Comparing Public and Private Sector Decision-Making …

1 Comparing Public and Private SectorDecision-Making PracticesPaul C. NuttThe Ohio State UniversityABSTRACTP ublic and Private Sector decision making is studied with an experiment. The study comparesdecision making in a tax-supported general purpose governmental agency with that doneby a business firm selling to a market, using a simulation to capture differences in thepreferences and practices of mid-level managers working in the two sectors. The simulationcalls for participating managers to assess the risk and prospect of adopting budgets tailoredto match each Sector . A cognitive culture that stresses analysis, speculation, bargaining, ornetworking is employed to fashion a budget appropriate for a Public and a Private sectororganization, each with a controversial and a noncontroversial budget amount.

2 The literatureon Public / Private differences was consulted to make predictions, suggesting that publicsector managers would favor bargaining and networking and Private Sector managers wouldfavor analysis and speculation. The cognitive style literature suggests that managers favorbudgets constructed with an approach that is consistent with their preferred cognitive styleand see less risk in the choice, except in a Public setting where risk would be unaffected. Thestudy finds that Private Sector managers are more apt to support budget decisions made withanalysis and less likely to support them when bargaining is applied. Public Sector managersare less likely to support budget decisions backed by analysis and more likely to supportthose that are derived from bargaining with agency and Hickson (1995) and Schwenk (1990) examine decisions in Public andprivate organizations and report notable differences.

3 Private , for-profit organizations havesmoother Decision-Making processes. Public organizations experience more turbulence,interruptions, recycles, and conflict ( , Perry and Rainey 1988; Rainey, Backoff, andLevine 1976; Ring and Perry 1985). Scholars attribute these differences to the roles thatpublic and Private organizations play in our society. Private Sector organizations sellproducts or services to consumers in markets to create wealth for shareholders. The typicalgeneral purpose, tax-supported governmental agency, such as a state department of mentalhealth, contracts for services and collects information about the needs of people that callAddress correspondence to the author at Access publication on March 30, 2005 The Author 2005.

4 Published by Oxford University Press on behalf of the Journal of Public Administration Researchand Theory, Inc. All rights reserved. For permissions, please e-mail: 318for a Public response. These distinct roles suggest vastly different kinds of expectations andaccountability that may call for different Decision-Making practices. Decision-makingresearch seldom accounts for these differences, so generalizing from one Sector to anotheris suspect (Papadakis and Barwise 1998).This research effort explores some of these differences by Comparing how mid-levelmanagers in each Sector view the prospects of approval and the risk in simulated budgetdecisions.

5 Explanatory variables includesector, budgeting practices, thecognitive makeupof the participant, and level budgeting practices draw on the modes ofunderstanding found in four kinds of Decision-Making cultures and are applied to contro-versial and noncontroversial budget requests. Statistical interactions of the explanatoryvariables are used to examine the influence of the practices thought to be consistent withthose favored by typical Public and Private organizations. Managers with at least fiveyears experience who were currently working in the Public or the Private Sector par-ticipated in the study. Answers for two questions were sought. First, do experiencedmanagers in the Public and Private sectors have different views ofriskandadoptionwhensimilar decision practices are used?

6 Second, are managers in the two sectors equally likelyto act, and do they see the same level of risk in acting? The findings suggest problems andprospects in the oft-repeated call for Public Sector organizations to adopt Private , CULTURE-BASED DECISION MAKING, AND CONTROVERSYAs noted by Papadakis and Barwise (1998), the influence of context on decision making islargely unexplored. Contextual influences arise from an organization s role in a society,such as being an instrument of Public policy or a means for creating wealth forshareholders. This role dictates the governance arrangements that are needed to exercisecontrol for different types of owners, such as elected officials or shareholders.

7 Yamamoto(1997), Lioukas, Bowrantas, and Papadakis (1993), and Mallory et al. (1983) report thatthe approach to governance leads managers in each Sector to experience different demandsand expectations, which are apt to influence their decision making. Each Sector s role callsfor dealing with users and clients in different ways, which may also influence howdecisions are made (Chaffee 1985; Fredrickson 1985; Hitt, Ireland, and Hoskisson 2003;Mintzberg 1973; Pettigrew 1990).A Public - Private difference stream of research, begun by Rainey, Backoff, andLevine (1976), initiated a study of the roles that Public and Private organizations have inour society.

8 Using this framework, researchers have found that the demands placed onpublic and Private organizations vary to the extent that different practices are rec-ommended for each Sector (Blumenthal 1983; Dahl and Lindblom 1953; Nutt and Backoff1993; Perry and Rainey 1988; Ring and Perry 1985). Organizations with Public features areseen as being constrained in ways that limit what they can do when making strategicchoices. Discussions about a choice in a Public organization are subject to mandates constrain budgets, which limits or even prohibits Public sectorleaders from spending money to collect information for decision making. Agency headsmust report to people in oversight roles who are often political appointees and prone toleaking discussions.

9 This limits the type of planning in which preliminary lines of inquiryare explored to search for ideas. These and other influences make decision making inpublic organizations different from that in a for-profit organization. Empirical studies of290 Journal of Public Administration Research and Theorydecision making that account for Public - Private differences have considered supportsystems (Bretschneider 1990), the extent of participation and smoothness of a decisionprocess (Bryson, Bromiley, and Jung 1990; Coursey and Bozeman 1990; Hickson et ), and tactics (Nutt 1999), but not how a manager s preferences couple with sectordemands to influence decisions.

10 Failing to account for these Public - Private differences mayhave led researchers away from important distinctions, producing inaccurate general-izations about Decision-Making are many federal, state, and local agencies with countless variations andnuances in how they operate. To avoid blurring key distinctions, special cases, such aspublic agencies that rely solely on fees, are not considered in this research. Instead, theresearch concentrates on the general purpose government agency that typifies whatBozeman (1987) calls tax-supported and represents the bulk of Public Sector agencies atall levels of our society. My aim is to compare decision making in a tax-supported publicagency with that found in a Private Sector organization that sells to a market.