Concepts of Performance – Organisational Capital

Organisational Capital – represents an organisation’s capability and capacity to deliver goods and services in the future.

Performance information in respect of “organisational health and capability” is required by New Zealand’s Public Finance Act 1989 S.40 (d) (iii).

Despite the risks of erosion of organisational capital, and the resultant under-costing of current period outputs, reporting in respect of organisational capital is limited.

Concepts of Performance

“Imagine you me a remarkable person who could look at the sun or stars at any time of the day or night and state the exact time and date: ‘It’s April 23, 1401, 2.36 a.m. and 12 seconds’.

This person would be an amazing time teller and we would probably revere that person for the ability to tell time.

But wouldn’t that person be even more amazing if, instead of telling the time, he or she built a clock that could tell the time forever, even after he or she was dead and gone?”

(Collins and Porras, 1994)

Clock Building, Not Time Telling

Purchase and Ownership Interests

An important feature of public sector reform has been the separation of the government’s:

purchase interest – which refers to the concern that ministers have for cost, quantity, quality, time and location of the outputs produced by departments, government entities and other providers; and the

ownership interest – which reflects the human and organisational capital of departments and other government agencies and their ability to meet the demands placed upon them both now and in the future.

Purchase and Ownership Interests

Although the underlying emphasis has been on ministers’ role as a ‘purchaser’ of goods and services, ministers are also the owners of the assets and capability by which most of those goods and services are produced.

Vote Ministers and Responsible Ministers

A Vote Minister – seeks authority from Parliament to purchase output classes from a department or other provider, or otherwise to incur expenses (e.g. for social welfare benefits). The minister in this role is requesting Parliament to vote (approve the provision of) resources.

A Responsible Minister – is concerned with a department’s or Crown entity’s performance from the owner’s perspective and will agree specific ownership priorities with the chief executive or Crown entity board.

Dimensions of Ownership

Scott (2001) defines three dimensions of ownership:

i.the capacity of government organisations to deliver goods and services in the present and in the future;

ii.the rights of direction by ministers; and

iii.the rights to residual surpluses or obligation for residual claims.

Capacity and Capability

The capability of government organisations can be assessed from:

•the views of ministers;

•changes in the level of performance achieved;

•staff turnover rates;

•benchmarks in respect of intellectual capital;

•status of fixed assets; or

•changes in risk profiles.

Rights to direct organisations

The rights of ministers to direct organisations varies according to the law associated with that organisation.

For most government departments the right is largely unfettered, except for employment matters in the realm of the chief executives authority under the State Sector Act 1988.

However for some departments ministers’ rights are constrained when the chief executive represents a statutory officer appointed by Parliament and/or with duties prescribed by legislation.

Rights to to residual surpluses or obligation for residual claims

Governments also have obligations to meet claims that could arise from, often poorly defined, contingent liabilities.

If and when major projects collapse governments are often the holders of residual claims arising from various guarantees and other forms of support.

Dimensions of Organisational Capital

i. capital management,

ii. financial management,

iii. human resource management (HRM),

iv. information technology (IT), and

v. leadership.

that can enhance the performance of public organisations.

The Performance Improvement Framework

It is a self-review that looks at the current state of an agency and how well it’s placed to deal with the issues confronting it in the medium term.

This review aims to help senior leaders look at their agency’s current state and the areas where it needs to do the most work to make it fit-for-purpose and fit-for-the-future.

The Performance Improvement Framework

The Performance Improvement Framework

Purpose, Vision and Strategy

Purpose, Vision and Strategy

Leadership and Governance

Values, Behaviour and Culture

Structure, Roles and Responsibilities

Structure, Roles and Responsibilities

Review

The Performance Improvement Framework

Leadership and Workforce Development

Leadership and Workforce Development

Management of People Performance

Management of People Performance

Engagement with Staff

Engagement with Staff

The Performance Improvement Framework

Asset Management

Information Management

Improving Efficiency and Effectiveness

Improving Efficiency and Effectiveness

Financial Management

Risk Management

Organisational Capital

Organisational capital represents that tangible and intangible assets of an organisation that allow it to provided goods and services both now and in the future.

Management actions can either:

•maintain and develop those assets so as to ensure the organisation can continue to function efficiently and effectively in the future; or

•erode the value of those assets thereby compromising the organisations ability to deliver goods and services in the future, and effectively under-stating the costs of goods and services delivered now.

Organisational Capital

1. What issues of capacity and capability exist in your organisation?

2. How might those issues be addressed?