Public Sector Informant: When APS departments merge, culture matters

In a sensible move the Prime Minister and Finance Minister announced in a joint press release that the new arrangements would take effect on July 1, 2022. A reshuffling of departments and agencies following a change of government involves changes of ministers, renaming or shifting responsibilities between departments, movements of staff, and importantly, transfers of budget dollars. Reallocating budgets between agencies from the start of the financial year makes the calculations immeasurably easier.

A bugbear in many past MOG changes has been working out how much budget to transfer from one department to another. It is easy when a whole agency with its own budget and forward estimates shifts from one portfolio to another. It is much harder when a function that had not been previously identified with a separate budget line is shifted.

The basic principle is that staff and dollars follow function. The important question then is, how many dollars were allocated to that function in the past year?

If there is no separately identified budget for the function, there may still be a record of how much has been spent on staff and other payments working in that area. However, depending on where you are in the financial year, this is not always a good guide to the total budget required. Departments are notoriously conservative, postponing spending until the end of the year in case of unexpected events. This often leads to budgets being underspent - a story for another time - and means a pro-rata allocation based on a part year spend may be misleading. In other cases, large lumpy payments at different times affect the budget numbers.

That is, where there is not an identified budget item, calculating the full year budget can be more guesswork than science. A start date of July 1 makes the guesses more accurate, a bonus for finance areas of departments affected by the MOG changes.

Outside commentators think MOG changes must be difficult. They need not be. Some departments have had practice runs. Education, in various forms, has been added to or taken from so many times in recent years that their managers could probably do a MOG without raising a sweat.

Although the changes begin on July 1 there is an expectation that they will take time to bed down over 13 weeks, according to a helpful guide published by the Department of Finance and the Australian Public Service Commission.

Frequently MOG changes are worked through with far more cooperation between departments than outsiders imagine - probably because if departments behave badly, they will feel savage retaliations next time a MOG change affects them.

In any case, dispute resolution procedures are set out in the guide. If a department feels it has been swindled in relation to transfers of staff, budgets, or property, it can appeal. Central agencies will step in to resolve the dispute.

No, the hard part comes afterwards. When previously distinct agencies with unique histories and cultures are brought together, the challenge is getting them to work together harmoniously.

There have been cases where one side has been openly hostile to the other - like the infamous incident where Foreign Affairs staff play-acted machine gunning AusAID staff when the two entities were merged and aid staff came to the DFAT building. A department with a storied history and a hugely inflated ego and sense of self-importance back then, Foreign Affairs was not a good merger partner. It was similarly unwelcoming to trade staff when those two departments were amalgamated in 1987, although foreign affairs people later concluded it had been a positive move.

There are also cases where MOG changes are seized on by powerful departments as an opportunity to raid the budgets of the weaker new partners, using them for offsets for new policy proposals or to pay the efficiency dividend.

It does not have to be like this. One of the more successful departmental mergers I have observed was years ago when the department of Primary Industries and Energy was created from two formerly separate departments. The new Secretary shifted senior executives from one side to the other - former primary industries managers getting energy responsibilities, and vice versa. It was unheard of, innovative, and highly disruptive: but only for a couple of weeks. As the changes took hold, instead of two distinct cultures there was a rapid integration, which made the department function effectively as a whole.

There are some benefits this time round arising unexpectedly from the pandemic, lockdowns and working from home. In previous MOGs there have often been tensions over real estate - who gets the most desirable cubicles next to the windows, who gets a corner office. Today, many agencies have vast acreages of under-used office space, making it easier to accommodate new arrivals following a MOG change. It may even be an opportunity for some to consolidate and make savings.

The mechanics of the MOG changes are straightforward and can be resolved through diligence and attention to detail. The culture change aspects are harder. It is vital to manage culture; otherwise there will be morale problems such as those that led to DFAT losing thousands of years of program experience following its merger with AusAID. So far, the signs are positive that goodwill and good leadership will make the recent MOGs succeed.