Kim Tan and Rosalind Rae The University of Nottingham Business School

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

5. Research 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. The Relationship of Regulation and Performance Measurement Macro Level Regulation + benefits Formulate Policy - costs Protect Consumer The Firm Micro Level Set standards Performance Measurement Economy Firm Level: Strategic Objectives & Targets Environment Departmental Level: Objectives & Measures • Policy Information • Influence Policy • Dedicated Roles Unintended consequences Team Objectives & Measures Individual Level Objectives & Measures • Performance Measures • Reporting • Adherence to standards • Reward = intended outcomes Unregulated activities

7. Links between Regulation and Performance Measurement Firm Size Large Firm Small Firm • Political influence • Shape regulation • Competitive Advantage • Can take advantage of regulation • through following a strategy • which competitors are not • Less political influence • Have to form coalitions with other small firms to influence • Difficult to benchmark with larger organizations • Could mean business becomes not viable or new barriers to entry apply Industry Level Impact of regulation • Can absorb costs better • Still costs more but has less • impact on overall picture • Can commit resources to • improvement in costs and • process • Resources to automate • performance measurement • system • Impact on costs & efficiency is greater • Still costs more but has less • impact on overall picture • Costs too much resource to • improve costs and • process especially over the short-term Firm-Level

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. 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. 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. 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. 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. 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. 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