The Iron Cage Recreated: The Performance Management of State Organisations in New Zealand.

McDavid, Jim

The Iron Cage Recreated: The Performance Management of State Organisations in New Zealand Edited by DEREK GILL. Wellington: Institute of Policy Studies, Victoria University, 2011. Pp. xv, 520, bibliographic references.

New Zealand is arguably the international exemplar for government-wide performance management regimes. Since 1988, the New Zealand government, under a succession of left- and right-leaning governments, has implemented and elaborated a system intended to provide elected and appointed decision-makers alike with relevant, timely, and results-focused performance information for the purposes of accountability and organizational performance management. That system is still in place and offers a unique opportunity to research a mature performance management system.

The three-year project informing this book was motivated by a broad concern of a group of senior public servants collaborating with the Institute of Policy Studies at Victoria University of Wellington circa 2005-06. They worried that despite general agreement (internationally) that the New Zealand model for whole-of-government performance management was ground-breaking when implemented in 1988-90, the information produced appeared to have little value for parliament, ministers, many public servants and even the wider public. Was that true? The research team, led by Derek Gill, focused their project on this question: How is the performance information that is produced regularly by all departments and Crown agencies, audited by the New Zealand auditor general, and reported publicly, actually being used by New Zealand government departments and agencies?

What makes the New Zealand study unique is that no other project to date has devoted as much effort and care to gathering and analysing multiple lines of evidence to answer that question. Research examining actual use of performance information has tended to be anecdotal, or based on general surveys of intended users. Most studies have looked at how elected decision-makers or their staffs use performance information. Among those, the few systematic studies suggest that elected officials generally under-utilize performance information for budgeting, policy-making and performance management (McDavid and Huse 2011). Moreover, the overall raison d'etre for performance management systems--informing policy and legislative decision-making--has not materialized. No study of this scale has looked at how public-sector managers use performance information.

Gill and his colleagues surveyed over 1,700 public servants in seventeen organizations that included sixty-five per cent of the public servants in the New Zealand government. They also conducted in-depth case studies of five government organizations and two cross-government networks, reviewing documents and conducting personal interviews for each case study. The book consists of eighteen chapters comprising four parts: Part 1 reviews the literature on organizational performance management; Part 2 describes the formal system for

organizational performance management in the state sector in New Zealand; Part 3 presents the findings from the cases studies and the survey; and Part 4 includes three chapters that summarize the key findings and discuss options for changing the performance management system in New Zealand. Chapter 16 offers a good summary of the main findings from the research--for busy readers, this is the chapter to read.

The book's title points to the main theme of the findings; for Gill and his colleagues, the performance management system in New Zealand has evolved into policies and practices primarily used to control the public bureaucracies. Invoking the metaphor of the "iron cage" is instructive; Max Weber introduced this image in his writings on nineteenth century bureaucracies (Weber 1930). Weber recognized the importance of bureaucracies not just as instruments in the emerging rational societies in Europe but as a cultural phenomenon by which relationships would be transformed in governments and between governments and societies. Bureaucracy, in addition to offering societies ways of regularizing administration and governance, could also become an iron cage when behaviour and relationships become circumscribed by the values and expectations core to well-functioning bureaucracies. Such a system would emphasize predictability and control and concentrate power in the hands of a few (bureaucrats), affecting other structures and processes in the society.

The metaphor's connection to the book is this: results-focused management is, among other things, expected to reduce the emphasis that bureaucracies place on rules and process. Public choice critiques of bureaucracies and contemporary governments that relied on them (Downs 1967) emphasized the pathologies associated with concentrating power in the apex of organizational structures. The movement to reinvent government (Osborne and Gaebler 1992) was premised in part on the potential for decentralizing and de-concentrating administrative power. One mechanism for doing this was to refocus bureaucracies on achieving outcomes and constructing incentives that would align manager behaviour with managing for results. Critical to those incentives was an assumption that managing for results would be accompanied by a willingness to decentralize bureaucracies--managers would be able to control inputs and processes sufficiently well that they could be held accountable for improving the efficiency and effectiveness of their organizations.

But in New Zealand that did not happen. Performance management was implemented, but decentralization was not. Instead, performance information has been used to demonstrate alignment with objectives and targets cascading downward. Although results-focused information is used by managers, performance information on inputs and processes is used more. When bureaucracies are challenged either by their minister or by external stakeholders, the impulse is to retreat to rules and processes. One specific finding is worthy of note: of the ten possible influences on the daily work of the managers who were surveyed, they were least likely to agree that their work unit has a lot of freedom in how budget and staff are allocated.

The continued emphasis on control accords with findings from the United States. Donald Moynihan (2008) is among a group of scholars who argue that, in most instances, performance management systems have not been fully implemented. Instead, they are being bolted onto existing accountability and control structures and, where they conflict with them, have tended to be subordinated. What Moynihan sees are realizations of performance management that emphasize the formal look of the performance management cycle--strategic planning; program and policy design; implementation; and performance reporting--but that do not give managers the latitude to modify their production processes. Rarely are incentive structures changed to reward innovation, risk-taking, and efficiency and effectiveness improvements. The end result is that performance management regimes do not transform--they do not replace the structure-and-process focus of bureaucracies. Instead, they are layered on top. Elected decision-makers seem to want it this way: the evidence for the extent and ways that performance results are actually used by elected decision-makers (in New Zealand and elsewhere) suggests that for the most part performance reports languish and they do not have the storied impacts on decisions that were predicated on the implementation of these regimes (McDavid and Huse 2011).

The New Zealand study shows that managers use performance information, unlike their elected counterparts. But the findings essentially suggest that managers are mainly following the rules and managing to performance targets. Control seems deeply embedded in the organizational cultures.

The reliance on performance information suggests a puzzle. Gill et al. observe that "New Zealand has experienced a vicious cycle of low demand, limited use, and poor quality of supply [for performance information]" (p. 477). This is supported by findings from a 2008 report by the New Zealand auditor general (New Zealand, Office of the Auditor General, 2008). But managers are using this information and managing to it. If the quality is suspect, one wonders whether the measures are valid and reliable and, hence, appropriate as a means for assessing progress towards targets. This puzzle is not really addressed in the book.

A related issue concerns the extent to which performance information used for (internal) performance management is de-coupled or separated from the organizational databases underpinning compliance and external accountability uses. The findings suggest that managers do this frequently. De-coupling has been recognized as a strategy for reducing the risks of using performance information. Managers construct virtual barriers between performance information used for external accountability purposes and information used to manage performance (McDavid and Huse 2011). The logic of de-coupling is this: publicly reported performance results are sometimes selectively chosen, even manipulated, to minimize political risk, particularly in high-stakes settings. That works for elected officials or department executives but undermines the trustworthiness of the data for internal uses. If managers develop and use their own sources of performance information, one might hypothesize that gaming of externally focused performance information also happens. While the possibility of gaming performance information is broached in the book, this issue is not explored in any systematic way.

The final issue is whether it is feasible to break the confines of the recreated iron cage (or perhaps it was there all the while) in New Zealand state organizations. In the final chapter, Derek Gill and Susan Hitchner outline three options for reforming New Zealand's performance management system. At the risk of unduly simplifying these options, I offer a thumbnail sketch of each. The first is relatively modest--refocus the system on outputs the way it was originally designed but build in appropriate incentives for individuals and organizations to perform efficiently and effectively. An example would be to permit budget carry-forwards for organizations able to improve efficiency year over year. The second (which has three variants) focuses on outcomes but also shifts accountability from target-achievement to performance improvement. Outcomes would be framed for the government and would include cross-department collaborations. The third option is to reframe the political contest by taking performance management out of the contest between contending parties. An independent body would consult widely, frame key outcomes, develop performance measures and report progress. Gill and Hitchner suggest the "Oregon Shines" initiative (Oregon Progress Board 2008) as an example of this approach.

Each option has some promise and precedents. Collectively, they are intended to move performance management back onto more solid ground; Gill and Hitchner contend that this would be a good investment for New Zealand into the twenty-first century. But do the political leaders really care? Why would they want to recreate a more robust performance management system if it could be used against them? Mark Prebble, a long-time political leader in New Zealand, has suggested Andrew Ladley's "Iron Rule of the Political Contest'; organizational performance information is not used to review performance but instead is mined for details that can be used to embarrass the minister. The opposition is far less interested in improving government performance than in replacing it (Prebble 2010). Perhaps a weaker system wherein they can effectively ignore most performance information, while at the same time exercising control over the bureaucracies, is about right.

Overall, this book is a first-class contribution to our understanding of performance management in the public sector. The scale of this research project will mean that the findings will quickly earn credibility. As well, additional reports and publications will come from this study. The dialogue around the findings, to which this review is intended to contribute, will enrich the whole field.

References

Downs, Anthony. 1967. Inside Bureaucracy. Boston: Little, Brown.

McDavid, James, and Irene Huse. 2011. "Legislator uses of public performance reports: Findings from a five-year study." American Journal of Evaluation, forthcoming.

Moynihan, Donald. 2008. Dynamics of Performance Management: Constructing Information and Reform. Washington, D.C.: Georgetown University Press.

New Zealand. Office of the Auditor General. 2008. The Auditor General's Observations on the Quality of Performance Reporting. Wellington: Crown Copyright. Available at http://www.oag.govt.nz/2008/performance-reporting.

Oregon Progress Board. 2008. Oregon Shines III Business Plan. Salem: State of Oregon. Available at http://www.oregon.gov/DAS/OPB/docs/BdUp08/Oct/OSIIIBusinessPlan_09-09-08_ Final.pdf.

Osborne, David, and Ted Gaebler. 1992. Reinventing Government: How the Entrepreneurial Spirit is Transforming the Public Sector. Reading, Mass.: Addison-Wesley.

Prebble, Richard. 2010. With Respect: Parliamentarians, Officials, and Judges too. Wellington, New Zealand: Institute of Policy Studies, Victoria University of Wellington.

Weber, Max. 1930. The Protestant Ethic and the Spirit of Capitalism. Translated by Talcott Parsons and Anthony Giddens. London: Unwin Hyman. Available at http://www.marxists.org/ reference/archive/weber/protestant-ethic/index.htm.

Jim McDavid is Professor, School of Public Administration, University of Victoria.