Public organizations are confronting fiscal distress as service demand increase but not in line with monetary resources. The driving force for performance improvement is usually the aim to turn unprofitable and underfunded services to economically healthy. Organization performance improvement methods, for example Lean development, have been utilized. However, the results are not so good – public sector productivity has mainly declined in recent years. Managers have not realized that public organizations are more complex than private. Conventional statistical productivity analysis at public sector are unreliable and do not explain how organization human assets can be utilized to get financial benefits. Therefore public management needs more innovative and practical methods for analyzing human assets true meaning for financial outcomes.
Considering the human capital productivity there are two essentially different type of public organizations. First there are organizations where operative incomes from the services exceed the variable expenses. At these organizations the productivity improvement follows the service volume increase, thus the phenomenon is similar as in private companies. Secondly there are municipal organizations where operative incomes are less than variable costs. Most of government and municipal service providers fall into this category, where most of production capacity is financed by tax incomes and government funding.
Paper describes new human capital production function for public organizations. Case study is done using Finnish medium size town human resource and fiscal data. Paper illustrates how different human capital development strategies affect to the example town service capacity and monetary productivity. Paper describes theoretically validate method for analyzing human capital productivity at public organizations. Paper has significant contribution to public sector research and management as it explains the ontology and concept of public organizations productivity.
References
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