The Relationship between Regulation and Performance Measurement and the Unintended and Indirect Effects

1
The Relationship between Regulation and
Performance Measurement and the Unintended and
Indirect Effects

• Kim Tan and Rosalind Rae
• The University of Nottingham
• Business School
• Operations Management Division

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Performance Measurement (PM)Aims Objectives

• What is the relationship between regulation PM?
• Specifically, what are the unforeseen, unintended
  or indirect consequences?
• What is the impact of regulation PM on
  productivity?

Rosalind Rae, Kim Tan April 2006
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Feedback from Nottingham Workshop

• Need to define intended and unintended/unforeseen
  
• All consequences appear negative!
• Might look at structuring into
• Unintended due to PM
• Unintended due to Regulation
• Clarity about what the focus is
• PM on regulation or reg. on PM?
• Regulation Capture
• Rail privatisation good case
• Andrew Grantham (Brighton)

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Regulation and Performance Measurement
Research Gap
Macro Level
Performance Measurement
Regulation
Micro Level
What is the Impact of Regulation on Performance
Measurement?
What is the nature of the relationship between
regulation and performance measurement?
5
Research MethodSystematic Literature Review

• Keyword generation
• Electronic Database Searches
• Ebsco, Proquest, Web of Science
• Website searches
• Specific journal searches
• Categorisation of journals
• A, B, C
• Read journals and identify key journals

Rosalind Rae, Kim Tan April 2006
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The Relationship of Regulation and Performance
Measurement
Macro Level
Regulation
benefits
Formulate Policy
- costs
Protect Consumer
The Firm
Micro Level
Set standards
Performance Measurement
Economy
Firm Level Strategic Objectives Targets
Environment
Departmental Level Objectives Measures

• Policy Information
• Influence Policy
• Dedicated Roles

Unintended consequences
Team Objectives Measures
Individual Level Objectives Measures

• Performance Measures
• Reporting
• Adherence to standards
• Reward

intended outcomes
Unregulated activities
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Links between Regulation and Performance
Measurement
Firm Size
Large Firm
Small Firm

• Political influence
• Shape regulation
• Competitive Advantage
• Can take advantage of regulation
• through following a strategy
• which competitors are not

• Less political influence
• Have to form coalitions with other small firms
  to influence
• Difficult to benchmark with larger organizations
• Could mean business becomes not viable or new
  barriers to entry apply

Industry Level
Impact of regulation

• Can absorb costs better
• Still costs more but has less
• impact on overall picture
• Can commit resources to
• improvement in costs and
• process
• Resources to automate
• performance measurement
• system

• Impact on costs efficiency is greater
• Still costs more but has less
• impact on overall picture
• Costs too much resource to
• improve costs and
• process especially over the short-term

Firm-Level
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Table 1 Key authors and journal summary Table 1 Key authors and journal summary Table 1 Key authors and journal summary
Authors Date Summary
Adcroft Willis 2005 Looked into the (un)intended outcome of public sector performance measurement, in particular looking at examples from the NHS and the education sector. They found that an increased usage of performance measurement techniques in the public sector resulted in the commodification of services which was delivered by an increasingly deprofessionalised public sector workforce
Brigham Fitzgerald 2001 Analyze the relationship between individual organizational performance management measurement within a regulated water company. They propose 4 dimensions of control constitute the social relations of economic regulation mediation negotiation visibility of reporting prioritization of performance measures and perception of control
Humphreys Francis 2002 Looked at the past, present and future of airport performance measurement focused on the changing ownership of airports from public to private interests on performance measurement systems. They found that measurement systems were developed in response to changing organizational contexts. They concluded that airport performance measures are important for day to day business and operational management, regulatory bodies, government and other stakeholders such as passengers and airlines
Shaffer 1995 Focuses on the consequences of public policies for the competitive environment of the firm. He stated that firm level responses can be strategic adaptation and attempts to influence policy. Organizations protect and advance their political interests through environmental scanning, lobbying, political actions committees, coalition building (like trade associations) and advocacy advertising
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Results Benefits of PM

• Translation of company strategy into specific
  goals and measures
• Quality of decisions is higher
• Reduces variation in performance
• Ensures control accountability
• Motivates individuals to meet targets
• Improves standards
• Provides a consistent and coherent process for
  delivering goals

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Weaknesses of PM

• Scientific approaches to measurement assume 100
  objectivity subjectivity?
• Doesnt explain what should be done differently
• Measures can be too crude to be useful
• Over measurement overload
• Which measure is a priority?
• (all of them is the reply!!!)

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Unintended Consequences

• Commodification of services
• Deprofessionalisation of workers
• Too much time collecting, monitoring and
  reporting data and not enough doing
• Firms focus on unregulated activities to generate
  shareholder wealth
• The achievement of one PM can adversely affect
  the achievement of another

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Results Change in Management Behaviour

• Strategic adaptation
• Attempts to influence policy
• Firms protect advance their political interests
  through
• Environmental scanning
• Lobbying
• Political action committees
• Coalition building
• Formation of dedicated regulatory departments
• Agreement of regulation to damage rivals

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Issues and Challenges

• Only a few journals found specifically covered
  the unintended consequences
• Meant a search of possible related journals
• Search felt very fragmented
• Previous research was industry specific, case
  study specific
• Small number of journals related PM with
  regulation

Rosalind Rae, Kim Tan Apr 2006
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Propositions for further work

• The existence of unintended consequences needs
  further exploration a significant research gap
• The links between Reg. PM relatively unexplored
• Timescales short and long term implications
• The nature of the relationship
• The Impact of Reg PM on large and small firms
  in different contexts

Rosalind Rae, Kim Tan Apr 2006
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Initial conclusions..

• Research is quite fragmented
• Little as been done from the firms perspective
• Little focus on the links between PM, Regulation
  and Productivity
• Less on the unintended consequences

Rosalind Rae, Kim Tan April 2006