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International Journal of Productivity and Performance Management Australian public sector performance management: management: success or stagnation? Lewis Hawke
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To cite this th is document: Lewis Hawke, (2012),"Australian public sector performance management: success or stagnation?", International Journal of Productivity and Performance Management, Vol. 61 Iss 3 pp. 310 - 328 Permanent link to this document: http://dx.doi.org/10.1108/17410401211205669
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Australian public sector performance management: success or stagnation? Lewis Hawke University of Canberra, Canberra, Australia
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Abstract Purpose – Australia has been a leader in public sector performance management for around three decades yet there have been persistent weaknesses in the quality and use of performance information since the system was established. This paper seeks to identify and explain the key factors affecting the success succe ss of Austr Australia’s alia’s public sect sector or perfor performance mance management system. Thee st stud udy y di dist stil ilss si six x ke key y in influ fluen ence cess on pu publ blic ic se sect ctor or Design/methodology/approach – Th performance management from academic and practitioner literature. It examines the data available from official documents, reviews and performance audits to identify and analyse the factors that have shaped the Austr Australian alian system. Australia’s lia’s public sector performance performance manageme management nt arrangements have been defined by Findings – Austra strong external external (political), structural structural and techni technical cal factors. These have been a very positive feature in achieving a stable and sophisticated system. This paper suggests that more emphasis on management, behavioural and cultural factors could be more beneficial than continuing to focus on purely technical refinements for further reform. contribute to refine refinement ment of policy and impleme implementation ntation in Practical implications – The results can contribute Australia. The diagnostic framework can be used for further analysis of public sector performance management in Australia or other countries. Originality/value – The study draws on existing literature and information on the quality and impact of public sector performance management to develop a diagnostic framework and analyse Australia’s experience. It identifies key attributes of Australia’s success and factors that may be limiting further improvements. organizations, Performance management, management, Australia Keywords Public sector organizations,
Paper type Research paper
International Journal of Productivity and Performance Management Vol. 61 No. 3, 2012 pp. 310-328 q Emerald Group Publishing Limited 1741-0401 DOI 10.1108/17410401211205669
Introduction There have been attempts to develop measurement and assessment systems for public sector sec tor perf performa ormance nce for cent centuri uries. es. The syst systems ems of perf performa ormance nce meas measure uremen mentt hav havee become more sophisticated and widespread in the last three decades. However, despite the long period of impl implementat ementation ion and refineme refinement, nt, fundamental weaknesses weaknesses persis persistt in thee qu th qual alit ity y an and d us usee of pe perf rfor orma manc ncee in info form rmat atio ion. n. In pa para rall llel el wi with th pr prac acti tica call develop dev elopmen ments, ts, the body of lit literat erature ure see seekin king g to docu documen ment, t, exp explai lain n and imp improve rove publ pu blic ic se sect ctor or pe perfo rform rmanc ancee has al also so gro grown wn.. Per Perfor forma mance nce ha hass be been en de define fined d an and d scrutin scr utinize ized d in man many y dif differe ferent nt way ways. s. Thi Thiss stu study dy focu focuses ses on the fac factors tors und underl erlying ying success in the implementation of performance management arrangements in the public sector. It uses Australia as a case study in an attemp attemptt to test the significance significance of factors iden id entifi tified ed as im impo porta rtant nt in th thee ac acade ademi micc an and d pra pract ctit itio ione nerr li lite terat rature ure,, and dra draws ws conclusions on how those factors have shaped Australia’s performance management together with their potential to affect future success. Performance management in this study refers to the “interrelated strategies and acti ac tivi viti ties es to im impr prove ove th thee pe perfo rform rmanc ancee of in indi divi vidua duals ls,, te teams ams and org organ anis isat ation ions. s.
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Its purpose is to enhance the achievements of agency goals and outcomes for the government” (Management Advisory Committee, 2001, p. 14). Bouckaert and Halligan (2008) developed a framework for classifying the different types of performance regime applied by governments. They differentiated between types largely on the basis of depth and span of application. They identified differences in the depth of coverage from within an organization (micro), to across organisations within a function or policy theme (meso), to across the whole of government (macro). The span of application related to the range of practices to measure and incorporate performance covering economy, efficiency, effectiveness and trust. The framework established four distinct approaches to managing public sector performance from the most basic, “performance administration”, to the most sophisticated, “performance governance”. They included Australia as a “performance management” type of system, albeit with some limitations. They assessed that the Australian system exhibited an hierarchical performance measurement system with integrated, coherent, comprehensive and consistent elements (Bouckaert and Halligan, 2008, Chapter 6). Australia does not have the attributes of the more sophisticated “performance governance” type because of limitations on the span of management at the meso and macro levels. The Australian arrangements also demonstrate weaknesses in the systemic application of performance information, particularly in terms of the effectiveness and trust dimensions. Performance management has been a formal part of the Australian public sector since 1984 when the Government introduced the Financial Management Improvement Program (FMIP), incorporating program management and budgeting (Parliament of Australia, 1984). The framework has been refined and modified many times (Bouckaert and Halligan, 2008), including at least two significant revisions in the last decade. The Australian performance management framework consists of several prominent features: budget planning, preparation and execution on the basis of outcomes and explicit performance measures; considerable flexibility to reallocate resources within each budgeted outcome; and devolution of responsibility to line ministers to define their intended outcomes and performance measures, subject to minimal intervention by central departments, Cabinet or the Parliament. The Australian parliament regularly reviewed the implementation of the FMIP over almost a decade after its introduction. A common observation throughout the life of the program was the patchy and generally poor quality of performance information. This criticism continued to be directed at subsequent performance management arrangements, even after major changes were introduced as part of the accrual budgeting framework in the late 1990s (Parliament of Australia, 1999, 2001, 2007; ANAO, 2007). The Australian Labor Party (ALP), the main Opposition party in Parliament until late 2007, adopted a policy for public financial management reform called Operation Sunlight (Tanner, 2005). The policy proposed changes to address perceived inadequacies in the quality and relevance of budget information, particularly regarding outcomes. The policy platform was implemented following the election of the ALP to government in 2007. This was supplemented by further government action in response to recommendations from an independent review by one of the major critics of budget reporting in the parliament at the time (Murray, 2008). The Labor government did not identify any specific results it expected to achieve from its changes to performance management, however it stated that the new arrangements showed,
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“a clear and continuing commitment to openness, transparency and good governance” (Tanner, 2008, p. 3). The main changes introduced in regard to the outcomes and outputs framework were to review all outcome statements against a set of basic presentational standards, to replace outputs with programs and deliverables, to improve the quality of budget reporting and to establish a clearer link between organizational performance and the responsibilities of senior executives. Other changes were introduced in the last five years to broaden the performance management framework, through the establishment of a strategic review initiative at the Federal level, extension of performance estimates to four years and development of a register of “national minimum data sets” for health, education, skills and workforce development, housing, indigenous and disability services (Ministerial Committee for Federal Financial Relations, 2011). It may be too early to assess the full impact of recent changes to the performance management regime, however, the early signs are not promising. The Australian National Audit Office recently completed a performance audit of the quality of performance information in portfolio budget statements. The report found that weaknesses observed by the ANAO and others in earlier assessments remain stubbornly persistent, particularly in relation to the lack of consistency and quality of performance information (ANAO, 2011). The ANAO concluded that: While the Outcomes and Programs Framework is in its third year, the findings of this audit indicate that many entities continue to find it challenging to develop and implement KPIs; in particular, effectiveness KPIs that provide quantitative and measurable information, allowing for an informed and comprehensive assessment and reporting of achievements against stated objectives (ANAO, 2011, p. 17).
In terms of Bouckaert and Halligan classification, the Australian performance arrangements remain essentially within the “performance management” category, despite the changes made since their assessment in 2008. There has been little evidence of broader societal engagement in the system. The recent changes appear to refine and expand the scope of performance management activities without increasing their interconnectedness. While the Bouckaert and Halligan typology is not intended to be a progression, Australia has not move closer to the “performance governance” type despite the broadening of its span suggests a degree of stagnation. This raises the question of whether the increased span of the system has the capacity to be transformed into an effective performance governance system. The remainder of this paper seeks to explain the current status of performance management in Australia using a diagnostic framework for systematically examining the factors that have influenced the system. The findings of the assessment are then used as a basis for discussing the future direction of public sector performance management in Australia. The analysis in this paper focuses on performance management at the national level.
Theoretical framework To understand the status of performance management in Australia it is necessary to go beyond categorization of the framework to look at its impact. This paper considers performance management in relation to the quality of performance measures and their perceived usefulness to key stakeholders. These are considered to be measures of success that are important in the praxis of performance, rather than simply the creation
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of systems with theoretical or political merit. Unfortunately there are few studies of the quality and usefulness of performance information in Australia so it is necessary to rely on more general published and unpublished reports and related information to draw conclusions. This paper seeks to provide a catalyst for further research in this area. In reviewing the success of Australian public sector performance management, the paper examines the achievements in terms of six factors that are considered to encompass the main influences on success. They are: external, structural, managerial, technical, cultural and behavioural factors. These elements have been chosen following extensive review of the performance management literature to draw out the ones that are identified most clearly with success across countries that have adopted some form of public sector performance management, for example (OECD, 2007; Bouckaert and Halligan, 2008; Arizti et al., 2010; Boyne et al., 2006; Forbes et al., 2006; Van Dooren and Van de Walle, 2008). The analysis draws on various strands of theory including institutional, management, behavioural, organizational, public administration and communications. External factors encompass all of the influences outside of the public sector operations that can impinge on performance management. The most well reported of the external influences in the performance literature is political factors (Pandey and Moynihan, 2006), (De Lancer Julnes, 2008). This includes the influence of politicians in power, as well as those who wish to exert political influence in opposition. It also covers the impact of changes in political power. Other elements of this group are civil society, economic effects, both domestic and international, and comparative developments in other jurisdictions relating to performance management which may influence the shape and character of the system: the “copy-cat” and the “cookie-cutter” are common manifestations of this impact. Structural factors relate to the legal, regulatory, institutional and organizational structure within which performance management operates. At the system level, these elements are specific to a country and apply to all public bodies of a single country or jurisdiction. The significance of these influences on individual entities also varies but, in considering the system as a whole, the agency level variations are less of an effect on the overall result. Without going into detail, structural differences between public sector management systems are readily identifiable, for example, when comparing USA, Francophone, Westminster and former socialist republic systems (Wanna et al., 2003, 2010). Managerial factors include the role of government and agency managers in implementing and using the framework. These influences encompass the effects of leadership, change management, organizational alignment with policies, administration and control. They intersect with structural, cultural and behavioural factors in regard to the effects of hierarchical relationships where management provides a means by which those factors are activated and applied (Kotter, 2007). Technical factors are those emanating from the design of performance management regimes, the capacity of public officials to implement the arrangements, and the achievements in terms of measurement quality, maintenance of systems and reporting procedures. These factors include also the influence of guidance and training of people responsible for designing and collecting performance information and those receiving and using the information. A clear majority of literature from the practitioners’ side is devoted to technical aspects of performance management, for example, Wholey et al.
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(2004), Hatry (2007), Kamensky and Morales (2005), Hawthorn and McDavid (2006). Technical factors set the rules or boundaries within which management, culture and behaviour operate. The specific technical details can have a direct impact on the behaviour and actions of management. Cultural factors include ways of operating and values inherent in the system, including institutional, operational and societal cultures. Culture affects the way in which performance management is practiced and the extent to which it is internalized and applied (Franke et al., 1991; De Bruijn, 2007; Moynihan, 2008). For example, Hall’s work identified differences between high and low context cultures in the extent to which detailed rules are needed as a basis for effective communication and action (Hall, 1976). Behaviour is distinguished from culture in that it relates to how people respond to the performance management system and to the results of performance information. A crucial aspect of behaviour in performance management is how it affects what people choose to measure and how they respond to the results. The most profound effects of behaviour on the success of performance management are the uses of performance budgets and targets which have strong, and often perverse, effects on what people do to achieve or avoid the constraints placed on them through performance expectations (Schick, 1990; Radin, 2006; Hood, 2006; Simon, 1997; Radnor, 2008). Behaviour is strongly influenced by culture and management factors, and is also very responsive to technical and institutional factors. In addition to the influence of each individual factor on performance management, the combined effects from two or more factors can alter or accentuate the effect of others. Some of these interrelationships have already been mentioned, but there are many other ways in which different elements can have reinforcing or countervailing effects. While some of these are drawn out in the discussion which follows, a more complete exposition is beyond the scope of this paper.
Methodology The paper seeks to analyse Australia’s public sector performance management in terms of the framework outlined above. It draws on previous research, published reviews, performance audits and government policy statements during the last three decades to identify and discuss how the various factors have contributed to the development and quality of the Australian performance management system. The paper focuses on the last decade because of the significant changes that have occurred during that period. There have been few published studies in the period, which also makes this paper’s emphasis on recent changes timely as a record of reform progress. The case study approach to testing and refining theoretical propositions is a well-used method, common in the performance management literature (Forbes et al., 2006). As with many studies covered by the Forbes et al. review, this paper views performance management as a dependent variable and seeks to explain the impact of six explicit groups of independent variables on the results which have been achieved in Australia. These groups of independent factors influencing public sector performance management are: external; structural; technical; managerial; behavioural; and cultural, as explained above. The approach used in this paper has not been documented previously in the public sector performance management literature. While many studies have looked at one or more of the factors referred to in the theoretical framework, there are none that cover
all six and the interrelationships between them in a comprehensive or systematic way. This necessitates a degree of caution in the framework’s application. If a prima facie case can be made to warrant further investigation, follow up quantitative and qualitative analysis will be pursued. This paper has the dual function of shedding light on the suitability of the theoretical framework for further research and providing an updated assessment of Australia’s progress on the path to effective performance management, or perhaps its evolution to performance governance (in terms of the Bouckaert and Halligan framework). ) T P ( 4 1 0 2 r e b m e t p e S 9 2 3 1 : 6 0 t A a g a l B n a i c u L a r a t i s r e v i n U a l a r t n e C a c e t o i l b i B y b d e d a o l n w o D
Factors shaping public sector performance management in Australia The nature and significance of factors shaping performance management in Australia have changed considerably since the arrangements were established in 1984. In brief it can be seen that the external factors of political change and the willingness of powerful institutions within the public sector were dominant during the initial establishment phase. The subsequent implementation and refinement phase of the 1980s and 1990s, witnessed the growing importance of technical and structural factors. Managerial factors increased in significance at that time. In the last decade technical factors have continue to be important driver for reform while the significance of cultural and behavioral factors has begun to emerge. The remainder of the paper looks in more detail at the changes in the last decade, however reference is made to earlier circumstances where they contribute to understanding and explaining recent developments. External factors The performance management framework in Australia has enjoyed support from all major political parties since 1984, building on review and analysis of public administration in the preceding decade (Parliament of Australia, 1976, 1983). The establishment of the regime required external political initiative from the ALP government, which took office in 1983. The difficult economic circumstances around the time of the election and implementation provided additional pressure to support measures to improve the efficiency and cost-effectiveness of the public sector. Each successive government since 1984 has sought to refine performance management, but the basic existence of the system has not been seriously challenged by changes in external circumstances. This has provided a strong on-going foundation for success. Officials have not had a major cause to doubt the future of the framework and so have operated on the expectation that they will be required to apply it indefinitely. Politicians from both major parties have sought to promote a culture of transparency and accountability for performance and results throughout the last three decades. Their influence has resulted in frequent refinements and changes but without altering the basic framework (OECD, 2007, Chapter 6). An important deviation from the implementation path of performance management was associated with the change of government in 2007 and the subsequent influence of the global financial crisis. In 2007 the new ALP government initiated a range of special “razor gang” reviews of public expenditure as part of its election commitment to reduce unnecessary public expenditure. These reviews were aimed at reducing inefficient expenditure and reorienting public activity to the policies of the new government. Rather than drawing on performance information developed over the preceding years, the reviews took an ad hoc approach, focusing on
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areas of high levels of expenditure or policies strongly aligned to the previous government’s policy agenda. Even so, the reviews did involve assessment of the efficiency of policies and programs that were targeted for cuts and this was reflected in the recommendations. Although the “razor gang” reviews were finalized before the worst effects of the global financial crisis were apparent, the recommendations were not fully implemented. The government decided that it needed to change strategy, either due to the effects of the financial crisis, or closer examination of other potential consequences of specific cuts in public expenditures, or a combination of factors. The net result was a substantial increase in public expenditure to stimulate economic activity and brighten consumer sentiment. The reviews, their recommended expenditure cuts, and the alternate policies for increases in expenditure owed little to the body of performance information and analysis that had been developed within the public sector over the previous years. Instead, the government’s emphasis on policy and program renewal and subsequently responding to international macroeconomic pressures were the predominant drivers for change. If anything, the changes to policy and programs had a dampening effect on agency level performance management improvements by diverting policy attention from technical and allocative efficiency to macroeconomic initiatives. Although work has continued on implementing Operation Sunlight, the reforms took a backseat while the government and central agencies focused on the bigger fiscal picture.
Structural factors Australia is essentially a Westminster style public administration system. It is characterized by high levels of ministerial authority compared with more legalistic systems used in other countries. Another key feature of the Australian system of administration is the high degree of devolved authority and accountability to senior managers, subject to limited legal controls focusing on principles rather than detailed rules. Senior managers in the public service are career officials who are generally appointed on the basis of a broad concept of merit rather than political affiliations. The resultant administrative framework means that senior managers are expected to implement the policies of whichever government is in power with equal vigour and professionalism. Managers have considerable responsibility, authority and accountability. Without the constraints of detailed laws, regulations and directions, they rely on policy objectives, ministerial decisions and their own management and organisational capabilities to perform their functions. A clear hierarchy exists in which parliament makes laws and allocates resources, then governments implement laws and policies through their agents in the form of departments and public authorities. This environment provides fertile ground in which performance management arrangements can grow. Performance management arrangements offer a mechanism to define and measure what is required and what is achieved. The limitations of the Australian administrative framework on performance management are that accountability for performance is largely placed on agency managers while government ministers make major resource allocation and policy decisions. The principal-agent problem is obviously relevant to this situation as a driver of behaviour, as is the political significance of perceived performance. This provides an incentive to promote positive achievements and hide less flattering results. A key feature of performance management in Australia has been the strong role played by central agencies, particularly the Department of Finance[1] (Wanna et al.,
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2003; Bouckaert and Halligan, 2008). This has been important in both the design and implementation of the system, which has supported and delivered the policy decisions of politicians. An important consequence of the strong role played by Finance was that the system was firmly built on the intention that performance information would be used for budget planning and accountability. Less emphasis was placed on the potential use of performance tools for the benefit of organizational or human resources management, at least in the early phase. The system has been designed to provide performance classifications that can be used for budget allocation, measurement of the use of budgets, reporting on results in terms of the budget appropriations and forward estimates for three years beyond the budget year. This has achieved the positive benefit of focusing the minds of people within the budget system on categorization by key performance objectives. Conversely, it has also contributed to classification of performance for budget purposes taking precedence over the operational management and learning function of performance information. Changes in the intended policy outcomes are deliberately limited by procedures requiring a compelling case for changes to high-level outcome and program definitions, which must be approved by Finance. This helps to provide consistency and comparability for budgeting and accountability, but can limit the value of the information produced for managing agency performance. Another important institution in Australia is the Australian National Audit Office (ANAO) (Hawke, 2010; Blondal et al ., 2008). The ANAO has been a major commentator on the quality of performance management in Australia. Since the evaluation of the FMIP in 1992, there has been no comprehensive evaluation of performance management despite numerous limited reviews of reporting and significant changes to financial management policies. In that environment, the ANAO has consistently included performance information in its audit work program every few years and has produced three better practice guides to assist agencies in meeting the needs of government and the parliament. It has provided momentum for performance to remain on the agenda of parliament as well as a means for the quality and value of performance information to be improved. More recently, the Department of the Prime Minister and Cabinet led the development of a “Blueprint” for reform of public administration that has performance management and capability as core elements of a broad strategy (Advisory Group on Reform of Australian Government Administration, 2010). This is a potentially important development because it offers the prospect of combining the efforts of the Finance, the Department of Prime Minister and Cabinet (PMC) and the Australian Public Service Commission (APSC) to achieve reform of policy, administration and human resources. The government response to this initiative was initially very enthusiastic and substantial resources were committed to implementation. More recently, however, budget pressures and priorities for savings have eroded the resources available for the initiative and the potential impact. At the agency level, structure can play a significant role in the success of performance management because it defines the lines of responsibility and accountability and often the budget allocation within the agency. If organisational structure is different to the structure of performance reporting requirements, the value and usefulness of performance information is seriously undermined. However, it is not unusual for this misalignment to occur in Australia. The ANAO found that approximately one quarter of agencies surveyed reported that misalignment of
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organizational structures and performance reporting architecture was a disadvantage (ANAO, 2007, p. 52). Over 90 percent of surveyed agencies reported that they monitor performance primarily on the basis of their organisational structures for internal use (ANAO, 2007, p. 72).
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Managerial factors The devolved management framework in Australia has meant that management at the agency level is crucial to the operation and success of the system. Central agencies provide the instructions to line departments but the latter group has been primarily responsible for implementing the instructions. They have interpreted the requirements for their own agencies and have designed the performance measures and operational arrangements which underpin the system. This has led to a wide array of approaches and significant variation in the quality and usefulness of performance information at the agency level. Managers either choose to meet the minimum requirements to produce performance information for budgeting and external reporting, or they see benefit in fashioning performance information to their own ends. In some agencies, this results in an integrated performance system linking corporate strategy with budgets and activities. In others, even some large organisations, there is no performance data other than the high-level outcomes necessary to meet budgeting and appropriation requirements (ANAO, 2007). At both of these extremes, and in between, management has played an important part in designing the arrangements or choosing not to make much effort to establish useful performance indicators. In its 2007 audit of performance reporting in portfolio budget statements the ANAO observed that, “agencies often find it challenging to implement all the required elements of such a regime in a manner that concisely reports on effectiveness and efficiency” (ANAO, 2007, p. 17). Not surprisingly, it found that, “the extent to which agencies had integrated outcomes and outputs information into agency operations varied” (ANAO, 2007, p. 25). More than one quarter of agencies surveyed did not include performance information in any planning documents other than those required for external use and were rarely, if ever, included in individual performance agreements (ANAO, 2007, p. 53). Almost all surveyed agencies used information other than publicly reported indicators for monitoring performance for operational management and around 20 percent rarely or never used published performance information for decision-making on agency priorities, budget plans or resource allocation (ANAO, 2007, p. 72). In 2011 the ANAO released a new report on performance information. Its findings were consistent with previous audits in terms of the variability of performance information across agencies and the significant scope for improvement across all entities. It found that where agencies had clearly defined program objectives, it was more likely that they would have meaningful and quantitative effectiveness indicators and targets. Around one-third of the entities covered in the ANAO survey had appropriate indicators, one-third had mixed quality indicators and the remaining one-third required much further development (ANAO, 2011, pp. 17-18). The ANAO concluded that, “executive leadership is critical in emphasizing the importance of performance information for decision-making, and in ensuring work is commissioned to assess the effectiveness of KPIs” (ANAO, 2011, p. 21).
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Technical factors There can be little doubt that technical factors have a significant effect on the success of performance management regimes. The academic and practitioner literature abounds with examples of technical and administrative prerequisites for good performance management, the impact of differences in the content and quality of performance measures, the importance of data quality, and suitability of performance information for various uses (Kusek and Rist, 2004; Hawthorn and McDavid, 2006; Hatry, 2007; Arizti et al., 2010). This is demonstrably true in Australia from the earliest reviews of the FMIP to the most recent audits by the ANAO. A major factor that distinguishes Australia from many other countries that have adopted performance management regimes is its emphasis on outcomes. Outcomes are defined as “the results, consequences or impacts of government actions” (Department of Finance and Deregulation, 2009a, p. 1). These are notoriously difficult matters to encapsulate, measure and usefully apply and yet they are probably the most important performance issues for public policy and administration in Australia. The Minister of Finance stated in his update of Operation Sunlight in 2008 that, “some outcomes are so broad and general as to be virtually meaningless for Budget accounting purposes leading taxpayers to only guess what billions of their dollars are being spent on” (Tanner, 2008, p. 4). Outcomes are the basis for annual appropriations for budget dependent agencies. They are also the basis for budget reporting and all other elements of the performance management arrangements cascade downwards from the outcomes. Programs are defined within outcomes; deliverables contribute to programs and performance indicators are intended as a guide to the success of programs. If agencies experience difficulty in choosing, specifying and managing with outcomes, then it is likely that the subsidiary information will suffer – either in terms of its usefulness in explaining the outcomes, or in being able to draw together the subsidiary elements that are intended to contribute to those outcomes. This effect was highlighted by the ANAO in their most recent audit, as mentioned above (ANAO, 2011). The importance of having good quality outcome definitions is well understood by the government. A key action under Operation Sunlight was a comprehensive review of outcome statements, resulting in revision of the number and content of outcomes across the national public sector. Outputs were one of the main elements of the performance management framework from 1999 until 2009 when they were dropped from Finance guidance documents. Their place in the framework was taken by other concepts, namely “programs” and “deliverables”. Outputs had been criticised by the parliament and others as being unhelpful in understanding performance and being difficult to link to the intended outcomes. Having outcomes at a very high and broad level no doubt contributed to this disconnection, and the lack of intermediate level indicators made it difficult to see and understand the links. Programs were seen as a more relevant concept as they are set at a higher level than many of the outputs and related more to policy initiatives and groups of activities, which are more easily associated with an outcome (Parliament of Australia, 2007; Murray, 2008). It is not clear whether the switch from outputs to programs has improved the quality and usefulness of information for parliament because the changes have not had time to be fully tested. Early indications are that they will require substantial further work to be consistently better at presenting performance information (ANAO, 2011).
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The impact at the agency level of changing from outputs to programs caused a substantial reassessment and realignment of the performance management framework. The agencies have experienced both positive and negative effects. The positive effects were achieved through the process of reviewing and redefining the means for contributing to outcomes, refreshing the indicators and measures in the process. The negative effects arose from the destabilization of existing information structures and systems and the costs of rebuilding them. The concept of programs is not new to Australia. Programs were the basis for the original system of performance management established in 1984. It had been replaced with outcomes and outputs in the 1990s in an attempt to improve the precision and focus of performance information on results rather than the previous preoccupation with actions and intentions. Although the precise meaning and construction of programs are different in the current context, it remains to be seen whether they will suffer from the same weaknesses identified with the previous types of programs. It is also a concern that the return to the program concept may have a longer term destabilizing effect on the framework by weakening confidence in the stability of basic technical features. Implementation of performance management is not only dependent on the quality of its technical design, but on the capacity of government officials to apply the requirements. It is also dependent on the capacity of intended users to understand, interpret and apply the knowledge that they obtain from performance data. An important part of this aspect of implementation is the quality of guidance and training for officials, managers and parliamentarians in how to understand and use the information. Finance has released and updated guidance almost annually since the introduction of the outcomes and outputs framework in 1998 (Department of Finance and Administration, 1998) and provided access to training for agencies in the first few years after its introduction until 2001. The ANAO has supplemented Finance guidance with its own better practice guides in an attempt to bridge the gap between agency capability and the quality of performance information seen as necessary for the parliament (ANAO, 2004). There has been no specific training or guidance for managers and parliamentarians in the interpretation or use of performance information. The ANAO identified lack of awareness and understanding of the requirements to be a significant weakness in the implementation of Australia’s performance management regime (ANAO, 2007). It recommended that Finance update its guidance, facilitate the exchange of information and experience and provide ongoing practical advice on implementation. Finance agreed to the recommendations and has since provided updated guidance on various aspects of the performance management arrangements (Department of Finance and Deregulation, 2009a, b, 2010). The recent audit of performance information by the ANAO suggests that there remains a weakness in knowledge and capability to implement the arrangements effectively and further recommendations were made for Finance to improve its guidance (ANAO, 2011).
Cultural factors The institutional framework for Australia has meant that the performance management system evolved primarily through the actions of government and officials, underpinned by some fundamental legislation and procedures relating to
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financial management and accountability and management of the public service. The financial management and public service legislation sets out key principles for the performance of functions and the management of staff in Australia and is an important guide to the prevailing culture of the system. The Public Service Act 1999 (PS Act) contains 15 explicit values and code of conduct that public servants are required to adopt. Some core values in the list that are relevant to performance management include accountability for action, responsiveness to government, delivery of services fairly, impartially, courteously and effectively, and a focus on achieving results and managing performance. The Financial Management and Accountability Act 1997 (FMA Act) requires agency heads to make efficient, effective, economical and ethical use of resources (FMA Act, s.44). The formal cultural framework built into legislation and regulation is consistent with performance management objectives. It is less clear that informal culture offers similar complementarity to performance objectives and no research is available to provide insight into this aspect. Research undertaken by the APSC provides some appreciation of the application of values in performance management. Each year the APSC prepares a “State of the Service” report which, among other things, assesses the application of values under the PS Act, based on an annual survey of employees. In 2009-10 the APS found that 91 percent of respondents believed that their supervisors “always” or “usually” acted in accordance with the values. Although this seems very positive, the respondents also rated public sector values, performance management, financial and program management among the lowest core skills needed to do their jobs (APSC, 2010, pp. 43-58). Considering the importance of each of those skills for effective performance management, the survey results provide some cause for concern. There are plans to revise the public service values under the PS Act in an effort to simplify and improve the focus. In 2010 the APSC released for public comment a proposal to reduce the number of values from 15 to five. The five values proposed were: Committed to service; Ethical; Respectful; Accountable and Apolitical – none of which appear to contain the emphasis on results and performance included in the current values set (APSC, 2010, p. 41). It is not clear how this will affect the culture of performance management, but it is hard to see how exclusion of performance from the values would be helpful.
Behavioural factors Accountability is a strong element of budgetary management through extensive regular reporting, parliamentary examination of budget estimates and outturns, and a very active state audit function which produces performance audit reports on a diverse range of activities each year. There is a strong incentive to ensure that obligations to report on performance are met. Any failure to present information on performance runs a high risk of being detected and exposed through monitoring by Finance, scrutiny of budget related documents by the parliament or performance auditing by the ANAO. Each year government agencies prepare very detailed portfolio budget statements, incorporating extensive information on their outcomes and performance indicators to assist the parliament in examining budgets. At the end of each year agencies are required to produce similarly detailed reports on their achievements against the indicators presented in their portfolio budget statements. This provides a strong incentive for agencies to comply with the requirements for preparing and publishing performance information.
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The emphasis on publishing performance information is, however, much stronger than the emphasis on review of actual performance results. There is little evidence of any review or oversight body calling an agency to account for underperformance against published targets or indicators. This was a point emphasized by the Minister of Finance in his 2008 update of Operation Sunlight (Tanner, 2008). Even within agencies, the discussion of disappointing performance is very limited. For example, a study of annual reports by agencies reveals very few instances of explanation for underperformance or discussion of corrective measures (Government of Australia, 2011). Although there was a review of outcomes in 2008-09 across all departments, initiated as part of Operation Sunlight, progress on review and revision of performance indicators and targets is less evident. It may be too early to look for improvements in the performance measures and targets, which could be expected to follow revision of outcomes, however there are clear gaps between current practice and good quality information (ANAO, 2011). Finance recognised the need to highlight the importance of good performance indicators and it reissued guidance on performance indicators in October 2010 to remind agencies of their obligations and to assist them to improve quality (Department of Finance and Deregulation, 2010). In response to the ANAO 2011 audit of key performance indicators, Finance stated that it would be preparing a report which compares 2009-2011 results against plans published in Portfolio Budget Statements (ANAO, 2011, p. 25). In this environment, the lack of careful scrutiny of performance information provides an opportunity for providers of information to shape their reported performance plans and results in ways that minimize their exposure to risk of criticism without serious concerns about being challenged to deliver better results or more appropriate performance indicators. This potential for self-protection is reinforced by the strong political culture of avoiding criticism. The logical consequence is that potentially controversial indicators and targets may be avoided, regardless of their importance as guides to success in contributing to objectives or desired outcomes. In the absence of internal demand or external quality assurance on the selection and use of indicators, agencies are largely free to select indicators that will not draw unwanted attention. The Australian authorities have recognised the importance of behaviour to effective policy. In 2007 the APSC issued a series of publications on contemporary government challenges, one of which was on changing behaviour (APSC, 2007). The publication was focused on considering behaviour as a means of improving policy effectiveness in the wider community, but many of the matters covered could be applied equally to implementation of policy within government.
Success or stagnation? There can be no doubt that changes have been made to the performance management arrangements with the best intention of improving performance information and reporting. In that regard, Australia cannot be accused of stagnation. It has a long history of incremental reform and there is clear evidence of that trend continuing in regard to performance management arrangements. The focus of Australia’s changes during the last decade has been largely on the technical elements: outcomes have been refined, programs have replaced outputs and agencies are being encouraged to improve the quality of performance measures and targets (ANAO, 2011). New and updated guidance has been issued by Finance to assist agencies in adapting to the new refinements. External factors have played a significant part in the change. A new
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government was elected with a specific agenda for performance management reform, and it has made progress on implementation of that agenda since taking office in 2007. Other external factors have mitigated the progress by generating an urgency to focus on macroeconomic and fiscal priorities rather than more detailed performance issues such as efficiency and effectiveness. Other than the technical, structural and external elements, however, there has been little evidence of reform driven by the other influences on performance management discussed in this paper. The managerial, cultural and behavioural factors have been influential in the pattern of implementation, but they have not been used as tools to refine and improve the system to date. The analysis provided in the previous section identified a number of areas where the effects of each factor can undermine or mitigate the success of performance management, but these effects have not been addressed in any substantive way as part of the reform agenda. Although stagnation can be ruled out, success still cannot be claimed. The latest available evidence indicates that the quality of performance information still leaves much to be desired (for example, see ANAO, 2007, 2011). The use of performance information appears limited, even in the agencies that produce it, despite the wide availability of performance data and reports. There is also little indication that Australia is moving towards a more sophisticated type of performance management system in terms of the Bouckaert and Halligan classification (Bouckaert and Halligan, 2008). The refinements being implemented appear to be strengthening its status as a “performance management” system rather than underpinning an evolution to “performance governance”. The persistent problems identified with the quality of performance information, particularly relating to effectiveness, and the ongoing variation between agencies with acceptable and inadequate performance information remains a barrier for further progression (ANAO, 2011). While there have been pronouncements by the government and others which call for adoption of some elements of performance governance (see Advisory Group on Reform of Australian Government Administration, 2010, for example), evidence of progress along those lines has not been detected to date. It may be too early to tell if the changes arising from technical refinements introduced after the change of government in 2007 will have a major effect on the success of performance management in terms of quality and use of information. It is a matter for concern, however, that many of the factors impinging on performance management have not changed, offering some cause for pessimism (ANAO, 2011).
Future directions in public sector performance management for Australia Australian performance management continues to be a work in progress. Based on its approach to date, and the supportive environment for maintaining performance management arrangements, Australia can be expected to explore further refinements in the future. Changes proposed to the values under the PS Act following from the Blueprint recommendations and increasing attention to performance information, as adopted under Operation Sunlight, are some potentially important changes to come. These developments could bring about cultural and behavioural changes in performance management to complement the technical refinements. Movements in the external environment may also have an impact on the pace and nature of performance management change. For example, the minority government that emerged from the 2010 election, and resulting increase in power of independent
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members and smaller parties, could lead to increasing emphasis on performance and broader community engagement by the government. Alternatively, it could result in greater politicization of performance and emphasis on damage control rather than constructive improvement. The framework applied to analysis of Australia’s performance management in this study has pointed to some significant strengths and weaknesses that should be taken into account by policy makers going forward. The academic and practitioner literature provides substantial coverage on technical and institutional factors as being a major influence on the success of performance management (De Lancer Julnes, 2008; Hatry, 2007). Australia has performed strongly in terms of these factors, both in design and scope, encompassing outcomes and effectiveness more extensively than many other countries (OECD, 2007). The future of technical and institutional influences appears to entail further refinement and clarification of the existing framework. The ANAO findings indicate that there are many gaps in the application of current requirements and Finance has demonstrated an intention to work on addressing these weaknesses (ANAO, 2011). The extent to which the government is successful in improving performance management will depend on all factors highlighted in this study, not just the ones that they have relied on to drive reform in the past. Cultural factors can have a powerful impact on the quality of implementation and use of performance information (Pandey and Moynihan, 2008), however this does not seem to have been a major part of the government strategy for improvement. Instead, the emphasis on culture has been peripheral to the operations of performance management and possibly declining in importance as a component of public service values. The significance of behavioural factors is limited in the Australian system because of the general weakness and variation in quality of performance measures and targets within and across agencies (ANAO, 2011). This is likely to be increasingly important as an influence of the success of performance management as agencies respond to the ANAO recommendations and decision makers pay more attention to the variation between performance plans and results. This has the potential to be a double-edged sword which both increases the quality of performance information and strengthens incentives for adapting performance measures to the benefit of producers rather than users of the information (Radnor, 2008; Radin, 2006). As highlighted by the ANAO, public sector leaders can play a powerful role in improving the success of public sector performance management arrangements (ANAO, 2011). This echoes findings in the performance literature that leadership is very important (De Lancer Julnes, 2008; Pandey and Moynihan, 2008; Kotter, 2007). The Management Advisory Committee has been a strong voice in advocating the value of performance management as a means to improve policy outcomes (Management Advisory Committee, 2001), however it is not clear that this message has been heard or, more importantly, taken up at the agency level. An important challenge for Australia will be to identify how management at the agency level can be universally convinced to apply the framework effectively.
Conclusion This paper has examined the evolution of Australia’s public sector performance management regime in the context of six key influences on success. It has explained that Australian public sector performance management has proven to be resilient and
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continues to function and evolve, exhibiting new initiatives and refinements every few years. The paper has highlighted the paramount importance of external political factors in establishing and retaining the system. It has also pointed to the importance of technical and structural factors in refining and maintaining the system. Successive governments from both major political perspectives have demonstrated a willingness to retain performance management arrangements but at the same time have displayed an irresistible propensity to make changes. The crucial roles played by Finance and the ANAO have shaped and strengthened the framework through ongoing refinement and maintaining a focus on accountability. Technical factors have been important in shaping the design and also setting the foundations for good quality information and systems. The academic and practitioner literature acknowledges that those elements are vital, though not sufficient to ensure the achievement of public sector performance management at a high standard (Van Dooren and Van de Walle, 2008). The success of the framework continues to be limited by weaknesses that have been documented since the performance management system was introduced almost three decades ago. In particular, the variability and general weakness in the quality of performance measures have been identified as persistent challenges (ANAO, 2011; Parliament of Australia, 2007). Despite efforts to improve the performance management framework and broaden its span, the system has not been able to resolve the ongoing challenges or evolve from a “performance management” system to a “performance governance” system (Bouckaert and Halligan, 2008). The paper has identified some possible reasons for the difficulties faced by Australia in overcoming persistent challenges. It notes that, despite the strength in addressing some of the key factors for successful performance management, there are some areas which have received relatively less attention and may provide the means to progress more effectively. These factors are management (Moynihan, 2008), behaviour (Radin, 2006) and culture (De Bruijn, 2007). Although the importance of those factors has been acknowledged by governments and officials in Australia (Advisory Group on Reform of Australian Government Administration, 2010; ANAO, 2011; Tanner, 2008) there appears to be considerable scope to increase effort to take them into account in refinement of the system. More research is needed in Australia to understand the significance of all six factors discussed in this paper in shaping public sector performance management. This paper illustrates that each of the factors has influenced the progress of performance management at the national level, however additional work is needed to understand more fully the effects of each factor and the significance of their interaction. The reviews and studies discussed in the paper, particularly the work of the ANAO, indicate that considerable variation in quality and use of performance information exists at the agency or organizational level. It is likely that a better understanding of the influence of the six factors could be obtained by studying the variation in their impact within and across agencies, in addition to work at the national level. Australia is not unique in struggling to address the deficiencies in quality of performance management. For example, in 2010 the UK’s National Audit Office observed that, despite improvements, around 40 percent of public service agreement data systems were not fit for purpose and strengthening was necessary across the framework (National Audit Office, 2010). Like Australia, the UK has had a long experience in using and refining its performance management system but clearly has scope for further improvement. Other countries with less experience are also having
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difficulties in achieving success with performance management arrangements (Arizti et al., 2010). There would be merit in review of other country experiences using the framework adopted in this paper to examine the significance of the six factors, and their interaction, on the success of performance management. Note 1. The Department of Finance’s name was changed to the Department of Finance and Administration and subsequently to the Department of Finance and Deregulation but its responsibility for performance management policy has remained largely unchanged since 1984. In the remainder of this paper it is referred to as “Finance” for simplicity and to avoid any confusion.
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Further reading Hawke, L. and Wanna, J. (2010), “Australia after budgetary reform: a lapsed pioneer or decorative architect?”, in Wanna, J., Jensen, L. and de Vries, J. (Eds), The Reality of Budget Reform in OECD Nations , Edward Elgar, Cheltenham, pp. 65-90.
Corresponding author Lewis Hawke can be contacted at:
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