STRATEGIC MANAGEMENT PRACTICES AND PERFORMANCE OF MALAYSIAN LOCAL AUTHORITIES by AHMAD FADZLI BIN AHMAD TAJUDDIN UNIVERSITI SAINS MALAYSIA 2007 STRATEGIC MANAGEMENT PRACTICES AND PERFORMANCE OF MALAYSIAN LOCAL AUTHORITIES by AHMAD FADZLI BIN AHMAD TAJUDDIN Research report in partial fulfillment of the requirements for the degree of Doctor of Business Administration 2007 ACKNOWLEDGEMENTS First, of all I would like to thank Allah for giving me the guidance, commitment and persistence in completing the thesis. I wish to express my gratitude to both my supervisors, Professor Mohamed Sulaiman and Associate Professor Dr Yuserrie Zainuddin for their valuable advice, insightful criticisms and endless patience. I would like to extend my thanks to many individuals and organizations. My special thank to the Public Service Department for giving me the opportunity and scholarship to pursue the study. I wish to express my appreciation to the previous District Officers of Perak Tengah, Dato’ Ahmad Termizi b. Puteh, Dato’ Kamaruzaman b. Abdul Hamid and Dato’ Mohamad Rafiai b. Moktar. A special thank you also goes to the existing District Officer of Perak Tengah, Mr. Hasim b. Hasan. I wish to thank Mr. Zilkifli b. Hasan, from the Ministry of Housing and Local Government, Mr. Masri b. Razali, from the National Institute of Public Administration (INTAN), Dr. Yahya b. Mat Arip and Dr. Azlan b. Amran, from Universiti Sains Malaysia (USM), my officemates at the District Office of Kg Gajah and the District Office of Perak Tengah, Seri Iskandar and my fellow friends in Doctorate Business Administration (DBA) Program in USM. Last but not least I would like to express my gratitude to my family members; both of my parents, my parents in-laws, my sisters, my brother and sister in-laws and a special thank you to my wife, Syarmila bt Yahaya and my ii three children, Fadzleen Syakirah, Ahmad Faris Syakir and Ahmad Fawwaz Syakir for their sacrifices. May Allah bless us all. iii TABLE OF CONTENTS Page TITLE PAGE i ACKNOWLEDGEMENT ii TABLE OF CONTENTS iv LIST OF TABLES ix LIST OF FIGURES xi LIST OF APPENDICES xii LIST OF ABBREVIATIONS xiii ABSTRAK xiv ABSTRACT xvi CHAPTER 1 BACKGROUND OF THE STUDY 1.1 Introduction 1 1.2 Background of the Study 1 1.3 Problem Statement Description 22 1.4 Research Questions 24 1.5 Objectives 24 1.6 Significance of the Study 25 1.7 Definition of Variables and Key Terms 27 1.8 The Organization of Chapters 28 iv CHAPTER 2 ADMINISTRATIVE REFORM AND LOCAL AUTHORITIES IN MALAYSIA 2.1 Introduction 29 2.2 Phases of Administrative Reform in Malaysian 29 Public Service 2.3 Definition of Local Authorities 34 2.4 Development of Local Authorities in Malaysia 36 2.5 Administration of Local Authorities Under 43 Local Government Act 1976 (Act 171) 2.6 Local Authorities Functions 43 2.7 Local Authorities and Finance 45 2.8 The Relationship between Federal Government and 53 Local Government 2.9 Difference in Size 54 2.10 Summary 56 CHAPTER 3 LITERATURE REVIEW 3.1 Introduction 57 3.2 Defining Strategic Planning 57 3.3 Strategic Planning Orientation 59 3.4 Importance of Strategic Planning in Public Service 60 3.5 Challenges of Strategic Planning in Public Service 63 3.6 Strategic Planning in the Malaysian Public Sector 64 3.7 Strategic Planning and Performance 69 3.8 Organizational Performance 70 3.9 Efficiency and Organizational Performance 73 v 3.10 Elements of Strategic Management 75 3.11 Theoretical Framework 82 3.12 Hypotheses Development 84 3.13 Underpinning Theory 87 3.14 Summary 89 CHAPTER 4 RESEARCH METHODOLOGY 4.1 Introduction 90 4.2 Research Design 90 4.3 The Population and Sample 91 4.4 Data Collection Method 91 4.5 Translation of Questionnaire 92 4.6 Variables and Measures 93 4.7 Statistical Analysis 97 4.7.1 Factor Analysis 97 4.7.2 Reliability Analysis 98 4.7.3 Descriptive Statistics 99 4.7.4 Correlation Analysis 99 4.7.5 Multiple Regression Analysis 100 4.8 Summary 100 CHAPTER 5 DATA ANALYSIS AND FINDINGS 5.1 Introduction 101 5.2 Response Rate 101 vi 5.3 Sample Profile 103 5.3.1 Background of Local Authorities 103 5.3.2 Background of Respondents 104 5.4 Goodness of Measures 107 5.4.1 Factor and Reliability Analyses of Strategic 108 Management Practices 5.4.2 Factor and Reliability Analyses of 115 Performance Efficiency 5.5 Descriptive Statistics of Principal Constructs 117 5.6 Correlation Analysis 118 5.7 Modified Theoretical Framework 121 5.8 Control Variable 123 5.9 Diagnostic Test 123 5.9.1 Normality 124 5.9.2 Homoscedasticity and Heteroscedasticity 124 5.9.3 Linearity 124 5.9.4 Outliers 125 5.9.5 Multicollinearity 125 5.9.6 Autocorrelation 126 5.10 Hypotheses Testing 126 5.10.1 Relationship between Strategic Management 126 Practices and General Performance 5.10.2 Relationship between Strategic Management 128 Practices and Building Approval 5.11 Summary 130 vii CHAPTER 6 DISCUSSION AND CONCLUSION 6.1 Introduction 133 6.2 Recapitulation of the Study 133 6.3 Discussion 135 6.3.1 Strategic Management Practices and 135 Efficiency of General Performance 6.3.2 Strategic Management Practices and 141 Efficiency of Building Approval 6.4 Implications of the Study 143 6.4.1 Theoretical Implications 143 6.4.2 Practical Implications 146 6.5 Limitations of the Study 148 6.6 Suggestions for Future Research 149 6.7 Conclusion 150 REFERENCES 152 APPENDICES 169 viii LIST OF TABLES Page Table 1.1 Development Plans List Between 1950-2005 3 Table 1.2 Complaints Received and Resolved Between 2000-2005 7 Table 1.3 State Departments with Most Complaints Investigated 8 (2001 & 2002) Table 1.4 Complaint received by Local Authorities in 2005 8 Table 1.5 Summary on Number of Complaints Received by 10 Local Authorities According to State in 2005 Table 1.6 Category of Complaints Investigated in 2005 and 2004 11 Table 1.7 Cases Involving Local Authorities by Categories 12 of Complaints Table 2.1 Local Authorities in Malaysia (Status of 1997) 43 Table 2.2 Share of Expenditure Items of Local Authorities in 1994 46 Table 2.3 Financial Position of Local Authorities (1991 and 1992) 47 Table 2.4 Statistical Report of Local Authorities in 2003 47 Table 2.5 Breakdown of Sources of Local Authority Revenue in 1994 53 Table 2.6 Criteria of City Council, Municipal Council and District 55 Council Table 3.1 Planning Steps 77 Table 4.1 Summary on Number of Questionnaires 96 Table 5.1 Summary of Local Authorities Respond According to States 103 Table 5.2 Summary of Local Authorities Respond According to 104 Category ix Table 5.3 Clerical Staffs Working Experience and Educational 105 Background Table 5.4 Profile of Respondents 107 Table 5.5 Factor and Reliability Analysis on Strategic Planning 109 Practices - Rotated Component Matrix Table 5.6 KMO and Bartlett’s Test for Strategic Planning Practices 111 Table 5.7 Reliability Coefficient for Independent Variables 114 Table 5.8 Factor and Reliability Analysis on Performance Efficiency- 116 Rotated Component Matrix Table 5.9 KMO and Bartlett’s Test For Performance Efficiency 116 Table 5.10 Summary of Descriptive Statistics of Principal Constructs 117 Table 5.11 Pearson Correlation Matrix of All Principal Constructs- 120 (Independent and Dependent Variables) Table 5.12 Coefficients between Independent Variables and 128 Dependent Variable (General Performance) Table 5.13 Coefficients between Independent Variables and 129 Dependent Variable (Building Approval ) Table 5.14 Summary of Hypotheses Testing 130 x LIST OF FIGURES Page Figure 1 : Development Planning Process 2 Figure 2 : The Relationship between Federal Government 54 and Local Government Figure 3 : Proposed Theoretical Framework 83 Figure 4 : Strategic Management Process 84 Figure 5 : Modified Theoretical Framework 121 xi LIST OF APPENDICES Page Appendix ‘A’ :Frequencies and Descriptive Statistics of Sample 169 Appendix ‘B’ :Factor and Reliability Analyses of Strategic 172 Planning Practices Appendix ‘C’ :Factor and Reliability Analyses of Performance 183 Efficiency Appendix ‘D’ :Descriptive Statistics and Frequencies of Principal 188 Constructs Appendix ‘E’ :Correlations 189 Appendix ‘F’ :Regression Analysis: Independent Variables and 190 General Performance Appendix ‘G’ :Regression Analysis: Independent Variables and 194 Building Approval Appendix ‘H’ :Cover letter and questionnaire 198 xii LIST OF ABBREVIATIONS ACA Anti Corruption Agency CPI Corruption Perception Index IAPGs Inter Agencies Planning Groups INTAN National Institute of Public Administration OPP1 First Outline Perspective Plan OPP2 Second Outline Perspective Plan PCB Public Complaints Bureau NPM New Public Management xiii ABSTRAK AMALAN PENGURUSAN STRATEGIK DAN PRESTASI PIHAK BERKUASA TEMPATAN DI MALAYSIA Penyelidikan ini mengkaji amalan pengurusan strategik Pihak Berkuasa Tempatan (PBT) di Malaysia bagi meningkatkan prestasi organisasi. Di dalam konteks ini, kajian menggunakan model pengurusan strategik yang diperkenalkan oleh Wheelen dan Hunger (2004) yang terdiri daripada 4 elemen utama iaitu, (a) pengimbasan persekitaran (b) pembentukan strategi (c) pelaksanaan strategi, dan (d) kawalan dan penilaian. Di samping itu prestasi organisasi pula dilihat di dalam konteks kecekapan (efficiency) PBT di dalam melaksanakan fungsi-fungsi seperti (a) kelulusan sijil layak menduduki (CF), (b) kelulusan pelan perumahan dan bangunan komersial, (c) menyedia dan menaiktaraf kemudahan infrastruktur, (d) kutipan hasil, (e) mengeluar dan memperbaharui lesen-lesen perniagaan, (f) memastikan persekitaran yang bersih dan sihat, dan (g) urusan kutipan sampah. Kajian ini melibatkan kesemua 150 PBT di Malaysia yang terdiri