Performance measurement in the public sector: the case of local governments in East Java, Indonesia

Abstract

Public organisations have been scrutinised and enforced to provide better services, particularly after the emergence of the New Public Management (NPM). After the 2001 decentralisation, local governments in Indonesia have been granted with much greater amount of budget and mandated to improve public services provision and accountability. As a result, measuring performance of local governments has become prominent. Several regulations have been enacted to force local governments to utilise performance measurement (PM) systems and to regularly report their performance. Drawing upon management accounting in the public sector and extant literatures on public sector reform, this study seeks to (i) identify factors affecting PM utilisation that could explain the case of local governments in Indonesian context, (ii) examine current practices of PM in local government, and (iii) examine the perceived impacts of PM utilisation on accountability. Those issues were tested using a mixed method approach with collection of data from self-administered survey questionnaires and a series of post-survey interviews. Stronger emphasis was put on the quantitative approach as the objective of this study is to develop generalised findings of PM utilisation in local governments. This study was conducted in East Java – a province which has the highest number of local governments, the second most populous, and in total received the highest amount of block grants. The underpinning theories used for developing the research model include contingency theory, institutional theory (new institutional sociology), and knowledge utilisation theory. Contingency factors hypothesised to affect the utilisation of PM are RBM commitment (goal orientation and management commitment to utilising PM), government regulations (on performance measurement, mandatory performance auditing, compulsory competitive tendering, and public private partnership initiative) and supporting factors such as decision authority, parliament support, availability of resources for utilising PM, and related training on PM. Based upon knowledge utilisation theory (Beyer and Trice, 1982), utilisation of PM is framed as consisting of two stages: adoption and implementation. Those three groups of contingency factors are hypothesised to affect the two stages of utilisation. This study found a model of PM utilisation which is different from that in the developed countries. The results indicate that there are different factors affecting PM adoption and PM implementation. In general, this study clarifies that PM utilisation in local governments are regulatory driven. PM adoption is driven only by regulatory factors, i.e. regulation on PM and mandated performance auditing, which is also regulatory based. On the other hand, PM implementation is directly influenced by goal orientation and top management commitment to utilising PM. This finding magnifies the central role of RBM in the implementation of PM. Goal orientation mediates the influence of PM regulation, mandated performance audit, decision making authority, and the availability of resources to PM implementation. Similarly, management commitment also mediates the influence of PM regulation, regulation on procurement, mandated performance audit, decision making authority, parliament support, and the availability of resources to PM implementation. It is also shown that the implementation of PM enhances accountability. While qualitative analysis indicate that compliance with regulations merely appeared to producing performance reports, the implementation of PM emerged to be superficial, indicating that the PM is ‘decoupled’ from the essential goal of local governments. Finally, this study concludes by discussing its theoretical and practical implications and proposing several recommendations for future research.