5 Key Differences Between Organizations in the Public and Private Sectors
Public and private sectors have different goals and motives and are governed by somewhat different principles, with unique groups overseeing their actions and procedures. Organizations in the private sector have more freedom to operate, while public organizations are governed by laws, rules, traditions, and structural bureaucratic checks and balances. There are five significant distinctions between the public and private sectors.
1. Their goals are fundamentally different
The public sector is focused on serving the general public and looking after their interests, while the private sector’s fundamental concern is creating markets to enable earning profits. In the private sector, organizations must answer to stakeholders and customers. In the private sector, companies must answer to their investors and board of directors. Public sector agencies can survive the inefficient operation, while poorly run private sector firms can go broke and end up no longer in business. While the public sector is focused on addressing public concerns, these organizations are also being watched by many interest groups and oversight agencies. This difference in goals and external forces affects the way organizations in both sectors operate.
2. Differences in the way employees are hired
The ways in which employees are hired differs in both sectors. In the private sectors, managers have the ability to hire quickly depending on the business cycle and the need for more personnel. A longer process is involved in hiring employees in the public sector because it can take several years to create a new position and several months for an existing position to be filled. Similarly, the firing of employees in both sectors is subject to different time frames. Private sector managers can fire and offer severance packages to employees at any time while public sector managers encounter a good deal of bureaucratic red tape, requiring extensive documentation and making the removal process more complex and time-consuming.
3. The procurement process is drawn out in the public sector
Since public organizations are owned by the government and are funded by tax revenue, which is generated by the public or through the issuance of public debt, the procurement process is something public organizations do not directly control. Adequate funding must be attained and disbursed, procurement practices need to be approved by several governing bodies and suppliers often undergo background checks and other investigations, all of which slows down the procurement process considerably. Companies in the private sector benefit from a quicker procurement process. Private organizations are able to use their revenue from sales and investments to buy things when they need them. They are also less encumbered by regulations dictating supplier relationships, allowing them to get better deals and renew existing contracts to speed up the process.
4. Public organizations face unique accountability
Government organizations are subject to a specific kind of scrutiny. This is mainly due to the fact that they are funded by taxpayers who hold these agencies accountable for how their money is being spent and who view expenditures not only for their efficiency and effectiveness but also for the degree these address questions of social equity and fairness. The activities and accomplishments of these organizations hold a greater presence in the public eye. Leaders of private corporations are not accustomed to this level of scrutiny because they are accountable primarily to their board of directors and shareholders.
5. Public organizations often can’t choose their goals
In the private sector, businesses set their own goals and focus their resources on accomplishing them. The goals are set with the aim of achieving profits and capturing market share and are the result of company strategy. Public organizations continuously find themselves pressed by legislative mandates, facing outside forces, and often have to try to accommodate a host of other organizations or interest groups that can have conflicting goals. Public officials and political parties establish agendas on specific issues that advance their interests and keep them winning elections and in office. In this way, the goals of a public organization can see big changes driven by electoral politics.
Public and private organizations face challenges that are unique to each sector. Leadership in both spheres requires specific abilities for achieving their goals. While private sector managers often benefit from analytical thinking, business savvy and creative marketing techniques, public administrators who wish to excel require a deep understanding of laws and strong communication and interpersonal skills in addition to the business-oriented skills of a private sector manager.
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