School of Business and Social Sciences

Research Papers from the School of Business

and Social Sciences

Roehampton University Year

Performance Management Systems: A

Conceptual Model and and Analysis of

the Development and Intensification of

New Public Management in the UK

Jane Broadbent∗ Richard Laughlin†

∗jane.broadbent@roehampton.ac.uk†Kings College London, University of London,

This paper is posted at Roehampton Research Papers.

http://rrp.roehampton.ac.uk/bsspapers/2

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PERFORMANCE MANAGEMENT SYSTEMS: A CONCEPTUALMODEL AND AN ANALYSIS OF THE DEVELOPMENT AND

INTENSIFICATION OF ‘NEW PUBLIC MANAGEMENT’ IN THEUK

Jane BroadbentVice Chancellor’s OfficeRoehampton University,Roehampton Lane,London SW15 5PH

jane.broadbent@roehampton.ac.uk

and

Richard LaughlinDepartment of ManagementKing’s College, London,University of LondonLondon SE1 9NN

richard.laughlin@kcl.ac.uk

November 2006

The authors would like to acknowledge, with thanks, the support of the ESRCPublic Services Programme

Draft only, please do not quote from the contents without prior permission from the

authors.

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PERFORMANCE MANAGEMENT SYSTEMS: A CONCEPTUALMODEL AND AN ANALYSIS OF THE DEVELOPMENT AND

INTENSIFICATION OF ‘NEW PUBLIC MANAGEMENT’ IN THEUK

Abstract

This paper, builds on the view that too much attention in the management,management control and management accounting literatures has been given to ex postperformance measurement as distinct from ex ante performance management. Thepaper builds on the conceptual models of Performance Management Systems (PMS)developed by Otley (1999) and Ferreira and Otley (2005). Three key developmentsare developed in this conceptualisation in relation to focus, context and cultureleading to a ‘middle range’ (Laughlin, 1995, 2004; Broadbent and Laughlin, 1997)conceptual model of alternative PMS lying on a continuum from ‘transactional’ at oneend to ‘relational’ at the other built on respectively instrumental and communicativerationalities. The conceptual model is then used to provide new insights into thedevelopment of the new public management (NPM) in the UK. This analysisdemonstrates how the move in 1982 with the Financial Management Initiative, to the1988 Next Steps and the recent developments through the Public Service Agreementsand targets from 1997 are a progressive move from relational PMS to be increasingand progressive more transactional in form intensifying the nature, significance andpower of NPM to control public services.

Key Words: performance management systems, communicative and instrumentalrationality, UK public services, new public management, public service agreements,targets.

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Performance Management Systems: A Conceptual Model and an Analysis of theDevelopment and Intensification of ‘New Public Management’ in the UK

Introduction

The analysis of performance measurement systems is considerably more extensive

than the analysis of performance management systems (PMS) (cf. Fitzgerald et al,

1991; Otley, 1999, Brignall and Modell, 2000; Kloot and Martin, 2000). In fact, as

Kloot and Martin (2000:233) highlight, PMS ‘…often… refer to individual

performance management or appraisal schemes’. Despite the work of these authors to

open up this understanding of PMS the wider conceptual debate has, in some cases,

been closed down again by a concentration on how to measure this wider emphasis -

for instance through the ‘balanced scorecard’ (cf. Kaplan and Norton, 1992, 1996).

This paper distances itself from such a narrowing of understanding of what constitutes

PMS and builds on the work of Fitzgerald et al. (1991), Fitzgerald and Moon (1996),

Otley (1999) and Ferreira and Otley (2005) that PMS are concerned with the

management of ‘results’ (outcomes or ends to achieve) and the nature and functioning

of the ‘determinants’ of these results (the means used to achieve these results) at a

more organisational, rather than individual, level.

Otley (1999) and Ferreira and Otley (2005) argue that there needs to be greater

conceptual understanding of PMS before detailed measurement is considered. This

paper builds on their work to develop such a model. It also shows the power of this

modelling in terms of providing a rather different analysis of the current approaches

to new public management (NPM) (Hood, 1991, 1995) and its extensions into the

‘target regime’ (Public Administration Select Committee, 2003) of the current Labour

Government.

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Otley (1987, 1999) and Ferreira and Otley (2005) have done more than most to take

forward the conceptual understanding of PMS and it is their model which forms the

starting point for the conceptualisation in this paper. Otley (1999) and Ferreira and

Otley (2005) build their conceptual model of PMS empirically by drawing from an

analysis of management control systems in a range of organisations. Otley (1999)

poses his conclusions from this analysis in terms of five ‘issues’ or ‘questions’ that

need to answered by any organisation in relation to the design and nature of its PMS.

This is extended in Ferreira and Otley (2005) to 12 questions – 8 of which relate to

PMS design and the other 4 to issues and questions related to what they refer to as the

underlying ‘culture and context’ which are seen to influence the nature of the PMS in

any organisation.

This paper builds on this framework but extends it in three major ways. First, by

making rather clearer that the focus of any PMS is related to financial flows between

a transferor and transferee. Second, by extending understanding of context and its

relationship to PMS design. This is undertaken by clarifying the organisational focus

of any PMS and by introducing a network understanding of interlinked PMS designs

within organisations. Third, by extending the cultural understanding of PMS design

and linking this to alternative guiding ‘models of rationality’. The concern with

rationality and rationalisation will be a key theme of the paper. The logic for this is

because the very process of linking action to results and the determinants of these

results and making transparent this thinking to explain action – which are the key

elements of any PMS - involves, as Townley, Cooper, and Oakes (2003: 1045)

indicate, the ‘…pursuit of reason in human affairs’, which can be directly related to

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the ‘discourse of rationalisation’. This rationalisation assumption, of course, assumes

that actions have an intentionality rather than being completely random events. They

are, in this sense, ‘goal-oriented’ (Hoogenboom and Ossewaarde, 2005: 602) using

‘goals’ in a broad sense related to the action having underlying intentions. A key

conceptual question for this paper will relate to the form of ‘rationality’ that guides

PMS design conceptually and empirically.

The building of this conceptual model and its relationship to particular empirical

situations is based on ‘middle range thinking’ (cf. Laughlin, 1995, 2004; Broadbent

and Laughlin, 1997). The paper will develop a conceptual model of PMS, which will

be used as a framework providing a language for analysing applications in actual

empirical situations. This conceptual ‘skeleton’ is not predictive and it is not possible

to use it to build hypotheses that can be tested empirically but rather it presents, in a

‘skeletal’ sense, a set of possible conceptual alternatives that are likely to be present

in any empirical situation and a language by which to discuss them. The empirical

detail does not test these models – it provides the ‘flesh’ which makes the ‘skeleton’

meaningful as well as providing a source to reshape the conceptual framework should

it fail to adequately express, in a ‘skeletal’ sense, the empirical situation.

The empirical focus of this paper is the recent PMS changes that have been occurring

in the continuing ‘modernisation’ agenda of the UK’s public services (cf. Cabinet

Office, 1999; Broadbent and Laughlin, 2005). It starts by analysing the evolving

nature of NPM (Hood, 1991, 1995) or, more specifically, the ‘new public financial

management’ (cf. Olsen, Guthrie and Humphrey, 1998:7) demonstrating an

intensification of a particular PMS conceptual emphasis. This has culminated

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specifically on the UK’s Labour Government’s introduction of Public Service

Agreements (PSAs) and more generally on an emphasis on output and outcome

controls. PSAs specify explicit objectives and performance indicators to achieve and

are aligned with the financial allocations coming from the Comprehensive Spending

Review (CSR) and Spending Reviews (SRs)1. PSAs were introduced as part of the

CSR and SR development and feature at the pinnacle of different public service

‘delivery chains’2 (HM Treasury/Cabinet Office, 2004, paragraph 2.27). We will

argue that the introduction of PSAs takes NPM in new directions with a new

emphasis.

The paper is divided into three further sections followed by a reflective conclusion.

The following (second) section explores the nature of PMS, with a concentration on a

critical analysis of the conceptual model of Ferreira and Otley (2005). The third

section extends and refines the conceptual model of Ferreira and Otley (2005) to

provide a richer ‘middle range’ theoretical understanding of PMS. The fourth section

uses this developed conceptual model to analyse the evolving nature of NPM in the

UK. Finally, the reflective conclusion will draw the analysis together, providing an

initial analysis of the intensification of NPM in the UK’s public sector, as well as

developing a future research agenda for analysing PMS across a wide range of public

and private sector organisations.

1 CSR and SR are three year rolling financial plans and allocations for the entire public sector. The firstCSR was undertaken in 1998 – a year after the Labour Government was elected. Apart from the CSR in1998 there have been three subsequent SR - the last of which was published in July 2004 covering theyears 2005 to 2008. The next CSR is planned for 2007.2 They form a foundation element in the design of the PMS for all the different functional publicservices. However, this premier position can be reshaped on moving down the ‘delivery chain’ wherethe PSA can be redefined and/or amplified. This paper is part of a wider ESRC funded project thatexplores the nature of the PMS along the ‘delivery chain’ of higher education.

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Current Views on Performance Management Systems

The term, performance management, is widely used and yet when probed provides

substantial differences of meaning. For example, it is often used to refer to human

resource management systems (HRM) – an area where PMS are linked to controlling

individual (employee) behaviour:

‘……performance management includes:• planning work and setting expectations,• continually monitoring performace,• developing the capacity to perform,• periodically rating performance in a summary fashion, and• rewarding good performance

(United States Office of Personnel Management,http://www.opm.gov/perform/overview.asp )

We are concerned with another sphere; the management, management control and

accounting literature where there is less consensus in terms of understanding. Otley

(1999: 364) links PMS to ‘overall control systems’ which he reminds his readers goes

‘…beyond the measurement of performance to the management of performance’

(Otley, 1999:364 (emphasis in the original)). A reminder for the management and

accounting community is required because of the focus on measurement in these

disciplines – reprised in the HRM approach to PMS illustrated above - and the

judgement that this has had a limiting effect on conceptualising PMS.

A number of authors, Fitzgerald et al (1991) and Fitzgerald and Moon (1996), Otley

(1999), build and develop the initial work of Otley (1987), seeking to provide a

development of this broader conceptualisation. As indicated in the introduction

Fitzgerald et al (1991) make clear that PMS involves the management of results

(ends) and the determinants of these results (means) without specifying exactly what

these involve conceptually or empirically. Otley (1999: 365) reshapes this

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understanding to develop ‘….five main issues that need to be addressed in developing

a framework for managing organizational performance’. They are posed as questions

on the grounds that empirical answers to these questions would, according to Otley,

supply insights into the design of particular PMS. These five questions/issues are as

follows:

1. ‘What are the key objectives that are central to the organization’s success, andhow does it go about evaluating its achievement for each of these objectives?

2. What strategies and plans has the organization adopted and what are theprocesses and activities that it has decided will be required for it tosuccessfully implement these? How does it assess and measure theperformance of these activities?

3. What level of performance does the organization need to achieve in each ofthe areas defined in the above two questions, and how does it go about settingappropriate performance targets for them?

4. What rewards will managers (and other employees) gain by achieving theseperformance targets (or, conversely, what penalties will they suffer by failingto achieve them)?

5. What are the information flows (feedback and feed-forward loops) that arenecessary to enable the organization to learn from its experience, and to adaptits current behaviour in the light of that experience?’ (Otley, 1999: 366)

As Otley (1999:366) makes plain ‘….these questions relate very closely to some of

the central issues of modern management and management accounting practice’. They

also give more conceptual definition to the management of results (ends) (issues 1 and

3) and the management of the determinants of these results (means) (issues 2, 4 and

5). It is also apparent that the HRM understanding of PMS is also swept into Otley’s

framework in issue 4 but with an acknowledgement that ‘rewards’ needs to be

‘…understood in the widest possible sense, and not restricted to just short term

financial rewards’ (Otley, 1999: 366 (footnote 6)).

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Ferreira and Otley (2005) develop Otley’s (1999) framework in a number of ways.

First, they rename PMS, Performance Management and Control Framework (PMC).

Whilst PMS gives a more thorough description of the systems concerned the two are

identical, so to avoid any further confusion PMS will be retained in this paper.

Second, they add another dimension to the understanding of PMS by drawing from

Simons’ (1995) concept of ‘levers of control’. Third, they draw from a further set of

case studies data that can be used to help reform the insights of Otley (1999) and

Simons (1995) into a more developed conceptual model (framework) of PMS. Fourth,

they expand the five issues (questions) to twelve – eight of which relate to more

functional concerns about PMS design and four to more ‘contextual and cultural’

factors which underpin and to an extent guide the more functional concerns (the other

8 issues/questions).

The eight more functional issues/questions specify in more depth and detail issues

related to the management of results to achieve and the management of the

determinants of these results. The eight issues/questions are as follows:

1. What is the vision and mission of the organization and how is this brought tothe attention of managers and employees?

2. What are the key factors that are believed to be central to the organization’soverall future success?

3. What strategies and plans has the organization adopted and what are theprocesses and activities that it has decided will be required for it to ensure itssuccess?

4. What is the organization structure and what impact does it have on the designand use of the performance management and control system? How does itinfluence and is influenced by the process of strategy implementation?

5. What are the organization’s key performance measures deriving from its keyobjectives, key success factors, and strategies and plans? How does theorganization go about assessing and measuring its success in achieving them?

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6. What level of performance does the organization need to achieve in each ofthe areas defined in the above questions, and how does it go about settingappropriate performance targets for them?

7. What processes does the organization use for evaluating individual, group, andorganizational performance? How important is formal and informalinformation on these processes? What are the consequences of theperformance evaluation processes used?

8. What rewards (both financial and non-financial) will managers and otheremployees gain by achieving performance targets (or, conversely, whatpenalties will they suffer by failing to achieve them)? (Ferreira and Otley,2005: 43)

Questions 1, 2 (in part), 5 and 6 are concerned with the results (or ends), the means to

achieve them can be seen in Questions 2 (in part), 3, 4, 7 and 8. It is also possible to

see that the HRM emphasis is expanded in this framework relative to Otley (1999)

with Questions 7 and 8 being aligned to these HR concerns.

Ferreira and Otley (2005: 41) position these issues/questions in what they refer to as

an underlying ‘culture’ and ‘context’ since these ‘…permeate the whole of the

performance management and control (PMC) system’ but ‘…are not addressed by the

above questions’. Drawing from a range of literature from Perrow (1967) to Chow,

Harrison, McKinnon and Wu (1999), Ferreira and Otley (1999: 41) point out that it

has been ‘…shown that variables relating to external environment, strategy, culture

organisational structure, size technology and ownership structure have an impact on

the control system’. They then go on to point out that strategy and organisational

structure are ‘…already explicitly built into the framework’ (Ferreira and Otley,

1999:41) leaving the other elements as ‘context’ variables apart from ‘culture’ which

they separate out as ‘…a notable contextual variable’ that ‘…pervades the entire

control system influencing choices and behaviours of individuals’ (Ferreira and Otley,

1999:41).

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Their understanding of context and culture is expressed in terms of a further four

questions/issues that need to be considered to help understand the design of any PMS

in any organisational context. These four questions/issues are as follows:

9. What specific feedback and feed-forward information flows has theorganization devised for itself? What sort of information flows have beencreated for monitoring current performance and bringing about adaptation ofcurrent behaviour? What types of feedforward information flows (if any) havebeen formulated to enable the organization to learn from its experience, togenerate new ideas and to recreate strategies and plans?

10. What type of use is given to feedback and feedforward information flowsand to the various control mechanisms in place? Is use predominantlydiagnostic, interactive, or a combination of both?

11. How has the performance management and control system changed in thelight of the change dynamics of the organization and of its environment? Whatchanges have occurred at the level of those systems in anticipation or responseto such stimuli?

12. How strong and coherent are the links between the components of theperformance management and control system (as denoted by the above 11questions)? (Ferreira and Otley, 2005: 43)

The twelve questions/issues around which Ferreira and Otley’s (2005: 41) PMS

framework is built provide ‘….an heuristic tool to facilitate the rapid description of

significant aspects of control systems design and operation’. Figure 1 illustrates these

elements.

[FIGURE 1 ABOUT HERE]

This figure illustrates that the actual PMS is at the core of any organisation with the

design guided by the eight functional questions which are closest to this centre point.

These questions, in turn, are moulded by four further questions related to culture and

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context – mapped in the outer rim of the figure, being somewhat distant from the

actual PMS design but moulding its nature.

Developing a Conceptual Framework for PMS

Unquestionably the framework of Ferreira and Otley (2005) has made considerable

progress in defining the generic, conceptual nature of any PMS. This following,

however, develops three areas in a more detailed fashion. First, we wish to be clearer

about the focus of any PMS. The second and third areas of development relate to

Ferreira and Otley’s (2005:41 et seq) elements of ‘context’ and ‘culture’ which, whilst

rightly recognised in their framework as being significant, needs further explication.

We address the three areas to provide a developed PMS conceptual model. This

model is summarised in Figure 2 and is reproduced here to provide an overview of

where the argument is proceeding but will be explained in more depth at the end of

this section.

[FIGURE 2 ABOUT HERE]

(i) Clarifying the Focus of any PMS

Whilst the focus of any PMS is, as the title implies, the ‘performance’ of any unit that

the PMS is trying to control it is not clear how the former leads to the latter. As

Figure 2 indicates, the argument of this paper is that the financial transfers (explicit

and implicit) and allied accountability requirements in a relationship between a

transferor of funds and a transferee collectively form the key intervening variable

between the aspirations in a PMS and actual performance. Thus, PMS has a focus

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upon and uses the unique role of money to ensure that the desired ends are achieved

through the chosen means of action.

This typecasting implies three things. First, that a PMS is primarily a vehicle for

clarifying the ends an organisation or individual wishes to achieve and the means by

which to achieve them. Second that to achieve these goals needs the involvement of

other organisations and/or individuals. Third, that implicit or explicit financial

transfers, controlled through the design of the PMS, are key in ensuring that

aspirations become reality. Thus, the PMS designer is described as the ‘transferor’ in

Figure 2 and the other organisations and individuals the ‘transferee’.

Money is what Habermas calls a ‘steering media’ (Habermas, 1987: 165 et seq) which

‘mediate’ (Power and Laughlin, 1996:444) between values to achieve (Habermas’

‘lifeworld’) and the action elements which achieve these values (Habermas’

‘systems’). Whilst Broadbent, Laughlin and Read (1991: 3 et seq) make clear that

lifeworlds, systems and steering media can be given meaning as tangible societal

underlying values, institutions and organisations it is also possible to understand these

distinctions ‘….heuristically or methodologically as a basis for organising empirically

enquiry’ (Power and Laughlin, 1996:444). In that sense there is a case for steering

media to be seen to ‘…mediate system and lifeworld and which allow the normative

priorities of the latter to flow into the former’ (Power and Laughlin, 1996:444).

Heuristically, in the context of this paper, it is possible to typecast PMS as the

‘lifeworld’ values of the controller of the system. The ways in which these values are

achieved is through ‘systems’ which require ‘steering media’ to ensure the latter

adequately achieves the former.

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In Habermas’ earlier work money and power are key steering media. In his later work

he focussed more on law (Habermas, 1996) somewhat eclipsing the relevance of the

former two elements. Money to Habermas (1987: 264) ‘…has the properties of a code

by means of which information can be transmitted from a sender to a receiver’

making ‘…it possible to produce and transmit messages with a built-in preference

structure’. Habermas saw money’s power to be all encompassing; having the ability to

decouple itself from lifeworld direction and control. Because of this danger,

Habermas shifted his emphasis to administrative power and then to law which he saw

as possibly less powerful ways to steer systems but which have less chance of

decoupling from lifeworld concerns. Yet to Dodd (1994: 74 et seq) and Power and

Laughlin (1996: 458 et seq) this fear is fundamentally misplaced and reduces the role

and importance of money. Put simply Habermas’ ‘….characterization of the

relationship between money and lifeworld is ultimately shallow’ (Power and

Laughlin, 1996: 459). Money is, as Habermas makes clear, a powerful ‘…code by

means of which information can be transmitted from a sender to a receiver’

(Habermas, 1987: 264) but needs the imprint of the lifeworld (the PMS in the context

of this paper) to provide the details of this information coding. More generally there is

no more powerful steering media than money to ensure that the PMS (lifeworld)

demands are met by those given the task to achieve these requirements (systems). It is

for this reason that a PMS, to achieve the performance it desires, needs to be

expressed in and through the transfers of money from a transferor to a transferee.

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(ii) Clarifying Context

Ferreira and Otley’s (2005: 41) last four questions/issues relate to context and culture.

Thus, they ask about information implications within the make-up of any PMS;

coherence of the entire PMS; and its adaptation to the changes within the wider

organisations in which they are located. These concerns are unquestionably important

making any PMS workable in the widest sense both currently as well as in the future,

yet they are only a partial depiction of the contextual and cultural aspects of PMS.

Context in broad terms refers to the location and nature if the entity to which the PMS

relates. This can be explored at a variety of different levels. Some hints on this are

apparent in Ferreira and Otley (2005) with the recognition that their model is actually

applicable to an organisation as a whole. We wish to emphasise that there are

different levels within any system and that there are interdependencies between them

which need to be explored. Ferreira and Otley (2005:44) implicitly recognise this in

terms of the need to confirm the relevance of their questions/issues by ‘use’ but that

‘…use requires the questions to be asked at several hierarchical levels right down to

first level management, and evidence gathering about patterns of usage and behaviour

at each level’. Our view is this needs to be more explicitly highlighted and that the

interconnectedness of organisations and individuals and how this affects PMS design

is crucial. In this respect we would also wish to emphasise that context is not only

about how the PMS reacts to organisational change but the context itself moulds both

the PMS design and the financial transfer as Figure 2 indicates.

(iii) Clarifying Culture

As indicated above, whilst Ferreira and Otley (2005) recognise context and culture

they only touch on some of the important aspects of both. We also wish to extend the

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analysis of culture, which as highlighted in the introduction and represented

diagrammatically in Figure 2, is related to two fundamentally different forms of

‘rationality’: instrumental and communicative.

This link to rationality is pertinent because the elements that make up any PMS are

‘…the social and cultural processes that make up the project of rationalization’ due to

their power to ‘…..shape the structure and functioning of work organizations’

(Hasselbladh and Kallinikos, 2000: 697). These associations with the ‘project of

rationalization’ are closely linked with ideas and thinking of particularly Max Weber

and his critics, notably Jurgen Habermas.

Allen (2004: 134/135), drawing heavily from Collins (1986), notes there are at least

three different rationalisation processes in Weber’s work but, for the purposes of this

paper, it is possible to concentrate on only one of these - the rationalisation processes

in his theory of social action. Townley, Cooper and Oakes (2003:1045) refer

generically to rationalisation as the ‘pursuit of reason in human affairs’ which, to

Weber, in the context of social action, assumes a concern to structure and make

transparent intended ends and means to achieve such ends. It is for this reason that

Weber saw rational social action as inevitably ‘instrumental’ in the broad sense of

defining social action in an intentional sense of trying to achieve some defined end

state and thinking ‘rationally’ about the means to achieve these ends, making

transparent any indirect repercussions. It involves, as Weber (1978: 26) himself

makes plain:

‘…..the rational consideration of alternative means to the end, of the relations ofthe end to secondary consequences and finally of the relative importance ofdifferent possible end states.’

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This move to what Hoogenboom and Ossewaarde (2005: 603) refer to as ‘goal-

oriented rationality’ is, to Weber, inescapably linked with the development from pre-

modern to modern society:

‘Weber claims that the transition from pre-modern to modern society wasaccompanied by a transition from (mainly) a traditional form of social action,which was based on ‘ingrained habituation’, to a goal-oriented rational form ofsocial action, that is, action in which the means to attain a particular goal arerationally chosen.’ (Hoogenboom and Ossewaarde, 2005: 608)

Wallace (1994) makes plain that this recognition does not define the actual ends to be

pursued or the means that should be adopted to achieve these ends. Neither does it

indicate what secondary consequences might arise. The PMS directing social action

and the underlying rationalities at work are always contextually defined even though

it is possible to provide some ‘skeletal’ ‘middle range’ ‘ideal types’ of models of

rationalities that might be present. Working under one or other of these ideal types

will, like the contextual factors, directly affect the way the 8 questions of Ferreira and

Otley (2005) are both asked or not asked and what would be a coherent set of answers

even if they were asked. Such is the power of models of alternative cultural

rationalities.

Weber’s understanding of possible conceptual end states, which he saw as the

dominant area of concern, was encapsulated primarily in two key alternative forms of

rationality (which Weber described as Zweckrationalitat and Wertrationalitat) but

these were moulded and, in many respects, given meaning by other competing

rationalities (substantive versus formal rationality and practical versus theoretical

rationality) that defined primarily how the ends could be evaluated but also relate to

the choice of appropriate means. These more secondary rationalities link directly with

the dominant forms of rationality to provide two ideal types Zweckrationalitat (with

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substantive and practical rationalities) and Wertrationalitat (with formal and

theoretical rationalities).

Zweckrationalitat, or instrumental rationality, as it has come to be known, was

originally conceived in relation to individual values and particular ‘self interest’ or

even ‘personal aggrandizement’ (Wallace, 1994: 23). As Weber (1978: 28) made

clear:

‘….a uniformity of orientation may be said to be ‘determined by self-interest’ ifand insofar as the actors’ conduct is instrumentally (zweckrational) orientedtowards identical expectations’

Whilst Weber’s analysis is very individual focussed, the essence is, as Wallace (1994:

25) indicates, described as ‘innate self-interest rationality’ which gives the impression

of a very clear and unambiguous end state driven through by an individual who has a

single minded purpose. It is probably for this reason that the more ‘orthodox

translation’ (Wallace, 1994: 25) of Zweckrationalitat is ‘instrumental rationality’.

Wallace (1994: 25) is uncomfortable with this latter descriptor since his view is that

all forms of rationality are ‘instrumental’ and it is not just Zweckrationalitat that

should be described in this way. Despite this argument, ‘instrumental rationality’, as a

descriptor, predominates (cf. Townley, 2002; Townley, Cooper and Oates, 2003;

Allen, 2004) such that ‘instrumental rational action’ is taken to be:

‘…based on rational calculation about the specific means of achieving definiteends – you do something because it is the effective means of achieving aspecific goal.’ (Allen, 2004: 78)

Whilst Weber is of the view that ‘instrumental rationality’ will, in the end, develop

into the ‘iron cage’, where even individual self-interest will give way to a more

abstract set of bureaucratic goals, he does pose an alternative, idealistic, end state.

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This he describes as Wertrationalitat, or as Wallace (1994: 25) describes it, as

‘learned non-self-interest rationality’. The reason for this altruistic descriptor is

because of the examples Weber gives for this form of rationality, which would

include:

‘….actions of persons who, regardless of possible cost to themselves, act to putinto practice their convictions of what seems to them to be required by duty,honor, the pursuit of beauty, a religious call, ‘personal loyalty’, or theimportance of some ‘cause’ no matter in what it consists.’ (Weber, 1978: 25)

As Wallace (1994: 25) makes plain ‘….this type of rational orientation is not

instinctual, not universal, and not fixed – but learned, variable and changeable’.

Whilst there is less systematisation and greater variability in this end state, relative to

instrumental rationality, its lack of instinctiveness and connectedness to innate beliefs

– other than those that are learned – makes it somewhat idealistic and lacking in wide-

scale application. It was probably for this reason that the hope of moving to this form

of rationality, as distinct from the inevitable march towards the ‘iron cage of

bureaucracy’, was, for Weber, very unlikely if not impossible. Weber considered it

could only be achieved through the ‘…wills of charismatic leaders’ (Habermas, 1984:

352) who could free themselves from the ‘iron cage’ of bureaucracy.

This prescriptive alternative has been questioned on a number of fronts. For instance,

feminists, such as Bologh (1990) make a clear caricature of Weber’s prescription:

‘What is Weber’s solution to the problem of bureaucratic organization….? ForWeber, the solution came at the level of the individual who can negotiatebetween means and ends, between formal rationality and human values. Weberlooked to the heroic individual, a strong leader, who can take charge of the statebureaucracy and master it, subordinating bureaucratic rules and methods tosustantive, political ends….Only a political leader able to control thebureaucracy and act out of commitment to some substantive cause – such asimperial greatness – can rescue the nation from the ossification of bureaucraticrationalisation and bring dynamism to a society.’ (Bologh, 1990: 92/93)

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Bologh taunts Weber’s narrow mindedness with real but rejected alternatives:

‘Weber saw no modern choice other than capitalist bureacratization temperedby patriarchal leaders. This stand led him to reject socialism or anything like afeminist solution.’ (Bologh, 1990: 94)

Habermas (cf.1984 and 1987) has also reacted strongly to Weber’s pessimism and the

weakness of his prescriptive alternative. Habermas argues a case for a new theory of

‘communicative rationality’ and ‘communicative action’ to fill the void:

‘…that makes possible a mutual and constraint-free understanding amongindividuals in their dealings with one another….. This means, on the one hand,a change of paradigm within action theory: from goal-directed tocommunicative action, and, on the other hand, a change of strategy in an effortto reconstruct the modern concept of rationality that become possible with thedecentration of our understanding of the world.’ (Habermas, 1984: 391/392)

Central to this process of understanding is the design of systematic ‘discourses’

between individuals leading to a ‘consensus’ on action alternatives. Originally

Habermas referred to this as an ‘ideal speech situation’ although as Cooke (1997: 31)

indicated, Habermas, in his later years, was very uneasy about continuing to refer to

his understanding of ‘discourses’ in this way due to it being ‘too concretist and open

to misinterpretation’.

Key to Habermas’ model is a view that a definition of performance (encapsulated in

the equivalent of a PMS) should come out of discursive processes of defined groups

of participants/stakeholders. Put simply, ends, in whatever form, should not be

predefined either instrumentally or through abstract values or through any charismatic

leader but should find their definition, and legitimacy, through the discursive

processes and consensus agreement of the participants/stakeholders to any action

situation. Such processes assume defined rules of engagement (cf. Habermas, 1984;

Laughlin, 1987; Arrington and Puxty, 1991; Power and Laughlin, 1996; Cooke, 1997)

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(e.g. equal opportunity to offer speech acts and the only force allowed is the force of

the better argument) so that it is possible to judge whether the resulting consensus on

the nature of the PMS is ‘grounded and justified’.

These two forms of rationality (instrumental and communicative3) are extended and

given meaning by four other rationalities which give direction on the design of

performance indicators - but also the way means to achieve these end states are

designed. These rationalities are, as Wallace (1994) suggests, substantive versus

formal rationalities which link directly to different forms of performance indicators

and theoretical versus practical rationalities, which relate to the diverse PMS controls

over the means used to achieve the ends required. The following touches briefly on

the nature of these two pairings.

Substantive and formal rationalities need to be considered together since as Allen

(2004:138) indicates the former is less clear and appears to be defined in terms of

everything the latter is not. Formal rationality is defined ‘….according to the degree

in which the provision of needs, which is essential to every rational economy, is

capable of being expressed in numerical, calculable terms and is so expressed’

(Weber, 1978: 85). As Allen makes plain ‘….accounting and calculation are,

therefore, the defining terms of formal rationality’ (Allen, 2004: 138). Whereas

Weber’s definition of substantive rationality is ‘less clear-cut’ and ‘ a catch-all space

for anything that is not formally rational’ (Allen, 2004: 138). According to Weber

(1978: 85 (emphasis in the original)) substantive rationality applies to: ‘…..certain

criteria of ultimate ends, whether they be ethical, political, utilitarian, hedonistic,

3 Whilst the nature of Weber’s original alternative to instrumental rationality has changed in the abovediscussion this does not change the alignment of the four other forms of rationalities to these dominantrationalities.

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feudal, egalitarian or whatever, and measure the results of economic action….against

these scales of “value rationality” or “substantive goal rationality”.

This has tended to set any form of formal measurement, in which accounting is

clearly implicated, as something that has no place in substantive rationality, yet this is

too simplistic. Accounting and calculation can be part of substantive rationality as

long as they fairly reflect key values and concerns and are recognised as such by the

stakeholders to the PMS design and fall out of these debates and concerns. Formal

rationality, on the other hand, starts with the measures and derives and defines the

values from the numbers used.

Theoretical and practical rationalities relate more to the choice of means to achieve

the ends – objectives and performance indictors (whether of a qualitative or

quantitative nature) – desired. Wallace (1994: 34/35 (emphasis in the original))

contrasts these two forms of means-related rationalities in the following way:

‘In theoretical rationality, the means in question are mental “concepts” and theend is the “theoretical mastery”, or mental understanding of the world. Inpractical rationality, the means are both mental and physical (i.e. bothconceptual know-how and physical do-how, a combination that accounts forWeber’s calling them broadly “means”) and the end is the human physicalcontrol of the world. Weber proposes, then, one type of rationality directly (butof course not exclusively) serving the human ideal interest, and another servingthe human material interest.’

These different overall rationality clusters also have an implied authority structure

underlying them. Authority to Weber (1968 p.53) is ‘the probability that a command

with a specific content will be obeyed by a given group of persons’. To Weber there

are three types of authority structure, which he refers to as traditional, charismatic and

legal-rational. To Hoogenboom and Ossewaarde (2005) instrumental rationality (and

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formal and theoretical rationalities) is reliant on a legal- rational authority structure

which rests ‘….on a belief in the legality of enacted rules and the right of those

elevated to authority under such rules to issue commands’ (Weber, 1968: 215). Whilst

Weber’s pessimism maintained there was no escape from this – the iron cage was

inescapable – Hoogenboom and Ossewaarde (2005: 613), like Habermas, are more

optimistic:

‘As the iron cage of modernity opens up as a consequence of the process ofreflexivization, the ‘spell’ of legal-rationality authority is broken. Late modernactors no longer believe that rational rules of modern bureaucracies and thosewho are elevated to enact these rules to be legitimate.’

To Hoogenboom and Ossewaarde, there is a possibility that a new authority structure

can emerge in modern society which they refer to as reflexive authority:

‘…..which can be defined as the belief in the ability of institutions and actors tonegotiate , reconcile and represent arguments, interests, identities andabilities….Like legal-rational authority, reflexive authority is resting on thebelief in the legitimacy of rationality, but in the case of reflexive rationality thenature of the rationality is not fixed. In late modern society, authoritativedecision-making is guided by rules which are negotiated in the process itself byall the actors concerned.’ (Hoogenboom and Ossewaarde, 2005: 614 (Emphasisin the Original))

This is closely aligned and realised through communicative rationality (and

substantive and practical rationalities). However, Hoogenboom and Ossewaarde’s,

optimism, that there is an inevitable move to this idealistic state, is not borne out by

the evidence. It is a ‘counterfactual’ possibility and indeed the iron cage can be

broken through but it is not inevitable.

The two types of dominant rationalities, the four secondary rationalities and two

authority structures link together into ‘ideal types’ formed around two key clusters to

provide underlying cultural guides for PMS design. These clusters and their

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constituent elements are summarised in Table 1 and are named after the dominant

rationalities. The communicative rationality ideal type starts from ends being formed

by communicative rationality, performance indicators determined by substantive

rationality, where measures used are discursively agreed and are conducive with

desired, agreed ends, and the use of practical rationality related to the chosen means.

The resulting PMS are likely to be accepted and ‘owned’ by the

participants/stakeholders involved in any action-based organisation because they have

been actively involved in discursively agreeing their design and content. To pursue

these requires a deliberate acceptance that the legitimate authority structure is one

built on reflexivity. The alternative instrumental rationality ideal type, has ends

formed by instrumental rationality, performance indicators generated by formal

rationality, where measures come first and largely define the implied values

underlying these numbers, with the use of theoretical rationality leading the choice of

the preferred means for achieving these end. ‘Ownership’ of the PMS can be difficult

to achieve and can lead to displacement of established norms of behaviour, alienation

but also resistance. To operationalise such an imposition is reliant on legal-rational

authority.

[TABLE 1 ABOUT HERE]

In ending this sub-section it is worth noting that as Townley (2002a) makes clear, this

fundamental divide between instrumental and communicative rationality ideal types

mirrors a deep philosophical divide over many centuries dating back to the Greek

philosophers Aristotle and Plato. Relying heavily on Toulmin (1990) and Flyvbjerg

(2001) Townley makes plain:

25

‘These two traditions derive from different intellectual origins: the Platonic andthe Aristotelian (Flyvbjerg, 2001). From Aristotelian understanding thatdifferent kinds of argument, i.e. their degree of formality and certainty, wererelevant to different issues, dependent on their nature, i.e. ‘reasonable’ wascontext dependent; following Plato, the 17th century limited rationality totheoretical arguments. In so doing the language of reason was changed, and acalculative idea of rationality developed. ‘Calculation was enthroned as thedistinctive virtue of human reason’ (Toulmin, 1990: 134).’

So, these underlying cultures, link to and reflect quite fundamental disagreements in

knowledge formation which dates back to the beginnings of the modern world.

(iv) Concluding Thoughts on a PMS Conceptual Model

Figure 2, as indicated above, provides a diagrammatic presentation of the PMS

conceptual model that builds on the above three developments related to the

conceptualisation put forward in Ferreira and Otley (2005). What it implies is that

context affects the PMS functional questions and the financial transfers yet culture,

expressed through communicative and instrumental rationalities have an even more

direct and ultimately more significant effect on the PMS design. Put simply if an

instrumental rationality ideal type is adopted the way the question related to ends and

means are asked and answered will be fundamentally different if, instead, a

communicative rationality ideal type guides the PMS design and this will apply no

matter what the context is.

This divide in the underlying guiding rationality types over the more functional ends

and means questions/issues leads to two fundamentally different forms of PMS

guiding the financial transfers. These are described as ‘transactional’ and ‘relational’

in Figure 2. The transactional has a high level of specification of ends to achieve (e.g.

through performance measures, targets etc) as well often a clear specification of the

26

means needed to achieve these defined ends. It often leads to project-based financial

transfers linked to contracts over a defined period of time. It is for this reason the

PMS is defined as ‘transactional’ since at its simplest it is a PMS to guide a simple

exchange transaction where money is exchanged for a particularly definable good or

service which is needed to achieve a particular end state through a defined set of

means. Relational PMS can be less specific about the ends to achieve and the means

to achieve then if this is the view of the stakeholders designers but could be very

precise if they so chose. The key factor in this is choice and ownership of the resulting

ends and means. Invariably the specific focus will be less project based, less short-

term in nature and more concerned with the long term survival and sustainability of

the organisation/unit through which the stakeholders are working.

Two further points need to be made by way of conclusion to this sub-section. First, it

is important to recognise that some PMS aspects of what would be seen as the

transactional may be apparent in the relational form but the use of some of the latter’s

characteristics may be less likely in the former. Transactional PMS require certain

rules of behaviour, which may preclude certain less seemingly rigorous4 and precise

practices that are normal to the way of proceeding with thinking based on a relational

approach. The situation with a communicative rationality approach is not as black and

white. There can be a tendency in a relational PMS to avoid the level of precision

expected with a transactional model, very largely because such levels of precision do,

as Hasslebladh and Kallinikos (2000, p. 705) perceptively indicate, lead to ‘ideals’

giving way to ‘techniques of control’ as the discourse shifts from ‘…oral language to

4 Words such as rigorous, precise and precision are dangerous since they could be seen as downgradinganything that does not fall under such descriptive categories. It is important to stress that this is notmeant to imply that practices that are more relational are not rigorous or precise but rather they have adifferent understanding of rigour and precision to those coming from instrumental rational practices.

27

formal codification’. However, the important point to stress is that this is not

programmable in quite the way they suggest. The key criterion is whether this

increased formalisation is understood and owned by the discursive

participants/stakeholders such that they adequately reflect desired end states. If it is,

then such increased codification is entirely acceptable. If it is not then the dangers to

which Hasslebladh and Kallinokos, and Weber and others draw attention are genuine

and real and need to resisted.

Second, whilst the transactional and relational are absolute ideal-types it is possible

and appropriate to see them empirically as two ends of a continuum. At the ends there

are potentially pure empirical examples of PMS in each category –transactional or

relational. More likely is that there will be a situation signified by a point along the

continuum where different PMS elements are mixed in different proportions. Our

argument, however, is that the transactional and relational categories are analytically

distinct very largely because they reflect the fundamental divide between the cultural

elements of instrumental and communicative rationalities.

With this analytical framework in mind the following section demonstrates its

empirical worth by analysing the evolving nature of New Public Management (NPM)

in the UK culminating in the intensification of NPM through the ‘target regime’ of

public service agreements (PSA). What it will show is that NPM started off as

transactional near the centre of the relational-transactional continuum and has moved

ever further from the centre to now a more extreme transactional PMS.

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The Evolving Nature and Intensification of New Public Management in the UK

Hood (1991) identifies seven key ‘doctrinal components of new public management

(NPM). These are:

1. ‘Hands-on professional management’ in the public sector;2. Explicit standards and measures of performance;3. Greater emphasis on output controls;4. Shift to disaggregation of units in the public sector;5. Shift to greater competition in the public sector;6. Stress on private sector styles of management practise;7. Stress on greater discipline and parsimony in resource use.’(Hood, 1991: 4/5 (emphasis in the original))

These components reflect particular key underlying values or as Hood (1991:15) puts

it ‘NPM can be understood as primarily an expression of sigma-type values’ where

sigma values can be typecast as ‘keep it lean and purposeful’ (Hood, 1991:11). This

can be distinguished from alternative forms of core values in public management that

Hood (1991: 11) calls ‘theta-type values’ (‘keep it honest and fair’) and ‘lambda-type

values’ (‘keep it robust and resilient’).

There are considerable overlaps between Hood’s sigma and theta-type values and

instrumental and communicative rationalities discussed in the previous section and

summarised in Table 1. Sigma-type values align directly with the underlying content

of instrumental rationality ideal-type summarised in Table 1. Lambda-type values link

directly to the characteristics aligned with the communicative rationality ideal-type in

Table 1. The theta-type values, on the other hand, can be seen to apply to both sigma

and theta-type values and instrumental and communicative rationalities. Whilst these

values and rationalities are very different it seems highly unlikely that by adopting

sigma or lambda-type values would be doing anything other than trying to ‘honest and

fair’ in the financial flows that they are controlling. Both would claim therefore to be

adopting theta-type values, albeit in very different ways.

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In making these linkages it is possible to argue that NPM contains all of Hood’s seven

characteristics, and is a particular form of transactional PMS. This is not to say that

NPM in any form is universal in its application or adoption. As Hood (1995) and

Laughlin and Pallot (1998) indicate only a limited set of countries can be seen to be

what the former refers to as ‘high’ adopters of NPM where the seven characteristics

are present and operative. Other countries have varying ‘low’ and ‘medium’ levels of

NPM adoption. As Humphrey, Miller and Smith (1998) indicate it is not as though a

fully formed NPM control system became implemented as a totality. There has been

an evolutionary process at work over decades.

We wish to analyse some key points in the recent development of NPM in the UK

giving particular emphasis to the development in output and outcome controls

enabling devolution and disaggregation to occur. This, we will argue, has led to a step

change in emphasis in the nature of NPM, as described by Hood in 1991, whereby a

limited number of Hood’s seven characteristics have taken precedence. This is to such

a degree that the other elements are either eclipsed altogether or become downplayed

considerably. It is this shift we describe in this paper. In the specific context of

Hood’s listing, we argue that characteristics number 2 and 3, which emphasise

outcome controls, have become primary. These, in turn, enable disaggregation to

occur (characteristic number 4). The remaining characteristics are either seen as

instrumental to this new form of devolved outcome control or are largely redundant

and irrelevant to these concerns. They are certainly secondary to the other concerns.

It is this change in emphasis which is key in the recent development of NPM. In

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returning to the earlier genesis of NPM, the thread of the intensification of this

emphasis can be illustrated.

A key moment in the development of NPM in the UK is acknowledged to be the

1982 Financial Management Initiative (FMI). Whilst FMI is not the start of the

development of NPM in the UK – Zifcak (1994:12), for instance, traces the origins, as

others do, to 1968 with the Fulton Report (1968) whilst Jackson (1988) traces it even

further back to the 1950s – there is no disputing that the emergence of the study on

the efficiency and effectiveness of the civil service (Treasury and Civil Service

Committee, 1982) which launched the FMI was unquestionably a watershed point in

the development of NPM in the UK. It was given ever greater urgency and intensity

with the election of the Conservative Government in 1979 under the leadership of

Margaret Thatcher who, by 1982, was well established in the public service change

agenda.

The FMI had clear intentions to bring a very different emphasis to the work of public

sector management. Jackson (1988: v) describes FMI as:

‘….a framework in which public sector managers are invited to think about theirdecisions relating to public spending and public service provision. It is a set ofbroadly-based management techniques, designed to improve the quality ofpublic sector management generally and to enable that management to givegreater value for money in the spending of public funds.’

More specifically it had the intention to:

‘…promote in each Department an organisation and system in which managersat all levels have:

1. a clear view of their objectives; and assess and wherever possiblemeasure outputs or performance in relation to these objectives;

2. well defined responsibility for making the best use of their resourcesincluding a critical scrutiny of output and value for money; and

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3. the information (including particularly about costs), training and accessto expert advice which they need to exercise their responsibilitieseffectively.

(Treasury and Civil Service Committee, 1982:21)

To Jackson (1988: vi) ‘the FMI embodied the rational model of decision-making, in

which objectives and constraints are set clearly, decision-making within the

organisation is devolved, and financial management information is generated that will

enable managers to manage resources efficiently.’

Thus, in the terms that we wish to analyse the issue, FMI was intended to bring new

forms of rationality into public sector management. The FMI was the first serious

attempt to shift, in Hood’s terms, away from an underlying lambda-type values

system guiding public sector management to one based on sigma-type values or, using

the terms in this paper, from a PMS guided by communicative rationality to one that

has a more instrumental rational emphasis. Its intentions were clear yet its

prescription was limited since as Jackson (1988:vi) makes clear: ‘The Treasury and

Cabinet Office did not impose the FMI on individual departments. Instead,

departments were encouraged to adopt their own FMI.’ In this sense, as Jackson

continues, FMI was not a ‘rigid management system’. It was, using the framework

developed in this paper, a shift from the far extremes of a relational PMS to the start

of a more transactional form. It is the watershed point on this continuum, involving a

clear point of departure from, using the concepts developed in this paper, a relational

PMS to a tentative, but still important, move to more transactional forms of control.

Given the tentative nature of the movement and the magnitude of the change required

it is not surprising that within a few years FMI floundered needing the development of

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what became the ‘Next Steps’ initiative. The Next Steps Report was introduced to

Parliament by the Prime Minister on 18 February 1988 (Efficiency Unit, 1988). As

Zifcak (1994: 72) makes clear the analysis of the Next Steps Report:

‘..found that while the civil service was much more conscious of the cost of itsactivities than it has ever been, the essential features of management inWhitehall had remained untouched by five years of intensive administrativereform. Short-term political priorities still squeezed out long-term planning.Policy and ministerial support dominated civil service structure and function tothe neglect of effective delivery of government services. Governmentprogrammes were focussed on the expenditure of money rather than theachievement of results. There was a chronic shortage of managerial skills. Thecivil service itself was far too large to manage as a cohesive entity. Clearly, theintroduction of new management systems had been a welcome development.However, without a real change in attitudes and institutions, in the culture of theadministration, the benefits obtained from the systems had been limited.’

As Zifcak (1994: 74) makes clear Next Steps was indeed an outgrowth of FMI but it

was FMI with more ‘teeth’ geared towards more fundamental change and looking

‘….upon structural change as the precondition for attitudinal change’ (Zifcak,

1994:89). In this regard the Next Steps Report:

‘…made five principal recommendations. First, ‘agencies’ would be establishedto carry out the executive functions of government. Second, the manner inwhich an agency would perform its tasks would be specified in a policy andresources framework agreed with its sponsoring department. Third, each agencywould be headed by a chief executive appointed from within or outside the civilservice. The chief executive would be held personally responsible for theachievement of the specific objectives and targets set in the agency’s frameworkdocument. Fourth, the chief executives would be responsible to ministers whoin turn would be accountable to Parliament for the operation of their agencies.To implement these changes, the unit recommended, fifth, that a full permanentsecretary be designated as a ‘project manager’ to ensure that the reformprogramme proceeded quickly and to a high level.’ (Zifcak, 1994: 73)

The proposals of the Next Steps Report were an even greater concern than the FMI to

HM Treasury due to the increasing possibility, even probability, for the move to

agencies as a worrying ‘…relaxation of central controls’ (Zifcak, 1994:81). This led

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to a foretaste of the ‘new’ NPM in an increasing emphasis importance given to output

and outcome control to resolve these worries:

‘The Treasury was considerably more prepared than it had been to delegatesome of its financial controls, particularly input controls. It accepted, forexample, that the agencies should have increased in-year and end-year financialflexibility; that agencies might, in appropriate circumstances, be accordedtrading fund status; and that chief executives rather than permanent secretariescould be nominated as accounting officers….. But for this relaxation it hadextracted a price. The price was a greater role in setting targets and monitoringagency performance. The ground it lost on inputs it made up on outcomes.’(Zifcak, 1994: 83)

This change of emphasis was given ever greater amplification with the changing

relationships between the departments and their agencies:

‘In the post-agency era, core departments were expected to take on a much morestrategic and less interventionalist stance. They had to clarify their new identity,set targets for their agencies and develop new skills to perform adequately in thechanged ministerial environment….. The key attitudinal change necessary wasthat the core department should learn to trust chief executives to performeffectively. Its own rule would be to determine whether what was done wasconsistent with government and ministerial objectives.’ (Zifcak, 1994: 84/85)

This emerging relationship involved ‘management by contract’ (Zifcak, 1994:86) yet

as he continues ‘the reality was that no enforceable contracts existed’. The seeds of a

different emphasis in NPM were planted at this point yet its realisation was still some

way off. Yet the Next Steps initiative ensured that a further move along the

transactional/relational continuum was guaranteed. Creating distance between

‘steering’ and ‘rowing’ ensures greater formalisation in the processes with output and

outcome control being of primary importance for operationalising this required

structural change.

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This move along the continuum, away from the relational and lambda-type values is

encapsulated in the development of public service agreements and targets to which we

now turn.

The long-term importance of performance measurement and targets was signalled in

the views of Sir John Bourn, the UK’s Comptroller and Auditor General, in his

submission to the Public Administration Select Committee’s (PASC) critical report on

target setting (PASC, 2003):

‘Over the last 20 years performance measurement has developed into animportant means of improving performance and reinforcing accountability. In1982 the Financial Management Initiative required Departments to set clearobjectives and to allocate measures to those objectives. The introduction ofExecutive Agencies from 1986 on led to the creation of performance targetscovering throughput, efficiency, quality of service and finance.’ (PASC, 2003:Minutes of Evidence, PST 54, Paragraph 3)

As he continued:

‘Performance measurement has become an integral part of modern government.It stands behind the creation not only of formal targets, but also features in themany contracts and agreements that control service delivery……Goodperformance information is a crucial element in helping public sectororganisations to develop policy; manage their resources cost effectively;improve delivery; and account for their performance to Parliament and thegeneral public.’ (PASC, 2003: Minutes of Evidence, PST 54, Paragraph 4)

In 1998, the Comprehensive Spending Review (CSR) with the introduction of Public

Service Agreements (PSAs), which the Labour Government initiated following their

electoral victory in 1997, was a step-change in this emphasis.

The Government’s submission to the PASC’s report on targets (PASC, 2003)

provides some pointers to the nature of PSAs and why they involve such a major

change:

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‘The targets set out in Public Service Agreements have proved immenselyvaluable. They provide:

- a clear statement of what the Government is trying to achieve.- a clear sense of direction and ambition.- a focus on delivering results.- a basis for monitoring what is and isn’t working.- better public accountability

The PSAs have contributed to a real shift in culture in Whitehall away frominputs and processes towards delivering outputs and results.’ (PASC, 2003:Minutes of Evidence, PST60)

The introduction of PSAs is the key vehicle for operationalising and managing the

financial allocations coming from the Comprehensive Spending Review (CSR).

Gordon Brown, the Chancellor of the Exchequer, introduced the CSR in 1998 to

provide a wide-ranging review and rolling three-year finance-led plan for all

Government Departments. The 1998 CSR contained plans for the 1999 to 2002 cycle.

This was followed by a Spending Review (SR) (rather than another CSR) in 2000

covering the period 2001 to 2004. The second SR was in 2002 covering the period

2003 to 2006. The CSR in 2004 covers the period 2005 to 2008. A new CSR is

underway with the results to be published in 2007 to cover the period from either

2008 to 2011 or possibly 2009 to 2012. Each CSR and SR overlaps with the other and

has become ever more developed as a planning tool that links financial allocations to

outcomes to be achieved.

PSAs are a central and key element and were introduced in the 1998 CSR in the

context of a clear commitment of the Labour Government to ‘focus on results’. As the

Government made plain when introducing PSAs:

‘The amount spent or numbers employed are measures of the inputs to a servicebut they do not show what is being achieved…… What really matters is theeffectiveness and efficiency of the service the public receives. That is whatmakes a difference to the quality of people’s lives.

36

The targets published in this White Paper are therefore of a new kind. As far aspossible, they are expressed either in terms of the end results that taxpayers’money is intended to deliver – for example, improvements in health andeducational achievement and reductions in crime – or service standards - forexample, smaller class sizes, reduced waiting lists, swifter justice. TheGovernment is therefore setting specific, measureable, achievable, relevant andtimed (ie SMART) targets, related to outcomes wherever possible. Moreover, asexperience of this new approach develops, it hopes to further refine and improvefuture target-setting.’ (HM Treasury, 1998: Paragraph 1)

The 2000 SR refined the nature of PSAs but also added a new control device called

Service Delivery Agreements (SDAs) and Technical Notes (TNs). The 2000 CSR

clarified the rationale for these changes as follows:

‘As the Government recognised at the time of the 1998 CSR setting targets forcentral Government was a process that would need to be refined over time…. Inthe 2000 Spending Review, the Government has further developed the PSAdocuments, in order to prioritise the most important goals and reforms it wantsto deliver….New Service Delivery Agreements (SDAs) will be published in theautumn covering the work of both main and smaller departments. These will setout the more detailed outputs which departments will need to focus on toachieve their objectives, and the modernisation processes they will go throughto improve the productivity of their operations. These new SDAs replace thesection on increasing the productivity operations in the 1998 ComprehensiveSpending Review PSAs.

In order to make the PSAs a real tool for transparency and accountability, theGovernment has attempted to make the targets as clear and readable as possible.It is important both for the accurate collection of information, and the rigorousmonitoring and reporting of progress, that the precise technical details areagreed, and are publicly available. To this end all departments will bepublishing Technical Notes later in the year, which will specify precisely whatwill be measured under each target.’ (HM Treasury, 2000: Paragraphs 1.11 and1.12)

In the 2002 SR further refinements were made along with reflections on the

developments that had occurred from the move into PSAs in 1998 and SDAs and TNs

in 2000. In terms of reflections the following points were made:

‘In the 2000 Spending Review, the Government developed the PSAs set out in1998 in a number of ways by:

37

• reducing the total of headline performance targets for the new period fromaround 300 to 160, focusing more on the Government’s key priorities andoutcomes;

• including at least one target in each departmental PSA about improvingefficiency or value for money, which is a key part of the Government’s agendafor delivering efficient public services;

• introducing Service Delivery Agreements (SDAs), which set out lower levelinput targets and milestones underpinning delivery of the headline PSAperformance targets; and

• introducing Technical Notes, which explain how performance against eachPSA target will be measured.’ (HM Treasury, 2002: Paragraph 1.3)

The 2002 SR did not introduce any major structural changes, but simply refined the

number and nature of the PSAs. PSAs were reduced to only 125 for all the

Government Departments – on average about 5 or 6 per Department - compared to the

366 in the 1998 SR. These were almost entirely outcome oriented which was not the

case with the 1998 SR which had a considerable mixture of input, output and outcome

based PSAs. They also took account of a number of shared PSAs that involved more

than one Government department.

The structure of PSAs was also much clearer in the 2002 SR and started to make more

direct links with the ‘aims’ and ‘objectives’ behind the targets even though the

connection to performance indicators was more implied. As the SR made plain:

‘PSAs bring together in a single document the aim, objectives and performancetargets for each of the main Government departments. They include:

• Aim: a high level statement of the role of the department.• Objectives: in broad terms, what the department is looking to achieve.• Performance targets: under most objectives, outcome focused

performance targets.• Value for money: each department is required to have a target for

improving the efficiency or value for money of a key element of itswork.

• A Statement of who is responsible for the delivery of these targets.Where targets are jointly held this is identified and accountability

38

arrangements clearly specified.’ (HM Treasury, 2002: Paragraph 1.5(Emphasis in the original))

In the 2004 SR, PSAs evolved and changed yet again:

• ‘the number of PSA targets has fallen…. to 110….to increase focus on theGovernment’s highest priorities;

• the targets have become increasingly outcome-focused, giving departmentsand local organisations the freedom to decide how best to deliver priorityoutcomes;

• the targets are now supported by rigorous performance information, with datasystems underpinning targets validated by the National Audit Office; and

• accountability and transparency has increased to an unprecedented level, withbiannual department reports and electronic publication of performanceinformation on the Treasury’s website.’ (HM Treasury, 2004: Paragraph 1.1)

The second bullet point highlights a major change in the 2004 CSR. Devolution or,

more accurately, ‘constrained discretion’ (Balls, Grice and O’Donnell, 2004:18) is a

key priority such that the: ‘PSAs increasingly focus only on the key national

priorities… giving freedom to local organisations over how best to achieve those

outcomes in their area’ (HM Treasury, 2004: Paragraph 1.9). This has been

accompanied by the abandonment of all SDAs. As the Chancellor of the Exchequer

indicated in his forward to the 2004 PSAs:

‘We have also abolished the requirement for departments to set ServiceDelivery Agreements (SDAs), representing a reduction of over 500 input andprocess targets, providing further flexibility to those delivering services.’

The hope is that there will be a development of ‘local PSAs’ not dissimilar to those

that were initially introduced in the 2000 CSR for local authorities and are now in

their ‘second generation’ based on the apparent success of the first generation (Office

of the Deputy Prime Minister (ODPM), 2003). Yet, at the same time, as the last two

39

bullet points indicate, any freedom comes at a price of increased accountability and

transparency to ‘unprecedented levels’5 (HM Treasury, 2004: Paragraph 1.1).

The important point to register at this stage is that it is not just the PSA targets, which

are directing or intending to direct performance – there are a range of other regulatory

bodies along the ‘delivery chain’ (HM Treasury/Cabinet Office, 2004, paragraph

2.27) of any public services which add to these targets to exercise performance

management. So in their recent Report they make clear:

‘The review found that many organisations do face excessive externally settargets, measures and compliance requirements…… When faced from theperspective of a local authority, hospital or other local organisation, the numberof controls faced is dramatically higher than the number of PSA targetssuggests. For example the Department of Health has only 12 PSA targets acrossthe NHS and Social Care. Front line trusts and PCTs however face more than 4times as many PSA-related controls from the Local Delivery Plans and CHI.With a further 125 non-PSA related controls identified, the overall number oftargets, measures and compliance requirements is more than 17 times greaterthan the headline PSA would suggest.’ (HM Treasury/Cabinet Office, 2004:Paragraph 2.24

They conclude, after looking at other public service delivery processes, as follows:

‘As the health, education and police analyses show, two factors drive thedifference between the number of PSAs and the number of targets and measuresactually faced:

• as PSAs are transmitted along the delivery chain, governmentdepartments, local government, intermediate tier organisations andinspectorates often set additional targets and controls concerned withinputs and processes; and

• government departments and other standard setting bodies set a largenumber of additional controls (at least 10 times as many as the number

5 The interest in developing performance reports has been growing exponentially over the last fewyears. Driven by a recent report by HM Treasury, the Cabinet Office, the National Audit Office, theAudit Commission and the Office for National Statistics (HM Treasury et al, 2001) there is now acentral web site for all PSAs, TNs, SDAs and Annual Departmental Reports (http://www.hm-treasury.gov.uk/documents/public_spending_and_services/ ) which is regularly updated to report onperformance achievement. This is anticipated to be only the start of major developments in reporting –‘unprecedented’ clearly is an appropriate descriptor.

40

of headline PSA targets) in areas which do not relate to the PSA set atall.’ (HM Treasury/Cabinet Office, 2004, paragraph 2.27)

Whilst it is clear that the Labour Government would like to see a reduction of

unnecessary controls along the delivery control this does not include the reduction in

output and outcome controls. In fact it is only through these forms of controls, it is

claimed, can there be a move to effective devolution and disaggregation. HM

Treasury’s view on this can be seen in their 2003 Report to meet what they refer to as

the ‘productivity challenge’. To do this requires recognition of three building blocks

leading to a four point reform framework:

‘The first building block is a focus on outcomes – performance of the publicservices should be assessed on the basis of results. The second involvesdevolving responsibility for the delivery of public services to local providers,subject to appropriate minimum standards and regular performance monitoring.The final building block is about improving the governance of public services,by reforming institutions to reflect the importance of clear objectives,appropriate incentives and good performance information in the achievement ofhigher productivity.

These building blocks have been translated into a four-point framework to guidepublic service reform:

• Clear long-term goals, expressed as desired outcomes;

• Greater discretion for local service providers, constrained by effectivegovernance structures;

• Improved information about performance; and

• Better incentives for service providers to meet users’ needs.’ (HMTreasury, 2003: Paragraphs E6 and E7)

In sum the PSA development, which has been becoming ever more sophisticated as it

has developed from its 1998 introduction, is yet another shift along the

relational/transactional PMS continuum.

41

Devolution and disaggregation of activities, which has been occurring ever since the

Next Step agencies were created and is seemingly being encouraged even further

through what has been termed by the ‘new localism’ (PASC, 2003: Paragraph 97) is

only permitted with tight output and outcome controls in place. The term ‘constrained

discretion’ is emotive but descriptive of what is happening and it is only because of

the growing sophistication of output and outcome controls that even this level of

discretion is possible.

This is taking some elements of NPM that Hood (1991) describes and developing

their significance out of all proportion to the others. This is intensifying a particular

form of control. This is not to suggest all controls are transactional, but there is a step

change again along that pathway. There is no current agenda to change the direction

away from placing a key importance on output and outcome achievement, but there

are other transactional forms of control that can be added to make sure that these are

achieved.

Some Concluding Comments

The paper has concentrated on a broad understanding of performance management

systems (PMS), as distinct from performance measurement system or the more

restricted understanding of PMS that comes with human resource management

theorists. It has concentrated on building a conceptual model of any PMS using

Otley’s (1999) and Ferreira and Otley’s (2005) analysis as a starting point but

extending their insights in three ways: first in clarifying the financial focus for any

PMS, second, by developing insights into the nature and relevance of the underlying

context for any PMS and third, by extending the nature and significance of the

42

underlying culture behind any PMS. This third area, which has involved

demonstrating the significance of models of rationalities, with a concentration on the

key distinction between instrumental and communicative forms of rationality has been

key in developing a conceptual understanding of PMS.

This conceptual model is summarised in diagrammatic form as Figure 2 and

highlights the key distinction between what can be described as ‘transactional’ and

‘relational’ forms of PMS. A relational PMS is driven by the exercise of

communicative rationality between stakeholders to debate and derive a consensus on

objectives to achieve, leading to the discursively agreed definition of performance

indicators based on substantive rationality which could, if discursively agreed, use

quantitative measures to typify performance indicators but often may be more

comfortable with qualitative indicators. It also relies on practical rationality in the

choice of means to achieve these objectives, performance indicators and targets. In a

relational PMS, targets aligned to the performance indictors are assumed to be

discursively agreed between the stakeholders. The key underlying theme is that there

is ‘ownership’ by the stakeholders of the PMS that drives action in any organisation

working under a reflexive authority structure such that it can be demonstrated that, in

Habermas’ terms, the resulting structures are ‘regulative and amenable to substantive

justification’. A transactional PMS is driven by instrumental rationality to define the

objectives, which take on the characteristics of being highly functional and directed to

specific outcomes. In this context ‘ownership’ is associated and linked either to a

particular sub-group of stakeholders or to an abstract requirement seemingly owned

by no-one. Performance indicators are defined through formal rationality, which has a

tendency to be more comfortable with precise and quantitative forms of measurement.

43

In general, theoretical rationality, with a certain reluctance to use practical

rationality, due to its perceived lack of precision, guides the choice and use of means

to achieve these objectives. Targets are taken to be driven by what either a defined

sub-group of stakeholders determines or what the seemingly abstract definer of

objectives and performance indicators requires. Implicit in this framework is a

reliance on legal-rational authority structure to ensure compliance. Ownership is less

likely when a transactional PMS is in place since the framework has a tendency, in

Habermas’ terms, to be ‘constitutive and legitimised through procedure’ rather than

the outcome of a consultative process.

This typecasting forms a theoretical language, in a ‘middle range’ sense (cf. Laughlin,

1995, 2004; Broadbent and Laughlin, 1997), for analysing empirical situations. Whilst

the exact nature of any PMS is dependent on empirical explication, conceptually it is

important to see these transactional and relational PMS as lying on a continuum

where at either end will be extreme versions but towards the middle the distinctions

are less clear. Yet our thesis is that there is a point on the continuum where there is a

clear cross over point from relational to transactional or vice versa. The ‘middle

range’ theory cannot pre-define which form will be present in particular situations.

What it does is provide a language for structuring the empirical description. However,

it does not predetermine this description – empirical ‘surprises’ are still possible. In

fact, such ‘surprises’ can also reshape the conceptual language where it fails to

provide meaningful ‘placeholders’ for the analysis.

We have used this conceptualisation to explore empirically an area which has been

looked at many times before: the evolution of New Public Management (NPM) in the

44

UK. This conceptualisation provides new insights into this well documented

development and also has allowed us to argue that the current concentration on output

and outcome and target achievement is such a step change in NPM that it can be seen

as a particular form of intensification of NPM. Unlike the Financial Management

Initiative (FMI) on 1982 which we argue created the cross-over point from relational

to transactional PMS and the 1988 Next Steps development which shifted the

developments in NPM further into a transactional form the development of Public

Service Agreements (PSAs) in 1998 was a further move along the transactional part

of the continuum but marked a step-change in the nature of NPM, still NPM - but of a

very different sort.

Two closing reflective points can be made. First, that the empirical study of NPM

provides a number of important insights. First, it helps to explicate the nature of the

relational/transactional PMS continuum and the way certain issues are emphasised at

particular points on the continuum. Second, and in relation to this, the move to giving

a greater emphasis to outputs and outcomes is an important marker of a tightening of

the transactional emphasis. It only comes at particular points along the transactional

end of the continuum. When reached it becomes highly significant since it is much

more directional in its intent. It is for this reason we saw the PSA development to be

an intensification of NPM. Third, there remains the potential for a greater

intensification of control through greater use of transactional approaches. At this

point in time, we can see no agenda to suggest the concentration and importance

given to output and outcome achievement will change. Instead, we suggest the

likelihood is that we will see refinements and greater levels of intensification (e.g.

tighter PSA linkages to funding, increase in penalties for non-achievement, greater

45

direction on means etc.) and that the concentration on outputs and outcomes will

always remain.

Second, there are dangers with transactional PMS and the intensification of this

emphasis by moving ever further towards the transactional end of the continuum.

These dangers are well illustrated by Townley, Cooper and Oakes (2003) when they

demonstrate that the imposition of an instrumental framework has important

repercussions. Using their case study of the introduction of performance measures in

the Canadian Province of Alberta they conclude:

‘Such disarticulation has important consequences. When the coordination ofaction becomes unhinged from communicatively established consensus,participants are not required to be responsible for their actions. In other words,the control of behaviour passes from the authority of the conscience ofassociated individuals to the planning authority of societal organizations: ‘moreand more complex networks that no-one has to comprehend or be responsiblefor’ (Habermas 1987: 184). ‘As the process of rationalization advances, thesubsystems of purposive rational action become increasingly independent ofethically grounded motives of their members and make increasingly superfluousany internal behaviour controls related to more practical rationality.’ (Habermas1984: 353). This represents our fundamental concern with the developments inAlberta: the substitution of technical for moral responsibility in the name ofmorality. But equally, we suggest, it could be otherwise.’ (Townley, Cooper andOakes, 2003:1064)

We share Townley et al’s concerns and argue that what we have called transactional

PMS is problematic in some situations, particularly in the public services. We argue

the relational approach holds the key to a viable and meaningful alternative. This

view, following Habermas and others, moves beyond the pessimism of Weber, and

his alternative in the charismatic leader, to a new counterfactual possibility contained

in the communicative rationality ideal type.

46

What is interesting in this context is to note the comments of the Public

Administration Select Committee (PASC) Review (PASC, 2003) which makes clear

that, based on their understanding, the move, in our terms, to a transactional emphasis

still does not have universal support or universal application:

‘There seem to be two cultures at work in the Government’s approach to publicservice reform. The first emphasises capacity-building in organisations, withattention to leadership and management issues. As such, the focus is on theorganic ingredients of durable change and improvement. This is the central taskfor the Prime Minister’s Office of Public Services Reform, which hasresponsibility for “working with departments to embed reform and identify bestpractice”. The second approach is typified by targets, its time frame is shorterand its techniques are more mechanistic. Among other things, the PrimeMinister’s Delivery Unit “assesses and supports delivery in each of thedepartments, in particular, ensuring that there is a Delivery Plan in use for eachtarget”. Both have their place, but it is important that the former is not crowdedout by the latter.’ (PASC, 2003: Paragraph 9, p.7).

Elsewhere they refer to these two cultures as respectively the ‘performance culture’

and the ‘measurement culture’ (PASC, 2003, Summary, p.3), seeing the latter as a

poor substitute and an undermining of the former but where the PSA systematisation

was heading towards.

Key to the concerns that were expressed to the PASC is the issue of ‘ownership’ and

the consequent linkages of the targets to the aims and objectives of stakeholders. This

overarching theme came through in a number of different ways in the Report but it is

well captured in the Committee’s view that:

‘We doubt that the current target regime has succeeded in providing a clearsense of direction and ambition for our public services. Targets can never besubstitutes for a proper and clearly expressed strategy and set of priorities, andwe found that witnesses identified a significant risk that the target settingprocess had subverted this relationship with targets becoming almost an end inthemselves rather than providing an accurate measure of progress towards theorganisation’s goals and objectives. Targets can be good servants, but they arepoor masters.’ (PASC, 2003, Paragraph 33, p. 13/14)

47

Typical of the comments of witnesses that led the Review to this conclusion was the

comment from the Rt. Hon. Estelle Morris – the former Secretary for State for

Education and Skills - who stated the ‘….the biggest problem at the moment is that

the profession feels no ownership of the targets, none whatsoever’ (PASC, 2003:

Minutes of Evidence, Question 965). Professor Alison Kitson, from the Royal College

of Nursing, makes the same point:

‘It is about ownership, it is about interpretation and understanding of therelevance and impact of the target to the people who are providing the business.It is that dialogue, that constant iteration between the people who are settingtargets and the people who are having to deliver them that improves the qualityof them.’ (PASC, 2003, Minutes of Evidence, Question 753)

Or, as the Audit Commission, noted:

‘What makes a target ‘good’ is not just the way a target is expressed – it’s aboutthe way it was derived, the extent to which service users were involved in itsdevelopment, the extent to which it helps to achieve policy objectives, theextent to which it has the support of staff whose efforts will achieve it, thequality of the data used to measure its achievement, and the clarity andtransparency of its definition.’ (PASC, 2003: Minutes of Evidence, PST14)

Lord Browne, one of the few witnesses who was asked to clarify the perspective on

targets from the private sector viewpoint, made plain that, based on his experience,

‘….you cannot impose targets by fiat’ (PASC, 2003: Minutes of Evidence, Question

347). However, as the Committee’s Report continues: ‘We strongly agree, and we

also feel that, at the front line in the public services, there is still a perception that this

is what is happening.’ (PASC, 2003, Paragraph 36, p.15).

HM Treasury is well aware of these concerns and have reacted to them with their

move to the ‘new localism’ (PASC, 2003: Paragraph 97). Their 2004 Report notes:

‘The next phase requires evolution in the relationship between centralgovernment, local government, regional organisations and the front line. Centralgovernment needs to maintain a strategic role, ensuring national standards are

48

met and maintained, but allowing greater scope locally to determine otherpriorities and to decide how best to deliver national outcomes. This requireschange in key areas:

• within a framework of national Public Service Agreements (PSAs),fewer targets and other external controls set in addition and greaterscope for locally determined outcomes and methods of delivery;

• stronger local accountabilities and incentives for deliveringimprovements in public services based on timely publication ofperformance data; and

• increased performance management capacity within front line, localgovernment and other intermediate tier organisations.’ (HMTreasury/Cabinet Office, 2004, Paragraph 1.6)

A cursory reading of this suggests more a shift in the forms of centralised control

rather than a wholehearted encompassing of devolution along the lines suggested by

the PASC. Closer examination of the Report seems to reinforce this impression:

‘A more devolved approach makes it essential that local accountabilities andincentives to improve are strengthened……To achieve this, it is first critical toidentify a single organisation to performance manage each group of front lineunits, based on timely and regular performance data…….Second, credibleincentives in the form of rewards and sanctions must be made available suchthat intervention by central government only takes place in cases of clear under-performance that the intermediate tier has not been able to correct…….Forcentral government to devolve decision making authority with confidence, theseproposed changes must be underpinned by stronger capacity in performancemanagement within front line, local government and intermediary tierorganisations……Analysis of best practice in the public and private sectors inthe UK and abroad suggest five areas that must be developed to strengthen localperformance management capacity. These are: robust and reliable internal datareporting, strong leadership, clear accountabilities, performance reviewcombining challenge and support and transparent rewards and sanctions.’ (HMTreasury/Cabinet Office, 2004, paragraphs 1.7, 1.8, 1.9 and 1.10)

This is arguably not quite what the PASC had in mind when they made their

Recommendations. However, to the Government’s credit they do acknowledge that

the implementation of this model of ‘devolution’ is likely to be difficult and that it

does need to be ‘owned’ by front line professional to be meaningful:

‘The scale of the challenge required to move to this new phase should not beunderestimated. The new approach must be advocated and owned by publicservice professionals, inspectorates and central government departments alike.The changes require a well-planned approach to implementation. Central

49

government, local government and other intermediate tier organisations mustfocus on supporting front line delivery and building capabilities required tooperate in a more devolved system. Structural change and new approacheswithin departments and along the delivery chain will also be required.

Most important of all, a new level of trust needs to be built between centralgovernment and public service providers. This trust will only develop if allparties demonstrate their commitment to devolution by undertaking the concreteactions required to make it happen.’ (HM Treasury/Cabinet Office, 2004,Paragraphs 6.4 and 6.5).

As is apparent from the 2004 CSR, the Government has already made a start on this

pathway by reducing the number of national PSAs and abandoning the input and

process controls of SDAs. The 2004 Report by HM Treasury and the Cabinet Office,

which is critical of the high number of additional controls that intermediate regulatory

agencies impose on front line services, is intended to put pressure on them to change.

There are, however, a considerable number of other changes needed, as they

acknowledge, the building of ‘trust’ and the need for generating ‘ownership’ as being

of paramount importance but very difficult. What is clear is that with increasing

devolution more complex PMS elements and controls are seen to be necessary if

performance is to be managed. But any shifts will not displace output and outcome

control – it is for this reason we see this as the start of the intensification of NPM. We

await with interest to see what the 2007 CSR brings but at least the acknowledgement

of the need for ‘new localism’ gives some chance for stakeholders to have their say.

Maybe, just maybe, the relational PMS will reassert itself.

50

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PerformanceManagement andControl System (PMS)

8 Questions on Ends andMeans

4 Questions on Culture and Context

Figure 1: Ferreira and Otley’s Performance Management Framework(Adapted from Figure 2 from Ferreira and Otley (2005: 42))

55

CULTURE

INSTRUMENTALRATIONALITY

COMMUNICATIVERATIONALITY

PERFORMANCE MANAGEMENT (AND CONTROL)SYSTEM (PMS)

Selective definition of ENDS to achieve (e.g vision andmission, key success factors in relation to ends, keyperformance indicators, targets) and the MEANS to beused (e.g. strategy and plans, key success factors inrelation to means, structures, performance evaluationsystems, reward systems) to achieve these ends.

CONTEXT

EXPLICIT OR IMPLICIT FINANCIALTRANSFERS AND ACCOUNTABILITY REQUIREMENTS

IN A RELATIONSHIP BETWEEN A TRANSFERORAND A TRANSFEREE

TRANSACTIONAL RELATIONAL

Figure 2

PMS: A ConceptualModel

56

ReflexiveLegal-RationalityUnderlyingAuthorityStructure

Likely to be highLikely to be lowProbability ofdifferentstakeholdersowning ends andmeans:

PracticalRationality

TheoreticalRationality

Choice of means touse to achieve theobjectives and PIsusing:

SubstantiveRationality

Formal RationalityPerformanceIndicators (PIs)derived using:

CommunicativeRationality

InstrumentalRationality

Ends definedderived using:

CommunicativeRationality

InstrumentalRationality

UnderlyingRationalities

Description

Table 1: Contrasting ‘Ideal Type’ Rationalities in PMS Design

57