January 2021©getty images healthcare systems and servi

January 2021
©/Getty Images
Healthcare Systems and Services Practice
The future of healthcare:
Value creation through next-
generation business models
While the consumption of healthcare services will likely
continue to grow, it is
unclear that industry profit pools will expand over the next
three years given
the impact of the COVID-19 pandemic. Healthcare players who
develop new
and innovative business models will create disproportionate
value in this
environment, even as they face long-term challenges.
by Emily Clark, Shubham Singhal, and Kyle Weber
expected across a range of sub-segments in the
services and technology vertical, as specialized
players are able to provide services at scale (for
example, software and platforms and data and
analytics). Specialty pharmacy is another area
where strong growth in profit pools is likely, with
between 5 and 10 percent Compound Annual
Growth Rate (CAGR) expected in infusion
services and hospital-owned specialty

pharmacy sub-segments.
Strategies that align to attractive and growing
profit pools, while important, may be insufficient
to achieve the growth that incumbents have
come to expect. For example, in 2019, 34
percent of all revenue in the healthcare system
was linked to a profit pool that grew at greater
than 5 percent per year (from 2017 to 2019). In
contrast, we estimate that only 13 percent of
revenue in 2022 will be linked to profit pools
growing at that rate between 2019 and 2022.
This estimate reflects that profit pools are
growing more slowly due to factors that include
lower membership growth, margin pressure, and
lower revenue growth. This relative scarcity in
opportunity could lead to increased competition
in attractive sub-segments with the potential for
profits to be spread thinly across organizations.
Developing new and innovative business models
will become important to achieve the level of
EBITDA growth observed in recent years and
deliver better care for individuals. The good
news is that there is significant opportunity, and
need, for innovation in healthcare.
New and innovative business
models across verticals can generate
greater value and deliver better care
for individuals
New and innovative business models are
beginning to show promise in delivering better
care and generating higher returns. The
existence of these models and their initial
successes are reflective of what we have
observed in the market in recent years: leading

organizations in the healthcare industry are not
content to simply play in attractive segments
and markets, but instead are proactively and
The healthcare industry in the United States has
experienced steady growth over the past decade
while simultaneously promoting quality, efficiency,
and access to care. Between 2012 and 2019, profit
pools (earnings before interest, taxes,
depreciation, and amortization, or EBITDA) grew at
a compound average growth rate of roughly 5
percent. This growth was aided in part by
incremental healthcare spending that resulted
from the 2010 Affordable Care Act. In 2020,
subsidies for qualified individual purchasers on the
marketplaces and expansion of Medicaid coverage
resulted in roughly $130 billion1,2 of incremental
healthcare spending by the federal government.
The next three years are expected to be less
positive for the economics of the healthcare
industry, as profit pools are more likely to be flat.
COVID-19 has led to the potential for economic
headwinds and a rebalancing of system funds.
Current unemployment rates (6.9 percent as of
October 2020³) indicate some individuals may
move from employer-sponsored insurance to other
options. It is expected that roughly between $70
billion and $100 billion in funding may leave the
healthcare system by 2022, compared with the
expected trajectory pre-COVID-19. The outflow is
driven by coverage shifts out of employer-
sponsored insurance, product buy-downs, and
Medicaid rate pressures from states, partially
offset by increased federal spending in the form of
subsidies and cost sharing in the Individual market

and in Medicaid funding.
Underlying this broader outlook are chances to
innovate (Exhibit 1).⁴ Innovation may drive outpaced
growth in three categories: segments that are
anticipated to rebound from poor performance
over recent years, segments that benefit from
shifting care patterns that result directly from
COVID-19, and segments where growth was
expected pre-COVID-19 and remain largely
unaffected by the pandemic. For the payer vertical,
we estimate profit pools in Medicaid will likely
increase by more than 10 percent per annum from
2019 to 2022 as a result of increased enrollment
and normalized margins following historical lows. In
the provider vertical, the rapid acceleration in the
use of telehealth and other virtual care options
spurred by COVID-19 could continue.⁵ Growth is
1The future of healthcare: Value creation through next-
EBITDA, earnings before interest, taxes, depreciation, and
amortization; FBS, �xed-bene�t and supplemental; PBA,
pharmacy bene�t administrator;
PBM, pharmacy bene�t manager.
Source: McKinsey Pro�t Pools Model
Distribution of projected healthcare EBITDA across healthcare
segments, 2022, %
PBM/
PBA

Specialty
pharmacy
Distributors
Dispensers
Pharmaceuticals and
biotechnology
Medical products
Group
Hospitals
O�ce-based physicians
Other professionals
Virtual healthcare
Pre-acute/non-acute
Diagnostic
Post-acute
Logistics
and supply
chain
Payment
services
Clinical

services
Broker
solutions
Consulting
Data
analytics
Software
and
platforms
Medicaid, virtual healthcare, and data analytics are among
segments o�ering
potential for outpaced growth.
Payer Provider
Services
and
technology
Pharma-
ceutical
services Manufacturers
Core
administrative
services
FBS

= 5–10%= 0–5% = >10%= <0%
2019–22 per annum growth rates
Individual
Medicaid
Ancillary
Medicare
Exhibit 1
Medicaid, virtual healthcare, and data analytics are among
segments offering
potential for outpaced growth.
Historical pro�t pool growth
compound annual growth
rate 2017–19, %
A glimpse into the sub-segment pro�t pool growth potential.
Payer
Provider
Pharmaceutical services
Manufacturer
Healthcare services and
technology
Projected pro�t pool growth

2019–22 in scenario A1, %
Pharmacy bene�t
management
Virtual o�ce visits
Wearables
Independent
labs
Medical �nancing
Medicare
Advantage
Small group
General acute
care hospitals
0
Historical and projected pro�t pool growth, %
0
Exhibit
A glimpse into the sub-segment profit pool growth potential.
We project that changes in profit pools for each of 101 distinct
sub-segments will vary significantly over the next three
years. In general, historic profit pool growth appears to be
loosely correlated with projected profit pool growth (exhibit);
however, there are a few conspicuous exceptions (for example,
the Payer—Individual segment). In addition, many of the

sub-segments where we project significant growth tend to be
relatively small. At the same time, many of the traditionally
large sub-segments are projected to grow relatively slowly (for
example, the Provider—General acute care hospitals
segment).
Within the context of these overarching observations, the
projections for specific sub-segments are nuanced and tightly
connected to the specific dynamics each sub-segment is
currently facing:
— Payer—Small Group: Small group has historically seen
membership declines and we expect this trend to continue
and/or accelerate in the event of an economic downturn.
Membership declines will increase competition and put
pressure on incumbent market leaders to both maintain share
and margin as membership declines, but fixed costs
remain. Payer—Medicare Advantage: Historic profit pool
growth in the Medicare Advantage space has been driven
by enrollment gains that result from demographic trends and a
long-term trend of seniors moving from traditional
Medicare fee-for-service programs to Medicare Advantage plans
that have increasingly offered attractive ancillary
benefits (for example, dental benefits, gym memberships).
Going forward, we expect Medicare members to be
relatively insulated from the effects of an economic downturn
that will impact employers and individuals in other
payer segments.
Glimpse into profit pool analyses and select sub-segments

example, behavioral health conditions), these
next-generation managed care models have
garnered notice. Nine of the top ten payers
have made acquisitions in the care delivery
space. Such models intend to reorient the
traditional payer model away from an
operational focus on financing healthcare
and pricing risk, and toward more integrated
managed care models that better align
incentives and provide higher-quality, better
experience, lower-cost, and more accessible
care. Payers that deployed next-generation
managed care models generate 0.5
percentage points of EBITDA margin above
average expectations after normalizing for
payer scale, geographical footprint, and
segment mix, according to our research.
fundamentally reshaping how the industry
operates and how care is delivered. While the
recipe across verticals varies, common among
these new business models are greater
alignment of incentives typically involving risk
bearing, better integration of care, and use of
data and advanced analytics.
Payers—Next-generation managed care
models
For payers, the new and innovative business
models that are generating superior returns are
those that incorporate care delivery and
advanced analytics to better serve individuals
with increasingly complex healthcare needs
(Exhibit 2). As chronic disease and other long-
term conditions require more continuous
management supported by providers (for

— Provider—General acute care hospitals: Cancelation of
elective procedures due to COVID-19 is expected to lead to
volume
and revenue reductions in 2019 and 2020. Though volume is
expected to recover partially by 2022, growth will likely be
slowed due to the accelerated shift from hospitals to virtual care
and other non-acute settings. Payer mix shifts from
Employer-sponsored to Medicaid and uninsured populations in
2020 and 2021 are also likely to exert downward pressure on
hospital revenue and EBITDA, possibly driving cost-
optimization measures through 2022.
— Provider—Independent labs: COVID-19 testing is expected
to drive higher than average utilization growth in independent
labs
through 2020 and 2021, with more typical utilization returning
by 2022. However, labs may experience pressure on revenue
and EBITDA growth as the payer mix shifts to lower-margin
segments, offsetting some of the gains attributed to utilization.
— Provider—Virtual office visits: Telehealth has helped
expand access to care at a time when the pandemic has
restricted
patients’ ability to see providers in person. Consumer adoption
and stickiness, along with providers’ push to scale-up
telehealth offerings, are expected to lead to more than 100
percent growth per annum in the segment from 2019 to 2022,
going beyond traditional “tele-urgent” to more comprehensive
virtual care.
— HST—Medical financing: The medical financing segment
may be negatively impacted in 2020 due to COVID-19, as many
elective services for which financing is used have been
deferred. However, a quick bounce-back is expected as more
patients

lacking healthcare coverage may need financing in 2021, and as
providers may use medical financing as a lever to improve
cash reserves.
— HST—Wearables: Looking ahead, the wearables segment is
expected to see a slight dip in 2020 due to COVID-19, but is
expected to rebound in 2021 and 2022 given consumer interest
in personal wellness and for tracking health indicators.
— Pharma services—Pharmacy benefit management: The
growth is expected to return to baseline expectations by 2022
after
an initial decline in 2020 and 2021 due to the COVID-19-driven
decrease in prescription volume.
more localized assets available for integration
and partnership. Payers may need to
increasingly turn toward strategic
partnerships and alliances to create value and
integrate a range of offerings that address all
drivers of health.
Providers—reimagining care delivery
beyond the hospital
For health systems, through an investme nt
lens, the ownership and integration of
alternative sites of care beyond the hospital
has demonstrated superior financial returns.
Between 2013 and 2018, the number of
transactions executed by health systems for
outpatient assets increased by 31 percent, for

physician practices by 23 percent, and for
post-acute care assets by 13 percent. At the
same time, the number of hospital-focused
deals declined by 6 percent. In addition,
private equity investors and payers are
becoming more active dealmakers in these
non-acute settings.6,7
The evidence for the effectiveness of these
next-generational care models goes beyond
the financial analysis of returns. We observe
that these models are being deployed in those
geographies that have the greatest opportunity
to positively impact individuals. Those markets
with 1) a critical mass of disease burden,
2) presence of compressible costs (the
opportunity for care to be redirected to lower-
cost settings), and 3) a market structure
conducive to shifting to higher-value sites of
care, offer substantial ways to improve
outcomes and reduce costs. (Exhibit 3).
Currently, a handful of payers—often large
national players with access to capital and
geographic breadth that enables acquisition of
at-scale providers and technologies —have
begun to pursue such models. Smaller payers
may find it more difficult to make outright
acquisitions, given capital constraints and
geographic limitations. M&A activity across the
care delivery landscape is leaving smaller and
amortization.
1Does not include administrative services only, Individual, or
Medicare stand-alone prescription drug plan.

2Weighted average on premium for excess gain across all lines
of business.
3Does not include Kaiser.
Source: McKinsey Payer Financial database
Payer EBITDA margin relative to expectation, 2017−181,2,3
Insurance business only, %
Other multi-segment
payers
Commercial-
focused payers
Government-
focused payers
Multi-segment
Blues
Payers with next-
generation managed
care model
-1.6
-0.9
-0.3
0.1
0.5
Payers using a next-generation care model could be positioned

to better succeed.
Single-segment payers may face challenges
Exhibit 2
Payers using a next-generation care model could be positioned
to better succeed.
not only to ensure referral integrity but also to
leverage economies of scale that drive efficiency.
The extent of this outperformance, however,
varies by market type. For players with top
quartile share, the difference in outperformance
between acute-focused players and diverse
players is less meaningful. Contrastingly, for
bottom quartile players, the increase in value
provided by presence beyond the acute setting is
more significant. While there may be
disadvantages for smaller and sub-scale
providers, opportunities exist for these players—
as well as new entrants and attackers—to
succeed by integrating offerings across the care
continuum.
As investment is focused on alternative sites of
care, we observe that health systems pursuing
diversified business models that encompass a
greater range of care delivery assets (for
example, physician practices, ambulatory
surgery centers, and urgent care centers) are

generating returns above expectations (Exhibit
4). By offering diverse settings to receive care,
many of these systems have been able to lower
costs, enhance coordination, and improve
patient experience while maintaining or
enhancing the quality of the services provided.
Consistent with prior research,⁸ systems with
high market share tend to outperform peers
with lower market share, potentially because
systems with greater share have greater ability
Source: American Hospital Association; CMS Geographic
Variation Data; Robert Wood Johnson Foundation; Truven
Payers have aligned next-generation care models with specic
markets to
deliver value.
Select physician groups
owned by payers
Attractiveness ranking (percentile)
0–25% 25–50% 50–75% >75%
Markets with meaningful activity include cities along the
Northeast corridor and in Florida.
Exhibit 3
Payers have aligned next-generation care models with specific
markets to
deliver value.

Healthcare services and technology—inno-
vation and integration across the value chain
Growth in the healthcare services and
technology vertical has been material, as
players are bringing technology-enabled
services to help improve patient care and boost
efficiency. Healthcare services and technology
companies are serving nearly all segments of
the healthcare ecosystem. These efforts
include working with payers and providers to
better enable the link between actions and
outcomes, to engage with consumers, and to
provide real-time and convenient access to
health information. Since 2014, a large number
and value of deals have been completed: more
than 580 deals, or $83 billion in aggregate
value.10,11 Venture capital and private equity have
fueled much of the innovation in the space:
more than 80 percent12 of deal volume has
come from these institutional investors, while
more traditional strategic players have focused
on scaling such innovations and integrating
them into their core.
These new models and entrants and their non-
acute, technology-enabled, and multichannel
offerings can offer a different vision of care
delivery. Consumer adoption of telehealth has
skyrocketed, from 11 percent of US consumers
using telehealth in 2019 to 46 percent now using
telehealth to replace canceled healthcare visits.
Pre-COVID-19, the total annual revenues of US
telehealth players were an estimated $3 billion;
with the acceleration of consumer and provider
adoption and the extension of telehealth beyond

virtual urgent care, up to $250 billion of current
US healthcare spend could be virtualized.⁹ These
early indications suggest that the market may be
shifting toward a model of innovative tech-
enabled care, one that unlocks value by
integrating digital and non-acute settings into a
comprehensive, coordinated, and lower-cost
offering. While functional care coordination is
currently still at the early stages, the potential of
technology and other alternative settings raises
the question of the role of existing acute-focused
providers in a more integrated and digital world.
Health system EBITDA margin relative to expectation,1, 2 %
amortization.
1Includes the largest health systems by revenue (approximately
110 systems), excluding Kaiser.
2Expected EBITDA based on scale, as measured by number of
admissions.
3Diversi-cation represents the ratio of acute to non-acute assets
(acute focused players have ratios in the bottom 25th percentile,
players
that are present across the continuum have ratios in the top 75th
percentile).
4Share represents the average in-county share for each health
system.
Source: American Hospital Association 2017 -nancial and
admissions data; De-nitive Healthcare sites of care data
Health systems that integrate across alternative sites of care
could be better
positioned to succeed.

Top quartile share4
Bottom quartile share4
Acute focused3 Present across
the continuum3
3.3 3.6
1.1
–3.3
The bottom quartile of the acute market may face challenges.
Exhibit 4
Health systems that integrate across alternative sites of care
could be better
positioned to succeed.
and population health management, have
exhibited high innovation but lower integration.
Traditional players have an opportunity to
integrate innovative new technologies and
offerings to transform and modernize their
existing business models. Simultaneously, new
(and often non-traditional) players are well
positioned to continue to drive innovation
across multiple sub-segments and through

combinations of capabilities (roll-ups).
Pharmacy value chain—emerging shifts in
delivery and management of care
The profit pools within the pharmacy services
vertical are shifting from traditional dispensing
to specialty pharmacy. Profits earned by retail
dispensers (excluding specialty pharmacy) are
expected to decline by 0.5 percent per year
through 2022, in the face of intensifying
competition and the maturing generic market.
New modalities of care, new care settings, and
Driven by this investment, multiple new models,
players, and approaches are emerging across
various sub-segments of the technology and
services space, driving both innovation
(measured by the number of venture capital
deals as a percent of total deals) and integration
(measured by strategic dollars invested as a
percent of total dollars) with traditional payers
and providers (Exhibit 5). In some sub-
segments, such as data and analytics, utilization
management, provider enablement, network
management, and clinical information systems,
there has been a high rate of both innovation
and integration. For instance, in the data and
analytics sub-segment, areas such as
behavioral health and social determinants of
health have driven innovation, while payer and
provider investment in at-scale data and
analytics platforms has driven deeper
integration with existing core platforms. Other
sub-segments, such as patient engagement
Source: PitchBook Data; McKinsey Healthcare Services and

Technology Domain Pro�t Pools Model
Rate of integration and innovation vary by sub-segment.
Total investment
dollars ($2.5 billion)
Utilization
management
Clinical information systems
and decision support
Revenue-cycle
management
Data and analytics
Provider enablement and
network management services
Patient engagement
and population health
management
Logistics and supply
chain servicesRisk adjustment
Payment integrity
Core administrative services
Consulting
Rate of
integration

Rate of innovation
Data and analytics and clinical information systems tend to have
higher rates of innovation
and integration.
Exhibit 5
Rate of integration and innovation vary by sub-segment.
acquisition of DivvyDose in September 2020).
COVID-19 has further accelerated innovation in
patient experience and new models of drug
delivery, with growth in tele-prescribing,17 a
continued shift toward delivery of
pharmaceutical care at home, and the
emergence of digital tools to help manage
pharmaceutical care. Select providers have
also begun to expand in-home offerings (for
example, to include oncology treatments),
shifting the care delivery paradigm toward
home-first models.
A range of new models to better integrate
pharmaceutical and medical care and
management are emerging. Payers, particularly
those with in-house pharmacy benefit
managers, are using access to data on both the
medical and pharmacy benefit to develop
distinctive insights and better coordinate
across pharmacy and medical care. Technology

providers, together with a range of both
traditional and non-traditional healthcare
players, are working to integrate medical and
pharmaceutical care in more convenient
settings, such as the home, through access to
real-time adherence monitoring and
interventions. These players have an
opportunity to access a broad range of
comprehensive data, and advanced analytics
can be leveraged to more effectively
personalize and target care. Such an approach
may necessitate cross-segment partnerships,
acquisitions, and/or alliances to effectively
integrate the many components required to
deliver integrated, personalized, and higher-
value care.
Creating and capturing new value
Before the COVID-19 pandemic, our research
indicated that profits for healthcare
organizations were expected to be harder to
earn than they have been in the recent past,
which has been made even more difficult by
COVID-19. New entrants and incumbents who
can reimagine their business models have a
chance to find ways to innovate to improve
healthcare and therefore earn superior returns.
The opportunity for incumbents who can
new distribution systems are emerging, though
many innovations remain in early stages of
development.
Specialty pharmacy continues to be an area of
outpaced growth. By 2023, specialty pharmacy is
expected to account for 44 percent of pharmacy

industry prescription revenues, up from 24
percent in 2013.13 In response, both incumbents
and non-traditional players are seeking
opportunities to both capture a rapidly growing
portion of the pharmacy value chain and deliver
better experience to patients. Health systems, for
instance, are increasingly entering the specialty
space. Between 2015 and 2018 the share of
provider-owned pharmacy locations with
specialty pharmacy accreditation more than
doubled, from 11 percent in 2015 to 27 percent in
2018, creating an opportunity to directly provide
more integrated, holistic care to patients.
A new wave of modalities of care and
pharmaceutical innovation are being driven by
cell and gene therapies. Global sales are
forecasted to grow at more than 40 percent per
annum from 2019 to 2024.14 These new therapies
can be potentially curative and often serve
patients with high unmet needs, but also pose
challenges:15 upfront costs are high (often in the
range of $500,000 to $2,000,000 per
treatment), benefits are realized over time, and
treatment is complex, with unique infrastructure
and supply chain requirements. In response, both
traditional healthcare players (payers,
manufacturers) and policy makers (for example,
the Centers for Medicare & Medicaid Services16)
are considering innovative models that include
value-based arrangements (outcomes-based
pricing, annuity pricing, subscription pricing) to
support flexibility around these new modalities.
Innovations also are accelerating in
pharmaceutical distribution and delivery. Non-

traditional players have entered the direct-to-
consumer pharmacy space to improve efficiency
and reimagine customer experience, including
non-healthcare players such as Amazon (through
its acquisition of PillPack in 2018) and,
increasingly, traditional healthcare players as
well, such as UnitedHealth Group (through its
need? How does my acquisition, partnership,
and alliances approach need to adapt to
deliver this rapid innovation?
— How do I prepare my broader organization to
adopt and scale new innovations? Are my
operating processes and technology
platforms able to move quickly in scaling
innovations?
There is no question that the next few years in
healthcare are expected to require innovation
and fresh perspectives. Yet healthcare
stakeholders have never hesitated to rise to the
occasion in a quest to deliver innovative, quality
care that benefits everyone. Rewiring
organizations for speed and efficiency, adapting
to an ecosystem model, and scaling innovations
to deliver meaningful changes are only some of
the ways that helping both healthcare players
and patients is possible.

reimagine their business models and new
entrants is substantial.
Institutions will be expected to do more than
align with growth segments of healthcare. The
ability to innovate at scale and with speed is
expected to be a differentiator. Senior leaders
can consider five important questions:
— How does my business model need to
change to create value in the future
healthcare world? What are my endowments
that will allow me to succeed?
— How does my resource (for example, capital
and talent) allocation approach need to
change to ensure the future business model
is resourced differentially compared with the
legacy business?
— How do I need to rewire my organization to
design it for speed?18
— How should I construct an innovation model
that rapidly accesses the broader market for
innovation and adapts it to my business
model? What ecosystem of partners will I
1 Federal subsidies for health insurance coverage for people
under age 65: 2016 to 2026, Congressional Budget Office,
Washington, DC,
March 2016, cbo.gov.
2 Includes adults made eligible for Medicaid by the ACA and
marketplace-related coverage and the Basic Health Program.
3 The employment situation—October 2020, US Department …

39034_fm_rev05.indd 2 22/10/15 7:26 AM
C l a s s i C s
o f
P u b l i C
a d m i n i s t r a t i o n
39034_fm_rev05.indd 1 22/10/15 7:26 AM
Copyright 2017 Cengage Learning. All Rights Reserved. May
not be copied, scanned, or duplicated, in whole or in part. Due
to electronic rights, some third party content may be suppressed
from the eBook and/or eChapter(s).
Editorial review has deemed that any suppressed content does
not materially affect the overall learning experience. Cengage
Learning reserves the right to remove additional content at any
time if subsequent rights restrictions require it.
39034_fm_rev05.indd 2 22/10/15 7:26 AM

C l a s s i C s
o f
P u b l i C
a d m i n i s t r a t i o n
E i g h t h E d i t i o n
Jay m . s h af r it z
Professor Emeritus
University of Pittsburgh
a l b e r t C . Hyd e
Senior Scholar in Residence
American University
Australia ● Brazil ● Mexico ● Singapore ● United Kingdom ●
United States
39034_fm_rev05.indd 3 22/10/15 7:26 AM
39034_fm_rev05.indd 2 22/10/15 7:26 AM
This is an electronic version of the print textbook. Due to

electronic rights restrictions,
some third party content may be suppressed. Editorial review
has deemed that any suppressed
content does not materially affect the overall learning
experience. The publisher reserves the right
to remove content from this title at any time if subsequent
rights restrictions require it. For
valuable information on pricing, previous editions, changes to
current editions, and alternate
formats, please visit www.cengage.com/highered to search by
ISBN#, author, title, or keyword for
materials in your areas of interest.
Important Notice: Media content referenced within the
product description or the product
text may not be available in the eBook version.
© 2017, 2012, 2009 Cengage Learning
ALL RIGHTS RESERVED. No part of this work
covered by the copyright herein may be reproduced,
transmitted, stored, or used in any form or by any
means graphic, electronic, or mechanical, including
but not limited to photocopying, recording, scanning,
digitizing, taping, web distribution, information

networks, or information storage and retrieval systems,
except as permitted under Section 107 or 108 of the
1976 United States Copyright Act, without the prior
written permission of the publisher.
Library of Congress Control Number: 2015939687
ISBN: 978-1-305-63903-4
Cengage Learning
20 Channel Center Street
Boston, MA 02210
USA
Cengage Learning is a leading provider of customized
learning solutions with employee s residing in nearly
40 different countries and sales in more than 125 coun-
tries around the world. Find your local representative at
www.cengage.com.
Cengage Learning products are represented in Canada
by Nelson Education, Ltd.
To learn more about Cengage Learning
Solution
s, visit
www.cengage.com.
Purchase any of our products at your local college store
or at our preferred online store

www.cengagebrain.com.
Classics of Public Administration,
Eighth Edition
Jay M. Shafritz, Albert C. Hyde
Product Director: Paul Banks
Product Manager: Carolyn Merrill
Content Developer: Amy Bither
Managing Content Developer:
Megan Garvey
Associate Content Developer:
Rachael Bailey
Product Assistant: Michelle Forbes
Marketing Manager: Valerie Hartman
Senior Content Project Manager:
Corinna Dibble

Art Director: Sarah Cole
Manufacturing Planner: Fola Orekoya
IP Analyst: Alexandra Ricciardi
IP Project Manager: Farah Fard
Production Service and Compositor:
MPS Limited
Cover Designer: Studio Montage
For product information and
technology assistance, contact us at Cengage Learning
Customer & Sales Support, 1-800-354-9706.
For permission to use material from this text or product,
submit all requests online at
www.cengage.com/permissions.
Further permissions questions can be emailed to
[email protected]

Printed in the united states of america
Print number: 01 Print Year: 2015
39034_fm_rev05.indd 4 22/10/15 7:26 AM
WCN: 02-200-203
ChronologiCal ContEnts
Part One | Early Voices and the First Quarter Century | ancient
times
1. the analects of Confucius (300 bCE) Confucius 19

2. on duties (44 bCE) Cicero 23
3. of the Principle of utility (1780) Jeremy Bentham 29
4. on War (1832) Carl von Clausewitz 32
5. the study of administration (1887) Woodrow Wilson 35
6. Politics and administration (1900) Frank J. Goodnow 48
7. Problems of municipal administration (1904) Jane Addams 51
8. scientific management (1912) Frederick W. Taylor 56
9. the movement for budgetary reform in the states (1918)
William F. Willoughby 59
10. bureaucracy (1922) Max Weber 63
11. introduction to the study of Public administration (1926)
Leonard D. White 68
12. the Giving of orders (1926) Mary Parker Follett 76
Part Two | the new Deal to Mid-Century | the 1930s to 1950s |
84
13. bureaucracy and the Public interest (1936) E. Pendleton
Herring 101
14. notes on the theory of organization (1937) Luther Gulick
105
15. report of the President’s Committee on administrative
management
(1937) Louis Brownlow, Charles E. Merriam, and Luther Gulick

114
16. bureaucratic structure and Personality (1940) Robert K.
Merton 119
17. a theory of Human motivation (1943) A. H. Maslow 127
18. the Proverbs of administration (1946) Herbert A. Simon 135
19. the administrative state revisited (1940, 1965) Dwight
Waldo 149
20. theory Y: the integration of individual and organizational
Goals (1957) Douglas McGregor 166
21. the science of “muddling through” (1959) Charles E.
Lindblom 172
Part Three | From JFK to Civil service reform | the 1960s and
1970s | 184
22. the road to PPb: the stages of budget reform (1966) Allen
Schick 203
23. organizations of the Future (1967) Warren Bennis 219
24. Policy analysts: a new Professional role in
Government service (1967)
Yehezkel Dror 230
25. the life Cycle of bureaus (1967) Anthony Downs 238
26. rescuing Policy analysis from PPbs (1969) Aaron Wildavsky
251

27. administrative decentralization and Political Power (1969)
Herbert Kaufman 265
28. the End of liberalism: the indictment (1969) Theodore J.
Lowi 278
29. toward a new Public administration (1971) H. George
Frederickson 282
30. dilemmas in a General theory of Planning (1973) Horst W.
J. Rittel and
Melvin M. Webber 295
31. systematic thinking for social action (1971) Alice M. Rivlin
307
39034_fm_rev05.indd 5 22/10/15 7:26 AM

32. the implementation Game (1977) Eugene Bardach 318
33. Watergate: implications for responsible Government (1974)
Frederick C. Mosher and Others 332
34. representative bureaucracy (1974) Samuel Krislov 339
35. intergovernmental relations: an analytical overview (1974)
Deil S. Wright 344
Part Four | From reagan to reinvention | the 1980s and 1990s |
358
36. Public and Private management: are they Fundamentally
alike in
all unimportant respects? (1980) Graham T. Allison 384
37. street-level bureaucracy: the Critical role of street-level
bureaucrats (1980) Michael Lipsky 402
38. Public budgeting amidst uncertainty and instability (1981)
Naomi Caiden 410
39. Public administrative theory and the separation of Powers
(1983)

David H. Rosenbloom 421
40. agendas, alternatives, and Public Policies (1984) John W.
Kingdon 433
41. the Possibility of administrative Ethics (1985) Dennis F.
Thompson 444
42. american Federalism: madison’s middle Ground in the 1980s
(1987)
Martha Derthick 453
43. the organizational Culture Perspective (1989) J. Steven Ott
465
44. From affirmative action to affirming diversity (1990)
R. Roosevelt Thomas, Jr. 472
45. toward a Feminist Perspective in Public administration
theory (1990)
Camilla Stivers 481
46. the motivational bases of Public service (1990) James L.
Perry and
Lois Recascino Wise 491
47. managing state Government operations: Changing Visions of

staff agencies (1990) Michael Barzelay and Babak J. Armajani
501
48. From red tape to results: Creating a Government that Works
better
and Costs less (1993) The National Performance Review 514
49. using Performance measures in the Federal budgeting
Process (1993)
U.S. Congressional Budget Office 522
Part Five | Public administration in the twenty-First Century |
532
50. information technology and democratic Governance (2002)
Joseph S. Nye Jr. 545
51. unmasking administrative Evil (2004) Guy B. Adams and
Danny L. Balfour 555
52. the Ethics of dissent: managing Guerilla Government (2006)
Rosemary O’Leary 567
53. inside Collaborative networks: ten lessons for Public
managers (2006)

Robert Agranoff 584
54. Public Value: theory and Practice : Conclusions (2011)
John Benington and Mark H. Moore 596
a Chronology of u.s. Public administration 609
vi | Chronological Contents |
39034_fm_rev05.indd 6 22/10/15 7:26 AM
toPiCal ContEnts
the Discipline of Public administration

the analects of Confucius Confucius . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
the study of administration, Woodrow Wilson . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
introduction to the study of Public administration, Leonard D.
White . . . . . . . . . . . . . . . . . . . . . . . . 68
the administrative state revisited, Dwight Waldo . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149
toward a new Public administration, H. George Frederickson . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282
Public administrative theory and the separation of Powers,
David H. Rosenbloom . . . . . . . . . . 421
Public administration in context
Politics and administration, Frank J. Goodnow . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
administrative decentralization and Political Power, Herbert
Kaufman . . . . . . . . . . . . . . . . . . . . . . 265
the End of liberalism: the indictment, Theodore J. Lowi . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 278
toward a Feminist Perspective in Public administration theory,
Camilla Stivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 481

Bureaucracy
bureaucracy, Max Weber . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
bureaucratic structure and Personality, Robert K. Merton . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119
organizations of the Future, Warren Bennis . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219
the life Cycle of bureaus, Anthony Downs . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 238
street-level bureaucracy: the Critical role of street-level
bureaucrats,
Michael Lipsky . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 402
managing state Government operations: Changing Visions of
staff agencies,
Michael Barzelay & Babak J. Armajani . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 501
organization theory
scientific management, Frederick W. Taylor . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
the Giving of orders, Mary Parker Follett . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76

notes on the theory of organization, Luther Gulick . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105
the Proverbs of administration, Herbert A. Simon . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135
the organizational Culture Perspective, J. Steven Ott . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 465
human resources Management
a theory of Human motivation, A. H. Maslow. . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127
theory Y: the integration of individual and organizational Goals,
Douglas M. McGregor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166
representative bureaucracy, Samuel Krislov . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339
From affirmative action to affirming diversity, R. Roosevelt
Thomas, Jr. . . . . . . . . . . . . . . . . . . . . . 472
the motivational bases of Public service, James L. Perry & Lois
Recascino Wise . . . . . . . . . . . . . . . 491
the Budgetary Process
the movement for budgetary reform in the states, William F.
Willoughby . . . . . . . . . . . . . . . . . . . . 59
the road to PPb: the stages of budget reform, Allen Schick . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . 203
rescuing Policy analysis from PPbs, Aaron Wildavsky . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 251
39034_fm_rev05.indd 7 22/10/15 9:27 AM
viii | topical Contents |
using Performance measures in the Federal budgeting Process
U.S. Congressional Budget Office . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 522
Public budgeting amidst uncertainty and instability, Naomi
Caiden . . . . . . . . . . . . . . . . . . . . . . . . . . 410

Public Management
Problems of municipal administration, Jane Addams . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
report of the President’s Committee on administrative
management, Louis Brownlow,
Charles E. Merriam, & Luther Gulick . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
Public and Private management: are they Fundamentally alike in
all
unimportant respects? Graham T. Allison . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 384
From red tape to results: Creating a Government that Works
better and
Costs less, The National Performance Review . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 514
Public Value: theory and Practice : Conclusions
John Benington and Mark H. Moore . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 596
Public Policy and analysis

of the Principle of utility, Jeremy Bentham . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
the science of “muddling through,” Charles E. Lindblom . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 172
Policy analysts: a new Professional role in Government service,
Yehezkel Dror . . . . . . . . . . . . . 230
dilemmas in a General theory of Planning, Horst W. J. Rittel &
Melvin M. Webber . . . . . . . . . . . 295
agendas, alternatives, and Public Policies, John W. Kingdon . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 433
Program implementation & Evaluation
on War, Carl von Clausewitz . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
systematic thinking for social action, Alice M. Rivlin . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307
the implementation Game, Eugene Bardarch . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 318
intergovernmental relations
intergovernmental relations: an analytical overview, Deil S.
Wright . . . . . . . . . . . . . . . . . . . . . . . . 344
american Federalism: madison’s middle Ground in the 1980s,
Martha Derthick . . . . . . . . . . . . . 453
information technology and democratic Governance, Joseph S.

Nye Jr. . . . . . . . . . . . . . . . . . . . . . . 545
inside Collaborative networks: ten lessons for Public managers,
Robert Agranoff . . . . . . . . . . . 584
Public service Ethics
on duties, Cicero . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
bureaucracy and the Public interest, E. Pendleton Herring . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
Watergate: implications for responsible Government, Frederick
C. Mosher & Others . . . . . . . . . . 332
the Possibility of administrative Ethics, Dennis F. Thompson . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 444
unmasking administrative Evil, Guy B. Adams & Danny L.
Balfour . . . . . . . . . . . . . . . . . . . . . . . . . . 555
the Ethics of dissent: managing Guerilla Government Rosemary
O’Leary . . . . . . . . . . . . . . . . . . . . 567
39034_fm_rev05.indd 8 22/10/15 7:26 AM

ix
PrEFaCE
be assured—the editors are not so bold as to assert that these
are the classics of public administration.
the field is so diverse that there can be no such list. However,
we do contend that it is possible to make
a list of many of the discipline’s most significant writers and
provide representative samples of their
work. that is what we have attempted here. it is readily admitted
that writers of equal stature have not
found their way into this collection and that equally important
works of some of the authors included
here are missing. Considerations of space and balance
necessarily prevailed.
the primary characteristic of a classic in any field is its
enduring value. We have classic automo-

biles, classic works of literature, and classic techniques for
dealing with legal, medical, or military prob-
lems, and so on. Classics emerge and endure through the years
because of their continuing ability to
be useful. The Three Musketeers is as good an adventure story
today as it was in 1844 when alexandre
dumas wrote it. but how many other nineteenth-century novels
can you name? Few have general util-
ity for a twenty-first-century audience. it has been no different
with the professional literature of public
administration. much has been written, but what is still worth
reading today or will be tomorrow? the
intent of this collection is to make readily available some of the
most worthwhile material from the
past that will be equally valuable for tomorrow.
We had three criteria for including a selection. First, the
selection had to be relevant to a main
theme of public administration. it had to be a basic statement
that was consistently echoed or even
attacked in subsequent years. it also had to be important—of
continuing relevance. this leads to our
second criterion: significance. the selection had to be generally
recognized as a significant contribu-
tion to the realm and discipline of public administration. an

unrecognized classic seems to us to be a
contradiction. as a general rule, we asked ourselves, “should the
student of public administration be
expected to be able to identify this author and his or her basic
themes?” if the answer was yes, then it
was so because such a contribution has long been recognized by
the discipline as an important theme
by a significant writer. Whereas the editors can and expect to be
criticized for excluding this or that
particular article or writer, it would be difficult to honestly
criticize us for our inclusions. the writ-
ers chosen are among the most widely quoted and reprinted
practitioners and academics in public
administration. the basic idea of this book was simply to bring
them together. the final criterion for
inclusion was readability. We sought selections that would be
read and appreciated by people with or
without a substantial background in public administration.
selections are arranged in chronological order. While past
editions have started with Woodrow
Wilson in 1887, this edition includes four new/old readings,
beginning with Confucius in ancient
China, that address themes that are essential to understanding
the development of public administra-

tion as part of state-building. and while Classics has always
been a collection of readings about u.s.
public administration, these four new/old selections are a
reminder that before the american experi-
ence, there existed other forms of public administration as part
of other states: China, rome, and
Prussia, among others.
our hope is still that when presented in chronological order, the
collection will give the reader a
sense of the continuity of the discipline’s thinking and show
how the various writers and themes liter-
ally build on or depart from each other. this also facilitates
introducing the writers’ themes as repre-
sentative of a particular era. obviously, many authors can span
(and have spanned) the decades with
their contributions to the literature of the discipline.
nevertheless, the selections reprinted here should
be viewed and discussed in their historical context. although
many of the selections might seem quite
old to a student readership, do not for a moment think that they
are dated. they are considered classics
in the first place because of their continuing value to each new
generation.

We are pleased that this text is so widely used in schools of,
and courses on, public administration.
We naturally hesitate to change a product that has proved so
useful to our peers. but this edition of
39034_fm_rev05.indd 9 22/10/15 7:26 AM
x | Preface |
Classics has a number of changes. the publishing world has
changed and textbooks have been greatly
affected by the digital revolution. in some cases, selections we
have included in the past were unavail-
able or the rights to reprint prohibitively expensive. While we

are aware that the textbook market is
becoming in many ways a rental market, our aim remains to
make this book affordable for use in the
classroom as both a main resource or as a supplement to other
required textbooks. Even more impor-
tantly, we hoped that that this might be a book that would
remain in the students’ professional collec-
tion after graduation for future reference and not have to be sold
back to help pay down student loans.
Even when some previous classics were not available, we
have—using fair use doctrine—included
a short excerpt on a critical idea, discussed the central theme
and included the full reference for the
student to find for further reading.
Classics is organized in five sections, concluding with the new
section for the twenty-first cen-
tury, which was added in the last edition. it is even more
apparent that the pace and scale of political,
economic, social, technological, and now ecological change in
the environment since 2000 does rep-
resent a new era. Consequently, it needs to be discussed as
such. the global economy and environ-
ment demands a broader, deeper, and truly global perspective on
the purpose and design of public

administration—whether it is in the united states, the European
union, russia, China, brazil, india,
south africa, or wherever. We fully expect that much will be
different within our field as american
public administration meets global governance issues. Future
editions will surely reflect this inevitable
movement.
in past editions, we have thanked many of our colleagues and
friends for their help in the prepara-
tion of the current and earlier editions. the list has grown longer
with each edition. We thought for this
edition we would simply acknowledge the obvious—that a work
like Classics of Public Administration
is the result of an ongoing conversation with old and new
colleagues and increasingly old and new stu-
dents. it has been our great fortune to have colleagues and
friends who have both supported the book
and taken the time to educate us about what they feel is truly
classic about our field.
two special notes of appreciation are warranted. Professor Eric
Zeemering at northern illinois
university Public administration department has been
instrumental in keeping us current on the

progress and direction of intergovernmental relations. Professor
david rosenbloom of the american
university remains our oldest and most frequent advisor on
classics.
Finally, we thank the publishing team at Cengage learning,
including amy bither, Carolyn merrill,
Corinna dibble, alexandra ricciardi, and Farah Fard.
Jay M. shafritz
Professor Emeritus
The University of Pittsburgh
albert C. hyde
Senior Scholar
Department of Public Administration and Policy
School of Public Affairs
American University
39034_fm_rev05.indd 10 22/10/15 7:26 AM

39214_fm_rev04.indd 4 12/11/12 2:28 PM
Public
Administration
An Action Orientation
Seventh Edition

R O B E R T B . D E N H A R D T
University of Southern California
J A N E T V. D E N H A R D T
University of Southern California
TA R A A . B l A N c
Arizona State University
Australia • Brazil • Mexico • Singapore • Spain • United
Kingdom • United States
39214_fm_rev04.indd 1 12/11/12 2:28 PM

39214_fm_rev04.indd 4 12/11/12 2:28 PM
This is an electronic version of the print textbook. Due to
electronic rights restrictions,
some third party content may be suppressed. Editorial review
has deemed that any suppressed
content does not materially affect the overall learning
experience. The publisher reserves the right
to remove content from this title at any time if subsequent
rights restrictions require it. For
valuable information on pricing, previous editions, changes to
current editions, and alternate
formats, please visit www.cengage.com/highered to search by
ISBN#, author, title, or keyword for
materials in your areas of interest.

© 2014, 2009, 2006, Wadsworth, Cengage Learning
ALL RIGHTS RESERVED. No part of this work covered by the
copyright
herein may be reproduced, transmitted, stored, or used in any
form or by
any means graphic, electronic, or mechanical, including but not
limited to
photocopying, recording, scanning, digitizing, taping, Web
distribution,
information networks, or information storage and retrieval
systems, except
as permitted under Section 107 or 108 of the 1976 United States
Copyright
Act, without the prior written permission of the publisher.
Library of Congress Control Number: 2012943892
ISBN-13: 978-1-133-93921-4
ISBN-10: 1-133-93921-X

Wadsworth
20 Channel Center Street
Boston, MA 02210
USA
Cengage Learning is a leading provider of customized learning
solutions with
office locations around the globe, including Singapore, the
United Kingdom,
Australia, Mexico, Brazil and Japan. Locate your local office at
international.cengage.com/region.
Cengage Learning products are represented in Canada by
Nelson Education, Ltd.
For your course and learning solutions, visit www.cengage.com.
Purchase any of our products at your local college store or at
our preferred
online store www.cengagebrain.com.
Instructors: Please visit login.cengage.com and log in to access
instructor-specific resources.
Public Administration: An Action

Orientation, Seventh Edition
Robert B. Denhardt, Janet V. Denhardt,
and Tara A. Blanc
Publisher: Suzanne Jeans
Executive Editor: Carolyn Merrill
Acquiring Sponsoring Editor: Anita Devine
Development Editor: Michael B. Kopf,
S4Carlisle Publishing Services
Assistant Editor: Patrick Roach
Media Editor: Laura Hildebrand
Brand Manager: Lydia LeStar
Marketing Development Manager:
Kyle Zimmerman
Rights Acquisitions Specialist:
Jennifer Meyer Dare

Art and Design Direction, Production
Management, and Composition:
Cenveo Publisher Services
Manufacturing Planner: Fola Orekoya
Cover Image: Rachelle Antoinette
Printed in the United States of America
1 2 3 4 5 6 7 16 15 14 13 12
For product information and technology assistance, contact us at
Cengage Learning Customer & Sales Support, 1-800-354-9706
For permission to use material from this text or product,
submit all requests online at www.cengage.com/permissions.
Further permissions questions can be emailed to
[email protected]
39214_fm_rev04.indd 2 12/11/12 2:28 PM

For all our children
39214_fm_rev04.indd 3 12/11/12 2:28 PM
39214_fm_rev04.indd 4 12/11/12 2:28 PM

v
cONTENTS
PREFACE xiv
ACknowlEdgmEntS xvii
About thE AuthoRS xviii
ChAPtER 1 PERSonAl ACtIon In PublIC oRgAnIZAtIonS 1
What Is Public Administration? 2
Values of Democracy 3
Contrasting Business and Public Administration 5

Ambiguity 6
Pluralistic Decision Making 6
Visibility 7
Thinking about Public Administration Today 7
Publicness 8
The Global Context 9
What Do Public Administrators Do? 10
An Inventory of Public Management Skills 11
Voices of Public Administrators 13
Why Study Public Administration? 14
Preparing for Administrative Positions 16
Combining Technical and Managerial Training 17
Interaction of Business and Government 18
Influencing Public Organizations 19
Making Things Happen 20
Issues in Public Administration Theory and Practice 22
Politics and Administration 22
Ensuring Accountability 23
Bureaucracy and Democracy 24

Efficiency versus Responsiveness 25
Summary and Action Implications 26
Study Questions 26
Cases and Exercises 27
For Additional Reading 30
Appendix: Office of Personnel Management List of Core
Executive Qualifications 31
ChAPtER 2 thE PolItICAl ContEXt oF PublIC AdmInIStRAtIon
35
Administrative Organizations and Executive Leadership 36
Administrative Organizations 39
39214_fm_rev04.indd 5 12/11/12 2:28 PM

v i Contents
The Executive Office of the President 39
Cabinet-Level Executive Departments 40
Independent Agencies, Regulatory Commissions,
and Public Corporations 41
Agencies Supporting the Legislature and the Judiciary 41
The State Level 42
The Local Level 44
Cities 44
Counties 46
Native American Tribes 46
Special Purpose Governments 47
Nonprofit Organizations and Associations 48
Relationships with the Legislative Body 49
The Policy Process 50
Agenda Setting 50
Policy Formulation 52

Policy Legitimation 53
Policy Implementation 54
Policy Evaluation and Change 55
Types of Policy 55
Regulatory Policy 55
Distributive Policy 57
Redistributive Policy 57
Constituent Policy 58
Sources of Bureaucratic Power 59
Legislative Supervision: Structural Controls 61
Legislative Veto 62
Sunset Laws 63
Sunshine Laws 63
Agency Conduct 64
Legislative Supervision: Oversight 65
Legislative Supervision: Casework 66
Relationships with the Judiciary 67
Quasi-Legislative Action 67
Quasi-Judicial Action 69
Agency Discretion 69

Judicial Review 70
Concerns for Due Process 71
The Courts and Agency Administration 72
Study Questions 75
39214_fm_rev04.indd 6 12/11/12 2:28 PM

Contents v i i
ChAPtER 3 thE IntERoRgAnIZAtIonAl ContEXt oF PublIC
AdmInIStRAtIon 79
The Development of Intergovernmental Relations 82
Dual Federalism 84
Cooperative Federalism 85
Picket-Fence Federalism 86
The Reagan and First Bush Years 89
The Clinton Presidency 90
The Bush Administration 91
Obama and Federalism 94
Judicial Influence 96
The State and Local Perspective 98
Funding Patterns 98
Preemptions and Mandates 99
Preemptions 99
Mandates 102
Subnational Relationships 104
State to State 104
State to Local 105

Local to Local 107
Working with Nongovernmental Organizations 108
Privatization and Contracting 109
The Management of Nonprofit Organizations 114
Operational Leadership 114
Resource Development 115
Financial Management 116
Board Governance 117
Board-Staff Relations 118
Advocacy 119
Study Questions 120
ChAPtER 4 PlAnnIng, ImPlEmEntAtIon, And EVAluAtIon 123
Planning 124
Strategic Planning 125

Planning for Planning 125
Organizing for Planning 127
Steps in Planning 127
Statement of Mission or Objectives 128
Environmental Analysis 128
Assessment of Strengths and Weaknesses 128
39214_fm_rev04.indd 7 12/11/12 2:28 PM
v i i i Contents
Analysis of Organizational Leaders’ Values 129
Development of Alternative Strategies 129

The Logic of Policy Analysis 129
Steps in Policy Analysis 130
Defining the Problem 130
Setting Objectives and Criteria 131
Developing Alternatives 132
Analyzing Various Policies 132
Ranking and Choosing 133
Costs and Benefits 133
Other Quantitative Techniques 134
Implementation 138
Organizational Design 139
Systems Analysis 141
Reengineering 143
Evaluation 144
Program Evaluation 145
Evaluation Designs and Techniques 146
Qualitative Techniques 147
Quantitative Techniques 148

Study Questions 150
ChAPtER 5 budgEtIng And FInAnCIAl mAnAgEmEnt 155
The Budget as an Instrument of Fiscal Policy 156
The Budget as an Instrument of Public Policy 157
Where the Money Comes From 158
Individual Income Tax 159
Corporation Income Tax 159
Payroll Taxes 160
Sales and Excise Taxes 160
Property Taxes 160
Other Revenue Sources 161
Where the Money Goes 161
From Deficits to Surplus and Back 163

The Bush Tax Plan 165
Obama and Economic Recovery 166
State and Local Expenditures 167
The Budget as a Managerial Tool 169
Budget Formulation 169
39214_fm_rev04.indd 8 12/11/12 2:28 PM
Contents i x
Budget Approval 172
Budget Execution 174

Audit Phase 176
Approaches to Public Budgeting 176
The Line-Item Budget 177
The Performance Budget 178
Program Budgeting 179
Outcome-Based Budgeting 181
Budgetary Strategies and Political Games 181
Strategies for Program Development 182
Aspects of Financial Management 184
Capital Budgeting 184
Debt Management 186
Risk Management 187
Purchasing 187
Accounting and Related Information Systems 188
Government Accounting 188
Computer-Based Information Systems 190
Study Questions 192

ChAPtER 6 thE mAnAgEmEnt oF humAn RESouRCES 203
Merit Systems in Public Employment 204
Spoils versus Merit 204
The Civil Service Reform Act and Its Aftermath 208
Reinvention and the National Performance Review 210
State and Local Personnel Systems 212
Hiring, Firing, and Things in Between 213
Classification Systems 213
The Recruitment Process 214
Pay Systems 217
Conditions of Employment and Related Matters 218
Sexual Harassment 219
AIDS Policy 220
Workplace Violence 221
Removing Employees 221
Personnel Reform Efforts 222
The Changing Character of Labor-Management Relations 224
Steps in the Bargaining Process 227

39214_fm_rev04.indd 9 12/11/12 2:28 PM
x Contents
To Strike or Not to Strike 229
Unions Redefined 230
Correcting Patterns of Discrimination
in Public Employment 232
Americans with Disabilities Act 233
Questions of Compliance 234
Affirmative Action and Reverse Discrimination 236
The Glass Ceiling 238

Relations between Political Appointees and Career Executives
239
Study Questions 242
ChAPtER 7 thE EthICS oF PublIC SERVICE 249
Approaches to Ethical Deliberation 249
Reasoning, Development, and Action 251
Moral Philosophy 252
Moral Psychology 253
Moral Action 255
Postmodern Ethics 257
Issues of Administrative Responsibility 259
The Limits of Administrative Discretion 260
Avenues for Public Participation 263

Transparency in Government 265
The Ethics of Privatization 266
Ethical Problems for the Individual 267
Interacting with Elected Officials 267
Following Orders 268
Conflicts of Interest 270
Whistle-Blowing 273
Prohibitions on Political Activities 275
Managing Ethics 277
Establishing an Ethical Climate 278
Study Questions 281
Appendix: Code of Ethics of the American Society for
Public Administration (ASPA) 285
39214_fm_rev04.indd 10 12/11/12 2:28 PM

Contents x i
ChAPtER 8 dESIgnIng And mAnAgIng oRgAnIZAtIonS 289
The Organizational Context 289
Images of Organizing in the Public and Nonprofit Sectors 291
The Functions of Management 292
The Early Writers: A Concern for Structure 294
Recognizing Human Behavior 298
Two Classic Works 300

The Organization and Its Environment 302
Systems Theory 302
From Political Economy to Organization Development 304
Decision Making in Organizations 305
Organizational Culture, Organizational Learning, and
Strategic Management 307
Guidelines for Public Management 313
Postmodern Narratives on Management 315
Postmodernism 315
Issues of Gender and Power 316
Study Questions 318
ChAPtER 9 lEAdERShIP And mAnAgEmEnt SkIllS In PublIC
oRgAnIZAtIonS 323

Leadership and Power 324
Communication 331
Listening 331
Have a Reason or Purpose 332
Suspend Judgment Initially 332
Resist Distractions 332
Wait before Responding 333
Rephrase What You Listen To in Your Own Words 333
Seek the Important Themes 333
Use the Thinking-Speaking Differential to Reflect and Find
Meaning 334
Speaking 334
Writing 335
Delegation and Motivation 336
Delegation 336
Motivation 337
Pay and Job Satisfaction 337
Reinforcement Theory 338
Goal Setting 340

39214_fm_rev04.indd 11 12/11/12 2:28 PM
x i i Contents
Individual Decision Making 342
Group Dynamics 345
Advantages of Group Decision Making 345
Disadvantages of Group Decision Making 346
Interpersonal Dynamics in Groups 348
Specialized Techniques for Group Decision Making 349
Conflict, Bargaining, and Negotiation 350

Study Questions 353
Appendix: “Lost on the Moon” Exercise: Answers from NASA
Experts 358
ChAPtER 10 AdmInIStRAtIVE REFoRm, PRoduCtIVItY, And
PERFoRmAnCE 361
New Public Management, Reinvention,
the Management Agenda, and Nonprofit Reform 363
The New Public Management 363
Reinventing Government 364
The Management Agenda 365
Nonprofit Management Reform 366
The Results of NPM and Reinvention 368
Information and Communication Technologies 369
Technology and Management Reform 370

E-Government and E-Governance 371
Performance Measurement 374
Implementation Issues in Quality and Productivity 384
Steps to Productivity Improvement 385
Study Questions 389
ChAPtER 11 oPPoRtunItIES FoR thE FutuRE:
globAlIZAtIon, dEmoCRACY, And thE nEw PublIC SERVICE
393
The Importance of Public Service 393
Trends in Public Service 394
Economic Changes and Redefining Government 394
Globalization 397

The Role of Citizens in the Governance Process 398
39214_fm_rev04.indd 12 12/11/12 2:28 PM
Contents x i i i
Ethics and the Imperatives of Good Governance 402
A Final Note 404
Study Questions 405

glossar y 407
References 415
Index 431
39214_fm_rev04.indd 13 12/11/12 2:28 PM
PREFAcE
The seventh edition of Public Administration: An Action
Orientation updates the text

by taking it through President Obama’s first term and into his
second term, follow-
ing a very close election. It discusses the implications of the
recent economic crisis,
explores the resulting budget deficits at all levels of
government as well as the increase
in the national debt, considers the possible ramifications of the
Obama health care
reform effort, and covers recent political moves to limit
collective bargaining for public
employees.
Most notably, the book has been revised to more completely
examine performance
in government, on the one hand, and efforts to engage citizens
in the work of public
and nonprofit organizations, on the other hand. Placed in the
context of the history of
reform in the field, we now have extended our discussion of
management reforms such
as the New Public Management, updated material on advances
in information and com-
munication technology, and given more emphasis to
performance management systems.
In addition, we have included important new material dealing

with leadership, organi-
zational theory, and bureaucracy; expanded the discussion of
special purpose govern-
ments, including school districts; and given a closer look at the
increasingly important
connection between public administration and civic action or
citizenship. We particu-
larly emphasize new efforts to promote transparency,
collaboration, and participation
in public and nonprofit organizations, with much of this
discussion centering on the
New Public Service. We have once again reordered the chapters
to create a more logical
progression of material given the large number of revisions
since the organization of
the previous edition. Additionally, new vignettes asking “What
Would You Do?” give
students the opportunity to think about and discuss their
responses to specific and real-
istic challenges in public service. Finally, we have inserted in
each chapter a reference to
CourseReader.
CourseReader for Public Administration: An Action Orientation
ISBN-13: 9781133939214 (Public Administration: An Action

Orientation with Printed
Access Card for CourseReader)
CourseReader 0-30 PAC ISBN-13: 9781133350385 (Printed
Access Card)
CourseReader 0-30 IAC ISBN-13: 9781133350378 (Instant
Access Code)
In addition to reviewing important public administration issues,
we have selected cer-
tain readings that highlight the focus of each chapter. Assigning
readings can often be
a difficult process. Within each chapter, you will come across
reading assignments that
are easily accessible within the Cengage Learning
CourseReader. We have designed the
CourseReader selections to tie in seamlessly with the section
material. Keeping in mind
that we must make the most of the time today’s busy students
can allocate to extra reading,
we’ve handpicked one selection per chapter that will add the
most to their study, reinforce
the concepts from the text, and help them apply what they’ve
learned to events around
them. You may assign the questions that accompany the

readings as graded or completion-
based homework or use them to spark in-class discussion.
x i v
39214_fm_rev04.indd 14 12/11/12 2:28 PM
Preface x v
CourseReader is an easy-to-use and affordable option to create
an online collection of
readings for your course, and this is the first and only
introductory book to political sci-
ence offering a customizable e-reader. You may assign the

readings we’ve recommended
for each chapter without any additional setup, or you can choose
to create and customize
a reader specifically for your class from the thousands of text
documents and media clips
within CourseReader. You can also
● add your own notes and highlight sections within a reading.
● edit the introductions to the readings.
● assign due dates using the pop-up calendar.
● easily organize your selections using the drag-and-drop
feature.
You can view a demo of CourseReader at
www.cengage.com/coursereader.
Companion Website for Public Administration: An Action
Orientation
ISBN 13: 9781133938712
Students will find open access to tutorial quizzes for every
chapter, while instructors have
access to the Instructor’s Manual for Public Administration: An
Action Orientation.

Instructor’s Manual for Public Administration: An Action
Orientation online
ISBN 13: 9781133949145
The Instructor’s Manual includes an introduction on teaching
public administration, ideas
on preparing and designing a syllabus, a section on using
supplementary textbooks, an
overview and test bank including multiple-choice, true/false,
and essay questions for each
chapter, and a section on ideas for class activities.
Like previous editions, the seventh edition contains subtle but
telling differences from
other books in the field. We assume that students in an
introductory course in public
administration don’t want to learn about the profession only in
the abstract, but are inter-
ested in influencing the operations of public agencies, as
managers from the inside or as
citizens from the outside. They want to acquire the skills
necessary for changing things for
the better.
For this reason, it is important that the text not only introduce

students to the schol-
arly literature of public administration, but also that it helps
them develop the insights
and abilities that will make them more effective and responsible
actors. This book con-
tains a good deal of material that is basic to working in or with
public organizations. At
the same time, the discussion attends to the complex and often
confounding values that
distinguish work in the public sector. Most significant,
however, is the focus on personal
values and interpersonal skills that are crucial to effecting
change in public organizations.
Another feature of the book is its balanced attention to the work
of managers at all
levels of government and in nonprofit organizations. Although
the federal government is a
powerful model for the study of public administration, managers
of state and local agen-
cies are important actors in the governmental process, and their
work is acknowledged and
examined as well. Similarly, we show how managers of
associations, nonprofit and “third-
sector” organizations, and even traditionally private

organizations are now confronting
39214_fm_rev04.indd 15 12/11/12 2:28 PM
x v i Preface
the same issues faced by administrators in the public sector. In
fact, we frequently use the
term public organizations to describe all such groups involved
in the management of pub-
lic programs.
This edition also gives proper attention to the global dimensions
of public administra-

tion today. No longer is administrators’ work confined to their
own organizations or even
to their own jurisdictions. The complexity of modern life
means, among other things, that
administrators must be attentive to developments around the
world as well as to those at
home. Decisions made in a foreign capital may affect the work
of a public administrator
even more significantly than those made only miles away.
Today, knowledge of interna-
tional affairs and comparative issues is important not only to
those who work in other
countries but also to all who work in public administration.
Public Administration: An Action Orientation remains
distinctive in its treatment of
the ethics of public service. The topic of ethics is thoroughly
covered in a separate chap-
ter, and references to ethical concerns appear throughout the
text. Ethical issues cannot
be separated from action. Indeed, every act of every public
servant, at whatever level of
government or in any related organization, has an important
ethical dimension. For this
reason, we have made a strong effort to discuss the ethical

considerations that are a part of
all administrative activities.
Finally, Public …
Instructions:
Current event topics (two) are due weeks 3 and 4. They are 20%
of your grade in total,10% each. Any topics pertaining to
healthcare business models are acceptable. This is written
content approximately 2-3 pages.
Discuss during the key points of the article, relevance to the
course and your interpretations.

January 2021©getty images healthcare systems and servi

Recommended

Recommended

More Related Content

What's hot

What's hot (20)

Similar to January 2021©getty images healthcare systems and servi

Similar to January 2021©getty images healthcare systems and servi (20)

More from niraj57

More from niraj57 (20)

Recently uploaded

Recently uploaded (20)

January 2021©getty images healthcare systems and servi