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Performance Management Systems: A Conceptual Model and and Analysis of the Development and Intensification of New Public Management in the UK
Jane Broadbent∗ Richard Laughlin†

∗ † Kings College London, University of London, This paper is posted at Roehampton Research Papers.


Jane Broadbent Vice Chancellor’s Office Roehampton University, Roehampton Lane, London SW15 5PH and Richard Laughlin Department of Management King’s College, London, University of London London SE1 9NN

November 2006 The authors would like to acknowledge, with thanks, the support of the ESRC Public Services Programme Draft only, please do not quote from the contents without prior permission from the authors.


Abstract This paper, builds on the view that too much attention in the management, management control and management accounting literatures has been given to ex post performance measurement as distinct from ex ante performance management. The paper builds on the conceptual models of Performance Management Systems (PMS) developed by Otley (1999) and Ferreira and Otley (2005). Three key developments are developed in this conceptualisation in relation to focus, context and culture leading to a ‘middle range’ (Laughlin, 1995, 2004; Broadbent and Laughlin, 1997) conceptual model of alternative PMS lying on a continuum from ‘transactional’ at one end to ‘relational’ at the other built on respectively instrumental and communicative rationalities. The conceptual model is then used to provide new insights into the development of the new public management (NPM) in the UK. This analysis demonstrates how the move in 1982 with the Financial Management Initiative, to the 1988 Next Steps and the recent developments through the Public Service Agreements and targets from 1997 are a progressive move from relational PMS to be increasing and progressive more transactional in form intensifying the nature, significance and power of NPM to control public services. Key Words: performance management systems, communicative and instrumental rationality, UK public services, new public management, public service agreements, targets.


Performance Management Systems: A Conceptual Model and an Analysis of the Development and Intensification of ‘New Public Management’ in the UK Introduction The analysis of performance measurement systems is considerably more extensive than the analysis of performance management systems (PMS) (cf. Fitzgerald et al, 1991; Otley, 1999, Brignall and Modell, 2000; Kloot and Martin, 2000). In fact, as Kloot and Martin (2000:233) highlight, PMS ‘…often… refer to individual performance management or appraisal schemes’. Despite the work of these authors to open up this understanding of PMS the wider conceptual debate has, in some cases, been closed down again by a concentration on how to measure this wider emphasis for instance through the ‘balanced scorecard’ (cf. Kaplan and Norton, 1992, 1996). This paper distances itself from such a narrowing of understanding of what constitutes PMS and builds on the work of Fitzgerald et al. (1991), Fitzgerald and Moon (1996), Otley (1999) and Ferreira and Otley (2005) that PMS are concerned with the management of ‘results’ (outcomes or ends to achieve) and the nature and functioning of the ‘determinants’ of these results (the means used to achieve these results) at a more organisational, rather than individual, level.

Otley (1999) and Ferreira and Otley (2005) argue that there needs to be greater conceptual understanding of PMS before detailed measurement is considered. This paper builds on their work to develop such a model. It also shows the power of this modelling in terms of providing a rather different analysis of the current approaches to new public management (NPM) (Hood, 1991, 1995) and its extensions into the ‘target regime’ (Public Administration Select Committee, 2003) of the current Labour Government.


Otley (1987, 1999) and Ferreira and Otley (2005) have done more than most to take forward the conceptual understanding of PMS and it is their model which forms the starting point for the conceptualisation in this paper. Otley (1999) and Ferreira and Otley (2005) build their conceptual model of PMS empirically by drawing from an analysis of management control systems in a range of organisations. Otley (1999) poses his conclusions from this analysis in terms of five ‘issues’ or ‘questions’ that need to answered by any organisation in relation to the design and nature of its PMS. This is extended in Ferreira and Otley (2005) to 12 questions – 8 of which relate to PMS design and the other 4 to issues and questions related to what they refer to as the underlying ‘culture and context’ which are seen to influence the nature of the PMS in any organisation.

This paper builds on this framework but extends it in three major ways. First, by making rather clearer that the focus of any PMS is related to financial flows between a transferor and transferee. Second, by extending understanding of context and its relationship to PMS design. This is undertaken by clarifying the organisational focus of any PMS and by introducing a network understanding of interlinked PMS designs within organisations. Third, by extending the cultural understanding of PMS design and linking this to alternative guiding ‘models of rationality’. The concern with rationality and rationalisation will be a key theme of the paper. The logic for this is because the very process of linking action to results and the determinants of these results and making transparent this thinking to explain action – which are the key elements of any PMS - involves, as Townley, Cooper, and Oakes (2003: 1045) indicate, the ‘…pursuit of reason in human affairs’, which can be directly related to


more specifically. 2004. in a ‘skeletal’ sense. which will be used as a framework providing a language for analysing applications in actual empirical situations. assumes that actions have an intentionality rather than being completely random events. the ‘new public financial management’ (cf. the empirical situation. The empirical focus of this paper is the recent PMS changes that have been occurring in the continuing ‘modernisation’ agenda of the UK’s public services (cf. Laughlin. Cabinet Office. a set of possible conceptual alternatives that are likely to be present in any empirical situation and a language by which to discuss them. A key conceptual question for this paper will relate to the form of ‘rationality’ that guides PMS design conceptually and empirically.the ‘discourse of rationalisation’. It starts by analysing the evolving nature of NPM (Hood. The empirical detail does not test these models – it provides the ‘flesh’ which makes the ‘skeleton’ meaningful as well as providing a source to reshape the conceptual framework should it fail to adequately express. This rationalisation assumption. in a ‘skeletal’ sense. Broadbent and Laughlin. This conceptual ‘skeleton’ is not predictive and it is not possible to use it to build hypotheses that can be tested empirically but rather it presents. 1991. 1995. ‘goal-oriented’ (Hoogenboom and Ossewaarde. Guthrie and Humphrey. in this sense. The paper will develop a conceptual model of PMS. This has culminated 5 . Olsen. The building of this conceptual model and its relationship to particular empirical situations is based on ‘middle range thinking’ (cf. 1999. Broadbent and Laughlin. 2005). 2005: 602) using ‘goals’ in a broad sense related to the action having underlying intentions. They are. 1995) or. 1998:7) demonstrating an intensification of a particular PMS conceptual emphasis. 1997). of course.

The paper is divided into three further sections followed by a reflective conclusion. the reflective conclusion will draw the analysis together. CSR and SR are three year rolling financial plans and allocations for the entire public sector.27). 2 They form a foundation element in the design of the PMS for all the different functional public services. The next CSR is planned for 2007. The first CSR was undertaken in 1998 – a year after the Labour Government was elected. providing an initial analysis of the intensification of NPM in the UK’s public sector. 2004. PSAs were introduced as part of the CSR and SR development and feature at the pinnacle of different public service ‘delivery chains’2 (HM Treasury/Cabinet Office. We will argue that the introduction of PSAs takes NPM in new directions with a new emphasis.the last of which was published in July 2004 covering the years 2005 to 2008.specifically on the UK’s Labour Government’s introduction of Public Service Agreements (PSAs) and more generally on an emphasis on output and outcome controls. However. This paper is part of a wider ESRC funded project that explores the nature of the PMS along the ‘delivery chain’ of higher education. paragraph 2. The following (second) section explores the nature of PMS. with a concentration on a critical analysis of the conceptual model of Ferreira and Otley (2005). The third section extends and refines the conceptual model of Ferreira and Otley (2005) to provide a richer ‘middle range’ theoretical understanding of PMS. Finally. as well as developing a future research agenda for analysing PMS across a wide range of public and private sector organisations. PSAs specify explicit objectives and performance indicators to achieve and are aligned with the financial allocations coming from the Comprehensive Spending Review (CSR) and Spending Reviews (SRs)1. Apart from the CSR in 1998 there have been three subsequent SR . this premier position can be reshaped on moving down the ‘delivery chain’ where the PSA can be redefined and/or amplified. 1 6 . The fourth section uses this developed conceptual model to analyse the evolving nature of NPM in the UK.

Otley (1999: 365) reshapes this 7 . management control and accounting literature where there is less consensus in terms of understanding. seeking to provide a development of this broader conceptualisation. Fitzgerald et al (1991) and Fitzgerald and Moon (1996). As indicated in the introduction Fitzgerald et al (1991) make clear that PMS involves the management of results (ends) and the determinants of these results (means) without specifying exactly what these involve conceptually or empirically. • developing the capacity to perform. A reminder for the management and accounting community is required because of the focus on measurement in these disciplines – reprised in the HRM approach to PMS illustrated above . performance management. • periodically rating performance in a summary fashion. is widely used and yet when probed provides substantial differences of meaning.asp ) We are concerned with another sphere.opm. it is often used to refer to human resource management systems (HRM) – an area where PMS are linked to controlling individual (employee) behaviour: ‘……performance management includes: • planning work and setting expectations. Otley (1999: 364) links PMS to ‘overall control systems’ which he reminds his readers goes ‘…beyond the measurement of performance to the management of performance’ (Otley.and the judgement that this has had a limiting effect on conceptualising PMS. build and develop the initial work of Otley (1987). • continually monitoring performace. and • rewarding good performance (United States Office of Personnel Management. http://www. the management. A number of authors. 1999:364 (emphasis in the original)).Current Views on Performance Management Systems The Otley (1999). For example.

understanding to develop ‘…. what penalties will they suffer by failing to achieve them)? 5. and how does it go about setting appropriate performance targets for them? 4. conversely. according to Otley. They also give more conceptual definition to the management of results (ends) (issues 1 and 3) and the management of the determinants of these results (means) (issues 2. 8 . They are posed as questions on the grounds that empirical answers to these questions would. It is also apparent that the HRM understanding of PMS is also swept into Otley’s framework in issue 4 but with an acknowledgement that ‘rewards’ needs to be ‘…understood in the widest possible sense. What strategies and plans has the organization adopted and what are the processes and activities that it has decided will be required for it to successfully implement these? How does it assess and measure the performance of these activities? 3. and how does it go about evaluating its achievement for each of these objectives? 2.these questions relate very closely to some of the central issues of modern management and management accounting practice’. 4 and 5). and not restricted to just short term financial rewards’ (Otley. 1999: 366 (footnote 6)). What level of performance does the organization need to achieve in each of the areas defined in the above two questions.five main issues that need to be addressed in developing a framework for managing organizational performance’. and to adapt its current behaviour in the light of that experience?’ (Otley. What are the information flows (feedback and feed-forward loops) that are necessary to enable the organization to learn from its experience. supply insights into the design of particular PMS. ‘What are the key objectives that are central to the organization’s success. 1999: 366) As Otley (1999:366) makes plain ‘…. These five questions/issues are as follows: 1. What rewards will managers (and other employees) gain by achieving these performance targets (or.

they add another dimension to the understanding of PMS by drawing from Simons’ (1995) concept of ‘levers of control’. The eight issues/questions are as follows: 1. Whilst PMS gives a more thorough description of the systems concerned the two are identical. key success factors. they expand the five issues (questions) to twelve – eight of which relate to more functional concerns about PMS design and four to more ‘contextual and cultural’ factors which underpin and to an extent guide the more functional concerns (the other 8 issues/questions). and strategies and plans? How does the organization go about assessing and measuring its success in achieving them? 9 . so to avoid any further confusion PMS will be retained in this paper. Fourth. What strategies and plans has the organization adopted and what are the processes and activities that it has decided will be required for it to ensure its success? 4. Third. What are the organization’s key performance measures deriving from its key objectives. they rename PMS.Ferreira and Otley (2005) develop Otley’s (1999) framework in a number of ways. Second. they draw from a further set of case studies data that can be used to help reform the insights of Otley (1999) and Simons (1995) into a more developed conceptual model (framework) of PMS. The eight more functional issues/questions specify in more depth and detail issues related to the management of results to achieve and the management of the determinants of these results. First. What are the key factors that are believed to be central to the organization’s overall future success? 3. Performance Management and Control Framework (PMC). What is the organization structure and what impact does it have on the design and use of the performance management and control system? How does it influence and is influenced by the process of strategy implementation? 5. What is the vision and mission of the organization and how is this brought to the attention of managers and employees? 2.

the means to achieve them can be seen in Questions 2 (in part).6. What rewards (both financial and non-financial) will managers and other employees gain by achieving performance targets (or. strategy. culture organisational structure. group. Drawing from a range of literature from Perrow (1967) to Chow. McKinnon and Wu (1999). 10 . They then go on to point out that strategy and organisational structure are ‘…already explicitly built into the framework’ (Ferreira and Otley. conversely. 4. and how does it go about setting appropriate performance targets for them? 7. Ferreira and Otley (2005: 41) position these issues/questions in what they refer to as an underlying ‘culture’ and ‘context’ since these ‘…permeate the whole of the performance management and control (PMC) system’ but ‘…are not addressed by the above questions’. What processes does the organization use for evaluating individual. 1999:41) leaving the other elements as ‘context’ variables apart from ‘culture’ which they separate out as ‘…a notable contextual variable’ that ‘…pervades the entire control system influencing choices and behaviours of individuals’ (Ferreira and Otley. what penalties will they suffer by failing to achieve them)? (Ferreira and Otley. 3. 1999:41). 2005: 43) Questions 1. What level of performance does the organization need to achieve in each of the areas defined in the above questions. 5 and 6 are concerned with the results (or ends). 7 and 8. and organizational performance? How important is formal and informal information on these processes? What are the consequences of the performance evaluation processes used? 8. Harrison. Ferreira and Otley (1999: 41) point out that it has been ‘…shown that variables relating to external environment. 2 (in part). size technology and ownership structure have an impact on the control system’. It is also possible to see that the HRM emphasis is expanded in this framework relative to Otley (1999) with Questions 7 and 8 being aligned to these HR concerns.

2005: 43) The twelve questions/issues around which Ferreira and Otley’s (2005: 41) PMS framework is built provide ‘…. These heuristic tool to facilitate the rapid description of significant aspects of control systems design and operation’. How strong and coherent are the links between the components of the performance management and control system (as denoted by the above 11 questions)? (Ferreira and Otley. What specific feedback and feed-forward information flows has the organization devised for itself? What sort of information flows have been created for monitoring current performance and bringing about adaptation of current behaviour? What types of feedforward information flows (if any) have been formulated to enable the organization to learn from its experience. or a combination of both? 11. are moulded by four further questions related to culture and 11 . What type of use is given to feedback and feedforward information flows and to the various control mechanisms in place? Is use predominantly diagnostic. in turn. Figure 1 illustrates these elements.Their understanding of context and culture is expressed in terms of a further four questions/issues that need to be considered to help understand the design of any PMS in any organisational context. to generate new ideas and to recreate strategies and plans? 10. How has the performance management and control system changed in the light of the change dynamics of the organization and of its environment? What changes have occurred at the level of those systems in anticipation or response to such stimuli? 12. interactive. [FIGURE 1 ABOUT HERE] This figure illustrates that the actual PMS is at the core of any organisation with the design guided by the eight functional questions which are closest to this centre point. These four questions/issues are as follows: 9.

We address the three areas to provide a developed PMS conceptual model. Developing a Conceptual Framework for PMS Unquestionably the framework of Ferreira and Otley (2005) has made considerable progress in defining the generic. develops three areas in a more detailed fashion. whilst rightly recognised in their framework as being significant. conceptual nature of any PMS. As Figure 2 indicates. however. This model is summarised in Figure 2 and is reproduced here to provide an overview of where the argument is proceeding but will be explained in more depth at the end of this section. PMS has a focus 12 . [FIGURE 2 ABOUT HERE] (i) Clarifying the Focus of any PMS Whilst the focus of any PMS is. Thus. being somewhat distant from the actual PMS design but moulding its nature. as the title implies. First.context – mapped in the outer rim of the figure. the ‘performance’ of any unit that the PMS is trying to control it is not clear how the former leads to the latter. This following. the argument of this paper is that the financial transfers (explicit and implicit) and allied accountability requirements in a relationship between a transferor of funds and a transferee collectively form the key intervening variable between the aspirations in a PMS and actual performance. we wish to be clearer about the focus of any PMS. needs further explication. The second and third areas of development relate to Ferreira and Otley’s (2005:41 et seq) elements of ‘context’ and ‘culture’ which.

heuristically or methodologically as a basis for organising empirically enquiry’ (Power and Laughlin. that implicit or explicit financial transfers. it is possible to typecast PMS as the ‘lifeworld’ values of the controller of the system. Whilst Broadbent. 1996:444). institutions and organisations it is also possible to understand these distinctions ‘…. Heuristically. Second that to achieve these goals needs the involvement of other organisations and/or individuals. that a PMS is primarily a vehicle for clarifying the ends an organisation or individual wishes to achieve and the means by which to achieve them. 1996:444). The ways in which these values are achieved is through ‘systems’ which require ‘steering media’ to ensure the latter adequately achieves the former. in the context of this paper. 1987: 165 et seq) which ‘mediate’ (Power and Laughlin. First. the PMS designer is described as the ‘transferor’ in Figure 2 and the other organisations and individuals the ‘transferee’. systems and steering media can be given meaning as tangible societal underlying values. Money is what Habermas calls a ‘steering media’ (Habermas. This typecasting implies three things. Third. In that sense there is a case for steering media to be seen to ‘…mediate system and lifeworld and which allow the normative priorities of the latter to flow into the former’ (Power and Laughlin. Thus. 13 .upon and uses the unique role of money to ensure that the desired ends are achieved through the chosen means of action. Laughlin and Read (1991: 3 et seq) make clear that lifeworlds. are key in ensuring that aspirations become reality. controlled through the design of the PMS. 1996:444) between values to achieve (Habermas’ ‘lifeworld’) and the action elements which achieve these values (Habermas’ ‘systems’).

In his later work he focussed more on law (Habermas. Habermas saw money’s power to be all encompassing. 14 . 1987: 264) but needs the imprint of the lifeworld (the PMS in the context of this paper) to provide the details of this information coding. a powerful ‘…code by means of which information can be transmitted from a sender to a receiver’ (Habermas.characterization of the relationship between money and lifeworld is ultimately shallow’ (Power and Laughlin. needs to be expressed in and through the transfers of money from a transferor to a transferee. Put simply Habermas’ ‘…. to achieve the performance it desires. Because of this danger. It is for this reason that a PMS. Money to Habermas (1987: 264) ‘…has the properties of a code by means of which information can be transmitted from a sender to a receiver’ making ‘…it possible to produce and transmit messages with a built-in preference structure’. as Habermas makes clear. 1996: 459). Money is. Yet to Dodd (1994: 74 et seq) and Power and Laughlin (1996: 458 et seq) this fear is fundamentally misplaced and reduces the role and importance of money. More generally there is no more powerful steering media than money to ensure that the PMS (lifeworld) demands are met by those given the task to achieve these requirements (systems). Habermas shifted his emphasis to administrative power and then to law which he saw as possibly less powerful ways to steer systems but which have less chance of decoupling from lifeworld concerns. 1996) somewhat eclipsing the relevance of the former two elements. having the ability to decouple itself from lifeworld direction and control.In Habermas’ earlier work money and power are key steering media.

coherence of the entire PMS. We wish to emphasise that there are different levels within any system and that there are interdependencies between them which need to be explored. These concerns are unquestionably important making any PMS workable in the widest sense both currently as well as in the future. and evidence gathering about patterns of usage and behaviour at each level’.(ii) Clarifying Context Ferreira and Otley’s (2005: 41) last four questions/issues relate to context and culture. Thus. they ask about information implications within the make-up of any PMS. whilst Ferreira and Otley (2005) recognise context and culture they only touch on some of the important aspects of both. yet they are only a partial depiction of the contextual and cultural aspects of PMS. and its adaptation to the changes within the wider organisations in which they are located. (iii) Clarifying Culture As indicated above. In this respect we would also wish to emphasise that context is not only about how the PMS reacts to organisational change but the context itself moulds both the PMS design and the financial transfer as Figure 2 indicates. Some hints on this are apparent in Ferreira and Otley (2005) with the recognition that their model is actually applicable to an organisation as a whole. We also wish to extend the 15 . Ferreira and Otley (2005:44) implicitly recognise this in terms of the need to confirm the relevance of their questions/issues by ‘use’ but that ‘…use requires the questions to be asked at several hierarchical levels right down to first level management. This can be explored at a variety of different levels. Context in broad terms refers to the location and nature if the entity to which the PMS relates. Our view is this needs to be more explicitly highlighted and that the interconnectedness of organisations and individuals and how this affects PMS design is crucial.

It is for this reason that Weber saw rational social action as inevitably ‘instrumental’ in the broad sense of defining social action in an intentional sense of trying to achieve some defined end state and thinking ‘rationally’ about the means to achieve these ends. for the purposes of this paper. in the context of social action.the rational consideration of alternative means to the end. These associations with the ‘project of rationalization’ are closely linked with ideas and thinking of particularly Max Weber and his critics.analysis of culture..shape the structure and functioning of work organizations’ (Hasselbladh and Kallinikos.. it is possible to concentrate on only one of these . as Weber (1978: 26) himself makes plain: ‘…. Allen (2004: 134/135). Townley. making transparent any indirect repercussions. assumes a concern to structure and make transparent intended ends and means to achieve such ends. of the relations of the end to secondary consequences and finally of the relative importance of different possible end states. It involves. This link to rationality is pertinent because the elements that make up any PMS are ‘…the social and cultural processes that make up the project of rationalization’ due to their power to ‘…. to Weber. notes there are at least three different rationalisation processes in Weber’s work but.’ 16 . which as highlighted in the introduction and represented diagrammatically in Figure 2. 2000: 697). Cooper and Oakes (2003:1045) refer generically to rationalisation as the ‘pursuit of reason in human affairs’ which. drawing heavily from Collins (1986). notably Jurgen Habermas.the rationalisation processes in his theory of social action. is related to two fundamentally different forms of ‘rationality’: instrumental and communicative.

The PMS directing social action and the underlying rationalities at work are always contextually defined even though it is possible to provide some ‘skeletal’ ‘middle range’ ‘ideal types’ of models of rationalities that might be present. directly affect the way the 8 questions of Ferreira and Otley (2005) are both asked or not asked and what would be a coherent set of answers even if they were asked.This move to what Hoogenboom and Ossewaarde (2005: 603) refer to as ‘goaloriented rationality’ is. to Weber. Such is the power of models of alternative cultural rationalities. that is. These more secondary rationalities link directly with the dominant forms of rationality to provide two ideal types Zweckrationalitat (with 17 . given meaning by other competing rationalities (substantive versus formal rationality and practical versus theoretical rationality) that defined primarily how the ends could be evaluated but also relate to the choice of appropriate means. Weber’s understanding of possible conceptual end states. inescapably linked with the development from premodern to modern society: ‘Weber claims that the transition from pre-modern to modern society was accompanied by a transition from (mainly) a traditional form of social action. Working under one or other of these ideal types will. in many respects. was encapsulated primarily in two key alternative forms of rationality (which Weber described as Zweckrationalitat and Wertrationalitat) but these were moulded and. 2005: 608) Wallace (1994) makes plain that this recognition does not define the actual ends to be pursued or the means that should be adopted to achieve these ends. like the contextual factors. which was based on ‘ingrained habituation’. which he saw as the dominant area of concern. action in which the means to attain a particular goal are rationally chosen.’ (Hoogenboom and Ossewaarde. Neither does it indicate what secondary consequences might arise. to a goal-oriented rational form of social action.

he does pose an alternative. in the end. predominates (cf. idealistic. or instrumental rationality. Despite this argument. 1994: 25) of Zweckrationalitat is ‘instrumental rationality’.’ (Allen. develop into the ‘iron cage’. 2003. as it has come to be known. Wallace (1994: 25) is uncomfortable with this latter descriptor since his view is that all forms of rationality are ‘instrumental’ and it is not just Zweckrationalitat that should be described in this way. 2004: 78) Whilst Weber is of the view that ‘instrumental rationality’ will. where even individual self-interest will give way to a more abstract set of bureaucratic goals. It is probably for this reason that the more ‘orthodox translation’ (Wallace. as Wallace (1994: 25) indicates. Townley. 1994: 23). 18 . was originally conceived in relation to individual values and particular ‘self interest’ or even ‘personal aggrandizement’ (Wallace.substantive and practical rationalities) and Wertrationalitat (with formal and theoretical rationalities). described as ‘innate self-interest rationality’ which gives the impression of a very clear and unambiguous end state driven through by an individual who has a single minded purpose. 2002. Townley. the essence is. Zweckrationalitat. as a descriptor. As Weber (1978: 28) made clear: ‘…. ‘instrumental rationality’.a uniformity of orientation may be said to be ‘determined by self-interest’ if and insofar as the actors’ conduct is instrumentally (zweckrational) oriented towards identical expectations’ Whilst Weber’s analysis is very individual focussed. 2004) such that ‘instrumental rational action’ is taken to be: ‘…based on rational calculation about the specific means of achieving definite ends – you do something because it is the effective means of achieving a specific goal. end state. Allen. Cooper and Oates.

honor. Whilst there is less systematisation and greater variability in this end state. feminists. very unlikely if not impossible.actions of persons who. This prescriptive alternative has been questioned on a number of fronts.this type of rational orientation is not instinctual. subordinating bureaucratic rules and methods to sustantive. who can take charge of the state bureaucracy and master it. It was probably for this reason that the hope of moving to this form of rationality. the solution came at the level of the individual who can negotiate between means and ends. variable and changeable’.This he describes as Wertrationalitat. 1984: 352) who could free themselves from the ‘iron cage’ of bureaucracy. political ends….? For Weber. or as Wallace (1994: 25) describes it. as ‘learned non-self-interest rationality’. relative to instrumental rationality. its lack of instinctiveness and connectedness to innate beliefs – other than those that are learned – makes it somewhat idealistic and lacking in widescale application. 1990: 92/93) 19 . between formal rationality and human values. The reason for this altruistic descriptor is because of the examples Weber gives for this form of rationality. was. Weber looked to the heroic individual. as distinct from the inevitable march towards the ‘iron cage of bureaucracy’.’ (Weber. a religious call. such as Bologh (1990) make a clear caricature of Weber’s prescription: ‘What is Weber’s solution to the problem of bureaucratic organization…. Weber considered it could only be achieved through the ‘…wills of charismatic leaders’ (Habermas. For instance. or the importance of some ‘cause’ no matter in what it consists. regardless of possible cost to themselves.’ (Bologh. for Weber. the pursuit of beauty. not universal. a strong leader. which would include: ‘….Only a political leader able to control the bureaucracy and act out of commitment to some substantive cause – such as imperial greatness – can rescue the nation from the ossification of bureaucratic rationalisation and bring dynamism to a society. 1978: 25) As Wallace (1994: 25) makes plain ‘…. and not fixed – but learned. act to put into practice their convictions of what seems to them to be required by duty. ‘personal loyalty’.

Cooke. through the discursive processes and consensus agreement of the participants/stakeholders to any action situation.. Key to Habermas’ model is a view that a definition of performance (encapsulated in the equivalent of a PMS) should come out of discursive processes of defined groups of participants/stakeholders. and legitimacy. 1984: 391/392) Central to this process of understanding is the design of systematic ‘discourses’ between individuals leading to a ‘consensus’ on action alternatives. Laughlin. Habermas. 1987. 1996.’ (Bologh. 1990: 94) Habermas (cf. 1984. Such processes assume defined rules of engagement (cf. on the one hand. Power and Laughlin. a change of strategy in an effort to reconstruct the modern concept of rationality that become possible with the decentration of our understanding of the world. 1991. ends. Arrington and Puxty. 1997) 20 . Put simply.1984 and 1987) has also reacted strongly to Weber’s pessimism and the weakness of his prescriptive alternative. in whatever form. This means. Habermas. and.’ (Habermas. in his later years. on the other hand. Originally Habermas referred to this as an ‘ideal speech situation’ although as Cooke (1997: 31) indicated. a change of paradigm within action theory: from goal-directed to communicative action.Bologh taunts Weber’s narrow mindedness with real but rejected alternatives: ‘Weber saw no modern choice other than capitalist bureacratization tempered by patriarchal leaders. was very uneasy about continuing to refer to his understanding of ‘discourses’ in this way due to it being ‘too concretist and open to misinterpretation’. This stand led him to reject socialism or anything like a feminist solution. Habermas argues a case for a new theory of ‘communicative rationality’ and ‘communicative action’ to fill the void: ‘…that makes possible a mutual and constraint-free understanding among individuals in their dealings with one another…. should not be predefined either instrumentally or through abstract values or through any charismatic leader but should find their definition.

.(e. The following touches briefly on the nature of these two pairings.accounting and calculation are. Whilst the nature of Weber’s original alternative to instrumental rationality has changed in the above discussion this does not change the alignment of the four other forms of rationalities to these dominant rationalities. 2004: 138).but also the way means to achieve these end states are designed. political. 1978: 85). 2004: 138). therefore. calculable terms and is so expressed’ (Weber.g. is capable of being expressed in numerical. the defining terms of formal rationality’ (Allen. which is essential to every rational economy. hedonistic. as Wallace (1994) suggests. whether they be ethical. As Allen makes plain ‘….according to the degree in which the provision of needs. According to Weber (1978: 85 (emphasis in the original)) substantive rationality applies to: ‘…. substantive versus formal rationalities which link directly to different forms of performance indicators and theoretical versus practical rationalities. utilitarian. These two forms of rationality (instrumental and communicative3) are extended and given meaning by four other rationalities which give direction on the design of performance indicators . Whereas Weber’s definition of substantive rationality is ‘less clear-cut’ and ‘ a catch-all space for anything that is not formally rational’ (Allen. Formal rationality is defined ‘…. equal opportunity to offer speech acts and the only force allowed is the force of the better argument) so that it is possible to judge whether the resulting consensus on the nature of the PMS is ‘grounded and justified’. 3 21 . These rationalities are.certain criteria of ultimate ends. which relate to the diverse PMS controls over the means used to achieve the ends required. Substantive and formal rationalities need to be considered together since as Allen (2004:138) indicates the former is less clear and appears to be defined in terms of everything the latter is not.

In practical rationality. the means are both mental and physical (i. charismatic and legal-rational. and another serving the human material interest. on the other hand. egalitarian or whatever.’ These different overall rationality clusters also have an implied authority structure underlying them. a combination that accounts for Weber’s calling them broadly “means”) and the end is the human physical control of the world. To Hoogenboom and Ossewaarde (2005) instrumental rationality (and 22 . one type of rationality directly (but of course not exclusively) serving the human ideal interest. and measure the results of economic action…. Accounting and calculation can be part of substantive rationality as long as they fairly reflect key values and concerns and are recognised as such by the stakeholders to the PMS design and fall out of these debates and concerns. both conceptual know-how and physical do-how. which he refers to as traditional. or mental understanding of the world. as something that has no place in substantive rationality.against these scales of “value rationality” or “substantive goal rationality”. starts with the measures and derives and defines the values from the numbers used. Authority to Weber (1968 p. This has tended to set any form of formal measurement. Formal rationality. Weber proposes. Theoretical and practical rationalities relate more to the choice of means to achieve the ends – objectives and performance indictors (whether of a qualitative or quantitative nature) – desired. Wallace (1994: 34/35 (emphasis in the original)) contrasts these two forms of means-related rationalities in the following way: ‘In theoretical rationality. in which accounting is clearly implicated. yet this is too simplistic.feudal. the means in question are mental “concepts” and the end is the “theoretical mastery”.53) is ‘the probability that a command with a specific content will be obeyed by a given group of persons’.e. To Weber there are three types of authority structure. then.

The two types of dominant rationalities. 2005: 614 (Emphasis in the Original)) This is closely aligned and realised through communicative rationality (and substantive and practical rationalities). reconcile and represent arguments. the ‘spell’ of legal-rationality authority is broken. that there is an inevitable move to this idealistic state. optimism. interests.Like legal-rational authority. identities and abilities….. These clusters and their 23 . Whilst Weber’s pessimism maintained there was no escape from this – the iron cage was inescapable – Hoogenboom and Ossewaarde (2005: 613).’ To Hoogenboom and Ossewaarde.’ (Hoogenboom and Ossewaarde. authoritative decision-making is guided by rules which are negotiated in the process itself by all the actors concerned. In late modern society. Hoogenboom and Ossewaarde’s. the four secondary rationalities and two authority structures link together into ‘ideal types’ formed around two key clusters to provide underlying cultural guides for PMS design.on a belief in the legality of enacted rules and the right of those elevated to authority under such rules to issue commands’ (Weber. Late modern actors no longer believe that rational rules of modern bureaucracies and those who are elevated to enact these rules to be legitimate. but in the case of reflexive rationality the nature of the rationality is not fixed.rational authority structure which rests ‘…. is not borne out by the evidence. are more optimistic: ‘As the iron cage of modernity opens up as a consequence of the process of reflexivization. reflexive authority is resting on the belief in the legitimacy of rationality. like Habermas. 1968: 215). there is a possibility that a new authority structure can emerge in modern society which they refer to as reflexive authority: ‘….formal and theoretical rationalities) is reliant on a legal. It is a ‘counterfactual’ possibility and indeed the iron cage can be broken through but it is not inevitable.which can be defined as the belief in the ability of institutions and actors to negotiate . However.

‘Ownership’ of the PMS can be difficult to achieve and can lead to displacement of established norms of behaviour. this fundamental divide between instrumental and communicative rationality ideal types mirrors a deep philosophical divide over many centuries dating back to the Greek philosophers Aristotle and Plato. where measures used are discursively agreed and are conducive with desired. The communicative rationality ideal type starts from ends being formed by communicative rationality. alienation but also resistance. To operationalise such an imposition is reliant on legal-rational authority. and the use of practical rationality related to the chosen means. The resulting PMS are likely to be accepted and ‘owned’ by the participants/stakeholders involved in any action-based organisation because they have been actively involved in discursively agreeing their design and content. [TABLE 1 ABOUT HERE] In ending this sub-section it is worth noting that as Townley (2002a) makes clear. The alternative instrumental rationality ideal type. performance indicators generated by formal rationality.constituent elements are summarised in Table 1 and are named after the dominant rationalities. where measures come first and largely define the implied values underlying these numbers. Relying heavily on Toulmin (1990) and Flyvbjerg (2001) Townley makes plain: 24 . To pursue these requires a deliberate acceptance that the legitimate authority structure is one built on reflexivity. performance indicators determined by substantive rationality. has ends formed by instrumental rationality. agreed ends. with the use of theoretical rationality leading the choice of the preferred means for achieving these end.

e. instead. as indicated above. the 17th century limited rationality to theoretical arguments. through performance measures. These are described as ‘transactional’ and ‘relational’ in Figure 2. and a calculative idea of rationality developed.g. expressed through communicative and instrumental rationalities have an even more direct and ultimately more significant effect on the PMS design. This divide in the underlying guiding rationality types over the more functional ends and means questions/issues leads to two fundamentally different forms of PMS guiding the financial transfers. What it implies is that context affects the PMS functional questions and the financial transfers yet culture. these underlying cultures.’ So. 2001). were relevant to different issues. ‘reasonable’ was context dependent. link to and reflect quite fundamental disagreements in knowledge formation which dates back to the beginnings of the modern world. From Aristotelian understanding that different kinds of argument. a communicative rationality ideal type guides the PMS design and this will apply no matter what the context is. The transactional has a high level of specification of ends to achieve (e. 1990: 134). following Plato. provides a diagrammatic presentation of the PMS conceptual model that builds on the above three developments related to the conceptualisation put forward in Ferreira and Otley (2005).e. i. i. dependent on their nature. targets etc) as well often a clear specification of the 25 . ‘Calculation was enthroned as the distinctive virtue of human reason’ (Toulmin. Put simply if an instrumental rationality ideal type is adopted the way the question related to ends and means are asked and answered will be fundamentally different if.‘These two traditions derive from different intellectual origins: the Platonic and the Aristotelian (Flyvbjerg. In so doing the language of reason was changed. (iv) Concluding Thoughts on a PMS Conceptual Model Figure 2. their degree of formality and certainty.

Two further points need to be made by way of conclusion to this sub-section. lead to ‘ideals’ giving way to ‘techniques of control’ as the discourse shifts from ‘…oral language to Words such as rigorous. The situation with a communicative rationality approach is not as black and white. less shortterm in nature and more concerned with the long term survival and sustainability of the organisation/unit through which the stakeholders are working. It often leads to project-based financial transfers linked to contracts over a defined period of time. It is for this reason the PMS is defined as ‘transactional’ since at its simplest it is a PMS to guide a simple exchange transaction where money is exchanged for a particularly definable good or service which is needed to achieve a particular end state through a defined set of means. It is important to stress that this is not meant to imply that practices that are more relational are not rigorous or precise but rather they have a different understanding of rigour and precision to those coming from instrumental rational practices. p. as Hasslebladh and Kallinikos (2000. very largely because such levels of precision do. Transactional PMS require certain rules of behaviour.means needed to achieve these defined ends. 705) perceptively indicate. Invariably the specific focus will be less project based. which may preclude certain less seemingly rigorous4 and precise practices that are normal to the way of proceeding with thinking based on a relational approach. The key factor in this is choice and ownership of the resulting ends and means. First. it is important to recognise that some PMS aspects of what would be seen as the transactional may be apparent in the relational form but the use of some of the latter’s characteristics may be less likely in the former. There can be a tendency in a relational PMS to avoid the level of precision expected with a transactional model. 4 26 . Relational PMS can be less specific about the ends to achieve and the means to achieve then if this is the view of the stakeholders designers but could be very precise if they so chose. precise and precision are dangerous since they could be seen as downgrading anything that does not fall under such descriptive categories.

the important point to stress is that this is not programmable in quite the way they suggest. Second. More likely is that there will be a situation signified by a point along the continuum where different PMS elements are mixed in different proportions. Our argument. is that the transactional and relational categories are analytically distinct very largely because they reflect the fundamental divide between the cultural elements of instrumental and communicative rationalities. If it is. and Weber and others draw attention are genuine and real and need to resisted. The key criterion is whether this increased formalisation is understood and owned by the discursive participants/stakeholders such that they adequately reflect desired end states. However. 27 . What it will show is that NPM started off as transactional near the centre of the relational-transactional continuum and has moved ever further from the centre to now a more extreme transactional PMS. At the ends there are potentially pure empirical examples of PMS in each category –transactional or relational. then such increased codification is entirely acceptable.formal codification’. however. With this analytical framework in mind the following section demonstrates its empirical worth by analysing the evolving nature of New Public Management (NPM) in the UK culminating in the intensification of NPM through the ‘target regime’ of public service agreements (PSA). whilst the transactional and relational are absolute ideal-types it is possible and appropriate to see them empirically as two ends of a continuum. If it is not then the dangers to which Hasslebladh and Kallinokos.

Sigma-type values align directly with the underlying content of instrumental rationality ideal-type summarised in Table 1. 1991:11). 7. Stress on private sector styles of management practise. ‘Hands-on professional management’ in the public sector. These are: 1. 2. Lambda-type values link directly to the characteristics aligned with the communicative rationality ideal-type in Table 1. 5. 28 . Stress on greater discipline and parsimony in resource use. Whilst these values and rationalities are very different it seems highly unlikely that by adopting sigma or lambda-type values would be doing anything other than trying to ‘honest and fair’ in the financial flows that they are controlling. on the other hand. Both would claim therefore to be adopting theta-type values.’ (Hood. 4. Greater emphasis on output controls. There are considerable overlaps between Hood’s sigma and theta-type values and instrumental and communicative rationalities discussed in the previous section and summarised in Table 1. This can be distinguished from alternative forms of core values in public management that Hood (1991: 11) calls ‘theta-type values’ (‘keep it honest and fair’) and ‘lambda-type values’ (‘keep it robust and resilient’). Explicit standards and measures of performance. Shift to greater competition in the public sector. can be seen to apply to both sigma and theta-type values and instrumental and communicative rationalities. 1991: 4/5 (emphasis in the original)) These components reflect particular key underlying values or as Hood (1991:15) puts it ‘NPM can be understood as primarily an expression of sigma-type values’ where sigma values can be typecast as ‘keep it lean and purposeful’ (Hood. 6. The theta-type values. Shift to disaggregation of units in the public sector. albeit in very different ways.The Evolving Nature and Intensification of New Public Management in the UK Hood (1991) identifies seven key ‘doctrinal components of new public management (NPM). 3.

We wish to analyse some key points in the recent development of NPM in the UK giving particular emphasis to the development in output and outcome controls enabling devolution and disaggregation to occur. in turn.In making these linkages it is possible to argue that NPM contains all of Hood’s seven characteristics. and is a particular form of transactional PMS. we argue that characteristics number 2 and 3. enable disaggregation to occur (characteristic number 4). As Humphrey. They are certainly secondary to the other concerns. In the specific context of Hood’s listing. has led to a step change in emphasis in the nature of NPM. have become primary. In 29 . as described by Hood in 1991. we will argue. As Hood (1995) and Laughlin and Pallot (1998) indicate only a limited set of countries can be seen to be what the former refers to as ‘high’ adopters of NPM where the seven characteristics are present and operative. which emphasise outcome controls. Miller and Smith (1998) indicate it is not as though a fully formed NPM control system became implemented as a totality. This. It is this change in emphasis which is key in the recent development of NPM. Other countries have varying ‘low’ and ‘medium’ levels of NPM adoption. There has been an evolutionary process at work over decades. The remaining characteristics are either seen as instrumental to this new form of devolved outcome control or are largely redundant and irrelevant to these concerns. It is this shift we describe in this paper. This is to such a degree that the other elements are either eclipsed altogether or become downplayed considerably. These. This is not to say that NPM in any form is universal in its application or adoption. whereby a limited number of Hood’s seven characteristics have taken precedence.

the thread of the intensification of this emphasis can be illustrated. and 30 . by 1982.a framework in which public sector managers are invited to think about their decisions relating to public spending and public service provision. and assess and wherever possible measure outputs or performance in relation to these objectives. well defined responsibility for making the best use of their resources including a critical scrutiny of output and value for money. 1982) which launched the FMI was unquestionably a watershed point in the development of NPM in the UK. for instance. traces the origins. was well established in the public service change agenda.’ More specifically it had the intention to: ‘…promote in each Department an organisation and system in which managers at all levels have: 1. designed to improve the quality of public sector management generally and to enable that management to give greater value for money in the spending of public funds.returning to the earlier genesis of NPM. Jackson (1988: v) describes FMI as: ‘…. A key moment in the development of NPM in the UK is acknowledged to be the 1982 Financial Management Initiative (FMI). as others do. It is a set of broadly-based management techniques. It was given ever greater urgency and intensity with the election of the Conservative Government in 1979 under the leadership of Margaret Thatcher who. The FMI had clear intentions to bring a very different emphasis to the work of public sector management. 2. Whilst FMI is not the start of the development of NPM in the UK – Zifcak (1994:12). to 1968 with the Fulton Report (1968) whilst Jackson (1988) traces it even further back to the 1950s – there is no disputing that the emergence of the study on the efficiency and effectiveness of the civil service (Treasury and Civil Service Committee. a clear view of their objectives.

departments were encouraged to adopt their own FMI. FMI was not a ‘rigid management system’. training and access to expert advice which they need to exercise their responsibilities effectively. in which objectives and constraints are set clearly. decision-making within the organisation is devolved. It is the watershed point on this continuum. a relational PMS to a tentative. a shift from the far extremes of a relational PMS to the start of a more transactional form. away from an underlying lambda-type values system guiding public sector management to one based on sigma-type values or. in the terms that we wish to analyse the issue. (Treasury and Civil Service Committee. Its intentions were clear yet its prescription was limited since as Jackson (1988:vi) makes clear: ‘The Treasury and Cabinet Office did not impose the FMI on individual departments.’ In this sense. the information (including particularly about costs). 1982:21) To Jackson (1988: vi) ‘the FMI embodied the rational model of decision-making. move to more transactional forms of control. but still important. using the terms in this paper. involving a clear point of departure from. as Jackson continues. using the framework developed in this paper. and financial management information is generated that will enable managers to manage resources efficiently. from a PMS guided by communicative rationality to one that has a more instrumental rational emphasis. FMI was intended to bring new forms of rationality into public sector management. The FMI was the first serious attempt to shift. It was.3. using the concepts developed in this paper. Instead. Given the tentative nature of the movement and the magnitude of the change required it is not surprising that within a few years FMI floundered needing the development of 31 .’ Thus. in Hood’s terms.

the benefits obtained from the systems had been limited. that a full permanent secretary be designated as a ‘project manager’ to ensure that the reform programme proceeded quickly and to a high level. even probability. Policy and ministerial support dominated civil service structure and function to the neglect of effective delivery of government services. Second. the chief executives would be responsible to ministers who in turn would be accountable to Parliament for the operation of their agencies. First. Third. the unit recommended.upon structural change as the precondition for attitudinal change’ (Zifcak. Clearly. the manner in which an agency would perform its tasks would be specified in a policy and resources framework agreed with its sponsoring department. each agency would be headed by a chief executive appointed from within or outside the civil service.’ (Zifcak. The chief executive would be held personally responsible for the achievement of the specific objectives and targets set in the agency’s framework document. the introduction of new management systems had been a welcome development. This led 32 . To implement these changes. The civil service itself was far too large to manage as a cohesive entity. 1994:89). 1988). Short-term political priorities still squeezed out long-term planning.found that while the civil service was much more conscious of the cost of its activities than it has ever been. 1994:81). in the culture of the administration. the essential features of management in Whitehall had remained untouched by five years of intensive administrative reform. ‘agencies’ would be established to carry out the executive functions of government. The Next Steps Report was introduced to Parliament by the Prime Minister on 18 February 1988 (Efficiency Unit.’ As Zifcak (1994: 74) makes clear Next Steps was indeed an outgrowth of FMI but it was FMI with more ‘teeth’ geared towards more fundamental change and looking ‘…. However. for the move to agencies as a worrying ‘…relaxation of central controls’ (Zifcak.. fifth. Government programmes were focussed on the expenditure of money rather than the achievement of results. In this regard the Next Steps Report: ‘…made five principal recommendations. Fourth. without a real change in attitudes and institutions. There was a chronic shortage of managerial skills. As Zifcak (1994: 72) makes clear the analysis of the Next Steps Report: ‘. 1994: 73) The proposals of the Next Steps Report were an even greater concern than the FMI to HM Treasury due to the increasing possibility.what became the ‘Next Steps’ initiative.

that the agencies should have increased in-year and end-year financial flexibility. Creating distance between ‘steering’ and ‘rowing’ ensures greater formalisation in the processes with output and outcome control being of primary importance for operationalising this required structural change. particularly input controls. be accorded trading fund status. that agencies might.. and that chief executives rather than permanent secretaries could be nominated as accounting officers…. But for this relaxation it had extracted a price. The ground it lost on inputs it made up on outcomes. 1994: 83) This change of emphasis was given ever greater amplification with the changing relationships between the departments and their agencies: ‘In the post-agency era.’ (Zifcak. The price was a greater role in setting targets and monitoring agency performance. for example.’ (Zifcak. set targets for their agencies and develop new skills to perform adequately in the changed ministerial environment…. Yet the Next Steps initiative ensured that a further move along the transactional/relational continuum was guaranteed. The key attitudinal change necessary was that the core department should learn to trust chief executives to perform effectively.. They had to clarify their new identity. in appropriate circumstances. 1994: 84/85) This emerging relationship involved ‘management by contract’ ( a foretaste of the ‘new’ NPM in an increasing emphasis importance given to output and outcome control to resolve these worries: ‘The Treasury was considerably more prepared than it had been to delegate some of its financial controls. The seeds of a different emphasis in NPM were planted at this point yet its realisation was still some way off. 33 . Its own rule would be to determine whether what was done was consistent with government and ministerial objectives. It accepted. 1994:86) yet as he continues ‘the reality was that no enforceable contracts existed’. core departments were expected to take on a much more strategic and less interventionalist stance.

This move along the continuum. It stands behind the creation not only of formal targets. Paragraph 3) As he continued: ‘Performance measurement has become an integral part of modern government. 2003): ‘Over the last 20 years performance measurement has developed into an important means of improving performance and reinforcing accountability. the Comprehensive Spending Review (CSR) with the introduction of Public Service Agreements (PSAs). which the Labour Government initiated following their electoral victory in 1997. Paragraph 4) In 1998. quality of service and finance. PST 54. manage their resources cost effectively. was a step-change in this emphasis.’ (PASC. The introduction of Executive Agencies from 1986 on led to the creation of performance targets covering throughput. efficiency. The long-term importance of performance measurement and targets was signalled in the views of Sir John Bourn. In 1982 the Financial Management Initiative required Departments to set clear objectives and to allocate measures to those objectives. and account for their performance to Parliament and the general public. PST 54. the UK’s Comptroller and Auditor General. 2003: Minutes of Evidence. 2003: Minutes of Evidence. away from the relational and lambda-type values is encapsulated in the development of public service agreements and targets to which we now turn. improve delivery. but also features in the many contracts and agreements that control service delivery……Good performance information is a crucial element in helping public sector organisations to develop policy. The Government’s submission to the PASC’s report on targets (PASC.’ (PASC. in his submission to the Public Administration Select Committee’s (PASC) critical report on target setting (PASC. 2003) provides some pointers to the nature of PSAs and why they involve such a major change: 34 .

The 1998 CSR contained plans for the 1999 to 2002 cycle. A new CSR is underway with the results to be published in 2007 to cover the period from either 2008 to 2011 or possibly 2009 to 2012. The CSR in 2004 covers the period 2005 to 2008.a focus on delivering results. This was followed by a Spending Review (SR) (rather than another CSR) in 2000 covering the period 2001 to 2004. As the Government made plain when introducing PSAs: ‘The amount spent or numbers employed are measures of the inputs to a service but they do not show what is being achieved…… What really matters is the effectiveness and efficiency of the service the public receives. the Chancellor of the Exchequer. PST60) The introduction of PSAs is the key vehicle for operationalising and managing the financial allocations coming from the Comprehensive Spending Review (CSR). Gordon Brown. 35 . . 2003: Minutes of Evidence. . .a clear sense of direction and ambition. The second SR was in 2002 covering the period 2003 to 2006.a clear statement of what the Government is trying to achieve. That is what makes a difference to the quality of people’s lives. introduced the CSR in 1998 to provide a wide-ranging review and rolling three-year finance-led plan for all Government Departments.a basis for monitoring what is and isn’t working.’ (PASC. PSAs are a central and key element and were introduced in the 1998 CSR in the context of a clear commitment of the Labour Government to ‘focus on results’. . They provide: .‘The targets set out in Public Service Agreements have proved immensely valuable. Each CSR and SR overlaps with the other and has become ever more developed as a planning tool that links financial allocations to outcomes to be achieved.better public accountability The PSAs have contributed to a real shift in culture in Whitehall away from inputs and processes towards delivering outputs and results.

related to outcomes wherever possible.New Service Delivery Agreements (SDAs) will be published in the autumn covering the work of both main and smaller departments. the Government developed the PSAs set out in 1998 in a number of ways by: 36 . that the precise technical details are agreed. measureable. as experience of this new approach develops.’ (HM Treasury. In terms of reflections the following points were made: ‘In the 2000 Spending Review. swifter justice. Moreover.’ (HM Treasury. smaller class sizes. 2000: Paragraphs 1. It is important both for the accurate collection of information. the Government has attempted to make the targets as clear and readable as possible. in order to prioritise the most important goals and reforms it wants to deliver…. it hopes to further refine and improve future target-setting.11 and 1. In order to make the PSAs a real tool for transparency and accountability. In the 2000 Spending Review. and the rigorous monitoring and reporting of progress. reduced waiting lists. and are publicly available. they are expressed either in terms of the end results that taxpayers’ money is intended to deliver – for example. As far as possible. improvements in health and educational achievement and reductions in crime – or service standards . relevant and timed (ie SMART) targets.12) In the 2002 SR further refinements were made along with reflections on the developments that had occurred from the move into PSAs in 1998 and SDAs and TNs in 2000. achievable. which will specify precisely what will be measured under each target. The Government is therefore setting specific. These will set out the more detailed outputs which departments will need to focus on to achieve their objectives. and the modernisation processes they will go through to improve the productivity of their operations. The 2000 CSR clarified the rationale for these changes as follows: ‘As the Government recognised at the time of the 1998 CSR setting targets for central Government was a process that would need to be refined over time…. To this end all departments will be publishing Technical Notes later in the year. 1998: Paragraph 1) The 2000 SR refined the nature of PSAs but also added a new control device called Service Delivery Agreements (SDAs) and Technical Notes (TNs). the Government has further developed the PSA documents.The targets published in this White Paper are therefore of a new kind. These new SDAs replace the section on increasing the productivity operations in the 1998 Comprehensive Spending Review PSAs.for example.

outcome focused performance targets. what the department is looking to achieve. focusing more on the Government’s key priorities and outcomes. but simply refined the number and nature of the PSAs. which explain how performance against each PSA target will be measured. They also took account of a number of shared PSAs that involved more than one Government department. introducing Service Delivery Agreements (SDAs).• reducing the total of headline performance targets for the new period from around 300 to 160. The structure of PSAs was also much clearer in the 2002 SR and started to make more direct links with the ‘aims’ and ‘objectives’ behind the targets even though the connection to performance indicators was more implied. • Value for money: each department is required to have a target for improving the efficiency or value for money of a key element of its work. including at least one target in each departmental PSA about improving efficiency or value for money. which set out lower level input targets and milestones underpinning delivery of the headline PSA performance targets. • Performance targets: under most objectives. output and outcome based PSAs. and introducing Technical Notes.compared to the 366 in the 1998 SR. • Objectives: in broad terms.’ (HM Treasury. Where targets are jointly held this is identified and accountability 37 . They include: • Aim: a high level statement of the role of the department. These were almost entirely outcome oriented which was not the case with the 1998 SR which had a considerable mixture of input. • A Statement of who is responsible for the delivery of these targets. 2002: Paragraph 1. As the SR made plain: ‘PSAs bring together in a single document the aim. PSAs were reduced to only 125 for all the Government Departments – on average about 5 or 6 per Department . which is a key part of the Government’s agenda for delivering efficient public services.3) • • • The 2002 SR did not introduce any major structural changes. objectives and performance targets for each of the main Government departments.

and accountability and transparency has increased to an unprecedented level.1) The second bullet point highlights a major change in the 2004 CSR.5 (Emphasis in the original)) In the 2004 SR. providing further flexibility to those delivering services. 2004: Paragraph 1. 2003).’ (HM Treasury.9).to increase focus on the Government’s highest priorities. to 110…. This has been accompanied by the abandonment of all SDAs.’ The hope is that there will be a development of ‘local PSAs’ not dissimilar to those that were initially introduced in the 2000 CSR for local authorities and are now in their ‘second generation’ based on the apparent success of the first generation (Office of the Deputy Prime Minister (ODPM). As the Chancellor of the Exchequer indicated in his forward to the 2004 PSAs: ‘We have also abolished the requirement for departments to set Service Delivery Agreements (SDAs). giving departments and local organisations the freedom to decide how best to deliver priority outcomes. 2002: Paragraph 1. 2004:18) is a key priority such that the: ‘PSAs increasingly focus only on the key national priorities… giving freedom to local organisations over how best to achieve those outcomes in their area’ (HM Treasury.arrangements clearly specified. ‘constrained discretion’ (Balls. Grice and O’Donnell.’ (HM Treasury. the targets have become increasingly outcome-focused. at the same time. more accurately. PSAs evolved and changed yet again: • • • • ‘the number of PSA targets has fallen…. the targets are now supported by rigorous performance information. with biannual department reports and electronic publication of performance information on the Treasury’s website. Devolution or. as the last two 38 . 2004: Paragraph 1. with data systems underpinning targets validated by the National Audit Office. representing a reduction of over 500 input and process targets. Yet.

as follows: ‘As the health.27) of any public services which add to these targets to exercise performance management. TNs. after looking at other public service delivery 2004: Paragraph 1. 2004: Paragraph ) which is regularly updated to report on performance achievement. paragraph 2. measures and compliance requirements is more than 17 times greater than the headline PSA would suggest.1). the number of controls faced is dramatically higher than the number of PSA targets suggests. SDAs and Annual Departmental Reports (http://www. the Audit Commission and the Office for National Statistics (HM Treasury et al. two factors drive the difference between the number of PSAs and the number of targets and measures actually faced: • as PSAs are transmitted along the delivery chain. 2004. Driven by a recent report by HM Treasury. The important point to register at this stage is that it is not just the PSA targets.bullet points indicate. education and police analyses show.24 They conclude. measures and compliance requirements…… When faced from the perspective of a local authority. For example the Department of Health has only 12 PSA targets across the NHS and Social Care. 2001) there is now a central web site for all PSAs.’ (HM Treasury/Cabinet Office. the Cabinet Office. local government. With a further 125 non-PSA related controls identified. intermediate tier organisations and inspectorates often set additional targets and controls concerned with inputs and processes. Front line trusts and PCTs however face more than 4 times as many PSA-related controls from the Local Delivery Plans and CHI. So in their recent Report they make clear: ‘The review found that many organisations do face excessive externally set targets. 5 39 . hospital or other local organisation. the National Audit Office. government departments. which are directing or intending to direct performance – there are a range of other regulatory bodies along the ‘delivery chain’ (HM Treasury/Cabinet Office. This is anticipated to be only the start of major developments in reporting – ‘unprecedented’ clearly is an appropriate descriptor.hmtreasury. the overall number of targets. and • government departments and other standard setting bodies set a large number of additional controls (at least 10 times as many as the number The interest in developing performance reports has been growing exponentially over the last few years. any freedom comes at a price of increased accountability and transparency to ‘unprecedented levels’5 (HM Treasury.

The final building block is about improving the governance of public services.27) Whilst it is clear that the Labour Government would like to see a reduction of unnecessary controls along the delivery control this does not include the reduction in output and outcome controls. paragraph 2. In fact it is only through these forms of controls. by reforming institutions to reflect the importance of clear objectives. 40 .’ (HM Treasury/Cabinet Office.of headline PSA targets) in areas which do not relate to the PSA set at all. can there be a move to effective devolution and disaggregation. 2004.’ (HM Treasury. constrained by effective governance structures. HM Treasury’s view on this can be seen in their 2003 Report to meet what they refer to as the ‘productivity challenge’. The second involves devolving responsibility for the delivery of public services to local providers. subject to appropriate minimum standards and regular performance monitoring. and Better incentives for service providers to meet users’ needs. expressed as desired outcomes. appropriate incentives and good performance information in the achievement of higher productivity. it is claimed. Improved information about performance. is yet another shift along the relational/transactional PMS continuum. Greater discretion for local service providers. These building blocks have been translated into a four-point framework to guide public service reform: • • • • Clear long-term goals. To do this requires recognition of three building blocks leading to a four point reform framework: ‘The first building block is a focus on outcomes – performance of the public services should be assessed on the basis of results. 2003: Paragraphs E6 and E7) In sum the PSA development. which has been becoming ever more sophisticated as it has developed from its 1998 introduction.

The term ‘constrained discretion’ is emotive but descriptive of what is happening and it is only because of the growing sophistication of output and outcome controls that even this level of discretion is possible. but there are other transactional forms of control that can be added to make sure that these are achieved. This is taking some elements of NPM that Hood (1991) describes and developing their significance out of all proportion to the others. but there is a step change again along that pathway. Some Concluding Comments The paper has concentrated on a broad understanding of performance management systems (PMS). There is no current agenda to change the direction away from placing a key importance on output and outcome achievement. by developing insights into the nature and relevance of the underlying context for any PMS and third. second. It has concentrated on building a conceptual model of any PMS using Otley’s (1999) and Ferreira and Otley’s (2005) analysis as a starting point but extending their insights in three ways: first in clarifying the financial focus for any PMS. This is not to suggest all controls are transactional. as distinct from performance measurement system or the more restricted understanding of PMS that comes with human resource management theorists. This is intensifying a particular form of control.Devolution and disaggregation of activities. 2003: Paragraph 97) is only permitted with tight output and outcome controls in place. which has been occurring ever since the Next Step agencies were created and is seemingly being encouraged even further through what has been termed by the ‘new localism’ (PASC. by extending the nature and significance of the 41 .

if discursively agreed. leading to the discursively agreed definition of performance indicators based on substantive rationality which could. In this context ‘ownership’ is associated and linked either to a particular sub-group of stakeholders or to an abstract requirement seemingly owned by no-one. A relational PMS is driven by the exercise of communicative rationality between stakeholders to debate and derive a consensus on objectives to achieve. which take on the characteristics of being highly functional and directed to specific outcomes. targets aligned to the performance indictors are assumed to be discursively agreed between the stakeholders. 42 . This third area.underlying culture behind any PMS. It also relies on practical rationality in the choice of means to achieve these objectives. which has a tendency to be more comfortable with precise and quantitative forms of measurement. A transactional PMS is driven by instrumental rationality to define the objectives. the resulting structures are ‘regulative and amenable to substantive justification’. Performance indicators are defined through formal rationality. performance indicators and targets. use quantitative measures to typify performance indicators but often may be more comfortable with qualitative indicators. In a relational PMS. with a concentration on the key distinction between instrumental and communicative forms of rationality has been key in developing a conceptual understanding of PMS. The key underlying theme is that there is ‘ownership’ by the stakeholders of the PMS that drives action in any organisation working under a reflexive authority structure such that it can be demonstrated that. in Habermas’ terms. which has involved demonstrating the significance of models of rationalities. This conceptual model is summarised in diagrammatic form as Figure 2 and highlights the key distinction between what can be described as ‘transactional’ and ‘relational’ forms of PMS.

Yet our thesis is that there is a point on the continuum where there is a clear cross over point from relational to transactional or vice versa. Whilst the exact nature of any PMS is dependent on empirical explication. due to its perceived lack of precision. to be ‘constitutive and legitimised through procedure’ rather than the outcome of a consultative process. it does not predetermine this description – empirical ‘surprises’ are still possible. theoretical rationality. What it does is provide a language for structuring the empirical description. Laughlin. in a ‘middle range’ sense (cf. 2004. Implicit in this framework is a reliance on legal-rational authority structure to ensure compliance. Targets are taken to be driven by what either a defined sub-group of stakeholders determines or what the seemingly abstract definer of objectives and performance indicators requires. 1995. for analysing empirical situations. Broadbent and Laughlin. conceptually it is important to see these transactional and relational PMS as lying on a continuum where at either end will be extreme versions but towards the middle the distinctions are less clear. The ‘middle range’ theory cannot pre-define which form will be present in particular situations. such ‘surprises’ can also reshape the conceptual language where it fails to provide meaningful ‘placeholders’ for the analysis. guides the choice and use of means to achieve these objectives. with a certain reluctance to use practical rationality. in Habermas’ terms. We have used this conceptualisation to explore empirically an area which has been looked at many times before: the evolution of New Public Management (NPM) in the 43 . Ownership is less likely when a transactional PMS is in place since the framework has a tendency. This typecasting forms a theoretical language. In fact. However.In general. 1997).

At this point in time.UK. tighter PSA linkages to funding. Third. It only comes at particular points along the transactional end of the continuum. the move to giving a greater emphasis to outputs and outcomes is an important marker of a tightening of the transactional emphasis. it helps to explicate the nature of the relational/transactional PMS continuum and the way certain issues are emphasised at particular points on the continuum. there remains the potential for a greater intensification of control through greater use of transactional approaches. Two closing reflective points can be made. First. First. that the empirical study of NPM provides a number of important insights. increase in penalties for non-achievement. and in relation to this. Instead.g. When reached it becomes highly significant since it is much more directional in its intent. This conceptualisation provides new insights into this well documented development and also has allowed us to argue that the current concentration on output and outcome and target achievement is such a step change in NPM that it can be seen as a particular form of intensification of NPM. greater 44 . It is for this reason we saw the PSA development to be an intensification of NPM. Second. still NPM . Unlike the Financial Management Initiative (FMI) on 1982 which we argue created the cross-over point from relational to transactional PMS and the 1988 Next Steps development which shifted the developments in NPM further into a transactional form the development of Public Service Agreements (PSAs) in 1998 was a further move along the transactional part of the continuum but marked a step-change in the nature of NPM.but of a very different sort. we can see no agenda to suggest the concentration and importance given to output and outcome achievement will change. we suggest the likelihood is that we will see refinements and greater levels of intensification (e.

’ (Habermas 1984: 353). ‘As the process of rationalization advances. moves beyond the pessimism of Weber. following Habermas and others. we suggest. Cooper and Oakes (2003) when they demonstrate that the imposition of an instrumental framework has important repercussions. Using their case study of the introduction of performance measures in the Canadian Province of Alberta they conclude: ‘Such disarticulation has important consequences. to a new counterfactual possibility contained in the communicative rationality ideal type. We argue the relational approach holds the key to a viable and meaningful alternative. 2003:1064) We share Townley et al’s concerns and argue that what we have called transactional PMS is problematic in some situations.direction on means etc. Cooper and Oakes. Second. These dangers are well illustrated by Townley.) and that the concentration on outputs and outcomes will always remain. the subsystems of purposive rational action become increasingly independent of ethically grounded motives of their members and make increasingly superfluous any internal behaviour controls related to more practical rationality. But equally. This represents our fundamental concern with the developments in Alberta: the substitution of technical for moral responsibility in the name of morality. This view. there are dangers with transactional PMS and the intensification of this emphasis by moving ever further towards the transactional end of the continuum. participants are not required to be responsible for their actions. it could be otherwise. 45 . particularly in the public services. and his alternative in the charismatic leader. the control of behaviour passes from the authority of the conscience of associated individuals to the planning authority of societal organizations: ‘more and more complex networks that no-one has to comprehend or be responsible for’ (Habermas 1987: 184). In other words. When the coordination of action becomes unhinged from communicatively established consensus.’ (Townley.

13/14) 46 . and we found that witnesses identified a significant risk that the target setting process had subverted this relationship with targets becoming almost an end in themselves rather than providing an accurate measure of progress towards the organisation’s goals and objectives. Targets can be good servants. its time frame is shorter and its techniques are more mechanistic. ensuring that there is a Delivery Plan in use for each target”. 2003. 2003: Paragraph 9. seeing the latter as a poor substitute and an undermining of the former but where the PSA systematisation was heading towards. 2003) which makes clear that. Paragraph 33. Both have their place. the Prime Minister’s Delivery Unit “assesses and supports delivery in each of the departments. Elsewhere they refer to these two cultures as respectively the ‘performance culture’ and the ‘measurement culture’ (PASC. Targets can never be substitutes for a proper and clearly expressed strategy and set of priorities. to a transactional emphasis still does not have universal support or universal application: ‘There seem to be two cultures at work in the Government’s approach to public service reform.’ (PASC. but it is important that the former is not crowded out by the latter. with attention to leadership and management issues.7). which has responsibility for “working with departments to embed reform and identify best practice”. Among other things. Summary. This overarching theme came through in a number of different ways in the Report but it is well captured in the Committee’s view that: ‘We doubt that the current target regime has succeeded in providing a clear sense of direction and ambition for our public services.’ (PASC.3). but they are poor masters. in particular. p. the focus is on the organic ingredients of durable change and improvement. The second approach is typified by targets. p. The first emphasises capacity-building in organisations. 2003. p. As such. the move. based on their understanding. This is the central task for the Prime Minister’s Office of Public Services Reform.What is interesting in this context is to note the comments of the Public Administration Select Committee (PASC) Review (PASC. in our terms. Key to the concerns that were expressed to the PASC is the issue of ‘ownership’ and the consequent linkages of the targets to the aims and objectives of stakeholders.

and the clarity and transparency of its definition. Question 347). 2003: Minutes of Evidence. one of the few witnesses who was asked to clarify the perspective on targets from the private sector viewpoint. that constant iteration between the people who are setting targets and the people who are having to deliver them that improves the quality of them. based on his experience. Hon.who stated the ‘…. regional organisations and the front line. there is still a perception that this is what is happening. local government. makes the same point: ‘It is about ownership. as the Committee’s Report continues: ‘We strongly agree.the biggest problem at the moment is that the profession feels no ownership of the targets. Their 2004 Report notes: ‘The next phase requires evolution in the relationship between central cannot impose targets by fiat’ (PASC.Typical of the comments of witnesses that led the Review to this conclusion was the comment from the Rt. the extent to which it has the support of staff whose efforts will achieve it. Question 965). 2003: Minutes of Evidence. Question 753) Or. PST14) Lord Browne. Professor Alison Kitson. It is that dialogue. at the front line in the public services. the extent to which service users were involved in its development. none whatsoever’ (PASC. and we also feel that. 2003. However. 2003: Paragraph 97). from the Royal College of Nursing. the quality of the data used to measure its achievement. 2003: Minutes of Evidence. as the Audit Commission.15). noted: ‘What makes a target ‘good’ is not just the way a target is expressed – it’s about the way it was derived. 2003.’ (PASC. Central government needs to maintain a strategic role.’ (PASC. Minutes of Evidence. ‘…. ensuring national standards are 47 . Estelle Morris – the former Secretary for State for Education and Skills .’ (PASC. Paragraph 36. made plain that. it is about interpretation and understanding of the relevance and impact of the target to the people who are providing the business. the extent to which it helps to achieve policy objectives. HM Treasury is well aware of these concerns and have reacted to them with their move to the ‘new localism’ (PASC. p.

it is first critical to identify a single organisation to performance manage each group of front line units.’ (HM Treasury/Cabinet Office. but allowing greater scope locally to determine other priorities and to decide how best to deliver national outcomes. Central 48 . These are: robust and reliable internal data reporting.Second.7.met and maintained. clear accountabilities. based on timely and regular performance data……. However. local government and intermediary tier organisations……Analysis of best practice in the public and private sectors in the UK and abroad suggest five areas that must be developed to strengthen local performance management capacity. • stronger local accountabilities and incentives for delivering improvements in public services based on timely publication of performance data. and • increased performance management capacity within front line. 1.9 and 1.For central government to devolve decision making authority with confidence.’ (HM Treasury/Cabinet Office. 1.6) A cursory reading of this suggests more a shift in the forms of centralised control rather than a wholehearted encompassing of devolution along the lines suggested by the PASC. 2004. This requires change in key areas: • within a framework of national Public Service Agreements (PSAs). inspectorates and central government departments alike. paragraphs 1. Closer examination of the Report seems to reinforce this impression: ‘A more devolved approach makes it essential that local accountabilities and incentives to improve are strengthened……To achieve this. The new approach must be advocated and owned by public service professionals. strong leadership. these proposed changes must be underpinned by stronger capacity in performance management within front line. local government and other intermediate tier organisations. credible incentives in the form of rewards and sanctions must be made available such that intervention by central government only takes place in cases of clear underperformance that the intermediate tier has not been able to correct……. to the Government’s credit they do acknowledge that the implementation of this model of ‘devolution’ is likely to be difficult and that it does need to be ‘owned’ by front line professional to be meaningful: ‘The scale of the challenge required to move to this new phase should not be underestimated. fewer targets and other external controls set in addition and greater scope for locally determined outcomes and methods of delivery. Paragraph 1.10) This is arguably not quite what the PASC had in mind when they made their Recommendations. performance review combining challenge and support and transparent rewards and sanctions. 2004.8. The changes require a well-planned approach to implementation.

Most important of all. the relational PMS will reassert itself. As is apparent from the 2004 CSR. Structural change and new approaches within departments and along the delivery chain will also be required. We await with interest to see what the 2007 CSR brings but at least the acknowledgement of the need for ‘new localism’ gives some chance for stakeholders to have their say. a considerable number of other changes needed. The 2004 Report by HM Treasury and the Cabinet Office. local government and other intermediate tier organisations must focus on supporting front line delivery and building capabilities required to operate in a more devolved system. What is clear is that with increasing devolution more complex PMS elements and controls are seen to be necessary if performance is to be managed. which is critical of the high number of additional controls that intermediate regulatory agencies impose on front line services. Paragraphs 6. the building of ‘trust’ and the need for generating ‘ownership’ as being of paramount importance but very difficult.4 and 6. a new level of trust needs to be built between central government and public service providers. 2004. is intended to put pressure on them to change. the Government has already made a start on this pathway by reducing the number of national PSAs and abandoning the input and process controls of SDAs. as they acknowledge. however.5).government. 49 . Maybe. This trust will only develop if all parties demonstrate their commitment to devolution by undertaking the concrete actions required to make it happen. just maybe.’ (HM Treasury/Cabinet Office. But any shifts will not displace output and outcome control – it is for this reason we see this as the start of the intensification of NPM. There are.

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4 Questions on Culture and Context 8 Questions on Ends and Means Performance Management and Control System (PMS) Figure 1: Ferreira and Otley’s Performance Management Framework (Adapted from Figure 2 from Ferreira and Otley (2005: 42)) 54 .

targets) and the MEANS to be used (e. key performance indicators.Figure 2 PMS: A Conceptual Model CONTEXT CULTURE INSTRUMENTAL RATIONALITY COMMUNICATIVE RATIONALITY PERFORMANCE MANAGEMENT (AND CONTROL) SYSTEM (PMS) Selective definition of ENDS to achieve (e. reward systems) to achieve these ends.g vision and mission. strategy and plans. key success factors in relation to ends. key success factors in relation to means. performance evaluation systems.g. structures. TRANSACTIONAL RELATIONAL EXPLICIT OR IMPLICIT FINANCIAL TRANSFERS AND ACCOUNTABILITY REQUIREMENTS IN A RELATIONSHIP BETWEEN A TRANSFEROR AND A TRANSFEREE 55 .

Underlying Rationalities Description Ends defined derived using: Performance Indicators (PIs) derived using: Instrumental Rationality Instrumental Rationality Formal Rationality Communicative Rationality Communicative Rationality Substantive Rationality Practical Rationality Choice of means to Theoretical use to achieve the Rationality objectives and PIs using: Probability of different stakeholders owning ends and means: Underlying Authority Structure Likely to be low Likely to be high Legal-Rationality Reflexive Table 1: Contrasting ‘Ideal Type’ Rationalities in PMS Design 56 .

57 .