How Organisations Measure Success

The Use of Performance Indicators in Government

Neil Carter, Patricia Day, Rudolf Klein

• Publisher: Routledge
• Year: 2002
• Print ISBN: 9781138467316
• eBook ISBN: 9781134813643
• Topic: Medicine
• Subtopic: Health Care Delivery

Throughout the 1980s the British Civil Service devoted much time and energy developing indicators to measure the performance of government. Never before had so much stress been placed on accountability and performance; a trend which will be reinforced as government continues to devolve activities to agencies and looks for methods to assess their performance.
How Organisations Measure Success analyses existing methods from their origins in the 1960s to their revival in the 1980s as part of the Financial Management Initiative and its apotheosis in the 1990s Next Steps Initiative.
How Organisations Measure Success reports on two years of field research funded by the Economic and Social Research Council and will be of great interest to students of social policy and public administration as well as professionals working in government and public sector management.

1 Revolution or resurrection?: The history of a concept

Just as the start of the French Revolution is conventionally taken to be 14 July 1789, so the start of the Thatcher managerial revolution can be dated with some precision, 17 May 1982. No buildings in Whitehall were stormed, no Bastille fell, and there is unlikely to be dancing in the street on the anniversary of the event in future years. However, on that day the Treasury sent out a note to a variety of government departments (Prime Minister and Minister for the Civil Service 1982) resonant with implications for the inhabitants of the Whitehall village. This called for ‘a general and co-ordinated drive to improve financial management in government departments’, so launching what came to be known as the Financial Management Initiative (FMI). The principle underlying the FMI was simple and was to be elaborated in countless documents. It was that managers at all levels in government should have ‘a clear view of their objectives; and assess, and wherever possible measure, outputs or performance in relation to these objectives’. There were thus three critical, and mutually dependent, components in the new management system. The first was the specification of objectives not only for government policies but for individual units within the government machine. The second was the precise and accurate allocation of costs to particular units of activity and programmes. The third was ‘the development of performance indicators and output measures which can be used to assess success in achieving objectives’. The question to be addressed, the Treasury note stressed, is ‘where is the money going and what are we getting for it?’ Accordingly ‘systems should be devised to provide answers to both sides of the question wherever and to the extent that it is possible to do so. Relevant information on performance and (where possible) outputs will often be non-financial in character’.

Like the storming of the Bastille, the importance of the Treasury note on 17 May 1982 was largely symbolic in character. It gained its significance from what came before and what came afterwards. It was preceded by a variety of initiatives designed to improve management in Whitehall, notably the efficiency strategy (Metcalfe and Richards 1987). It was sustained by continued Prime Ministerial interest and increasing civil service commitment. But before exploring the birth and development of FMI in greater depth, and examining in particular the development of performance indicators, there is a double paradox to be addressed. This is, first, why a set of rather trite, seemingly self-evident propositions— about the need to link objectives, costs, and outputs systematically— could be seen as being so novel in the context of Whitehall: why, in short, could it be perceived as a challenge to the way in which the British Government machine worked? Second, why did a bundle of ideas that had almost achieved the status of an antique suddenly come into favour, to be seen as the latest managerial wonder drug: given that the FMI was a resurrection rather than a revolution intellectually, why did the concepts embodied in it suddenly achieve a second coming? To provide some answers to these questions, this chapter first explores the intellectual roots of the 1982 initiative, and its emphasis on performance indicators, before returning to look at the specific circumstances that provoked the launch of the FMI and ensured its development over the rest of the decade. For the history of the concepts provides a warning against seeking to interpret the FMI too exclusively in terms of either the characteristics of the Thatcher Administration or of the institutional structures and traditions of Britain.

A CONCEPT AND ITS HISTORY

At the risk of over-simplification, the concepts embodied in the Financial Management Initiative can be seen as a response—one of many-to the growth in the scale and scope of State activity everywhere during the 20th century, and in particular in the period after 1945. Government was becoming not only bigger but also more complex. Its budget expanded in line with its responsibilities. Its organisation changed as, increasingly, it took on service-delivery roles. The cobweb networks of co-ordinating committees grew in intricacy. The result, everywhere, was a perceived lack of control and accountability; the notion of overload was born (King 1975). Ministers no longer felt in control of their departments; Parliament no longer felt that Ministers could be called to account effectively. The lack of transparency of government activities reinforced the sense of paralysed helplessness in the face of size and complexity. In Britain, the result throughout the 1960s was a debate about the machinery of government (see, for example, Thomas 1968 and Crick 1968), ranging from Whitehall to Westminster and beyond. The decade was, consequently, marked by continuing pressure to adapt existing institutions and to devise new tools in order to make big government more manageable and more efficient.

Nor was this phenomenon exclusive to Britain. It was the United States which produced much of the vocabulary and many of the techniques that shaped a variety of initiatives in this country, and ultimately the FMI. In 1961 the US Department of Defense introduced a planning, programming, budgeting (PPB) system devised and directed by Charles Hitch, a former Rand Corporation analyst, in order to assert central control for the effective use of resources. It was a department marked by its vast budget, its difficulties in dealing with runaway procurement costs, and the ambitious obduracy of the military in seeking as many and as sophisticated weapons as possible (Hitch 1965). Its Secretary, Robert McNamara, had every incentive to seek a better instrument of control and decision-making. Subsequently, in 1965, President Johnson promulgated that PPB systems should be adopted by all civilian agencies of the federal government. PPB, or output budgeting as it became known, had the following objectives:

1. To define the objectives of policies in all major areas of government activity.
2. To organise information about expenditure and use of resources in terms of the specific programmes designed to achieve these objectives.
3. To analyse the output of programmes so as to have some measurement of their effectiveness.
4. To evaluate alternative ways of achieving the same policy objectives, and to achieve these objectives for the least cost.
5. To formulate objectives and programmes over a period of years, and to provide feedback about the appropriateness and effectiveness of the methods chosen.

(Schultze 1968:19–23)

The PPB system was therefore designed, and seen, as an instrument for planning government activities more rationally, more efficiently, and more effectively. It was, in this respect, very much the product of the era of faith in managerial rationalism (Challis et al. 1988), before the faith was challenged by economic crisis and political disillusion in the 1970s. Indeed it was explicitly argued that the rationality of planning was preferable to— and more equitable than—the rationality of politics. The normative case for adopting a systems approach, as developed in a notable analysis by Schick (1969), deserves exploring at some length since its relevance has not diminished over the decades. Decision-making through ‘process politics’, Schick argued, inevitably tends to ‘favor partisans such as agencies, bureaus and interest groups’. Legitimated by pluralistic theory, the process approach furthermore offers ‘a convenient escape from difficult value questions’. Whatever is produced through the process of bargaining, is best: ‘once they were sold on the efficiency of interest groups, the pluralists stopped worrying about the ends of government. They were persuaded by a tautological, but nonetheless alluring, proof that the outcomes of the group process are satisfactory’. Moreover, the persuasiveness of the pluralistic model of decision-making depended heavily—as Schick noted already in 1969— on taking growing economic affluence for granted, so that politics was seen as ‘a giant positive sum game in which almost everyone comes out ahead’ and on assuming that even disadvantaged groups were able to take part in the bargaining.

In contrast, the systems approach—of which PPB was an off-spring— was designed to produce ‘an explicit examination of outcomes’. Unlike the process model, it did not have an in-built bias towards the stronger actors in the political arena. By demonstrating unsatisfactory outcomes, it might furthermore provoke criticism of the political processes which had produced them: Schick indeed argued that the ‘systems mood’ of the 1960s in the United States reflected the rediscovery of poverty and racial inequalities. PPB can thus, in a sense, be seen as giving visibility to minority interests denied voice in the normal political processes. Moreover, the systems approach involved a shift in the distribution of power in a double sense. Not only is it about the distribution of power within society; it is also about the distribution of power within the government machine. As Schick pointed out:

In the usual bureaucratic pattern, budgetary power is located at the lower echelons, with successively higher levels having declining power and less involvement. By the time the budget reaches the President, most of the decisions have been made for him in the form of existing programs and incremental bureau claims. Barring unusual exertion, the President’s impact is marginal, cutting some requests and adding some items of his own.

(Schick 1969:143)

The introduction of PPB could thus be seen as a way of strengthening the ability of the President to impose his will: more generally ‘systems politics tends to favor the central allocators, especially the chief executive and the budget agency’. Substitute Prime Minister for President, and the implications are clear, particularly for Prime Ministers with a presidential temperament.

By 1969, when Schick was writing, enthusiasm for PPB was on the wane in the United States. It was sharply criticised by the pluralists (for example, Wildavsky 1979). As Schick conceded:

PPB is an idea whose time has not quite come. It was introduced government wide before the requisite concepts, organisational capability, political conditions, informational resources, and techniques were adequately developed. A decade ago, PPB was beyond reach; a decade or two hence, it, or some updated version, might be one of the conventions of budgeting.

(Schick 1969:50)

However, he also concluded that a systems approach ‘might mean permanent crisis’ and ‘constant struggle over public ends and means’, by giving visibility to outcomes, while process politics was designed to avoid such conflict. Hence systems politics would never replace process politics. It is a conclusion that suggests, if only tentatively, that a systems approach is likely to be adopted only by a government with a high degree of tolerance for conflict.

As so often, just as the United States was beginning to become disillusioned with an idea, it was being imported with enthusiasm into Britain (Klein 1972). The Ministry of Defence decided in 1964 to adopt a system similar to that already introduced by its American counterpart. Subsequently the Treasury decided to experiment with ‘output budgeting’, as PPB was rechristened. And in 1970 the Department of Education and Science (DES) published a feasibility study of applying output budgeting techniques to its activities (DES 1970). But what was originally intended as a model for other Ministries to follow turned out in practice to be the obituary for the new technique. Although the Department of Health and Social Security produced what it styled a programme budget (Banks 1979), involving the allocation of expenditures to certain broad heads of activity (like services for the elderly), little more was heard about output budgeting. Conceptually and technically, ‘output budgeting’ had proved difficult to translate into an operational system; in particular, the definition of outputs and the development of indicators of success had turned out to be an elusive task, a point to which we return below. The attempt had also tended to soak up time and scarce expertise in the civil service; the investment costs had turned out to be very high. Above all, the early 1970s saw the birth of a new generation of acronyms: the fashions in managerial radicalism had changed. The 1970 White Paper on The Reorganisation of Central Government (Prime Minister 1970) —the managerial manifesto of the Heath Administration, just as the FMI was the managerial manifesto of the Thatcher Administration—still stressed the need ‘for explicit statements of the objectives of expenditure in a way that would enable a Minister’s plans to be tested against general government strategy’. However, it also launched a new concept: Programme Analysis and Review (PAR). So PAR replaced PPB, only to vanish in turn by the middle of the 1970s (Heclo and Wildavsky 1981) — not before, however, the DES had once again pioneered the new technique and carried out a departmental PAR under the Secretaryship of Margaret Thatcher.

Although the fashions in acronyms changed from decade to decade, there was remarkable stability over time in the concerns (and the interests voicing them) underlying the various attempts to bring new techniques into British Government. They can conveniently be analysed under three headings, although in practice there was considerable overlap between the categories; (1) concern about public expenditure planning, (2) concern about the managerial competence of Whitehall, and (3) concern about accountability. The initial impulse for devising new instruments and techniques of control came from alarm about the incremental but inexorable upward drift in public spending: the result was the Plowden Report (Chancellor of the Exchequer 1961) which gave birth to a new system of public expenditure control and subsequently led to the publication of an annual Public Expenditure White Paper (Klein 1989b). Its emphasis was on devising a system that would allow long-term planning and force a more critical scrutiny of commitments, both new and old, by Parliament and public in the expectation that this would lead to greater restraint in spending. The expectation was not to be realised, even though it was shared by the Treasury. The second strand, what might be called ministerial concerns although they were not exclusive to them by any means, reflected the feeling that the problems of modern government had outrun the capacity of the civil service to cope with them and that structural change was needed: a point already touched on. This was to lead to the appointment in 1966 of the Fulton Committee on the Civil Service (Fulton 1968), and a string of proposals for introducing managerial ideas into Whitehall. Lastly, there was continuing concern in Parliament not only about the control of public expenditure and the competence of government, but also about the lack of accountability that followed from the sheer complexity of the spending process and the lack of accessibility to the managerial process in Whitehall: hence a succession of demands, spanning the decades from the 1960s into the 1980s, calling for a system that would produce both greater efficiency and more transparency.

There were, then, at least three constituencies with an interest in promoting change though not necessarily change of the same kind or at the same pace: the Treasury, Ministers, and Parliament. At times, their interests diverged; the emphasis shifted, at different periods, from expenditure control to managerial worries, from managerial worries to issues of accountability, and back again; on occasions environmental turbulence, notably economic crisis, displaced all three and pushed more immediate issues to the forefront. However, given the underlying continuity, it is worth analysing briefly some of the arguments and proposals of the 1960s, since they were to surface again in the 1980s albeit in a new language. Specifically the Fulton Committee anticipated (ibid.: Ch. 5) much of the logic underlying the 1982 FMI. It argued that efficiency in government, as in all large organisations, required delegation of responsibility; in turn, such delegation required a structure in which units and individuals could be held accountable for the achievement of specified objectives. In a section (para. 150) that could well have been included in the 1982 Treasury note, the Committee argued:

Accountable management means holding individuals and units responsible for performance measured as objectively as possible. Its achievement depends upon identifying or establishing accountable units within government departments—units where output can be measured as objectively as possible and where individuals can be held personally responsible for their performance

(Fulton 1968:51)

Here, then, is the emphasis on ‘measurable output’ —or alternative, non-quantitative criteria for assessing performance—that was to characterise the 1980s initiative. And here, too, was a stress on ‘hiving off’ government activities to independent boards or bodies, which was yet another concern of the 1980s: suggesting that we are perhaps drawing on a package of linked ideas—a sort of a political ideology of managerial reform in government—forged in the 1960s but destined to resurface in a very different environment twenty years later.

Certainly a remarkable continuity and consensus is evident in a succession of parliamentary reports spanning two decades, originating from a variety of House of Commons Committees and bearing the signatures of a long succession of MPs drawn from all parties. It was driven by the ambition to re-assert, in new circumstances, the traditional parliamentary function of controlling and scrutinising public spending. But the traditional concern was clothed in a new language: so, for example, in 1969 the House of Commons asserted that its role was to ensure that public spending should be ‘efficiently planned and managed’. The same report endorsed the notion of ‘output budgeting’:

Output budgeting is of great significance to the House of Commons for two reasons. First, by setting out the activities of Departments in the form of costed programmes, it will enable the House to weigh the objectives selected by Departments against possible alternatives. Second, the development of output budgeting will increase the possibilities of assessing Departments’ efficiency in setting objectives and their measure of success in realising them.

(Select Committee on Procedure 1969: xii)

The influence of American ideas is clear; the Committee had sent its Clerk to study the PPB system in Washington. And the same theme was taken up in a series of parliamentary reports stretching over the 1970s. Even though the fires of enthusiasm for output budgeting and indicators of success had died down in Whitehall, Westminster insisted on trying to breathe new life into the dying embers. In 1971 the Expenditure Committee called for spending plans to be linked to objectives, and for at least some measures of output (Expenditure Committee 1971 para. 19). The following year, the Committee called for a new information system:

The idea of a comprehensive set of statistics of outputs over the whole range of public expenditure is an ambitious one. But we believe that it ought to be regarded as a realistic and reasonable aim. Patient work by the civil service and computer techniques have given us, through measurement of expenditure at constant prices, one of the most sophisticated analyses of inputs in the world; we think that the possibilities inherent in the present system will not be fully realised until the analysis of inputs is matched by an analysis of outputs.

(Expenditure Committee 1972:ix)

Implicit in these, and similar, demands from Parliament was a revolution in the concept of accountability for public spending. For centuries, Parliament had fought to establish its right to examine—and in theory to veto—proposals for spending. Now it was fighting for its right to examine what the money had actually bought. The importance of this change is well caught in the following quotation from Alice Rivlin, one of the apostles of the new systems approach in the United States whose influence was to stretch into the 1980s:

…stating accountability in terms of inputs—through detailed guidelines and controls on objects of expenditure—spawns red tape and rigidity without introducing incentives to more outputs. Hence a new approach is in order: state the account ability in terms of outputs, and reward those who produce more efficiently.

(Rivlin 1971:126–7)

Rivlin’s point was made in the context of a discussion of Congressional control over spending. The fact that it echoes discussions of parliamentary control over public expenditure is significant, and this for two reasons. First, it tends to confirm that the interest in devising new techniques, of which performance indicators formed an essential part, was a cross-national response to a shared set of problems. Second, it demonstrates yet again the existence of a set of ideas whose persistence reflected, in part at least, the fact that they were expounded by a permanent intellectual lobby whose influence was growing from the 1960s onwards.

In effect, the advocates of the systems approach argued—as already noted—that the rationality of politics was not enough. It required to be supplemented, if not replaced, by a model of rationality largely drawn from economics. The drive for better budgetary systems, the identification of objectives, and the measurement of outputs coincided with, and to an extent reflected, the rise of the ‘econocrats’ in government (Self 1975). The intellectual history of the influence of economists and their notions on the techniques of government still waits to be written. But it is evident that it was growing rapidly from the 1960s onwards, on both sides of the Atlantic. Not only were more economists at work in Whitehall: their presence in the offices of Ministers was already being compared to the role of do...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Tables
• Abbreviations
• Introduction
• 1 Revolution or resurrection?: The history of a concept
• 2 Models, measures, and muddles: Organisational and conceptual dimensions of performance indicators
• 3 The criminal justice system: Police, courts, and prisons
• 4 The welfare system: Social Security and the National Health Service
• 5 The private sector: Banks, building societies, and retail stores
• 6 Managing monopolies: Railways, water, and airports
• 7 Performance indicators in the 1990s: Tools for managing political and administrative change
• References