follett, an early American proponent of management reform, discussed the value of “power-with” or “collective power” versus “power-over” (Fox and Urwick 1973). Principal-agent relationships are essentially power-over relationships with the principal having the power over the agent, and perhaps not harnessing the full power (such as knowledge, effort, and expertise) of the agent. Collaboration is collective power; it encourages all parties to the collaboration to use their full knowledge and abilities and to achieve the outcome that the parties desire. For example, in a networked approach to social services delivery, collaborators, whether nonprofit, private sector, or government, can use their own strengths and abilities. For the nonprofit sector, that might be local knowledge or current relationships with a particular clientele. For the private sector, it might be their ability to be innovative or to interact with the private market. For government, it might be their ability to draw on service delivery systems and protocols already in place to ensure the equitable delivery of services.
Public managers must overcome some of the constraints in traditional public administration in order to engage the other two sectors by moving to a more devolved, networked, heterarchical approach to service delivery. This requires a move away from Madisonian checks and balances to one of power sharing, focusing on capacity building, collaboration, partnership engagement, trust building, and long-term results. In this fashion, public managers can take advantage of the strengths of the private and nonprofit sectors in rethinking the delivery of public goods and services.
No matter how good the administrative solutions designed for addressing CSC are, however, there will always be risks for the public sector. Much of the reason that the public sector operates the way it does, after all, is to control for any malfeasance on the part of public officials and to more adequately provide for the public interest (Lynn 2006). The same mechanisms designed to control the delivery of government programs—from the intergovernmental system of checks and balances to the red tape of administrative approvals—serve important functions in our political system.
CSC is simply a means to achieve a government goal and is not a panacea for every type of problem the public sector faces (Bryson et al. 2006). As with any other administrative decision in government, it is critical that public managers do not view CSC as one of many strategic options. Adequately assessing the various options and addressing the potential dangers and problems in CSC are critical. The following chapters develop those issues in more detail.