Performance Measurement in the Public Sector - Essay Example

? xxxxx No. 12345 (BUSINESS) INTERNATIONAL BUSINESS STRATERGY ABC Xxxxx xxxx College Department of XXXX XXXX 09 May,2011 Introduction Major variables are incorporating to get the public sector within substantial demand. Besides the latest expenses dilemma, the lack of leadership and poor management strategies has increased several pressures on UK public sector. Analysis of many difficulty areas shows some sort of once-in-a-generation possibility to figure out the solution to these difficulties but also to make sure that expenses are usually limited in readily accessible resources. Performance measurement is one of the primary principles of management (Fayol, 1916). The performance measurement is significant as it recognizes the existing performance gaps between contemporary and desired performances and provides an indication of progress towards closing the gaps. Carefully selected key performance indicators identify precisely where to take action to improve performance. This paper deals with the identification and application of the concepts of lean management and the key performance indicators for the maintenance functions. Initially the paper defines the complex framework of UK public sector and then describes the application of lean management and KPIs within the UK public sector. At the end, the paper deeply emphasizes on how the UK Public sector progressing well in terms of management strategies. The issue is elaborated critically that how public sector organizations are actively hitting the target but missing the core objectives. UK Public Sector It is very tough for a person not citizen of UK to easily comprehend the structure, operations, and management systems of UK public sector. Probably the main reason is the complex restructurings, numerous administrative divisions, and a combination of district councils, county councils, and unitary authorities which make the whole managing structure quite complex. Both the county and district divisions have their particular area of jurisdiction. Public sector Area of responsibility County level Education, Social Services, Transport, Strategic Planning, Fire Services, Consumer Protection, Refuse Disposal, Smallholdings, Libraries District level Local planning, Housing, Local highways, Building regulations, Environmental health, Refuse collection Divided level Recreation, Cultural matters Lean Management Daniel, T. Jones was the first one who presented the concept of lean management in 1990s. Today his concept has been developed into a mini discipline which the public sector and industrial organizations are using in their area of operations. Principally the approach supports the mapping business procedures, recognizing the waste, delays and restricted accesses, re-designing the workflow to aim for perfection (Jones, 2003). The concept is described in the following diagram. Instead of simply accepting the uncritical pre-existing ideas, the lean management is basically an optimizing variation in terms of improving the efficiency, decreasing the waste, and the utilization of experimental procedures to decide what does matter. The goals of lean management systems differ from author to author e.g. some authors believe on an internal focus to increase the profit of the organization (Liker, 2004) while there is a lot which assert that progress must be done for the sake of the customer (Womack et al, 1990). UK public sector organizations apply different techniques of the principles of lean management to attain maximum output. Initially the concept of lean management was presented in terms of manufacturing industry. Toyota Production System (TPS) was the first concept of lean which was developed from 1940s to 1970s also known as Japanese Waste Model. The leading goals of TPS were to eliminate the seven wastes which included wastes in terms of transport, inventory, motion, waiting, over production, over processing, and defects (Womack and Jones, 2003). Ford (1922) describes the entire concept of waste in just one paragraph. “I believe that the average farmer puts to a really useful purpose only about 5% of the energy he expends.... Not only is everything done by hand, but seldom is a thought given to a logical arrangement. A farmer doing his chores will walk up and down a rickety ladder a dozen times. He will carry water for years instead of putting in a few lengths of pipe. His whole idea, when there is extra work to do, is to hire extra men. He thinks of putting money into improvements as an expense.... It is waste motion; waste effort that makes farm prices high and profits low. Today the concept has spread in other field as well. Mark Graban, senior fellow at the Lean Enterprise Institute and author of Lean Hospitals says that “One thing that hospitals need to keep in mind regarding lean processes is that it is an approach to management, a philosophy for improving and leading organizations" (Dunn, 2009). Key Performance Indicator A key performance indicator (KPI) is basically a business terminology for a type of performance measurement (Taylor, 1990). Organizations widely use the key performance indicators to assess either its overall success or its achievements with respect to a particular activity. Generally the term success is associated with the achievements of strategic objectives; however, in specific meanings the term has different meanings. Specifically it can considered with the frequent achievements of goals at operational level e.g. 10/10 customer satisfaction, or zero accidents etc. Therefore, selection and formulating of correct KPIs dependent a lot on the organizational overall goals. 'What should be the key performance indicators? The question is highly dependent on the nature of the organization which measures the performance. It means key performance indicators associated with sales will be quite different to those deal with finance business. Therefore it is clear that the choosing of KPIs is generally related to the present state of the business and its primary frame of operations. Such assessments and evaluations lead the concerned authorities to recognize the potential improvements, thus, KPIs are mostly associated with performance improvement. The balanced scorecard is one of the most widely used management tool to choose the key performance indicators. For Kaplan and Norton (1996), “The name [balanced scorecard] reflected the balance between short and long term objectives, between financial and non-financial measures, between lagging and leading indicators, and between external and internal performance perspectives.” Balanced scorecard is the most widely used performance measuring tool in western countries including UK. Since balanced scorecard is a strategic tool, therefore it mainly deals with four strategic perspectives. These four strategic perspectives along with their key performance indicators are listed below. Perspective KPIs Financial (a) Goals: Survival, prosperity, success and growth (b) Measures: Revenue growth, cash flow, return on capital, economic value added, cost reduction, performance reliability Customer (a) Goals: Customer’s satisfaction, profitability, retention, acquisition (b) Measures: Transaction cost ratios, key accounts, market share Internal Business Process (a) Goals: Core Competence, business procedures, critical technologies, key skills (b) Measures: How well the company recognizes the future trends, quality, cost, and time, warranty, repair and deficiencies Learning and Growth (a) Goals: Continuous improvement and development (b)Training, motivation and retention of human resource, critical information for front line employees, productivity of entrepreneurship (Source: Kaplan & Norton, 1992) Performance Measurement in the Public Sector The problems and challenges with performance measurement have been discussed in both private and public perspectives since long by many writers (Behn, 2003, Kaplan and Norton, 2004, Smith, 1995). UK Government has shown a greater interest in the performance measurement of the public sector. In order to push through the modernization, the UK government is using media, press, performance milestones and league tables. Further in order to improve their effectiveness and to reduce their demands on taxpayers, social public services are facing persistent challenges from in different societies especially in advanced economies of Anglo-Saxon countries and Scandinavian countries (Brignall and Modell, 2000). UK organizations are effectively using the applications of KPIs in both private and public sectors. Since private sector is always keen for profit, therefore, financial perspective is always at the forefront in performance evaluation. In order to make it balance, it is vital to include other various factors to measure the financial value. As far as UK public sector is concerned in terms of lean management and KPIs, normally an integrated perspective for performance measurement is considered vital. Norton and Kaplan rearranged different perspectives because profit is not the driving force in public sector behavior. Financial measures are replaced by vision as the leading goal of the public sector as well as with the support of three valuable perspectives i.e. costs, benefits, and legitimizing authorities. Cost perspective deals with both financial and social costs while benefits are measured in financial terms as projects and programs. The customer perspective is refashioned in a democratic environment by legitimizing authorities (Bremser & White, 2000). The following provides a general illustration of the use of KPIs in UK public sector. (Source: Kaplan & Norton, 1996) Besides the application of balanced scorecard, UK public sector is also using Six Sigma, the Baldrige, EFQM, and APIC as performance measuring tools. The Six Sigma is generally defined in terms of quality improvement within the organization. UK public sector uses both the similar best practices of the balanced scorecards and the Six Sigma in design and deployment systems (Antony, 2008). Both of these management systems require the support of top-level management, efforts of a devoted team to bring cultural change, aligned strategy, implementation of improved projects, and the combination of top to bottom and bottom to top development. The practitioners of Six Sigma often implement the balanced scorecards to develop appropriate performance metrics. The Baldrige Award, European Foundation for Quality Management (EFQM) and Army Performance Improvement Criteria (APIC) are some other examples of organizational management used by UK public sector. Generally these assessment tools are applied successfully in a particular timeframe. Public sector departments use a point scale to compare the real situation against a perfect score scale (generally 1000). Organizations are rewarded annually for their exceptional performance against this perfect scale. The application of the balanced scorecard is slightly different. It revolves around the assessment data to find out where the improvements and breakthroughs areas in performance are required so that the strategies can be re-analyzed to meet the required results. It means the balanced scorecard includes more than assessment, and thus is more forceful strategic management system than the Baldrige, EFQM, and APIC. UK Public Sector: Hitting the Target but Missing the Point Key performance indicators (KPIs) are the management strategies to evaluate the cyclic performances of IK public sector organizations, departments, business units and their divisions, and the employees. Consequently, KPIs are to be defined in a comprehensible, suggestive, and assessable way. Organizations ignore those KPIs which do not support them to attain their goals rather create hampers as non-controllable by the organizations or individuals. In order to evaluate, the UK public sector link the key performance indicators to target values, so that the value of the performance measure can be judged as materialized or not. The UK central government has seriously focused on the performance management of its services. The public sector organizations are giving a certain place to its target setting, key performance indicators and an intervention regime. One of the positive influences of targets includes the formulation of common goals and a comparing analysis. How UK public sector targets for further improvements? Is there any leadership gap or requirement to consider the customer as real target? UK public sector stands at this crossroads. Presently, the UK public sector is measuring the performance of both the employees and operational effectiveness (i.e. its targets) through the conventional procedures. Controlling is a fundamental element of management and defined as the process of monitoring the activities to ensure they are being accomplished as planned and of correcting any significant deviation (Drucker, 1954). Like all international organizations, UK public sector also faces the problems regarding the control of the workforce and their performance measurement. It is generally done by the application of three different approaches. In order to determine what actual performance is, it is necessary to acquire information about it. Thus, the first step which the UK public sector takes in measuring is the controlling i.e. to collect the information through different sources. These sources may include personal observations by higher authorities of public sector, statistical reports, oral reports, and written reports. Each has particular strengths and weakness. However, a combination of them increases the probability of receiving reliable information. What should the public sector measure is probably more critical to the management strategies than how should measure? The selection of the wrong criteria may result in a serious disorientation. There are some performances measuring factors which are applicable to all organizations and departments of public sector e.g. employee satisfaction, turnover, and absentee rates represent examples of human resource criteria that can be measured. Additionally, most departments have budgets for their area of responsibility, thus keeping costs within their budget might be a fairly common factor of performance measurement. The comparison between actual performance and the standard determines the degree of variation. Some variation in performance in all activities cannot be avoided. So UK organizations determine the acceptable range of variation (Smith, 1993). Deviation in excess of this range would become significant and thus targets receive the attention of concerned authorities. In this application, UK public sector uses KPIs associated with human resource to measure the performance with size and direction of variation. The role of managerial actions cannot be overruled in any case. They can either correct the actual performance or revise the standard. If the source of variation is deficient in performance, UK controlling authorities intend to take corrective measures. Examples of corrective measures include both the lean management techniques and key performance indicators e.g. the changes in strategy, structure, training program, replacement of the personnel, rightsizing of social or public sector etc. Immediate corrective action corrects the things right and thus gets the things back on track. Basic corrective action asks the probing questions, like, how and why performance deviated. After determining the root causes of deficient performance, the basic corrective action proceeds to correct the source of deviation. Public sector services tend to rationalize that they do not have the time to take basic corrective action; however, effective management strategies analyze the deviations and permanently focus on significant variances between standard and actual performance. Since, it is possible that the variance might be a result of setting unrealistic targets i.e. the goal may be too high or too low. In such cases, it is actually a target which requires corrective attention, not the performance. UK Public sector has special emphasis on performance management in both operational effectiveness and the response from its workforce to the customers. If a host-employee or unit of a social sector falls significantly short of reaching its objectives, the natural trend is to shift the blame for the variance to the standard. It may be true that standards are too high or low. But, the effective management strategies must investigate the whole issue i.e. either the section or its personnel failed to meet the standard. UK public sector shows some conservative results here. Instead, it should not straightaway revise the standard; rather it must check the performance first. Today's blend of complications proposes what the heck is wanted is actually a strategy to fix sustainability plus firmness so that one can estimate the financial circumstances in terms of intergenerational equity; plus provable control with present-day public sector expert services. Private sector companies frequently have less difficult targets and a whole lot more reactive restrain systems as in contrast to public sector agencies, signifying the relationship between production and cost and also the particular influence regarding quick evident activities. Although, UK public sector cannot completely reproduce the practices of private sector within its area of jurisdiction, even then the observations of private sector may be insightful for it. Typically the private sector seems to be healthier by having cost effective achievements. Statistics of the Office for National Statistics demonstrate that during 1997 to 2007, the productivity of public sector dropped to 3.4% while it has been increased by 3% in private sector. Depending on prices, as mentioned by the Centre for Economics and Business Research, this specific regressing output inside the public sector may be priced at taxpayers ?58 million in a year (The Front Line, December 2009). Only 20% of UK adult population is employed in public sector. During 1998 to 2007, almost 70% jobs were offered in public sector, while 36% jobs were offered for civil servants in Wales, Scotland, and North of England (Civil Service Statistics, 2009). Insecurity of jobs and loss of jobs in some areas has emerged a political and economic issue. The following figure shows the budget allocation to different public sector departments. In order to make specific plans, managing authorities need adequately good information to comprehend the real picture, the behavior of their operational segment, and the effects of external elements. Cost effective results, savings, and waste management principles can be obtained by the applying the lean management principals, techniques of cost leadership, and a common strategy aligned with fundamental goals. One of the significant areas where UK public sector is visible short of achieving the desired goals is the formulation of management strategies. Any strategy must be executed and led by the central authority e.g. Cabinet Office and HM treasury. The central agencies should set the goals and plans in front of departments, however, departments must have the liberty to execute these strategies to come up with performance measures to observe and analyze their own performance with respect to set objectives. The best boards focus heavily on performance management and meet regularly with ministers to shape joint strategy... all boards should place greater emphasis on performance and financial management (Institute for Government, January 2010). Another important area where UK public sector is active and meets the target but still missing the point is the effective implementation of performance management system. An effective performance management system must incorporate the principles of lean management and key performance indicators. The implementation of such a system enhances the overall results of the sector, which is properly aligned to its strategies reflects its own priorities, and drivers. A good and effective performance management system must be equipped with feedback loop, so that it can monitor the practical application of strategy and most importantly the feedback for improving or revising the strategy (Hofstede, 1981). This is the area where UK public sector need to focus more as by implementing a strong management system will enable it to deliver strategic plans to connect up goals with outcomes. Bibliography Antony, Jiju (2008). Pros and cons of Six Sigma: An Academic Perspective. Retrieved 01 May, 2008. Behn, R. D. (2003). Why measure performance? Different purposes require different indicators. Public Administration Review, 63: 586-606 Bremser, W. G. & L. F. White. (2000). An experiential approach to learning about the balanced scorecard, Journal of Accounting Education 18(3): 241-255. Brignall, S. and Modell, S. (2000). An institutional perspective on performance measurement and management in the “New Public Sector”. 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