Comparing Public and Private Sector Decision-Making Practices

Comparing Public and Private Sector Decision-Making Practices

ABSTRACT

Public and private sector decision making is studied with an experiment. The study compares decision making in a tax-supported general purpose governmental agency with that done by a business firm selling to a market, using a simulation to capture differences in the preferences and practices of mid-level managers working in the two sectors. The simulation calls for participating managers to assess the risk and prospect of adopting budgets tailored to match each sector. A cognitive culture that stresses analysis, speculation, bargaining, or networking is employed to fashion a budget appropriate for a public and a private sector organization, each with a controversial and a noncontroversial budget amount. The literature on public/private differences was consulted to make predictions, suggesting that public sector managers would favor bargaining and networking and private sector managers would favor analysis and speculation. The cognitive style literature suggests that managers favor budgets constructed with an approach that is consistent with their preferred cognitive style and see less risk in the choice, except in a public setting where risk would be unaffected. The study finds that private sector managers are more apt to support budget decisions made with analysis and less likely to support them when bargaining is applied. Public sector managers are less likely to support budget decisions backed by analysis and more likely to support those that are derived from bargaining with agency people.

INTRODUCTION

Rodriguez and Hickson and Schwenk examine decisions in public and private organizations and report notable differences. Private, for-profit organizations have smoother decision-making processes. Public organizations experience more turbulence, interruptions, recycles, and conflict. Scholars attribute these differences to the roles that public and private organizations play in our society. Private sector organizations sell products or services to consumers in markets to create wealth for shareholders. The typical general purpose, tax-supported governmental agency, such as a state department of mental health, contracts for services and collects information about the needs of people that call for a public response. These distinct roles suggest vastly different kinds of expectations and accountability that may call for different decision-making practices. Decision-making research seldom accounts for these differences, so generalizing from one sector to another is suspect.

This research effort explores some of these differences by comparing how mid-level managers in each sector view the prospects of approval and the risk in simulated budget decisions. Explanatory variables include sector, budgeting practices, the cognitive makeup of the participant, and level of controversy. The budgeting practices draw on the modes of understanding found in four kinds of decision-making cultures and are applied to controversial and noncontroversial budget requests. Statistical interactions of the explanatory variables are used to examine the influence of the practices thought to be consistent with those favored by typical public and private organizations. Managers with at least five years' experience who were currently working in the public or the private sector participated in the study. Answers for two questions were sought. First, do experienced managers in the public and private sectors have different views of risk and adoption when similar decision practices are used? Second, are managers in the two sectors equally likely to act, and do they see the same level of risk in acting? The findings suggest problems and prospects in the oft-repeated call for public sector organizations to adopt private sector practices.