February 13, 2017Doug Hadden
Performance management has become an important trend in government organizations. “It seems logical to expect high-performance measurement cultures in a sector that controls over a third of the economy. (Jones, 2014)”
My post last week made the case for the use of the balanced scorecard method for government performance management. This approach can help public sector institutions to simplify the complexities of performance management that, unlike the private sector, does not have an objective “bottom line” like profit. The methodology calls for the balance between financial, customer, internal progress and learning perspectives.
The balanced scorecard methodology was originally developed for the private sector “its potential to improve the management of public sector organizations (PSOs) is even greater. (Kaplan, 1999)” Given the fundamental differences between public and private sector management, this post looks at emerging good practices in public sector balanced scorecard implementations. This includes structural adjustments to the balanced scorecard in government rather than organizational change management practices. The reason that I call this “good practices” rather than “best practices” is because it depends on the context. Quite frequently, so-called “best practices” are too complicated or unnecessary in many government organizations.
How does the government domain change the nature of the balanced scorecard?
There are four fundamental differences in the structure of public sector and private sector balanced scorecards:
- Mission alignment
- Budget alignment
- Customer perspective
- Financial Perspective
1. Mission alignment
Mission and mandate statements can be important in businesses. There are more recognizable concepts of functions in businesses than governments. “A clear distinction between private versus …public sector Balanced Scorecards is drawn as a result of placing mission at the top of the framework. Flowing from the mission is a view of the organization’s customers, not financial stakeholders. (Niven, 2008)”
Mission and mandate must move to the top of the balanced scorecard for government structure.
2. Budget alignment
Budgets are legal documents in governments and guidelines in the businesses. Any performance management systems in government must be aligned to budget allocations. The “Balanced Scorecard provides an excellent opportunity to tie resource allocation and strategy. The human and financial resources necessary to achieve Scorecard targets should form the basis for the development of the annual budgeting process. (Niven, 2008)”
Government budgets must adjust to balanced scorecard insights and results.
3. Customer Perspective
The traditional balanced scorecard has the “customer perspective”. This is often changed because the concept of citizen is customer is an ““inappropriate metaphor simplifies the relationship between the government and citizens, while the citizens play a multiple role: they are the customers to purchase the public goods, as well as the owners or partners of the government. This simplification garbles the political meaning of “Citizen”, which may result in the adverse impacts on accountability and democracy. (Chai, 2009)”
This perspective is often renamed as “citizen” perspective or “stakeholder” perspective because “key stakeholders… can be the public, central government bodies or certain communities. Therefore, the customer perspective is changed into a stakeholder perspective, which usually sits at the top of the template to highlight the key stakeholder deliverables and outcomes. (Marr, 2008)” In addition, the customer perspective is often elevated to the top concept in the government balances scorecard (Niven, 2008).
The notion of the “customer perspective” must change in the government balanced scorecard to reflect the reality of stakeholders that could differ based on mission.
4. Financial Perspective Change
The financial perspective is the top concept in the private sector. This differs in government. “For a government agency, financial measures are not the relevant indicators of whether the agency is delivering on the rationale for its existence (Kaplan, 1999)” “The financial consideration can play an enabling or constraining role, but rarely as the primary objective. (Chai 2009)”
This moves the “financial perspective to the bottom of the template. The overall objective of most public sector, government and not-for-profit organizations is not to maximize profits and shareholder return. Instead, money and infrastructure are important resources that have to be managed as effectively and efficiently as possible to deliver the strategic objectives. (Marr, 2008)”
The financial perspective, including budgets, must be considered as the prime enabler of government performance, not the end result, or bottom line.
Where to government balanced scorecard experts differ in government good practices?
Experts differ about implementation aspects of the balanced scorecard in government. This includes whether to
- Redefine the “customer perspective”
- Add additional perspectives
- Cascade measurements
- Leverage cause and effect concepts
1. Customer Perspective
Some observers argue that citizen, business and other stakeholders are effectively government customers (Kaplan, 1999; Niven, 2008; Parmenter 2012). Others (Marr, 2008; Whittaker, 2003) take the view that there are many more stakeholders in government than businesses. “The stakeholder perspective is arguably the most important one for government agencies because achieving a mission does not necessarily equate to fiscal responsibility. The organization must determine whom it serves and how their requirements can best be met. This perspective captures the ability of the organization to provide quality goods and services, effective delivery, and overall stakeholder satisfaction. (Whittaker, 2003)” Yet, others take the view that the “customer perspective” ought to be renamed as the “citizen perspective” because citizens are the ultimate stakeholders in government. Much of the literature from practitioners, anecdotally, takes this view.
As described above, the motion of the “customer perspective” should change in the government balanced scorecard to reflect the reality of stakeholders that could differ based on mission.
2. Additional Perspectives
The nature of government performance may justify the inclusion of additional balanced scorecard perspectives. For example, the notion of “employee Satisfaction is far too important to be relegated to a subsection within internal process (Parmenter, 2012)” or the “learning and growth” perspective. “In practice, the learning and growth perspective seems to be the least understood perspective of the BSC model. This is partly due to the name, which is not very clear or useful. (Marr, 2008)”
Many argue that the notion of stakeholder needs to extend to community and environment (Parmenter, 2012). This can get extended to more perspectives when sustainable economic development is considered:
- “Economic growth: Society’s well-being would be maximized and poverty eradicated through the optimal and efficient use of natural resources. Particularly, the overriding priority should be given to the basic needs of the world’s poor people.
- Social equity: This component refers to the relationship between nature and human beings, uplifting the welfare of people, improving access to basic health and education services, fulfilling minimum standards of security and respect for human rights, too.
- Environmental protection: It is concerned with the conservation and enhancement of the physical and biological resource base and eco-systems. (Chai, 2009)”
The addition of new perspectives are prescribed based on the context for performance management. Sustainable development goals justify the addition of new perspectives.
3. Cascading Measurements
The balanced scorecard is used in very large organizations to cascade measurements. “To successfully implement any strategy, it must be understood and acted upon at every level of the firm…. (Niven, 2008) Yet, ”this can be a dangerous method when “cascading of measures down from an organizational measure resulting in hundreds of meaningless measures. (Parmenter, 2012)” The problem with cascading measurements is complexity. Government organizational units can become overburdened with measurements. This can extend to complicated “personal scorecards” for public servants that loses relevance with government missions.
Balanced scorecard measurements should be organizationally aligned in government. These measurements should be relevant while not overburdening organizational units.
4. Cause and Effect
The balanced scorecard technique leverages “strategy maps” and other techniques to illustrate the cause and effect connections among perspectives. This approach is thought to enable better resource allocation and align outputs with outcomes. “There is a danger in prescribing a specific business logic such as the causal relationship between the four perspectives …without much reflection on their unique circumstances. (Marr, 2008)” “Developing tight cause-and-effect linkages is a challenge for any organization. Going through the mental gymnastics required to build a seamless integration of objectives is hard and draining work. The degree of difficulty is compounded in the nonprofit and public sectors by the myriad influences. (Niven, 2008)”
Cause and effect concepts are useful in government balanced scorecard to test linkages between outputs and outcomes.
What are the balanced scorecard good practices in government?
- The public sector is different, requiring changes in perspective and structure
- Not all good practices from the private sector are appropriate
- Context determines approach based on government size, tiers, level of development
- Overly complex systems defeats the purpose of the balanced scorecard to focus on what’s important
Chai, N. Sustainability Performance Evaluation System in Government, A Balanced Scorecard Approach Towards Sustainable Development. Springer, 2009. http://www.springer.com/us/book/9789048130115
Jones, S. Impact and Excellence, Data-Driven Strategies for Aligning Mission, Culture, and Performance in Noprofit and Government Organizations. Jossey-Bass, 2014. http://www.wiley.com/WileyCDA/WileyTitle/productCd-1118911113.html
Kaplan, R. The Balanced Scorecard for Public-Sector Organizations. Harvard Business Review, 1999. http://www.fetp.edu.vn/attachment.aspx?ID=43073
Marr, B. Managing and Delivering Performance, How government, public sector and not-for-profit organizations can measure and manage what really matters. Butterworth-Heinemann, 2008. http://www.sciencedirect.com/science/book/9780750687102
Niven, P. Balanced Scorecard Step-by-Step for Government Nonprofit Agencies. Wiley, Second Edition, 2008. http://www.wiley.com/WileyCDA/WileyTitle/productCd-0470180021.html
Nurcahyo, R; Wibowo, A; Putra, R. Key Performance Indicators Development for Government Agency. International Journal of Technology, September 2015. http://www.ijtech.eng.ui.ac.id/index.php/journal/article/view/1840
Parmenter, D. Key Performance Indicators for Government and Non Profit Agencies. Wiley, 2012. http://www.wiley.com/WileyCDA/WileyTitle/productCd-1118235304.html
Whittaker, J. Strategy and Performance Management in the Government. Pilot Software, November 2003. http://www.exinfm.com/workshop_files/strategy_pm_gov.pdf