International Journal of Public Sector Management: Article Information

International Journal of Public Sector Management
A systems perspective of performance management in public sector organisations

Tony Boland Alan Fowler
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Tony Boland Alan Fowler, (2000),"A systems perspective of performance management in public sector
organisations", International Journal of Public Sector Management, Vol. 13 Iss 5 pp. 417 - 446
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A systems perspective of Perspective of

performance
performance management in management
public sector organisations

Tony Boland and Alan Fowler 417
School of Management, University of Newcastle upon Tyne, UK
Keywords Performance management, Feedback control, Modelling, Systems, Public sector
Abstract Presents, from a systemic perspective, an examination and discussion of
performance measurement, performance indicators and associated improvement initiatives,
as typically applied in public sector organisations. Such mechanisms are usually implemented as
a causal loop which is established between perceived performance and resulting actions, thereby
constituting a form of feedback control. Within this context a two-dimensional matrix model is
postulated in which the independent dimensions are the source of control and the nature of the
resultant control-action. The paper examines the implications revealed by this model within the
context of performance management and system dynamics. The potential role of influence
diagrams and dynamic simulation models is thereby introduced as a potential means of
unravelling the complex behaviour which can often arise in the presence of such interactive
cause-effect loops. A number of typical examples, drawn from within the public sector, are
invoked to illustrate the discussion.
Introduction
Although the measurement of performance in the public sector is relatively
new, a substantial body of literature on performance management has
developed since the late 1970s, encompassing terms such as performance
measures, performance indicators, performance appraisal and review, value for
money and, more recently, quality assurance. This literature has mirrored a
parallel development in which the language of performance has become an
almost everyday feature of work in public sector organisations, in some form or
another. Similarly, a new `ìndustry'' has developed within the public sector
which is concerned with collecting, reporting, and appraising organisational
performance (Holloway, 1999; Rouse, 1993, 1999).
Public sector organisations are differentiated in comparison with their
commercial counterparts in the private sector. There is no profit maximising
focus, little potential for income generation and, generally speaking, no bottom
line against which performance can ultimately be measured. The vast majority
of public sector organisations still generate most of their income from the State,
and have to account to several stakeholders. Consequently it was once, and not
that recently, considered impossible to measure performance in the public
sector.
The first attempts at performance evaluation and review were associated
with the failed attempts at large scale strategic planning in the 1970s, and it The International Journal of Public
was not until the appearance of organisational and managerial reforms Sector Management,
Vol. 13 No. 5, 2000, pp. 417-446.
introduced by the Conservative Governments of the 1980s and 1990s that # MCB University Press, 0951-3558
IJPSM public sector performance measurement became firmly established. Indeed, it is
13,5 one of the underlying arguments of this paper that, in relative terms,
performance measurement is still in its infancy (or at least, its adolescence).
Consequently, the approaches used are still in need of further investigation and
development, particularly in terms of understanding the resultant action
arising from the measurement and evaluation process.
418 Initially, attempts at evaluating public sector organisational performance
centred on the assessment of value for money. This was normally conducted by
external auditors through scrutinisation of agencies' accounts. Gradually, a
whole range of measures and indicators of performance arose throughout the
whole public sector, in an attempt to identify examples of good and poor
resource usage. More recently, the language of performance has been
associated with the establishment of standards to be achieved, and the audit of

organisational systems to ensure conformance. These standards are often
established for a complete service area and may be imposed from a locus standi,
external to the individual organisation. Achievement against set criteria is then
used as the basis for external accountability of the organisation's performance.
This can also carry implications in terms of future resource allocation to the
agency.
Concern with perceived potential systemic inadequacies within such
frameworks led the authors to develop their own perspective as encapsulated in
``the control source, resultant action matrix model'' which is developed later and
is a central theme of this paper. Thus, the broad aim of this study is critically to
examine the related concepts of performance measurement (PM) and
performance improvement initiatives (PIIs), in terms of their systemic rationale.
Hence the question addressed may be broadly formulated as follows: ``From a
systems perspective, which combination of factors is likely to lead to success
and which others are likely to lead to disappointment or failure?''
In examining this issue it is postulated that any particular public sector
performance improvement initiative may be located within the framework
encapsulated by this matrix model, following a process of categorisation, with
respect to its two independent dimensions. Furthermore it is argued that this
process of categorisation and analysis needs to be viewed from a dynamic,
systemic perspective, since there exists a closed loop between the respective
actions of measuring performance, taking corrective action and achieving an
outcome response. This closed loop will inevitably be characterised by delays,
inertia and nonlinearity. These, in turn, give rise to dynamic behaviour but
potentially, in the presence of feedback, can also generate unexpected, possibly
unwanted and, occasionally, counter-intuitive behaviour. It is therefore
suggested that a fundamental framework based on systems-theory should
underpin management initiatives such as performance improvement, using the
terminology and tools of ``systems thinking''. This potentially provides clarity
of process, structure and method which can help to focus perceptions with
respect to issues such as the polarity of causality (distinguishing cause from
effect), the dynamics of policy formulation, appropriate implementation of Perspective of
controls and the promotion of understanding with respect to the overall performance
complexity of the organisational situation generally. management
Systems tools such as the influence diagram and computer simulation are
thereby presented for consideration within this context. These are synthesised
with the proposed control-action matrix model and presented as a framework
within which a number of examples, drawn from the public sector, are 419
considered.
Public sector performance improvement

In considering public sector performance improvement, there are two
important issues which need to be addressed: what is to be measured, and how
should the information arising from the measurement process be used? Neither
question is easy to answer, although substantial effort has been applied in
attempting to do so, particularly in the case of the former.
It is common practice in public sector performance management literature to
talk about the three Es of:
(1) economy;
(2) efficiency; and
(3) effectiveness,
based upon a simple input, process and output model of organisations (Flynn,
1997; Rouse, 1999; Carter et al., 1995). Input resources are generally thought of
as physical, human (staff and clients/cases) and financial. Proponents of
knowledge management and associated concepts such as ``the learning
organisation'' would also include `ìnformational'' in this list. Financial inputs
are, perhaps, the most important as acquisition of other resource types usually
depends upon the funds available. Many measures commonly used in public
sector organisations are based on derivatives of this `èconomy'' or input
oriented perspective, usually expressed in terms of cost, budget and staffing
totals. Comparisons can then be made across similar types of organisations.
Examples of generic measures used include cost per case, cost per service type,
numbers and categories of staff involved. These can then translate into specific
measures such as cost per patient, staff-student ratios, unit cost per refuse
collection, numbers of employed ancillary, skilled and professional employees,
and so on. Any change in these performance measures simply reflects the
`èconomy'' with which the organisation is using its resources and provides little
information about the operational processes within the organisation, apart
from some crude benchmarking.
Looking now towards the other end in the ``three Es'' spectrum are located
the outputs from the organisation. These can also be easily measured in
quantifiable terms such as patients treated, crimes solved, students gaining
various qualifications at different grades, children placed in foster care, and so
on. Unfortunately, as discussed below, these tell us little about the real success,
IJPSM or otherwise, of the organisation, and are mainly of use in the calculation of a
13,5 ratio of input to output which is a measure of organisational efficiency. An
increase in the number of outputs, for a given input, simply demonstrates how
efficiently an organisation is converting its inputs into outputs but provides
very little information about the effectiveness or value of these outputs.
Finally, effectiveness is concerned with the extent to which outputs meet
420 organisational needs and requirements and is therefore much more difficult to
assess, let alone measure. Public sector organisations are created to meet some
form of perceived societal need. However, it is debatable whether simply
increasing the number of, and measurement of, outputs, will automatically
result in the meeting of such needs? Questions even arise concerning the
definition of need. This is often vague and inconclusive such as, for example,
the need for `à well educated society''. Similarly, the desired quality of the
outputs, in terms of meeting this need, may also be questioned. The actual role
(mission) of individual organisations and agencies in meeting this need, and the
different requirements or perceptions of various stakeholders, in terms of the
dimensions of the outputs encountered when attempting to meet this need, may
also be unclear. In education, for example, students, employers, the academic
community, and the Government all have different expectations and demands.
Hence it is necessary to define an additional term, namely `òutcome'', defined
here as the impact that outputs have in meeting this perceived need. This is
generally thought of in qualitative terms which implies that outcomes are
difficult, in themselves, to measure. Furthermore, the process is also frequently
complicated by the length of time it takes for such impacts to be identified.
Finally, the impact of outcomes arising from the actions of other agencies,
working in related policy areas, adds further complexity, e.g. welfare services
and health.
Performance measures vs. performance indicators

It is important at this stage to differentiate between performance measures and
performance indicators. Owing to the inadequacies of directly quantifiable
measures, as outlined briefly above, focus has switched, in many cases, to
using quantifiable indicators of performance. This represents an attempt to
recognise the intangibility of outcomes while still providing useful data
defining the extent to which public organisations are meeting their aims and
making the best use of their resources. However, the distinction between the
two is imprecise and, in practice, indicators often come to be taken as being
synonymous with concrete measures of organisational performance (an
apparently erroneous interpretation, given the definitions stated above).
This becomes even more significant when these indicators are tied into
accountability networks and resource allocation procedures, as discussed
throughout this paper. One commentator (Smith, 1995a) has gone as far as
arguing that, despite much work on measuring performance since the early
1980s, it is still impossible to measure outcomes. Consequently, the resulting
focus on quantifiable indicators of economy and efficiency may be not only
misleading but dangerous. Measures and indicators of performance should not, Perspective of
he argues, be employed didactically for the purposes of organisational performance
accountability, but should be used to inform political debate on the broader management
issues of the nature and form of the public services required.
Nevertheless, the trend has been towards an increase in the usage of
performance indicators not only for accountability purposes, but also as a basis
for future resource allocation. The implication here is that those organisations 421
``measured'' as performing ``well'' will be rewarded through additional resource
allocation, whilst ``bad'' organisations will have to demonstrate improvement in
order to gain any additional resources. After such assessment, which is usually
made using quantifiable output, i.e. `èfficiency'' measures, has led to
adjustments in resource allocation, then the ``good'' organisation is able to
perform at an even higher standard, whilst the ``bad'' organisation has to make
even greater gains simply to survive. League tables in education and health,
and quality audits such as the Research Assessment Exercise in higher
education, are common examples of this mechanism (these are discussed in
more detail, as short case studies, later in this paper).
More recent developments have seen the introduction of standards covering
all aspects of organisational work, normally established on the basis of some
national criteria (although sometimes allowing for local interpretation) with
quality audits performed by an external quality agency. Once again, prominent
examples can be drawn from the education and health sectors. Individual
organisations are graded on their performance (quality) against these
standards and those considered as poor performers have to show improvement
or face threats of closure and the imposition of Government appointed
administrators to ``turn them round''. Even if there are no direct ties to resource
allocation within these organisations, a ``poor'' performance label often precedes
a fall in the customer/client base which in turn leads indirectly to a decline in
the resources available.
Development of the control location versus resultant action matrix model

From this brief discussion of performance measurement in the public sector,
the subject can be seen to exist as a rather inept ``science'', often providing
nothing more than crude indicators of an organisation's performance. In
practice, statistics based on volume or ratio tend to concentrate on the
efficiency component which can lead to an over-emphasis on operational rather
than allocative efficiency. These measures can be, and often are, set and
monitored externally and used to hold organisations accountable for the way in
which they use their allotted resources.
Alternatively, such measures could be considered as `ìndicators'' of outcome.
Analysis may then encompass a whole range of indicators, such as those
discussed above, but with targets now being set and monitored internally.
These indicators can then be used in an investigatory mode, with priority
placed on those that are of most significance to any particular organisation or
IJPSM part of an organisation at any one time. In this situation, indicators may be seen
13,5 as a management tool, used for internal control and development, rather than
appearing as an externally applied source of accountability and implied threat.
Finally, performance statistics can be used as a form of motivational tool,
whereby ``good'' performance is rewarded through an increase in resource
while, conversely, ``poor'' performance is punished through a direct or indirect
422 decline in resources.
From these different scenarios the control locations and resultant action
matrix, as presented in Figure 1, can be developed. The first dimension or axis
of this model depicts the location of authority for control action. This is
concerned with the question of whether authority and control are exercised
from within the organisation or external to it. Authority coming from within
the organisation would typically imply the use of indicators to identify areas
which are not performing to expectation, and investigation of the reasons
behind this. Alternatively, authority located external to the organisation
implies the existence of an outside body holding the organisation accountable
for the way in which its resources are deployed. Obviously, external
accountability is important when considering the usage of public funds, but
limitations and inadequacies associated with the performance measures can
also have a negative and threatening impact upon the members of the
organisation, with emphasis placed upon ever increasing efficiency gains.
Consequently Smith (1995b) argues that external control should be concerned
with the achievement of outcomes, not accountability for the use of inputs.
The second dimension concerns the nature of the controlling action which is
taken and addresses the question of whether this would be construed as being
positive (supportive or beneficial) or negative (threatening or punitive)
respectively. Negative action implies an assumption that under-performance is
the result of mismanagement of resources leading to inefficiency. This may
lead to a reduction of the resource base, in consequence. Positive action, on the
other hand, would imply that in the same situation the indicators would be
used to highlight lack of achievement which then triggers initiation of an
investigation as to why this state has arisen. This could subsequently lead to a
re-deployment of resources to an under-resourced area, or to some form of
retraining, staff development or some other form of organisational
development strategy.
Figure 1.
Control locations and
resultant action matrix
model
Taking the location of the control authority and resultant action as the two Perspective of
independent dimensions, four quadrants can then be identified, as depicted in performance
Figure 1. management
Consideration of conditions prevailing in each of the four respective
quadrants may be characterised as follows:
(1) Quadrant 1 performance management systems would typically
include internal quality assurance, and assessment procedures (Boland 423
and Silbergh, 1996). Application of these would lead to positive
(supportive) actions in terms of actions arising. In principle, the concept
of total quality management could broadly characterise this approach.
(2) Quadrant 2 typically involves an external body that is responsible for
auditing an organisation's own performance measurement and quality
systems, rather than performing these directly and in detail for each of
an organisation's operational activities. This external agent can then
offer advice on how the organisation as a whole can develop its
component parts to ensure continued development and high
performance. The process is characterised by less emphasis on formal
measures and more reliance on general indicators of outcome (Smith,
1995b) and is therefore seen as basically positive in nature due to its
generally supportive role.
(3) Quadrant 3 is typically characterised by sub-units within the
organisation being measured internally, as in quadrant 1. In practice,
this function will often be performed by ``the centre''. However, in this
quadrant control is associated with negative consequences, in terms of
actions arising. This is especially true in large complex organisations
and public sector authorities where departmental budgets are allocated
centrally and may be adversely affected by alleged poor performance,
such as occurs in the Civil Service (Horton, 1999) and local government
(Painter and Isaac-Henry, 1999).
(4) Quadrant 4 is similar to quadrant 3 in that negative (punitive) actions
can be expected to follow a poor assessment, but differs in that authority
and control are now imposed externally. It is the contention of these
authors that ultimately the practice of performance management in the
public sector lies mainly (if not completely) in quadrant four. However,
as is argued in subsequent sections, system dynamics and systems
modelling theory readily illustrate that this is an inherently unstable
regime in which to operate, and can easily lead to an overall worsening
of public services rather than holistic improvement.
In summary, it is thereby seen that, within the matrix model, two extreme
positions can be identified in quadrants 1 and 4. These are respectively internal
control combined with positive action, on the one hand, and external control
combined with negative action, on the other. Furthermore, it is argued herein
that quadrant 1 is the most desirable location for most public sector
IJPSM organisations, in terms of satisfying, in the long term, the needs of the majority
13,5 of stakeholders. However, a majority of performance management systems in
the public sector may be seen to fall into quadrant 4. Examples include school
league tables and OFSTED related quality standards in education; the
Research Assessment Exercise and QAA quality audits in higher education;
hospital waiting lists, mortality league tables and clinical governance in the
424 NHS; HMIC performance indicators in the police service, etc.[1].
Systems concepts
Public sector management occurs within a complex, dynamic system involving
several nominally independent stakeholders, coupled with informational and
resource material flows and behaviour that is characterised by inertia and
multiple feedback loops. It is therefore apparent that the generic principles of
systems thinking and system dynamics potentially provide a useful framework

within which the issues of performance measurement, performance indicators
and improvement initiatives should be considered (Forrester, 1961; Coyle, 1977;
Sterman, 1987, 1989; Flood and Jackson, 1991; Wolstenholme and Stevenson,
1994).
The concept of ``the system'' follows naturally from the observation that the
universe comprises a multitude of entities or parts, most (perhaps all) of which
do not act in perfect isolation but interact, in some way, upon each other (von
Bertalanffy, 1968; Checkland, 1981; Richardson, 1991). Hence, although each
part may be clearly identifiable as a discrete item, possessing its own
characteristics, behaviour and attributes, it is actually part of a greater whole,
whose collective attributes exceed those of the constituent parts. A ``macro''
system, such as a public sector service provider, thereby comprises several
subsystems (the respective parts) which in turn are built up from further
subsystems. Each subsystem (for example, a department, agency or
stakeholder group) receives inputs upon which it performs some form of
transformation process to create outputs or outcomes. These outputs, in turn,
become the inputs of other subsystems and, in many cases, closed loops are
formed whereby an output from a subsystem proceeds through a chain of
events to eventually become an input to itself, at some time in the future. Such
closed loop sequences may be schematically depicted (e.g. S1 to S8) along with
some open loops (e.g. S7 to S12 and S8 to S9) in Figure 2.
The macro system is, itself, contained within a system boundary wherein it
too converts macro inputs into corresponding outputs. This is shown here as an
open system, although, in practice, systemic linkages in the ``suprasystem''
surrounding it may ultimately link its outputs to to their corresponding inputs
through some external medium, thereby creating a macro level ``closed loop''.
When these everyday phenomena of systemic interactions occur, a number
of corollaries are associated which can, in certain circumstances, lead to some
rather complex, even unexpected behavioural outcomes, even in a structure
which, at face value, may look deceptively simple (Morecroft and Sterman,
1994). First, wherever such closed loops are formed, the issue of causality
Perspective of
performance
management
425
Figure 2.
Closed loop system and
subsystems
becomes problematic. Since each subsystem receives inputs which are

influenced by the characteristics (defined in terms of the transformation
processes performed) of its neighbours, and also of itself, it is not possible to
define a finite chain of cause and effect. Second, because all of the
transformation processes associated with each successive subsystem take time
to perform, the system possesses dynamic characteristics. This implies that the
state of its variables is always changing, unless in a temporary state of
dynamic equilibrium (notably not equivalent to stasis). Finally, as a
consequence of the first two observations, it is not possible meaningfully to
understand behaviour in one part of the system without also understanding all
the other parts since they all interact dynamically. In this sense the system
must ultimately be treated as a whole (Wolstenholme, 1990).
Recognition of the influence of feedback, inertia and delays is a major
prerequisite to subsequently understanding the concepts of system dynamics.
However, a third key piece in the jigsaw is the concept of nonlinearity. As long
as inputs are only varying by small amounts, transformation processes can
often be assumed to perform uniformly and proportionally so that outputs vary
linearly with inputs. However, linear behaviour is always a special case of
nonlinearity as no trend (or rate of change) can, in nature, continue indefinitely
at a uniform rate. At some stage, some form of saturation will occur (i.e. a
constraint will be encountered) whereafter the linear relationship breaks down.
When this happens in a dynamic feedback system, it is said to be ``complex''
and is potentially capable of apparently ``chaotic behaviour''. This implies that
the system can have many different output states corresponding to one
particular set of input conditions. Hence, in complexity theory the terms
``complex'' and ``chaos'' have more specific and perhaps different connotations
from those used in more general parlance.
The study of such ``complex systems'' has recently aroused much interest
spanning a number of disciplines including mathematics, the physical and
IJPSM biological sciences, the social sciences and management (Stacey, 1993; 1996).
13,5 The implications for management broadly focus around the issue of the
viability of the traditional command and control model. Hence when
attempting to control processes within management subsystems, so that inputs
are transformed into the required outcomes, there may exist unseen,
unimagined systemic forces which are capable of undermining the efforts and
426 intentions of those who assume that they are in control. Furthermore, these
characteristics can evolve purely as a result of structural and policy
interactions and can occur even in deterministic systems, i.e. before the random
events and stochastic factors such as the unpredictability of individual
behaviour are taken into account.
Efficiency and effectiveness in systems

The intention in highlighting the system concepts of the previous section is to
establish the broad framework within which the issues of economy, efficiency
and effectiveness, as introduced in the earlier section, can be accommodated. In
particular, interest focuses on the context in which performance improvement
within the public sector is planned for and controlled. Figure 3 is presented to
summarise the definitions used throughout this paper, drawing upon a
systemic understanding of the terms efficiency, effectiveness and related terms.
Hence `èconomy'' is seen to be associated purely with the measurement and
regulation of inputs, while the definition of `èfficiency'' follows the universally
accepted convention of ratio between outputs and inputs. However, if this
definition is interpreted literally, difficulty can arise in management systems
when attempting to establish a common set of units which can then be used for
both input and output measurement, a fundamental requirement when seeking
a meaningful performance metric. In practice, the measurement process itself
may also prove difficult, especially on the output side. In fact, considerable
disagreement often arises with respect to the issue of what should be measured,
even before considering the issue of how it should be done.
The definition of effectiveness is even more problematic. At one level
effectiveness is primarily concerned with outputs from the system but, as
Figure 3.
Relationships between
alternative performance
measures
argued in previous sections, use of the term `òutcomes'' may be preferred to Perspective of
denote the essentially intangible, multidimensional attributes which are of real performance
concern, relative to stakeholder needs in the public sector. In Figure 3, this management
notion is depicted using the ``matching comparison'' block to assess outcomes
relative to needs. This encapsulates the now familiar prioritisation adage that:
It is more important to do the right things than to do things right. 427
The implication here is that it is more important to achieve the outcomes that
people want, rather than becoming optimally efficient in delivery. In fact
efficiency improvements may be achieved either by increasing outputs, while
deploying the same inputs, or by maintaining the same output with reduced
inputs. However, the ``prioritisation adage'' emphasises the importance of
achieving the right outputs, in preference to the goal of using inputs with
optimal efficiency. If a choice exists, this clearly points to the order of
prioritisation.
Conversely, some confusion can arise in the case where one of the desired
outcomes is the attainment of the lowest cost (i.e. the best possible use of input
resources). In this case, the prioritisation adage may prove somewhat
tautologous. This suggests that perhaps a more comprehensive definition may
be required that would address the simultaneous optimisation of both outcome
effectiveness and resource use efficiency. The concept of ``value for money'', as
depicted in Figure 3, is intended to encapsulate this notion.
Negative feedback control loops

In practice, the traditional means whereby control is exercised to achieve
efficiency and/or effectiveness is to set targets of performance criteria and then
monitor actual performance for comparison with those target settings.
Discrepancy between the two is used to activate some form of improvement
mechanism which, in turn, changes the behaviour of the system so that the
outcome converges more closely with the target. The generic block diagram
illustration in Figure 4 illustrates the resulting feedback loop. This form of
representation is very common in the domain of, for example, control
engineering, in which sophisticated analytical approaches, based on the
solution of differential equations, have been refined to a high degree (Fowler,
1999). The notation G1, G2, etc. denotes a transformation process, while the
subscript ``s'' (sometimes referred to as the Laplace operator) (Coyle, 1977;
Towill, 1993) denotes that the transformation process is time dependent (i.e.
outputs are a function of both inputs and time). It then becomes possible to
perform ``block diagram algebra'' using these ``transfer functions.'' For example,
the expression relating the change in output, y to the change in input, x in
Figure 4 is the characteristic equation of the generic feedback control system
loop. Notably financial and accounting systems are also typically replete with
such feedback control loops and, in situations where it is possible to quantify
IJPSM
13,5
428
Figure 4.
Negative feedback
system block diagram
the transfer function terms, it becomes possible to analytically define system

behaviour (at least for small changes in the vicinity of a particular operating
point).
Notably, in ``systems'' terminology, the process enacted in Figure 4 is
referred to as negative feedback. The term negative arises since the value of the
controlled system variable is monitored and subtracted from the target value to
create an error signal or discrepancy (note the negative sign in the element
depicting the target setpoint summing junction in Figure 4). The degree or
strength of the corrective action, taken by the controller, may then be made
proportional to this discrepancy.
An alternative representation of a negative feedback loop is shown in the
form of an influence diagram in Figure 5. This corresponds directly to Figure 4
except that it is now configured to depict a specific, elementary example.
Again, the sign notation is very important. Positive (+) implies ``drive the
output changes in the same direction as the input changes'', while negative ()
implies ``drive output changes in the opposite direction to inputs''.
In this example, the target setpoint is a departmental budget allocation. The
control function is then concerned with allocation of resources while ``the
Figure 5.
Negative feedback
system influence
diagram
system'' performs the transformation of those resources to create various Perspective of
outputs, one of which is the generation of expenditure. This in turn is ``sensed'' performance
or monitored by the accounting system. Ideally, expenditure equals budgeted management
resource at the desired equilibrium condition. However, if the rate of
expenditure then increases in magnitude, the negative sign in the causal loop
indicates that budget surplus will be reduced or become negative, which
implies that the controller then needs to reduce resource allocation. This, in 429
turn, should eventually reduce expenditure so that after some delay the system
is eventually restored to a state of balance. Hence we have the classic negative
feedback balancing action whose intention is to ensure that the system behaves
as its designers and operators (i.e. management) intended.
It should be noted that, in this sense, negative feedback arguably carries the
connotation of something that is actually good; i.e. achieving controllability of
the system and conformance with some clearly specified performance objective
(remaining within budget, in this case). This reverses the more conventional
usage of the adjective ``negative''.
Positive feedback
Positive feedback systems are structurally identical to those depicted in
Figures 4 and 5, except that the negative sign at the summing junction is now
replaced by a positive. This is readily depicted algebraically, using Figure 6 as
a basis, which depicts the equivalent, simplified, static case corresponding to
the fully dynamic representation depicted in Figure 4. The key difference is
that the system has now been configured for positive feedback and presented in
simplified format. In this case H and G appear as simple multipliers (rather
than the full dynamic transfer functions depicted in Figure 4). These act
directly on y, z and x respectively. Hence the output y, is seen to be equal to the
sum of the two components x and z multiplied by the simplified transfer
function G.
Hence y = (x + z). G where z = y.H.
So y = G.x + H.G.y.
Whereby y.(1 H.G) = G.x,
or
y G
:
x x1 H :G
The net result of producing this positive feedback closed loop is to produce a
multiplier effect[2]. For example, setting G = 1 (whereby y is nominally equal to
x in the corresponding open loop system) and setting H = 0.5 results in a
multiplier of 2. Likewise, if H is increased to 0.67, the multiplier increases to 3,
and so forth.
However, the transfer function expression above also displays the danger
inherent in positive feedback systems. For example, as the product H.G
approaches unity, then the multiplier effect becomes infinite, implying that the
smallest change in input leads to a massive corresponding response in output.
IJPSM Hence in practice, from a systems control perspective, positive feedback creates
13,5 a destabilising influence with a tendency to drive dynamic systems towards
instability. In this sense, positive implies bad, which again contradicts the
everyday language use of the adjective.
A typical example of positive feedback is depicted, in influence diagram
format, in Figure 7 (note that the two negative signs, around the loop, combine
430 through conventional algebraic notation to form a positive). This is similar to
Figure 5 except that the emphasis has now shifted so that ``system
performance'' becomes the focus of monitoring and control, rather than
budgetary activity. However, this is being done in such a way that performance
is now linked positively to provision of resources (not an uncommon
phenomenon, especially in public sector organisations, as discussed in previous
sections of this paper). The implication of this is that if performance dips below
target, the control system will register an expanded ``performance gap'' which is
then acted upon to produce a reduction in resource allocation. In many cases
this leads to further degradation of performance. A ``vicious spiral'' is thereby
initiated, leading ultimately towards collapse, unless some contravening action
is taken. In systems terminology, this would usually require that some form of
nonlinearity is encountered.
It is noted that, although systemically this is a typical example of ``positive
feedback'', a term which colloquially carries the connotation of something good,
in practice, the outcome will probably be deemed to be anything but good by
those affected. Indeed, perhaps ironically, the outcome would more likely be
considered to be very negative. Hence in systems terminology the terms
negative and positive feedback have a reversed polarity relative to more
traditional usage, including that which is associated with the matrix model in
Figure 1. Negative feedback implies careful system design with the intention of
creating balanced, stable systems that always seek convergence towards some
declared goal. Conversely, positive feedback, unless impeded by nonlinearity or
some other systemic influence, will tend towards instability and uncontrolled
``runaway'' situations.
Combined, multiloop systems

In practice, the systems encountered in management are replete with both
negative and positive feedback loops (Senge, 1990). For example, consider the
Figure 6.
Positive feedback block
diagram (static case)
Perspective of
performance
management
431
Figure 7.
Positive feedback
influence diagram
hypothetical situations introduced above. Almost inevitably, some form of

budgetary control subsystem, as represented in Figure 5, will be in place in any
organisation. This will usually have been designed, set up and operated in
negative feedback mode as a routine feature of the management accounting
function. However, perhaps less obvious, and perhaps less clearly understood,
is the simultaneous existence of positive feedback performance loops such as
the one depicted in Figure 7. What is important, when the two coexist, is the
relative strengths of the respective loops and the dynamic properties of the
transfer functions associated with each element.
Figure 8 depicts this situation as a composite influence diagram (a
combination of Figures 5 and 7). The inner loop focuses on financial budgets
(the economy criterion from Figure 3) using negative feedback (note that the net
sign, moving round the loop, and using standard algebraic notation, is
negative). The outer loop is associated with `èffectiveness'' since it is concerned
directly with controlling the core system outcome (e.g. service level). This
operates as a positive feedback loop as defined by the normal sign conventions
(two negatives equate to a positive). Furthermore, the dynamics of the outer
loop may be much slower than those in the inner loop.
Figure 8.
Composite influence
diagram
IJPSM However, a problem potentially exists with the behaviour of this system in the
13,5 event that resources are reduced, say to satisfy the budgetary requirement in
the inner loop. In the event that this ultimately triggers a reduction in the
performance of the core service delivered, this, in turn, increases the gap
between the target and achieved performance which then causes a further
reduction in resource, as depicted by the second negative sign in the outer loop.
432
A role for computer simulation
As described above, in qualitative terms, behaviour of the system depicted in
Figure 8 depends upon interaction between the two respective causal loops.
The actual nature of this interaction depends, in turn, upon a number of factors
including relative loop dominance, the degree of inertia and the magnitude of
any delays that are present. Since numerous possibilities exist, each
accompanied by its own particular behavioural consequences, an effective way
to evaluate the relative significance of these factors, and to understand the
behaviour of the system, is to build a computer simulation model of it (Vennix,
1996). This is depicted at a very fundamental level, in Figure 9, using a popular
commercial simulation software application IThink (Richmond, 1994).
This is essentially a continuous system simulation facility that performs
continuous numerical integration of flows (the generic modelling elements,
depicted by the double arrows) which accumulate, in time, as stocks (state
variables, generically depicted as rectangles). Algebraic manipulation occurs at
the ``converters'' (the circle elements). These may also incorporate nonlinear
functions, discontinuities and a wide range of logical operations which, in
Figure 9.
Simulation model of
performance
management system
effect, support a discrete-event functionality. The fourth and final generic Perspective of
element, used in creating simulation models, is the ``connector'' (single line) performance
which carries information between the other generic model ``building-blocks''. management
The upper section of the simulation patch diagram, presented as Figure 9,
shows the financial control loop with budget surplus (or deficit) represented as
a stock variable resulting from the net accumulation of resource flows and
expenditure. Expenditure is determined in relation to the established budget 433
but also incorporates a budget deficit ``trimming policy''. Changes in the
resource budget, or expenditure policy, may be implemented at the respective
converters while external influences, that can affect expenditure, outside of the
normal planning policy can be implemented in another independent converter
labelled `èxternal expenditure influence''.
The lower section of Figure 9 shows the performance control loop similarly
configured using a stock variable representing service level performance

capability in conjunction with a bi-directional flow variable labelled
``performance builder''. A performance target is set as a benchmark and
``performance policy'' is established which aims to take account of a number of
factors. First, if the net expenditure varies, this can affect the performance
policy and hence rate of building or depleting performance (i.e. this constitutes
a direct linkage between the two fundamental loops). Second, there is also scope
for introducing independent non-financial external performance influences
which can disturb the system (note the corresponding `ìndependent influences
converter''). This ``performance policy'' ``converter'' may also be used to
introduce other factors that are a function of current performance capability
and can influence the performance building rate (feedback from the service
level stock variable). Typical examples might be new management initiatives
or the impact of changes in morale. Finally, there exists a second linkage
between the financial and performance loops. This is represented by a
connector from the performance stock-variable to the resource budget
converter. This allows resource budget to be influenced by performance
attainment.
Building a simulation model such as this (which is, in effect, a quantitative
model corresponding to the qualitative representation given in Figure 8) offers
a number of advantages. First, the process of generating the model, and
engaging in structured thinking about the relationships between the various
parts of the system, provides an insightful learning experience in its own right,
surfacing awareness of how the system actually works and generating a shared
knowledge of its likely behaviour, amongst the modelling team. Second,
simulation allows the reactions of the system to be evaluated in response to
various disturbances which might impact upon it. Finally it provides a medium
for the evaluation of different management policies.
Upon running even this simple model a number of different scenarios may
be evaluated. As an illustration, Figure 10 shows the response of the system
when a sudden increase of expenditure is encountered due to a sharp change in
an external influence, initiated following a six-month period of ``steady-state''
IJPSM
13,5
434
Figure 10.
Responses obtained
from simulation model
operation (or equilibrium). Expenditure is seen to increase initially, leading to a

lagged increase in the budget deficit trace. The financial control loop then
``kicks in'' and, over a period of time, the budget deficit is cancelled.
However, the change in net expenditure, during this transient, also triggers a
response in the performance control loop. The reduction in expenditure initially
depletes performance but this, in turn, then leads to a reduction in resource
allocation and expenditure since the policy being followed, in this case,
corresponds to quadrant 4 (or possibly quadrant 3) in the control/response
matrix model depicted in Figure 1. Subsequently, a dominant positive feedback
sequence is activated (positive in the systemic sense, not in the more general
use of the term) which, over a period of time, if left uninterrupted, results in
performance and budget allocation declining cumulatively. This is a long,
protracted process but the trajectory is unmistakable and again demonstrates
the danger inherent when positive feedback loops are created.
Applicability of systems concepts in public sector organisation

Both the control/action matrix model and the feedback/feedforward control
loop concepts depicted and discussed in the sections above find broad and
overlapping applicability in public sector organisations. These will be
considered through a brief examination of three different segments of the
public sector: namely the education, health, and police services respectively.
These cases have been chosen because collectively they account for some
74.5bn of public expenditure (21 per cent of the total in 1995/6), involve the
employment of about 1.9 million staff, and demonstrate systemic inter-
relationships as discussed in the context of Figure 2. Each service has its own
identifiable system boundaries and comprises many different levels of sub-
systems, whose outputs feed into each other. In addition, the outputs and
outcomes of each service can also impact upon other services. For example,
education services provide the pool of professional labour for some of those
who return to work in the public sector, whilst high levels of health needs and
high incidence of crime are often highly correlated and also associated with low
levels of educational attainment. Furthermore, initiatives in performance Perspective of
management, which have occurred within these sample sectors, present typical performance
examples of what has happened, or is happening, throughout the whole of the management
public sector. Hence marked similarities are evident within all three cases,
although some significant differences are also apparent in the case of the police
service.
Despite the inter-relationships between the inputs, outputs, and outcomes 435
within the three sectors (systems), it is still useful to examine each separately,
identifying how performance management is employed and discussing its
implications by reference to the control/action matrix model and the feedback/
feedforward control loop concept.
The education service

In systemic terms, it is relatively easy to map several of the sub-systems
existing within the education service, and show how some outputs and
outcomes feed into, and thereby influence, other parts of the system. Similarly,
such outputs may also loop back, directly or indirectly, into the preceding sub-
system. For example, pre-school education feeds into infant and primary
schools, which then feed into secondary schools which in turn feed the further
and higher education sectors. Outputs from secondary, further and higher
education feed into all areas of society, and back into the HE system itself, as
new lecturers, researchers and administrators subsequently take up careers in
that sector. Additionally, each sector provides several outcomes deriving from
the mental development of children during their preparation for adulthood and
contribution to society.
With respect to the input side of ``the system'', and the performance
measurement model, it is also notable that inputs are not ``standardised'' as
many factors such as pre-school and parental influences impact upon children
before they enter the system. Furthermore, a major input into all the sub-
systems is finance, as education is obviously a resource intensive process.
Each sub-system will have a negative feedback system, as represented in
Figures 4 and 5, in order to exercise budgetary control. However, it is the
existence of positive feedback performance loops, such as those depicted in
Figures 6 and 7, that is of primary concern here. These create composite
influence systems such as the one featured in Figure 8. Hence it is argued that
performance management in education falls primarily into quadrant 4 of the
control/action matrix model, thereby demonstrating a dominant positive
feedback sequence which, in terms of the control loop concept, can result in
long-term instability. This occurs through the action of three major
performance management processes, identifiable within the education service
as:
(1) League tables of school performance;
(2) OFSTED (Office for Standards in Education) audits in primary and
secondary education, FEFC (Further Education Funding Council) audits
IJPSM in further education, and HEFC/HQAA (Higher Education Funding
13,5 Council/Higher Education Quality Assurance Authority) audits in
higher education;
(3) The RAE (Research Assessment Exercise) in higher education.
Of these, only one (the RAE) is directly related to funding: currently a higher
436 rating attracts the highest level of funding, whilst a rating below a certain level
attracts zero funding. However, all university departments are still expected to
contribute to research so that those which receive no funding from this exercise
have to find resources elsewhere, namely through increased efficiency which
obviously has an impact upon staff-student ratios and teaching and learning
outcomes. Furthermore, in the marketplace for higher education, a poor rating
can impact upon demand on taught programmes which could, in turn, lead to a
further drop in income. Additionally, the method for determination of a rating

is open to question since it uses mainly quantifiable indicators of output as a
measure of performance (which may imply limitations, as discussed earlier).
School league tables also carry resourcing implications, although these are
indirect, in that those schools that achieve a higher ranking are more attractive
to parents when choosing schools for their children and funding follows pupils.
However, league tables have been criticised on a number of grounds. First,
criticism has focused on the mechnanism by which they are calculated; namely
examination results. Clearly this is a quantifiable measure, but the extent to
which it can be manipulated is open to question (McGill, 1994; Holloway et al.,
1999). Moreover, it does not take into account the diversity of pupils' abilities in
different schools in different areas. In this case, as before, performance
measurement is therefore based upon externally set criteria with negative
(punitive) action for poor performers. Hence it is seen that once again a positive
feedback loop is dominant. Thus, schools in relatively deprived inner-city
areas, for example, those which attract children with greater educational needs,
will generally tend to perform badly in the performance assessment exercise
and thus suffer in terms of their inputs, both through failing to attract more
able pupils and by reduced funding through the resource base. Consequently,
pupils who perhaps demand more attention and a more intimate form of
teaching will in fact see increasing class sizes and a fall in their educational
provision. Conversely, better performing schools will be rewarded by more
resources and will be able to select the better pupils, thus creating a widening
diversity between those at the respective ends of the league table.
Quality audits in schools, and in further and higher education, provide
further examples. All are similar, in that the individual organisation's
performance is assessed against externally set criteria, over a broad range of
subject headings. Audit reports, and their associated ratings, do not carry
direct funding implications (except in further education) but can have negative
impacts in terms of influence on demand. In addition, the cost of preparing for
these audits is often criticised on the grounds that it outweighs any real benefit
gained. Nevertheless, Holloway et al. (1999) cite many improvements in internal
management systems, particularly in the financial and informational domains, Perspective of
which have been introduced to cope with these audits and strengthen internal performance
control. Regardless of this, these authors still note that, in the case of schools: management
rather than providing a stimulus for improvement, highly critical OFSTED reports only serve
to reinforce a cycle of decline (Holloway et al., 1999, p. 199).
A similar observation could be made with respect to audits in further and 437
higher education. Moreover, further developments, potentially akin to the
school sector's National Curriculum, may already exist at the planning stage. It
is also notable that the new Government elected in 1997 has continued this
seasoned trend, introduced and developed by its predecessor, of increased
centralisation, the use of performance indicators and an enhanced role for
external audit (Holloway et al., 1999).
Thus, despite some developments in internal control systems, which could

be described as lying within quadrant 1 of the control/action matrix, therefore
being based upon the negative feedback control concept, the over-riding
majority of performance management processes appear to fall within quadrant
4 and therefore demonstrate a dominant positive feedback sequence. The
resultant long-term implication is the creation of a diverse range of educational
organisations, many better resourced than others, and a multi-tiered system of
educational provision in all sectors. If this is the intended long-term outcome,
the performance management system based upon positive feedback may
indeed be appropriate. However, if policy outcomes such as equity of access,
high standards of public education and mass participation in higher education
are genuine ambitions, then linking of funding to externally set performance
targets will do little to achieve this ultimate goal.
The health service

Like education, the National Health Service can be seen as comprising many
sub-systems, whose outputs and outcomes often feed into each other and
often back into themselves in a closed loop. Despite the distinction between
primary care (general practices) and secondary care (hospitals) becoming
blurred, with minor investigations and treatments carried out in general
practice surgeries, there are still very close links between the two. There are
also close links between the component clinical departments within hospitals
and external clinics within the primary care system. Similarly, the health
service has seen major developments in the use of performance measures and,
more recently, the introduction of nationwide audit processes based upon
nationally set criteria.
Performance indicators were first formally introduced into the NHS in 1983
(Pollitt, 1985; Corby, 1999) but at that time comprised simply publication of the
statistical data already available. Carter et al. (1995) argue that this
demonstrates increasing political and managerial concern with comparing
different authorities and individual units. It should be noted here that health
services, in common with education, do not have standardised inputs in client
IJPSM terms, but are faced with a wide variety of demands determined by the
13,5 prevalent health needs of their local environment. Thus, in being largely within
the category of efficiency measures, such crude comparisons as cited above are,
in themselves, unlikely to provide much useful information about a particular
unit's performance.
In 1991, the system became more rigorous with the introduction of the
438 Citizen's Charter (Corby, 1999) concentrating upon providing populist
performance indicators which are aimed at the public, rather than managers
(Carter et al., 1995, p. 4). This mirrors developments in education with the
introduction of league tables which, in this case, were meant to inform
patient and contractor choice, with consequent funding implications.
Examples of indicators introduced included waiting times, waiting lists,
response times and percentage of named nurses[3]. These were then used in
conjunction with a ``purchasing efficiency index'' to aid the contracting

process (Corby, 1999). However, this demonstrates an emphasis on
operational detail rather than health outcomes. Hence, as in education, these
performance indicators can be seen to lie primarily in the right-hand side of
the control/action matrix, being primarily concerned with identifying targets
for punitive measures:
New developments, introduced in 1999, demonstrated a further increase in
the centralisation tendency and an increased emphasis upon nationally set
standards and criteria. These initiatives included the establishment of a
National Institute for Clinical Excellence (NICE) and the development of
evidence-based national service frameworks to establish patterns of
treatment for specific conditions (Department of Health, 1997; Corby, 1999).
This framework provides for audits to be carried out by a Commission for
Health Improvement (CHIMP) which will also monitor and report upon
performance.
Unlike education, the link between performance assessment and
organisational funding is less clear and more implicit. Nevertheless, the
direction of performance measurement and management is clear: Corby (1999,
p. 193) notes that the centre has increased its powers as a result of both
structural changes and its increased role in monitoring the burgeoning quality
measures. Similarly, it is observed that clinical freedom is increasingly limited
by the expansion of these quality measures. In this sense performance
management clearly transpires as a function of external control with negative
(punitive) connotations. The emphasis upon efficiency indicators, the
difficulties in designing measures of quality and outcome (Carter et al., 1995),
and the implications associated with resource deployment in collecting,
reporting and monitoring the PIs, all imply a tendency towards the positive
feedback system archetype. While this will certainly benefit some providers, it
will inevitably impose more stringent efficiency targets on others. This may
potentially prove efficacious, at one level, but does not guarantee the desired
response in terms of the intended long-term outcomes such as equity of access
to health-care services.
The police service Perspective of
Like the other two public services discussed above, the police service is made performance
up from several interacting sub-systems with multiple objectives and a tenuous management
relationship between outputs and outcomes (Carter et al., 1995, p. 53). These
authors have detailed the development of performance indicators in the police
force, thereby demonstrating that many similarities exist with the education
and health sectors already discussed. This includes a piecemeal introduction 439
leading to a comprehensive set of national indicators introduced between 1986
and 1989 (Carter et al., 1995 p. 57; Loveday, 1999, p. 223), examples being:
. the external auditing of individual constabularies by the HMIC (Her
Majesty's Inspectorate of Constabularies);
. constabulary funding linked to performance;
. a question over the efficacy and validity of statistical information.

These initiatives are therefore, once again, seen to be broadly representative of
conditions pertaining in quadrant 4 of the control/action matrix.
However, both Carter et al. (1995) and Loveday (1999) also note another
significant development within the police service which differentiates it from
the other two cases; that is the internalisation of performance measurement
which allows Chief Constables to analyse their own activities and develop local
policing plans with devolved responsibilities and budget control at the level of
individual Command Units. A comprehensive matrix of statistics has been
developed enabling different constabularies to identify local priorities and
allocate resources as appropriate. This also provides a source of central
accountability. Although recognising that the extent of these developments
varies from constabulary to constabulary, this appears to indicate a movement
from the right-hand side of the control/action matrix to the left-hand side, and,
more importantly, to quadrant 1.
Hence Loveday (1999) points out that these developments represent a
significant change from earlier police service provision and supervision.
Additionally:
where local commanders have control of the budget and are made more accountable for local
policing by costing activities, high levels of local accountability can be expected (Loveday,
1999, p. 225).
However, he also notes that the allocation of resources is linked to costing

policing activity and identifying, where possible, the cost of both outputs and
outcomes. Thus, once again, the multitude of objectives and the complexity of
outcome measurement could result in an over-emphasis on operational
activities and efficiency indicators, driving the process back into the right-hand
side of the matrix model.
Discussion
Public sector management shares much in common with, and has been
significantly influenced by, practice in the private sector. However, in many
IJPSM respects performance management in the sector is relatively more complicated
13,5 due to the absence of the single overriding goal which ultimately dominates
private sector companies. That is, the motivation to make profits and provide
satisfactory financial returns to shareholder interests.
Consequently, attempts at performance improvement based on indicators
and systems of measurement have often proved controversial in some sense.
440 Concerns have been expressed that ``what gets measured is what can be
measured'' and, furthermore, ``what gets measured gets done''. However, the
question remains open as to whether this necessarily leads to the salutary
outcomes required, in terms of satisfaction of the needs for which such
organisations were originally created.
The paper has therefore examined, from a systems perspective, the
relationship between the actions initiated as part of the performance
measurement cycle, and the outcomes achieved, in terms of the organisation

behaviour, as a system. Various perspectives focused respectively on economy,
efficiency, effectiveness or value for money have therefore been related
schematically in the performance measures model depicted in Figure 3. This
provides a range of options when considering what should actually be
controlled. It has also been shown that in attempting to exert feedback control,
on such systems, there is an ever-present danger of initiating positive feedback
loops with potentially disastrous consequences for overall behaviour or
performance.
The control-location vs. resultant-action matrix model has therefore been
developed, in this paper, specifically to illustrate, at a high level, the scope of
possible combinations, whereby it is argued that, because of systemic
influences, many initiatives may actually be located in an inappropriate
quadrant. The purpose of the model is primarily to highlight the two important
dimensions which, at the macro level, influence attempts at managerial control
in the highly complex systems found in the public sector. Furthermore, it
makes explicit the modes of control action which are likely to emerge, once
decisions have been taken with respect to quadrant location.
However, as with all other models, it must acknowledged that this is a
simplification of reality and attenuates out much of the complexity encountered
within the real world domain. As such, it is not intended to offer a universal
prescription for how things should be done. However, it does potentially serve
to sharpen our focus on what is happening from a particular systemic
perspective, and what implications are likely to follow certain types of action or
policy.
Irrespective of which quadrant, in the matrix, represents the control mode
adopted, some form of feedback control is inevitably engaged. Feedback
systems theory has therefore been explored as a medium for raising
awareness of underpinning principles which dominate the behaviour of such
systems. At this stage it is also important to recognise that, when applying
the concepts of system dynamics and feedback control, some terminology
assumes a somewhat unfamiliar notation. For example, negative feedback
control, which is applied universally throughout nature, engineering and Perspective of
organisations, is responsible for activating goal seeking behaviour and performance
stability. Within this context the word ``negative'' arises due to the tendency management
to negate discrepancies between required and actual behaviour. This, in
control terms, and indeed, in terms of managerial policy, is usually seen as a
good or positive thing.
Conversely, the introduction of positive feedback in a closed loop system is 441
likely to produce instability and ``runaway'' situations which implies a lack of
controllability (nominally a very bad thing). Hence the systemic implications
associated with this particular usage of the term ``positive feedback'' is in sharp
contrast to the more general application of the term, where it usually depicts a
constructive and supportive endorsement of behaviour.
The importance of recognising the danger of introducing positive feedback
into a system (either deliberately or unintentionally) has been particularly

emphasised in relation to performance management within quadrant 4 of the
matrix model. Hence it is noted that, although there may appear to be very
good reasons for initiating such actions, to reward the successful, there are also
potentially dire consequences for those who may, as a result, be precipitated
into a ``vicious cycle'' of decline.
Although concepts such as the 2 2 matrix model, negative and positive
feedback, etc. may possess some generic potential to describe and understand
behaviour in public sector organisations, it must be accepted that every
situation is usually different, in its detail. Such models simply identify a range
of archetypes and forewarn about the possibility or likelihood of certain generic
behaviours. This observation leads directly to recognition of the potential role
of modelling and simulation as logical extensions of the ``systems approach''. In
recognising the uniqueness of organisational engagements it is thereby
accepted that each requires to be modelled individually, so that investigations
of likely dynamic behaviour may be revealed. Such an approach also allows
representations of evolving complexity to be constructed from relatively simple
building-blocks, as illustrated earlier. Furthermore, these provide ``live models''
with which safe experimentation can be conducted `òff-line'' in order to enhance
understanding and evaluate options (Fowler, 1998).
For example, the situation facing a particular education authority, or indeed
the overarching educational infrastructure, when contemplating a change in
policy or structure, could be represented and then investigated by means of
simulation (Martin, 2000). It is suggested that given the required level of
modelling expertise, coupled with senior managerial support and involvement
of those who understand how their own respective ``bits'' of the system work
(i.e. those who implement business processes at ground level), realistic dynamic
models can be created using the building-blocks (stocks and flows, etc.)
identified earlier in this paper. Although these models should be seen for what
they are, i.e. simplified expressions of reality, they can nonetheless be used to
evaluate likely behaviour of the system over time, following its subjection to
change initiatives or ``shocks'' arising from the operating environment. The
IJPSM advantage is that the models can be run in ``compressed time'', mistakes can be
13,5 cancelled and alternative outcomes investigated within the ``microworld of
simulation'' (Morecroft, 1999; Warren, 1999).
Similar arguments apply when considering the health service or the police
(Rakich et al., 1991; Greasley and Barlow, 1998). Indeed the former has proved
to be a prime candidate for such applications (Wolstenholme, 1990), especially
442 in the context of process re-engineering at both macro and micro levels.
An important characteristic of simulation, within contexts such as these, is
that models can be developed progressively, bringing in the requisite degree
of detail if and as required. For example, in the very simple illustrative
example, presented earlier in this paper, only a very ``high level''
representation of the generic budgetary and performance control loops was
attempted. Although it is beyond the remit of this paper to present detailed
modelling of financial and control systems or to consider the ``subversive

activities'' that may be engaged in as people seek ways to conserve their
power or resist change, the capacity of systems to ``fight back'' is well
documented in the systems literature (Senge, 1990). The intention at this
stage is to demonstrate that the modelling approach does provide a
structured framework and potentially powerful tools, with which such
important and highly political factors may be contemplated (Morecroft, 1999).
Conversely, it is argued that an alternative approach, which implicitly is
tantamount to admitting that this is all far too complex and therefore cannot
be sensibly addressed by modelling, is not accepted as valid.
Throughout this paper, emphasis has therefore been placed upon the
complexity and heterogeneity of the public sector, the range of different
interacting stakeholder interests and the diverse, sometimes conflicting aims
encountered. The effect is to produce complex inter-relationships between all of
the various component parts, with consequential difficulty in measuring
outcomes in concrete quantifiable terms. The discussion of performance
management within the public sector, illustrated by reference to the three cases,
has shown how statistical indicators of performance have come to be regarded
as measures of outcome, even though in practice they only really address the
efficiency component of the ``performance measures'' model as presented in
Figure 3. Furthermore, it is argued that performance management initiatives
fall mainly into quadrant 4 of the control/action matrix and thereby
demonstrate positive feedback characteristics. This can ultimately lead to a
situation of systemic instability, resulting in a provision of public services
which are, at best, unbalanced, and more probably inequitable.
The implication of these observations, for policy formulators and service
managers, is the need for a reduction in the degree of centralised control, with
more emphasis being placed upon localised operational management within a
loose strategic framework. In order to avoid the negative consequences
identified above, local managers need to be given freedom to manage and to
determine their own priorities for resource allocation and organisational
development. However, a system of accountability must also be in place,
although it is argued here that this should pay less stringent attention to Perspective of
detailed operational activity, but should concentrate on using performance performance
indicators as just that; i.e. indicators, not concrete measures, of outcome. These management
can also be used to inform political debate about the overall nature and form of
public services in general (Smith, 1995a; Carter et al., 1995).
Conversely it could also be implied that, by moving from the right- to the
left-hand side of the control/action matrix, as advocated herein, poor 443
performance would be rewarded and there would be no incentive to improve.
However, this implies a Tayloristic approach to management in accordance
with assumptions that individuals are lazy and indolent and need to be
measured, controlled and coerced into performing at acceptable levels. Indeed,
Pollitt (1993), in discussing managerial reforms within the public sector,
likened them to a form of neo-Taylorism. Similarly Farnham and Horton (1993),
in assessing public management reforms, also have noted a shift away from the
traditional public service culture. They argue that top-down, hierarchic
management is inconsistent with public sector professionalism, flexible and
responsive service provision and political participation by citizens (Farnham
and Horton, 1993, p. 254). However, developments since that time have been
characterised by an increased enthusiasm for external controls, as noted in the
cases above. Unfortunately, this often appears to take scant account of the
traditional qualities referred to above but is primarily concerned with ever-
increasing efficiency drives, apparently reflecting and emulating productivity
improvement initiatives in the private sector. However, in terms of long-term
outcome attainment, it must be recognised that such approaches may
ultimately prove to be misguided.
Conclusion
In summary, due consideration of systemic relationships, within the context of
the control location/action matrix model, is firmly endorsed as potentially
providing a framework within which attitudes and policies towards
performance management in the public sector can be reconsidered and possibly
refocused to reflect outcome attainment clearly. It is accepted that thinking
through the full run of cause and effect sequences, arising in the interconnected
dynamic feedback loops which are encountered in the domain of public sector
management, may be a daunting task in practice. However, the process of
qualitative mapping and modelling using influence diagrams, and quantitative
modelling leading to dynamic simulation, can offer considerable assistance in
this respect. These tools can subsequently reveal, at the policy design and
reformulation stage, the likely behaviour of the system, following
implementation of performance management initiatives or the experience
``shocks to the system'' arising from an uncontrollable environment. Finally, it
is suggested that the frameworks and methodologies presented herein, whilst
not offering a panacea for performance management in the public sector, do at
least provide a vehicle for consideration and deeper systemic understanding of
the organisational dynamics involved.
IJPSM Notes
13,5 1. These examples relate to the cases discussed in more detail later in the paper. However, the
list is not exclusive and these examples are symbolic of many other public services. For
further information see: Horton and Farnham (1999); Carter et al. (1995); Jackson (1995).
2. One of the most influential examples being the Keynesian multiplier (Keynes, 1951)
encountered in macro-economic theory, which ensures disproportionate outcomes to the
injection or retraction of money into the economy.
444
3. This refers to the drive to ensure that every patient is assigned a particular named nurse
who will be their primary point of contact with the hospital system.
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A systems perspective of performance management in public sector organisations

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A systems perspective of Perspective of

public sector organisations

associated with the establishment of standards to be achieved, and the audit of

Public sector performance improvement

Performance measures vs. performance indicators

Development of the control location versus resultant action matrix model

systems thinking and system dynamics potentially provide a useful framework

becomes problematic. Since each subsystem receives inputs which are

Efficiency and effectiveness in systems

Negative feedback control loops

the transfer function terms, it becomes possible to analytically define system

Combined, multiloop systems

hypothetical situations introduced above. Almost inevitably, some form of

configured using a stock variable representing service level performance

operation (or equilibrium). Expenditure is seen to increase initially, leading to a

Applicability of systems concepts in public sector organisation

The education service

further drop in income. Additionally, the method for determination of a rating

Thus, despite some developments in internal control systems, which could

The health service

conjunction with a ``purchasing efficiency index'' to aid the contracting

. a question over the efficacy and validity of statistical information.

However, he also notes that the allocation of resources is linked to costing

measurement cycle, and the outcomes achieved, in terms of the organisation

into a system (either deliberately or unintentionally) has been particularly

modelling of financial and control systems or to consider the ``subversive

Management 18:6, 498-513. [Abstract] [Full Text] [PDF]

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