The public sector is reaching an important point in its history.

So far, public services have coped well with the strain placed on their budgets by austerity. However, we're only halfway through the UK Government's deficit reduction programme. That means the hardest decisions are yet to be made.

As part of our annual research into the public sector's finances, our State of the State report found many leaders are rightfully proud of what they have achieved so far, in terms of balancing the books and maintaining performance. At the same time, they are worried about what further cuts will mean for their services. Many expressed concern at the levels of risk and uncertainty in the years ahead.

Public sector workers will undoubtedly play a key role in this period of transformation. Attracting new talent and retaining staff are therefore important challenges for organisations.

That's recognised by leaders in the sector. The executives we interviewed told us that staffing issues are occupying more of their time as they struggle to attract, recruit and retain people for crucial positions. Stress and weak career progression, combined with a negative perception of pay and conditions, were the most commonly-cited factors for not wanting to join public bodies.

To combat this issue, the public sector could increase its appeal to workers by harnessing the power of its brand and diversity as an employer.

There are many ongoing challenges for our public services, including significant financial pressures. Yet the public sector remains an attractive career prospect for many people, particularly in Scotland. After all, it encompasses a number of services that not only protect the public and improve people's wellbeing but, in many cases, also save lives.

That fact alone can separate it from the vast majority of potential employers. It's an intangible quality, but one of incredible potency. Many people are attracted to working for public services by the opportunity to make a real difference.

Nevertheless, there is more than this to a career in the public sector. Diversity of opportunity is another of its biggest strengths. Collaboration between different government bodies, combined with increased flexibility in moving between organisations, could help attract professionals looking for a broader playing field in their careers.

These are just a couple of the ways the public sector can attract new talent, but it also needs to manage its current workforce: more than five million workers across the UK, about 10 per cent of whom are in Scotland according to recent figures. This is a formidable resource, and one which could be used effectively to tackle its financial challenges.

One option is to give public sector organisations more entrepreneurial freedom through the adoption of alternative delivery models. In particular, they have the opportunity to trade services between themselves more frequently. In some cases, local public sector organisations have already combined support functions showing that the sharing of expertise can work.

Another option is to look at the suitability of different types of workers for certain projects. In some cases we have seen in the past, expensive temporary staff were being used where permanent employees would be a more sustainable long term solution.

Conversely, in cases of defined short to medium-term specialist need, well-managed consultants or individual contractors can be the best fit for projects. Public sector HR teams constantly need to ensure that their procedures and policies enable rather than constrain their organisations and support delivery of services to the public.

There are many challenges in the years ahead for the public sector. By taking some of these steps, the public sector can do its best to attract and retain the people and skills it needs. At a time of stretched resources, they have seldom been more important in helping public services overcome the challenges they face.