International Journal of Public Sector Management How can performance measurement systems

empower managers? An exploratory study in state-owned enterprises Martyna Swiatczak Michèle Morner Nadine Finkbeiner
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Introduction

Defined as enterprises that are directly or indirectly, fully or to a significant part owned by the state,

municipalities, or other levels of public authorities (Friedmann and Garner, 1970; Grossi et al., 2015;

OECD, 2005), “state-owned enterprises” (SOEs) are today largely hybrids of public and private

ownership (Bruton et al., 2015; Koppell, 2007; Thynne, 1994). Accordingly, they face potential

agency conflicts due to multi-layered ownership and control models (Calabrò and Torchia, 2011;

Kankaanpää et al., 2014). Further, SOEs are simultaneously confronted with typically public-sector

goals, such as public value creation, and characteristically private-sector goals such as profitability

and competitive advantage (Bruton et al., 2015; Grossi and Reichard, 2008; Vagliasindi, 2008). This

implies multi-layered accountability arrangements towards members of society, administrations,

professional groups, and political representatives (Bovens, 2007; Christensen and Lægreid, 2015;

Verschuere et al., 2006), the mere volume of which challenges the effective governance of SOEs.

Consequently, two reform waves have tried to deliver adequate governance mechanisms in order to

address this complexity (Christensen and Lægreid, 2007; Christensen, 2012; De Vries and Nemec,

2013). First, “new public management” (NPM) introduced a governance mode that focuses on granting

SOEs additional autonomy while making public actors directly accountable for performance outputs

(Christensen and Lægreid, 2015; Hood, 1995; Palermo et al., 2010). Output-based governance sets

goals, measures performance, and uses incentives to direct SOEs towards the efficient fulfilment of

public tasks (Bouckaert and Halligan, 2008; Van Dooren, 2005; Frost and Morner, 2011; Pollitt and

Bouckaert, 2011). Thus, most NPM reforms are contingent on performance measurement (Van

Dooren, 2005; Pollitt and Bouckaert, 2011). Performance measurement systems (PMSs) are formal

systems that set certain strategic outputs and provide information about actual levels of performance

(Franco-Santos et al., 2007; Melnyk et al., 2014). Using them, public authorities aim to govern SOEs

in the style of the private sector. The concrete performance information use is manifold and takes

place in a next step; however, this paper focuses in particular on the measurement perspective. The

most widespread PMS is probably Kaplan and Norton’s “balanced scorecard” (Kaplan and Norton,

1992) with its strategic development (Kaplan and Norton, 1996, 2001), but other formal and informal
models also exist (e.g. Neely et al., 1995; Nudurupati et al., 2011; Watts and McNair-Connolly,

2012). However, the measurement of managerial performance in SOEs is particularly difficult

(Aharoni, 1981; Bai and Xu, 2005) as it is a highly complex setting, and international research still

faces a research gap in this field in general (Bruton et al., 2015) and in particular with regard to the

measurement perspective (for an exception, see Ramamurti, 1987).

Secondly, “post-new public management” (post-NPM) reforms attempted to overcome the

shortcomings of NPM reforms that did not succeed in significantly increasing governance

effectiveness (Christensen and Lægreid, 2007). They enhanced the governance repertoire with a wide

variety of new approaches that put more focus on shifting power back to political and administrative

bodies and, at the same time, providing the latter with governance frameworks to help them govern

inter-organizational actions more effectively (Christensen, 2012). Central to these approaches is a

greater emphasis on common values, the increased involvement of SOEs, and the provision of general

frameworks for self-governance in order to improve cooperation vis-à-vis public goals (Ling, 2002;

Nabatchi, 2010; Sørensen and Triantafillou, 2009).

At first sight, post-NPM governance approaches seemingly contradict NPM-based, output-centred

governance ones. Some scholars, however, are calling for both approaches to be acknowledged as

supplements to rather than substitutes for each other (Christensen and Lægreid, 2007, 2011a;

Christensen, 2012; Egeberg and Trondal, 2009). According to this view, NPM does not need to be

replaced (Pollitt, 2003) but instead slowly enriched by post-NPM reforms, resulting in different

governance mechanisms coexisting alongside one another (Askim et al., 2014). This combination of

governance modes seems to be a satisfactory solution for complex governance settings such as those

of SOEs, as it enables flexible adaptation to changing governance needs (Bruton et al., 2015;

Christensen and Lægreid, 2010; Grandori, 1997, 2001a; Morner and Misgeld, 2013). However,

combining governance modes requires governance mechanisms to be compatible (Lægreid et al.,

2008; Schillemans, 2008; Sørensen and Torfing, 2011; Verschuere et al., 2006). PMSs as typical

output-based mechanisms are likely to narrow managers’ views exclusively to the fulfilment of the

respective goals (Bhattacharyya, 2013; Jaworski and Young, 1992; Merchant, 1990), and are also

even reported to be perversely used by public managers to support self-interests (Moynihan, 2008),
whereas self-governance tries to broaden public managers’ views towards an innovative and holistic

fulfilment of public tasks (Sørensen and Torfing, 2012; Sørensen and Triantafillou, 2009). When it

comes to whether or not PMSs are an effective governance mechanism, research offers mixed

conclusions (Cavalluzzo and Ittner, 2004; Greiling, 2006) – which highlights the relevance of the

question of how these systems should be designed in order to produce the desirable outcomes.

PMSs do not have to narrow public managers’ views – they can also be designed to broaden their

views and thus to foster self-governance (see Walker et al., 2011). This is the case if the systems do

not hinder but empower managers to take an “active work role”, one that allows them to grasp the

complexity of public task fulfilment and intrinsically motivates them (Deci et al., 1989; Gómez-

Miñambres, 2012; Spreitzer, 1995) to contribute to the different aspects of public value. Therefore, in

order to derive adequate design parameters for PMSs, the present study introduces the concept of

“psychological empowerment” (Conger and Kanungo, 1988; Spreitzer, 1995; Thomas and Velthouse,

1990), according to which, individuals can be empowered if they perceive (a) their work as being

meaningful and (b) themselves as being competent to fulfil it. Further, it must be possible (c) for them

to shape their work in a self-determined manner and (d) to influence it. Empowerment is generally

linked to improved organizational outcomes and performance in the private (Arogundade and

Arogundade, 2015; Drake et al., 2007; Haines and St-Onge, 2012; Price et al., 2004) and public sector

(Fernandez and Moldogaziev, 2013), but has not yet been linked to SOE performance measurement.

While a strong focus on predefined performance measures under output-based governance usually

decreases managers’ empowerment by narrowing their sense of accountabilities, empowerment at

work builds up self-governance capacities (see Amundsen and Martinsen, 2015). Thus, designing

PMSs that are able to empower managers and thus self-governance is the key to apposite performance

management for SOEs in complex environments. Accordingly, in this paper, the circumstances under

which PMS can foster the psychological empowerment of SOE managers are investigated.

The remainder of the paper is structured as follows: in the next section, the psychological

empowerment of managers as a driver of governance effectiveness in the specific context of SOEs is

identified, and the means by which empowerment can be supported by a specific PMS design is

outlined. Then, the case and research method are introduced, and the empirical material is presented
according to the study’s theoretical framework. Finally, the research results are discussed, and their

theoretical and practical implications advanced.

The further development of PMSs: A theoretical perspective for the governance of

state-owned enterprises

An initial glance at the specific SOE governance context shows how, under NPM and post-NPM

reforms, different governance modes have attempted to increase the effectiveness of SOE governance.

The following sections further elaborate on the specifics of SOEs, and conclude that combined

governance structures are more effective for SOEs as they respond better to their volatile governance

needs and different accountabilities. In order to combine both governance modes, this study proposes

aligning the underlying mechanisms. Such a combination requires PMSs that simultaneously

empower SOE managers towards self-governance, and this paper outlines how these might be

designed.

The specifics of state-owned enterprises and their implications

for PMSs

The governance context of SOEs is particularly complex. Not only is the number of them steadily

increasing in developing as well as developed countries in the wake of the current de-privatization

trend (Bruton et al., 2015; Christiansen, 2011; Economist, 2012; Ernst & Young, 2010; Florio, 2014;

Kankaanpää et al., 2014; Thynne, 2011), SOEs are also operating in diverse sectors, such as public

utilities, social care, or culture (Grossi and Reichard, 2008; OECD, 2005), and pursuing multiple

goals (Aharoni, 1981; Bruton et al., 2015; Vagliasindi, 2008). They further face the problem of

diverse and indirect owners, principals, and stakeholders (Aharoni, 1981; Estrin and Pérotin, 1991;

Kankaanpää et al., 2014). Accordingly, SOEs have to contend with multiple accountabilities (Bovens,

2007; Christensen and Lægreid, 2015; Verschuere et al., 2006), which means multiple obligations to

justify their actions (Pollitt, 2003; Schlenker et al., 1994).

First, SOEs are accountable to state or municipal administrative bodies that impose financial or

other forms of supervision on them. The increasing number of mixed ownership solutions and the
varying degrees of public control – from tight to loose (Bruton et al., 2015; Flinders and Tonkiss,

2015) – are rendering this accountability dimension (“administrative accountability”) even more

complex. In addition, SOEs are accountable to the ruling political parties – many of the

representatives of which are members of the respective supervisory boards – and their currently held

political ideas and voters (Estrin and Pérotin, 1991). In this sense, SOEs become part of political

conflict and power struggles (“political accountability”). Furthermore, SOEs operate in a wide range

of sectors and each company specializes in a certain professional field that contains particular

professional standards that are explicitly or implicitly binding for all members (“professional

accountability”). Society, too, is involved in the assessment of goal achievement, and accordingly

serves as an accountability mechanism, although it cannot directly impose sanctions (Estrin and

Pérotin, 1991); accountability here is instead based on the implicit expectations of society and their

relation to the state (“social accountability”). Finally, SOEs are accountable for meeting certain legal

standards (“legal accountability”). A holistic approach to SOE governance encompasses all of these

accountability dimensions – and, to cope with the resulting complexity, public authorities need

adequate governance mechanisms. Connecting to the literature in organizational theory, we define the

governance of SOEs as “decision-making processes coordinating interdependencies” (Frost and

Morner, 2011, p. 22) between all involved stakeholders in order to fulfil public tasks.

Output-based governance modes rely on private-sector governance mechanisms (Bovens, 2007;

Christensen and Lægreid, 2001; Van Dooren et al., 2010), and therefore originally do not capture

diverse and indirect accountability dimensions. Thus, it might be assumed that, in the specific context

of SOEs, private sector mechanisms, mainly introduced through NPM reforms, are doomed to fail.

Some studies, however, reveal a positive relation between governance via goal setting and

accountability in general (Berman and Wang, 2000; Ho, 2006), and confirm that performance

measurement may also advance communication, organizational learning, and discussion (Mahama,

2006; Melkers and Willoughby, 2001). However, the interrelations behind these findings have not yet

been sufficiently investigated, and broadly negative effects of governing SOEs based on goals and

outputs have also been reported (e.g. Bhattacharyya, 2013). Accordingly, a strong orientation towards

a limited set of predefined organizational goals risks rendering SOEs unaware of their role in public-

task fulfilment (Brunsson, 1989). Instead of inciting managers into searching for new solutions
(Boyne and O’Toole, 2006), output-based governance can narrow their focus onto prior benchmarks

and certain results (Sørensen, 2012). Instead of broadening their view of diverse sources of public

value creation, it tends to narrow their focus onto predefined goals (Jaworski and Young, 1992;

Merchant, 1990) and may cause them to end up as “single-purpose organizations” (Christensen and

Lægreid, 2007, p. 1060). In the context of SOEs, the most strident shortcoming is that PMSs have

primarily addressed managerial accountability towards administrations, neglecting their

multidimensional accountability structures, and have thereby deprived them of political accountability

through structural devolution (Christensen and Lægreid, 2001; James and Van Thiel, 2011). Palermo

et al. (2010) similarly reported the erosion of core organizational values and objectives through a

narrow focus on predefined performance measures.

Seeking to overcome, too, the disadvantages of a narrow output-based governance, the post-NPM

era introduced a wide variety of governance approaches, such as “Neo-Weberianism” (Pollitt and

Bouckaert, 2011), “joined-up government”, and “whole of government” (Christensen and Lægreid,

2007, 2011b; Stoker, 2006). Post-NPM is about integration, coordination, and cooperation, and thus

its governance mechanisms seek to create a strong and unified sense of values and goals and to

enhance the eagerness of all parties involved to actively contribute to public task fulfilment based on

self-governance modes (Frost and Morner, 2011; Sørensen and Triantafillou, 2009). While shifting

power back to public and political authorities, post-NPM approaches create governance frameworks

that foster decentralized steering and mutual monitoring and enable the managers of SOEs to foster

their problem-solving and self-steering capacities (Sørensen and Triantafillou, 2009; Wälder and

Morner, 2013).

At first sight, it may seem that output-based governance contradicts governance mechanisms

under post-NPM. Alternatively, some scholars regard a combination of diverse governance modes as

an opportunity rather than an illness (Christensen and Lægreid, 2011a; Christensen, 2012). One

argument for this perspective is that integrated governance modes respond more flexibly to dynamic

and complex governance settings (Bruton et al., 2015; Christensen and Lægreid, 2007; Egeberg and

Trondal, 2009; Grandori, 1997, 2001a). However, many governance modes are founded on partly

inconsistent mechanisms and principles (Christensen and Lægreid, 2011a).

 In sum, NPM-based PMSs shape SOE managers’ perceptions about organizational attributes in a

way that hinders their active work orientation, as they are narrowed within a set of predefined targets

that only partly allows them to shape their work role and context. Thus, such systems decrease

managers’ empowerment (Conger and Kanungo, 1988; Spreitzer, 1995; Thomas and Velthouse,

1990). Conversely, post-NPM governance mechanisms broaden the view of SOE managers to

encompass the innovative and holistic fulfilment of public tasks (Sørensen and Torfing, 2012;

Sørensen and Triantafillou, 2009) and empower managers to accomplish self-set goals.

This paper therefore proposes SOE managers’ empowerment as a solution for the integration of

the introduced governance modes; the following section introduces the concept of psychological

empowerment and explains how PMS can be designed to foster, rather than inhibit, SOE managers’

empowerment.

Empowering SOE managers: New requirements for

PMSs

This paper defines the empowerment of SOE managers (including, depending on an SOE’s legal

form, CEOs as well as executive managers) as their psychological empowerment (Spreitzer, 1995). In

this sense, empowerment is the process that enhances managers’ perceptions of being able to carry out

their work well (Conger and Kanungo, 1988; Seibert et al., 2004). This happens through enhancing

their perception of (a) their work being important, and thus meaningful; (b) having the competence to

perform their work well; (c) their freedom to choose how to carry out their work; and (d) their work

having an impact on the generation of public value. In this way, empowerment incites them to

actively contribute to public task fulfilment.

With the aim of forming an empowering design for PMSs, the following sections investigate how

particular design features can foster all the dimensions of empowerment (meaning of work, managers’

competence, their self-determination, and the impact of their work). Figure 1 provides an ex-ante

visual guide to the proposed theoretical framework.

<Insert Figure 1 about here>

 Figure 1.

Proposed theoretical framework of empowerment-friendly PMS design

Performance measurement and the perceived meaning of managers’ work

“Meaning of work” is defined as the value that an individual places on their work in relation to their

ideals or standards, and constitutes the first dimension in which psychological empowerment is

manifested (Spreitzer, 1995; Thomas and Velthouse, 1990). A necessary prerequisite for an individual

to assess this value lies in clear and accurate information about the goals that their work requires.

Providing this information, however, is a complex process, involving more than the mere existence of

a PMS (Van Dooren, 2005). Only if clear goals are established can managers use them to assess their

individual relative importance, to make better decisions, and to agree or disagree with them (e.g.

Aharoni, 1981; Behn, 2003; Gonzalez-Mule et al., 2014; Hood, 1995; Jung, 2012; Lindenberg and

Foss, 2011; Locke, 1996; Sawyer, 1992). A technically sound and effectively maintained PMS is

furthermore a crucial factor for there to be trust in the information provided (Berman and Wang,

2000; Taylor, 2011).

Furthermore, the communication of all goals relevant to the manager must also be transparent so

that SOE managers can assess the meaning of their work (Melnyk et al., 2014). However,

transparency – in particular, regarding politically imposed goals – is often not provided. Politicians

especially are often very reluctant to formulate and document goals, as this carries the risk of the

goals then being used against them or otherwise attracting negative media attention (Behn, 2003; Van

Dooren, 2005; Ho, 2006). At the same time, political constraints have a negative impact on the

objectivity of performance measurement within SOEs (O’Connor et al., 2006). Agreed-upon

transparency requirements can break this negative spiral.

Managers’ evaluation of the meaning of their work is a highly individual process. Thus, the

provision of goals must be clear and transparent not only regarding content but also in relation to goal

holders (Van Gestel et al., 2012; Latham and Locke, 2007; Locke and Latham, 2002). Clear task

allocation additionally enables identification with their own work (Grant, 2008) and therefore the

assessment of its meaning. However, for the managers of SOEs, clear task allocation is particularly
challenging due to the many actors involved in public task fulfilment (Kankaanpää et al., 2014). This

complexity can be eased, though, through higher levels of perceived procedural fairness in the goal-

setting process, which in turn increases the acceptance of task-allocation processes (Hartmann and

Slapničar, 2012; He and Lau, 2012).

In short, this paper argues that an effective approach in shaping PMSs towards enhancing

perceived meaning at work includes the resolute provision of clear and trustworthy information about

goals, an overarching transparency in goal setting that also encompasses the documentation of

political directions, and the provision of information about goal allocation, which, in the complex

setting of SOEs, can also be fostered through procedural fairness.

Performance measurement and managers’ perceived competence

“Competence” is an individual’s belief in their capability to perform activities at work with

proficiency (Bandura, 1982; Conger and Kanungo, 1987; Spreitzer, 1995), and represents the second

dimension in which empowerment is manifested. PMSs regularly evaluate this competence, as they

set targets to be reached, assess their achievement, and give feedback on the results (Franco-Santos et

al., 2007). In this role, PMSs influence how managers perceive their own competencies, and thus a

particular PMS design can foster or destroy these perceptions. For instance, PMSs that include

unattainable goals have been proven to have a dysfunctional impact on efforts, task-related behaviour,

and motivational levels (Becker and Green, 1962; Csikszentmihalyi, 1975). The level of the

attainability of set goals has a curvilinear effect on performance (Bandura, 1986); adaptive behaviour

is shown when goals are tight but attainable, but the goals are abandoned when considered

unattainable (Sandelands et al., 1988). Since competence refers to an individual’s beliefs about their

own capabilities at work, the assessment of the attainability or unattainability of goals represents a

high practical burden, as subjective assessments are relevant in this context (Csikszentmihalyi, 1990).

In order to reduce uncertainties here, Hartmann (2005) found the application of multiple goals as

likely to improve task fulfilment in dynamic and uncertain contexts. Moreover, Dai, Milkman, and

Riis (2013) recently showed that temporal landmarks increase goal-related behaviour. Thus, the

measurement of performance at certain times – for example, at the beginning of a week, month, or

year – can evoke a “fresh-start effect”. In addition, short-term milestones allow the managers of SOEs
to readjust their behaviours and self-images in order to better achieve public goals. All of these

mechanisms can foster an exploratory use of performance measurement information (Speklé and

Verbeeten, 2014) and enhance single- and double-loop learning processes (Argyris and Schön, 1978;

Argyris, 1977), and therefore increase managers’ perceived competence.

Finally, perceptions of competence are closely linked to the controllability principle. If SOE

managers can control their goal achievement by controlling the actions leading to the achievement of

these goals, and thus rendering performance possible, they perceive themselves as competent. Also,

particularly for SOEs, the acceptance of measures by managers as realistic business goals has been

revealed as a necessary precondition for enabling performance (Bhattacharyya, 2013). However,

despite being widely acknowledged, this requirement is still not being fulfilled in many organizations

(Bhattacharyya, 2013; Burkert et al., 2011).

Overall, the exploratory use of performance measures integrating multiple measures and

milestones, as well as goal setting according to the controllability principle, can foster managerial

perceptions of competence.

Performance measurement and managers’ perceived self-determination

“Self-determination” is an individual’s perception of the degree to which they have a choice in

initiating and performing work behaviours (Deci et al., 1989; Spreitzer, 1995), and relates to the third

dimension of psychological empowerment. Self-determination takes place on a continuum between

autonomous motivation, the perception of full self-determination or controlled motivation, and the

perception of being externally determined and controlled (Gagné and Deci, 2005). PMSs are thus only

able to empower managers if they provide for the necessary autonomy (Krause, 2014).

Autonomy at work is always related to its counterpart, participation (Grant et al., 2011; Hackman

et al., 1975; Wilkinson and Dundon, 2011). In order to foster self-determination, performance

measurement has thus to enable high participative involvement (Amabile, 1996). According to Kenis

(1979), participative involvement in the context of performance measurement “refers to the extent to

which managers participate in preparing [...] and influence the [...] goals of their responsibility

centres” (Kenis, 1979, p. 709). Performance measurement literature reveals increased participant
commitment, satisfaction, and motivation to improve set goals if participation is enabled (Forde et al.,

2006; Langevin and Mendoza, 2013; Locke, 1968; Strauss, 1998; Vroom, 1964; Wood and de

Menezes, 2011), whereas assigned goals are associated with resistance (Lee and Wei, 2011; London

et al., 2004). Moreover, opportunities to participate in goal setting further increase the willingness to

contribute to collective tasks (Lee and Wei, 2011) as well as to the social pressure to achieve them

(Groen et al., 2012).

In addition, managers of SOEs require strategic information as to where their organization is

heading in order to perceive that they have a choice in initiating directive actions (Hall, 2011).

Accordingly, the provision of strategic information through PMSs increases managers’ self-

determination (Chenhall, 2005; Hall, 2011). Strategic information enables managers to independently

make effective and efficient decisions regarding methods, processes, and resources when performing

public tasks. Consequently, empowerment practices aimed at providing employees with job-related

knowledge improve internally perceived levels of performance (Fernandez and Moldogaziev, 2011).

Thus, it is concluded that PMSs that embrace participation and provide strategic information can

foster self-determination.

Performance measurement and the perceived impact of managers’ work

“Impact of work” constitutes the final dimension of empowerment, and reflects the degree to which

individuals believe that they can influence outcomes (Ashforth, 1989; Spreitzer, 1995). Outcomes of

SOEs are highly relevant for society through their wide-ranging effects on citizens and private-sector

industries (Grossi and Reichard, 2008; OECD, 2005). Thus, in order to effect a positive change,

managers of SOEs need to address multiple facets of public value (Andersen et al., 2012; Meynhardt,

2009; Moore, 1995). However, when it comes to measuring SOE performance, research shows a

tendency to reduce performance to some sort of financial dimension (Ramamurti, 1987), and thereby

to narrow the focus on managers’ possible impact. This kind of imbalance could have dysfunctional

effects on managerial behaviour. As the specification of performance measures determines the focus

of managerial action (Bhattacharyya, 2013), an imbalance towards financial measures is likely to lead

to an overemphasis of profitability or cost-reduction goals at the expense of a broad focus on public

value. Also, the inapt use of performance measures for managers’ self-interest has been reported

(Moynihan, 2008), with research showing managers of SOEs increasingly displaying self-interest

rationalities (Edeling et al., 2004). An SOE managerial business philosophy that increasingly reflects

the attitudes of private managers will result in the neglect of public tasks, functions, and interests.

This may be counteracted through the integration of non-financial measures and taking a holistic

approach to the assessment of SOE managers’ contribution to public value.

A holistic approach within PMSs furthermore reflects multiple accountabilities towards

administrative, political, social, and professional groups (Bovens, 2007; Pollitt, 2003; Schlenker et al.,

1994). Although complex settings require complex governance solutions, an approach comprising all

accountability dimensions is also seen as problematic. Ambiguities and conflicting goals that are

likely to result from the diverse accountabilities may lead to an unmanageable system (Johnsen, 2001;

March and Olsen, 1995). However, if a PMS incorporates an awareness of these problematic issues,

this could encourage active communication and exchange between SOEs, public authorities, and other

stakeholders. This can be realized through encouraging SOE managers to participate in administrative

goal-setting processes, occasionally inviting public authorities to advisory board meetings in order to

restrain non-transparent policy processes, and through defining benchmarks (Amaratunga and Baldry,

2002; Askim et al., 2008) in order to enter into dialogue on professional accountability with public

bodies. So as to foster the perception of socially imposed accountabilities, the public voice can be

consulted in user boards, at town meetings and public hearings, or through customer surveys

(Sørensen and Torfing, 2012), and the results integrated into the PMS, not only as quantitative

measures but also as qualitative statements (see Ferrari and Manzi, 2014). Ho (2006) furthermore

found that citizen involvement in performance measurement practices increases the perceived

usefulness of the data in the eyes of elected officials. Thus, instead of targeting an inflated

performance measurement approach that integrates all accountability dimensions, the present study

proposes a PMS that encourages exchange and increases the comprehensibility of different

accountabilities affecting SOEs and managerial performance within.

In summary, PMSs that integrate non-financial measures to account for the specificity of public

task provision and are sensitive to various public value perspectives are more likely to increase SOE
managers’ perceived impact.

Case setting and research method

This study’s theoretical implications are specified within an exploratory case study approach. Forming

the basis for the study, the next section portrays the case setting and elaborates on the research method

by providing insights into the collection and analysis of the research data.

Case setting

The entity of SOEs owned by a single city represents a fruitful object through which to study the

effectiveness of particular performance measurement practices, as it comprises a large number of

discrete units operating under almost identical public governance conditions (see Przeworski and

Teune, 1970). This paper’s case study was located in a large German city in North Rhine-Westphalia

hereafter referred to as “Citee”. In 2014, Citee held more than 70 SOEs to a major, equal, or

significant but minor part. In particular, Citee had a majority ownership (more than 50 per cent) of

almost half of its enterprises, some equal ownership solutions (50 per cent ownership), and minority

ownerships (less than 50 per cent) of more than half of its enterprises. Most of Citee’s SOEs were

private limited companies (in German, Gesellschaften mit beschränkter Haftung), together with a few

public limited companies (Aktiengesellschaften), and some limited partnerships with limited liability

companies as general partners (Gesellschaften mit beschränkter Haftung & Compagnie

Kommanditgesellschaften). The enterprises operated in very diverse areas, ranging from social

activities (e.g. child and youth services) to more business-oriented activities (e.g. public utilities,

public transport). In order to govern its SOEs in line with its municipal goals, Citee had established a

central unit under its financial department that, at the time of the study, comprised one ownership

manager and five employees. This unit was responsible for the facilitation of SOE governance; in

particular, for financial controlling, reporting, performance management, and overall SOE support.

Also, social, economic, cultural, and educational requirements needed to be balanced, harmonized,

and aligned to the city’s overall strategic goals (see Schwarting, 2004).

The governance of SOEs in Citee was subject to high financial pressure (Döhrn et al., 2013) that

resulted from structural changes and high unemployment rates (Bundesagentur für Arbeit Statistik,

2015). Historically, coal had been the main economic driving force in North Rhine-Westphalia
(Döhrn et al., 2013). Due to a turnaround in energy policies, though, unemployment in North Rhine-

Westphalia was very high (circa 760,000; Bundesagentur für Arbeit Statistik, 2015), representing

more than a quarter of the total for the whole of Germany (approximately 2,900,000; Bundesagentur

für Arbeit Statistik, 2015). Overall, the cities of North Rhine-Westphalia had found themselves to be

under economic and financial pressure. The sum of cash loans in North Rhine-Westphalia was

equivalent to half the cash loans granted in the whole of Germany (Burth et al., 2013). Indebtedness

and over-indebtedness were accelerating. Thus, the principal focus of Citee’s ownership management

lay in austerity management.

Financial pressure had resulted in mainly output-based SOE governance in Citee, with a strong

focus on strict budgeting. Moreover, inconsistent approaches to performance measurement and

incentive schemes had led to a rethinking of the old PMS. After an intense political decision-making

process, in 2013, the city council decided to restructure the performance measurement processes along

with the compensation schemes for their SOE managers. Alongside 60–80 per cent fixed pay, one

short-term and one long-term variable pay component (each 10–20 per cent) were introduced. The

short-term variable component was an annual bonus based on the achievement of public service

provision goals, whereas the long-term variable component depended on predefined financial goals.

The newly implemented adjusted balanced scorecard (see Kaplan and Norton, 1992, 1996, 2001)

reflected these two goal sets: public service provision goals incorporated three perspectives – namely,

(1) customer/citizen, (2) cooperation within Citee, and (3) development – that together constituted 50

per cent, while the fourth perspective, (4) finance, served as a counterweight. (To guarantee its

practicability, each perspective of a balanced scorecard should entail at most three goals.)

All contracts completed since the council decision have been settled under this scheme. This

change process makes the case particularly interesting for the present study. New performance

measurement practices exist alongside old ones, revealing functioning performance measurement

practices, room for improvement, and potential for conflict. For instance, the difficulty of balancing

financial and service provision goals became obvious within the case study. A strong focus on

predefined and highly ambitious financial goals questions the controllability of the set goals. In such

surroundings, high levels of pressure make the empowerment of COEs through performance
measurement unlikely. Taking this into account, the study scrutinized which performance

measurement mechanisms supported them in or restricted them from actively contributing to public

task fulfilment. Thus, the actual workings of the underlying causal mechanisms were traced (Blatter

and Blume, 2008a, 2008b; Blatter and Haverland, 2012; George and Bennett, 2005; Haverland and

Yanow, 2012). The richness of the insights as well as the historical familiarity with the sequence of

events that were gained from the case study allowed for in-depth exploration of the causal processes.

Data collection

Initial contact was made with the ownership manager of Citee in April 2014 at a conference during

which he presented Citee’s new performance measurement and management system. In order that the

study’s authors could become more familiar with the case and to confirm subsequent steps, a

telephone conference was held. Next, the case study was authorized by the municipal finance director,

as well as by the mayor of Citee. These steps were particularly important, as case accessibility is a

primary precondition for this kind of in-depth investigation. As this study sought to answer the

question of under which conditions PMSs can empower SOE managers, and as a plurality of factors

within the different empowerment dimensions is assumed to work together to produce the desired

outcome, the underlying case study approach encompasses causal-process tracing (Blatter and Blume,

2008a, 2008b; Blatter and Haverland, 2012; George and Bennett, 2005). Furthermore, causal-process

tracing as a within-case approach explains the study’s single-case approach. The investigation

depended on gaining a comprehensive overview of the unfolding of all of the processes that

accompanied the introduction of the new PMS at Citee and the possibility of gaining profound

insights into the perceptions and motivations of important actors (Blatter and Haverland, 2012).

Accordingly, during a preliminary meeting with the ownership manager at the beginning of July

2014, key SOE managers were selected as interviewees. The main selection criteria sought to strike a

balance between SOEs from different sectors of varying size and financial strength, and between

SOEs in which CEOs were contracted under the old as well as under the new performance

measurement scheme. Theoretical saturation defined the absolute number of the selected interviewees

(Baker and Edwards, 2012; Ullrich, 1999a, 1999b). Real-world occurrence established a natural limit
to this approach. For instance, no SOE manager of a small SOE existed who had been contracted

under the new PMS.

Table I.

Overview of interviewed SOE managers

<Insert Table I about here, including footnotes>

Table I summarizes the sample SOEs and the managers with whom interviews were conducted,

further to the initial interview with the ownership manager. As shown, a balance was struck between

SOEs with high, medium, and low impact, as measured by number of employees (SOE size) and

capital stock (financial impact). Also, a diversity of sectors and a balance between loss- and profit-

making SOEs were taken into account. Moreover, approximately half of the SOE managers chosen

were employed under the new performance management scheme and half were still under the old

PMS. This maximum variation enabled a diversity of empirical observations within the case study

(Blatter and Haverland, 2012; Miles and Huberman, 1994).

Altogether, six in-depth, face-to-face interviews were conducted in the third quarter of 2014. All

the interviews were tape-recorded and later transcribed. The interviews lasted approximately 50

minutes on average, with the shortest being 37 and the longest 100 minutes. The trustworthiness of

the data was increased by tape-recording the consent of all the interviewees. In addition, a transcript

of their interview was sent to every interviewee shortly afterwards unless explicitly rejected. The

interviews were open ended and geared towards ensuring a deeper understanding of all evolving

processes and the interviewees’ cognitions in reaction to the differing measurement practices.

Primarily, the interviewees were asked about their role in their respective SOE, about their own goals

and those they pursue within their enterprises, about their perception of the governance mechanisms

in place, and, in particular, about their experiences with the PMS and their interactions with the

municipal ownership management. They were also encouraged to freely describe the way in which the

new system was introduced, its components, and the targets that the city is pursuing with it. Follow-up

questions focused on increasing the richness of the collected data (Rubin and Rubin, 2012), and the
interviewers used Hermanns’ (2004) stage directions for interviewing to establish a positive

atmosphere and concentrate on the real-life world without losing sight of the research question.

Additional case-relevant documents, such as internal documentation, presentations, and council

documents, were also collected and expounded during the interviews.

This case study approach permitted a refinement of the explanatory framework of how PMSs can

empower SOE managers, as well as an understanding of a possible set of causal mechanisms behind it

as the collected data allowed for finely grained empirical insights and the consideration of a broad and

diverse set of explanatory approaches (Blatter and Haverland, 2012).

Data analysis

The empirical data from the interviews were transcribed and analysed directly after the interview

phase (Miles and Huberman, 1994) using MAXQDA 11 software (Flick, 2014; Paulus et al., 2014). In

order to ensure confidentiality, a numerical order was assigned to the interviewees (Manager I,

Manager II, etc.). The data analysis process included re-listening to the recordings as well as reading

and re-reading the transcript, on the one hand (Windeck et al., 2013), and the coding and re-coding

process on the other. The entire analysis followed the “four eyes” principle. The very first step of the

coding process sought to discover the structural aspects to the data, and, to this end, used open coding

(Glaser and Strauss, 1967). During this stage, repeatedly reverting back and forth between empirical

data and the broad theoretical basis facilitated the derivation of the theoretical framework described

above. In particular, after grouping the discovered codes, there were received as the main in vivo

codes, on the one hand, ones such as “procedural fairness”, “controllability”, “participation”, or

“diverse accountabilities” that could be grouped alongside the concept of psychological

empowerment, and, on the other, a prevalent “goal congruence” code that reflected the research

question. “Goal congruence” was identified as the main purpose of PMS and defined as transforming

individual goals into organizational or collective goals (Anthony and Govindarajan, 2014; Cugueró-

Escofet and Rosanas, 2013; Locke and Latham, 2002; Locke, 1996). However, despite being the main

purpose of PMS, the introduction of these systems is evidently not always recognized by managers as

being empowering. Moreover, at this stage of the analysis, even dysfunctional effects were detected,
in that managers’ existent orientation towards public service provision goals had been distorted by a

strong focus solely on financial goals. Indeed, this key aspect of the first open-coding step led to the

specification of the research question, which asks how PMSs can be designed in order to empower

managers towards public goal fulfilment rather than diminishing their existing foci on public-service

fulfilment.

Once the real world-driven research question had been specified, an understanding of the entire

landscape had been gained, and the theoretical basis in the described iterative process built up, the

three-step coding approach laid down by Miles and Huberman (1994) (see Windeck et al., 2013) was

followed. Then, the in vivo codes were further grouped and developed according to the study’s

theoretical framework (“theoretical coding”), and a “start list” was created around the four dimensions

of psychological empowerment. These served as the main coding families, which were then enriched

with subcodes. As a last step, this start list was revised during the data analysis, its structure checked,

and selective coding used to further elaborate the study’s case (see also Glaser, 1992).

Once again, the researchers were constantly moving back and forth from the empirical to the

theoretical dimensions of the analysis (Dubois and Gadde, 2002). This single case study thus relies on

abduction as a combination of inductive and deductive research strategies (see Goretzki et al., 2013;

Järvenpää, 2009). Given the complex background of SOEs and the interplay of diverse mechanisms,

abduction was identified as an appropriate method for constantly refining the theoretical framework.

Rather than striving for generalization, the study aimed at a “possibilistic generalization” (Blatter and

Haverland, 2012, p. 31), in order to gather in-depth knowledge about a possible combination of causal

conditions that might lead to managers’ empowerment through PMS.

Empowering SOE managers through effective PMSs

In the following section, in order to discover how managers’ empowerment works in the study’s case

setting, theoretical interpretations are enriched with empirical material. The study’s findings are then

summarized and discussed with respect to design principles for empowering PMS.

Findings: Towards empowerment through performance measurement

in Citee

This case study highlights the key design aspects of Citee’s newly introduced PMS, investigates how

it is perceived by SOE managers, and traces how particular aspects of it empower or fail to empower

these managers towards an active work role. For each dimension of empowerment – meaning,

competence, self-determination, and impact – the observed design parameters are identified and

discussed.

Enhancing the perceived meaning of managers’ work through goal clarity

Clear and trustworthy goals, transparent information provision, and unambiguous and fair task

allocation are crucial prerequisites for managers when it comes to assessing the meaning of their

work. However, when asked about their roles, their personal goals, and the goals that they pursue

within their enterprises, most managers in Citee did not refer to the dimensions provided by the

introduced balanced scorecard – these being (1) customer/citizen, (2) cooperation within Citee, and

(3) development. Most answers related to the specifics of the managed enterprises, although the stated

goals could just as well have been subsumed under the city’s general balanced scorecard dimensions

(1) to (3). This highlighted the potential for bringing forward individually adapted balanced

scorecards under a citywide balanced scorecard umbrella in order to increase identification.

One exception to the rather restrained awareness of the PMS was managers’ vivid identification

with the financial balanced scorecard perspective. Financial and economic goals were widely

perceived as clear and transparent. Although the executive managers of Citee’s SOEs were under

severe financial pressure, they regarded their financial and economic plans as neutral and given. One

manager stated, “Whether that’s good or bad, I still have the objectivity” (Manager V; 105), and he

felt assured as he was able to “deduce what the level of [his] goal attainment should be” (Manager V;

105). In accordance with the financial balanced scorecard perspective, the social desirability of

commonly working on halting the city’s accelerating indebtedness was stressed. As the financial goal

perspective was then overarching, it had been communicated by the ownership management much

more extensively, and differences in acknowledging the financial perspective as opposed to the public

service provision dimensions could be traced to these major differences in their communication.
 Besides illustrating how PMSs can enhance the perceived meaning of work, the case study

demonstrated that the mere existence of such systems does not guarantee clear goal allocation, and

does not even mean that all parties involved are aware of their existence. Thus, one manager denied

the existence of an overall balanced scorecard:

“There is an internal, balanced scorecard [for my SOE], there is no approved balanced scorecard

with the city of [Citee].” (Manager V; 53)

In fact, the balanced scorecard implementation process in Citee had not been completed at the

time of the present investigation. Furthermore, the implementation plans had not been adequately

communicated. Such consequences of a lack of information show that the necessity for goal clarity

and transparency starts long before the use of a PMS. To drive forward the implementation process,

trust in the system has first to be established. In the case study, some managers adhered closely to

official internal documents when answering questions or follow-ups concerning the balanced

scorecard dimensions. They were unfamiliar with the system and showed discomfort in using it.

Accordingly, several scholars point to measurement system maturity as being a key driver of

purposeful performance information use (Kroll, 2015; Padovani et al., 2010).

In addition to the provision of clear and trustworthy performance information, meaning also

requires an overarching transparency in goal formulation. Transparent goals can establish a formal

and institutional basis that is able to serve as a solid starting point in complex settings. In Citee,

internal transparency was widely reported and executive managers experienced goal formulation as a

“well-described system accessible on the Internet” (Manager IV; 57). In some cases, though, Citee

had provided very detailed information (e.g. “multi-page documents”; Manager IV; 57), which was

mostly experienced as overwhelming.

Citee also had in place a council information system that was used as an online platform for

communicating most of the decisions taken by the council to the public. SOE managers were

informed of the new performance measurement and incentive system through this communication

channel, too, once it had been approved by the council, and they stressed unequivocally that all
managers should actively seek out this information and be “familiar with the system” (Manager III;

96). However, the interviewees stated that transparency in political directives was not being actively

fostered in Citee, which reflects other research that sees a political reluctance to provide clear goals

(Behn, 2003; Van Dooren, 2005; Ho, 2006). Managers in Citee were constantly in search of political

developments and directives, resulting in insufficient information flows. Although this task is largely

considered a routine duty, the importance of an additional, two-way, and more personal exchange

with all involved parties was stressed and proposed as a solution.

“Therefore I do think that the city has a legitimate interest to look at in this way, especially the

financial areas, and, I think, when it comes to the detail and content, then, for example, the

technical committees, too, are likely to be interested. That something happens, for example [...],

when we describe goals in child and youth work that we want to increase the number of visitors.

This could also be interesting for the youth welfare committee.” (Manager VI; 48)

Finally, the new performance measurement approach was generally perceived as being fair. At the

executive management level, tasks were allocated in a complex process, partly through the work

content itself, through political directives, and through the supervisory board. The study’s findings

demonstrate that, in this complex setting, the establishment of governance mechanisms perceived as

procedurally fair is a supportive element. Procedural fairness can, in addition, enhance the

significance of tasks and thus their meaning to an individual. Executive managers in Citee regarded

the new system as one that standardizes procedures formerly contracted on a rather opaque and

individual basis. This change from individuality towards uniformity was realized as a path towards

more justice:

“So I’m primarily assuming, of course, that you want to have justice throughout the companies.”

(Manager V; 84)

Enhancing managers’ perceived competence through balanced goal difficulty

PMSs clarify managers’ goals and provide necessary information on their attainment, and thus have
the potential to enhance managers’ perceived competence – as long as managers are able to

accomplish these goals. In the study, goal difficulty was omnipresent in Citee as it battled the twin

pressures of indebtedness and over-indebtedness. Accordingly, the pressure to constantly reduce staff

numbers and costs was weighing heavily on Citee and its SOEs. “The main objectives of the region”

were associated with “exorbitant targets” (Manager III; 84), a perspective that further increased

executive managers’ perception of goal difficulty as a feeling of having “no choice but to operate with

these strict requirements, including with regard to the subsidiaries” (Manager III; 84). Surprisingly

then, in general, SOE managers perceived the very high financial goals as reasonable, and stressed

that they should be commonly pursued.

Indeed, challenging financial goals were, in some cases, reported as being motivating, as they

demanded high levels of competence from the managers in order to progressively come up with

innovative solutions. Several managers reported at length that they were actively searching for

innovative solutions to halt the financial burden. For instance, some had started to cooperate in new

fields with other SOEs, or had found new markets for their services outside of the city:

“So, one of the main reasons why we have been able to work so cost-effectively in recent years

has been collaborations with other institutes in the city.” (Manager I; 35)

“We also meet with [... let’s call them ‘third parties’ [...] ‘external third parties’, and also do

business with them – Stadtwerke [X], for example. That’s not [Citee]; I also do business with

them outside the city. And we want to increase this further.” (Manager II; 63)

Thus, supporting previous research (Walker et al., 2011; Wynen et al., 2014), this study observed

that clear performance targets may even induce management innovation. However, these

interrelations are complex and depend on various contextual factors. Wynen et al. (2014) found that

size and an organization’s budget restrict innovation. This is reflected in the present work’s empirical

data: only managers of SOEs with higher capital stocks (independently of whether they were loss- or

profit-making SOEs) were actively reporting innovative behaviour.

Further, at some point, the motivating effect of high targets tilts into demotivation and frustration,

supporting a curvilinear effect of goal attainability on performance (Bandura, 1986):

 “[...] we could happily expand that, because we would then benefit ourselves from the

exploitation of this company [...] then I would have to cut down on what I stand for.” (Manager I,

53)

The burden of increasingly unattainable goals at the peak of the curve was just starting to become

visible, as interviewees were forecasting their results for the following periods. An “enormous need

for maintenance” (Manager V; 79) was reported throughout one interview, and was strongly

perceived due to an obsolete infrastructure having to be replaced in the coming years. In this respect,

SOEs were judged to be “operating at the edge” (Manager II: 81) and the budgetary outlook was

generally negative.

“So, for this year, the goals are certainly achievable. In perspective, the financial targets in

particular are no longer be achievable. Unless I bring together the issues of quality and financial

impact. We have a declining dividend, we have the city of [Citee] facing tougher budgetary

constraints.” (Manager V; 79)

In this study’s theoretical framework, an exploratory approach to performance measurement was

introduced that encompasses balanced goal difficulty and various controllable goals to enhance

managers’ perceptions of their own competence. Congruently, most of the interviewees in Citee

stressed the importance of a generally balanced approach to goal setting:

“The main point would be to ensure a balance.” (Manager V; 119)

Counteracting the increasing unattainability of financial goals, managers drew attention to the

formally balanced design of the new PMS, which, aside from financial goals, also entailed three

public service provision goal dimensions. This is in line with the proposition advanced in the

theoretical discussion, above, for the use of a variety of goals. Thus, a variety of goals also

acknowledged by public authorities – and not just gathered together pro forma – can help to balance
out the negative experience of underachievement, regardless of whether the managers are responsible

for this underachievement or not.

Another possibility proposed by the managers for an improved reflection of their competencies

was the adaption of goals to the specific needs of their enterprise. This possibility particularly

appealed to the respective managers – even during the interviews, some were already starting to

outline possible adaptions. Almost all of the executive managers refrained from “a one-size-fits-all for

all companies” (Manager V; 87) approach. This became particularly obvious when discussing the

potential of conflicting goals reported as fairly probable in the balanced scorecard approach, and

which diminished not only managers’ motivation but also an acceptance of the system. The study’s

theoretical model does not take into account conflicting goals. In the case of Citee, though, the

conflict between financial and public service provision goals was very noticeable. Because of the

prevailing financial issues, financial goals were accorded a higher value, which was perceived as

being negative and prompted managers to call for a balanced approach:

“So we don’t want it to fail because of that, but the problem [is] that public service provision and

financial goals should have bite, we’ll need to work on this so that there is also mutual

acceptance.” (Manager III; 78)

“Well, as already stated, overall, there should be a balance of the [balanced scorecard] elements,

in other words, no 50:50 distribution. [...] Finally, the financial and qualitative goals should be

linked.” (Manager V; 91)

Closely linked to conflicting goals is the concept of controllability and a requirement that “results

should definitely be filtered to determine which components can be influenced” (Manager V; 91).

Conflict automatically renders a set of goals unachievable, as one perspective contradicts another. In

addition, as highlighted by the research, the controllability of particular goals in Citee was also not

guaranteed, as shown by the next quote:

 “If I, during a population explosion, have growing numbers, then I can boast about it, but I cannot

help it. And in 15 years, we will all be dealing with declining numbers, and if the utilization

figures then decline, then you still can’t do anything about it. So they then also naturally need

some kind of evaluation, but the utilization figures are still essentially meaningful for measuring

success.” (Manager IV; 43)

The disregard of the controllability principle in Citee is in line with that reported by other

researchers (Bhattacharyya, 2013; Burkert et al., 2011) and points to structural problems requiring

further investigation. A possible solution, proposed by one of the interviewed managers, might be the

transparent publication of the degrees of goal achievement, which might also help with goal

controllability throughout the year.

Enhancing managers’ perceived self-determination through autonomy-enhancing measurement

Goal-setting processes were primarily directed by the managers and supervisory boards in Citee.

Thereby, the executive managers of Citee’s SOEs were able to influence the goal-setting process and,

thus, directly influence their goals.

“I can influence it. I had a constructive discussion with the chairman of the board, during which

we sorted things out. I think we both felt this afterwards and that things will stay sorted. He didn’t

lay down the law or say, ‘Take it or leave it’, and he didn’t accept anything I said which was pie

in the sky or old hat. And that was fine. Essentially, we discussed one of my proposals.”

(Manager IV; 69)

This is in line with research that shows a tendency to use bottom-up approaches for the internal

use of such systems (Torres et al., 2011). The possibility of influencing goal-setting processes also

mirrors the present study’s underlying supposition that PMSs that embrace participation and provide

strategic information can foster self-determination. However, public service provision goals, in
particular, were reported as being defined in a participative process that was limited for financial

goals, as financial goals were strictly predefined in view of Citee’s poor financial situation:

“I have more room for action – naturally [...] in a narrow corridor [with respect to] the financial

targets.” (Manager V; 82)

With regard to financial goals, a top-down approach was used in Citee, although interviewees

perceived this as undesirable.

“There is a kind of a tendency to talk the system to death, which at some point leads to it being

out of control, including as far as discussion is concerned.” (Manager III; 76)

This strictness in financial goal setting limited the SOE managers’ scope of action, and sometimes

rendered them incapable of acting. Managers were therefore calling for a system that, in a top-down

approach, defined the general dimensions of performance to be measured, but, at the same time,

offered room for participation in the setting of concrete measures.

With respect to strategic information provision, no evidence was found of the use of performance-

measurement information for the communication of strategic goals. This strategic perspective, which,

from a theoretical perspective, is crucial in terms of enabling managers to direct enterprises actively

towards common public goals, was lacking in Citee. Some managers believed that the lack of strategic

information provided by Citee and its administrative bodies was placing obstacles in their way:

“[What goals the city is pursuing] escapes me at the moment.” (Manager I; 23)

Enhancing the perceived impact of managers’ work through a broad goal scope

Managers in Citee did not display the increasingly self-interest-centred behaviour predicted by the

research (Edeling et al., 2004). Instead, they saw themselves as public servants and mediators

between political expectations, public needs, and economic interests:

“You know, whether I now have 10 or 12 thousand more or less, I can truly say to you that that

for me is no motivation. [...] Because they pay us well. We have everything we want. Yes. So
 someone, who, what do I know, is motivated by one, or maybe two or three months’ salary, if that

is their only motivation, then all I can say is that such people are in the wrong place.” (Manager I;

53).

Also the research did not unequivocally confirm a shift in public managers’ behaviour towards a

style more in line with the private sector for all countries (see Xu-hong, 2004), which supports the

view of prior research that involvement in meaningful public service provision is an important

incentive for public managers, compared to private sector managers (Rainey, 1982). In general,

managers in Citee did acknowledge their multidimensional accountabilities and wished to have a

dialog with all involved parties. Correspondingly, Kroll (2015) identified stakeholder involvement as

the second most important factor for enhancing the use of performance-measurement information.

To encompass the broad impact that SOEs have on society in general, the present study found that

PMSs should sensitize managers to and enhance dialogue concerning all accountability dimensions.

Examples of diverse dimensions not yet included in Citee’s PMS but of crucial importance for the

fulfilment of SOEs’ tasks were reported in many of the interviews. These examples were presented

according to the introduced administrative, political, professional, and social accountability

dimensions. Enhancing sensitivity to these accountability dimensions within goal setting should

increase managers’ obligation to justify their actions towards all groups and not just administrative

bodies (Pollitt, 2003; Schlenker et al., 1994).

With respect to administrative accountability, Citee had laid down financial requirements that

managers must fulfil; thus “...to work economically as possible for the city” (Manager II; 25) was at

the core of SOEs administrative accountability.

“So that’s the main thing; you know how bleak our budget is, I think soon we will become over-

indebted. I think the capital will soon be exhausted, I no longer remember exactly, but I think by

the end of the year at any rate.” (Manager II; 25)

With respect to political accountability, Citee exhibited a high level of involvement in its owned
enterprises. The city council in particular had a significant influence over executive managers’

decisions. “There’s a market master who maintains order in the market, i.e. they check whether the

market

regulations set for us by the board are being complied with.” (Manager II; 9)

But the ruling political parties, too, influenced the goals of the SOEs, with their political ideas

shaped by the expectations of their voters. This also encompassed, for example, youth policy, with

“talks [being] held with the youth welfare office” (Manager VI; 21). Furthermore, every company

specialized in a certain professional field containing specific professional standards and benchmarks,

and, consequently, “prescribed rules and regulations” (Manager IV; 7) were important and formed

part of day-to-day work. The regulations were diverse, and ranged from broader, local area transport

plans to more detailed ones.

“We have a local area transport plan which prescribes certain quality standards for the public

transport network. At the same time, we have set as part of Green Capital targets for the split

model – a gradual increase by 2035 from the current 19% to 25%.” (Manager V; 5)

With regard to socially imposed goals, this study proposes that the public voice should become

visible within set goals and performance standards. Related suggestions in the literature include user

boards, town meetings, public hearings, and customer surveys (Sørensen and Torfing, 2012) as ways

of integrating the public voice into PMSs. However, social goals have, up until now, been absent from

the goal-setting processes in Citee, although non-profit enterprises in particular were very much aware

of their social accountabilities. They also recognized the social aims involved; for example, “[What]

we pursue is the provision of cultural necessities for the region” (Manager I; 20).

The case of Citee furthermore illustrates that a holistic approach to all accountability dimensions

is crucial, as interdependencies exist with other empowerment components. However, ambiguities

resulting from diverse accountabilities could lead to an unmanageable system and dysfunctionality

(Johnson, 2001; March and Olson, 1995). In Citee, in cases in which social accountability or
professional accountability was strongly perceived but administrative accountability was not (due to a

lack of strategic information), the perception of goal clarity was diminished, as financial goals lost

their substantiality without the necessary strategic background, leading to dramatic financial

grievances, even in cases where past financial results had been universally outstanding:

“Everyone knows – and I am checking the actual numbers right now – that next year we will have

a deficit of 6.3; the following year, 7.2; the following year, 8.1; then 8.7, and then 9.9 million.”

(Manager I; 75)

“In perspective, the financial targets in particular are no longer achievable [...], I have an

enormous need for maintenance, which has also not been displaced by the city.” (Manager V; 79)

However, where all accountability dimensions were holistically perceived, weaknesses in the

PMS, such as unattainable performance goals, did not have such dramatic consequences:

“We will reach our targets but we are operating at the edge.” (Manager II: 81)

Discussion

In exploring the underlying case, this study has shown how PMSs that are designed in accordance

with the concept of psychological empowerment are able to foster managers’ active work role and

thus support the effective governance of SOEs. An empowerment-friendly performance measurement

design was proposed in accordance with the four dimensions in which psychological empowerment is

manifested: meaning, competence, self-determination, and impact (Thomas and Velthouse, 1990).

Considering each dimension in turn, first, the meaning of SOE managers’ work can be fostered

through the provision of clear goals within a PMS. Goal clarity necessitates that the goals imposed by

administrative as well as political bodies be transparent. Only in this way can a formal and

institutional basis be established from which SOE managers can form a clear view of the value that

they place on their work in relation to their own ideals or standards. However, a PMS needs to

become established itself for it to be perceived as clear and useful for assessing the meaning of one’s
work. As was shown in the case of Citee, this process can be additionally supported through extensive

communication, and, within this communication performance, priorities can be established. Goal

transparency can be fostered through a two-way exchange with politicians (who are commonly

reluctant to formulate and set transparent goals), while procedural fairness can be fostered through

transparent goal allocation. All of these aspects helped the managers of Citee’s SOEs view their work

as meaningful. In this context, it is also helpful to use information systems as communication

channels, especially between SOE managers, administrative bodies, and politicians (Behn, 2003; Van

Dooren, 2005; Ho, 2006), and communication channels can thus support reliable documentation. With

regard to the multiple accountabilities that SOEs face, procedural fairness in a PMS can further

support the active work role of managers as it increases their acceptance of goal-allocation processes.

The case study showed that PMSs that standardize performance measurement procedures for all SOE

managers through higher acceptance of goals also increase the perceived value of their work and thus

the meaning they attribute to their own work.

Secondly, high degrees of perceived competence are crucial for empowering managers. However,

public managers are largely confronted with difficult and conflicting goals due to their manifold

accountabilities, and goal difficulty has a curvilinear effect on managers’ perceived competence. In

Citee, increased motivation and – particularly in financially strong SOEs – increased managerial

innovation capacities were shown when goals were demanding, but, as soon as these veered towards

unattainability and unreasonableness, managers became frustrated and demotivated. Thus, exploratory

use of a PMS can help maintain goals at the difficult but attainable level. From what was observed at

Citee, such exploratory use is possible, as a PMS integrates a multiplicity of goals, keeps track of goal

achievement in a transparent way, sets milestones, and enables the adaptation of measures to the

specific needs of the SOE. Such an exploratory approach can provide a basis for the managers’

personal development and thus can enhance managers’ perception of their own competences.

Thirdly, participation in goal-setting processes fosters managers’ perceived self-determination.

With respect to financial austerity, such participative processes were limited for financial goals at

Citee. Nevertheless, the case study revealed that the detailed formulation of goals and measures is a

way of enhancing managers’ perceived self-determination and thus empowering them. In addition, the
provision of strategic information through PMSs was found to have untapped potential.

Fourthly, a holistic view of goals can reveal the impact of a manager’s work to an SOE manager.

In this respect, it was interesting to observe that managers at Citee largely saw themselves as public

servants and acknowledged their multiple accountabilities. Thus, they wished to have a PMS that took

into account all the accountabilities that SOE managers face as well as the goals resulting therefrom,

thereby enhancing any dialogue. This broadened view on goals is a crucial element of a reconsidered

PMS, but is limited, as it entails potential dysfunctionality and unmanageability (Johnson, 2001;

March and Olson, 1995). Thus, rather than integrating all accountability dimensions as particular

measures into a PMS, SOE managers’ participation in administrative goal-setting processes, the

occasional invitation of public authorities to advisory board meetings, the use of other professionals’

benchmarks, as well as listening to the public voice can all help to broaden goals without making

them unmanageable.

Each of the presented performance measurement elements considers and supports one

empowerment dimension. In this way, empowerment becomes a means for enhancing the active work

role of SOE managers and the governance of SOEs in general.

Conclusion

Previous studies have tried to determine whether PMSs lead to better outcomes in the public context,

with mixed results (Greiling, 2006). Some scholars have analysed the factors that foster the use of the

provided information (e.g. Ammons and Rivenbark, 2008; Kroll, 2015), while others have begun to

examine how PMSs should be designed – as opposed to whether or not they should be implemented –

to produce the desired effects (e.g. Padovani et al., 2010). However, to the present paper’s authors’

knowledge, no study has been carried out within the specific context of SOEs. This study therefore

investigated how PMSs might be designed to increase the governance effectiveness of SOEs.

It found that, for the complex settings of SOEs, effective governance solutions require compatible

governance mechanisms, as combined governance solutions can adapt more flexibly to the changing

needs of SOE governance and respond better to historically developed, coexisting governance

mechanisms (Bruton et al., 2015; Christensen and Lægreid, 2007; Grandori, 1997, 2001b). Instead of

outlining the contradictory elements of coexisting governance mechanisms, this study searched for
possibilities for further developing existing ones. In particular, it was investigated how a PMS, as the

basis on which most NPM governance mechanisms are built, can be combined with self-steering

governance mechanisms. When it comes to public value, it is important that SOE managers take an

active role in achieving public goals rather than merely pursuing their own interests. Empowerment at

work supports this, as it leads to increased task motivation (Hall, 2008; Spreitzer, 1995). Thus, we

further developed a model PMS according to the dimensions of psychological empowerment (Conger

and Kanungo, 1988; Hall, 2011; Seibert et al., 2004; Spreitzer, 1995; Thomas and Velthouse, 1990),

and proposed an empowerment-friendly performance measurement design.

The study sought to discover under which conditions PMSs can empower SOE managers, and

hence, assuming a plurality of causal factors within the different dimensions of empowerment, causal

process tracing was chosen (Blatter and Blume, 2008a, 2008b; Blatter and Haverland, 2012; George

and Bennett, 2005) for the “Citee” single-case evaluation. The underlying causal mechanisms of the

study’s theoretically deduced concept thus were traced. Based on in-depth interviews with the

executive managers and the CEOs of various German SOEs within the “Citee” case city, the study

found that a clear, transparent, and fairly designed PMS, along with a balanced approach to goal

difficulty and the provision of strategic information through performance-measurement practices,

positively influences all four cognitions in which empowerment is rooted (meaning, competence, self-

determination, and impact). It was shown that these practices, together with a broad view and

discussion of the manifold SOE goals, could empower SOE managers. Consistent with these findings,

an “empowerment-friendly” performance measurement design was presented and the implications for

governance research in the post-NPM decade were outlined. This facilitated the modelling of a

theoretically derived, empowering PMS, enhancing the framework with concrete propositions for its

arrangement.

Theoretical and practical

implications

This paper makes several contributions to performance measurement research in public management.

It extends prior studies that have observed that a particular design of PMS can empower managers and
employees (Hall, 2008; Taylor, 2013). Principally, it proposes a holistic concept for an empowerment-

friendly PMS. As other researchers have shown, empowering managers increases their focused

attention, provokes greater effort and persistence during tasks, improves task strategies, and enhances

their performance (Hall, 2008; Pinder, 1998; Taylor, 2013). Used in the design of PMSs, all of these

benefits can facilitate the governance of SOEs.

Furthermore, the study’s findings contradict research streams that assume that output-based

governance mechanisms and self-governance mechanisms are incompatible (Fimreite and Lægreid,

2009; Sørensen, 2012). Instead, this paper calls for a complementary approach, and shows how

elements of empowerment help to construct PMSs that empower managers towards an active work

role. Thus, it follows recent literature that takes a holistic view of governance mechanisms

(Christensen and Lægreid, 2007, 2010; Christensen, 2012; Egeberg and Trondal, 2009). From this

standpoint, combined governance mechanisms offer an effective solution to complex governance

settings, as they can flexibly adapt to constantly changing and layering governance needs (Christensen

and Lægreid, 2010; Grandori, 1997, 2001a; Morner and Misgeld, 2013).

Finally, this paper contributes to existing research in that it links the proposed empowerment-

friendly PMS to contextual factors – namely, the highly complex and volatile setting of SOEs that

face multiple and diverse accountabilities.

The case study reveals how PMSs can be designed (a) according to the principles of goal clarity,

transparency, and procedural fairness to foster managers’ perceived meaning of work; (b) to ensure

exploratory use of performance information and the controllability of performance targets, both of

which foster managers’ perceived levels of competence; (c) to enable participation and provide

strategic information in order to enhance managers’ perception of self-determination; and (d) to

integrate multiple dimensions of public value creation and non-financial measures in order to increase

the perceived impact of managers’ work. Therefore, administrative bodies, ownership managers, and

municipal finance officers are advised to re-think existing governance structures in order to empower

managers through effectively designed PMSs and prevent them from following their own interests.

Previous studies have described public managers as increasingly turning towards their self-interests

and neglecting their public tasks (Edeling et al., 2004). The present case study, however, observed
SOE managers as highly and intrinsically motivated by the higher-level public services that their

enterprises are providing. Practitioners in the field of public administration might beneficially act on

this paper’s findings by placing a stronger emphasis on all the dimensions of empowerment (namely,

competence, self-determination, and impact) as central regulators of performance measurement

practices in order to enhance present levels of public-service motivation.

Limitations

This study focused on performance measurement practices. From a content-related point of view,

however, it is also important to assess the reasons why performance information is being measured.

For the public sector, strategic decision making, learning, controlling, and budgeting as well as

sanctioning and rewarding are revealed as purposeful reasons for measuring performance information

(Behn, 2003; Van Dooren et al., 2010; Kroll, 2015; Moynihan, 2009). Accordingly, van Veen-Dirks

(2010) concluded that, depending on their use, PMSs could be adapted. In the present case, the

significant underlying performance information use concerned the effective governance of SOEs.

However, different recommendations might be derived for other purposes.

Also, the context of the study’s findings was restricted to a German setting, which provides

opportunities for further research in other countries. Likewise, Citee was a specific example, facing as

it was the dilemma of extreme financial pressure (Döhrn et al., 2013; Schwarting, 2004). However,

the study’s findings might lead to different empowering goals and structural conclusions in other

municipal settings.

Moreover, a qualitative methodology was used to trace the underlying causal mechanisms that

could lead to managers’ empowerment through PMSs. In particular, the relative meaning of

empowerment with respect to governance effectiveness should be tested, and the actual dearth of

influence on self-governance elaborated. Through the study’s purposive sampling (Table I), insights

were gained into a diverse spectrum of public tasks and accountabilities. However, as with other

qualitative studies, generalizations cannot be derived from it. The objective of process tracing is to

refine theory rather than generalize it (Blatter and Blume, 2008a, 2008b; Blatter and Haverland, 2012;

George and Bennett, 2005). Examining the applicability of this study’s refined results within
comparative case studies could be a possible next research step, and would help to situate these results

in a more general context. For instance, focusing on and elucidating specific governance mechanisms

vis-à-vis the specific business activities of SOEs, executive managers’ positions, and/or SOEs’ legal

forms could offer additional criteria for further research on the design of empowering PMSs. Lastly,

further quantitative research is needed to support the current study’s framework. Nevertheless, this

study and its findings mark a starting point for the exploration of how PMSs as the foundation of

output-based NPM governance can be designed to simultaneously empower those whose performance

is being measured.

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