STRATEGIC PERFORMANCE MANAGEMENT IN GOVERNMENT AND PUBLIC SECTOR ORGANIZATIONS

A Research Paper by Bernard Marr, Co-Sponsored by Advanced Performance Institute CIPFA Performance Improvement Network and Actuate STRATEGIC PERFORMANCE MANAGEMENT

Contents

About this survey …………………………………………………………………… 3

Section 1: Survey Results …………………………………………………………… 7 – Introduction – The Performance Management Imperative – From theory to good practice: defining Performance Management – Key Findings

Section 2: Best Practices …………………………………………………………… 9 – The 10 principles of Performance Management

Conclusions ………………………………………………………………………… 27

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Performance Management in the Public Sector

Public sector organizations may have the most ambitious plans for transforming services and delivering against government targets, but if they don’t keep day-to-day activities tightly aligned to what actually matters, they’ll find themselves getting nowhere fast.

About This Survey The Advanced Performance Institute (API) research project, Strategic Performance Management in Government and Public Sector Organizations – A Global Survey, is the largest and most comprehensive global study of government and public sector Performance Management to date. The reasons for conducting the survey were two-fold. Firstly, the Advanced Performance Institute noted an increasing number of Performance Management initiatives across the public sector, but found the assessment of the results for these initiatives to be more anecdotal than comprehensive (see Section 1: Survey Results). Secondly, the API intended not just to understand the current state of affairs in public sector Performance Management, but also to glean information on what factors and behaviors contribute to Performance Management success (see Section 2: Best Practices). The extensive international study surveyed a wide cross-section of government and public sector organizations, including central or federal government agencies, state and local government bodies, as well as national health organizations, police forces, fire and rescue organizations, courts and education institutions.

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Respondents by Country

Figure 1

12%

15% 36% Australia (12%)

Canada (15%)

37% United States (37%)

United Kingdom (36%)

Figure 2: UK Respondents

Health care (12%) 7% 12% Education organization (7%) 28% Police, fire, emergency services (22%) 22% Regional/local government organization (31%) 31% State/provincial government organization (0%)

Central/federal government organization (28%)

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Figure 3: US Respondents

8% Health care (0%)

Education organization (8%)

20% 28% Police, fire, emergency services (20%)

Regional/local government organization (19%) 19% 25% State/provincial government organization (25%)

Central/federal government organization (28%) Figure 4: Canada Respondents

Health care (13%) 7% 13% 21% Education organization (7%)

Police, fire, emergency 14% services (23%) 23% Regional/local government organization (22%) 22% State/provincial government organization (14%)

Central/federal government organization (21%)

Figure 5: Australia Respondents

Health care (14%)

7% 14% 22% Education organization (7%)

Police, fire, emergency services (22%) 11% 22% Regional/local government organization (24%) 24% State/provincial government organization (11%)

Central/federal government organization (22%)

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This research was conducted by the Advanced Performance ap-institute.com). In various cases, surveys were followed up Institute in collaboration with the CIPFA (The Chartered Institute with phone calls, especially in cases where only one response of Public Finance and Accountancy) Performance Improvement was received. Network, and Actuate Corporation. The research took place at the end of 2007 and early 2008, In each of the organizations, the chief executive (or equivalent) targeting more than 1,500 government and public sector as well as the performance manager (or equivalent) were employees and producing 1,104 substantial responses from approached in order to get both an executive view and the 507 organizations. This response rate of 33% is notably higher view of the person responsible for Performance Management. than the industry average, lending even greater credibility All respondents were asked to reply for the organization as a to the findings. Equally noteworthy is that the findings were whole and not for any particular subsidiary or division. consistent across the four participating countries, indicating that the issues raised are endemic to public sector Performance The data was collected through an online survey tool which is a Management, regardless of the geographical region. feature of the Advanced Performance Institute web site (www.

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Section 1: Survey Results

It is astonishing, given the blood, sweat and tears spent by public sector decision-makers as they try to come up with winning new strategies to meet government targets, that so little attention is paid to ensuring that operational activities measure up and deliver against their own top-level goals. Yet this is the stark reality among public sector organizations across the globe, according to shocking new findings from the Advanced Performance Institute. Delving deeper into the phenomenon in a comprehensive 2007-08 market study, the API, in collaboration with the CIPFA and Actuate Corporation, has come up with 10 principles for effective Performance Management, which pressurized public service organizations would do well to abide by if they want to bring everyday operations back in line with top-level strategy.

The Performance Management What most of these initiatives have in common is that they Imperative provide frameworks for managing and measuring performance; many prescribe performance indicators with targets; and Performance Management has never been more critical in the several make the measurement data publicly available, for public sector than it is today. Governments around the world example via league tables or performance scorecards. now take this extremely seriously and many have introduced Yet as worthy as these intentions and processes are, many public legislations and frameworks for this specific purpose in the sector organizations approach Performance Management very organizations that report to them. mechanistically, with an emphasis on collecting and reporting In the US, for example, successive presidents have made data, often simply to keep regulators happy. Many appear to Strategic Performance Management part of their management have lost sight of the value of the exercise and the benefits agenda. Back in 1993, the US passed the Government that they, as budget-managing, public-serving enterprises, Performance and Results Act which forces the head of each could glean from the results. government agency to submit to the Office of Management The research set out to investigate the problem in detail, and and the Congress a strategic plan detailing the strategic aims identify and test some of the principles that make Performance and performance indicators. The key performance results Management work and that allow organizations to move are then aggregated into an executive branch management beyond ‘measuring everything that is easy to count’ towards scorecard, which is published for everybody to see. true strategic Performance Management, leading to enhanced In Canada, the government has introduced a management learning, better decision-making and real performance framework for departments and agencies that includes improvement. a commitment to measurable improvements in client From Theory to Good Practice: satisfaction. In Australia, all government departments, agencies and business enterprises that deal with the public Defining Performance Management are required to develop customer service charters. In the Strategic Performance Management is about defining, UK, the government has created a set of 90 so-called Best assessing, implementing and continuously refining an Value Performance Indicators to measure Local Authority organization’s overall ‘business’ strategy. performance, assessed annually by the UK Audit Commission. This goes far beyond the narrow definition of Performance This system is now being replaced by a Comprehensive Area Management, which is often used simply to describe the Assessment with 198 National Targets at its core. act of performance measurement and reporting, or simply There are similar initiatives in China, Sweden, the Netherlands, people management. Strategic Performance Management as well as other, performance measurement initiatives focusing is about identifying what matters, measuring this and then more specifically on the police forces, health services, schools, managing it to improve the effectiveness, efficiency and universities, cities, etc. overall performance of an organization.

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It does not measure performance for measurement’s sake, performance with perverse and dysfunctional behaviors such but in a way that’s relevant to what the organization is trying as sub-optimization, target fixation, and juggling data. In the to achieve on a broader scale, and in a way that can then be survey, 68% of organizations believed that some performance fed back into every employee’s daily working life, enabling data had been fabricated. This means that some systems can’t transformational change to produce real results. be trusted and that they therefore provide invalid input into the decision making process, possibly leading to the wrong Key Findings or counter-productive decisions and resource allocation, and The survey finds that organizations that apply the principles ultimately failing to improve public accountability. of Strategic Performance Management can well outperform This astonishing perception that data can be manipulated is those that don’t, and it clearly highlights that many public likely to be driven by top-down control style of measurement sector organizations have an obsession with measuring from central and regulatory bodies, compounded by poor performance, but fail to manage it. management understanding that Performance Management So what is holding so many of these organizations back from should be used to enable self-management and learning seeing the expected performance improvements? In many in order to improve performance. When Performance instances, government and public sector organizations have Management is mainly used to control people, it tends to made huge progress with Performance Management, but the cut off any routes to learning and drive gaming and other implementations are often too mechanistic and numbers- undesirable behavior. focused, which prevents improvements in performance. This These findings are important in a world where the use of means that the focus is often on ‘outputs’, typically things that performance measurement and Performance Management are easy to measure (e.g., the number of flyers dropped through has mushroomed among government and public sector doors promoting the use of carbon monoxide detectors in organizations, often proposed as the solution to problems of homes), instead of ‘outcomes’, which are the ultimate goals of efficiency and effectiveness in service delivery. Yet it is the way the organization in question (relating to the previous example, that Performance Management is handled and directed that measuring the number of deaths from carbon monoxide makes the biggest difference between top-performing and poisoning in a community might be the corresponding failing public sector organizations. Those who indulge in the outcome). practice merely to keep external moderators off their backs are This focus on what is easy to measure leads to another common missing out on a great opportunity to accurately assess and problem in the public sector: organizations are drowning in refine their operations, creating employee support along the data but thirsting for information. By measuring what is easy way. to measure, rather than what is strategically important to the The results of this study should inspire and create a renewed organization, the chance for driving efficiency and performance sense of urgency to tackle Performance Management more improvement can be dramatically reduced. intelligently in the public sector. Why does this happen? One reason is the lack of a clearly mapped strategy, analogous to rowing a boat forward without ever telling the rowers which direction to aim for. Only 15% of the respondents to the survey feel that all their indicators are linked to the strategy of the organization, and even less (6%) believe that all their performance indicators are relevant and meaningful – perhaps not surprising given that 16% of organizations expressly feel that their objectives are not clearly articulated at all! The findings confirm that merely having a set of performance objectives and performance measures in place does not lead to better performance. In fact, it often leads to a decrease in

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Section 2: Best Practices The 10 Principles of Good Performance Management For those in the public sector who are looking to learn from this study what can be done to improve Performance Management practices in their own organizations, the study – alongside an extensive review of academic and practitioner literature on performance measurement and Performance Management, and from a consultation with a panel of leading academics and practitioners in this field – also identified best practices and from this tested 10 principles of good Performance Management for government and public sector organizations. We questioned public sector respondents about their Performance Management practices in this light, tested the impact of these principles on organizational success using the latest statistical tools, determined how widespread these approaches are, and how effective they are when used. We found that organizations who have these principles in place are able to: 1. Create clarity and agreement about the strategic aims. 2. Collect meaningful and relevant performance indicators. 3. Use these indicators to extract relevant insights. 4. Create a positive culture of learning from performance information. 5. Gain cross-organizational buy-in. 6. Align other organizational activities with the strategic aims outlined in the Performance Management system. 7. Keep the strategic objectives and performance indicators fresh and up-to-date. 8. Report and communicate performance information well. 9. Use the appropriate IT infrastructure to support their Performance Management activities. 10. Give people enough time and resources to manage performance strategically. The principles with the strongest individual impact on performance improvement were confirmed to be: (1) creating clarity about the strategy with agreement on intended outcomes, outputs and necessary enablers, and (4) creating a positive culture of learning and improvement (see Figure 6). Yet, where all 10 principles were found to be in place, the improvement was particularly substantial, confirming that the combined effect is far greater than the sum of the parts.

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1. Achieving Strategic Clarity fostering ambiguity about the direction of the organization and the necessary steps to improved performance. At the If an organization wants to reach its goals, it must first know what same time, they may pay too much attention to specifying those goals are. If the overriding strategy is clear, everyone will output, rather than outcomes and enablers. (They may want to be able to pull into the same direction and will be more likely to see more police on the street, for example, but have failed to focus on what matters the most, to produce real results. consider in enough detail why they are doing this, and how this Sadly, the public sector has a reputation for lacking this clarity. might best be achieved.) This is perhaps because of the multiple, often conflicting agendas To achieve the desired end results, organizations need to stay that arise in political and multi-stakeholder environments. In focused on the ultimate goals, and take into account essential addition, they often struggle to differentiate between their enablers such as the knowledge and skills of employees, the immediate targets (e.g. getting more police officers onto the image and reputation of the organization, the information it street) and the targeted outcomes (e.g. reduced crime levels). holds, the relationships with key stakeholders, the technology A holistic picture of a strategy clearly outlines the overall aims, infrastructure, as well as the management processes. outcomes, outputs, as well as enablers of performance (see Yet, getting bogged down and lost in the theory is all too easy, Figure 7). especially when higher powers are breathing down managers’ Often, organizations avoid trying to clarify the strategy (perhaps necks, looking for documentary evidence and statistics to show because this is easiest in a political environment), deliberately that targets are being met.

The 10 Principles of Good Performance Management and their Impact on Performance Figure 6

(1) Achieve Strategic Clarity

(2) Collect Meaningful Performance Indicators Learning (3) Apply Performance Management Analytics

(4) Create a Positive Learning Culture

(5) Gain Cross-Organizational Buy-in Better Decision (6) Ensure Organizational Alignment Making

(7) Keep the System Fresh Strength of impactStrength

(8) Report and Communicate Performance Well Improved Organizational (9) Implement Appropriate Software Performance

(10) Dedicate Resources and Time

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Putting it on Paper Value Creation Map (which tends to be more in line with public sector needs). Another problem arises when strategies are extrapolated into lengthy, onerous business plans running to 30 pages or more. An example of a local authority strategic map can be found People then tend not to read them, perhaps merely picking in Figure 9. Evidence shows that those organizations who out the parts that seem relevant to them. Any momentum for visually map their strategy into meaningful causal-and-effect change gets lost too, as the detail clouds the overall picture, maps tend to have a significantly better understanding of leading to a loss of clarity. strategy, are able to extract more value from their Performance Experts now recommend that organizations supplement or Management system and most importantly, perform better! even replace such cumbersome documents with highly visual Unfortunately, only 10% of public sector organizations were plans, or value creation maps, which depict the strategy with all found to create strategic cause-and-effect maps, to visualize its components on a single piece of paper. the links between different perspectives, while only 4% show These immediately provide focus and direction, showing at a the cause-and-effect linkages between their different strategic glance what the intended outcomes are, as well as the core elements. activities and underpinning enablers which will achieve these. This leaves an overwhelming majority of 86% that do not yet Two examples of strategy mapping templates can be seen draw on this powerful technique. Even if strategy maps are in Figure 8, based on the Balanced Scorecard model and the not used explicitly, business plans should contain clear cause-

Components of Strategy Figure 7

Overall Aim (Mission)

Outcomes (Specific aims that will make an impact)

Outputs (Specific deliverables the organization will produce to achieve its aims)

Enablers (The resources, competencies and core activities necessary to deliver the outputs and outcomes)

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and-effect linkages that show how tomorrow’s outcomes will in their organization. The top five enablers or drivers of be impacted upon by today’s outputs, processes and inputs. performance were listed as being: Using a strategy map in conjunction with a more conventional 1. Human capital (skills, knowledge, competencies); business plan can help to check the assumptions made in the plan and the map itself is a readily understandable way of 2. Information technology; communicating the strategy. 3. Stakeholder relationships;

Outputs, Inputs and Outcomes 4. Data and information; Happily, the value of prioritizing focus has not been missed 5. Reputation and corporate image. by the public sector – most respondents (68%) agreed that articulating outcomes (the overall goals, for example improving This is all very well in theory, but just how well are organizations service delivery) was more important than articulating outputs putting all of this into practice? (‘you must hit target X this month’), and that, above all, they Interestingly, despite the priorities listed above, most needed to understand and clarify the key enablers (94%) if they organizations were found to articulate their output objectives want to have a real impact on performance. quite well, while only just over half clearly articulated their Encouragingly, 89% acknowledged that intangible elements outcome objectives (i.e., the real goals that lie behind the were often the most important enablers of future performance targets). Strategic Mapping Template Figure 8 Strategy Map Value Creation Map

Financial Perspective Outcomes/Stakeholder Value Proposition/Output Deliverables

Customer Perspective

Internal Processes Perspective Core Activity Core Activity

Structural Information Capital Human Relational Resources Resources Resources

Human Capital Organizational Capital Financial Physical Resources Resources

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Meanwhile, less than half of the organizations that took of the organizations we polled not even the chief executive was part in the research were found to clearly articulate their engaged in the strategy definition! Our interpretation of this enabling objectives (the means by which they would hit their worrying discovery is that perhaps other government bodies targets), while the most worrying finding of all is that 16% of specify performance goals and targets, and the chief executive organizations expressly feel that their objectives are not clearly feels disengaged from the process. articulated at all (see Figure 10). Further findings added to these concerns, however. Only 89% Worringly, this suggests that even though respondents agree of directors, 61% of senior managers, a very low 21% of middle that outcomes and enablers are important, many are failing to managers and a mere 2% of the rest of the employees were articulate these elements as part of their strategic plan. And if found to be engaged in the strategy definition process. employees don’t know what they are supposed to be doing, or why, how can they hope to meet the organization’s targets? 2. Collect Meaningful Performance Involving Staff Indicators Getting employees to buy into and follow a strategy means The value of having performance indicators is well documented engaging them in the process. Yet, when we asked who was – these are the benchmarks by which success (and failure) can engaged in the formulation and definition of the strategy, in 6% be measured. Without them, organizations would be stumbling

Value Creation Map for Belfast City Council Figure 9

(1.1) Belfast City Council takes a leading role in improving quality of life now and for future generations for the people of Belfast by making the city a better place to live in, work in, invest in and visit.

(2.1) Provide leadership and strategic (2.1) Meet the needs of local people through the direction for shaping developing and Effective Delivery of Quality and Customer-Centric managing the city. Services.

(3.1) Develop and (3.2) Promote a positive (3.3) Continuously improve maintain relationships image and reputation. and innovate the service with key stakeholders. delivery.

(3.4) Effective (3.5) Quality advice- communication – internally and evidence-based and externally. decision making.

(3.7) Develop our (3.8) Ensure happy and (3.6) Create an open and knowledge, skills and dedicated employees performance driven culture. expertise. and councillors.

(4.1) Strategic Financial (4.2) Strategic Human (4.3) Strategic Information Planning. Resource Management. Management.

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around in the dark, having little idea of whether they were ‘on being successfully met, rather than, say, whether the public had track’ or not. noticed an improvement in services). Yet, to be of value, performance indicators should help you Having already identified that many aren’t necessarily happy measure the things that matter the most – and not those that with their prioritization of performance indicators (i.e., that don’t really matter in the great scheme of things. This means these are not linked to the overall strategy, and are not very indicators need to be tightly and directly linked to the strategic meaningful or relevant), 68% also feel they have too many objectives of an organization. indicators. Only 23% of organizations feel they have the right number of performance indicators while just 8% feel they have Unfortunately, this does not seem to be the case among too few. the majority of public sector organizations. Only 15% of the respondents felt that all their indicators were linked to the Misleading Targets strategy of their organization. Even fewer (6%) believed that all their performance indicators were relevant and meaningful – a The best indicators help organizations to extract meaningful staggering 92% admitted that many of the indicators they used insights and management information that help them to were not relevant or meaningful. learn, and to improve performance. To be effective, then, these indicators must be supported by clear, realistic and achievable Part of the problem seems to be the large number of externally (although also stretching) targets. imposed indicators. Many organizations seem to make the assumption that these indicators are the only indicators they Unfortunately, the majority of organizations feel their target- need to collect, and that the set of externally-dictated measures setting process is unclear (82%), while many believe that set forms the core of their performance indicators – that is, they are targets are unrealistic and unachievable (53%). relying too heavily on third parties to tell them how to measure As well as being blinded into aligning targets too closely with the organization for success. government box-ticking, organizations are guilty of favoring Identifying the Right Indicators of Success the collection of data which is easy to collect, over that which would be of most value to collect. Unfortunately, many externally imposed measures and targets are output-focused, and collected for comparative purposes, to This is partly due to the large number of mandatory indicators, benchmark results with other government and public sector which leaves little or no room for experimentation with and organizations. They provide little insight about the unique improvement of measurement techniques. But it is also strategic objectives of individual organizations and they don’t because organizations want an easy life and fool themselves help to measure their unique enablers. that, if they churn out enough data, and can be seen to be delivering against rigid government metrics, they will keep Meeting tactical targets seems to be the main priority for everyone happy. public sector organizations, too, perhaps as a direct result of this – that is, they have become distracted by government But this is not the way to meet higher objectives, such as targets and are using these as the guide for their overall improving public services, reducing crime, or providing more strategies, instead of their individual core missions as the consistent education for all. specific type of organization they are, in the particular If organizations want to get to grips with performance – and market they serve. especially with their intangible enablers – they need to allow Our research found that the majority of organizations (39%) experimentation with measurement and encourage innovative measure primarily outputs, or a balance between outputs ways of data collection. Unfortunately, only 8% of organizations and enablers (29%). Only 23% believe they achieve a balance feel that their organizations give people the freedom to change between measures for outcomes, outputs and enablers (see or to challenge the measurement methods, while most people Figure 11). feel disengaged from the measurement design and target- setting process. Drilling down further (see Figure 12), we found that most organizations would measure perspectives such as people and A further challenge for many organizations is that while they resources (i.e. whether staff were working hard, or budgets were might want to measure the ‘right’ things, they may not be

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Strategic Elements Articulated Figure 10

Strategic objectives are not clearly articulated 16%

A number of output objectives are 75% clearly articulated

A number of outcome objectives are clearly articulated 54%

A number of enabling objectives are clearly articulated 44%

*Multiple responses possible

Measurement Focus Figure 11

We mainly measure outcomes 4%

We mainly measure outputs 39%

We mainly measure enablers 5%

We balance our measures between 29% enablers and outputs

We balance our measures between inputs, outputs and outcomes 23%

*Multiple responses possible

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Perspectives of Performance Measured Figure 12

People/human capital related 98%

Resources related (financial, tangible and intangible) 76%

Regulator related 68%

Customer related 57%

Internal processes related 52%

Environmental and social related 48%

Supplier related 33%

*Multiple responses possible Alignment with Performance Management Figure 13 Q: Our Performance Management system is fully aligned and integrated with...

...our performance reporting 73%

...our budgeting 46%

...our project of program 41% management

...our risk management 14%

*Multiple responses possible

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Strategy Regularly Reviewed and Renewed Figure 14 Q: Our strategic objectives are regularly reviewed and renewed. 1%

Strongly Agree (12%) 17% 12% Agree (48%)

22% Neither agree nor disagree (22%)

48% Disagree (12%)

Strongly disagree (1%)

Performance Management System Reviewed and Renewed Figure 15 Q: Our Performance Management system is regularly reviewed and renewed. 4%

8% Strongly Agree (8%)

22% Agree (44%)

44% Neither agree nor disagree (22%)

22% Disagree (22%)

Strongly disagree (4%)

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Performance Indicators Reviewed and Renewed Figure 16 Q: Our performance indicators are regularly reviewed and renewed. 5%

Strongly Agree (5%) 9%

Agree (41%)

26% 41% Neither agree nor disagree (19%)

Disagree (26%) 19% Strongly disagree (9%)

Appropriateness of Communication Formats Figure 17 Q: The communication format of our current performance information is appropriate and meaningful. 2% 4%

Strongly Agree (2%)

24% Agree (24%) 30% Neither agree nor disagree (40%)

Disagree (30%) 40%

Strongly disagree (4%)

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able to pin down the data to adequately measure these. Data Performance information can be used for different purposes – quality is still an issue in many public sector and government good and bad. It can be used to blame or punish people, or it can organizations, especially when it comes to some of the non- be used to empower people and enable self-management. financial indicators, where they often have to rely on simple There is mounting evidence to show that the command- surrogate measures. and-control approach yields the least performance benefits Around a third of respondents to our survey felt their data quality and instead leads to dysfunctional and self-serving behavior, to be inadequate, while up to a quarter lacked confidence manipulation and cheating. about data quality. As a result, many experts now agree that the best environment 3. Applying Performance Management for Performance Management should be learning. In a positive Analytics learning culture, performance data is discussed openly and honestly and used by everybody to make better-informed Once organizations have collected meaningful data, they must decisions, and to take actions that positively affect future analyze it before they can work out what it means – e.g., how performance. they may need to change things to improve success against While as many as 83% of our respondents claimed they placed key goals. a strong emphasis on learning from performance information, ‘Performance Management analytics’ provide tools and some underpinning data calls this figure into question. techniques enabling organizations to convert their performance data into relevant information and knowledge. Without it, the All too often, organizations ‘juggle’ their Performance whole Performance Management exercise is of little or no value Management data. Alarmingly, 68% of our respondents admitted to the organization. that this practice was going on in their organizations. Yet many organizations seem to spend the majority of their time So what’s going on? and effort oncollecting and reporting data and not enough time Influencing Behavior on extracting valuable and actionable insights from it. More than half of our respondents (59%) believe that their organization Further analysis found that the majority of organizations feel does not have sufficient capabilities to comprehensively their directors and senior managers guide employees’ behavior analyze performance data, while as many as 87% feel that their by using performance indicators to monitor the implementation analysis capabilities need to be improved. of objectives (providing feedback on the achievement of set goals to control and correct unwanted variance). This practice, The difference between good and bad information is known as ‘diagnostic control’, is now seen as inappropriate for determined by how well it supports critical decision-making. modern organizations, because of the negative impact it has Sadly, we found that the majority of organizations feel that their on morale and motivation. performance data does not support effective decision-making. Either the data is too operational or the analysis is not being The second most frequently used approach was using taken to a strategic level, with the largest proportion (36%) performance results to prescribe overall strategic purpose, disagreeing with the statement ‘Our performance indicators vision and values. This is less directive and instead focuses on help us to make better strategic decisions’, and a further 3% creating an understanding of strategic intent. strongly disagreeing. The least used approach saw directors and senior managers 4. Creating a Positive Learning Culture involve themselves regularly and personally in the decision activities (drawing attention to current strategic issues). Assuming public sector organizations get their Performance Management strategy right, and put the right metrics in place Experts currently favor an approach that draws on a combination to assess this, they then need to have a strategy in place which of the last two practices – where top management sets the determines how they will apply their findings to improve direction, and then influences direction through personal performance on an ongoing basis. interaction with people.

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Another factor found to determine success is the extent to organizations choose not to share this information with their which top management focuses on controlling output, input workforce! or behavior. Clearly, top-level buy-in is essential, if an effective Performance Again, research has shown that controlling people’s behavior Management strategy is to be designed and implemented. in a top-down manner (where the emphasis is on compliance Buy-in from middle managers and front-line staff is essential with articulated operating procedures) yields the least benefits. too, though – to make Performance Management an integral The problems here are not only the huge costs involved in part of the organization’s daily routines. surveillance and control, but the fact that this does not allow for discretion and leads to rigid and often dysfunctional If middle managers and front-line staff are not provided with behavior. meaningful performance feedback, and instead feel treated like robots that just have to perform prescribed tasks or collect and If it is the output (versus targets) that is being emphasized, this report seemingly meaningless data, they are unlikely to ever gives subordinates a bit more discretion in how they achieve buy into the Performance Management approach. the desired ends. But, while output control makes sense where there is no cause-and-effect knowledge, it can lead to an over Our findings confirm that the level of acceptance, use and emphasis on short-term targets (such as financial performance) awareness declines the further down the organizational to the detriment of longer-term objectives. hierarchy the employees are. This supports findings from other studies – that the highest levels of acceptance are generally Input control, on the other hand, focuses on the contributors to found among chief executive and directors. The comparative performance. This can be a highly effective approach, so long low level of Performance Management awareness among as the causal links are known – e.g., if we assign more staff to middle managers and front-line staff is very worrying – a service X, customers will see a marked improvement in service. considerable number aren’t even aware of the Performance Without these causal links, there is a danger that the wrong Management system. performance drivers might be managed. If tangible improvements in strategy-based performance are Taking the Middle Ground ever to emerge, public sector organizations need to turn this Best practice specifies that public sector and government situation around as a matter of urgency. organizations should have a clear understanding of cause-and- effect, and should then use a healthy mix of input and output 6. Ensuring Organizational Alignment controls to mange their organization. When organizations lose sight of what they should be managing Currently, this is not the case for the majority of public sector and why, they waste a great deal of time and resources organizations. Our research shows that the majority of producing something which is of little value internally, while respondents feel that their directors and senior managers focus potentially demotivating staff. primarily on output (performance against short-term, tactical With this in mind, a Strategic Performance Management system targets), followed by a focus on behavioral control, and lastly a should be used to guide and align other organizational focus on input (for example, ensuring employees have the right processes – such as budgeting, performance reporting, the training, knowledge, skills, abilities and values). management of projects and programs and the management In a positive learning culture, organizations proactively provide of risks. performance information and ‘contextualized’ feedback to All too often, however, government and public sector everyone in the organization, with a special emphasis on middle organizations are found to be running their reporting, risk management and front-line staff. Unfortunately, the majority of management, project management and budgeting processes those in our survey short-sightedly reserve this information for in parallel – as though these are completely unrelated senior management and external stakeholders. activities! 5. Gaining Cross-Organizational Buy-In Given that risks are the flipside of performance, organizations If everyone knows what they are aiming for, and why, they are that fail to marry their systems and practices are missing much more likely to get there. Yet it is surprising how many something important.

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According to our research, alignment is still a major problem in overwhelming that decision-makers can’t see the woods for public sector and government organizations. While 73% have the trees. aligned their performance reporting, less than half have aligned Encouragingly, most government and public sector their budgeting and project and program management, and organizations appear to regularly review and renew their strategy, just 14% believe their risk management is fully aligned with typically following an annual planning cycle. Accordingly, we their Performance Management system. find that respondents feel that their performance management Not linking and aligning Performance Management with other system and their performance indicators are regularly reviewed management processes can severely reduce its benefits. It and renewed (see Figures 15 and 16). makes sense to use the Strategic Performance Management system to guide and align other organizational processes – 8. Reporting and Communicating such as budgeting, performance reporting, the management Performance Information Appropriately of projects and programs and the management of risks. So, once performance has been measured, what should In many government and public sector organizations, however, organizations do with this hopefully valuable information? such processes are run in parallel to their Strategic Performance Management approaches. However, if your Performance Reporting and communicating performance information is a Management process has delivered a clear strategy, it would vital part of any effective Performance Management strategy. make sense to also use this to create and manage budgets, There’s no point having rich findings if the relevant people coordinate and manage projects and programs, and to report don’t know about them so they can hone the way they go on performance. about their jobs in the future.

Furthermore, risks are basically the flipside of performance. This means organizations must disseminate appropriately Performance indicators allow organizations to understand communicated performance results, and what these mean whether they are delivering the designated performance levels, to the organization and to individual departments, teams and whereas risk indicators allow organizations to understand the individuals. Staff members must be able to understand the risks of not being able to deliver performance. These should ‘so what’ implications for their own roles in the organization, therefore be closely aligned. e.g., ‘How does this affect me?’ and ‘What do I/we need to do Unfortunately, our research shows that alignment is still a differently in future?’. major problem in public sector and government organizations; For this to take place, performance information must be 73% have aligned their performance reporting, while less reported and communicated appropriately. Any data has to be than half have aligned their budgeting and project and put in context and presented in a form that is accessible, such program management. Only 14% of organizations believe as in tables with traffic lighting, graphs or charts. their risk management is fully aligned with their Performance Management system (see Figure 13). When it comes to performance data, there is often little contextualization or interpretation, with the result that the 7. Keeping the System Fresh key messages are unclear, often buried in data. All too often, Another critical success factor in effective Performance performance data is circulated in the form of large spreadsheets, Management is keeping the practice up to date, so that the attached to emails or hosted on the intranet, leaving individuals measures being tracked are as relevant today and tomorrow to figure out the key messages. as they were when the system was first devised. As the Yet, research has shown that it is important to communicate organization’s strategy and goals are developed and refined, so performance data in different formats to reach different people too must the Performance Management strategy be flexible. with different preferences. Current best practice involves making Organizations that build up huge legacy systems of performance extensive use of visual aids (such as strategic maps, graphs indicators aren’t doing themselves any favors. It’s all very and charts) supported by numerical information, and using well to keep adding new indicators, but if you don’t delete narratives and verbal communication formats to complement, the outdated measures, reporting becomes confused and so contextualize and provide meaningful interpretation.

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Where data and league tables are presented without context software. The variables are too complex, the margin for error or interpretation, individuals may misunderstand the data, too risky. creating the potential for misuse. In a political context, there The right Performance Management software applications will always be the temptation to ‘spin’ data for self-serving allow companies to integrate the data, communicate purposes, and the more contextualized the data is, the more performance appropriately and allow performance to be difficult this will become. analyzed by everyone, and have been shown by multiple In our study, we found that the primary communication format research studies to have a strong, tangible impact on is numeric, using tables and spreadsheets complemented organizations’ delivery against strategic business goals. by graphs and charts. This was followed by pure numeric Spreadsheets were not designed for this purpose and have without the graphs and charts. The least common formats many severe shortcomings when it comes to data analysis, were narratives with supporting numeric data, and verbal communication and scalability. Not surprisingly, the majority of communications of performance information. spreadsheet users report being unhappy with their Performance We would argue that organizations should place much more Management capabilities. By contrast, users of specialized emphasis on communicating performance information in packaged applications are generally the happiest. words, both written and verbal, and less in numbers. After all, Our survey confirmed this. Over half of organizations still the underlying messages and insights the numbers generate rely on spreadsheet applications, while 23% use specialized are what really count. packaged applications and 22% use custom-build applications. Those taking part in our survey clearly agree, since the majority At the same time, we found that users of packaged applications claim to be unhappy with their current communication format. were significantly happier with the way their software supports Over a third feel that this is not appropriate or meaningful (see Performance Management in their organization, followed by Figure 17). custom-build applications and, last of all, spreadsheets (see Figure 18). 9. Implementing Appropriate Software Packaged software, broadly used across the organization, also Although Performance Management is not about software, has the bonus effect of drawing more people into the process, having the right software in place and using it appropriately engaging everyone in the process of managing and measuring can make a substantial difference. performance. As with any attempt at automation, there is always a real danger Figure 19 indicates that users of packaged applications are that it ‘dumbs down’ the power of Performance Management again significantly happier with the way their software helps to and that organizations that rely on this too heavily risk letting engage people in the Performance Management activities. the software do the thinking. The other real danger is that the whole initiative now becomes an IT project, instead of a 10. Dedicating Resources and Time management priority. Last, but by no means least, Performance Management will Performance Management software is clearly not the magic only have the desired impact if organizations take it seriously as pill that will sort out all of the Performance Management a discipline, and devote adequate time and resources to it. problems. Indeed, all too often government and public sector Processes need to be embedded into the organization, measures organizations are seen to implement software only to find need to be collected, analyzed and reported, people have to that, once the initial excitement had worn off, they are left be trained, cascading the system into the organization requires with a costly IT system and a slow realization that Performance support, meetings have to take place to discuss performance, Management is not about technology but the people and their the IT system has to be maintained, and the system has to be processes. kept fresh and updated. All of this requires time and resources, both of which tend to be in short supply in any organization. These considerations aside, we believe that no organization- wide Performance Management system can work without the Current best practice proposes creating a dedicated team appropriate support of specialized Performance Management with resources and time to perform the role of facilitating the

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Performance Management activities. This team then performs place to do this. Job titles such as ‘director of performance’, the tasks such as facilitating the strategy design and mapping ‘performance officer’, or ‘performance analyst’ are nowadays process, designing and reviewing performance indicators, commonplace in the public sector. collecting and analyzing performance data, reporting Yet, even with these people in position, respondents to our performance, facilitating the cascade and the performance survey point to a need for more resources, capabilities and review processes, maintaining the Performance Management a wider remit. While 82% of organizations had a dedicated software system as well as training people in the Performance person (part- or full-time) who was in charge of Performance Management process. Management, 73% felt their remit was too narrow, 87% claimed This is a broad remit and requires a permanent, cross-functional their analysis capabilities needed to be improved, and 85% team. believed they required more resources and a larger team. Interestingly, most of the government and public sector organizations in our study already have dedicated people in

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Value of Software Applications

Q: The software application(s) we use for Performance Management help(s) us to better manage our performance. Figure 18a: Packaged Applications

1% 1%

Strongly Agree (20%)

13% Agree (65%) 20%

Neither agree nor disagree (13%)

Disagree (1%)

65% Strongly disagree (1%)

Figure 18b: Custom Build

1%

Strongly Agree (8%) 8% 14% Agree (50%)

Neither agree nor disagree (27%) 27% 50% Disagree (14%)

Strongly disagree (1%)

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Figure 18c: Spreadsheets

2% 6%

Strongly Agree (2%)

Agree (27%) 17% 27% Neither agree nor disagree (47%)

Disagree (17%) 47% Strongly disagree (6%)

Q: The software application(s) we use for Performance Management help(s) us to better engage everyone in the process of managing and measuring performance. Figure 19a: Packaged Applications

1%

Strongly Agree (23%) 10% 23% Agree (66%)

Neither agree nor disagree (10%)

66% Disagree (1%)

Strongly disagree (0%)

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Figure 19b: Custom Build

3%

6% Strongly Agree (6%)

19% Agree (39%)

39% Neither agree nor disagree (32%)

32% Disagree (19%)

Strongly disagree (3%)

Figure 19b: Spreadsheets

10% Strongly Agree (0%) 16%

Agree (10%)

Neither agree nor disagree (45%) 45% 29%

Disagree (29%)

Strongly disagree (16%)

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Conclusions While effective Performance Management is a major challenge facing any organization, whether commercial or public, this survey leaves us in no doubt that the government and public sector, with all of the targets under which it must operate, is becoming lost in the sea of measurement data it is generating. Approached properly, Strategic Performance Management can have a big impact on improving organizational performance. This finding sits well in a climate where governments around the world take Performance Management very seriously. Yet, while the practice exists and is fast churning out data, it is the way Performance Management is handled and directed that makes the biggest difference between top-performing and failing organizations. Those who indulge in the practice merely to keep external moderators off their backs are missing out on a great opportunity to intelligently and accurately assess and refine their operations, creating employee support along the way. We hope that this research, and specifically the 10 principles of good Performance Management we have defined and tested, will be used as a blueprint to improve the Performance Management practices in government and public sector organizations around the world, as they strive to address some of the most pressing challenges they have ever known.

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About the Author About CIPFA Performance Improvement Bernard Marr is one of the world’s leading experts on Network Strategic Performance Management and has advised many The Chartered Institute of Public Finance and Accountancy leading private companies, public sector organizations and (CIPFA) is one of the leading professional accountancy bodies governments across North America, Europe, Africa, the Middle in the United Kingdom and the only one that specializes in East and Asia. the public services. It is responsible for the education and He has also held influential positions at the Judge Institute of training of professional accountants and for their regulation Management Studies at the University of Cambridge, and the through the setting and monitoring of professional standards. renowned Cranfield School of Management where he was Uniquely among the professional accountancy bodies in the a member of faculty for almost 10 years before taking on his UK, CIPFA has responsibility for setting accounting standards current role as Chief Executive and Director of Research at API. for a significant part of the economy, namely local government. CIPFA’s members work in public service bodies, in the national Marr is an acclaimed keynote speaker, consultant, teacher, audit agencies and major accountancy firms. They are respected and award-winning writer, having contributed to over 200 throughout the UK for their high technical and ethical standards books, reports, and articles on topics such as Corporate and professional integrity. Performance Management, Balanced Scorecard, Strategy Maps, and Intangible Assets. He is a best-selling author of The CIPFA Performance Improvement Network is a subscription Strategic Performance Management, Perspectives on Intellectual based network of public sector organizations who work Capital, Weighing the Options: BSC Software, and Automating together, in workshops and documented reports, in the areas your Scorecard. of Performance Management, business process improvement and related areas to identify practical ways to improve local He can be contacted at [email protected]. public services. About the Advanced Performance About Actuate Institute Actuate Corporation is dedicated to increasing the richness, The Advanced Performance Institute (API) is the world’s leading interactivity and effectiveness of enterprise data, for everyone, independent research and advisory organization specializing everywhere. Actuate delivers the next generation RIA-ready in organizational performance. The institute provides expert information platform for both customer and employee-facing knowledge, research, consulting and training on concepts applications. Global 9000 organizations use Actuate to roll out like Balanced Scorecards, Performance Measurement and RIA-enabled customer loyalty and Performance Management Corporate Performance Management. applications that improve customer satisfaction and employee The aim of the API is to provide today’s performance-focused productivity. The company has over 4,200 customers globally companies, governments and not-for-profit organizations with in a diverse range of business areas including financial services insights, advice and services that help them deliver lasting and the public sector, many of which have a long history change and superior performance. of deploying Actuate-based solutions for dozens, or even hundreds of their mission-critical applications. The API is headquartered in the UK and operates across Europe, the United States, the Middle East and Australasia. The institute Founded in 1993, Actuate has headquarters in San Mateo, was established in the mid 1990s and has continuously grown California, with offices worldwide. Actuate is listed on NASDAQ to its current leading position where its employees, fellows and under the symbol ACTU. For more information on Actuate, visit associates provide research, consulting and training services to the company’s web site at www.actuate.com. customers and clients across the globe. For more information References and Further Reading please visit: www.ap-institute.com. Advanced Performance Institute web site: www.ap-institute.com

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