Leadership Differences between Private and Public Sector Organisations: literature review

By John Dudovskiy
November 8, 2013

Differences between Private and Public Sector OrganisationsThe literature review has identified the main differences between private and public sector organisations to relate to organisational aims and objectives, organisational stakeholders and stakeholder expectations, the levels of public scrutiny, external environment and its impacts and sources of motivation for employees.


1. Differences in Organisational Aims and Objectives

According to Kassel (2010), Chaston (2011) and others, organisational aims and objectives represent the main point for difference between public and private sector organisations. The main objective for the majority of private sector organisations relates to maximising financial returns for investors, whereas the majority of organisations in public sector have been found to pursue objectives other than profit maximisation, such as providing various services and products for the public (Kassel, 2010, Chaston, 2011).

The level of clarity of organisational objectives has emerged as an additional difference between public and private sector organisations. Specifically, according to Wright et al. (2012), while the main or even only objective for private sector organisations – maximising profits is straightforward, and therefore clearly understood by employees at all levels, the perceptions of goal clarity amongst public sector employees tends to be lower.


2. Stakeholders in Public Sector and Private Sector Organisations and Their Expectations

The type of stakeholders and stakeholders’ expectations has emerged as another point of stark difference between private and public sector organisations (Chaston, 2011). Stakeholders can be defined as “any party or group who is able to influence (affect) or be influenced (affected) by the organisation and its activities” (Brink and Berndt, 2009, p.156).

Stakeholders can be divided into two categories: internal and external (Parhizgari and Gilbert, 2004, Crosby and Bryson, 2005). Internal organisational stakeholders have direct relationship with an organisation and they are directly impacted by performance of the organisation. External stakeholders, on the other hand, may not be impacted by organisational performance in a direct manner, nevertheless they have interest in performance of the organisation.

Population represent a major stakeholder group for public sector organisations, and their expectation relate to the most effective use of the tax money they are paying to the government (Diefenbach, 2011).

In case of private sector organisations, on the other hand, internal stakeholders are shareholders and organisational employees at all levels and suppliers, whereas external stakeholders include government agencies, media, and population at large external (Parhizgari and Gilbert, 2004).

Stakeholder expectations for private sector organisations vary depending on the type of stakeholder. For example, shareholders expect maximum return on their investments on short-term and long-term perspectives, whereas customer expectations relate to purchasing high quality products and services in a cost-effective manner. Employee expectations, on the other hand, involving receiving adequate compensation for their time and efforts.

From this perspective, Crosby and Bryson (2005) confirm that various stakeholders groups for private sector organisations have different and sometimes opposing expectations, whereas for public sector organisations there are less contradictions between stakeholder expectations.


3. Public Scrutiny in Private and Public Sector Organisations

Authors such as Andersen (2010), Dooren et al. (2010) and Dukakis et al. (2010) identify the levels of public scrutiny to be one of the main differences between public and private sector organizations. Specifically, Andersen (2010) and ), Dooren et al. (2010) argue that the level of public scrutiny is generally greater in public sector organizations compared to private sector organizations.

Dukakis et al. (2010) link differences in the level of public scrutiny between public and private sector organisations to the sources of funding of respective organisations. In other words, Dukakis et al. (2010  argues that public sector organisations are usually funded by public funds, i.e. taxpayers’ money, and therefore, the manner in which these funds are spent are subjected to a greater level of scrutiny compared to spending patterns of private sector organisations.


4. External Environment and Their Effect on Public and Private Sector Organisations

The issues of external environment and its impact as a point of difference between public and private sector organisations corresponds to dimensions approach to organisations as discussed earlier.

According to Silvia and McGuire (2010) public sector organisations are impacted by political situation within a country compared to private sector organisations to a greater extent for evident reasons. This situation has certain implications on the practices of public sector organisational leaders, limiting the extent of their decision making.

Private sector organisations have to react to changes to external environment as well; however they are mostly impacted by different set of factor. Specifically, private sector organisations are greatly affected by changes in the marketplace, but they are also impacted by political and economic situation within country to a certain extent (Silvia and McGuire, 2010, Hargreaves and Fink, 2012).


5. Sources of Motivation

Motivation as a point of difference between public and private sector organisations has been discussed by Diefenbach (2011), Lamo et al. (2012) and Wright et al. (2012).

It has been argued that generally public sector managers are motivated by stability and job security (Diefenbach, 2011), whereas the sources of motivation for private sector managers have been found relate to financial incentives (Diefenbach, 2011, Lamo et al., 2012), career progress opportunities, and autonomy in decision making (Wright et al., 2012).

Similarly, Agranoff (2012) claims that public sector managers are motivated by intangible elements to a greater extend compared to organisational managers in private sector. Specifically, according to Agranoff (2012) these intangible sources of motivation are closely associated with serving and forwarding a public cause. Moreover, financial rewards play significant role in motivating private sector managers.



Agranoff, R. (2012) Collaborating to Manage: A Premier for the Public Sector Georgetown University Press

Andersen, J.A. (2010) Public versus Private Managers: How Public and Private Managers Differ in Leadership Behaviour Public Administration Review January/February 2010

Brink, A. & Berndt, A. (2009) Relationship Marketing and Customer Relationship Management Juta Publications

Chaston, I. (2011) Public Sector Management: Mission Impossible? Palgrave Macmillan

Crosby, B.C., & Bryson, J.M. (2005) A leadership framework for cross-sector collaboration Public Management Review, Volume 7, Issue 2

Diefenbach, F.E. (2011) Entrepreneurship in the Public Sector: When Middle Managers Create Public Value Springer Publications

Dooren, W.V., Bouckaert, G. & Halligan, J. (2010) Performance Management in the Public Sector Routledge

Dukakis, M.S., Portz, J.H. & Potz, J.S. (2010) Leader-Managers in the Public Sector: Managing for Results, ME Sharpe

Lamo, A., Perez, J.J. & Schuknecht ,L. (2012) Public or Private Sector Wage Leadership? An International Perspective, The Scandinavian Journal of Economics, Volume 114, Issue 1, March 2012

Parhizgari, A.M., & Gilbert, G.R. (2004) Measures of organisational effectiveness: private and public sector performance Omega, Volume 32, Issue 3, June 2004

Silvia, C. & McGuire, M. (2010) Leading public sector networks: An empirical examination of integrative leadership behaviours The Leadership Quarterly, Volume 21, Issue 2, April 2010

Wright, B.E., Moynihan, D.P., & Pandey, S.K. (2012) Pulling the Levers: Transformational Leadership, Public Service Motivation, and Mission Valence Public Administration Review, Volume 72, Issue 2, March/April 2012

Category: Leadership