The Relationship between Regulation and Performance Measurement and the

Unintended and Indirect Effects

Kim Tan and Rosalind Rae

The University of NottinghamBusiness 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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RegulationPerformance Measurement

Macro Level

Micro Level

Research Gap

What is the Impact of Regulation on Performance Measurement?

What is the nature of the relationship between regulation and performance measurement?

Regulation and Performance Measurement

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Research Method:Systematic 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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Regulation

Performance Measurement

Macro Level

Micro Level

The Relationship of Regulation and Performance Measurement

Firm Level: Strategic Objectives & Targets

Departmental Level: Objectives & Measures

Team Objectives & Measures

Individual Level Objectives & Measures

Performance Measures•Reporting•Adherence to standards•Reward

Policy Information•Influence Policy•Dedicated Roles

The Firm

Formulate Policy

Environment

Economy

Set standards

Protect Consumer

+ benefits

- costs

Unregulated activities

= intended outcomes

Unintended consequences

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Links between Regulation and Performance Measurement

Large Firm

Firm-Level

Industry Level

Small Firm

Impa

ct o

f reg

ulat

ion

Firm Size

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

•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

•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

•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

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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?

• Doesn’t 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