The Riskiness of Public Sector Performance Measurement: A Review and Research Agenda
Transcript of The Riskiness of Public Sector Performance Measurement: A Review and Research Agenda
Financial Accountability & Management, 30(3), August 2014, 0267-4424
The Riskiness of Public SectorPerformance Measurement: AReview and Research Agenda
SURESH CUGANESAN, JAMES GUTHRIE AND VEDRAN VRANIC∗
Abstract: Public sector performance measurement (PM) practices can be risky. Itis imperative that research engages with the riskiness of PM and how this might bereduced. To help move towards a less risky state of public sector PM, where benefitsoutweigh negative potential, this paper reviews studies on PM risk to ascertain whatexisting research indicates about (a) the risks of PM (b) the conditions in whichthe risks of PM are more likely to manifest, and (c) the approaches that mitigatethe risks of PM. Based on this, the paper outlines a way forward for public sectorPM research. Overall the paper makes a number of contributions. First, it bringstogether a disparate and fragmented field in reviewing studies examining the risksof PM. Second, the paper reframes the research question that public sector PMrisk research and public sector PM studies more broadly should engage in. Third,specific suggestions are offered in terms of how future research might proceed ina coordinated manner, examining and informing practice where PM is part of anintegrated and enabling control system for strategising and managing in the publicsector, and where citizen-centric PM is utilised as part of multiple evaluation modesto more effectively support accountability to external constituents.
Keywords: risk, performance measurement, public sector
INTRODUCTION
Initiatives to introduce, refine and/or expand public sector performancemeasurement (PM) regimes show no signs of abating (Lapsley, 2008). WhilePM can deliver numerous benefits (Osborne and Gaebler, 1993), it also carries
∗The first author is from the University of Sydney Business School. The second author isfrom the Department of Accounting and Governance, Macquarie University; the Departmentof Management, University of Bologna; and Honorary Professor, the University of SydneyBusiness School. The third author is from the Faculty of Business and Enterprise, SwinburneUniversity of Technology. The authors gratefully acknowledge the helpful comments of theanonymous referees and the editors of the issue.
Address for Correspondence: Suresh Cuganesan, The University of Sydney Business School,University of Sydney, NSW, Australia.e-mail: [email protected]
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280 CUGANESAN, GUTHRIE AND VRANIC
with it significant potential for unintended negative consequences. PM practicescan be ‘risky’ and potentially a fatal remedy (Power, 2004a), causing scandalsand so called ‘perverse outcomes’ in the public sector.
As public sector research increasingly concerns itself with issues of risk itis imperative that we do not overlook the riskiness of PM and how this mightbe reduced.1 We argue this for two main reasons. First, examples of PM risksmanifesting in the public sector are many. Given this, it is reasonable to holdthe position that we as a research community have not done enough to provideinsight on how the riskiness of PM might be best managed. Second, issues of riskand PM can be linked, as Power (2004b) also notes: ‘the concept of risk is beingenrolled in a new focus on outcomes and performance’ (p.13, emphasis in original).Hence we argue that public sector research needs to consider how less risky PMpractices might be attained.
In achieving a less risky state of public sector PM we need to establish thecurrent state of knowledge before mapping a way forward. Thus we pose in thispaper the following questions: What does existing research tell us about (a) the risksof PM (b) the conditions in which the risks of PM are more likely to manifest, and (c) theapproaches that mitigate the risks of PM? Reflecting on the answers to these questions,we articulate an agenda for future research that, hopefully, moves us towardsa state where the benefits of public sector PM practices outweigh its negativepotential.
The paper is structured as follows. The next section explains our conceptualapproach to the review while the third section outlines our method. The fourthsection presents the results of the review of prior research organised intodifferent risk categories while in the fifth section we outline a research agendato guide the way forward. We conclude our paper by discussing both the paper’scontributions and its limitations.
REVIEWING THE RISKINESS OF PM IN THE PUBLIC SECTOR
Recent literature reviews either wholly or partly on the topic of public sector PMcall for multi-theoretical perspectives and diverse research methods (van Heldenet al., 2008; and Goddard, 2010), a focus on developing and evaluating newtechniques and studies that examine successful implementation and providingguidelines for PM practice (van Helden and Northcott, 2010; and Jackson, 2011).Collectively, these reviews suggest the type of objectives that PM researchshould pursue and the manner in which PM research should occur. We seekto complement these broad prescriptions with specific suggestions (see the fifthsection) for future research on the riskiness of PM.
Focusing specifically on PM and risk, we were interested in typologies ofPM risks developed by prior studies. A search revealed sporadic efforts withthe more notable of these comprising lists of thirteen dysfunctional effects(Bouckaert and Balk, 1991), eight unintended behavioural consequences (Smith,1995) and seven risks of PM (de Bruijn, 2002).2 Examining the accompanying
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explanations to each category mentioned on these lists revealed significantoverlap in categories both across and within lists. Four distinct categoriesemerged from this comparison that related to the negative effects of PMidentified by these studies.
The first risk category relates to misalignment between PM systems andpublic sector strategies and goals (Bouckaert and Balk, 1995). This leads tomeasurement myopia at the expense of long-term outcomes, an emphasis onlocal goal achievement at the expense of broader global objectives, and a focus onmeasured performance dimensions to the detriment of unmeasured ones such assystem responsibility and important inter-organisational collaboration (Smith,1995; and de Bruijn, 2002). The second risk category comprises PM-inducedgaming, where behavioural changes occur to maximise reported performance atthe expense of, or without any corresponding increases in, actual performance(Bouckaert and Balk, 1995). Changes in behaviour around target thresholds,avoidance of ratcheting effects, switching effort and cherry-picking servicedelivery recipients are all examples of gaming (Smith, 1995; and de Bruijn,2002). Also included are data manipulation and the presentation of data to createperformance impressions that are more favourable than actual performancelevels (Bouckaert and Balk, 1995; and Smith, 1995).
A third risk category relates to PM restricting flexibility and blockinginnovation. Smith (1995) refers to this as ossification while de Bruijn (2002)notes that PM can reward the constant reproduction of existing services andcause the ignoring of change imperatives. The fourth risk category involvesdistorted or inaccurate representations of performance through PM. Thisderives from the general difficulty of measuring public service performancein quantitative fashion. Public services are complex and performance is multi-dimensional, making it difficult to measure performance in quantitative fashion(Bouckaert and Balk, 1995; and Smith, 1995). At the least it requires extensiveresourcing to be done well, and can cause distortions when comparing acrosspublic sector agencies (de Bruijn, 2002).
Hence a review of prior work establishing typologies of PM risks allows theidentification of four categories: misalignment between PM and public sectorgoals, PM-induced gaming, PM restricting flexibility and/or blocking innovation,and, PM systems misrepresenting performance. However, despite the presence ofthese typologies, their explicit utilisation and/or further development is missingin subsequent studies on the riskiness of PM. Furthermore, there is no suggestionthat the items proposed in these lists are collectively exhaustive. Thus we usethe four categories as broad sensitising concepts (Blumer, 1954) whilst alsoremaining open to other risk types examined by the literature that we review.In the next section we outline our method for reviewing prior research.
METHOD
For space reasons, the review of the literature is necessarily selective. First,those articles that featured PM as a central topic published from 2005 until
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2012 in selected public administration and accounting journals were identified.This was achieved by searching on the words ‘performance measurement’ and‘public sector’ (for mainstream accounting journals only) within abstracts,topic descriptors and/or keywords.3 This search process identified 66 articles,excluding both the review articles discussed earlier and those articles thatmentioned PM in passing. A further 13 articles were excluded because theydid not consider the negative potential or risks of PM. Consequently, 53 articlesformed the basis for review. This was conducted in two phases.
Two authors independently read each article with the objective of identifyingthe risk issues that were discussed. An inductive approach was chosen becausean exhaustive set of risk categories could not be pre-determined. Both authorsdiscussed the risk issues that had been identified and whether these could begrouped together. This discussion revealed that the four PM risk categoriesreferred to in the previous section encapsulated a number of the risk issuesidentified. In addition, the inductive classification process revealed three furthercategories of risks.
The first implicates PM in accountability relations to external constituents,with reporting on performance and the preservation of ideals of integrity,democracy, justice and equity all important aspects of discharging accountabilityfor stewardship of public resources. In this, the risk is that PM systemsare unsupportive of accountability relations to these external stakeholders.The second risk is that PM systems – which can be costly to operate –are under-utilised for public sector decision making, causing any potentialbenefits from PM to remain unrealised.4 A third risk of PM practices is thatthey can cause adverse impacts on employee welfare within the public sectororganisation. These three risks of unsupportive PM for external accountability,under-utilised PM information and PM adversely impacting employee welfarewere added to the previously identified four, resulting in a total of seven PMrisk categories used to present and analyse the results of the review of priorresearch.
The two authors then independently classified the studies according to whichrisk category they examined, with papers examining multiple categories includedin each. A comparison of the categorisation results indicated a match in excessof ninety percent with the remaining differences resolved through subsequentdiscussion. An independent researcher was subsequently provided with a randomsample of fifteen papers and the risk category descriptions as presented in thepaper. This yielded coding results that matched the coding of the two authors forthe sample of papers. The results of this process are presented in the Appendix.5
The second phase pertained to our specific interest in what this literaturereveals about risks, the conditions where they are more likely to manifest andpossible mitigation approaches. The two authors involved in phase one then re-read each paper noting any identification of antecedent conditions to PM risksand/or proposed mitigation approaches, with the results of this phase comparedand discussed to achieve inter-subjective consensus. Explicit discussion of riskantecedents and/or mitigation approaches was required for a study to be coded
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THE RISKINESS OF PUBLIC SECTOR PERFORMANCE MEASUREMENT 283
as engaging with these topics. We present the results in the next sectionhighlighting the seven risk categories.6
RESULTS
Risk Categories Examined
Across all 53 studies identified as examining issues of PM risk, 43 were classifiedas examining only one risk category, six examined two risk categories and fourstudies examined three risk categories. Thus most studies of PM risk focus onone risk category at a time, with the risk categories examined 67 times in total bythe group of 53 studies. Table 1 presents the quantitative coding results from theanalysis of what risks were the focus of PM research and the proportion of studiesthat examine antecedent conditions and potential mitigation approaches.
Examining the frequency counts in Table 1 indicates that prior research hasfocused on a ‘top tier’ of risks, comprising unsupportive PM systems for externalaccountability, under-utilised PM information and misalignment between PMand public sector goals. A second-tier of risks examined in the reviewed studiescomprised PM-induced gaming and PM misrepresenting performance. A last tierof risks comprised PM restricting flexibility and/or innovation, and PM adverselyimpacting employee welfare. These were considered by a few studies only, andoften observed as a by-product of other risks manifesting.
As Table 1 indicates, a significant proportion of studies across all riskcategories has moved beyond describing the risk itself to discussing and
Table 1
Quantitative Coding Results
No. of Studies No. (%) Examining No. (%) ProposingRisk Examining Antecedent MitigationCategory Category Conditions Approaches
Unsupportive PM systems forexternal accountability
16 10 (63%) 5 (31%)
Under-utilised PM information 16 14 (88%) 4 (25%)Misalignment between PM and
public sector goals13 9 (69%) 4 (31%)
PM-induced gaming 9 6 (67%) 6 (67%)PM systems misrepresenting
performance6 3 (50%) 2 (33%)
PM restricting flexibility and/orblocking innovation
4 4 (100%) 1 (25%)
PM adversely impacting employeewelfare
3 2 (67%) 0 (0%)
Total 67
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explaining conditions that are likely to give rise to its presence or absence.However, with the exception of studies examining PM-induced gaming, theproportion of studies that explicitly discuss practical mitigation approaches tothese risks manifesting is far lower (see also van Helden and Northcott, 2010).Prior research’s identification of antecedent conditions and risk mitigationapproaches are respectively discussed in more detail in the next sections.
Antecedent Conditions to Risks
Table 2 presents qualitative results from the coding of antecedent conditionsto risks, as identified in previous studies. Given that a number of antecedentconditions are repeated across the various risk categories, the discussionbelow focuses on describing the properties of the more commonly identifiedantecedents.
A number of studies see PM risks as inevitable consequences of PM in thepublic sector. Complexity in defining the nature of public services and ‘goodperformance’ is seen as a key antecedent to the risk of unsupportive systems forexternal accountability (for example, Yang and Holzer, 2006). This coupled withthe problem of attributing public service outcomes to individual organisationsmake accurate representation of performance through PM a flawed task (vande Walle, 2009). Public service task complexity also makes precise indicators ofperformance difficult to achieve, leading to conditions that increase the riskof PM-induced gaming (Heinrich and Marschke, 2010). Other studies thatsee public sector PM risk as inevitable link PM to the underlying logic ofNPM reforms. These claim that the economic rationality and logic that infusesand dominates NPM displaces other important dimensions of public services;namely public service ethos, a focus on citizenship outcomes and innovation (forexample, Watkins and Arrington, 2007).
Political influences and pressures are another widely cited antecedent toa number of different risks. Political pressures that enrol PM in impressionmanagement efforts can cause PM design to be unsupportive for its rolein discharging accountability to external constituents (Chang, 2009) and cancause PM-induced gaming (Bevan and Hood, 2006). These pressures, as well asturbulent policy environments and pre-occupation with management fads cancause PM to be misaligned to public sector goals and organisational contexts(Milakovich, 2006; and Nomm and Liiv, 2012). Volatile political support for PMcan also cause under-utilisation of PM information (Yang and Hsieh, 2007; andHou, 2011), as can political and institutional pressures to conform to norms ofeconomic rationality, especially if decoupled or loosely coupled PM systems areimplemented (Johansson and Siverbo, 2009; and Torres et al., 2011).
Poor design and implementation are also seen as causing PM risks inthree main ways. First, there is often an exclusion of stakeholder involvementand both stakeholder and strategic outcomes in the design of PM systems.This can cause PM to be unsupportive for external accountability (Dubnic
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THE RISKINESS OF PUBLIC SECTOR PERFORMANCE MEASUREMENT 285
Tab
le2
Qua
litat
ive
Cod
ing
Res
ults
–A
ntec
eden
tC
ondi
tion
s
Uns
uppo
rtiv
eM
isal
ignm
ent
PMR
estr
ictin
gPM
Adv
erse
lyPM
Sys
tem
sU
nder
-util
ised
Bet
wee
nPM
PM-
PMS
yste
ms
Fle
xibi
lity
Impa
ctin
gfo
rExt
erna
lPM
and
Publ
icIn
duce
dM
isre
pres
entin
gan
d/or
Blo
ckin
gE
mpl
oyee
Acc
ount
abili
tyIn
form
atio
nS
ecto
rGoa
lsG
amin
gPe
rform
ance
Inno
vatio
nW
elfa
re
•C
ompl
exit
yin
defi
ning
the
boun
dari
esof
netw
orke
dpu
blic
serv
ices
•Ir
reco
ncila
ble
stak
ehol
der
conf
licts
in:(
a)w
hat
gove
rnm
ent
shou
lddo
(b)
wha
tco
nsti
tute
sgo
odpe
rfor
man
cean
d(c
)ho
wpe
rfor
man
cesh
ould
bem
easu
red
•R
efor
ms
bias
edby
econ
omic
logi
c,di
spla
cing
othe
r
•V
olat
ilepo
litic
alsu
ppor
t•
Ado
ptio
nra
ther
than
use
seen
assu
ffic
ient
give
nin
stit
utio
nal
pres
sure
s•
Lac
kof
lead
ersh
ipsu
ppor
t•
Cul
ture
that
does
not
supp
ort
PM •In
adeq
uate
stak
ehol
der
incl
usio
nin
PMde
sign
and
impl
emen
tati
on•
Lac
kof
inte
grat
ion
wit
h
•Po
litic
alin
flue
nces
onPM
to(a
)m
anag
eim
pres
sion
sof
gove
rnm
ent
(b)
dem
onst
rate
shor
t-te
rmim
prov
emen
ts•
Imm
atur
ean
dtu
rbul
ent
polic
yen
viro
nmen
ts•
Path
depe
nden
cies
cons
trai
ning
outc
ome
orie
ntat
ion
inPM
syst
ems
•In
suff
icie
ntco
nsid
erat
ion
ofho
wou
tcom
esar
e
•H
igh
publ
icse
ctor
task
com
plex
ity
mak
esgo
odm
easu
res
diff
icul
tto
desi
gn•
Impr
essi
onan
dre
puta
tion
impe
rati
ves
•Fa
ilure
byth
eSt
ate
toau
dit
PMin
form
atio
ndu
eto
inte
rest
inm
aint
aini
ngill
usio
nof
PMac
cura
cy•
Poor
PMde
sign
com
pris
ing
(a)
too
few
mea
sure
s(b
)no
tm
easu
ring
impo
rtan
t
•C
ompl
exit
yin
defi
ning
the
boun
dari
esof
netw
orke
dpu
blic
serv
ices
•Ir
reco
ncila
ble
stak
ehol
der
conf
licts
in:(
a)w
hat
gove
rnm
ent
shou
lddo
(b)
wha
tco
nsti
tute
sgo
odpe
rfor
man
cean
d(c
)ho
wpe
rfor
man
cesh
ould
bem
easu
red
•D
iffi
cult
yin
attr
ibut
ion
ofou
tcom
esto
indi
vidu
al
•In
suff
icie
ntde
lega
tion
ofde
cisi
on-r
ight
s•
Top
-dow
nim
plem
enta
tion
proc
esse
s•
Ref
orm
sbi
ased
byec
onom
iclo
gic,
disp
laci
ngot
her
perf
orm
ance
dim
ensi
ons
•Po
orly
desi
gned
PMsy
stem
s•
Top
-dow
nim
plem
enta
tion
proc
esse
s•
Ref
orm
sbi
ased
byec
onom
iclo
gic,
disp
laci
ngot
her
perf
orm
ance
dim
ensi
ons
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286 CUGANESAN, GUTHRIE AND VRANIC
Tab
le2
(Con
tinu
ed)
Uns
uppo
rtiv
eM
isal
ignm
ent
PMR
estr
ictin
gPM
Adv
erse
lyPM
Sys
tem
sU
nder
-util
ised
Bet
wee
nPM
PM-
PMS
yste
ms
Fle
xibi
lity
Impa
ctin
gfo
rExt
erna
lPM
and
Publ
icIn
duce
dM
isre
pres
entin
gan
d/or
Blo
ckin
gE
mpl
oyee
Acc
ount
abili
tyIn
form
atio
nS
ecto
rGoa
lsG
amin
gPe
rform
ance
Inno
vatio
nW
elfa
re
perf
orm
ance
dim
ensi
ons
•Po
litic
alin
flue
nces
onPM
to(a
)m
anag
eim
pres
sion
sof
gove
rnm
ent
(b)
dem
onst
rate
shor
t-te
rmim
prov
emen
ts•
Abs
ence
ofci
tize
nin
volv
emen
tin
PMde
sign
and
impl
emen
tati
on•
Insu
ffic
ient
cons
ider
atio
nof
how
outc
omes
are
tobe
achi
eved
inPM
desi
gn
publ
icse
ctor
stra
tegi
sing
and
orga
nisi
ngpr
oces
ses
•In
suff
icie
ntem
ploy
eem
otiv
atio
nan
dbu
y-in
toim
port
ance
/use
ofPM
syst
em•
Lac
kof
trai
ning
and
reso
urce
s
tobe
achi
eved
inPM
desi
gn•
Top
dow
nim
plem
enta
tion
proc
esse
s•
Lac
kof
inte
grat
ion
wit
hpu
blic
sect
orst
rate
gisi
ngan
dor
gani
sing
proc
esse
s•
Insu
ffic
ient
capa
bilit
yan
dre
sour
ces
wit
hin
agen
cies
acti
viti
esan
dou
tcom
es(c
)fa
ilure
toad
apt
mea
sure
sov
erti
me
•In
suff
icie
ntpu
blic
serv
ice
mot
ivat
ion
•G
oald
iver
genc
ebe
twee
nse
rvic
ede
liver
ers
and
thos
ese
ekin
gto
cont
rol
agen
cies
and
esta
blis
hing
caus
alit
ydu
eto
publ
icse
rvic
esta
skco
mpl
exit
y
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THE RISKINESS OF PUBLIC SECTOR PERFORMANCE MEASUREMENT 287
and Frederickson, 2010) and misaligned to public sector goals (Micheli andNeely, 2010). In turn, the failure to measure important activities can be seenas a licence for gaming (Greener, 2005). Second, insufficient organisationalconditions for PM either pre-exist, and are not altered sufficiently to supportdesign and implementation, or are not created to support the operation and useof PM systems. Studies that observe under-utilisation of PM information focuson this, highlighting inadequate leadership support, lack of an organisationalculture that is sufficiently ‘performance-focused’ (for example, Sanger, 2008; andMoynihan and Pandey, 2010), and little consideration of how PM systems willlink to the strategic and management processes of the public sector organisation(for example, Ammons and Riverbark, 2008; and Arnaboldi and Palermo, 2011).
Finally, employee factors can cause PM risks to manifest. Poor motivationand enthusiasm due to insufficient training and support can cause under-utilisation of PM information (Hou, 2011; and Taylor, 2011) while an absence ofskills and resources to adequately design PM systems can cause misalignment(Amirkhanyan, 2008 and 2010). Poor motivation also exacerbates goal diver-gence within public sector organisations and enhances the risk of PM inducedgaming (Bevan and Hood, 2006). The few studies that examine PM restrictingflexibility and innovation and causing adverse impacts on employee welfarehighlight the impact of top-down implementation processes (Greener, 2005;and Guven-Uslu and Conrad, 2011) and insufficient delegation of decision-rights(Moynihan, 2006).
Proposed Risk Mitigation Approaches
Qualitative results from the coding of mitigation approaches identified by priorresearch are presented in Table 3. These tend to be specific to particular riskcategories and, accordingly are discussed by the risk they relate to.
Making PM more citizen-centric is a central theme behind ideas to mitigatethe risk of unsupportive PM systems for external accountability. Suggestionsinclude citizen participation in the design of PM systems (Yang and Holzer,2006), a framework for including both intermediate and end citizen-centricoutcomes (Wichowsky and Moynihan, 2008) and a process by which strategiesare mapped to overall citizen outcomes (Micheli and Neely, 2010). At a moremicro-level, the greater use of subjective indicators that reflect perceptionsof service recipients is suggested (Shingler et al., 2008). Another approachinvolves the adjustment ex post of measured performance to reduce the effectsof factors outside the control of the public sector organisation. This removalof ‘noise’ from PM arguably makes accountability for performance clearerto external stakeholders (Barnow and Heinrich, 2010). A final idea involvesgreater utilisation of program and policy evaluation techniques for externalaccountability purposes (Yang and Holzer, 2006).
In relation to under-utilisation of PM information, numerous studies developexplanatory models for PM usage but only a handful of studies offer guidance for
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Tab
le3
Qua
litat
ive
Cod
ing
Res
ults
–Pr
opos
edM
itig
atio
nA
ppro
ache
s
Uns
uppo
rtiv
eM
isal
ignm
ent
PMR
estr
ictin
gPM
Adv
erse
lyPM
Sys
tem
sU
nder
-util
ised
Bet
wee
nPM
PMS
yste
ms
Fle
xibi
lity
Impa
ctin
gfo
rExt
erna
lPM
and
Publ
icPM
-ind
uced
Mis
repr
esen
ting
and/
orB
lock
ing
Em
ploy
eeA
ccou
ntab
ility
Info
rmat
ion
Sec
torG
oals
Gam
ing
Perfo
rman
ceIn
nova
tion
Wel
fare
•In
volv
eci
tize
nsin
PMde
sign
•A
dopt
citi
zen
focu
sed
PMfr
amew
orks
that
incl
ude
mea
sure
sof
citi
zens
hip
outc
omes
and
utili
sesu
bjec
tive
mea
sure
s•
Adj
ust
expo
stfo
run
anti
cipa
ted
and/
orun
cont
rolla
ble
fact
ors
•U
tilis
epr
ogra
man
dpo
licy
eval
uati
onm
ore
inPM
•St
akeh
olde
r(e
lect
edof
fici
alan
dci
tize
n)in
volv
emen
tin
desi
gn•
Form
alis
elin
ksbe
twee
nPM
and
orga
nisa
tion
alst
rate
gy,g
oal
sett
ing
and
com
mun
icat
ion
proc
esse
s•
Bui
ldor
gani
sati
onal
com
mit
men
tth
roug
hle
ader
ship
and
afo
cus
onem
ploy
ees
•L
ink
PMto
stra
tegy
form
ulat
ion
and
plan
ning
proc
esse
s•
Con
duct
stra
tegy
map
ping
aspa
rtof
PMde
sign
•Im
plem
ent
PMw
ith
bott
om-u
pfe
edba
cklo
ops
•M
easu
rein
term
edia
teou
tcom
es•
Sele
ctiv
eim
plem
enta
tion
ofPM
pack
ages
•A
ddm
ore
mea
sure
sto
PMsy
stem
•A
ssig
nne
gati
vew
eigh
tsto
inco
mpl
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THE RISKINESS OF PUBLIC SECTOR PERFORMANCE MEASUREMENT 289
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practising managers based on these, with the remainder focused on implicationsfor further research. Suggestions to mitigate the risk of under-utilisationfocus on the most influential explanatory factors. These include formalintegration of PM systems in organisational strategy and management processes,building organisational commitment to PM through leadership, harnessingemployee motivation and providing training and support. Greater stakeholderinvolvement in PM design across both internal and external environments is alsoprescribed.
Studies examining misaligned PM imply greater inclusion of indicators ofoutcomes and strategic objectives as remedies. However, less than a third ofstudies explicitly discussed approaches to mitigate the risk of misaligned PMsystems. The use of techniques such as strategy mapping coupled with bottom-up feedback loops during design and implementation (Micheli and Neely, 2010)and greater customisation of PM packages (Modell, 2009a) are proposed. Thedevelopment of individual indicators that capture and aggregate intermediateoutcomes (Cuganesan and Lacey, 2011) is also suggested.
Several prescriptions have been developed in prior studies to mitigate PM-induced gaming. Ex ante mechanisms comprise the inclusion of additionalindicators in PM systems (Kelman and Friedman, 2009) and the introductionof more uncertainty into PM system targets and measures on the basis that‘complete specification of targets and how performance will be measuredalmost invites reactive gaming’ (Bevan and Hood, 2006, p. 533). Other ex antemitigation approaches include the assigning of negative weights to incompletemeasures in composite performance measures to discourage PM-induced gaming(for more detail, see Eisenkorpf, 2009). Ex post modifications include the useof ‘adjusted performance measures’ that control for effort substitution and‘cherry-picking’ of service recipient populations (Barnow and Heinrich, 2010)and greater auditing of PM information (Bevan and Hood, 2006). Generally,these studies conclude that it is only through trial and error that employeeresponses to specific indicators and metrics become known. Thus extendeddesign and implementation approaches are suggested, comprising actual testingand refinement of PM based on their observed gaming effects (Heinrichand Marschke, 2010). A few authors also suggest the cultivation of employeemotivation and use of non-PM modes of managing as ways to reduce gaming(Bevan and Hood, 2006; and Kelman and Friedman, 2009). However thesesuggestions are not expanded upon.
Turning to the remaining risks, we note that prior studies offer a fewsuggestions only in the way of risk mitigation. Given that the antecedentconditions to the risk of misrepresenting performance through PM are seen asinherent in the public sector context, partial mitigation only is proposed throughadjustment ex post for unanticipated and/or uncontrollable factors and longerpost program periods to evaluate client/service delivery outcomes (Schochet andBurghardt, 2008). Mitigating the risk of PM restricting flexibility and/or blockinginnovation is proposed through increased managerial authority and expanded
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decision rights to accompany PM systems implementation (Moynihan, 2006),while no suggestions to mitigate the risk of adverse impacts on employee welfarewere identified by the small group of studies examining this risk.
A WAY FORWARD: INTEGRATED AND ENABLING PM
Based on the results presented in the previous section we outline a way forwardfor how future research should engage with the topic of PM risk. First wediscuss reframing the research question of PM risk research and PM researchmore broadly, before focusing more specifically on the role of PM in strategisingand managing within the public sector and in external accountability relations.
Reframing the Research Question of Public Sector PM Studies
The results presented in the previous section highlight the fragmented andnon-cumulative nature of research engaging in the risks of PM. We offer twoobservations in relation to this. First, the majority of studies examine PM risks inisolation from one another, despite their inter-related nature. Indeed, as notedearlier, there is significant overlap in the antecedent conditions to the differentrisk categories. Yet there is little understanding of how a set of antecedentconditions might yield different risks that influence each other over time.Knowing that risk manifestation is possible or probable will be useful in terms ofidentifying ex ante the conditions where PM systems can be implemented withless risk mitigation, and situations where more risk mitigation and associatedinvestment of monetary resources, time and energy might be required. Suchunderstandings can be invaluable in the resource constrained environmentsthat characterise contemporary public services.
In addition, partial examinations of risk can lead to well-intentionedmitigation approaches that reduce one category of risks but create another.For example, adding greater uncertainty into PM system targets and measuresto mitigate gaming (as suggested by Bevan and Hood, 2006) may result inadverse impacts on employee welfare (as noted by ter Bogt and Scapens, 2012,in relation to the subjectivities of performance evaluation). Involving citizens inthe design of PM systems may result in mitigating the risk of unsupportive PMfor external accountability, but questions have been raised about the capacityfor alignment to public sector strategies and goals in this context (Yang andHolzer, 2006). Thus future research on PM risk has to engage more holisticallywith the multiple risks that can occur in revealing their inter-related nature, theantecedent conditions that are more likely to create PM risks and the mitigationapproaches that may ameliorate multiple risks simultaneously (see, for example,our discussion in the next sub-section on creating and sustaining PM systems asenabling).
Second, the prior research we reviewed also advances numerous mitigationstrategies, as do the authors of the risk typologies reviewed in the second section,
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namely, Smith (1995) and de Bruijn (2002). However, there has been little or notesting and experimentation of these amongst the studies we review. As such,it is difficult to know which mitigation approaches are effective and the costsof implementing these. Thus, a more pragmatic approach to PM risk researchis required where the mitigation approaches developed by research to date aretested through future studies (see also van Helden and Northcott, 2010). Here, aone-sided focus on risk reduction and/or elimination that often manifests in priorstudies (for example, Smith, 1995; and de Bruijn, 2002) is to be avoided. Fullmitigation of risks is likely to be costly and perhaps elusive. Instead, risks need tobe sufficiently mitigated to allow ‘the going ahead with good enough measurement’(Van de Walle, 2009, p. 53, emphasis in original) where the benefits of particularPM systems outweigh the risks that they create. Thus future research on PMshould focus on the risks as well as benefits generated by PM systems so thatrequisite knowledge can be built up which allows design, implementation andoperation of ‘good enough PM systems’ in practice.
Hence, the central research question that future research on public sector PMshould embrace is: how to design, implement and operate PM systems that generate positiveconsequences which outweigh the associated risks? We provide specific guidance for howfuture research might engage in this question in two specific domains, PM instrategising and managing public services and PM in external accountabilityrelations. The next two sections deal with each of these in turn. In so doing, weconcentrate less on public-sector context and political influences as these factorsare arguably difficult to change and less oriented to our PM focus. Instead, wefocus more on PM design, implementation and use given this is typically withinthe influence of those in charge of public sector PM initiatives.
PM as Enabling Organisational Control Systems for Strategy and Management
Future research into public sector PM systems should theorise and investigatePM as only one element of the ‘control systems’ – comprising both formalsystems and informal levers – that are used to plan, allocate resources, monitorperformance and implement corrective actions (Chenhall, 2003). Importantly,control systems do not play a strategy implementation role only but facilitatelearning and adaptation as environments shift and uncertainties crystallise(Simons, 1995). Control systems research argues against the analysis of specificelements of controls as this can lead to spurious findings and possibly conflictingresults (Chenhall, 2003). This criticism is potentially applicable to public sectorPM research to date. Thus, future research on PM needs to conceive of PMsystems as part of integrated control systems, with PM investigated alongsidethe values and norms of the organisation, strategy formulation and planningprocesses, performance evaluation processes, intangible or tangible rewardmechanisms (to the extent that these exist) and the structures and proceduralcontrols that operate.
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It would be unfair to suggest that PM research has ignored entirely these otherelements of organisational control systems. However, there is little uniformityin how they are examined. The role of shared values is recognised in somestudies (for example, Kelman and Friedman, 2009) while the role of structuresis emphasised in others (for example, Dubnic and Frederickson, 2010). Morebroadly, a reduced role for PM in managing has been suggested (see de Bruijn,2002; and Bevan and Hood, 2006), but little guidance is offered on how thismight be achieved. By adopting an integrated control systems approach to thestudy of PM systems, many of the organisational conditions that were cited bythe reviewed studies as antecedents to PM risks will be incorporated withinthe control system construct, thereby facilitating a more structured approachto their analysis and the inter-relationships between these other controls andPM. Over time, research along these lines has potential to provide insights intohow public sector managers might counter the risks of PM in strategising andmanaging at their organisations through utilising non-PM controls.
To aid public sector managers and practitioners, future research shouldalso consider how PM is considered by those being subject to its effects andspecifically, the extent to which PM is ‘enabling’. We use the term ‘enabling’here as outlined by Adler and Borys (1996) to conceptualise the objective forPM systems as being controls that motivate and support managers and lower-level employees. Enabling controls are characterised by transparency, flexibilityand allow employees to repair imperfectly designed controls in responding tolocal contingencies (Ahrens and Chapman, 2004). This is instead of controlsbeing restrictive, bureaucratic and coercive, often leading to negative results inorganisations (Adler and Borys, 1996). Wouters and Wilderom (2008) specificallyexamine PM systems, and find that a design and implementation process thatbuilds upon the existing PM experiences of employees and their professionalism,engages with external parties in developing notions of performance, and allowsexperimentation with measures and a certain amount of local autonomy,contributes to a more enabling PM.
Notions of staff involvement, and retaining flexibility in the PM system,are not entirely new (see Smith, 1995) – what is required is research thatengages with these issues in a structured, theorised and cumulative approach.Providing insights to practising managers on how to create and sustain enablingPM systems will also help to address a number of PM risks. In relation tothe risk of under-utilised PM, studies examining enabling PM illustrate howgreater employee engagement and use of PM information can be achieved(Wouters and Wilderom, 2008). In relation to gaming, the few studies that haveexamined gaming of PM in the public sector observe the difficulties of mitigatingthis risk. Furthermore, many of the approaches suggested arguably complicatePM systems (for example, greater target uncertainty, negative weights). Analternative approach is to focus on building enabling PM in practice whichoffers potential for greater engagement with PM by employees in terms of howPM can be useful in local contexts. It can also compensate for the inherent
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incompleteness of PM. In relation to restricting innovation and employeeimpacts, developing enabling PM as part of a broader control system mayactually encourage adaptation and innovation rather than restrict it (Ahrens andChapman, 2004), while the explicit recognition and involvement of an employeeperspective may help to address the risk of adverse impacts on employee welfare.
In relation to how to proceed, we suggest that case studies are requiredthat adopt a processual focus on how PM is designed, implemented and usedover time in public sector organisations. Future research needs to engage withexamining how PM systems function in the day-to-day dynamics of public sectororganisation. Theoretical perspectives that facilitate greater engagement withmicro-processes and/or specific practices through which PM is enacted are likelyto be useful. The benefits of these perspectives are that they provide a means forresearchers to access the detail or micro-processes of how PM is used in publicsector strategising and managing and link these to risks and benefits. Theorisingand examining how PM systems operate as one element of an integrated andenabling control system will provide insights into how particular patterns ofcontrols provide different configurations of risks and benefits, hopefully movingus towards the overall objective of achieving a less risky PM in the public sectorwhere benefits outweigh negative potential. Broader empirical testing through,for example, cross-sectional surveys would be useful once this deep and richknowledge base is established.
Citizen-Oriented PM and Multiple Evaluation Modes for External Accountability
In the context of PM and external accountability relations, prior researchproposes frameworks and approaches that seek to include both citizen par-ticipation in PM design and citizen perspectives in performance evaluation (forexample, Wichowsky and Moynihan, 2008), yet there has been little testingof these. Furthermore, direct inclusion of citizen perspectives in PM designraises challenges on how to create consensus views that are relatively stableover time (van de Walle, 2009), mitigate the impact of ‘issues of the moment’on perceptions, and ensure that evaluations of performance are not unfairlyweighted towards the negative due to political discourse between opposingparties (Yang and Holzer, 2006). Thus more work needs to be done oninvestigating the challenges and effects of integrating citizen involvement andcitizen perspectives in creating citizen-oriented PM and whether alternativenon-PM approaches are required. Research is also required to examine howsuch PM systems then affect planning, prioritisation and resource allocationdecisions of public sector organisations and networks and the downstream effectson performance.
In addition, how integration of citizens in PM design, implementation anduse alters the goals of citizens and their perceptions toward government(including the frames they adopt when evaluating government performance)is an interesting area for future research to pursue. On these points, there
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is evidence suggesting that external stakeholder and citizen participation inPM design is positively associated with positive PM effects such as perceivedreliability of indicators, usage of PM information, relevance and learning effects(Yang and Holzer 2006; Li and Tang, 2009; see also Ho, 2006; and Yang andHsieh, 2007). However, these consequences are at the organisational level, andthere has been less research on how involvement influences or affects citizensthemselves and their attitudes towards government.
As noted earlier in the paper, difficulties in reaching precise definitions of thenature of public services and good performance often leads to PM systems thatare unsuitable for external accountability purposes (Yang and Holzer, 2006).Hence, re-orienting the research agenda also requires consideration of scopeof study and definitions of performance. In relation to scope of study, futureresearch needs to move to greater recognition and examination of networkedgovernment and how public services are delivered through a network of public,private and not-for-profit agents (Dubnick and Frederickson, 2010). While somewould argue that demarcating the boundaries of public services is impossible (forexample, Van de Walle. 2009), we propose that multiple levels of examinationare required. This would then allow evaluation over time as to whether particularcombinations of intra-organisational program level, public sector organisationallevel or network level PM are more supportive of accountability relationshipswith external stakeholders.
In relation to definitions of performance, we see questions of how PMsupports external accountability as requiring deeper engagement with multipleevaluation foci and modes. Rather than single composite measurement systems(as discussed by Van de Walle, 2009), we see multiple indicators of value-for-money and economy, efficiency and effectiveness as being important foraccountability, with effectiveness measures comprising outcome indicators orproxies/ intermediate-level indicators as per Cuganesan and Lacey (2011) as wellas citizenship centric values such as integrity, democracy, participation, justiceand equity (Dubnick and Frederickson, 2010; and Moynihan et al., 2011).7
As part of this, future research needs to examine whether evaluation of citizenimpact should occur at the intra-organisational program level, public sectororganisational level, government portfolio level or inter-government publicpolicy level. Questions about whether we measure organisational or networkperformance are particularly important for the public sector (Cuganesan andLacey, 2011; and Moynihan et al., 2011). Alternative performance evaluationapproaches also require examination in comparison to PM. Specifically, researchthat tests the efficacy of PM versus policy and program evaluation methodsin evaluating outcome achievement in the public sector is required (seeYang and Holzer, 2006). Further research could also engage usefully in thequestion of how performance should be represented. Studies observe thataccountability to external constituents is occurring although PM do little in thisregard (see Dubnick and Frederickson, 2010) and may have reached its limits(Catasus and Gronlund, 2005). Increasingly, the private-sector is examining
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how narrative formats can be used to complement numbers in reports onperformance, including recent initiatives such as integrated reporting (IIRC,2012). Examining how the use of narratives to contextualise and complementquantitative performance indicators influences the decisions and actions ofexternal constituents may allow the development of guidelines and betterpractices over time that mitigate the risk of excessive trust in numbers.
In closing this sub-section we suggest that action research approaches and/orexperimental designs need to feature much more than they have to date.Trialling the approaches proposed by prior research to create citizen-orientedPM perspectives and alternative evaluation modes in enabling accountability toexternal constituents is important if practical guidance is to be produced on thistopic.
CONCLUSION
Public sector researchers have become increasingly interested in the manage-ment of risk (Hood and Miller, 2009; and Lapsley, 2009). Noting that PM systemscan cause risk, we argue that a review of research on PM risks in the publicsector and an articulation of a way forward for future research is timely giventhe number of scandals, unanticipated consequences and so called ‘perverseoutcomes’ that continue to manifest in the public sector, and the concurrentand growing interest in risk within public sector research. We have attemptedto do this in this paper as a means of moving to a state of less risky public sectorPM where the benefits outweigh the negative potential. We acknowledge thatthere is no firm body of evidence that establishes unequivocally that situationswhere negative potential outweigh the benefits of PM are the status quo. Indeed,the absence of this evidence reinforces the imperative for future public sectorPM research to engage in our reframed central research question. However,we feel that a situation where risks outweigh the benefits is a reasonable startingpoint on the basis of the numerous anecdotal cases of PM risks manifesting andthe many research studies that evidence the manifestation of different PM risks.8
It is important to acknowledge the inevitable limitations of a review ofliterature. First, the literature review for reasons of space is unavoidablyselective. Second, some element of subjectivity is involved in categorisingresearch and relating these to particular risk categories. However, steps such asutilising multiple coders were taken to mitigate this. Third, the risk categorieswe use are inductively generated from the journal articles we review, and itis probable that new technological, political and socio-economic developmentsare creating additional PM risks that we have not considered. Continuedengagement with the concerns of those managing, delivering and evaluatingpublic services is important to mitigate this (van Helden and Northcott, 2010).Finally, the research directions outlined are necessarily the views of the authorsonly.
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Notwithstanding this, we feel this study contributes in a number of ways.First, we bring together a disparate and fragmented field in reviewing studiesexamining the risks of PM. This forms a first step towards a more cohesive andcumulative examination of PM risks, their antecedent conditions and proposedmitigation approaches. Second, we reframe the research question for PM riskresearch and PM research more broadly. Here we argue that PM risks shouldnot be considered in isolation from one another, and that the focus should be oninvestigating and testing PM practices to identify how PM systems can be devel-oped and used where the overall benefits exceed any negative potential. Third,specific suggestions are offered in terms of how future research might proceedin a coordinated manner, examining and informing practice where PM is part ofan integrated and enabling control system for strategising and managing in thepublic sector, and where citizen-centric PM is utilised as part of multiple evalu-ation modes to more effectively support accountability to external constituents.
In closing, we argue that greater engagement with issues of PM risk isnecessary. Indeed, if we do not attend to this, then Lapsley’s (2008, p.86)disheartening proposition about the future of PM may well come to pass: ‘[that]the practice of performance measurement will continue to exhibit dysfunctionaland contentious effects which will not be resolved in the foreseeable future’.
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APPENDIXPhase 1 Coding Results
Risk Category Study
Unsupportive PM systems forexternal accountability (n = 16)
Catasus and Gronlund (2005); Collier (2006);Yang and Holzer (2006); Watkins and Arrington(2007); Gregory and Lonti (2008); Shingler et al.(2008); Wichowsky and Moynihan (2008); Bracci(2009); Chang (2009); Taylor (2009); Barnowand Heinrich (2010); Dubnic and Frederickson(2010); Tooley et al. (2010); Micheli and Neely(2010); Moynihan et al. (2011); Nomm and Liiv,2012
Under-utilised PM information(n = 16)
Melkers and Willoughby (2005); Ho (2006);Marvel and Marvel (2007); Yang and Hsieh(2007); Ammons and Riverbark (2008); Sanger(2008); Johansson and Siverbo (2009); Moynihanand Pandey (2010); Arnaboldi and Palermo(2011); Guven-Uslu and Conrad (2011); Hoqueand Adams (2011); Ho (2011); Hou (2011);Taylor (2011); Torres et al. (2011); Rautiainen,and Jarvenpaa (2012)
Misalignment between PM andpublic sector goals (n = 13)
Wall (2005); Milakovich (2006); Modell et al.(2007); Amirkhanyan (2008); Chang (2009);Modell (2009a); Amirkhanyan (2010);Cuganesan and Lacey (2011); Micheli and Neely(2010); Poister (2010); Conrad and Uslu (2011);ter Bogt and Scapens (2012); Nomm and Liiv,(2012)
PM-induced gaming (n = 9) Greener (2005); Bevan and Hood (2006); Courtyand Marschke (2007); Eisenkopf (2009); Kelmanand Friedman (2009); Barnow and Heinrich(2010); Heinrich and Marschke (2010);Moynihan et al. (2011); Lacey et al. (2012)
PM systems misrepresentingperformance (n = 6)
Catasus and Gronlund (2005); Crotty et al.(2006); Schochet and Burghardt (2008); Van deWalle (2009); Barnow and Heinrich (2010);Moynihan et al. (2011)
PM restricting flexibility and/orblocking innovation (n = 4)
Greener (2005); Moynihan (2006); Bracci (2009);Guven-Uslu and Conrad (2011);
PM adversely impactingemployee welfare (n = 3)
Greener (2005); Bracci (2009); ter Bogt andScapens (2012)
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NOTES
1 We use the term ‘riskiness of PM’ to refer to its potential for causing unintended negativeconsequences rather than a more general state of ‘uncertainty’. In this we are consistent witha number of definitions and meaning of the term ‘risk’ (Power, 2004a).
2 Bouckaert and Balk’s (1991) thirteen dysfunctional PM effects relate to misinterpretingperformance, gaming, PM driven behaviours that are not aligned to important goals andrestricting innovation. Smith (1995) discusses pre-occupation with narrow measured objectivesrather than broader organisational objectives and a short-term rather than long-term focus,gaming and data manipulation, PM misinterpretation and the inhibition of innovation.de Bruijn’s (2002) risks are that PM prompts game-playing, blocks innovation, leads togaming, causes an over-focus on PM, reduces public-sector collaboration, and punishes goodperformance through ratcheting.
3 The selected journals comprised (in alphabetical order); Accounting, Auditing and Accountability;Accounting, Organizations and Society; The British Accounting Review; Critical Perspectives on Accounting;European Accounting Review; Financial Accountability & Management; International Public ManagementJournal; Journal of Policy Analysis and Management; Journal of Public Administration Research andTheory; Management Accounting Research; Public Administration Review; Public Administration; PublicManagement Review; The Accounting Review.
4 We are aware that under-utilisation of PM information may be seen by some as a positiveoutcome rather than as a risk. Our response to this under-utilisation of PM means that muchof the benefits are unlikely to be realised, resulting in situations of excessive costs in termsof measurement and/or risks (such as those identified in the paper) exceeding any positivepotential.
5 Peripheral or passing references to a PM risk category were considered insufficient for thepurposes of our classification process.
6 We wish to note that these categories are not mutually exclusive and are likely to be inter-related. Also, we acknowledge that the categories presented are not exhaustive.
7 We acknowledge here the point made by one anonymous referee that classic representativedemocracy may be a cost-effective way to handle integration of citizenship perspectives inperformance evaluation of government, especially given the likely heterogeneity of goals andperceptions of citizens. Yet, we would like to see inclusion of citizenship centric measures suchas those referred to here to provide more frequent performance signals (vis-a-vis electoralcycles) from an important stakeholder perspective.
8 We do not wish to suggest that the research agenda we propose be discontinued upon reachinga point where benefits exceed negative potential. Rather, ongoing studies should examine howthis differential can be increased over time.
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