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Performance Management

Editor's Note to Readers

Welcome to the eighth edition of Human Capital Matters for 2014—the digest for leaders and practitioners with an interest in human capital and organisational capability. This edition focuses on Performance Management. Performance Management was last explored in the September 2011 edition of Human Capital Matters.

Human Capital Matters seeks to provide APS leaders and practitioners with easy access to the issues of contemporary importance in public and private sector human capital and organisational capability. It has been designed to provide interested readers with a monthly guide to the national and international ideas that are shaping human capital thinking and practice. The inclusion of articles is aimed at stimulating creative and innovative thinking and does not in any way imply that the Australian Public Service Commission endorses service providers or policies.

Performance management is the development and application of policies and procedures designed to improve an organisation's performance. The 2013 State of the Service Report indicated that capability reviews and agency self-assessment across a range of organisation functions suggested that performance management was one of four capability areas that the APS could improve. Increased attention is being paid to performance management as an important tool in building a high performance organisation. An array of new tools has been developed to enable agencies to improve their high performance capabilities. While not specifically covered in this issue, readers may be interested in material on the Australian Public Service Commission website.

The influence of performance measurement and reporting systems on innovative performance improvement efforts is raised in the first article. This is in the context of Canada facing global challenges.

The second article canvasses an evidence review that has been prepared for the Commission on Public Service Governance and Delivery, Wales. It addresses a range of questions related to performance management.

The third article provides advice on performance management issues for people with disabilities and/or mental illness.

The fourth article covers some general principles of effective performance management as highlighted in a black and white paper released by AuditNZ in 2009 and updated in 2012.

The fifth article proposes a value-based model for performance management, governance, and public service leadership development. It focuses on the broader concept of government performance rather than individual performance.

The final article examines performance management in the context of organisational control systems including performance pay.

Thank you to those who took the time to provide feedback on earlier editions of Human Capital Matters. Comments, suggestions or questions regarding this publication are always welcome and should be addressed to: humancapitalmatters [at] apsc.gov.au">humancapitalmatters [at] apsc.gov.au. Readers can also subscribe to the mailing list through this email address.

Contents

McDavid, Jim (2014) “Have we built a system that contains a paradox?”, Canadian Government Executive

This article raises a series of questions in the context of Canada facing global challenges. The author discusses the performance measurement and reporting experiences in Britain (especially the Blair years from 2001-2005) and New Zealand.

Go to “Have we built a system that contains a paradox?”

Andrew, Rhys (2014) “Performance Management and Public Service Improvement&rdqou;, The Public Policy Institute for Wales

This evidence review has been prepared for the Commission on Public Service Governance and Delivery, Wales. It draws together research from around the world to address four questions that are directly relevant to the Commission's work: what is performance management; does performance management lead to improvement in public services; what kinds of performance management are most effective; and in what circumstances do performance management systems work best?

Go to “Performance Management and Public Service Improvement”

Australian Government, JobAccess, Performance Management

This guide for Australian employers covers performance management issues for people with disabilities and/or mental illness.

Go to “JobAccess, Performance Management”

AuditNZ—Performance Management—Black and White Paper 2009 (updated 2012)

Effective performance management is critical to the success of a well-run public entity. Responding to performance may seem an obvious thing for managers to do, but for performance management to be effective certain key elements need to be in place. This publication outlines some principles.

Go to “Audit NZ—Performance Management—Black and White Paper 2009”

Guoxian Bao, Xuejun Wang1, Gary L. Larsen, and Douglas F. Morgan “Beyond New Public Governance: A Value Based Global Framework for Performance Management, Governance, and Leadership” (2013)

This article proposes a value-based model for performance management, governance, and public service leadership development. It focuses on the broader concept of government performance rather than individual performance.

Go to “Beyond New Public Governance: A Value Based Global Framework for Performance Management, Governance, and Leadership”

Bruno S. Frey, Fabian Homberg and Margit Osterloh “Organizational Control Systems and Pay-for-Performance in the Public Service” (2013)

The authors argue that under certain conditions, output related performance measurement and pay-for-performance produce negative outcomes. It is suggested that in the public service, these negative effects are stronger than in the private sector. The researchers combine Behavioural Economics and Management Control Theory to determine under which conditions this is the case. They suggest as alternatives to the dominant output related pay-for-performance systems selection and socialization, exploratory use of output performance measures, and awards.

“Have we built a system that contains a paradox?”

This article raises a series of questions in the context of Canada facing global challenges. The author discusses the performance measurement and reporting experiences in Britain (especially the Blair years from 2001-2005) and New Zealand.

The key point of the author is:

Here is the paradox. In our enthusiasm to improve accountability and “make the managers manage” to a limited set of targets, we may have designed performance measurement and reporting systems that drive out innovative performance improvement efforts.

The article concludes with three questions in the context of Canada increasingly facing complex global challenges:

  • How do managers actually use performance information in their roles and responsibilities?
  • Are managers given latitude and resources to create their own “off line” performance measures – ones that are effectively decoupled from corporate systems?
  • And if such systems exist, do they make a difference to the effectiveness and agility of organisations?

Jim McDavid is professor and graduate advisor with the School of Public Administration at the University of Victoria

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“Performance Management and Public Service Improvement”

This evidence review has been prepared for the Commission on Public Service Governance and Delivery, Wales. It draws together research from around the world to address four questions that are directly relevant to the Commission's work: what is performance management; does performance management lead to improvement in public services; what kinds of performance management are most effective; and in what circumstances do performance management systems work best?

Four main conclusions were reached:

  • Performance management can improve the effectiveness of public services. They also have a positive impact on outcomes for service users.
  • There is less hard evidence that performance management produces efficiency savings, so alternative means for promoting cost-cutting innovations may be required.
  • Performance measures imposed at the field level seem to be the most effective, long as there are sufficient comparator organisations to allow competition and comparative learning between organisations.
  • Performance management seems particularly well-suited to delivering improvement in performance indicators which have a high degree of public acceptance, such as exam results and hospital waiting times. But its effectiveness is influenced by other factors including organisational culture and leadership.

The report raises four implications for policy makers in Wales:

  • Policy makers need to ensure that performance management systems enable Welsh councils' performance to be compared over time, between authorities, and with similar organisations elsewhere.
  • Wales should make more use of approaches such as benchmark competition.
  • Policy makers need to consider alternative means for promoting cost-cutting innovations. This does not imply that large-scale restructuring is the answer. Rather, it suggests that techniques focused specifically on capturing efficiencies, such as business process re-engineering, may be needed.
  • Performance management does not operate in a vacuum. It is important that policy makers encourage stakeholder involvement, system maturity, leadership support, management capacity, employee involvement, innovative cultures and goal clarity because these increase the effectiveness of performance management.

Rhys Andrews is Professor of Public Management in Cardiff Business School.

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JobAccess, Performance Management

This guide for Australian employers covers performance management issues for people with disabilities and/or mental illness. It canvasses the follow issues:

  • What is an effective performance management plan?
  • What are the benefits of the performance management process?
  • What to consider when assessing the performance of an employee with disability
  • Managing the performance of employees with mental illness
  • Workplace supports for employees with disability

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AuditNZ—Performance Management—Black and White Paper 2009

Effective performance management is critical to the success of a well-run public entity. Responding to performance may seem an obvious thing for managers to do, but for performance management to be effective certain key elements need to be in place. This publication outlines some principles. In essence, these include:

  • identifying outcomes
  • avoiding confusing outcomes with outputs
  • translating outcomes so that they are meaningful for employees
  • setting performance measures and targets
  • monitoring and report current performance
  • using the results of performance monitoring to inform your future strategies, plans, and approach to service delivery
  • taking ownership and accountability for performance are important for individuals as well as those they manage. Managers need the power and support to respond to performance information promptly, or performance is likely to continue drifting away from the targets
  • a focus by senior management on performance motivates people to deliver against targets, put effort into monitoring performance, and have the courage to take necessary action even though this might be challenging.

Audit New Zealand is the leading provider of audit and assurance services to the public sector.

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“Beyond New Public Governance: A Value Based Global Framework for Performance Management, Governance, and Leadership”

This article proposes a value-based model for performance management, governance, and public service leadership development. It focuses on the broader concept of government performance rather than individual performance.

There are three distinguishing features of this model. First, the model is the product of considerable research and curricular “field-testing” with academic partners in the United States, China, Vietnam, and Japan. Secondly, the model deliberately integrates an emphasis on values, leadership, management, and governance into an organic framework that addresses many of the criticisms that have been made of New Public Management. Thirdly, the model incorporates differences in the values, for example, it recognises that the United States values liberty as a primary value, whereas China and Vietnam value the collective good. It also makes allowance for different structures of authority among political settings, thus making it applicable across a wide variety of regimes. For example, it endeavours to integrate core political values, for example, it recognises that the United States values liberty as a primary value whereas China and Vietnam value the collective good.

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“Organizational Control Systems and Pay-for-Performance in the Public Service”

The authors argue that under certain conditions, output related performance measurement and pay-for-performance produce negative outcomes. It is suggested that in the public service, these negative effects are stronger than in the private sector. The researchers combine Behavioural Economics and Management Control Theory to determine under which conditions this is the case. They suggest as alternatives to the dominant output related pay-for-performance systems selection and socialization, exploratory use of output performance measures, and awards.

The Behavioural Economics approach overcomes some of the limitations of standard economic theory but has two limitations. First, the implications of Behavioural Economics for the design of institutions or governance systems are limited. Due to its grounding in psychological research and its heavy reliance on laboratory experiments, it explores mainly individual and group behaviour but not institutional arrangements beyond that level.

To overcome the weaknesses of Behavioural Economics the authors combine this approach with insights from the literature on Public Service Motivation as well as Management Control Theory. Management Control Theory distinguishes different kinds of control and shows to which kinds of tasks they are applicable.

Output control does not specify the processes or type of behaviour that produces the desired out-puts but measures countable output indicators. Output control is most appropriate when processes or cause-effect relationships are difficult to specify but outputs are easy to measure.

If output based control and reward systems are applied although the task does not display the prerequisites for output control, dysfunctional effects may arise. Individuals who are not intrinsi-cally motivated will have a strong incentive to respond to those indicators that are easy to measure, that is, the quantifiable performance-related aspects of a task. Data that is not easy to measure is disregarded, although it might be crucial to fulfilling the task. The reliance on quantitative data to govern work behaviour neglects the important qualitative aspects of public services.

Process control is an alternative to output control. The preconditions are that evaluators: (a) have the appropriate knowledge of cause-effect relationships or the transformation process of inputs into outputs, and (b) have a shared understanding of the rules obtained. The external controller must possess such knowledge in order to make a qualified judgement. Process control is of special importance in many areas of the public sector because it serves to provide equal treatment of all citizens according to the rule of the law as well as transpar¬ency to the public in order to participate in the political process. Such bureaucracy is inadequate in a rapidly changing environment as well as for many ambiguous tasks. Under these circumstances, a combination of process control and a form of control known as input control in Management Control Theory is necessary.

Input control assesses whether individuals or groups that have been selected for employment fit to the organisation and have internalized norms and professional standards, i.e. are dedicated intrinsically to their task.

Management Control Theory clarifies which kinds of control exist and at the same time clarifies under which condition pay-for-performance makes sense. In reality, there is always a mix of the different control forms and, accordingly, a mix of different remuneration systems.

The authors argue that for a large number of tasks in the public service—notably, the most important tasks for the functioning of public administration—output and process control linked to pay for performance should be avoided.

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