PERFORMANCE MANAGEMENT AND ORGANIZATIONAL INTELLIGENCE: ADAPTING THE BALANCED SCORECARD IN LARVIK MUNICIPALITY

This article presents a study of how a balanced scorecard was implemented over a period of five years in four very different functional departments within Larvik municipality in Norway. The article narrates and compares the adaptation processes of the four departments, focusing on changes in their management control practices and changes in learning behavior. A surprising finding is that while management control practices of the departments varied, their learning behavior was similar. The study shows that governmental organizations from a wide range of areas of service delivery can become more active learners from adapting a performance management reform like the balanced scorecard. The article provides theoretically founded explanations of both differences and similarities in the departments’ adaptation processes, and theory of organizational learning is used to inform identification of factors that can lead governmental entities into a more active learning mode. New Public Management (NPM) is a shorthand expression regularly used by scholars and practitioners to refer to distinctive themes, styles, and patterns of public administration that have come to the fore within the past two decades (Barzelay 2001). Following Hood (1991), we can see NPM as a body of administrative doctrines that has discredited progressive public administration’s answers to administrative what-to-do questions in government. In the context of local government, performance management is the NPM doctrine that has been most widely implemented over the past twenty years (Naschold 1996; Kloot and Martin 2000, 231-232; Kleven et al. 2002, 23). This doctrine prescribes vertical decentralization and after-the-fact control mechanisms, as opposed to traditional means of public administration such as vertical centralization and before-the-fact rules and procedures (Thompson 1993; Hood 1994, 128-132). When operationally 416 International Public Management Journal Vol. 7, No. 3, 2004 specified as a tool for management of service delivery within a formal organization, performance management can take the form of a management accounting system. A management accounting system can be defined as a system for gathering and communicating data for the ends of aiding and coordinating collective decisions in the light of the overall goals or objectives of an organization. It involves the process of identification, measurement, accumulation, analysis, preparation, interpretation, and communication of information that assists executives in fulfilling organizational objectives (Horngren, Sundem, and Stratton 1996). This article presents a case study of how the past decade’s most widespread and high-profile generic management accounting system, the so-called balanced scorecard, was implemented over a period of five years in four functional departments within the Norwegian municipality of Larvik. The balanced scorecard was introduced in the early nineties by Kaplan and Norton (1992), and has dominated discussions of performance management and performance measurement since (Meyer 2002, 2). 1 This article raises research questions about whether and how Larvik’s adaptation of the balanced scorecard affected management control and organizational learning in functional departments from very different areas of service delivery. Studying effects on management control practices and learning behavior requires in-depth, longitudinal empirical research. That makes Larvik the best candidate research site among Norwegian municipalities, as it was among the very first Scandinavian municipalities to embark on implementing the balanced scorecard. Moreover, as the narration of the change experience will show, the implementation policy in Larvik was lax enough to give the functional departments substantial degrees of freedom in the adaptation process. This merits giving analytical interest to both similarities and differences observed across the four departments. The first half of the article is descriptive. I will narrate the respective adaptation processes with one eye on the management control practices of the four functional departments and the other on their learning behavior. This parallel approach to studying management accounting practices is informed by March and Olsen’s argument that organizational intelligence is built on two fundamental processes. The first, rational calculation, is linked to evaluation and planning, which again is linked to compliance and management control. The second process is learning from experience (March and Olsen 1976, 54). My description of the management control practices is based on a cybernetic framework, provided by Dunsire (1991). The learning behavior of the four departments is described with the aid of March and Olsen’s complete cycle of organizational learning. What stands out in the description is that the while the management control practices of the four departments vary substantially, their learning behavior is largely similar. Over the course of the fiveyear period studied, all four departments are moved into what Weick (2001) calls an active intrusiveness mode. The article hence suggests that substantial learning effects can be gained from measuring performance in governmental organizations. This conclusion relates to a position that has emerged in the public management literature over the last few years. One recent contribution to this stance is Behn’s (2003), who argues that learning from experience is one of eight purposes of performance measurement. Another contribution is from Meyer (2002), who distinguishes seven purposes of performance measurement, of which at least three correspond to learning from experience. The position might even be seen as to echo Demski and Feltham (1976), who talked about performance measurement having two purposes: facilitating decisions and 417 International Public Management Journal Vol. 7, No. 3, 2004 influencing decisions. The former can be identified with learning and the latter with control. In short, several authors have argued that performance measurement is well suited to support learning. But so far, empirical support of this position has been weak. This article reinforces the performance measurement and learning position with supportive in-depth and longitudinal empirical evidence. The second half of the article seeks to provide theoretically founded explanations of differences and commonalities across the four departments’ adaptation processes. I use a contingency framework based on differences between kinds of organizational technologies to set forward three hypotheses about what management control practices we might expect to develop over time in the four departments studied. These are tested against the experiences of the four departments, and two of the hypotheses are found to be of help in explaining the variance in practices. As for the learning behavior of the four departments, I find that a framework developed by Weick (2001), focusing dependency upon the environment, is helpful in explaining the similarities in behavior across the departments.