About Institutional Development
Concern for Institutional Development has grown with the recognition that narrowly focussed technical reform initiatives have not yielded results. Experience has shown that even with the best designed technical assistance projects, performance and impact can be limited by unforeseen or unconsidered political or institutional constraints. Institutional Development (ID) offers an approach to understanding and dealing with these constraints by recognizing that underlying virtually every form of human interaction is a set of informal or formal “rules of the game.”
What is Institutional Development?
Institutional Development has evolved from a vague and often misunderstood concept. Perhaps the most common misunderstanding of Institutional Development derives from the practice of substituting “organizations” for “institutions”. Where the former represents a structure – a distinct entity – institutions refer to the formal rules or informal norms that govern and shape human interaction. An ‘institution’ is not just a Ministry. It is the entire system of laws, rules, practices, organizations and their support, which facilitate a particular function.
For example, Institutional Development in the telecom sector, particularly in developing countries would include sector restructuring, development of telecommunications in rural areas, introduction of new technologies, financing and tariffs, pricing and licensing policy, human resources development / management etc. Thus Institutional Development would not be focused only on the organization of the Ministry of Telecommunications. It would include a much broader array of considerations such as nature, scope, powers and independence of regulatory authority, issues of investment and competition policy, and existence of inter-ministerial fora for resolving jurisdictional conflicts of different ministries on matters concerning communications in a country.
The most common examples of formal institutions are constitutions, laws or regulations; while informal institutions take the form of norms, conventions, or codes of behavior. “Rules of the game” is simply a metaphor used to illustrate how organizations and societies, like organized sports activities, have formal rules and informal social norms that determine how we interact with one another. Institutional Development involves an attempt to understand these formal and informal rules in a given social context, and aims to further change those rules that impair organizational and economic performance. An institutional assessment might involve an examination of the “rules” that affect performance of civil servants in a public sector ministry or agency, such as compensation, hiring or promotion policies. But an institutional assessment may also take a broader look at the relationship between the public and private sectors in a given country and assess how their interaction is governed, both by formal rules and informal practices.
Why is Institutional Development Important?
ID aims at reducing uncertainty. Without a thorough understanding of the rules of the game in any type of human endeavor, it is nearly impossible to predict an outcome, let alone plan one. Knowing and understanding the rules of the game in a development context is essential to formulating effective public policy. Establishing clear and fair rules and a commitment to enforcing them serves to foster accountability and transparency in the public sector, thereby reducing uncertainty.
ID requires a commitment to change. Knowing the rules of the game is necessary but not sufficient. Institutional Development involves a commitment to changing rules that in one way or another constrain or retard economic growth. One way of addressing the need for change is by creating or adapting incentive structures within public sector organizations. Another complementary approach is based on the recognition of incentive structures inherent in the outsourcing of services to NGOs and the private sector. Identifying and building institutional change requirements around performance incentives implicitly recognizes the need to reduce transaction costs that impede human and organizational performance.
ID can improve national competitiveness. Rooting out poorly-conceived or unfair rules or uncertainty in their application can bring about greater economic efficiency which in turn improves national competitiveness by attracting needed investment, creating jobs and generating greater tax revenues. In an increasingly competitive world economy, greater pressures are being placed on governments to reform institutions in order to maintain their competitiveness.
Institutional Development Techniques
Performance Incentives: Carefully designed performance incentives have often been used to promote improved performance within organizations. Underlying this approach is the assumption that the right rules of the game must take into account motivational factors.
Benchmarking: Benchmarking serves to motivate organizations to change the rules of the game by modeling reforms after an organizational or institutional ideal. Benchmarking involves the setting of concrete targets that enable organizations to focus on specific reform measures over a defined period of time.
Enhancing the Regulatory Environment: A private sector led economy requires an appropriate regulatory environment that both recognizes the respective roles of the public and private sectors and provides a clear framework and parameters for private sector activity.
Service Delivery Surveys (SDSs): Surveys provide crucial information and feedback from beneficiaries concerning the quality and adequacy of service provision in different social sectors. SDSs can often lead to reforms in delivery mechanisms and institutional arrangements that promote public-private partnerships.
Web resources on Institutional Development:
We have attempted to identify several web resources which could be useful for analysts and planners working in the areas related to Institutional Development. Different types of institutions are engaged in work related to Institutional Development. These have been classified as:
Multilateral Institutions and aid agencies which publish material that will be helpful to their managers in supporting Institutional Development in client countries;
The Judiciary and the courts;
Academic/research institutions that publish papers on methodologies for development and evaluation, critical success factors in implementation and impact on society.
Click on Information Sources for a selection of these sites and brief descriptions of their content.