By David Hammond, Head of Tribe Leadership Executive Search.
Should we freshen the local government sector with new blood who have commercial executive skills brought in? Should we develop commercial sector skills within the sector itself – if that is even possible!
In my recruitment of C-Suite across the public sector I frequently hear from chief executives, boards and elected members, “I wish we could get more commercial sector skills into our organisation.”
The idea behind this is that commercial sector executives have better skills and could run public sector organisations in a less cluttered and more streamlined way, and more efficiently. Is this true?
Having now worked as an executive in both commercial and public sectors, they are very different. I do assist commercial executives into the public and For-Purpose sectors but I’m also very wary about doing this if they are not prepared for the differences; the flight-risk is high. Let me explain some of these key differences and then circle back to how the public sector can strengthen their private sector skills.
To the basic: commercial executives come from an environment which is mainly focused on profits and shareholder value. They drive revenue, increase market share, and ensure the financial success of the organisation. That dives their KPIs and reward. In contrast, public sector executives aim to serve the public interest and deliver public services efficiently which drive their KPIs and is largely disconnected from reward. The focus of public sector executives is on meeting the needs of the community and high-quality services rather than generating profits.
Another key difference lies in the sources of funding. Commercial executives operate in competitive markets and rely on generating revenue from customers, clients, or investors. Success is measured by financial performance indicators such as sales revenue, profit margins, and return on investment.
Public sector organisations, on the other hand, are funded through tax or rates, and success is often measured by KPIs such as service quality, public satisfaction, and social impact. In my experience, commercial executives are stronger in revenue generation, whereas good public sector executives are stronger at managing expenditure. The critics of public sector executives don’t actually realise that they are stronger on expenditure management than their commercial peers.
The decision-making processes also differ significantly. Commercial executives’ decisions are typically driven by market forces, customer demands, and profitability considerations. Diversity and Inclusion (D&I) and Environmental Social Governance (ESG) are forcing their way into this decision-making framework in recent years. The focus is on generating revenue and gaining a competitive advantage.
They have a speed and agility, and an inherent disdain for red-tape. Public sector executives, however, must navigate complex political landscapes, public opinion, and legal frameworks. Decisions are often influenced by political priorities, stakeholder interests, and public accountability which all generates red-tape. These differences also drive the different approaches to defining risk.
Lastly, the motivations of executives in each sector can differ. Commercial executives often have profit-driven incentives, with performance bonuses tied to financial outcomes. Public sector executives have more of a legacy motivation wanting to leave lasting impacts and projects in communities.
Their financial reward is not tied to service excellence or quality as you would expect. But leaving legacy is why I see commercial executives attracted by the public sector –because no one will proudly write on their gravestone, “They worked hard for the company.”
The following table is what I consider to be the relative strengths of executives in both sectors. This is from my experience both as an executive across commercial and public sectors, and my work in evaluating executives for high performance when recruiting for a Chief Executive or C-Suite executive.
Should we appoint a commercial executive as our Chief Executive?
Tribe Leadership’s advice is that Mayor and councillors need to probe deeper into the call for ‘commercial skill sets’ at the Chief Executive level. What is wrong with the organisation that needs these commercial sector skill sets that I outline in the table?
Commercial skill sets can be effective if you are needing a more streamlined and focussed organisation, more agility and a stronger focus on the finances. But this will only work if you are prepared for the weaknesses they have. Are their gaps covered on the senior leadership team?
As Chief Executive, should I bring in commercial executive skills onto my leadership team?
Tribe Leadership’s advice is: Yes, you need the mix. This protects you as a Chief Executive. We believe that you should bring in the commercial executive into the Chief Operating Officer and Chief Financial Officer roles on the C-suite.
This allows these commercial executives to operate in their key strength areas to develop more focussed and streamlined organisation, strengthen your developer and other commercial negotiations, as well as contract management.
Who can help us best with deciding our leadership needs?
Tribe Leadership would turn the question back to you to ask: what external organisation can provide the depth of analysis of your leadership needs and come up with the clarity that we have in this article?
You should expect this level of advisory support and no less from any external advisor and Tribe Leadership is here to assist.