CHAPTER 2 LITERATURE REVIEW
2.1 The Concept of Public - Private Partnership ( PPP )
2.1.6 Differences between the Public and Private Sectors
12) Sound economic policy and a stable macro-economic environment, as economic stability can greatly reduce risk to the private sector’s investment.
13) Multi-benefit objective: Partners must understand and accept the goals of other groups.
14) Government involvement through providing guarantees: the government may offer a guarantee on subsidies.
15) Shared authority and responsibility to keep a long-term partnership.
16) Social support based on public acceptance.
Sanni (2016) studied the key factors that contribute to successful PPP projects based on PPP projects in Nigeria using 184 questionnaires. Sanni devised the factors affecting success into two groups: the public sector and the private sector. There were three factors involving the public sector - 1) leadership focus: the public sector must have leadership in PPP programs, 2) risk allocation and economic policy: the public sector must ensure that risks are allocated to those who can manage them best, and 3) project feedback: the review and study of successful projects will become ready-made information for future project implementation. As for the private sector, there were four factors, namely 1) favorable socio-economic factors: whether PPP will be successful or not depends on a favorable investment environment, 2) good governance and political support: this factor highlights the importance of political leaders who formulate policies that drive the development of infrastructure and public services in PPP projects, 3) short construction period, and 4) delivering public services that meet the demand, leading to public acceptance.
However, although the public and private sectors can cooperate on developing various forms of public projects, both of them have different or even opposite characteristics. Thus, they should be aware of this difference and achieve mutual understanding. This can help the partnership run smoothly and more likely to be successful in the future.
formulation of regulations and allocating resources under limited areas” (Kurian, as cited in Siripan Nogsuan Sawasdee, 2014) with the objective of public benefits. On the other hand, the private sector refers to “a group of people gathered with the objective of seeking economic benefits”. (Allison, 1983, as cited in Siripan Nogsuan Sawasdee, 2014).
The public and private sectors, therefore, have dissimilar natural management characteristics despite similar restrictions and challenges (Pongsiri, 2014). The management differences of both sectors are summarized with the following seven issues:
1) Organizational goals of the public sector are complicated, ambiguous and sometimes contradictory. On the contrary, organizational goals of the private sector are less complicated, straightforward and economic-centered (Famham
& Horton, as cited in Pongsiri, 2014).
2) Accountability of the public sector is usually found in politicians, citizens, clients or public organizations, while accountability in the private sector exists in stakeholders, employees, suppliers, consumers and markets (Famham &
Horton, as cited in Pongsiri, 2014).
3) Managerial functions of the public and private sectors are different.
The public sector’s managerial functions are based on specific expertise, chain of command and formality, while the private sector’s managerial functions are based on a combination of the economist principle, e.g. profits, price controls, market shares, etc; rationalist principle, e.g. planning, structuring, teamwork, etc; and the generic principle, e.g. cooperative culture, quality and excellence cycles (Famham & Horton, as cited in Pongsiri, 2014).
4) Perceptions of incentive structures and motivations in the public sector are not monetary but are in other forms such as job security, participation in important works or power and honor. In contrast, incentives of the private sector emphasize materials, e.g. money (Rainey et al., as cited in Pongsiri, 2014).
5) Needs satisfaction in the public sector is relatively diverse, e.g.
demand in higher positions (Rainey et al., as cited in Pongsiri, 2014) career security (Poole et al.; Rainey et al., as cited in Pongsiri, 2014). Private organizations will make an effort to reduce conflicts between individual and organizational expectations and
create positive feelings towards the organization and jobs (Rainey et al., as cited in Pongsiri, 2014).
6) Human Resource Management (HRM) in the public sector consists of four key characteristics: 1) a paternalistic style of management, 2) a standardized employment practice, 3) a collectivized industrial relation, and 4) a model employer’s goals (Boyne et al.; Rainey et al, as cited in Pongsiri, 2014). Private organizations use training in management and labor control (Rainey et al., as cited in Pongsiri, 2014).
7) Decision-making processes in public organizations are slightly flexible (Rainey et al., as cited in Pongsiri, 2014). Political influence affects decision- making. Public opinion also leads to difficult decision-making. Decision-making in private organizations is distributed to managers at different levels and decisions are made on an economic basis (Weiss, as cited in Pongsiri, 2014).
Allison (1983, as cited in Siripan Nogsuan Sawasdee, 2014), summarized three aspects of the differences between the public and private sectors:
1) Strategy: The goals of public administration are controlled by the legislative branch through clear regulations, while private organizations have clear goals of profit- making.
2) Managing internal components: The public sector has to manage internal components under law, while the private sector has freedom to administer internal components according to organizational needs.
3) Managing external constituencies: The public sector has to be responsible to diverse organizations, e.g. parliament, court, media and independent organizations. On the contrary, the private sector is responsible to the board of directors only.
With respect to the above different characteristics of public and private sectors, it is noted that many aspects of administration are opposite. For example, organizational goals are usually complicated or ambiguous. Clear organizational goals will lead to 1) identification of specific elements and operations for current organizations, 2) generation of the vision of what organizations wish to be in the future, and 3) an approach to change in the current situation to clear desired situations in the future (Perera, Peiró, & Peiró, 2012). Private organizational goals are more
straightforward. Thus, they can set a united direction, resulting in more efficient implementation of plans in accordance with strategies more than public organizations.
In addition, incentives in the public sector are not obviously concrete and may not be acquired immediately. Unlike private organizations, material incentives are stressed, e.g. money. This may result in the attention to working to achieve organizational goals. Employees in the private sector tend to intend to achieve organizational goals more than those in the public sector. Administration in the public sector is governed under a chain of command in accordance with official regulations.
As a result, there is no flexibility and delay because instructions and the approval hierarchy must be awaited. This makes solutions not up to date. The formulation of strategic plans to solve problems or adapt to the external environment is also delayed and not in time.
In brief, public-private partnership is generally viewed as the management between the public and private sectors to provide public services to people (Jin &
Doloi, 2008; Xiao‐Hua & Hemanta, 2008). The partnership between these two sectors exists in many forms. The public sector can deliver better quality of public services to the public with less investment as more external resources from the private sector are relied on.