3.2 Improving organisational structures within agencies

Reforming government structures is essential to creating a more efficient and effective public sector and is at the heart of the Commission’s work.

Choices and decisions around the structure of government can be considered at three levels:

  • At a whole of government level there are choices around the number of portfolios and the allocation of responsibilities among them.
  • Within portfolios there is scope to determine the allocation of different roles and responsibilities among the different departments, agencies and other bodies that fall within their remit.
  • There is also significant scope to consider within individual organisations the appropriateness of structures, systems and management.

The Commission’s Phase One Report dealt with the first of these, providing an overview and assessment of the size and structure of the Commonwealth Public Service including the 16 portfolios and associated 194 entities.

It noted that at a whole of government level, the machinery of government changes implemented in September 2013 significantly simplified and streamlined portfolio arrangements.

The Commission’s Phase One Report also dealt with aspects of the second level, and made a number of recommendations to further streamline and rationalise many of the 194 principal bodies. Section Four below outlines further recommendations in relation to the 700 or so associated boards, councils and committees.

At the third level, significant opportunities exist to pursue further efficiencies through better organisational structures within departments and agencies. In many regards, these opportunities will be the key to driving significant productivity improvements across the Australian Public Service.

Staffing structures within the Australian Public Sector

As outlined in Chart 3.1 below, the Australian Public Service’s current staffing structure is ‘top-heavy’.

Around 40 per cent of the 167,000 Commonwealth public servants are employed at the junior and mid-manager levels – Australian Public Service Level 6 and Executive Level 1 classifications. These positions have an average salary cost, including on-costs, of around $120,000 and $147,000 respectively.

Chart 3.1: Staffing structure within the Australian Public Service

This diagram shows the number of full-time employees in the Australian Public Service at different classification levels. The diagram also shows each classification level as a percentage of the total number of APS employees.

Source: Australian Public Service Commission.

This trend toward an increasing employment of people at the middle management level has occurred over the past twenty years. It reflects various factors including lower level jobs being lost due to technology and outsourcing, recruitment practices focused on highly qualified and specialist skills, and limited flexibility regarding remuneration resulting in promotion being used as a retention strategy.

The net result of this shift in the composition of the Australian Public Service workforce is that mid level managers have comparatively few people reporting directly to them. This is known as having a narrow span of control.

As part of its deliberations the Commission sought information from all departments and agencies with more than 20 employees which operate under the Public Service Act 1999 on their spans of control at the middle management level as well as information on their corporate overheads.

Responses were received from 90 agencies. These 90 agencies were classified into four groups based on Australian Public Service Commission classifications – Policy and Research; Service Delivery (Operations); Regulation and Compliance; and Other Support (including specialist and legal). This provided a basis for comparing spans of control across similar organisations, noting some agencies have multiple functions.

Information was collected on the number of staff within each organisation reporting directly to Executive Level 2 and Executive Level 1 officers.

Benchmarking was undertaken across agencies and against public sector best practice targets. The best practice target ranges for spans of control were developed by The Boston Consulting Group based on organisational de-layering analysis and projects conducted with public sector organisations around the world, including a number of Australian agencies at the Commonwealth and State levels.

Such benchmarks need to be used cautiously and in the context of the employment tasks undertaken and the availability of staff with the right capabilities. This makes providing reliable best practice estimates difficult.

That said, high performing organisations generally have fewer layers of employee classification and wider spans of control. This can result in better information flows, enhanced accountability, faster and more reliable communications and higher levels of staff morale.

While the ideal span of control will inevitably be partly determined by the nature and mix of the work involved in each agency, best practice targets provide indicative ranges against which current spans of control can be compared.

The best practice benchmarks are set out in Table 3.1 below. They range from 5 to 8 for policy and research functions to 8 to 10 for service delivery functions.

Table 3.1 also shows the median spans of control for managers at the Executive Level 2 (EL2) and Executive Level 1 (EL1) classifications.

These have been calculated after taking account of the responses from agencies and after adjusting for employees at these levels who have no management responsibilities (for example, technical specialists and others who have no staff directly reporting to them). As illustrated in the table, median spans of control are below best practice benchmarks in all categories, noting that some agencies perform functions in more than one category.

Table 3.1: Spans of control of EL1s and EL2s
Agency Type/Function

Best practice
spans of control

Median span of control for managers

Executive Level 2

Executive Level 1

Policy & Research 5 - 8 3.9 2.0
Service Delivery 8 - 10 4.8 3.2
Regulation and Compliance 7 - 9 3.8 2.8
Other (specialist) 6 - 10 3.5 2.3

Source: National Commission of Audit Survey, Boston Consulting Group.

More detailed results are outlined in Charts 3.2 and 3.3 below on the spans of control for EL2s and EL1s respectively. They show how each agency’s average span of control (excluding people with no management responsibilities) compares to the best practice targets. For instance:

  • policy and research agencies – 10 of 14 agencies have an average span of control for EL2s that is below the best practice benchmark range, and 11 of 14 agencies have an average span of control for EL1s that is below best practice;
  • service delivery and operational agencies – 21 of 23 agencies have average spans of control for EL2s and EL1s that are below the best practice benchmark range;
  • regulation and compliance – all 15 agencies have average spans of control for EL2s and EL1s that are below the best practice benchmark range; and
  • other specialist agencies – of the 38 specialist agencies, 32 have an average span of control for EL2s that is below the best practice range and 36 have an average span of control for EL1s below best practice.

The information provided by agencies demonstrates that there is a significant degree of variation in spans of control across agencies. The extent of the dispersion between agencies is highlighted in Charts 3.2 and 3.3.

For example, Chart 3.2 shows that across policy departments, spans of control for EL2s range from an average of 2.7 direct reports per EL2 manager in the Department of the Prime Minister and Cabinet to an average of 8.9 direct reports per EL2 manager in the Attorney-General’s Department.

There are various reasons for the variation in spans of control across government agencies. Many agencies reported that narrow spans of control reflect the high proportion of staff in specialist roles, including legal, scientific, and accounting. Such staff are often promoted to executive level roles in order to pay market salaries for their particular skills.

One operational agency highlighted the increasing volume of work being undertaken in joint taskforces requiring senior leadership. Another indicated that spans of control appear low because they do not reflect job responsibilities that extend to supervision of external contractors.

The Department of the Treasury noted that many staff at EL1 and EL2 levels are employed as advisors with minimal staff supervision to provide high-level policy advice and representation.

Some agencies, such as the Department of Health and the Department of Social Services have advised that they are already undertaking business process reforms which will increase spans of control over time.

A number of agencies, such as the Department of Employment, conduct a range of functions, including policy development, processing and transactional work as well as the delivery of some services. In these organisations, average spans of control are less meaningful than function-by-function estimates.

Recognising the many caveats that must be applied to these findings, it is nonetheless instructive that spans of control in the Australian Public Service tend to be well short of the best practice ranges for the vast majority of agencies surveyed, even after specialists and those others with no direct reports are excluded from the figures.

Chart 3.2: Spans of control – Executive Level 2

The diagram shows the median EL2 Spans of Control (SoC) for each department or agency that responded to the NCoA survey. The median SoC for each agency is plotted on the diagram as part of the broader 4 category grouping (Policy and research; Service delivery; regulation and compliance; and Other support). The best practice spans of control have also been added to the diagram for comparison.

Source: National Commission of Audit Survey, Boston Consulting Group.

Chart 3.3: Spans of control – Executive Level 1

The diagram shows the median EL1 Spans of Control (SoC) for each department or agency that responded to the NCoA survey. The median SoC for each agency is plotted on the diagram as part of the broader 4 category grouping (Policy and research; Service delivery; regulation and compliance; and Other support). The best practice spans of control have also been added to the diagram for comparison.

Source: National Commission of Audit Survey, Boston Consulting Group.

Improving spans of control within agencies

While recognising that there are likely to be good reasons for the variation in spans of control among Commonwealth agencies, it is apparent that there is scope to improve structures within many Commonwealth organisations.

For illustrative purposes a scenario in which every agency achieves average spans of control for their EL1 and EL2 officers who manage staff that are at least equal to the lower end of the best practice ranges outlined above has been considered.

Moving all agencies who are not at best practice to at least the bottom of the best practice range would result in around 25 per cent fewer managers at the EL1 and EL2 levels (around 10,000 employees).

The Commission does not advocate imposing such a scenario on the Australian Public Service.

As outlined above, there are a range of legitimate reasons for individual agency structures to vary from best practice targets, making it unlikely that such a scenario could be achieved in practice.

However, it is difficult to fully reconcile the gap that exists between the best practice benchmarks and the spans of control prevailing today in many agencies that comprise the Australian Public Service. At face value there would appear to be significant scope to improve efficiency.

Consistent with the views outlined in the previous section, the Commission considers that departmental secretaries should be responsible and accountable for their own management practices and structures. They have a key role to play in improving productivity in their organisations and collectively in the public service as a whole.

As such, the Commission considers all departmental secretaries and agency heads should be required to prepare plans within the next twelve months which report on current management structures and spans of control, and identify opportunities for improvement.

These plans should consider the range of roles undertaken within the organisation, including the need for specialist positions at senior levels. They should also identify any changes required to management practices to support flatter structures. For example, this could include devolving authority and establishing direct reporting lines that are more than one level apart.

Section 3.3 below outlines a proposal for comprehensive audits of the operations of portfolio agencies. In a devolved model that lets managers manage, these Portfolio Agency Audits will, in essence, examine whether departmental secretaries are running their organisations efficiently and effectively.

The Portfolio Agency Audits could assess agencies’ management plans and report on their implementation.

In the meantime, the Commission considers that secretaries in a number of key large departments should expedite assessments of spans of control and the preparation of management plans including organisational structures.

The following departments and agencies should develop their plans immediately given the possibility to realise improved management structures on a large scale:

  • Department of Defence, Department of Human Services, Australian Taxation Office, Department of Immigration and Border Protection, Department of Health, Department of Social Services, Australian Bureau of Statistics, and the Department of Agriculture.

Recommendation 7: Public sector efficiency – improved spans of control

Average management structures in the Australian Public Service are top heavy, particularly at the Executive Level 1 and Executive Level 2 classifications. The Commission recommends that spans of management control be improved by requiring:

  1. eight major departments and agencies to prepare plans that report on current management structures and spans of control, and opportunities for improvement, immediately for Cabinet consideration; and
  2. all portfolio secretaries and agency heads to prepare plans to improve management structures and spans of control for ministers within 12 months.

Corporate services

The Commission’s Phase One Report examined the potential for greater efficiencies through the standardisation of corporate business processes and staged implementation of shared corporate services for Commonwealth Government departments and agencies.

The Commission has undertaken further analysis of corporate spending by agencies within the Australian Public Service.

Using data collected from all departments and agencies with more than 20 employees which operate under the Public Service Act 1999 the Commission has been able to undertake a benchmarking of costs across agencies in eight corporate services categories: human resources; finance; legal; communications; general management; compliance; procurement; and information and communication technology.

Chart 3.4 shows the proportion of departmental expenses spent by agencies on corporate functions, ranging from below 10 per cent to around 40 per cent. On average, agencies spend around 21 per cent of their running costs on these functions.

Chart 3.4: Corporate expenses as a proportion of departmental expenses

This diagram shows the percentage of corporate spending per full-time equivalent employee for each of the agencies surveyed by the National Commission of Audit.

Source: National Commission of Audit Survey.

Chart 3.5 shows the distribution of spending per staff member on different corporate functions collected by the Commission from departments and agencies.

Excluding information and communications technology, average corporate spending is highest on human resources and lowest on legal expenses and procurement.

Spending per full time employee equivalent varies within each corporate function, with agencies in the top quartile of the distribution spending around double per staff member what an agency in the bottom quartile spends on standard functions such as finance and human resources.

While overall corporate spending per person is not related to the size of an organisation, there are scale effects for some specific functions. Finance and procurement costs per full time employee equivalent tend to be higher in smaller agencies and lower in larger agencies.

The Commission has also undertaken preliminary benchmarking of Australian Public Service corporate costs against similar private sector organisations in the financial, real estate and professional services sectors.

The findings suggest that in some areas such as finance and legal services, public sector agencies tend to spend less per person than similar private sector organisations.

Conversely, Australian Public Service agencies tend to spend significantly more per person than the private sector on human resources and communications functions. While any benchmarking of public and private organisations must be viewed with some caution, these findings provide an indication of where further efficiencies are most likely to be found.

Chart 3.5: Distribution of corporate spending per staff member by agencies

Chart 3.5 shows the distribution of spending per staff member on different corporate functions collected by the Commission from departments and agencies.

Source: National Commission of Audit Survey, Boston Consulting Group.

Opportunities for greater efficiency

The Commission’s Phase One recommendation on corporate services had two core elements – firstly to standardise corporate processes and second to progressively introduce greater shared services. The analysis outlined above confirms the potential efficiencies available from these actions, and indicates where to focus efforts.

There is a wide dispersion of corporate spending per full time employee equivalent across agencies. There are some logical reasons for this variation. For example, some policy agencies require a larger communication function than others. However, it is likely that much of the variation is due to differences in efficiency, particularly for standard functions such as finance and human resources. The Commission considers that significant savings could be achieved by standardising corporate processes around best practice.

For example, if all agencies spending above the median per full time employee equivalent for each corporate function were to come down to the median, savings of over $1 billion could be achieved.

The human resources function is an area that holds the greatest potential for efficiency improvement. High level benchmarking suggests that median spending of $4,700 per person in the Australian Public Service is more than double the median in similar private sector organisations. This suggests that there may therefore be significant opportunity to lower the annual expenditure on human resources – which is currently around $980 million per year across surveyed agencies.

The Commission considers that a detailed benchmarking exercise should be undertaken to compare Australian Public Service human resources functions to operations in the private sector, to find opportunities for efficiencies.

Data collected from agencies indicates that around a third of public service agencies with over 20 staff already have some form of shared services in place, although on average this represents only around 9 per cent of their corporate services. Most agencies surveyed also outsource a small proportion of their corporate services (on average around 12 per cent).

The Commission considers that the introduction of greater shared services should start in the areas where economies of scale are already apparent – finance and procurement.

As an initial step, services for small agencies with under 200 staff should be provided by portfolio departments.


Recommendation 8: Public sector efficiency – Corporate services

There are opportunities to improve the efficiency of corporate services across the Australian Public Service. In accordance with the Commission's Phase One recommendation to standardise corporate business processes and adopt the staged introduction of shared corporate services, the Commission further recommends:

  1. the Department of Finance should conduct detailed benchmarking of Australian Public Service spending on human resources against private sector spending to identify common efficiencies;
  2. corporate business processes should be standardised to the most efficient practices, given the wide variation in costs across the Australian Public Service;
  3. departments should provide corporate services for all agencies within their portfolio with fewer than 200 staff; and
  4. the Government should introduce shared services for finance and procurement functions as early priorities.