TW20 0EX UK

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Accountability and performance management systems within private and public sector organisational change processes Authors Gloria Agyemang* School of Management Royal Holloway University of London Egham Surrey TW20 0EX UK Bill Ryan Hult International Business School 46-47 Russell Square London WC1B 4JP UK The authors would like to acknowledge with thanks helpful comments from Richard Laughlin. Kings College, London and Paul Robson, Royal Holloway, University of London, and the two anonymous reviewers. 1 Accountability and performance management systems within private and public sector organisational change processes Abstract This paper examines organisational change processes that occur when accountability demands from powerful external stakeholders change. It investigates, firstly, whether these external accountability demands impact on the performance management systems of two different types of organisations. Secondly, it considers whether the goals for improved performance contained within the external accountability demands are realised. The paper derives its primary insights from analysing in-depth interviews with managers working in a private sector company and in public sector organisations. The analyses reveal complex organisational responses. In the public sector case study, the organisations tended to reorient their performance management systems towards the external accountability demands; whilst in the private sector organisation, pressures from falling share prices forced managers to focus their decision making on the preferred performance measures contained in shareholders’ accountability demands. However, whilst there is some evidence of performance management system changes, the desires for improved performance subsumed by the external accountability demands are not necessarily realised through the performance management system changes. 2 Introduction Accountability forms the cornerstone of performance management systems (Otley, 1994). Key stakeholders’ expectations of future accountability lead to organisations undertaking performance management and control activities to adapt to the environment. Strategies are devised, objectives are set, targets and performance measures are decided on, and information flows are devised, all with the aim of managing performance and providing an account of such performance (Merchant and Otley, 2007). A change in the nature of accountability demands from powerful external stakeholders (such as central governments in the public sector and investors in the private sector) may create significant “environmental disturbances” for organisations (Laughlin, 1991), for which there are likely to be a myriad of internal responses from managers (Ahrens and Chapman, 2002; Broadbent and Laughlin, 2009; Chenhall and Euske, 2007; Moynihan and Pandey, 2005, 2010; Ryan, 2005; Otley, 1999). However, the extent to which these external accountability demands lead to changes in performance management systems within organisations remains unclear. Whilst there is a wealth of literature on accountability and performance management systems separately, there are fewer studies that analyse the reactions of organisations to changes in accountability demands (see for example Chenhall and Euske, 2007). Accountability broadly refers to the demanding and giving of accounts (Roberts and Scapens, 1985; Sinclair, 1995; Ranson, 2003). Greater accountability is often presumed to provide more visibility and transparency for organisational activity, enabling appropriate organisational behaviour and ultimately leading to improved organisational performance (Dubnick, 2005; Messner, 2009; Roberts, 2009; Joannides, 2012). Performance management systems,1 on the other hand, are overall control systems that extend beyond the “measurement of performance to the management of performance” (Otley, 1999, p. 364). Performance management systems cover a wide range of management control practices, including objective setting, developing strategies and 1 The term “performance management systems” is used interchangeably with performance management control systems as well as management control systems. 3 plans for achieving objectives, measuring performance, evaluating performance of individual managers, identifying rewards for managers, and information-flow processes that enable organisations to learn and adapt to their experiences (Otley, 1999; Kloot and Martin, 2000; Ferreira and Otley, 2009; Broadbent and Lau