Performance Measurement in Public Sector - Term Paper Example

INTRODUCTION Performance measurement systems are becoming increasingly popular in both public and private sector organisations because they serve asa means to direct employees' efforts towards the intended organisational goals. These measures are enacted to gauge the performance of employees at all levels and instigate into them a motivation to perform well every time. These measures serve as ladders to enhance performance and efficiency on the part of employees to reach organisational goals efficiency, profitability and customer satisfaction etc. However the success and failure of performance measurement system in both public and private sector organisations depends upon how well these techniques have been implemented in terms of objectives, strategies, communication and interaction between management and employees. This paper presents an understanding of performance measurement systems and their effectiveness in enhancing employee performance. It also discusses the way performance measurement systems should be implemented so as to achieve desired outcomes and motivate employees to perform accordingly. PERFORMANCE MEASUREMENT SYSTEMS Performance measures are of critical importance to all organisations, public and private both. Organisations are increasingly being focused on devising and implementing sound performance measurement techniques and systems so as to direct employees' behaviour and efforts towards the achievement of organisational goals. Performance measures are generally concerned with gauging the extent to which an organisation achieves desired or planned outcomes out of all the efforts and investment put into the operation. Adcroft propounds that "central to pretty much all measures of organisational performance is an understanding of the relationship between economic inputs and outputs" (2005, p388). An organisation, whether private or public, is said to be performing well if the performance measures or means to gauge the level of employee performance verify that the efforts have led to the desired outcomes in the favour of the organisation. Public and private sector organisations both have different objectives behind formulation and implementation of different performance measures. De Bruijn says that "a public organisation formulates envisaged performance and indicates how this performance can be measured by defining performance indicators" (2002, p579). Public organisations for instance NHS, public libraries and universities gauge their performances by setting standards against which actual performance can be measured. Due to the fact that most public sector organisations do not operate for profit motives, these organisations cannot set performance goals on the basis of achievement of profit targets. The public organisations have therefore different objectives and purposes for performance measurement as compared to private sector organisations working for the achievement of profit goals. In public sector organisations, performance measures are generally intended to achieve the objectives set out primarily by government and local bodies. It is because these organisations are not motivated by profit targets, they can not measure performance through budgeting etc. Parker says that in public sector organisations, "performance measures should be designed to inform all of the stakeholders of the effectiveness of their service, reflecting the objectives of Government and Local Authority" (2006, p35). In this way, performance measures in public sector organisations will not inform the sectors on profitability of operations, rather the efficiency of services they provide to the customers for example efficiency of health services in NHS and services in public libraries. Performance Measurement and Organisational Structure: The increasing focus on performance management to emphasise control issues and achievement of organisational purposes has led to an evident shift in organisational structure and approach towards control systems. It has diversified the focus of control systems from internal organisation to the external businesses associated in the process. The organisational structure has now moved from the hierarchical concerns to coordination between individual units and even several organisations that constitute a business process. Performance measurement has not just remained an internal issue but also an external one, in the sense that managers of corporations are considered to work in the best interest of the owners or shareholders (Otley, 2003). It is because an organisation does not only confront with its internal environment, but also with the external environment in which it exists. An organisation has to deal with several other businesses and people outside its internal realm, that impact upon its performance and also the stakeholders who are concerned with the organisation's performance. Adcroft points out that "organisations are complex in so far as they are collections of visible and invisible, tangible and intangible elements and performance itself is determined by a multitude of different internal and external factors and conditions" (2005, p390). This is because the performance measurement techniques like Balanced scorecard is replacing traditional methods like budgeting etc. Public and private sector organisations both need to set standards and gauge performance from internal as well as external perspectives. An organisation needs to take into account not only the internal processes but should also measure performance from the perspective of customers and employees. Employees' behaviours should not only be judged only in terms of efficiency, speed and profitability etc, rather it should also be examined with the help of views obtained from customers and suppliers etc. Gomes, Yasin and Lisboa elaborate that "customer, employees and product/market-related performance aspects are integrated with operational efficiency measures to provide a true overall indicator of organizational performance effectiveness" (2006, p324) It is very important for an organisation to integrate an approach of internal-external operations and process in an effort to implement a performance measure system that could lead to achievement of organisational goals. Non-financial measures like the Balanced Scorecard is a widely popular technique of performance measurement because it categorises an organisation's control system into three crucial areas that could be utilised in virtually all types of businesses. This measure has been successful because it emphasises three major aspects of an organisation viz. company's stakeholders i.e. shareholders, customers, employees, suppliers, regulatory bodies and tax authorities etc, the management of entire business process and reconciling the short and long term forces (Otley, 2003). Performance measures are effective in transforming behaviours and driving employees towards achievement of organisational goals and objectives. However management needs to figure out the impacts of implementation of these measures on possible employee behaviours because the outcomes may deviate from what management might expect (Otley, 2003). Employees may sometimes feel like being pressurised to demonstrate certain level of efficiency or perform at a specific level because of these measures. Such situation might take place because of management's failure to predict employee behaviour in response to these performance measures. Therefore these measures need to be implemented in a way that can enable the employees to perform at a better level. The next section will discuss the considerations that should be taken into account by the management so as to effectively implement a performance measurement system. It also will demonstrate how performance measures could deviate from the objectives they intended to achieve because of management failure to predict the outcome of these measures. Implementation of Performance Measurement Systems Implementation of performance measurement systems in any organisation requires three major steps viz. design, implementation and uses. The organisation needs to determine and set objectives for the utilisation of performance management systems. The second step i.e. implementation requires an organisation to assemble and put into practise the specific measures to be used to gauge the performance levels. The final step in implementation of performance measurement systems called as 'uses' calls for an analysis of strategic objectives that are intended to be achieved through performance measurement systems. The measures to gauge the performance of an organisation are basically derived out of strategies and are designed to strategic goals such as employee motivation, profitability, customer satisfaction, organisational efficiency etc. This entails that performance measurement techniques should be implemented in a way that the management first of all becomes aware of the objectives to be achieved and means to implement these measures. Finally, the outcomes of these measures should be examined in the light of strategies that were determined in the beginning (Bourne et al, 2000). Public and private sector organisations have different objectives and means to implement performance measurement systems. Although both type of organisations need them, but to meet different objectives. The steps for implementation of performance measurement would entail what an organisation wants to achieve by means of these measures and what means are suitable for enacting certain techniques. Employees in private sector are generally motivated to perform in a way which is the most profitable for the organisation whereas performance measurement systems in public sector organisations direct the employees towards achievement of higher efficiency in the services they provide so as to meet the goals set by the governments and local authorities. There are several ways other than the budgetary controls through which an organisation can implement performance measurement system. Otley (2003) elaborates an example of supermarket queue in which he elaborates how effectively performance measurement techniques could be established in a way as to motivate the employees in the best possible manner. In this example, employees at the checkout counter were being measured with respect to the speed they deliver while checking out the goods. This measure allowed the employees to be ranked on the basis of high speed in order that instigated a feeling of competition among the checkout staff members. The author noticed a demonstration of high speed by the employee at the checkout counter. But the point that was remarkably noticeable that although the performance measurement system at the queue was effective in enhancing employees' speed at the check out counter but in a way that adversely affected the customer experience in packing of goods. Therefore, performance measurement systems can only lead to positive benefits when the management realises the impact of certain techniques on the employee behaviour in several respects (Otley, 2003). Since enhancing the checkout speed was meant to manage queues in the superstore in order to facilitate customers, yet it led to negative effects in the form of troubled customer experience in packing. Another striking example provided by Otley (2003) puts forward that certain measures of performance could lead to a natural negative behaviour, intentionally or unintentionally. The author points out that in UK secondary schools, measurement of teachers' performance is done by means of grades that are obtained by the students at public examinations. This measure although has been designed to improve efforts and efficiency on the part of secondary school teachers, however, this leads teachers to shift much of their focus on students that are likely to obtain the lowest C or D grades in these examinations rather than all the students at extreme levels of calibre. Hence it is very important for an organisation to set and identify the objective behind the implementation of performance measurement systems so as to achieve strategic outcomes. Performance measurement systems are effective in preparing employees for change in organisational culture and strategies. Once objectives are set for implementation of performance measures, the management decides what measures to enact to achieve certain behaviour on the part of employees and communicates it to them. This enables the employees to understand and cooperate in the process of achievement of the required level of performance. Cheng, Dainty and Moore propound that performance measures "act as both behavioural change tool and enabler of improved organizational performance through being instrumental in driving change" (2007, p62). If management succeeds in communicating the employees the objectives for implementation of performance measurement systems, this could certainly lead to change their behaviour in the intended direction. For example, employees who do not perform with the speed required to perform a task efficiently should be informed about the measures implemented to gauge their performance so as to bring desired changes. Management can utilise the performance measures to enhance communication with the employees and motivate them to perform at a higher level. Performance measures if associated with rewards or corrective measures have direct impact on how important employees consider them. Management can communicate the goals, rewards and corrective actions associated with the outcomes of the employees' performance and suggest them the best possible manner to act desirably. Cheng, Dainty and Moore point out that "performance management system is an important tool for communicating priorities and for providing feedback to stimulate employees to meet the new expectations" (2007, p62). Thus, these measures can lead employees to work harder to achieve rewards like promotion, bonuses or ranks etc and in turn drive their efforts towards the organisational goals determined by the management. Lack of management's commitment towards implementation of a sound performance measurement system, lack of communication and interaction, employees' inability to change behaviour and lack of skills and expertise required to implement these systems could also contribute to failure of performance measurement systems (Cheng, Dainty and Moore, 2007). Strategies for Performance Measurement: Performance measurement systems in any organisation reflect directly the strategies set by the management to determine the best possible way to direct employee efforts towards desired outcomes. However most performance measures fail because of inability of management to either communicate goals effectively to the employees upon which the measurement system is being implemented or reluctance to involve them in the decision concerning the best performance measurement techniques. De Bruijn says that "the essence of these rules of the game is that both the professional and the manager give their interpretation, confront their meanings with each other and adapt them where necessary, after which a manager can establish a meaning" (2002, p587). These systems should be designed by management in collaboration with the employees or staff members so as to reach at the optimum control and performance measurement system that could lead the employees to accomplish organisational goal in an effective and efficient manner. This strategy works well by not only improving the communication of goals to the employees but also involving their contribution in the implementation of a workable measurement system. The best strategic action an organisation's management can take to implement a sound performance measurement system is to improve the way employees interact with the management. Staff member's suggestions and involvement enhances the certainty that the performance measures would lead to the desired outcomes. De Bruijn says that "performance measures is thus embedded in a process of interaction between managers and professionals" (2002, p592). Managers who are reluctant to communicate effectively with the staff members mostly as the major cause of failure of performance measurement systems. In order to improve employees' behaviour and gauge their performance effectively, it is thus very important to enhance the interaction between management and employees. Conclusion This paper provides an insight into the importance of performance measurement systems and elaborates their effectiveness in achieving organisational goals and objectives. Performance measurement systems not only serve to gauge performance through internal system but also via external business process, for example customer opinions about staff service etc. Both public and private sector organisations need performance measurement in order to channelise the behaviour of their employees in the required manner. This paper argues that the success of these measures lies in the efforts of management towards not only communicating and interacting with the employees but also involving them in the implementation of control systems. An appropriate implementation of performance measurement system requires organisations to define objectives, set strategies, determine means to enact performance measures and finally to evaluate uses of these measures. Management should be aware of the goals to achieve through performance measurement. They also need to endeavour to accurately predict the employee behaviour or outcome in response to implementation of these measures because some techniques to gauge and motivate employees to enhance their performance can naturally lead to ineffectiveness of other aspects of services. An accurate anticipation of employees' response to the control systems and their involvement in the process of implementation are the strategies that could lead the organisation to achieve desired outcomes through performance measurement systems. References Adcroft, A. (2005), "The (Un)Intended Outcome of Public Sector Performance Measurement", International Journal of Public Sector Management, 18(5), pp. 386-400 Bourne, M. et al (2000), "Designing, Implementing and Updating Performance Measurement Systems", International Journal of Operations & Production Management, 20(7), pp. 754-771 Cheng M., Dainty, A. and Moore, D. (2007), "Implementing A New Performance Management System within A Project-Based Organization A Case Study, International Journal of Productivity and Performance Management, 56(1), pp. 60-75 De Bruijn, H. (2002), "Performance Measurement in Public Sector: Strategies to Cope with the Risks of Performance Measurement", The International Journal of Public Sector Management, 15(7), pp. 578-594 Gomes, C.F. Yasin, M.M. and Lisboa, J.V. (2006), "Key Performance Factors of Manufacturing Effective Performance: The Impact of Customers and Employees", The TQM Magazine, 18(4), pp. 323-340 Otley, D. (2003), "Management Control and Performance Management: Whence and Whither," The British Accounting Review, 35, pp. 309-326 Parker, S. (2006), "The Performance Measurement of Public Libraries in Japan and the UK", Performance Measurement and Metrics, 7(1), pp. 29-36 Read More