Coping with organizational control in the Italian Public Universities: the role of Performance Management Systems
Abstract - The article investigates the relationship between Performance Management Systems (PMSs) and organizational control in Italian Public Universities, starting from the gap that exists between what is declared in University policy statements - ostensibly oriented towards empowerment - and what is actually implemented and enacted by public managers. We are particularly interested in the interactive communicative use of PMS. In our empirical analysis we observed that while the consequences of the adoption of an interactive way of control do not affect delegation and empowerment, they do support processes of centralization.
Key Words: Performance Management Systems, Organizational Control, Public Universities, Centralization
1. Introduction
Public universities are under constant pressure to increase their effectiveness and quality with fewer resources, while simultaneously being expected to show greater accountability and transparency in their processes (Borgonovi, 2009; Riege and Lindsay, 2006). An academic department is among the institutions facing rapid change as a result of a need for more efficient utilisation of human resources due to cut-backs in basic funding, as well as the introduction of new accountability measures by government (Minelli et al., 2012; Hellstrom and Husted, 2004).
New Public Management (Hood, 1991; Vienažindiene and Ciarniene, 2007) proposes that public organizations should introduce managerial processes from the private sector, following the success of such practices. In particular, this approach emphasizes operational efficiency driven through the rationality of managerial systems, showing how the concept and the practice stemming from the private companies can be used in the public sector.
This study focuses on Performance Management Systems (PMSs), a managerial tool recently adopted by many Italian public universities and here interpreted in terms of power of control. We investigate the relationship between PMS and organizational control in public universities, starting from the gap that exists between what is declared in university policy statements (i.e. decentralization and empowerment) and what is actually implemented and enacted by public managers. More specifically we reflect on the impact of the PMS on the process of control and power centralization. We are particularly interested in the interactive communicative use of PMS (Simons, 1995). In fact the use of PMS for interactive communication encourages lower managers to be involved in decision making processes (Abernethy et al., 2010), facilitating debate among the levels of management.
This study utilizes the centralization/decentralization construct to represent organizational structure because it indicates the extent to which top management delegates decision-making power (Noorein Inamdar, 2012). The extent of centralization is an important construct in organizational theory, used in prior research to define structure (Chenhall, 2003). In fact we use the centralization–decentralization construct to explore the following two research questions: (1) How does the design and use of PMSs influence the organizational structure (centralized versus decentralized)?; (2) Is there a difference between what is formally declared in the design of Italian University PMSs, ostensibly oriented towards empowerment and accountability, and what is actually put into practice?
The empirical focus of the paper is the recent changes in PMS reflecting the “modernisation agenda” of the Italian public sector. In the first stage of our analysis we look at 15 case studies of PMS design in Italian public universities. Then we make an in-depth analysis of a specific case study (University of Sannio), showing the distance between the PMS design goals and the implementation results. The analysis is concentrated only on the performance of universities' managers, excluding other categories (i.e. academics).
The paper is set out as follows: in the following two paragraphs a literature review, concerning both the issues of PMS in public universities and the relationship between the PMSs - classified according to the Simons levers of control taxonomy - and the level of centralization/decentralization is presented. In paragraph 4 the research context and the methodology adopted for the empirical study are described. Lastly, the results of the empirical research will be discussed, summarising the conclusions and the main findings of the study.
2. The role of Performance Management Systems in Public Universities
PMSs are a complex tool, composed of different parts and with different goals, typically adopted by private and public organizations as a means for engaging in policy and management organizational change. They present an attractive proposition to politicians, citizens and public spending supporters, opening up the black box of public organizations and greatly enhancing their transparency and manageability (de Bruijn, 2002). So, over the past decade, public management scholars and practitioners have taken a growing interest in the use of performance management tools to increase government accountability and effectiveness.
Nonetheless, the literature typically suggests that public-sector applications of PMS are limited and have been implemented with only limited success, primarily due to inadequate performance evaluation methods and underfunding of data management systems and rewards for performance (Rainey, 2006). Prior researches on public sector performance management (Heinrich, 1999; Radin, 2000) typically describe shortcomings in both the design and the results of these systems. Moynihan (2008, p.68), for example, states that, with the implementation of PMS, public managers have been more likely to realize the “symbolic benefits” of creating an impression that “government is being run in a rational, efficient and results-oriented manner”.
Recent public sector reforms (in Italy, for instance, the “Brunetta Reform”) have aimed at improving public organization performance: the achievement of program outcomes reflects the approach to measuring, evaluating and regulating performance (Heinrich and Marschke, 2010). As we said, under the umbrella of the new public management (Hood, 1991), public organizations have been engaged in a systematic attempt to control performance over the last few years. In the opinion of Cavalluzzo and Ittner (2004) the basic assumption of these initiatives is that the strategic performance indicators can improve public efficiency and effectiveness by increasing the accountability and improving the decision-making of public administrators.
According to Broadbent and Laughlin (2009), the University system is a specific area of the public services where this approach is needed and where there is a growing interest in performance measurement. Recently Corcoles et al. (2011) conducted a study on the stakeholders’ need for information in higher education organizations in Spain. The need for universities to have a greater involvement with their wider community and to ensure information transparency makes it advisable to present information on performance in their current accounting system. The academic departments competing for teachers, researchers, students and funds are getting used to managerial practices and producing reports which allow internal and external bodies to evaluate their performance (Paloma Sánchez et al., 2009). Minelli et al. (2008) understand and compare the structure and impact of control systems implemented in Italian public universities, showing that they have given rise to effective results particularly in the area of organisational learning: thus the evaluation experience has brought an increase in transparency and control. Finally, according to Secundo et al. (2010), the increasing cooperation between universities and firms has resulted in the demand for similar processes of evaluation for both players.
In order to explore the concept of control and monitoring in public universities, a preliminary aspect is related to the conceptualisation of PMS. A PMS is “the set of metrics used to quantify both the efficiency and effectiveness of actions” (Neely et al., 1995, p. 81). As stated by Otley (1999), PMSs provide the information that should be useful to managers “in performing their jobs and to assist organizations in developing and maintaining viable patterns of behaviour” (p. 364). Gruman and Saks (2011) suggest that although performance evaluation is at the heart of PMS (Cardy, 2004), the full process extends to all organizational policies, practices, and design features that interact to produce employee performance. Aguinis (2009) has proposed a broader understanding of performance management that includes organizational planning, performance assessment and behavioral review. Consistently with the approach of Broadbent and Laughlin (2009) and Fitzgerald and Moon (1996), we interpret Performance Management as a system concerned with defining, controlling and managing both the achievement of outcomes or ends and the means used to achieve these results at organizational level.
Following a previous enquiry by Otley (1999), Ferreira and Otley (2009) have compared the concepts of PMS and management control systems, building an empirical conceptual model by drawing on an analysis of control systems in a range of organizations. According to these scholars, management control system has become “a more restrictive term than was the original intention and we prefer to use the more general descriptor of PMS to capture an holistic approach to the management and control of organizational performance. We see this term as including all aspects of organizational control, including those included under the heading of management control systems” (Ferreira and Otley 2009, p. 264). As Otley (1999) argues, PMS provides an integrating framework, both academically and practically, that goes beyond the traditional boundaries of accounting coming under the traditional banner of management control system. In other words, PMS is a new label for an old concept: it represents a way to describe a new theoretical framework, whose aim is the design and implementation of the “package of controls”.
In this view, it could be interpreted as an integrated technical system to gather and provide information to help managers in their work and decision-making activities, in order to efficiently and effectively achieve the desired organizational goals, acting on both the employees’ motivation and performance assessment (Canonico and Söderlund, 2010).
2. Performance Management Systems, levers of control taxonomy and centralization/decentralization
We propose a theoretical model for investigating one empirical dimension related to the application of PMS in the Italian University system, examining the influence of PMS - classified according to the Simons levers of control taxonomy - on levels of centralization.
Viewing PMS as a framework to explore management control system allows us to use this influential taxonomy to interpret the different parts and goals of PMS. As is well known, Simons (1995) proposed the levers of control frame as a tool for the implementation and control of business strategies. In other words, using a broad interpretation of the concept of PMS (Broadbenta and Laughlinb, 2009), we try to verify in which sense they are systems made up of different parts. So we are interested in:
§ Belief systems, defined as formal systems used by top managers to define, communicate, and reinforce the basic values, purpose, and direction for the organization. In Simons' words, belief systems “are created and communicated through formal documents such as credos, mission statements, and statements of purpose" (Simons, 1994, p. 170). Marginson (2002) suggests that the beliefs system opens the doors for new ideas, actions, and initiatives.
§ Boundary systems, as “formal systems used by top managers to establish explicit limits and rules which must be respected” (Simons, 1994, p. 170). According to Canonico and Söderlund (2010), they are meant to contain cost escalations and their existence allows top management to regulate decision-making. The organization’s boundary system motivates a search for new ideas within the prescribed acceptable domain.
§ Diagnostic systems, as the “formal feedback systems used to monitor organizational outcomes and correct deviations from preset standards of performance” (Simons, 1994, p.170). The diagnostic use of PMS represents the traditional feedback role as these tools are employed on an exception basis to monitor and reward the achievement of pre-established goals, by focusing on and correcting deviations from preset standards of performance (Henri, 2006). So, the purpose of diagnostic control systems is to ensure the implementation of existing or intended strategies (Simons, 1995). These are typical formal systems, where control relies heavily on specialists in preparing and interpreting information. Data are transmitted through formal reporting procedures and operating managers are involved infrequently and on an exception basis.
§ Interactive systems, as “formal systems used by top managers to regularly and personally involve themselves in the decision activities of subordinates” (Simons, 1994, p.171). Those systems are forward-looking and characterized by active and frequent dialogue among top managers and among managers and employees (Widener, 2007). This category represents a sort of meta-mechanism, due to the fact that the previous typologies could be handled in an interactive way. As stated by Simons (1990: 136): “Management controls become interactive when business managers use planning and control procedures to actively monitor and intervene in ongoing decision activities of subordinates”.
According to Simons (1994) any control system can be used in an interactive way, following some guidelines. This implies that a certain degree of interaction could be used in the three different categories, influencing the role and adoption of the control system inside the organization. In particular a control system may become interactive when managers participate in face-to-face meetings and discuss and challenge data, assumptions and action plans. In this sense the interactive category is a sort of macro category that could be encompassed in the three previous ones.
In line with this perspective PMSs could be interpreted as an opportunity to nurture “the continual exchange between top management and lower levels of management, as well as interactions within various levels of management but across functions” (Abernethy and Brownell, 1999, p. 191). As stated by Tuomela (2005, p. 298), “The distinguishing advantage of interactive control is its support for double-loop learning. In other words, interactively used strategic PMSs can assist in identifying emerging strategies and they can lead to the reformation of the existing modes of control”.
As a conclusion of their study Abernethy et al. (2010) find a significant and positive relation between delegation and the interactive use of PMSs. It is possible that the potential moral hazard problem created through delegation of decision rights is partly overcome by increasing the dialogue between superiors and subordinates in the planning and control process. They argue that PMSs can be used effectively to fill an ‘information gap’ when decision rights are delegated. In other words, the PMSs are used as a support rather than delegation choice. If the authority for decision making resides with the top management, it will be more efficient for top management to use hierarchical systems to direct behavior of subordinates. It is expected that a more formal or diagnostic use of the PMS will occur when few decision rights are delegated. Abernethy et al. (2010) find a clear connection between the diagnostic or interactive use of PMS and decision making structures, whether decision making has been delegated or not.