Do performance measurement and incentive systems in the public sector work to improve government outcomes?

Objectives/ Research Question. Performance Measurement (PM) literature highlights how PM systems have to be integrated with strategic processes in order to enable organizations to achieve higher levels of performance and to... [ view full abstract ]

Objectives/ Research Question.

Performance Measurement (PM) literature highlights how PM systems have to be integrated with strategic processes in order to enable organizations to achieve higher levels of performance and to satisfy stakeholders (Kaplan and Norton 1992; Neely et al. 2005; Neely, 2005). These concepts are widely accepted by Public Management Scholars (Osborne and Gaebler 1992; Osborne and Plastrik 2000, Bouckaert et al. 2008, 2010).
The use of formal performance measures based on explicit and objectively defined metrics has been a fundamental component of both public- and private-sector incentive systems. This literature has emphasized the importance of designing and using relevant measures that reflect the issues of relevance to the business (Lynch and Cross, 1991) and the organization’s context and strategy (Waggoner et al. 1999).
However, research evidences a large number of failures in performance measurement design interventions (Pidd 2005). Furthermore, little attention is paid to what factors explain the design of measurement systems that does not reflect adequately the organization’s business environment. By drawing evidence from the case of Italian public Universities, our paper aims to highlight how internal PM systems are characterized by specific limitations and cognitive biases which negatively influence their design and relevance to the organization's business. Taking into account that Italian Universities get most of their funding from public sources, our paper is focused on two research questions:
a) How much are internal PM and incentive systems of public sector organizations congruently and coherently designed with respect to their funding system?
b) Which is the decision-makers’ awareness about this coherence?
Our research questions are based on the hypothesis that in public sector organizations both cognitive biases and power may favor and permit a substantial lack of coherence between the organization's revenue model and the internal performance measurement and incentive systems implemented for resource allocation. In Italian public Universities, while the former is based on multidimensional items such as student fees, teaching and research performance the latter are mainly focused on the faculty performance in research publications as a basis for the allocation of tenure positions among departments and schools.
The tight focus on one dimension puts significant risk that important organization’s goals get forgotten and raises the issue of internal equity and fairness of reward elements.

Data and Methods.

The research is based on:
a) the analysis of Italian Universities' funding scheme and data;
b) a survey of Universities’ internal mechanisms and rules for resource allocation to departments;
c) semi-structured interviews to internal decision-makers of Italian Universities.


Findings /Conclusions.
The research is still in progress so it is not yet possible to discuss findings. Anyway, the first evidence confirms a certain amount of disalignment between the Italian Universities' performance-based funding system and their internal PM systems.
These first results have to be confirmed by other data and tested on the field.

Keywords:
Performance measurement systems, performance-based funding; resource allocation; organizational behavior, Universities.