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The 1973 McKinsey Reform
Background

The riots of 1966 and 1967 in Hong Kong highlighted significant challenges and revealed a gap between the government and the governed. The events underscored the need for reforms to address these challenges and improve the quality of government. In the absence of constitutional and political reforms, administrative reorganization became a crucial solution to streamline the bureaucracy and enhance the delivery of public services. The involvement of the McKinsey management consultancy firm in 1972 indicates a recognition by the Hong Kong Government of the need for external expertise and strategic guidance to modernize and improve the central government machinery. The aim was to bridge the gap between the government and the people, and to address the administrative inefficiencies that hindered effective governance. By bringing in McKinsey, the government sought to leverage their expertise in management consulting to implement reforms that would enhance the efficiency, effectiveness, and responsiveness of the public administration. The emphasis was on modernizing the government's structures, processes, and systems to better cope with the demands of the rapidly expanding public services in the 1970s. The reforms were aimed at streamlining the bureaucracy, improving coordination among government departments, and enhancing decision-making processes for creating a more agile and responsive government that could meet the needs and expectations of the population.

Overview of the Reform

There are three approaches in order to achieve the goal of the reform and are as follows: 1. Strengthen the existing machinery without making radical changes. This could give significant but limited improvements 2. Introduce new machinery so that executive activities, which are performed mainly by the decentralised Government departments, could be managed more in terms of the results they produce than, as at present, in terms of the resources they use. This change would allow greater central control to be exercised while substantially reducing the administrative load, and would give the Government a greater capability to deal with continuing growth 3. Improve personnel management so that more skilled staff are made available and the potential of those already in service is more fully developed. Summary descriptions of these recommended approaches, and of the further opportunities for improvement, are given in the four sections that follow. Responding to the first approach: Recommendations of the existing machinery

1.	Delegate authority even further. Based on Tsang (1995), according to the report, the resolutions of the Legislative Council and its committees require all decision-making powers to remain highly centralised. In practice, however, substantial decision-making powers are delegated. The papers forwarded to committees for approval give only an outline of the proposal and, by implication, say that the Secretariat has investigated the case and believes it to be justified. The committees probe and cross-question, but they rarely reject a proposal. Rather than take the decisions they maintain a valuable pressure on Secretariat staff to get the decisions right. Further, the Secretariat staff have large negative decision powers in that they decide which proposals are put forward for committee approval. In practice, therefore, the person who issues the papers to the committee takes the decision. As volume increases this responsibility is delegated down the organisation. Further, such de facto delegation will be inevitable as the volume and scale of Government activity increases. Therefore, McKinsey pointed out that rather than be overtaken by events, the government should anticipate this requirement now so that senior staff can be relieved of some of their administrative load and can give higher priority than at present to more critical tasks. The degree of further delegation must be left to the judgement of senior staff because the present machinery does not provide a means of controlling overall results without examining individual items. To help these judgements, the decision levels of senior posts and committees should be analysed regularly and systematically. First trial attempts have revealed a lot of scope for delegation (55-58). 2.	Clarify the roles of departments and branches. The McKinsey experience in working with staff in the Secretariat and departments suggests that many of them are unclear about the scope and responsibilities of their own and others' jobs. As a result important tasks can be left undone; on other tasks staff overlap and duplicate each others' efforts, causing frustration and demoralisation, They therefore recommend that the roles and responsibilities of branches and departments should be defined in terms of the end results required rather than purely in terms of broad areas of responsibility, as at present. The specific actions required can be completed fairly rapidly, but continuing long-term pressure from the top is required to ensure that staff observe the requirements (Tsang 1995, 58-60). 3.	Standardise submissions. The company found out that when departments wish to change Government policy, or when they need more resources, they send a submission to the Secretariat describing and justifying the proposal. At present, for a variety of reasons, the submissions are frequently incomplete. Excessive delays occur and effort is wasted while the Secretariat and department staff resolve the difficulties. For the bulk of submissions, a checklist can be provided - some are already being tested - that should largely resolve the problem (Legislative Council 2002, 5). Responding to the second approach: The introduction of a new machinery

1.	One key recommendation is to reallocate department responsibilities based on results rather than resources. This would involve clearly identifying the responsibilities for achieving specific outcomes. The reorganization could include creating new departments, merging responsibilities, or reorganizing existing departments based on tasks. To improve management efficiency, McKinsey suggests grouping departments into managerial units. This would reduce the span of control and facilitate effective oversight. One approach is to establish "super directors" who oversee multiple departments. Another option is to transform Secretariat branch heads into middle managers or create additional positions to share responsibilities (Ibid, 7). 2.	McKinsey also recommends changing Secretariat policy branch responsibilities to enhance coordination and accountability. This involves aligning branch responsibilities with groups of programs rather than departments, ensuring clear coordination and accountability for each program. To address the lack of clarity and potential misuse of skills, McKinsey proposes reorganizing Secretariat branches. This would involve segregating branches into distinct roles (policy, resource, adviser, and support) to provide clarity and optimize skill utilization. The Financial Secretary could oversee resource branches, while the Deputy Chief Secretary could be responsible for policy and support branches (Ibid, 8). 3.	Rationalizing advisory committees and reducing their numbers is another recommendation. McKinsey suggests defining clearer roles for these committees and adapting the existing and proposed machinery to enhance their effectiveness in policy formulation. To reduce the central administrative load, McKinsey recommends hiving off certain departments to form separate agencies or nationalized industries. This would allow independent management while the government sets overall standards and key factors. Potential candidates for hiving off include the airport, railway, waterworks, and post office (Ibid, 9). Responding to the third approach: Improving personal management

According to the report, there are four basic tasks must be carried out to achieve the objective of personal management 1.	Recruiting might be improved by (a) setting up a U.K. recruiting office; (b) exploring alternative recruiting sources; (c) transferring existing staff from professional grades to the Administrative Class (Ibid 11). 2.	Retaining staff might be improved by (a) developing a compensation package that suitably balances the various elements - e. g., pay, pensions, housing; (b) changing the personnel management approach to a more sympathetic, positive style (Ibid). 3.	Developing staff might be improved by applying more specific performance criteria so that individual development needs are identified more clearly (Ibid). 4.	Deploving staff might be made more effective by wider use of formal job descriptions and increased tenure in postings (Ibid). Impact of the McKinsey Reform

1.	The Before 1967, the government's ability to make policies was severely limited, leading to the belief that increasing the number of line posts would solve problems. As a result, Hong Kong's administrative structure became heavily weighted towards the lower levels, with labourers and artisans comprising over 44 per cent of the civil service in 1967 (Scott 1987, 6) However, McKinsey's proposed structural reforms aimed to address this issue. They suggested the implementation of a two-tier system, with high-level Policy Secretaries leading policy branches in the Government Secretariat, which served as the central governing body. These Secretaries would also coordinate the work of previously powerful department heads, now referred to as "programs". In addition to clarifying and rationalizing the roles of Secretariat branches and departments, McKinsey recommended new processes to enhance the planning and control of executive activities within the departments. This included a focus on performance monitoring and control, as well as managing departments based on results rather than resources utilized. There was also mention of the potential future separation of certain departments, such as the airport, railway, waterworks, and the post office.These reforms resulted in a larger civil service that was partially restructured and localized to better meet public demands. Consequently, by 1977, the post-McKinsey civil service witnessed a significant increase in the number of line managers (those on the Master Pay Scale between points 30 and 49), while the number of lower-ranking civil servants decreased compared to previous periods (Ibid). The McKinsey Reform also introduced performance evaluation mechanisms to encourage accountability within the government. Clear performance indicators were applied to all civil servants, which promoted an environment in which improvements are constantly strived for. The emphasis on accountability resulted in improved governance and increased efficiency in service delivery 2.	Moreover, the reform measures improved the government’s decision-making procedures. Significant improvements in information flow and cooperation across various government departments were made possible by streamlining administrative procedures and creating a clear communication channel. As a result, the government could address challenges and establish plans to implement swiftly and more effectively with the enhancement of knowledge. 3.	The reform’s focus on policy execution was one of its main features. The reform initiatives established channels for coordination and collaboration, which helped the smoother execution of policy. The government was able to overcome bureaucratic obstacles and guarantee the effective implementation of policies through enhanced interdepartmental communication and information-sharing procedures, which resulted in noticeable advantages for the general population. 4.	The McKinsey Reform also introduced performance evaluation mechanisms to encourage accountability within the government. Clear performance indicators were applied to all civil servants, which promoted an environment in which improvements are constantly strived for. The emphasis on accountability resulted in improved governance and increased efficiency in service delivery. 5.	The successful implementation of the reform had a positive impact on public confidence and trust in the government. A more responsive and transparent government was made possible by the reduction of bureaucracy, better service delivery, and improved decision-making procedures. The public observed tangible improvements in the efficacy and efficiency of public administration as a result, which strengthened popular confidence in the government.

Challenges and Criticism

1.	Lack of local representation and localization: The McKinsey Report faced significant criticism due to the absence of any local Hong Kong consultants on the research team. Some argue that the study failed to adequately capture the nuances of the local context because it was authored by a group of foreign consultants who did not involve local specialists to a significant extent. Additionally, while McKinsey believed that more professionals should have access to senior policy-making positions, the reality has been that policy formulation has remained the exclusive domain of approximately 400 administrative officers. It is not surprising, therefore, that these officers are burdened with excessive workloads, leading to resentment among senior professionals who feel marginalized in the policy-making process. Historically, most administrative officers were recruited from Britain or other colonies. However, by 1985, out of 396 administrative officers, 221 (55.8 percent) were local officers (Scott 1987, 5). 2.	Uncertainty about the political future: The report made an effort to offer strategic suggestions for the growth of Hong Kong after 1997 when the city will revert to Chinese control. However, the report's analysis and recommendations were made more difficult by the ambiguities surrounding the political transition and the absence of a defined framework for Hong Kong's governance after 1997. It's crucial to remember that despite these difficulties and objections, the 1973 McKinsey Report had a big influence on the development plans and policies of Hong Kong both before and after the handover in 1997.