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Dening and measuring

productivity in the public sector:


managerial perceptions
Paula Linna
Poverty and Social Development Cluster, UNDP Viet Nam,
Ha Noi, Viet Nam, and
Sanna Pekkola, Juhani Ukko and Helina Melkas
Lahti School of Innovation, Lappeenranta University of Technology,
Lahti, Finland
Abstract
Purpose This paper aims to identify what productivity means in the public sector, how it is
measured and how it should be measured and improved, according to municipal authorities in
managerial positions.
Design/methodology/approach The approach is both theoretical and empirical. The rst part is
a literature review of research concerning public sector productivity. The second part presents
ndings of empirical research that is based on interviews and workshops with municipal authorities
representing: special healthcare services; basic healthcare and social services, and educational
services. The research was carried out in the Paijat-Hame region, Finland.
Findings According to the results, there is a certain mismatch between perceptions concerning
productivity and the potential that lies in this concept as a functional tool in the public sectors
development efforts. Public sector productivity cannot be developed and discussed without taking into
consideration the issue of effectiveness.
Practical implications Deeper common understanding concerning productivity and effectiveness
and their measurement are likely to facilitate municipal decision making and service processes in
individual workplaces as well as within and among different spheres of authority and thus facilitate
mutual learning.
Originality/value This paper contributes to development and application of productivity and
effectiveness thinking in the public sector. It is linked to service excellence, performance measurement
and management systems, creativity in process delivery and deployment of improvement techniques
in the public sector. It is of interest both to researchers and practitioners.
Keywords Cost effectiveness, Public sector organizations, Performance management,
Performance measurement (quality), Finland
Paper type Case study
1. Introduction
The issue of productivity of the public sector is very topical in Finland. Finland, like
other European countries, faces major challenges due to rapid ageing of the population
and nancial difculties of municipalities. The Nordic welfare state has come to a
phase, where its mere existence is sometimes questioned. Municipalities are thus at a
crossroads trying to assure how to produce services. One solution is to improve
productivity of public services. It is argued that discussions about productivity in
the context of public services are likely to arouse contradictory feelings, or even the
concept itself may be understood differently.
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0951-3558.htm
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International Journal of Public Sector
Management
Vol. 23 No. 3, 2010
pp. 300-320
qEmerald Group Publishing Limited
0951-3558
DOI 10.1108/09513551011032491
This study investigates how public sector productivity is understood among
municipal ofcials in managerial positions within three different spheres of authority
in the Finnish region of Paijat-Hame, and how productivity is measured and should be
measured according to the interviewees. Understanding these issues becomes
increasingly important also because it is expected that the share of the public sector of
those entering the labour market will grow in Finland.
2. Productivity in the public sector
Public sector productivity is as important to economic performance of a country as that
of the private sector. Thornhill (2006) identies three main reasons for why public
sector productivity is crucial. First, the public sector is a major employer. Second, the
public sector is a major provider of services in the economy, particularly business
services (affecting cost of inputs) and social services (affecting labour quality). Third,
the public sector is a consumer of tax resources. Changes in public sector productivity
may have signicant implications for the economy.
In the case of Finland, besides the above-mentioned reasons, it is necessary to take
into consideration future challenges facing the public service delivery. It has been
claimed that it will become harder in the future to raise the standard of living or even to
maintain current good quality of public services. The labour supply is shrinking, and
international competition is becoming more demanding. Finland is located away from
the fastest growing international markets. Public sector nance will remain scarce, and
tax competition will restrict available policy alternatives. Information and
communication technology allows reorganisation of many services but reluctance to
reshape established practices may constitute a bottleneck. Whatever the uncertainties
about underlying conditions are, a need to accelerate productivity will serve as a policy
recommendation and a key economic policy objective. Economic growth and rising
living standards depend on higher productivity. The less manpower and capital are
available, the more productivity growth must be accelerated (e.g., Waller, 2006; Kaitila
et al., 2006.)
Productivity is generally dened as a measure of the amount of output generated
per unit of input. In many countries, public sector productivity has been assumed to be
zero in the national accounts. The output of the government sector has been measured
as equal in value to the total value of inputs. This output input convention has
increasingly come under scrutiny in recent years. The challenge is to devise alternative
estimates based on output measurement in a public sector context where collective
services are provided and where there is, in most instances, no market transaction in
services provided to individuals. (Boyle, 2006.)
The denition of productivity as being concerned with the relationship between
input and output does not cover issues that many people have in mind when they talk
about public sector productivity. A more general interpretation of productivity
encompasses broader concerns about the outcomes achieved by the public sector. In
common parlance, many people talking about public sector productivity have in mind
the general question of what value they receive from public services in return for the
utilisation of public funds. Putnam (1993) rejects the idea of including outcomes in
productivity measurement. His argument is that to focus on outcomes (changes in
health rather than patients treated; changes in educational status rather than numbers
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of lessons taught) includes changes over which the government has no control. The
historical development of the Nordic welfare state showed, however, that the
government might control, or rather support, quite holistic changes. There may be
national differences in these views.
Holzer and Seok-Hwan (2004) argue that although the concept of productivity has
been utilised for many years, it is often simplied, misinterpreted and misapplied.
According to them, the concept of performance may represent a more attractive
conceptual path toward improvement. Still, both concepts are underlying premises of
public administration and the core of an ongoing effort that persists because it
addresses a fundamental linkage: a productive society is dependent upon a
high-performing government.
Although the issue of productivity and performance enhancement in the public
sector is nothing new, scholars and practitioners have worked for decades to identify
what makes government productive and effective. In fact, the use of the concept of
productivity has been intermingled with the concept of performance (e.g., Jackson,
1999; Stainer and Stainer, 2000.) Researchers have identied each concept in different
ways. Productivity and performance are functions of many factors ranging from top
management support, committed personnel at all levels, a performance measurement
system, employee training, reward structures, community involvement and feedback
to correction of budget-management decisions. It is thus important to build up
capacities for productivity improvement (Holzer and Seok-Hwan, 2004).
In research literature concerning services, central points of view are the role and
productivity of customers as well as quality issues that widen the traditional
techno-economic view of productivity. Special attention should be paid to productivity
issues departing from the special characteristics of services such as intangibility,
openness and process-basedness. The service research literature emphasises
effectiveness instead of productivity. Thus effectiveness and productivity are not
opposites but they should be understood as mutually complementary (Brax, 2007). The
task of understanding productivity in the context of services and ways in which it
could be raised is challenging. Insufciency of such knowledge has been brought up in
recent works. Productivity of services should be understood more deeply as a
phenomenon and pay attention to the relationship between productivity and quality,
measurement of productivity and factors that raise productivity and quality. More and
holistic empirical research on the topic has also been called for (Martin and Horne,
1992; Johnston and Jones, 2004; Johnston, 2005; Van Ark, 2006).
Research literature on productivity at organisational and process levels has focused
on manufacturing industry; it is based on an assumption of an organisational core
process as an industrial production process (e.g., Gummesson, 1992; Gronroos and
Ojasalo, 2004). Productivity of services has been studied less from the point of view of
micro economy than from the point of view of macro economy. Still, the
micro-economic view concerning service productivity would be just as important,
and the importance of productivity for industrial and service organisations is equal.
Discussion on service productivity has also been characterised by a narrow emphasis
on traditional services consumer services and/or labour intensive services such as
restaurants, cleaning and maintenance, retail sales, education, health care, etc. There
are however also many other types of services. Consumer services have been the most
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common context for developing theory concerning services, but the context should be
widened (Brax, 2007).
In manufacturing industry, labour intensive manual work and automation may be
seen as opposites, but in services, the situation is different. Productivity is also often
linked to discussions concerning general efciency. In such cases, productivity is
understood in a wider sense and combined to rationalisation of work and improvement
of wellbeing in the work community (Uusi-Rauva, 2006). Some researchers however
argue that productivity is a conceptual phenomenon, and widening the concept
weakens its characteristics as a tool for research and development (Brax, 2007).
Pritchard (1995) distinguished three categories for denitions concerning productivity:
(1) the techno-economic approach, i.e., productivity as an efciency measure
(output/input);
(2) productivity as a combination of efciency and effectiveness
(output=input output=goal; see, e.g., Rantanen, 1995); and
(3) a wide approach that contains everything that makes an organisation function
better.
According to the techno-economic approach, the concepts of productivity, efciency
and effectiveness are distinguished. Many researchers have claimed that in dening
productivity, the basic concept of productivity should be seen as separate from its
sister concepts, but for investigating services, the concept should again be widened
(Vuorinen et al., 1998; Johnston and Jones, 2004). If only efciency improvement is
sought, the choice of the term is somewhat less relevant, but when it is the aimed to
measure and analyse performance somehow, the terminology becomes important. The
terminology is thus a tool from the point of view of research and practical work. (Brax,
2007.) This is the understanding concerning the terminology that underlies this present
study, too.
Drucker (1963) has expressed the difference between efciency and effectiveness in
a very practical way: efciency means doing things right and effectiveness means
doing the right things. One must do the things that produce the desired end result most
efciently. The concepts of productivity and efciency focus on quantitative change
and presume that no qualitative changes take place in the process, its inputs or its
output, or possible quality changes are left out of the investigation. From the point of
view of effectiveness, the quality changes are focused on as well as the quantitative
changes produced by exploiting the quality changes. The discussion concerning
short-term and long-term solutions is related to the same theme: the short-term view
often concentrates on doing things right; the things as they are at the moment. The
long-term view again may question the present way of doing things and compare
different options (Brax, 2007). Tangen (2005) noted that effectiveness often implies
paying attention to value creation for the customer, and this is harder to quantify.
Changes in effectiveness show primarily as changes in outcomes, and effectiveness has
no maximum value in practice.
Service contains conducting activities, and thus a more thorough investigation
requires a process-based view. The point of view of quality is very important with
regard to services, because a more efcient process may have an impact on the
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character of the service supplied. The impact may be positive or negative. Services
may also be investigated from the point of view of customers, which makes the
research come closer to marketing research rather than operational management
research. As far as processes are concerned, they may be further broken down
according to their level of rutinisation (a continuum ranging from rigid service process
to uid service process) (Brax, 2007). According to Gronroos and Ojasalo (2004), due to
openness of processes, services may well be investigated from the point of view of
developing productivity as a mutual learning process of customers and service
providers, in which resources and production and consumption processes of both
groups are reconciled. This is more appropriate (than the traditional productivity
model) to the context of uid service processes, according to them.
If productivity is improved only by producing more in a quantitative sense, this
may lead to a greater share of defective or low-quality performance (Van Looy et al.,
1998), so service research literature recommends measuring productivity so that also
quality is taken into account (Sahay, 2005). Technical quality is related to quality of the
end result of the service process: what is the end result of the service like? Functional
quality is related to quality of the delivery process: how well was the service
conducted? Gummesson (1993) distinguished four basic types in service production
according to the relationship between service provider and customer:
(1) the service provider produces the service apart from the customer;
(2) the customer produces the service as self-service;
(3) the two parties produce the service together or in interaction; and
(4) the customers produce the service amongst themselves.
According to these four basic types, Gummesson (1998) took into account the larger
context: productivity arises from the service providers own actions, actions of the
customer, interaction between the service provider and the customer; or interaction
among customers.
Gummesson (1998) also noted that the customer is rather than an end user an
active actor in a continuous cycle of value creation. The customer has many roles as a
production resource, as affecting quality, satisfaction and value creation, and as a
competitor of the service organisation (Bitner et al., 1997). The customers impact on
productivity may be positive or negative. As the input of the customer increases, the
service providers possibilities to control the service production process decrease and
insecurity increases. Thus Ojasalo (2003) noted that it would be benecial for a service
provider to aim at selecting her/his customers somehow.
Denition of inputs and outputs is the most central question in analysing
productivity (Gadrey, 1988; McLaughlin and Coffey, 1992; Gallouj, 2002). The
traditional way of measuring productivity is based on physical units; physical input
may be hours of work and physical output may be customers served. Also time may be
seen as corresponding to physical units (Uusi-Rauva, 1996).
One notable issue in discussing productivity in the public sector is that the public
sector has very different characteristics and logic in different countries, and thus
literature on public sector productivity may be problematic. The Nordic welfare state
was a social innovation that managed to reconcile the different interests of the capital
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and labour (Karisto, 2009). Its rationale, development and traditions are very different
from those of most other countries (see, e.g., Melkas and Anker, 1998). Today this is
rarely brought up, and the public sector is seen automatically as stiff and a barrier to
innovativeness, while it could be seen from a more holistic perspective that would also
contribute to seeing service productivity in a new light.
3. Measuring public sector productivity
Another important question regarding public sector productivity concerns how to
measure it. Productivity can be measured in a number of ways. The interpretation of
productivity growth is greatly dependent on the way in which productivity is
measured. Public sector productivity is most often measured as labour productivity. In
addition to labour productivity, multifactor productivity should also be measured. A
major problem in the interpretation of single factor productivity is that it attributes all
increases in efciency to one factor, even though the increased production may have
been partly or even completely due to changes in other factors. Productivity measures
examined have also commonly been sectoral or national in nature, and often driven
from a top down perspective. It is important to note that at a micro level
productivity measurement in the public sector may also take place at the level of an
individual organisation, and from a bottom up or service user perspective (Boyle,
2006).
Ammons (2004, p. 147) points out that many government managers are inclined to
focus on their departments activities or workload its outputs, rather than on the
bigger picture of whether their efforts lead to positive changes in the lives of citizens or
produce other results they were designed to bring about. According to Ammons (2004),
by xating on simply maintaining or expanding the activities of the department in
question, the managers may overlook opportunities, perhaps procedural innovations or
fundamental service delivery alternatives that might improve the results or outcomes
of these activities. It is thus not enough to measure productivity only in an input and
output way in the public sector context, but also quality needs to be taken into account.
In measuring service productivity, conceptual, technical and strategic problems
may be distinguished (Nachum, 1999; Brax, 2007). First, one needs to identify the
inputs the measurement of which is the most important in the process in question.
Second, if intangible characteristics are related to inputs, it needs to be solved how the
inputs can be measured at a sufciently accurate level or even at a rough level.
Third, services are combinations of many different components, so it needs to be
solved in how detailed a level productivity is investigated. Fourth, it needs to be
dened at which level measurement and monitoring of productivity is most efcient
with regard to the aims (McLaughlin and Coffey, 1992; Klassen et al., 1998). The more
intensive and participatory customer contact or the more tailored service product is,
the harder it becomes to study productivity. The complexity of inputs and outputs and
their number also add to the difculty of measurement. How many different
components are combined into the service? How many different components may be
distinguished in inputs and outputs of the service? Does one service process produce
several end results simultaneously? (Brax, 2007). Especially in services that require a
lot of human contribution, measurement problems are caused by mutual impact and
convergence of resources, when teams collaborate or colleagues guide each other
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(Mohanty, 1992). These issues characterise the services focused on in the present case
study.
Intangibility of the elements that affect productivity and uid service process in
certain service contexts are characteristics that have an impact on reliability of
measurement, too. The factors affecting productivity are difcult to express in a
measurable form (the problem of operationalisation). Indicators should not be
overlapping in the sense that several indicators utilised together should not focus on
the same production factor or end result. If such indicators were used in a combination
of several indicators, the role of some individual production factor or output could be
emphasised more than other factors. It is generally difcult to distinguish relationships
between different factors. Measurement should produce information on productivity in
light of the purpose and strategy of the organisation and in order to support those. In a
theoretical sense, however, it is problematic to dene inputs and outputs linking them
to the strategy of the organisation, as this leads in practice easily to measuring
efciency and effectiveness rather than productivity (Brax, 2007; Borg et al., 1995).
This again shows how easily the concept of productivity becomes obscure.
Customer relationships are related to measurement problems in three ways. First, it
has been discussed how the input of customers into the production process should be
taken into account when investigating productivity. Second, it has been suggested that
outputs should be dened from the point of view of customers. Third, the
customer-based quality view that characterises services causes questions concerning
validity of measurement. Service researchers have called for linking the customers role
into the traditional productivity understanding so that it would suit better to describe
services. Measuring productivity becomes more difcult, as often only the service
producers production input is taken into account. In a service, the customer has the
role of a partial producer; increase in productivity through contribution of the customer
is not visible in numbers. Gummesson (1998) recommended that more attention should
be paid to the relationship between inputs of customers and service producers when
measuring service productivity (Brax, 2007; Gummesson, 1998).
4. Performance management and measurement in the public sector
The concept of productivity is often confused with the wider and more common
concept of performance and performance measurement. Productivity is one of the
many ways in which performance may be measured and dened (Byus and Lomerson,
2004). Performance contains both economic and operational perspectives (Tangen,
2005). According to Brax (2007), any characteristic of an organisations aims may be
measured under the title of performance measurement such as quality of outputs, or
it may be a question of individual indicators or whole measurement systems and
methods.
The public sector is devoting more attention, time and money to performance
management, measurement and evaluation than in earlier times (McAdam et al., 2005).
Many public sector organisations have implemented performance measurement
systems, such as the Balanced Scorecard. However, such adaptation of private sector
approaches has caused a number of difculties because of multiple stakeholders in
public sector organisations in comparison to private sector organisations that
mainly focus on customers.
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Rantanen et al. (2007a) identied specic problems faced by Finnish public sector
organisations in designing and implementing performance measurement systems.
They are:
.
many stakeholders with conicting needs;
.
undened end products and goals;
.
lack of ownership of the property; and
.
poor management skills.
The main reasons for the problems of performance measurement in public
organisations were identied by using the results of three case studies (Rantanen
et al., 2007a, b):
.
Difculties in solving the conicts between the needs of different stakeholders
(owners, employees, customers, suppliers and the community); i.e., not clear what
should be measured.
.
Difculties in target setting (i.e., not clear what the goal of the operations should
be).
.
Representatives of different stakeholder groups inuence the development of
individual measures at too detailed a level.
.
The personnel does not understand the objectives of the measurement
development.
.
Too many persons responsible for the measurement development leads to
non-responsibility.
.
The personnel does not see the usefulness of the project with regard to their
work, and ignores or resists it.
.
Overlapping projects hamper the measurement project because they take up
resources.
It is becoming more usual to say that when developing and implementing performance
measurement systems in the public sector, the starting point and key driver should be
stakeholders needs and expectations. The public sector should thus prefer
performance measurement systems that pay sufcient attention to stakeholders. For
example, Performance Prism (Neely et al., 2001) was found to be suitable in identifying
and categorising stakeholders of an organisation. However, there are also dangers in
such thinking. There is rstly the legislation that dictates many things concerning
public services. Legislation at its best should be based on, for instance, research on
health promotion and long-term health effects of various societal choices and
environmental factors, for instance. Concentrating too much on stakeholders needs
and expectations may lead to an erosion of this valuable societal foundation that
should be based on long-term thinking and public value as well as clear aims.
Current literature also highlights the role of rewarding in the performance
measurement context. Ukko et al. (2008), for example, stated that one of the most
important factors behind successful operative level performance measurement is the
linkage between measurement and rewarding. Public sector organisations do not,
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however, have similar nancial resources for rewarding their employees as private
sector organisations do, because the municipal economy limits nancial rewarding
(Pekkola et al., 2007). Rewarding may well be non-nancial, too such as greater job
security in a period of economic recession. Rewarding in the public sector appears to be
characterised by similar challenges as measurement, as some ways of rewarding are
indirect, invisible and unidentied. In spite of the limitations concerning nance, the
public sector has a clear need to develop its appraisal, reward and recognition schemes,
along with other motivational inuences. McAdam et al. (2005) claim that this ensures
that employees targets are consistent with organisational and stakeholder objectives.
According to Mohanty (1992), productivity whether it is understood as a concept,
a philosophy, a measure, or a method is a useful view into all kinds of work systems
regardless of their aims (e.g., aiming at producing prots or not). Mohanty, however,
noted that measurement should be looked at with a critical approach, as measurement
that is poorly conducted and implemented may also hinder an organisations activities.
Also the measurement process itself should be looked at from the points of view of
efciency and effectiveness. Measurement may be too hard in relation to the benets it
produces, so it takes away resources from core processes. Measurement directs the
personnel to improve the things that are measured and in the way in which the things
are displayed in light of the indicators. This is a problem, when false things are
measured or right things are measured with false kind of indicators. For instance, the
quantity of outputs may be measured, although it would be more reasonable to monitor
the quality of the outputs. Measurement may also produce false information for
decision-making within the organisation. Inaccurate or incorrectly operationalised
indicators may produce false end results. Combining the pieces of information into
aggregate level measures multiplies the errors. Measures should not be seen as
unambiguously objective. (Mohanty, 1992; Brax, 2007.)
5. Case study: managerial perceptions concerning denitions and
measurement of productivity
5.1 Methods of the case study
This case study is based on empirical research concerning how to dene and measure
productivity in the public sector, especially in the municipal context. Findings are
presented of research on how different actors approach the concept and meaning of
productivity in the public sector. This case study concentrates on one specic Finnish
region Paijat-Hame, where municipal ofcials in managerial positions in three
different spheres of authority were interviewed. The research themes looked into are
how the municipal ofcials dene productivity, and how productivity is measured and
should be measured and improved, according to them. The Paijat-Hame region has
faced many public sector reforms during the last few years for example setting up of
a social affairs and health district following the principles of
purchaser-provider-model.
The three different spheres of authority focused on are:
(1) special healthcare services;
(2) basic healthcare and social services; and
(3) educational services.
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In Finland, the municipalities need to take care of educational services, social care
services and basic healthcare services, as well as fund hospitals providing special
healthcare. Changes related to the ageing population, growth of service needs,
diminishing labour force and increasing age dependency ratio affect especially these
three spheres of authority (e.g., Moisio, 2006). If the municipalities wish to maintain a
large amount of public services, it is necessary to look into these three spheres.
Background information on the interviewees is presented in Table I. All the eight
interviewees worked at the managerial level in their municipality or organisation. The
interviews were semi-structured to explore interviewees views on how they see that
productivity is dened in their sphere of authority, how it should be dened, how
productivity is measured and how it should be measured. The interviews lasted for
about one hour, and they were recorded and transcribed. In this study, differences
between the three spheres of authority are not focused on; on the contrary, we search
for similarities that are common in each sphere of authority.
5.2 Results and analysis
5.2.1 Denitions of productivity and effectiveness. The respondents were asked to tell
how they dene productivity in their own sphere of authority. Some of the responses
are cited in the following:
[. . .] what comes to special health care, productivity is that we are able to produce as much
health impact for the citizens as possible using as few nancial inputs as possible [. . .]
however, nancial inputs cannot be reduced endlessly because this leads to a situation where
it is not possible to achieve health impact anymore [. . .] (Interviewee B).
Productivity and effectiveness were not well understood by many respondents; they
were unclear as to what they mean in the spheres of authority in question. Denitions
of productivity covered a wide spectrum. On the one hand, productivity was dened as
the relationship between inputs and outputs, but on the other hand, much more holistic
views were expressed showing careful consideration of the complicated issue. Many
interviewees emphasised that productivity (in the public sector) cannot be analysed
without taking into consideration the impacts on citizens. Efciency and quality were
felt to be strongly linked to productivity, and effectiveness was seen as related to, for
instance, impacts on health, qualications for further education, impacts on quality of
life of citizens depending on the sphere in question. The respondents highlighted
Interviewee Sex Organisation Sphere of authority
Interviewee A Male Public service provider Special healthcare
Interviewee B Male Public service provider Special healthcare
Interviewee C Female Municipal Basic healthcare and social services
Interviewee D Female Public service provider Basic healthcare and social services
Interviewee E Female Municipal Basic healthcare and social services
Interviewee F Female Municipal Education
Interviewee G Female Municipal Education
Interviewee H Female Municipal Education
Table I.
Background information
on the respondents
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that should nancial costs be reduced endlessly, benets to the society are also
strongly reduced. It was acknowledged that it is vital to nd an area where the
resources spent give the best possible results. Despite the lack of clarity, there were
many thoroughly considered responses that reected the multi-faceted and highly
challenging character of the concepts that was discussed in the literature review:
[The denition] . . . depends on how productivity is measured. [. . .] At least in the public
sector, comparisons are often made to productivity in the private sector. [. . .] the public sector
is built for the kind of service production that is related to basic safety and security of
citizens, and it is an issue that [. . .] needs to be assessed by politicians how much it may
cost and how good a coverage it has and on what grounds people can benet from it [. . .] As
to its grounds, experts are the ones who are responsible there. This has an essential impact on
productivity; how comprehensive is the production, how close to the people etc.; the whole
service concept there (Interviewee A).
An interesting result was also that one of the respondents could not dene productivity
in any way. Reasons for this can only be speculated on: does it mean that productivity
is such a new phenomenon or concept in the municipal context that it feels impossible
to dene what it is? Or does the person nd the issue so complex and difcult that
he/she has not made up his/her mind yet? Or perhaps the discussions concerning
productivity are politically so sensitive in the municipality that she/he thought that it
is better not to say anything.
Some of the responses reected a thinking that appears to outsource
responsibilities and decisions related to productivity. For instance, decisions by
politicians and experts were called for. An interesting question is, however, who these
experts are. If productivity-related decisions are left to be made by such anonymous
experts who may not have sufcient knowledge of daily operations in various
municipal elds, sustainable results may be difcult to achieve. On the other hand, this
is the everyday life of municipal personnel there are multiple stakeholders and a
certain degree of outsourcing of decisions is inevitable. If, however, productivity is felt
to be an issue that is so difcult to grasp that it is willingly left for others to decide and
consider, this may contain risks for services. This may lead to quite one-eyed decisions
at the municipal level for instance, emphasis on the traditional industry-based
engineer thinking about productivity. A common understanding of everyones roles
in productivity improvement should be strived at.
Rather than outsourcing productivity thinking, networking and collaboration in its
advancement and in creating a common understanding are needed, according to the
results. Productivity and effectiveness thinking may be argued to be part of core
business in municipalities, and decision-making and responsibility concerning them
should not be outsourced by anyone on the contrary, they should be internalised.
The situation could be compared with outsourcing of operations in companies too
much outsourcing may lead to a situation, where the managers have no or poor control
over the operations that have been outsourced. The producers of such operations may
not know the needs of the company. Learning and experience do not accumulate in the
company. In municipalities, such a situation may arise, if the experts of daily
grass-roots operations and their close managers are not involved in shaping a common,
realisable understanding of productivity and effectiveness, and in implementing this
understanding.
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And the aim of productivity is that all these resources are spent in a way that leads to
providing services that are as good as possible. That resources are spent in a sensible way,
and especially hopefully also in an equal manner. [. . .] it would be more correct to talk
about efciency instead of productivity, because as far as denitions are concerned, efciency
includes the element of effectiveness. When we think of traditional denitions in health
economics, for instance, efciency is the right concept, in my view. Productivity is too
meagre, effectiveness should always be included. [. . .] We may, of course, assume that if we
give transportation services and interpretation services, [. . .] that a person then acts more
independently, naturally. So such cause-effect relationships do exist, of course. [. . .] but the
level of legislation does not really depart from effectiveness. It departs from citizens rights
and responsibilities of municipalities. There is still a long way to go (Interviewee C).
Productivity, effectiveness and efciency were often somewhat mixed up in the
interviewees responses. All of these issues are not discussed in greater detail in this
study. The problematic situation is, however, understandable, as although
productivity and effectiveness have been developed for a long time already, they
have only been brought up in public debate to a greater extent in recent years
especially in relation to nancial crises. This negative context is likely to affect peoples
views and analyses, making the concepts themselves negatively coloured. The
negative attitudes that may be based on false or overly narrow impressions
towards the whole theme are especially clearly visible at the grass-roots level of
municipal employees (e.g., Makinen et al., 2006). The concepts often come originally
from economics, and they have not been applied and claried to suit into the different
sectors and spheres of operation before their use has become more prevalent. This was
visible in these responses, too, although many of the respondents tried to apply the
concepts better into their own eld.
In the research community, many conicting views concerning concepts exist, as
shown in the literature review. There is a jungle of denitions. The interviews showed,
however, that in practical contexts, denitions are not that relevant in themselves, but
the crucial issue is how people grasp the aims of the operations in their own eld and in
the municipality more generally, and how these aims may be achieved in the
municipality as a whole (for instance, health promotion). Smooth processes were also
discussed by the respondents, as was the inseparability of productivity and quality in
public services. Development of productivity as a mutual learning process of
customers and service providers was not emphasised, but the role of customers was
looked at with a certain degree of powerlessness. Customers are nowadays
sometimes too demanding and badly behaving, and municipal personnel feel
powerless when facing such behaviour. In order to increase interactive service
production between customers and service providers, also customers attitudes
concerning services would require changes so that they would affect quality,
satisfaction and value creation positively.
The relationship between legislation, productivity and effectiveness that was
brought up is interesting. Should legislation indeed depart increasingly from
considerations of effectiveness, measurement issues would gain even more importance.
Moreover, many issues related to healthcare and education, for instance, would benet
from proactive services rather than reactive services based on illnesses or school
drop-outs. Questions related to this are:
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311
.
In which situation or phase should these proactive services start? This is not
always obvious.
.
What is the time frame for considering causes and effects?
.
What about life-style choices of adults (see Putnam, 1993)?
Proactive services aim at anticipating and affecting causes and processes that may
worsen peoples living conditions, quality of life and self-management. These issues
were also brought up by the interviewees.
An additional difculty lies in drafting a list of issues concerning effectiveness. It is
more straightforward to draw up a list of citizens rights. Apart from the legislation
and the important and impartial guiding role of the state, a list of issues would be a
relevant topic at the municipal level in order to further comprehensive
considerations of cause-effect relationships versus fragmented and short-sighted
budgeting practices in municipalities:
And another issue is, in my view, a more valuable output is actually when the same input
leads to outputs that are clearly of better quality. [. . .] Because this shows that something else
has happened there [. . .] that things have changed. [. . . On effectiveness] except that aims
have been achieved and it is naturally also good to hear if we have done the right things.
Because as public authorities, we may believe that such and such things are expected from us,
but the people who are targeted and provided services to they may be of quite different
opinion (Interviewee F).
Productivity, what is produced with these staff resources [. . .] I would summarise it as
the outputs. [. . .] If we think about our own sphere, this is what we get: reception visits,
days in care, customer contacts and visits in social work, and so forth, this is what I see
as productivity. [. . .] Well, effectiveness is, in my view, what we accomplish in the life
and well-being of municipal citizens. So there the aim is to affect with these services so
that the citizens can cope with their daily life, and their well-being is good. This
well-being is a large area, but our aim is that the citizens can cope with their life. And
how we can affect this with our own operations both directly or indirectly, this is
effectiveness (Interviewee D).
On the basis of the interviews, the views concerning productivity could be divided into
two categories a mechanistic and a functional point of view. The mechanistic
view is technical and based on higher-level rhetorical arguments concerning inputs
and outputs. This view does help establish a common understanding between those
who are already acquainted with the topic. This takes place much in the same way as,
for instance, innovations have earlier been linked to top-level science and technology
policy only although they are relevant at other levels, too (see Harmaakorpi and
Melkas, 2008). In the same way, the concept of productivity was set by some on a
high-level pedestal, while it could be treated increasingly as a tool for thinking and
collaboration between different levels. The functional view, again, emphasises links
between productivity and effectiveness, quality, and benets to the society from the
point of view of people. This view was also well visible in the responses. Making such a
distinction might advance increasingly holistic discussions of productivity in the
future (see Melkas, 2008.)
5.2.2 Measuring and improving productivity and effectiveness. Measurement of
productivity and effectiveness was seen as quite a difcult topic when discussing
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public sector productivity. The respondents acknowledged the problems and
shortcomings in the measurement quite well with regard to what has been brought
up in the research literature. The results of the interviews revealed that public sector
productivity is measured in two different ways. First, the most common tradition in
measuring and evaluating productivity is related to how well the sphere or
organisation holds on to the budget:
[. . .] if I think very realistically and a little bit cynically, public sector productivity is
evaluated mainly in money. It is simple to measure how much the whole of the activities costs
to the hospital (Interviewee C).
Second, public sector organisations measure their productivity with how much we get
when we have that much money to spend thinking. Especially in the healthcare
services, organisations collect information to see which amount of services has been
produced in the organisation in one month and how much these services cost. The
results of the interviews also highlighted that productivity was most often measured as
labour productivity:
So, one way to measure productivity in the healthcare organisation was to add up medical
operations or clinic visits and then check up how much these cost in money. It is the easiest
way (Interviewee C).
This was seen as problematic, as the labour productivity was only counted on the basis
of, for example, the number of patients per doctor, without taking into account the
effectiveness of the decisions made by the doctor. These kinds of measures give quite a
limited view of the actions in the public sector. There is a temptation of partial
optimisation to increase the labour productivity. Productivity should, however, be
measured and evaluated from a wider perspective to be able to assess long-term
effectiveness.
Long-term effectiveness is a crucial aspect when discussing improvement of
productivity in the public sector. According to the interviewees, measurement of
effectiveness is very complicated. Todays economic policy is commonly quite
short-term oriented, which is why results of productivity improvement are often hoped
to be visible rapidly. This problem was emphasised especially in the sphere of
education, where effectiveness of teaching realises and becomes visible only in the long
run:
When thinking about effectiveness from the perspective of education, results of productivity
improvement can only be seen after many years (Interviewee F).
Even if effectiveness of various actions seems to go hand in hand with productivity,
traditional measures do not give an overall view of the state of public sector
productivity. According to the respondents, measures including aspects of quality and
long-term effectiveness should be developed to give a more reliable view of public
sector productivity. This kind of measurement information helps politicians to see the
holistic state of productivity and to make more inuential decisions in the municipal
politics.
The interviews also indicated that current measures of productivity and
effectiveness are quite poor and fragmented. The measurement results make the
view biased and only provide information on the apparent state of productivity in the
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313
organisations in question. This problem is especially emphasised in the healthcare
services, according to the interviewees:
[A Finnish national research and development organisation] annually announces the most
productive hospital. [. . .] [It] measures how many patients the hospital has taken care of, how
many surgeries have been done, and how much money has been spent [. . .] Like this, they
measure productivity of the organisations, but the results, unfortunately, do not take into
account the quality of the medical care. They just measure numbers of the outputs
(Interviewee B).
The respondent noted that the results of the above-mentioned assessment gain wide
visibility in the Finnish media, as public sector productivity is a popular theme in
Finnish politics. The results of the assessment in question may to some extent guide
actions of politicians. This, again, may encourage them to make decisions that may
have unfavourable effects on daily operations in hospitals. The media should also
understand its role in furthering a holistic understanding of these issues:
If a doctor only sees ten patients a day, he/she can examine a patient better and make more
inuential decisions. [. . .] It should be measured how the actions of the doctors and nurses
enhance the health benet of the patient rather than measuring how many surgeries have
been done (Interviewee A).
When improving and developing measurement, certain key issues were found that
should be taken into consideration. The selected measures have to support the
organisations long-term objectives and lead the operations of the organisations to
proper and appropriate directions. Some of the interviewees proposed that short-term
productivity and long-term effectiveness should be combined into one indicator or
index. The indicator or index would take into consideration all the spheres of authority
(healthcare services, education, social services, etc.) and result in a calculation of total
productivity and effectiveness. Taking into account the research literature, creating
such a measure is hardly possible.
On the other hand, the interviewees highlighted that measures should be easy to use
and measurement results should be clear enough and easy to analyse. They also stated
that organisations should measure productivity and effectiveness formally and
systematically. At the moment, measurement efforts were understood to be
fragmented:
I denitely see that measurement, both of productivity and effectiveness, should be
systematised. At rst, top level objectives should be dened that are the long-term
objectives at the same time (Interviewee D).
Although the budget has an important role in most organisations, it is not a synonym
for the concept of productivity. Public sector organisations could put more effort on
dening aims, inputs and outputs, and on developing and implementing more
comprehensive measurement systems including also the aspects of quality and
long-term effectiveness, in addition to the short-term productivity measures. Deeper
understanding concerning measurement and evaluation of productivity and
effectiveness may well facilitate municipal decision making. Improved and
comparable measurement systems together with the deeper understanding may also
help benchmarking between the different spheres of authority, if relevant and thus
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facilitate learning. In the measurement of productivity and effectiveness, the focus
should be wider than just the nancial dimensions and labour costs. Improvement and
development of work methods and processes are alternative and probably better ways
to increase productivity than cutting down costs; this was acknowledged by the
respondents (see also Table II).
The respondents were also asked to indicate how exactly they thought productivity
and effectiveness could be improved. They emphasised factors related to, for instance,
reorganisation of work, new prioritisation of tasks, competence development,
increasingly efcient use of information systems, wider regional collaboration in
service provision as well as reconsideration of the scope of municipal services. The
responses are summarised in Table II. The responses covered a wide spectrum.
Development practices for improving service productivity were understood in a
relatively holistic way, only the human relations point of view was perhaps less well
acknowledged (human relations with customers; guiding customers in partial
production of services; collegial relations, etc. (see Dobni, 2004).
What are productivity and
effectiveness?
How are productivity and
effectiveness measured?
How should productivity and
effectiveness be improved?
Productivity was dened as the
relationship between input and
output
Efciency and quality were felt
to be strongly linked to
productivity
Effectiveness was seen as
related to, for instance, impacts
on health, qualications for
further education, impacts on
quality of life of citizens
(depending on the sphere of
authority in question)
Productivity and effectiveness
were not well understood by
some; there was lack of clarity as
to what they mean in the spheres
in question
Measuring productivity and
effectiveness was seen to be
challenging
There are many ways to
measure, but some of them
falsify the truth
Many partial measurement
methods exist, but holistic ways
of measuring are lacking
Measurement is based roughly
on
Financial gures (necessary to
stay within the budget)
Sector-specic national
monitoring results, such as
hospital productivity, placement
in further education, etc.
Numbers of outputs; diagnosis
related groupings (DRGs) in
healthcare
Feedback and surveys of
customer satisfaction
Time frame for measuring
effectiveness (the desired quick
effectiveness/ long-term
effectiveness) ! a suitable
level for measurement should be
found
New ways of work and
operation: personnel
management, reorganisation of
work (resourcing), motivation,
reward practices
New prioritisation of tasks:
elimination of side steps and
wobbly practices; attitudes
often cause barriers
Competence development:
information and communication
technology, new ways of
operation and work practices
Use of information systems:
electronic statements from
doctors to patients, virtual
learning systems
Regional concrete and efcient
collaboration: common schools
at municipal border areas,
common authorities for several
municipalities
Reconsideration of what services
municipalities are to provide in
the future
Increased functional (ways of
life) and nancial
responsibilities for municipal
residents
Table II.
Summary table on the
results of the interviews
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315
6. Discussion and conclusions
This study analysed the concept of public sector productivity and its measurement
as well as effectiveness. Empirical ndings were presented of interviews with
municipal managers from different spheres of authority in a Finnish region. According
to the results, there is a certain mismatch between perceptions concerning productivity
and the potential that lies in this concept as a functional tool in the public sectors
development efforts. The results highlighted that public sector productivity cannot be
developed and discussed without taking into consideration the issue of effectiveness
and vice versa. Special attention is needed when comparing productivity in different
organisations. The focus of this study was to nd similarities across the spheres of
authority rather than differences, but the interviews also reected the difculties
related to such comparisons.
On the basis of the interviews, the points of view concerning productivity were
divided into a mechanistic and a functional point of view. The mechanistic view is
based on higher-level rhetorical arguments and helps establishing a common
understanding between those who are already acquainted with the topic of
productivity. Productivity is set on a high-level pedestal, while it could be treated
increasingly as a tool for thinking and collaboration between different levels. The
functional view emphasises links between productivity and effectiveness, quality, and
benets to the society from the point of view of people. Making such a distinction
might advance increasingly holistic discussions of municipal service productivity in
the future. (See service productivity as a learning experience and a holistic service
productivity model in Gronroos and Ojasalo (2004).) Concepts of the service-based
productivity approach need to be developed further.
As to the measurement issues, according to the interviews, there is a clear need for
measurement frameworks that consider the entirety of a municipalitys operations.
The budget should not be a synonym for the concept of productivity. More effort
should be put on developing more comprehensive measurement systems that also
include the aspects of quality and long-term effectiveness. The respondents
acknowledged that the focus should be wider than just the usual nancial
dimensions and labour costs. Using manufacturing-oriented productivity models in
service contexts is likely to give managers wrong directions for action.
Deeper understanding concerning productivity and effectiveness and their
measurement is likely to facilitate municipal decision-making as well as
benchmarking between the different spheres of authority, if appropriate. The views
concerning productivity and effectiveness were already quite holistic and
characterised by useful critique, but some respondents appeared to outsource
productivity thinking to experts. Networking and collaboration in the advancement
of productivity thinking and in creating a common, realisable understanding are
needed at an individual organisation and more widely. This should also cover the
political decision-makers and the personnel together, without forgetting the customers
roles in service production. Productivity and effectiveness thinking are part of core
business in municipalities, and decision-making and responsibility concerning them
should be internalised by the whole staff in order to implement the deeper
understanding. Increasing emphasis and skillful use of the concept of effectiveness
might help in practical development efforts in municipalities. The concept of
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effectiveness is not as negatively charged as productivity. Effectiveness is vital from
the point of view of municipal citizens, and improvement in effectiveness also improves
productivity as understood in a stricter sense.
The industrial tradition in investigating productivity was visible, but the
respondents also attempted to adapt the concept more successfully to their own
organisations. The research data of this study were not large, but the study contributed
to understanding how productivity is understood by municipal service managers and
how measurement systems should be designed in their view. When productivity is
understood more widely, certain benets may be achieved. A service provider may, for
instance, understood service actions better from the point of view of a customer. There
is also a large and growing number of so-called hybrid products, where the core of the
supply is a combination of service and product. Both elements are vital. Such
combinations have barely been focused in research so far, and the point of view of
productivity has been neglected. Examples in the municipal sector may be found in, for
instance, technology-based services for the ageing population (assistive devices and
the related services). Changes like this also highlight the need to continue studying
perceptions about municipal service productivity in the future.
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About the authors
Paula Linna has worked previously as a Researcher at Lappeenranta University of Technology,
Lahti School of Innovation, Finland. Her research interests focused on public-private sector
partnership, networks and organisational innovativeness. Currently she is working at UNDP
Viet Nam on issues related to poverty monitoring and project management.
Sanna Pekkola is a Researcher in the Performance Measurement Team at Lahti School of
Innovation, Department of Industrial Management, Lappeenranta University of Technology. Her
current research focuses on performance measurement systems and performance management in
private enterprises and public organisations.
Juhani Ukko is a Senior Researcher and Project Manager in the Performance Measurement
Team at Lahti School of Innovation, Department of Industrial Management, Lappeenranta
University of Technology. His research interests focus on performance management,
management systems and management accounting.
Helina Melkas, D.Sc. (Tech.), is a Senior Research Fellow and Adjunct Professor at
Lappeenranta University of Technology, Lahti School of Innovation. Her research is related to,
inter alia, elderly care services, technology use and public sector innovations. Helina Melkas is
the corresponding author and can be contacted at: helina.melkas@lut.
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