International Journal of Productivity and Performance ManagementAustralian public sector performance management: success or stagnation?Lewis Hawke

Article information:To cite this document:Lewis Hawke, (2012),"Australian public sector performance management: success or stagnation?",International Journal of Productivity and Performance Management, Vol. 61 Iss 3 pp. 310 - 328Permanent link to this document:http://dx.doi.org/10.1108/17410401211205669

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Australian public sectorperformance management:success or stagnation?

Lewis HawkeUniversity of Canberra, Canberra, Australia

AbstractPurpose Australia has been a leader in public sector performance management for around threedecades yet there have been persistent weaknesses in the quality and use of performance informationsince the system was established. This paper seeks to identify and explain the key factors affecting thesuccess of Australias public sector performance management system.

Design/methodology/approach The study distils six key influences on public sectorperformance management from academic and practitioner literature. It examines the data availablefrom official documents, reviews and performance audits to identify and analyse the factors that haveshaped the Australian system.

Findings Australias public sector performance management arrangements have been defined bystrong external (political), structural and technical factors. These have been a very positive feature inachieving a stable and sophisticated system. This paper suggests that more emphasis on management,behavioural and cultural factors could be more beneficial than continuing to focus on purely technicalrefinements for further reform.

Practical implications The results can contribute to refinement of policy and implementation inAustralia. The diagnostic framework can be used for further analysis of public sector performancemanagement in Australia or other countries.

Originality/value The study draws on existing literature and information on the quality andimpact of public sector performance management to develop a diagnostic framework and analyseAustralias experience. It identifies key attributes of Australias success and factors that may belimiting further improvements.

Keywords Public sector organizations, Performance management, Australia

Paper type Research paper

IntroductionThere have been attempts to develop measurement and assessment systems for publicsector performance for centuries. The systems of performance measurement havebecome more sophisticated and widespread in the last three decades. However, despitethe long period of implementation and refinement, fundamental weaknesses persist inthe quality and use of performance information. In parallel with practicaldevelopments, the body of literature seeking to document, explain and improvepublic sector performance has also grown. Performance has been defined andscrutinized in many different ways. This study focuses on the factors underlyingsuccess in the implementation of performance management arrangements in the publicsector. It uses Australia as a case study in an attempt to test the significance of factorsidentified as important in the academic and practitioner literature, and drawsconclusions on how those factors have shaped Australias performance managementtogether with their potential to affect future success.

Performance management in this study refers to the interrelated strategies andactivities to improve the performance of individuals, teams and organisations.

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International Journal of Productivityand Performance ManagementVol. 61 No. 3, 2012pp. 310-328q Emerald Group Publishing Limited1741-0401DOI 10.1108/17410401211205669

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Its purpose is to enhance the achievements of agency goals and outcomes for thegovernment (Management Advisory Committee, 2001, p. 14).

Bouckaert and Halligan (2008) developed a framework for classifying the differenttypes of performance regime applied by governments. They differentiated betweentypes largely on the basis of depth and span of application. They identified differencesin the depth of coverage from within an organization (micro), to across organisationswithin a function or policy theme (meso), to across the whole of government (macro).The span of application related to the range of practices to measure and incorporateperformance covering economy, efficiency, effectiveness and trust. The frameworkestablished four distinct approaches to managing public sector performance from themost basic, performance administration, to the most sophisticated, performancegovernance. They included Australia as a performance management type of system,albeit with some limitations. They assessed that the Australian system exhibited anhierarchical performance measurement system with integrated, coherent,comprehensive and consistent elements (Bouckaert and Halligan, 2008, Chapter 6).Australia does not have the attributes of the more sophisticated performancegovernance type because of limitations on the span of management at the meso andmacro levels. The Australian arrangements also demonstrate weaknesses in thesystemic application of performance information, particularly in terms of theeffectiveness and trust dimensions.

Performance management has been a formal part of the Australian public sectorsince 1984 when the Government introduced the Financial Management ImprovementProgram (FMIP), incorporating program management and budgeting (Parliament ofAustralia, 1984). The framework has been refined and modified many times (Bouckaertand Halligan, 2008), including at least two significant revisions in the last decade.

The Australian performance management framework consists of several prominentfeatures: budget planning, preparation and execution on the basis of outcomes andexplicit performance measures; considerable flexibility to reallocate resources withineach budgeted outcome; and devolution of responsibility to line ministers to definetheir intended outcomes and performance measures, subject to minimal interventionby central departments, Cabinet or the Parliament.

The Australian parliament regularly reviewed the implementation of the FMIP overalmost a decade after its introduction. A common observation throughout the life of theprogram was the patchy and generally poor quality of performance information. Thiscriticism continued to be directed at subsequent performance managementarrangements, even after major changes were introduced as part of the accrualbudgeting framework in the late 1990s (Parliament of Australia, 1999, 2001, 2007;ANAO, 2007).

The Australian Labor Party (ALP), the main Opposition party in Parliament untillate 2007, adopted a policy for public financial management reform called OperationSunlight (Tanner, 2005). The policy proposed changes to address perceivedinadequacies in the quality and relevance of budget information, particularlyregarding outcomes. The policy platform was implemented following the election ofthe ALP to government in 2007. This was supplemented by further government actionin response to recommendations from an independent review by one of the majorcritics of budget reporting in the parliament at the time (Murray, 2008). The Laborgovernment did not identify any specific results it expected to achieve from its changesto performance management, however it stated that the new arrangements showed,

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a clear and continuing commitment to openness, transparency and good governance(Tanner, 2008, p. 3).

The main changes introduced in regard to the outcomes and outputs frameworkwere to review all outcome statements against a set of basic presentational standards,to replace outputs with programs and deliverables, to improve the quality of budgetreporting and to establish a clearer link between organizational performance and theresponsibilities of senior executives. Other changes were introduced in the last fiveyears to broaden the performance management framework, through the establishmentof a strategic review initiative at the Federal level, extension of performance estimatesto four years and development of a register of national minimum data sets for health,education, skills and workforce development, housing, indigenous and disabilityservices (Ministerial Committee for Federal Financial Relations, 2011).

It may be too early to assess the full impact of recent changes to the performancemanagement regime, however, the early signs are not promising. The AustralianNational Audit Office recently completed a performance audit of the quality ofperformance information in portfolio budget statements. The report found thatweaknesses observed by the ANAO and others in earlier assessments remainstubbornly persistent, particularly in relation to the lack of consistency and quality ofperformance information (ANAO, 2011). The ANAO concluded that:

While the Outcomes and Programs Framework is in its third year, the findings of this auditindicate that many entities continue to find it challenging to develop and implement KPIs; inparticular, effectiveness KPIs that provide quantitative and measurable information,allowing for an informed and comprehensive assessment and reporting of achievementsagainst stated objectives (ANAO, 2011, p. 17).

In terms of Bouckaert and Halligan classification, the Australian performancearrangements remain essentially within the performance management category,despite the changes made since their assessment in 2008. There has been little evidenceof broader societal engagement in the system. The recent changes appear to refine andexpand the scope of performance management activities without increasing theirinterconnectedness. While the Bouckaert and Halligan typology is not intended to be aprogression, Australia has not move closer to the performance governance typedespite the broadening of its span suggests a degree of stagnation. This raises thequestion of whether the increased span of the system has the capacity to betransformed into an effective performance governance system.

The remainder of this paper seeks to explain the current status of performancemanagement in Australia using a diagnostic framework for systematically examiningthe factors that have influenced the system. The findings of the assessment are thenused as a basis for discussing the future direction of public sector performancemanagement in Australia. The analysis in this paper focuses on performancemanagement at the national level.

Theoretical frameworkTo understand the status of performance management in Australia it is necessary to gobeyond categorization of the framework to look at its impact. This paper considersperformance management in relation to the quality of performance measures and theirperceived usefulness to key stakeholders. These are considered to be measures ofsuccess that are important in the praxis of performance, rather than simply the creation

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of systems with theoretical or political merit. Unfortunately there are few studies of thequality and usefulness of performance information in Australia so it is necessary torely on more general published and unpublished reports and related information todraw conclusions. This paper seeks to provide a catalyst for further research in thisarea.

In reviewing the success of Australian public sector performance management, thepaper examines the achievements in terms of six factors that are considered toencompass the main influences on success. They are: external, structural, managerial,technical, cultural and behavioural factors. These elements have been chosen followingextensive review of the performance management literature to draw out the ones thatare identified most clearly with success across countries that have adopted some formof public sector performance management, for example (OECD, 2007; Bouckaert andHalligan, 2008; Arizti et al., 2010; Boyne et al., 2006; Forbes et al., 2006; Van Dooren andVan de Walle, 2008). The analysis draws on various strands of theory includinginstitutional, management, behavioural, organizational, public administration andcommunications.

External factors encompass all of the influences outside of the public sectoroperations that can impinge on performance management. The most well reported ofthe external influences in the performance literature is political factors (Pandey andMoynihan, 2006), (De Lancer Julnes, 2008). This includes the influence of politicians inpower, as well as those who wish to exert political influence in opposition. It alsocovers the impact of changes in political power. Other elements of this group are civilsociety, economic effects, both domestic and international, and comparativedevelopments in other jurisdictions relating to performance management which mayinfluence the shape and character of the system: the copy-cat and the cookie-cutterare common manifestations of this impact.

Structural factors relate to the legal, regulatory, institutional and organizationalstructure within which performance management operates. At the system level, theseelements are specific to a country and apply to all public bodies of a single country orjurisdiction. The significance of these influences on individual entities also varies but,in considering the system as a whole, the agency level variations are less of an effect onthe overall result. Without going into detail, structural differences between publicsector management systems are readily identifiable, for example, when comparingUSA, Francophone, Westminster and former socialist republic systems (Wanna et al.,2003, 2010).

Managerial factors include the role of government and agency managers inimplementing and using the framework. These influences encompass the effects ofleadership, change management, organizational alignment with policies,administration and control. They intersect with structural, cultural and behaviouralfactors in regard to the effects of hierarchical relationships where managementprovides a means by which those factors are activated and applied (Kotter, 2007).

Technical factors are those emanating from the design of performance managementregimes, the capacity of public officials to implement the arrangements, and theachievements in terms of measurement quality, maintenance of systems and reportingprocedures. These factors include also the influence of guidance and training of peopleresponsible for designing and collecting performance information and those receivingand using the information. A clear majority of literature from the practitioners side isdevoted to technical aspects of performance management, for example, Wholey et al.

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(2004), Hatry (2007), Kamensky and Morales (2005), Hawthorn and McDavid (2006).Technical factors set the rules or boundaries within which management, culture andbehaviour operate. The specific technical details can have a direct impact on thebehaviour and actions of management.

Cultural factors include ways of operating and values inherent in the system,including institutional, operational and societal cultures. Culture affects the way inwhich performance management is practiced and the extent to which it is internalizedand applied (Franke et al., 1991; De Bruijn, 2007; Moynihan, 2008). For example, Hallswork identified differences between high and low context cultures in the extent towhich detailed rules are needed as a basis for effective communication and action (Hall,1976).

Behaviour is distinguished from culture in that it relates to how people respond tothe performance management system and to the results of performance information. Acrucial aspect of behaviour in performance management is how it affects what peoplechoose to measure and how they respond to the results. The most profound effects ofbehaviour on the success of performance management are the uses of performancebudgets and targets which have strong, and often perverse, effects on what people doto achieve or avoid the constraints placed on them through performance expectations(Schick, 1990; Radin, 2006; Hood, 2006; Simon, 1997; Radnor, 2008). Behaviour isstrongly influenced by culture and management factors, and is also very responsive totechnical and institutional factors.

In addition to the influence of each individual factor on performance management,the combined effects from two or more factors can alter or accentuate the effect ofothers. Some of these interrelationships have already been mentioned, but there aremany other ways in which different elements can have reinforcing or countervailingeffects. While some of these are drawn out in the discussion which follows, a morecomplete exposition is beyond the scope of this paper.

MethodologyThe paper seeks to analyse Australias public sector performance management interms of the framework outlined above. It draws on previous research, publishedreviews, performance audits and government policy statements during the last threedecades to identify and discuss how the various factors have contributed to thedevelopment and quality of the Australian performance management system. Thepaper focuses on the last decade because of the significant changes that have occurredduring that period. There have been few published studies in the period, which alsomakes this papers emphasis on recent changes timely as a record of reform progress.

The case study approach to testing and refining theoretical propositions is awell-used method, common in the performance management literature (Forbes et al.,2006). As with many studies covered by the Forbes et al. review, this paper viewsperformance management as a dependent variable and seeks to explain the impact ofsix explicit groups of independent variables on the results which have been achieved inAustralia. These groups of independent factors influencing public sector performancemanagement are: external; structural; technical; managerial; behavioural; and cultural,as explained above.

The approach used in this paper has not been documented previously in the publicsector performance management literature. While many studies have looked at one ormore of the factors referred to in the theoretical framework, there are none that cover

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all six and the interrelationships between them in a comprehensive or systematic way.This necessitates a degree of caution in the frameworks application. If a prima faciecase can be made to warrant further investigation, follow up quantitative andqualitative analysis will be pursued. This paper has the dual function of shedding lighton the suitability of the theoretical framework for further research and providing anupdated assessment of Australias progress on the path to effective performancemanagement, or perhaps its evolution to performance governance (in terms of theBouckaert and Halligan framework).

Factors shaping public sector performance management in AustraliaThe nature and significance of factors shaping performance management in Australiahave changed considerably since the arrangements were established in 1984. In brief itcan be seen that the external factors of political change and the willingness of powerfulinstitutions within the public sector were dominant during the initial establishmentphase. The subsequent implementation and refinement phase of the 1980s and 1990s,witnessed the growing importance of technical and structural factors. Managerialfactors increased in significance at that time. In the last decade technical factors havecontinue to be important driver for reform while the significance of cultural andbehavioral factors has begun to emerge. The remainder of the paper looks in moredetail at the changes in the last decade, however reference is made to earliercircumstances where they contribute to understanding and explaining recentdevelopments.

External factorsThe performance management framework in Australia has enjoyed support from allmajor political parties since 1984, building on review and analysis of publicadministration in the preceding decade (Parliament of Australia, 1976, 1983). Theestablishment of the regime required external political initiative from the ALPgovernment, which took office in 1983. The difficult economic circumstances aroundthe time of the election and implementation provided additional pressure to supportmeasures to improve the efficiency and cost-effectiveness of the public sector.

Each successive government since 1984 has sought to refine performancemanagement, but the basic existence of the system has not been seriously challengedby changes in external circumstances. This has provided a strong on-going foundationfor success. Officials have not had a major cause to doubt the future of the frameworkand so have operated on the expectation that they will be required to apply itindefinitely. Politicians from both major parties have sought to promote a culture oftransparency and accountability for performance and results throughout the last threedecades. Their influence has resulted in frequent refinements and changes but withoutaltering the basic framework (OECD, 2007, Chapter 6).

An important deviation from the implementation path of performancemanagement was associated with the change of government in 2007 and thesubsequent influence of the global financial crisis. In 2007 the new ALP governmentinitiated a range of special razor gang reviews of public expenditure as part of itselection commitment to reduce unnecessary public expenditure. These reviews wereaimed at reducing inefficient expenditure and reorienting public activity to thepolicies of the new government. Rather than drawing on performance informationdeveloped over the preceding years, the reviews took an ad hoc approach, focusing on

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areas of high levels of expenditure or policies strongly aligned to the previousgovernments policy agenda. Even so, the reviews did involve assessment of theefficiency of policies and programs that were targeted for cuts and this was reflectedin the recommendations. Although the razor gang reviews were finalized before theworst effects of the global financial crisis were apparent, the recommendations werenot fully implemented. The government decided that it needed to change strategy,either due to the effects of the financial crisis, or closer examination of other potentialconsequences of specific cuts in public expenditures, or a combination of factors. Thenet result was a substantial increase in public expenditure to stimulate economicactivity and brighten consumer sentiment.

The reviews, their recommended expenditure cuts, and the alternate policies forincreases in expenditure owed little to the body of performance information andanalysis that had been developed within the public sector over the previous years.Instead, the governments emphasis on policy and program renewal and subsequentlyresponding to international macroeconomic pressures were the predominant driversfor change. If anything, the changes to policy and programs had a dampening effect onagency level performance management improvements by diverting policy attentionfrom technical and allocative efficiency to macroeconomic initiatives. Although workhas continued on implementing Operation Sunlight, the reforms took a backseat whilethe government and central agencies focused on the bigger fiscal picture.

Structural factorsAustralia is essentially a Westminster style public administration system. It ischaracterized by high levels of ministerial authority compared with more legalisticsystems used in other countries. Another key feature of the Australian system ofadministration is the high degree of devolved authority and accountability to seniormanagers, subject to limited legal controls focusing on principles rather than detailedrules. Senior managers in the public service are career officials who are generallyappointed on the basis of a broad concept of merit rather than political affiliations. Theresultant administrative framework means that senior managers are expected toimplement the policies of whichever government is in power with equal vigour andprofessionalism. Managers have considerable responsibility, authority andaccountability. Without the constraints of detailed laws, regulations and directions,they rely on policy objectives, ministerial decisions and their own management andorganisational capabilities to perform their functions. A clear hierarchy exists in whichparliament makes laws and allocates resources, then governments implement laws andpolicies through their agents in the form of departments and public authorities. Thisenvironment provides fertile ground in which performance management arrangementscan grow. Performance management arrangements offer a mechanism to define andmeasure what is required and what is achieved. The limitations of the Australianadministrative framework on performance management are that accountability forperformance is largely placed on agency managers while government ministers makemajor resource allocation and policy decisions. The principal-agent problem isobviously relevant to this situation as a driver of behaviour, as is the politicalsignificance of perceived performance. This provides an incentive to promote positiveachievements and hide less flattering results.

A key feature of performance management in Australia has been the strong roleplayed by central agencies, particularly the Department of Finance[1] (Wanna et al.,

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2003; Bouckaert and Halligan, 2008). This has been important in both the design andimplementation of the system, which has supported and delivered the policy decisionsof politicians. An important consequence of the strong role played by Finance was thatthe system was firmly built on the intention that performance information would beused for budget planning and accountability. Less emphasis was placed on thepotential use of performance tools for the benefit of organizational or human resourcesmanagement, at least in the early phase. The system has been designed to provideperformance classifications that can be used for budget allocation, measurement of theuse of budgets, reporting on results in terms of the budget appropriations and forwardestimates for three years beyond the budget year. This has achieved the positivebenefit of focusing the minds of people within the budget system on categorization bykey performance objectives. Conversely, it has also contributed to classification ofperformance for budget purposes taking precedence over the operational managementand learning function of performance information. Changes in the intended policyoutcomes are deliberately limited by procedures requiring a compelling case forchanges to high-level outcome and program definitions, which must be approved byFinance. This helps to provide consistency and comparability for budgeting andaccountability, but can limit the value of the information produced for managingagency performance.

Another important institution in Australia is the Australian National Audit Office(ANAO) (Hawke, 2010; Blondal et al., 2008). The ANAO has been a major commentatoron the quality of performance management in Australia. Since the evaluation of theFMIP in 1992, there has been no comprehensive evaluation of performancemanagement despite numerous limited reviews of reporting and significant changesto financial management policies. In that environment, the ANAO has consistentlyincluded performance information in its audit work program every few years and hasproduced three better practice guides to assist agencies in meeting the needs ofgovernment and the parliament. It has provided momentum for performance to remainon the agenda of parliament as well as a means for the quality and value ofperformance information to be improved.

More recently, the Department of the Prime Minister and Cabinet led thedevelopment of a Blueprint for reform of public administration that has performancemanagement and capability as core elements of a broad strategy (Advisory Group onReform of Australian Government Administration, 2010). This is a potentiallyimportant development because it offers the prospect of combining the efforts of theFinance, the Department of Prime Minister and Cabinet (PMC) and the AustralianPublic Service Commission (APSC) to achieve reform of policy, administration andhuman resources. The government response to this initiative was initially veryenthusiastic and substantial resources were committed to implementation. Morerecently, however, budget pressures and priorities for savings have eroded theresources available for the initiative and the potential impact.

At the agency level, structure can play a significant role in the success ofperformance management because it defines the lines of responsibility andaccountability and often the budget allocation within the agency. If organisationalstructure is different to the structure of performance reporting requirements, the valueand usefulness of performance information is seriously undermined. However, it is notunusual for this misalignment to occur in Australia. The ANAO found thatapproximately one quarter of agencies surveyed reported that misalignment of

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organizational structures and performance reporting architecture was a disadvantage(ANAO, 2007, p. 52). Over 90 percent of surveyed agencies reported that they monitorperformance primarily on the basis of their organisational structures for internal use(ANAO, 2007, p. 72).

Managerial factorsThe devolved management framework in Australia has meant that management at theagency level is crucial to the operation and success of the system. Central agenciesprovide the instructions to line departments but the latter group has been primarilyresponsible for implementing the instructions. They have interpreted the requirementsfor their own agencies and have designed the performance measures and operationalarrangements which underpin the system. This has led to a wide array of approachesand significant variation in the quality and usefulness of performance information atthe agency level. Managers either choose to meet the minimum requirements toproduce performance information for budgeting and external reporting, or they seebenefit in fashioning performance information to their own ends. In some agencies, thisresults in an integrated performance system linking corporate strategy with budgetsand activities. In others, even some large organisations, there is no performance dataother than the high-level outcomes necessary to meet budgeting and appropriationrequirements (ANAO, 2007). At both of these extremes, and in between, managementhas played an important part in designing the arrangements or choosing not to makemuch effort to establish useful performance indicators.

In its 2007 audit of performance reporting in portfolio budget statements the ANAOobserved that, agencies often find it challenging to implement all the requiredelements of such a regime in a manner that concisely reports on effectiveness andefficiency (ANAO, 2007, p. 17). Not surprisingly, it found that, the extent to whichagencies had integrated outcomes and outputs information into agency operationsvaried (ANAO, 2007, p. 25). More than one quarter of agencies surveyed did notinclude performance information in any planning documents other than those requiredfor external use and were rarely, if ever, included in individual performanceagreements (ANAO, 2007, p. 53). Almost all surveyed agencies used information otherthan publicly reported indicators for monitoring performance for operationalmanagement and around 20 percent rarely or never used published performanceinformation for decision-making on agency priorities, budget plans or resourceallocation (ANAO, 2007, p. 72).

In 2011 the ANAO released a new report on performance information. Its findingswere consistent with previous audits in terms of the variability of performanceinformation across agencies and the significant scope for improvement across allentities. It found that where agencies had clearly defined program objectives, it wasmore likely that they would have meaningful and quantitative effectiveness indicatorsand targets. Around one-third of the entities covered in the ANAO survey hadappropriate indicators, one-third had mixed quality indicators and the remainingone-third required much further development (ANAO, 2011, pp. 17-18). The ANAOconcluded that, executive leadership is critical in emphasizing the importance ofperformance information for decision-making, and in ensuring work is commissionedto assess the effectiveness of KPIs (ANAO, 2011, p. 21).

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Technical factorsThere can be little doubt that technical factors have a significant effect on the successof performance management regimes. The academic and practitioner literatureabounds with examples of technical and administrative prerequisites for goodperformance management, the impact of differences in the content and quality ofperformance measures, the importance of data quality, and suitability of performanceinformation for various uses (Kusek and Rist, 2004; Hawthorn and McDavid, 2006;Hatry, 2007; Arizti et al., 2010). This is demonstrably true in Australia from the earliestreviews of the FMIP to the most recent audits by the ANAO.

A major factor that distinguishes Australia from many other countries that haveadopted performance management regimes is its emphasis on outcomes. Outcomes aredefined as the results, consequences or impacts of government actions (Departmentof Finance and Deregulation, 2009a, p. 1). These are notoriously difficult matters toencapsulate, measure and usefully apply and yet they are probably the most importantperformance issues for public policy and administration in Australia. The Minister ofFinance stated in his update of Operation Sunlight in 2008 that, some outcomes are sobroad and general as to be virtually meaningless for Budget accounting purposesleading taxpayers to only guess what billions of their dollars are being spent on(Tanner, 2008, p. 4).

Outcomes are the basis for annual appropriations for budget dependent agencies.They are also the basis for budget reporting and all other elements of the performancemanagement arrangements cascade downwards from the outcomes. Programs aredefined within outcomes; deliverables contribute to programs and performanceindicators are intended as a guide to the success of programs. If agencies experiencedifficulty in choosing, specifying and managing with outcomes, then it is likely thatthe subsidiary information will suffer either in terms of its usefulness in explainingthe outcomes, or in being able to draw together the subsidiary elements that areintended to contribute to those outcomes. This effect was highlighted by the ANAO intheir most recent audit, as mentioned above (ANAO, 2011). The importance of havinggood quality outcome definitions is well understood by the government. A key actionunder Operation Sunlight was a comprehensive review of outcome statements,resulting in revision of the number and content of outcomes across the national publicsector.

Outputs were one of the main elements of the performance management frameworkfrom 1999 until 2009 when they were dropped from Finance guidance documents.Their place in the framework was taken by other concepts, namely programs anddeliverables. Outputs had been criticised by the parliament and others as beingunhelpful in understanding performance and being difficult to link to the intendedoutcomes. Having outcomes at a very high and broad level no doubt contributed to thisdisconnection, and the lack of intermediate level indicators made it difficult to see andunderstand the links. Programs were seen as a more relevant concept as they are set ata higher level than many of the outputs and related more to policy initiatives andgroups of activities, which are more easily associated with an outcome (Parliament ofAustralia, 2007; Murray, 2008). It is not clear whether the switch from outputs toprograms has improved the quality and usefulness of information for parliamentbecause the changes have not had time to be fully tested. Early indications are thatthey will require substantial further work to be consistently better at presentingperformance information (ANAO, 2011).

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The impact at the agency level of changing from outputs to programs caused asubstantial reassessment and realignment of the performance managementframework. The agencies have experienced both positive and negative effects. Thepositive effects were achieved through the process of reviewing and redefining themeans for contributing to outcomes, refreshing the indicators and measures in theprocess. The negative effects arose from the destabilization of existing informationstructures and systems and the costs of rebuilding them.

The concept of programs is not new to Australia. Programs were the basis for theoriginal system of performance management established in 1984. It had been replacedwith outcomes and outputs in the 1990s in an attempt to improve the precision andfocus of performance information on results rather than the previous preoccupationwith actions and intentions. Although the precise meaning and construction ofprograms are different in the current context, it remains to be seen whether they willsuffer from the same weaknesses identified with the previous types of programs. It isalso a concern that the return to the program concept may have a longer termdestabilizing effect on the framework by weakening confidence in the stability of basictechnical features.

Implementation of performance management is not only dependent on the quality ofits technical design, but on the capacity of government officials to apply therequirements. It is also dependent on the capacity of intended users to understand,interpret and apply the knowledge that they obtain from performance data. Animportant part of this aspect of implementation is the quality of guidance and trainingfor officials, managers and parliamentarians in how to understand and use theinformation. Finance has released and updated guidance almost annually since theintroduction of the outcomes and outputs framework in 1998 (Department of Financeand Administration, 1998) and provided access to training for agencies in the first fewyears after its introduction until 2001. The ANAO has supplemented Finance guidancewith its own better practice guides in an attempt to bridge the gap between agencycapability and the quality of performance information seen as necessary for theparliament (ANAO, 2004). There has been no specific training or guidance formanagers and parliamentarians in the interpretation or use of performanceinformation.

The ANAO identified lack of awareness and understanding of the requirements tobe a significant weakness in the implementation of Australias performancemanagement regime (ANAO, 2007). It recommended that Finance update itsguidance, facilitate the exchange of information and experience and provide ongoingpractical advice on implementation. Finance agreed to the recommendations and hassince provided updated guidance on various aspects of the performance managementarrangements (Department of Finance and Deregulation, 2009a, b, 2010). The recentaudit of performance information by the ANAO suggests that there remains aweakness in knowledge and capability to implement the arrangements effectively andfurther recommendations were made for Finance to improve its guidance (ANAO,2011).

Cultural factorsThe institutional framework for Australia has meant that the performancemanagement system evolved primarily through the actions of government andofficials, underpinned by some fundamental legislation and procedures relating to

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financial management and accountability and management of the public service. Thefinancial management and public service legislation sets out key principles for theperformance of functions and the management of staff in Australia and is an importantguide to the prevailing culture of the system. The Public Service Act 1999 (PS Act)contains 15 explicit values and code of conduct that public servants are required toadopt. Some core values in the list that are relevant to performance managementinclude accountability for action, responsiveness to government, delivery of servicesfairly, impartially, courteously and effectively, and a focus on achieving results andmanaging performance. The Financial Management and Accountability Act 1997(FMA Act) requires agency heads to make efficient, effective, economical and ethicaluse of resources (FMA Act, s.44). The formal cultural framework built into legislationand regulation is consistent with performance management objectives. It is less clearthat informal culture offers similar complementarity to performance objectives and noresearch is available to provide insight into this aspect.

Research undertaken by the APSC provides some appreciation of the application ofvalues in performance management. Each year the APSC prepares a State of theService report which, among other things, assesses the application of values under thePS Act, based on an annual survey of employees. In 2009-10 the APS found that91 percent of respondents believed that their supervisors always or usually acted inaccordance with the values. Although this seems very positive, the respondents alsorated public sector values, performance management, financial and programmanagement among the lowest core skills needed to do their jobs (APSC, 2010,pp. 43-58). Considering the importance of each of those skills for effective performancemanagement, the survey results provide some cause for concern.

There are plans to revise the public service values under the PS Act in an effort tosimplify and improve the focus. In 2010 the APSC released for public comment aproposal to reduce the number of values from 15 to five. The five values proposed were:Committed to service; Ethical; Respectful; Accountable and Apolitical none of whichappear to contain the emphasis on results and performance included in the currentvalues set (APSC, 2010, p. 41). It is not clear how this will affect the culture ofperformance management, but it is hard to see how exclusion of performance from thevalues would be helpful.

Behavioural factorsAccountability is a strong element of budgetary management through extensiveregular reporting, parliamentary examination of budget estimates and outturns, and avery active state audit function which produces performance audit reports on a diverserange of activities each year. There is a strong incentive to ensure that obligations toreport on performance are met. Any failure to present information on performance runsa high risk of being detected and exposed through monitoring by Finance, scrutiny ofbudget related documents by the parliament or performance auditing by the ANAO.Each year government agencies prepare very detailed portfolio budget statements,incorporating extensive information on their outcomes and performance indicators toassist the parliament in examining budgets. At the end of each year agencies arerequired to produce similarly detailed reports on their achievements against theindicators presented in their portfolio budget statements. This provides a strongincentive for agencies to comply with the requirements for preparing and publishingperformance information.

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The emphasis on publishing performance information is, however, much strongerthan the emphasis on review of actual performance results. There is little evidence ofany review or oversight body calling an agency to account for underperformanceagainst published targets or indicators. This was a point emphasized by the Minister ofFinance in his 2008 update of Operation Sunlight (Tanner, 2008). Even within agencies,the discussion of disappointing performance is very limited. For example, a study ofannual reports by agencies reveals very few instances of explanation forunderperformance or discussion of corrective measures (Government of Australia,2011). Although there was a review of outcomes in 2008-09 across all departments,initiated as part of Operation Sunlight, progress on review and revision of performanceindicators and targets is less evident. It may be too early to look for improvements inthe performance measures and targets, which could be expected to follow revision ofoutcomes, however there are clear gaps between current practice and good qualityinformation (ANAO, 2011). Finance recognised the need to highlight the importance ofgood performance indicators and it reissued guidance on performance indicators inOctober 2010 to remind agencies of their obligations and to assist them to improvequality (Department of Finance and Deregulation, 2010). In response to the ANAO 2011audit of key performance indicators, Finance stated that it would be preparing a reportwhich compares 2009-2011 results against plans published in Portfolio BudgetStatements (ANAO, 2011, p. 25).

In this environment, the lack of careful scrutiny of performance informationprovides an opportunity for providers of information to shape their reportedperformance plans and results in ways that minimize their exposure to risk of criticismwithout serious concerns about being challenged to deliver better results or moreappropriate performance indicators. This potential for self-protection is reinforced bythe strong political culture of avoiding criticism. The logical consequence is thatpotentially controversial indicators and targets may be avoided, regardless of theirimportance as guides to success in contributing to objectives or desired outcomes. Inthe absence of internal demand or external quality assurance on the selection and useof indicators, agencies are largely free to select indicators that will not draw unwantedattention. The Australian authorities have recognised the importance of behaviour toeffective policy. In 2007 the APSC issued a series of publications on contemporarygovernment challenges, one of which was on changing behaviour (APSC, 2007). Thepublication was focused on considering behaviour as a means of improving policyeffectiveness in the wider community, but many of the matters covered could beapplied equally to implementation of policy within government.

Success or stagnation?There can be no doubt that changes have been made to the performance managementarrangements with the best intention of improving performance information andreporting. In that regard, Australia cannot be accused of stagnation. It has a longhistory of incremental reform and there is clear evidence of that trend continuing inregard to performance management arrangements. The focus of Australias changesduring the last decade has been largely on the technical elements: outcomes have beenrefined, programs have replaced outputs and agencies are being encouraged toimprove the quality of performance measures and targets (ANAO, 2011). New andupdated guidance has been issued by Finance to assist agencies in adapting to the newrefinements. External factors have played a significant part in the change. A new

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government was elected with a specific agenda for performance management reform,and it has made progress on implementation of that agenda since taking office in 2007.Other external factors have mitigated the progress by generating an urgency to focuson macroeconomic and fiscal priorities rather than more detailed performance issuessuch as efficiency and effectiveness.

Other than the technical, structural and external elements, however, there has beenlittle evidence of reform driven by the other influences on performance managementdiscussed in this paper. The managerial, cultural and behavioural factors have beeninfluential in the pattern of implementation, but they have not been used as tools torefine and improve the system to date. The analysis provided in the previous sectionidentified a number of areas where the effects of each factor can undermine or mitigatethe success of performance management, but these effects have not been addressed inany substantive way as part of the reform agenda.

Although stagnation can be ruled out, success still cannot be claimed. The latestavailable evidence indicates that the quality of performance information still leavesmuch to be desired (for example, see ANAO, 2007, 2011). The use of performanceinformation appears limited, even in the agencies that produce it, despite the wideavailability of performance data and reports. There is also little indication thatAustralia is moving towards a more sophisticated type of performance managementsystem in terms of the Bouckaert and Halligan classification (Bouckaert and Halligan,2008). The refinements being implemented appear to be strengthening its status as aperformance management system rather than underpinning an evolution toperformance governance. The persistent problems identified with the quality ofperformance information, particularly relating to effectiveness, and the ongoingvariation between agencies with acceptable and inadequate performance informationremains a barrier for further progression (ANAO, 2011). While there have beenpronouncements by the government and others which call for adoption of someelements of performance governance (see Advisory Group on Reform of AustralianGovernment Administration, 2010, for example), evidence of progress along those lineshas not been detected to date.

It may be too early to tell if the changes arising from technical refinementsintroduced after the change of government in 2007 will have a major effect on thesuccess of performance management in terms of quality and use of information. It is amatter for concern, however, that many of the factors impinging on performancemanagement have not changed, offering some cause for pessimism (ANAO, 2011).

Future directions in public sector performance management for AustraliaAustralian performance management continues to be a work in progress. Based on itsapproach to date, and the supportive environment for maintaining performancemanagement arrangements, Australia can be expected to explore further refinementsin the future. Changes proposed to the values under the PS Act following from theBlueprint recommendations and increasing attention to performance information, asadopted under Operation Sunlight, are some potentially important changes to come.These developments could bring about cultural and behavioural changes inperformance management to complement the technical refinements. Movements inthe external environment may also have an impact on the pace and nature ofperformance management change. For example, the minority government thatemerged from the 2010 election, and resulting increase in power of independent

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members and smaller parties, could lead to increasing emphasis on performance andbroader community engagement by the government. Alternatively, it could result ingreater politicization of performance and emphasis on damage control rather thanconstructive improvement.

The framework applied to analysis of Australias performance management in thisstudy has pointed to some significant strengths and weaknesses that should be takeninto account by policy makers going forward. The academic and practitioner literatureprovides substantial coverage on technical and institutional factors as being a majorinfluence on the success of performance management (De Lancer Julnes, 2008; Hatry,2007). Australia has performed strongly in terms of these factors, both in design andscope, encompassing outcomes and effectiveness more extensively than many othercountries (OECD, 2007). The future of technical and institutional influences appears toentail further refinement and clarification of the existing framework. The ANAOfindings indicate that there are many gaps in the application of current requirementsand Finance has demonstrated an intention to work on addressing these weaknesses(ANAO, 2011).

The extent to which the government is successful in improving performancemanagement will depend on all factors highlighted in this study, not just the ones thatthey have relied on to drive reform in the past. Cultural factors can have a powerfulimpact on the quality of implementation and use of performance information (Pandeyand Moynihan, 2008), however this does not seem to have been a major part of thegovernment strategy for improvement. Instead, the emphasis on culture has beenperipheral to the operations of performance management and possibly declining inimportance as a component of public service values. The significance of behaviouralfactors is limited in the Australian system because of the general weakness andvariation in quality of performance measures and targets within and across agencies(ANAO, 2011). This is likely to be increasingly important as an influence of the successof performance management as agencies respond to the ANAO recommendations anddecision makers pay more attention to the variation between performance plans andresults. This has the potential to be a double-edged sword which both increases thequality of performance information and strengthens incentives for adaptingperformance measures to the benefit of producers rather than users of theinformation (Radnor, 2008; Radin, 2006).

As highlighted by the ANAO, public sector leaders can play a powerful role inimproving the success of public sector performance management arrangements(ANAO, 2011). This echoes findings in the performance literature that leadership isvery important (De Lancer Julnes, 2008; Pandey and Moynihan, 2008; Kotter, 2007).The Management Advisory Committee has been a strong voice in advocating the valueof performance management as a means to improve policy outcomes (ManagementAdvisory Committee, 2001), however it is not clear that this message has been heard or,more importantly, taken up at the agency level. An important challenge for Australiawill be to identify how management at the agency level can be universally convinced toapply the framework effectively.

ConclusionThis paper has examined the evolution of Australias public sector performancemanagement regime in the context of six key influences on success. It has explainedthat Australian public sector performance management has proven to be resilient and

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continues to function and evolve, exhibiting new initiatives and refinements every fewyears. The paper has highlighted the paramount importance of external politicalfactors in establishing and retaining the system. It has also pointed to the importanceof technical and structural factors in refining and maintaining the system. Successivegovernments from both major political perspectives have demonstrated a willingnessto retain performance management arrangements but at the same time have displayedan irresistible propensity to make changes. The crucial roles played by Finance and theANAO have shaped and strengthened the framework through ongoing refinement andmaintaining a focus on accountability. Technical factors have been important inshaping the design and also setting the foundations for good quality information andsystems. The academic and practitioner literature acknowledges that those elementsare vital, though not sufficient to ensure the achievement of public sector performancemanagement at a high standard (Van Dooren and Van de Walle, 2008).

The success of the framework continues to be limited by weaknesses that have beendocumented since the performance management system was introduced almost threedecades ago. In particular, the variability and general weakness in the quality ofperformance measures have been identified as persistent challenges (ANAO, 2011;Parliament of Australia, 2007). Despite efforts to improve the performancemanagement framework and broaden its span, the system has not been able toresolve the ongoing challenges or evolve from a performance management system toa performance governance system (Bouckaert and Halligan, 2008).

The paper has identified some possible reasons for the difficulties faced byAustralia in overcoming persistent challenges. It notes that, despite the strength inaddressing some of the key factors for successful performance management, there aresome areas which have received relatively less attention and may provide the means toprogress more effectively. These factors are management (Moynihan, 2008), behaviour(Radin, 2006) and culture (De Bruijn, 2007). Although the importance of those factorshas been acknowledged by governments and officials in Australia (Advisory Group onReform of Australian Government Administration, 2010; ANAO, 2011; Tanner, 2008)there appears to be considerable scope to increase effort to take them into account inrefinement of the system.

More research is needed in Australia to understand the significance of all six factorsdiscussed in this paper in shaping public sector performance management. This paperillustrates that each of the factors has influenced the progress of performancemanagement at the national level, however additional work is needed to understandmore fully the effects of each factor and the significance of their interaction. Thereviews and studies discussed in the paper, particularly the work of the ANAO,indicate that considerable variation in quality and use of performance informationexists at the agency or organizational level. It is likely that a better understanding ofthe influence of the six factors could be obtained by studying the variation in theirimpact within and across agencies, in addition to work at the national level.

Australia is not unique in struggling to address the deficiencies in quality ofperformance management. For example, in 2010 the UKs National Audit Officeobserved that, despite improvements, around 40 percent of public service agreementdata systems were not fit for purpose and strengthening was necessary across theframework (National Audit Office, 2010). Like Australia, the UK has had a longexperience in using and refining its performance management system but clearly hasscope for further improvement. Other countries with less experience are also having

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difficulties in achieving success with performance management arrangements (Ariztiet al., 2010). There would be merit in review of other country experiences using theframework adopted in this paper to examine the significance of the six factors, andtheir interaction, on the success of performance management.

Note

1. The Department of Finances name was changed to the Department of Finance andAdministration and subsequently to the Department of Finance and Deregulation but itsresponsibility for performance management policy has remained largely unchanged since1984. In the remainder of this paper it is referred to as Finance for simplicity and to avoidany confusion.

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Further reading

Hawke, L. and Wanna, J. (2010), Australia after budgetary reform: a lapsed pioneer or decorativearchitect?, in Wanna, J., Jensen, L. and de Vries, J. (Eds), The Reality of Budget Reform inOECD Nations, Edward Elgar, Cheltenham, pp. 65-90.

Corresponding authorLewis Hawke can be contacted at: apozema@gmail.com

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