The Reinvention of State Services?

Rana Deep Islam

McKinsey & Company

Dr. Rana Deep Islam works as a Berlin-based Client Development Advisor for the Public Sector at McKinsey & Company. Prior to joining McKinsey & Company he had been a Senior Manager at EY and a campaign manager for the SPD’s chancellor candidate Martin Schulz during his campaign in the run-up to the German federal elections in 2017. Prior to that, he was in charge of the management of the European project portfolio at Stiftung Mercator and gained further professional experience at the Bertelsmann Foundation, the European Parliament, the School of Advanced International Studies (SAIS), and the Gesellschaft für Internationale Zusammenarbeit (GIZ). Rana holds an MA from the College of Europe in Bruges and a PhD from the University of Erlangen-Nurnberg. He was a DAAD/AGI Research Fellow in May and June 2011. Rana publishes frequently in academic journals and media on European affairs and long-term economic development.

The Role of Organizational Purpose for Publicly Owned Companies in Germany

Purpose is one of the key concepts of our time when it comes to a new entrepreneurial understanding. Companies today are faced with the challenges of answering the question of their raison d’être and identifying their social license to operate. Entrepreneurial success is no longer defined exclusively by business parameters. Rather, success is nowadays a question of the social meaning and purpose of the business model at stake. In particular, changed consumer behavior and increasing government regulation that intervenes in private-sector business areas are significant drivers for the purpose approach.

One question that seems to be underrepresented in the discourse is the dimension of purpose for public sector companies. If one assumes that they are not subject to the same market logics of free competition, the need for action to differentiate themselves on the market through purpose factors is supposedly less relevant. In addition, the social essence of public enterprises seems to be obvious. Why else would the state become entrepreneurially active if it did not do so for the good of society? But both arguments fall short and limit the question of purpose either to an entrepreneurial nice-to-have or a blurry kind of social relevance. Concrete answers are still missing.

Game-changer Coronavirus

Yet the issue is more timely than ever, especially in light of the Coronavirus pandemic. The German state and, in particular, its companies are experiencing a public revival. While for much of the 1990s and 2000s the role of the state in many areas of public life was pushed back, the importance of the state for the maintenance of public order has become quite obvious during the Covid crisis. This applies first and foremost to the health and social sectors, but also to the mobility sector. There seems to be a new openness on the part of citizens for a strong and caring state.

The German state itself also seems determined to act increasingly as an economically independent actor. This has been demonstrated by the Economic Stabilization Fund (Wirtschaftsstabilisierungsfonds) and state holdings in companies such as Lufthansa, TUI and CureVac. During the crisis, the state has also recognized the need to promote entire markets in future-relevant areas, e.g. a “domestic market” for hydrogen, which is required according to the German government’s National Hydrogen Strategy.

Against this background, one can state: Public-sector companies are predestined to let their actions be guided by the principles of purpose. This leads to the question of why they should do so. Two factors in particular are central here.

Why Purpose Matters for Public Companies

First: Public organizations are exposed to an increasingly critical stakeholder environment. This includes, first and foremost, citizens who, as users of public services, demand a smooth functionality of digitally accessible and user-friendly public services. Other stakeholder groups include an ecosystem of important multipliers who operate in the political arena such as non-governmental organizations, associations, representatives from academia, or the media. These groups often articulate socially motivated interests and demands toward the state and its organizations, often in a socially heated and dynamic climate. The Purpose approach can provide the necessary tools to address these complex interests and expectations and integrate them into the organizational development of a company.

There is also a second aspect: the shortage of skilled workers, which is particularly affecting the public sector. Numerous positions are already unfilled. And the public sector and its companies are of course competing with private-sector companies for the employees of the future. If we now take into account that socially meaningful work is becoming increasingly important, especially for younger employees, this gives public companies an important advantage in their recruitment. This is precisely where purpose comes in.

Concrete implementation: more than communication

But how exactly does a public company develop such a purpose? First of all, it needs a clear answer to where and how the company can offer a solution to a social problem. Where are the possibilities to combine its business activities with social responsibility? Finding answers to this question is not trivial, since this question reaches far into the value foundation of a company. Purpose literally touches its DNA.

Once this general orientation is clear, a company needs to develop core messages it wants to send out to key stakeholders, both internally and externally. These messages must be general enough that they do not allow any contradictions with the common practice of the company as a whole and its departments in specific cases. This leads to the necessity to develop the company’s purpose beyond communication. Purpose must become part of the corporate strategy in order to then align the corporate management of all departments and their processes.

Purpose as a vehicle for implementing a federal policy reform agenda

Purpose can therefore be a great opportunity for public sector companies to underline and leverage their very obvious social added value. This approach could potentially gain even more momentum against the backdrop of a profound transformation of public administration that is looming at the horizon. In the run-up to the 2021 federal elections, almost all parties have taken up the need to renew the state and state services. The reform backlog of the past years has become too obvious, and the failures of government inaction in crucial areas such as digitization, sustainability, education, and health services have become too evident.

Regardless of its party constellation, a new federal government in Germany can upscale its reform agenda profoundly, especially through state-owned enterprises. The purpose approach provides a handy instrument for taking into account the increased importance and new understanding of the role of public enterprises. Purpose can thus provide an important update to the economic activities of the state as a whole.