Myth and traps in. performance management

Transcription

1 Myth and traps in ù performance management Riga 4-5 June 2015 Giovanni Tria President of National School of Administration of Italy 1

2 Introduction I d like to start with two questions: Why do so many public administration reforms hinge on measuring performance and then fail miserably? And why, despite all these failures, and after more than twenty years of debate and experiments, is measuring both individual and collective performance still high on the agenda and thus on the curricula of national government schools? 2

3 Political and economical framework The answer probably lies in the economic climate prevailing in a vast majority of European countries over the last few years. High levels of deficit and public debt and correspondingly high levels of taxation, all stunting economic growth, have increased public awareness on how public money is actually spent. The public want less tax and better service and above all they want accountability over spending. So improving performance serves to cut costs in the public administration, but above all it is a means of improving the image of the public sector and making it more acceptable to tax payers, by providing better services, or what are perceived as better services, more cheaply. 3

4 Implications There are just two ways of cutting public spending. One is by simply providing fewer services, the other is by providing the same services more cheaply. There are two ways of providing the same, or better services more cheaply. The first is to cut civil service salaries, the second is to improve, in terms of efficiency, performance. But if measuring performance, whether in terms of output or outcome, is to continue to be a key issue in current reforms, in the light of past failures we need to ask ourselves where the traps lie, both in measuring performance and the correspondent system of incentives, which are crucial to a sector which by definition is not market-regulated. 4

5 Value chain & Public Administration Let s define an imaginary product X, provided by the public administration as goods or services that benefit users. The users might be private citizens, or they could be companies or other branches of the public administration itself. Examples of products that derive directly from the needs of the citizenship are: Education Healthcare Justice Policing to safeguard people and property Defence from foreign attack Let s assume that what we might call its production technology, involves a series of semifinished goods or services (x1, x2, xn), which come from other offices, departments or divisions that may or may not be interdependent. The semifinished or intermediate products are of no use taken singly, it is only when we put them together, physically or otherwise, that they are of any utility to the end user or beneficiary. 5

6 Value chain & private sector This value chain, just like any other production process of goods or services in the private sector, may or may not be concentrated spatially or may or may not be vertically integrated within a given sector of administration. Example - car manufacturer. Each car manufacturer could decide to produce their own brakes, tyres, engines, steering wheels, bodywork, windscreens and so on, or they could decide to buy them from any of the other suppliers who manufacture parts. In the latter case the market ensures that components are produced in the quantities required and as efficiently as possible. Which means that resources are, or should be, redistributed along the value chain according to the demand for the semifinished and final products. In public administration the production process of the final goods or services might either be completely vertically integrated within the same administrative area, in other words it might represent the output of various offices all under the same administrative umbrella, or it might require the intervention of various different organizations. 6

7 Measuring the performance in the Public sector Now given the lack of market forces, if measuring the performance of a single office is to make any sense, the rules of public employment, and the practicalities of how different administrations working together on a process of production actually interact, are essential. Example: Measuring efficiency Let s imagine that the goal of the office whose performance we want to measure is to increase the efficiency of the production process it is responsible for, an increase that would translate into an increase of its output. This looks like pretty solid, traditional ground for measuring performance, where the complexity of the goals public administration has to deal with don t have to be taken into account. Yet even here it s easy to demonstrate that the results you get from pursuing this single goal aren t at all clear, and there are any number of ifs and buts you have to take into account for the whole exercise to have any meaning. 7

8 Measuring productivity in the Public sector What does pursuing the goal of increased productivity in a given office mean? If the quantity of what this office produces (for example the number of certificates it issues) already satisfies demand, the goal should be to cut down on overall input, in terms of labour, equipment and internal consumption, per unit of end product. If the quantity of what this office produces (for example the number of certificates it issues) already satisfies demand, the goal should be to cut down on overall input, in terms of labour, equipment and internal consumption, per unit of final product. But if the increase in efficiency isn t uniform along the whole value chain, in all the offices and units that contribute to the final result X= f(x1, x2, xn), then staff and resources will have to be reallocated to prevent bottlenecks. 8

9 Bottlenecks and possible implications Bottlenecks in some offices imply staff cuts in others which have increased their productivity, because their greater output is useless unless the other offices involved in the process boost their production too. Or else, given a technological status quo, more resources would have to be allocated to the other offices in the chain to bring their output up to match the increased efficiency of our hypothetical case study office and raise the overall level of production. 9

10 Bottlenecks and possible implications But it s hard to imagine a system of incentives linked to the performance of single offices which would imply cutting staff in efficient offices and moving them over into less efficient offices. Yet that is the goal of increased efficiency. Anything to the contrary would be contradictory. Whereas if the offices were competing to produce the same goods or services, as they do in the private sector, then the more efficient office would automatically take place of their less efficient counterparts. The fact remains that committing to a process of harvesting the data necessary to measure performance, and then actually evaluating it, is a costly exercise in terms of resources, and not a particularly useful one if the implications of the evaluations in terms of reallocation of staff and other resources are not clear. 10

11 A question A question I ve never managed to get an answer to from experts in the field of performance evaluation is this: what kind of a bonus do the staff and manager get if they demonstrate that their office is useless and could be closed if procedures were changed? I don t think this is in any way an idle question. It cuts straight to the heart of the difficulties involved in a bureaucracy striving for simplification. 11

12 and the importance of an answer These issues are relevant to Performance plans Performance evaluation Performance-related incentives and bonuses I think they are of primary importance if we actually want to do more than just talk about measuring performance, or implement evaluation procedures which have no real effect beyond that of generating even more bureaucracy and possibly even distorting decisions made by public managers. Above all it is vital to understand that performance can only be measured significantly within the confines of the segment of the public administration it is encompassed by. 12

13 and the importance of an answer Because there is a hierarchy of organizational and responsibility levels that improvement to efficiency has to be measured against, and as you ascend the value chain, the concept of this measure has to be adjusted, together with its boundaries. We need both the evaluation of single production units, in many cases under the jurisdiction of a plethora of different independent administrative departments which all contribute to the final result with a their specific activities, and the evaluation. of the final outcome of these activities and thus the overall evaluation of the various administrations. It would make little sense to evaluate only the units that produce the semifinished products that contribute to the final result. 13

14 A relatively realistic example. Building a bridge Let s imagine that a given department in charge of building bridges is divided into offices, each of which is in charge of building a specific bridge. Each of these offices is performing brilliantly: they are using the latest technology, they have cut costs while respecting the need for quality and they re delivering on time. So all is well, you may think. Not necessarily Let s imagine that half the bridges they have built are superfluous. Now how do we rate the department s performance? And how do we rate the performance of the individual offices against the performance of the whole? Does it make sense to take the former in isolation from the latter? How can we reconcile incentives and bonuses for individuals, or individual offices, with overall failure on the part of their organisations? 14

15 Conclusions This is an extremely tricky issue, and one by no means confined to the public sector. If we cast our minds back to the collapse of banks like Lehman Brothers, where the incentive system, based on stock options, was tied both to individual and branch performance measured in short-term goals. Performance ratings were always stellar, as were the bankers bonuses, but the business went bankrupt. My conclusion is not to repudiate performance measurement as such, but to remind everyone that it has to be carried out intelligently and with an awareness of its multiple consequences, otherwise it simply becomes an expensive and not necessarily innocuous rite. 15

16 Thank you for your attention! 16