Michael Cesar, Deloitte & Touche

“There is no undertaking more hazardous nor more uncertain of its success than the incorruption of a new order of things, because the innovator has as its fierce opponents all those who profit from the existing system and only lukewarm defenders in those who might profit from the new one.” - Niccolo Machiavelli, The Prince

PREAMBLE

The public, always a demanding customer, wants more and better quality from government that it perceives to be wasteful, ineffective, and in many cases just plan unresponsive to its needs. It is within this atmosphere that we have witnessed the rise of accountability for government programs. Programs that are unable to justify their value are being downsized or eliminated all together.

Performance measures are gaining in popularity as a direct result of the movement toward increased accountability in the public sector. Performance measures represent the most direct means for determining actual and potential improvement. Managers who lack this important information source are operating blindly. Effective performance measurement in the public sector should be guided by the following six axioms:

Axiom #1: Performance measurement must be “value-based”

Performance Measurement should help focus management on those factors that create value for the organization’s stakeholders. In the public sector, there is no stakeholder comparable to a shareholder in the private sector. However, it is just as important to identify those factors that will drive value to stakeholders over time and focus management attention on those factors. The focus on value means that an organization is being directed by a definite strategic plan with measurable results to accomplish the fundamental purpose of the organization on behalf of its stakeholders.

Axiom #2: Performance measures must influence the achievement of long-term objectives

One of the pitfalls in the measurement of performance is that it creates incentives that can result in over-emphasis upon the short-term. For instance, if an individual’s promotion depends upon performance, then the person may weigh effort toward the achievement of short-term improvements in performance. This means that there could be an under-investment in innovation, quality improvements, and increases in effectiveness. Management must be careful that performance measures that are expected to improve behavior are not manipulated and distorted by those who might be affected by them. The performance measurement system should be designed to help organizations “learn to do the right things well.” To achieve this, performance measurement requires a long-term, multi-dimensional perspective, not just a short-term financial perspective.

Axiom # 3: Performance measures must not be introduced in a vacuum

The vision, values and guiding principles must be developed and visibly promoted by senior management. An organization will have to change both culturally and structurally before performance measures can be implemented successfully. To guide these changes, clear direction is needed from top management. Management must demonstrate genuine support for the new system to create a positive attitude toward change in the organization. Consistency is key in management actions and behaviors. Managers must give all those inside the organization the same message.

Axiom # 4: Performance measures must not be sold as a self-contained solution

Performance measures will not in themselves produce higher levels of effectiveness, efficiency and quality. These are achieved through decisions to reallocate or reassign resources, improve work methods and change task priorities. But, performance measurement can provide some of the data necessary to redirect resources. These data cannot supplant judgment and professional experience; rather they should augment them in the decision-making process.

Axiom # 5: Rewards must be linked to performance

“The way to people’s hearts and minds is not through their ears but through their wallets. A company’s management systems shape its values. If you want people to share your values, you have to specifically measure and reward them for exhibiting those values. Otherwise, they will be confused about the importance of the values you espouse and will experience no positive reinforcement for adopting them.” – Michael Hammer, 1995

If an organization is to be successful and able to have some effective measure of success, there must be a structured process of linking objectives to critical success factors and the associated performance measures. Experience has shown that the behavior of managers is directly linked to the things they are measured on. This is particularly true when their compensation is tied to their performance.

Axiom # 6: Implementation must follow the 80/20 rule

The 80/20 Rule is the principle that 20 percent of something always is responsible for 80 percent of the results. In most cases, 80% of the key measures can be derived and reported on from existing systems and processes. This concept should not take a year to implement and can be progressively improved and enhanced over time.