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SECTION 1: INTRODUCTION AND CONTEXT

Section introduction

1.1 This section summarises the research aims and objectives and briefly establishes the context of organisational performance management in contemporary public sector organisations.

1.2 This research aims to review the literature on organisational performance management to identify 'best practice' and then to consider the ways in which this 'best practice' can be applied in a central government context. This requires several questions to be considered by the research:

• What is 'best practice in organisational performance management? ( Section 2)
• How can this 'best practice' be applied in a central government context? ( Section 3)
• How can organisational performance management frameworks be used to assess organisational risk in the public sector? ( Section 4)
• How and why are certain performance management measures and indicators chosen, developed and collated? ( Section 5)
• What works in the implementation and ongoing management of a performance management framework? ( Section 6)
• How can an organisational performance management framework be sustained? ( Section 7)

1.3 This study looks at the literature on organisational performance management in the public sector and stakeholder perceptions of the impact, utility, benefits and beneficiaries of performance management systems in government. The following organisations participated in the research interviews: Audit Commission; Audit Scotland; Cabinet Office; Department for International Development; Improvement and Development Agency; Improvement Service; NHS Ayrshire and Arran; North Lanarkshire Council; South Lanarkshire Council; Stirling Council; and Strathclyde Police. The research interviews took place in the period from January to July 2008. The review ends with conclusions and recommendations for implementing organisational performance management in a government context.

Defining performance management

1.4 The term performance management is commonly used today to describe a range of managerial activities designed to monitor, measure and adjust aspects of individual and organisational performance through management controls of various types. Performance management integrates the management of organisational performance with the management of individual performance. However, for the purpose of this report, the focus will be on organisational performance management literature and will not consider aspects of individual performance such as appraisal, personal development and rewards.

1.5 Organisational performance management can serve two distinct functions:

• Intra-organisational performance management: To ensure that there are appropriate internal controls to monitor the extent to which the organisation (and its sub-units) is achieving what it is supposed to achieve. This requires the organisational management to periodically review and evaluate performance standards attained and performance trajectories, taking corrective action as appropriate where deviations from the desired standards are detected.
• Extra-organisational performance management: To communicate performance for the purposes of governance and accountability to organisational stakeholders including Government, funding bodies, audit agencies and the wider public.

1.6 There is no requirement for an organisation to have an intra-organisational performance management system. However, there is clear evidence that having clarity of purpose and the means to monitor progress towards goal attainment does promote a performance culture in organisations (public and private) which achieves enhanced organisational performance levels. There are requirements, often statutory, for public sector organisations to maintain high standards of corporate governance, accountability and public reporting. This requires systems of extra-organisational performance management.

1.7 A common approach to performance management involves five steps.

1. Define and communicate a future state of affairs that the organisation will attempt to achieve. This serves as the rationale for objectives and targets which stretch organisational capability.
2. Translate these aspirations into long and short-term objectives, output and outcome performance indicators and targets against which performance and progress can be measured.
3. Ownership must permeate the organisation structure and cascade through organisational levels with each level and each individual having responsibility for specific objectives and targets which, if realised, contribute to the attainment of key performance indicators and outcomes which the organisation is charged with achieving.
4. Acceptance by management and organisational members of their collective and individual accountability for performance attained is essential. Accountability for delivering against individual short and long-term targets, once clearly defined, allows for the operation of systematic and comprehensive performance monitoring, review and evaluation.
5. Reinforcing mechanisms must be in place, encompassing an appropriate set of positive and negative incentives (both organisational and individual) with positive consequences for success and negative consequences for under-performance against plan.

Defining organisational performance management in a government context

1.8 Performance management in the public sector is the managerial activity necessary to promote well-performing policy management and service delivery. A desire for improved performance in public sector organisations has resulted in a results-orientation and a cost consciousness in a range of OECD countries ( OECD, 1997:8). Performance management requires a performance information system that can be audited and is related to financial management and policy cycles. Organisational performance management in a government context concerns monitoring the success of public policy, programmes or projects in achieving their objectives and in securing the expected benefits.

Organisational performance management in a government context is therefore the activities of government or its agencies in planning, implementing, reviewing, evaluating and reporting, the effectiveness of its policies, programmes and projects.

Organisational performance management as management controls

1.9 The key purpose of organisational performance management is to introduce systematic controls in the management process to guide and regulate the activities of an organisation or any of its parts, by means of management judgement, decision, and action for the purposes of attaining agreed objectives.

1.10 In an organisation, control consists of verifying whether everything occurs in conformity with the plan adopted; instructions issued; and the principles established. Controls can be either strategic or operational. Strategic controls are concerned with the overall performance of the organisation or a significant part of it. Operational controls measure activities within sub-units of an organisation and usually cover a shorter time period than strategic controls. All such controls check whether the organisation's strategic and operational plans are being realised and put into effect corrective measures where deviations from expected performance levels or shortfalls are occurring.

1.11 Control can take place before, during or after an event, (the earlier the better), but many controls can only realistically be introduced after organisational activity has taken place as they gauge the effect of organisational actions.

1.12 Hicks and Gullett (1981:54) use the following framework to differentiate between different forms of control:

Pre-control

This is essentially pre-emptive, as in planning, as it sets out the future direction, goals, targets, outputs and outcomes and identifies potential difficulties and risks in advance.

Concurrent control

This mode or phase of control is exercised while an event is taking place or as soon as possible after the event. This monitoring could be daily or weekly reports on aspects of public service activity. The closer to 'real time' the better. Concurrent controls are primarily quantitative focusing on inputs, process and outputs.

Post-control

This is the poorest from of control in terms of corrective action as it is exercised after the event. However it focuses on quantitative and qualitative evaluations and therefore is an essential component of an 'holistic' approach to organisational performance management. The public service has been delivered to clients and this review and evaluation activity attempts to assess the extent to which the organisation or sub-unit achieved its objectives and the desired outputs and outcomes were attained.

The Scottish context

1.13 Following the elections to the Scottish Parliament in May 2007 the Scottish National Party formed a minority Government in the Scottish Parliament and changed the collective term for the Government and its departments from 'The Scottish Executive' to 'The Scottish Government'. In November 2007 the Scottish Government published a Spending Review containing a new national performance framework (see Appendix I, p35). The Spending Review contains five ' Strategic Objectives' supporting delivery of the Purpose and, in turn, these are supported by 15 ' National Outcomes' which describe in more detail what the government wants to achieve over a ten year period. Progress on these outcomes will be measured through 45 ' National Indicators and Targets'. The Scottish Government acknowledged the need for government to take a more strategic approach to target setting and set targets where the Scottish Government judge that it will be an incentive to delivery. Elsewhere in the Spending Review the Scottish Government established the direction of travel in which it expects indicators to move in over the Spending Review period.
(Scottish Government, 2007)

1.14 The Scottish Government had earlier in 2007 developed a 'Business Planning Tool ( BPT)'in response to findings in the 2006 Capability Review. It contains a planning hierarchy with the 'Plan for Government' at the apex, encompassing overall purpose and purpose targets and a performance measurement framework based on a model used in the State of Virginia, USA. Below this there are 'Strategic Objective Plans' supported by 'Directorate Plans' based around the Scottish Government organisation structure. There are also specific 'Project Plans' and 'Business Improvement Plans'.

1.15 In June 2008 the Scottish Government launched 'Scotland Performs'. This is a website which gives the latest information on how Scotland is performing on a range of topics affecting all aspects of Scottish life. Scotland Performs is an extra-organisational performance management system which communicates how Scotland is doing in pursuit of the Scottish Government's Purpose; its performance in relation to its aspirations set out in its Strategic Objectives; progress in relation to the National Outcomes; and progress in relation to National Indicators and Targets. It describes the outcomes the Scottish Government wants to achieve and how well Scotland is progressing in key areas: health and wellbeing; justice and communities; the environment; the economy; and education and skills (Scottish Government, 2008b).

1.16 A summary of all Targets and Indicators is given in the section of Scotland Performs entitled 'Performance at a Glance'. Scotland Performs follows the National Performance Framework, which was published as part of the 2007 Spending Review. It also draws on the success of the outcomes-based performance model used in the Commonwealth of Virginia in the United States.

1.17 According to the Scottish Government, the assessments of Scotland's progress are reliable and based on the best, most-up-to-date evidence and are accompanied by a note explaining how the Scottish Government analysts have made their assessment, using clear and objective data. Over time, and as more data become available, the Scottish Government will be providing further assessments of progress towards delivery explicitly.

Key points

• There are two types of organisational performance management: intra-organisational performance management (within an organisation) to better manage organisational performance; and extra-organisational performance management for audiences outside the organisation for the purposes of governance and accountability.
• Organisational performance management in a government context can be defined as the activities of government or its agencies in planning, implementing, reviewing, evaluating and reporting, the effectiveness of its policies, programmes and projects.
• There are three forms of organisational control: pre-control (planning); concurrent control (monitoring); and post control (review, evaluation and reporting).
• The Scottish Government in 2007 introduced a 'National Performance Framework' and in 2008, the Scottish Government launched a reporting system entitled 'Scotland Performs' to communicate a range of performance related data, linked to the National Performance Framework, to the Scottish public.

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