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

2. 2 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

3. 3 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)

4. 4 Regulation Performance 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

5. 5 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

6. 6 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

7. 7 Links between Regulation and Performance Measurement Large Firm Firm-Level Industry Level Small Firm Impact of regulation 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

8. 8 Table 1: Key authors and journal summary AuthorsDateSummary Adcroft & Willis2005Looked 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 & Fitzgerald2001Analyze 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 & Francis2002Looked 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 Shaffer1995Focuses 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

9. 9 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

10. 10 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!!!)

11. 11 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

12. 12 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

13. 13 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

14. 14 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

15. 15 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