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PAR
24,3
Performance measurement
in Indonesia: the case of local
government
262
Rusdi Akbar
Fakultas Ekonomi, Universitas Gadjah Mada, Yogyakarta, Indonesia, and
1. Introduction
Many government entities in developed countries have introduced elements of new
public management (NPM)[1] (Hood, 1991, 1995; ter Bogt, 2004) which is based on
a fundamental concept that public sector organizations can, and even should, borrow
Pacific Accounting Review
Vol. 24 No. 3, 2012
pp. 262-291
q Emerald Group Publishing Limited
0114-0582
DOI 10.1108/01140581211283878
The authors would like to acknowledge the anonymous reviewers at the AFAANZ 2010
Conference for their feedback on an earlier version of the paper. The authors would also like to
thank the two anonymous reviewers who provided feedback as part of this journals review
process.
many management strategies from the private sector. In Indonesia the government
introduced performance measurement reporting to respond to public demand on
productivity, transparency and accountability. According to Cheung (2011, p. 131),
the NPM and good governance models were the two dominant paradigms having
the greatest impact on Asian (in which he includes Indonesia) institutional reforms.
This study focuses on two pivotal aspects in the public sector accountability and
performance measurement. Over the last 40 years the idea of performance measurement
has been the focus of considerable attention from both academics and practitioners
(Neely, 1999; Kihn, 2010). Initially, the research in the field mainly concentrated on
performance measurement in the private sector (Kaplan, 1983; Johnson and Kaplan,
1987; Chenhall and Smith, 2007). However, since then there have been a number of
studies addressing the issues of performance measurement in the public sector
(Hood et al., 1998; Cavalluzzo and Ittner, 2004; Micheli and Neely, 2010). In Indonesia, the
interest in performance measurement began to emerge at the beginning of the reform era
in 1999 when President B.J. Habibie signed a presidential instruction (Inpres No. 7/1999),
the Performance Accountability Report of State Apparatus (known as LAKIP).
Coinciding with the first wave of public sector reform, this research investigates the
implementation of performance measurement systems (PMS) in Indonesian local
government (ILG). A second generation structural equation modelling technique known
as partial least squares (PLS) was used to analyse the proposed model and relationships.
Based on a survey of ILGs, the research explores a conceptual model adapted
and developed to explain the hypothesised relationships between technical and
organisational factors and the development and use of performance indicators
and accountability practices. The theoretical development and interpretation of this
research is drawn from institutional theory. A major contribution of this research is that
it provides an understanding of factors influencing the development and use of
performance measures which, in turn, could be used to formulate future government
policy. Further, it fills a gap in the literature exploring PMS and accountability in a
developing country in this case, Indonesia. This paper begins with a brief literature
review followed by an explanation of the theoretical framework employed. Section 4
then considers the research model and hypotheses development, and Section 5 discusses
the research method used. Section 6 presents the results of the research using SmartPLS,
with these results discussed in the penultimate section. A conclusion and suggestions for
future research ends this paper.
2. Literature review
NPM and accountability
NPM was introduced in Europe in the 1980s. Lapsley and Pallot (2000) considered this
framework separately from that of institutional theory, whereas Bovaird and Downe
(2006) use institutional isomorphism to understand NPM-type reforms. This paper
adopts the latter framework as it considers whether, with the introduction of PMS,
institutional isomorphism particularly coercive plays a role in the implementation
processes adopted by ILG.
The development of NPM was seen as a means by which to enhance accountability
and transparency of governments and this, in turn, required performance information
that was more comparable, relevant and useful for decision-making within the public
sector. Romzek and Dubnick (1998, p. 6), define accountability as a relationship in which
Performance
measurement in
Indonesia
263
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24,3
264
3. Theoretical framework
Introduction
As a theoretical framework, institutional theory is a very broad concept and has many
strands that have evolved since the development of the theory in the early twentieth
century. The foundation of early institutionalism (old institutionalism) and its
application to organisations has been outlined by Selznick (1949, 1996). In contrast,
modern institutionalism (new institutionalism) emerged in the 1970s, as has been shown
in the work of Silverman (1971) followed by Meyer and Rowan (1977), Zucker (1977) and
DiMaggio and Powell (1983) who extended Meyer and Rowans (1977) concept of
isomorphism to encompass the organisational field. Selznick (1996) compares the old
with the new in an attempt to explain the differences such as the definition of
institutionalisation as well as promote the concept that institutional theory should be
able to embrace all the classifications and definitions embedded in both the old and
new. One major difference between the two is the view of the institution, with
researchers like DiMaggio and Powell (1991) espousing isomorphism and then the
doctrine of power, subordination and responsibility (Selznick, 1996, p. 272). More
recently, academics have considered institutional theory in varying forms: Modell (2004,
2005) and Tsamenyi et al. (2006) utilise the new institutional sociology to explain
organisational change; Brignall and Modell (2000) who consider that institutional
theory could explore organisational change with the addition of the interests and power
from various stakeholders; Thornton and Ocasio (2008) who contend that institutional
logics provide a bridge between some of the earlier institutional theories; Lounsbury
(2008) offers alternatives to isomorphism; Ashworth et al. (2009) shows the benefits
of using isomorphism as an explanator of change; and Collin et al. (2009) who suggest
integrating positive accounting theory with institutional theory.
It is obvious from this brief summary that institutional theory has many dimensions.
In the field of organizational study, the concepts of institution and institutionalization
have been defined in many different ways. One definition proposed by Scott (1987)
was institutionalisation as a process of creating reality. This definition is relevant
here as this form of institutional theory is based on a shared social reality which, in turn,
creates a human construction in social interaction. In other words, organisations
(councils) operating in the same field (local government) react similarly and, over time,
develop similar responses or adopt similar practices when facing certain situations.
DiMaggio and Powell (1983, p. 147) explain: Institutionalization is a rational response;
one of the key outcomes of institutionalization is a homogeneous organizational
structure. Debate around nuances associated with variations on the old and then
new institutional theory continue today (Falkman and Tagesson, 2008; Lounsbury,
2008; Ashworth et al., 2009). Although many of these nuances would have fitted with the
research objective here (for example, that proposed by Schneiberg and Soule (2005)
which considered political and cultural aspects of the diffusion process), the more
traditional form of institutional isomorphism was used to inform the instrument and its
subsequent analysis. As a developing country, in many ways Indonesia is still in its
infancy in regards to the development of PMS particularly during the first wave of
reforms. Coercive and normative pressures played a role in the adoption process as will
be explained in the discussion section below.
Performance
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Indonesia
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266
Isomorphism
DiMaggio and Powell (1983) proposed that over time, in a well-established field,
organisations tend to move towards homogenisation, even though they show considerable
diversity at first. The term used that best describes the process of homogenisation is
isomorphism. Although there are said to be different types of isomorphism (Meyer and
Rowan, 1977; DiMaggio and Powell, 1983), institutional isomorphism is used here. It is
a useful concept in an environment where politics and ceremony (DiMaggio and Powell,
1983, p. 150) are embedded in organizational life. Meyer and Rowan (1977, p. 348) argue
that isomorphism had three consequences for organisations:
(a) they incorporate elements which are legitimated externally, rather than in terms of
efficiency; (b) they employ external or ceremonial assessment criteria to define the value
of structural elements; and (c) dependence on externally fixed institutions reduces turbulence
and maintains stability.
DiMaggio and Powell (1983) identified three isomorphic forces coercive, mimetic and
normative. Given this is not a longitudinal study, the first and latter isomorphic
pressures are considered for this project. Coercive isomorphism stems from political
influence and the pursuit of legitimacy. This pressure comes from both formal and
informal pressures from other organizations. Normative isomorphism, on the other
hand, is usually associated with professionalism and the way both formal and informal
collaboration can lead to more homogenisation of organisations.
Despite myriad views on other aspects of institutional theory and questions
regarding its applicability, institutional isomorphism is still being used successfully
worldwide (see for example, Tuttle and Dillard (2007) USA; Kim et al. (2009) Korea;
Arnaboldi et al. (2010) Italy).
Performance measurement and isomorphism
Over the years management control systems with performance measurement playing
an integral role, have been studied from functionalist, behavioural, interpretive and
critical perspectives. Recent studies, however, have been particularly influenced by
institutional theories (Berry et al., 2009). Studies that adopted this theory assumed that
organizations compete not only for resources and customers but also for political
power and institutional legitimacy. Institutional theory suggests that organizations
pursue legitimacy by conforming to isomorphic pressures in their environment
(Ashworth et al., 2009, p. 1). Therefore, from this perspective, the logics of change in
PMS are institutionalized into organizations by means of three processes: coercive,
mimetic, and normative (DiMaggio and Powell, 1983).
This study investigates the implementation of PMS in ILG and considers senior
finance officers perceptions of performance measurement within an institutional theory
framework. The way performance measurement is used within government may depend
on the power relationship between its constituents and itself (Pilcher and Dean, 2009).
Demonstrating this, Pilcher (2011, p. 368) examined local governments reporting under
a performance measurement regime designed to ensure councils performed or
perished. Brignall and Modell (2000, p. 282) also examined the implementation of PMS
and claimed that to extend previous research in the area, it was necessary to shift
the attention to the power and pressures exerted by different groups of stakeholders
and how these affect the use of performance information in organisations.
Performance
measurement in
Indonesia
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268
RQ3. Does institutional isomorphism exist in the development and use of PMS and
accountability practices in ILG?
The conceptual model outlined in this paper combines components of the accountability
model of Wang (2002) with the model of performance measurement from Cavalluzzo and
Ittner (2004). It is modified and extended here to not only fit within the ILG context but
also to be analysed within an institutional theory framework. Cavalluzzo and Ittners
(2004) study considered factors associated with performance measurement in the US
Government. Questions related to the first four dependent variables (described and
tabulated in Appendix 1) were adapted from their study with one major difference being
the modification of five items (1, 2, 3, 5, and 6 under development of indicators in
Appendix 2) to include a family of measures derived from the Indonesian LAKIP
guidelines. In regards to the final dependent variable external accountability Wangs
(2002) model (in itself a permutation of items from other sources) was used as a template
and the eight items from the performance accountability construct were adjusted to suit
the ILG context.
In regards to the five independent variables, questions were again adapted from
Cavalluzzo and Ittner (2004) for the first four variables whilst four items were taken
from Wang (2002) to measure the level of organisational capacity (the final independent
variable). Again, differences existed with the first relating to technical knowledge
which, although based on the training construct in Cavalluzzo and Ittner (2004),
differs in the areas it addresses so that it fits with the ILG environment (and, again,
LAKIP). Legislative requirements are also based on LAKIP. Combining components of
each of these two studies not only allowed for a comprehensive examination of factors
affecting the development and use of performance indicators, but also provided an
important aspect for ILG particularly within NPM being accountability. Hence,
all three research questions detailed above could be addressed.
Figure 1 shows the conceptual model tested in this analysis and Appendix 1
contains a copy of the constructs used in the model.
The hypothesised relationships between the independent and dependent variables
are discussed in the following sections along with the hypotheses proposed.
Dependent variables
Development and use of performance indicators. Various studies regarding the use of
performance measurement conducted in local government suggest that the practice of
collecting performance indicators, at least at a rudimentary level, is fairly well
established in many countries, including the USA, the UK and Australia (Pilcher and
Dean, 2009). Despite this growing practice, previous studies found that the development
and use of performance indicators in the public sector is problematical with very few local
governments using performance indicators (Bellamy and Kluvers, 1995; Ammons, 1995).
As shown in Figure 1, the model includes five dependent variables:
(1) development of performance indicators;
(2) managerial use of indicators;
(3) higher use of indicators;
(4) internal accountability; and
(5) external accountability.
Performance
measurement in
Indonesia
Metric
Difficulties
Development of
Indicator
Technical
Knowledge
269
Managerial Use
of Indicator
Internal
Accountability
Management
Commitment
Higher Use
of Indicator
External
Accountability
Legislative
Mandates
Organisational
Capacity
Notes:
P < 0.05;
no association
Figure 1.
Conceptual model
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270
Independent variables
There were five independent variables identified within the model (Figure 1):
(1) metric difficulties;
(2) technical knowledge;
(3) management commitment;
(4) legislative requirement; and
(5) organisational capacity.
Metric difficulties. The first independent variable refers to measurability of organizational
output or outcome. In other words, it considers the ability to define and assess metrics
that capture desired actions and outcomes (Cavalluzzo and Ittner, 2004, p. 247). In public
sector organizations the complexity of programmes is not always the same. Some outputs
and effects are relatively easy to measure yet some are more difficult. For example, in
Indonesia, Mahmudi (2003) found that local government managers had difficulties
in determining higher level indicators such as outcome, benefit and impact, therefore in
practice they placed more weight on input measures rather than outcome measures. Given
the situation in Indonesia it is logical to expect that there will be a tendency in performance
measurement users to give more weight to the easy-to-measure indicators:
H1a. Development of performance indicators is negatively associated with metric
difficulties.
H1b. Managerial use of performance indicators is negatively associated with metric
difficulties.
H1c. Higher use of performance indicators is negatively associated with metric
difficulties.
Technical knowledge. An organizational factor that is expected to influence the
development and use of performance indicators is the extent to which training on related
knowledge is provided to support the implementation (Shields, 1995; Cavalluzzo and
Ittner, 2004). According to Sukarno (2006), a lack of understanding of systems designed
to support the implementation of performance indicators has impacted on their
development. Technical knowledge enables improvement in the ability of internal
stakeholders to understand and use PMS, and should positively improve the
development and use of performance indicators (de Lancer Julnes and Holzer, 2001;
Laurensius and Halim, 2005). Different types of efforts, from technical training to formal
degree programmes, have been undertaken in Indonesia to increase the knowledge of
government employees and officers. From this perspective, normative mechanisms as
suggested by DiMaggio and Powell (1983) may also take place in practice:
H2a. Development of performance indicators is positively associated with related
technical knowledge.
H2b. Managerial use of performance indicators is positively associated with related
technical knowledge.
H2c. Higher use of performance indicators is positively associated with related
technical knowledge.
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Table I.
Research model variables
Latent variable
Short code
Manifest variables
Development of indicator
Managerial use of indicator
Higher use of indicator
Internal accountability
External accountability
Metric difficulties
Technical knowledge
Management commitment
Legislative mandate
Organisational capacity
Dev
Muse
HUse
IAcc
EAcc
Met
Kno
Com
Leg
Cap
Dev1 to Dev7
MUse1 to Muse8
HUse1 to HUse3
IAcc1 to IAcc4
EAcc1 to EAcc8
Met1 to Met5
Kno1 to Kno5
Com1 to Com3
Leg1 to Leg2
Cap1 to Cap4
Total
No. of items
7
8
3
4
8
5
5
3
2
4
49
method was used here (Usunier, 1998). A qualified and experienced translator from
the National Accreditation Authority for Translators and Interpreters was invited to
translate the questions and instructions used in the research instruments. To mitigate
the disadvantage of direct translation, the study conducted a pilot test to ensure that
a satisfactory level of reliability was achieved (Usunier, 1998).
As of 2008, there were in total 457 local governments within 33 provinces with a total
population of 230 million (Indonesian Bureau of Statistics, 2011). Of these, 211 were
newly established as a result of the districts and cities separation process over the
previous five years. Table II presents the distribution of responses from the survey. Due
to invalid data, two responses were ineligible for further analysis and consequently only
98 usable responses (equivalent to a 21.4 per cent effective response rate) were analysed.
Among the respondents, 44 per cent were from Java with 56 per cent from
outer-Java. Most respondents (78 per cent) came from districts and only 22 per cent
came from cities. When comparing the response rate of local government by type, the
sample is fairly comparable with 21.5 per cent from districts and 23.2 per cent from
cities. With regard to location, there was only a 16.4 per cent response rate from
outer-Java, whilst that from Java was 38.3 per cent. The relatively low response rate can
be explained by two factors. First, and the most likely reason, was the lack of
experience in performance reporting of the 211 newly established local governments.
This was supported by the fact that almost all responses were from local governments
in existence long before the reform era (old local governments). Second, anecdotally,
very low responses are normally expected from local governments in outer-Java.
To ensure no response bias, the 14 late responses were compared to the 84 earlier
responses using the Mann-Whitney test (Field, 2009). Analysis revealed that for all
variables employed the mean rank between earlier and later responses was not
significantly different.
Demographic information of the respondents is summarized in Appendix 2.
One point worth highlighting is that only 9 per cent of the respondents were female and
89 per cent were male (2 per cent missing). These figures are representative of the
population of the study given the fact that the percentage of female senior finance
officers in Indonesian civil servants is only 9.5 per cent.
Performance
measurement in
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273
Received (100)
Frequency
%
115
342
25.2
74.8
44
56
44.0
56.0
38.3
16.4
362
95
79.2
20.8
78
22
78.0
22.0
21.5
23.2
Note: Due to invalid data, two responses were excluded and 98 were further analysed
Table II.
Distribution of responses
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generation structural equation modelling technique that has been used in a number of
accounting studies (see Hall (2008), for a list of studies). It is particularly suited to this
study because of the small sample size and complexity of the proposed model
(Hair et al., 2012). Several authors, including Barclay et al. (1995), suggest the sample
size should be no lower than ten times the number of items within the most complex
construct of the model tested. Based on this rule, the sample size for this study would
need to be a minimum 80 cases (n 8 items related to managerial use of indicator and
external accountability by ten). Here there are 98 valid cases in this study satisfying
the requirement for a sound PLS analysis. One limitation of this rule is that it does not
consider factors such as size and reliability. Such factors are discussed shortly. What it
does do is provide an estimate of the minimum sample size requirements and thus
has been used by many for robust PLS estimations (Hair et al., 2012).
Data examination
Scanning of data on a line-by-line basis confirmed the absence of errors and the data set
was ready for further SmartPLS procedures. As PLS regression analysis does not
require the data to be normally distributed (Chin et al., 2003), tests for normality were not
necessary. As well, goodness-of-fit measures were not appropriate here. Instead, similar
to the process used in prior PLS research, fit was evaluated by the overall incidence of
significant relationships between constructs and the explained variance of the
dependent variables (Chapman and Kihn, 2009; Chenhall, 2005).
Five exogenous (dependent) variables and five endogenous (independent) variables
were employed in the model. Research indicates that a minimum of two indicators
(i.e. questions) are needed to measure a construct (Kline et al., 1998; Rahim et al., 2001).
In this research, the number of indicators used to measure each of the model variables
ranged from two to eight, with only one variable (legislative mandates) having the
minimum of two indicators.
Convergent validity
The measurement model of PLS analysis consisted of two phases: convergent validity
followed by discriminant validity. The first phase assessed the models convergent
validity using two measures: individual item reliability and internal consistency
(Santosa et al., 2005). Individual item reliability measures the convergence of each
indicator variable on its associated construct. Item reliability is assessed by examining
the loading (i.e. correlations) of the indicator with their respective construct.
Convergence, then, is established by comparing the loadings with a certain benchmark.
All indicator loadings used in this research were above the minimum requirement (0.4)
suggested by Igbaria et al. (1997) and Hair et al. (2006).
The second convergent validity measure considers the internal consistency of
constructs. Composite reliability was used (Fornell and Larcker, 1981) as it is considered
superior to the traditional measure of consistency (Cronbachs a) because it does not
depend on the number of indicators. Adequate reliability is gained when composite
reliability value is greater than 0.5. Here, all the constructs exhibited adequate reliability.
Fornell and Larcker (1981) also suggest that convergent validity can be determined by
using a more conservative test, which is by considering the average variance extracted
(AVE). AVE should equal or exceed 0.5 to be judged adequate and again all constructs
presented here meet this requirement (Table III).
Construct
Composite reliability
Cronbachs a a
AVE
0.904
0.926
0.912
0.863
0.955
0.926
0.860
0.933
0.925
0.904
0.876
0.908
0.858
0.791
0.946
0.901
0.793
0.892
0.838
0.876
0.574
0.609
0.777
0.625
0.726
0.716
0.558
0.823
0.861
0.574
Development of indicator
Managerial use of indicator
Higher use of indicator
Internal accountability
External accountability
Metric difficulties
Technical knowledge
Management commitment
Legislative mandate
Organizational capacity
Downloaded by Universitas Gadjah Mada At 17:45 26 August 2015 (PT)
Performance
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275
Table III.
Internal consistency
and AVE
Discriminant validity
At construct level, discriminant validity is adequate when the variance shared
between a construct and any other construct in the model is less than the variance
that construct shared with its indicators (Fornell, 1982; Fornell and Larcker, 1981).
Regarding indicator level validity, Barclay et al. (1995) suggest that no indicator
variable should load more highly on another construct than it does on the construct it
is supposed to measure. Within SmartPLS, a technique known as cross loading of
constructs is used to test the discriminant validity at both indicator and construct
level. Table IV shows the results of the correlation of the constructs for each of the
model variables.
Table IV presents the correlation matrix of the construct and the square root of
AVE (in italics). Previous literature recommends that these tests are best tabulated as
in Table IV because the off-diagonal items (correlation of constructs) must be less than
or equal to the bolded diagonal items (square root of the AVE) in the corresponding
rows and columns (Barclay et al., 1995; Gefen et al., 2000). Table IV shows that
diagonal values are greater than the off-diagonal values in their corresponding rows
and columns, therefore there should be no issues with discriminant validity of
the constructs.
Cap
Cap
Com
Dev
EAcc
HUse
IAcc
Kno
Leg
MUse
Met
Com
Dev
EAcc
HUse
IAcc
Kno
Leg
MUse
Met
0.758
0.390
0.907
0.238
0.581
0.758
0.491
0.614
0.483
0.852
0.224
0.490
0.501
0.424
0.881
0.275
0.620
0.442
0.642
0.644
0.790
0.339
0.516
0.513
0.528
0.361
0.466
0.747
0.189
0.505
0.510
0.491
0.361
0.507
0.515
0.928
0.179
0.732
0.652
0.545
0.608
0.552
0.556
0.546
0.781
0.073 2 0.231 2 0.280 2 0.069 2 0.109 2 0.114 2 0.172 2 0.043 2 0.252 0.846
Table IV.
Correlation of constructs
and the square root
of AVE
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Table V.
R 2 values
Construct
R 2a
0.455
0.607
0.265
0.437
0.497
Hypothesis
Relationship
A. Development of indicator
H1a
Met ! Dev
H2a
Kno ! Dev
H3a
Com ! Dev
H4a
Leg ! Dev
B. Managerial use of indicator
H1b
Met ! Muse
H2b
Kno ! Muse
H3b
Com ! Muse
H4b
Leg ! Muse
C. Higher use of indicator
H1c
Met ! HUse
H2c
Kno ! HUse
H3c
Com ! HUse
H4c
Leg ! HUse
D. Internal accountability
H3d
Com ! IAcc
H4d
Leg ! IAcc
H5d
Cap ! IAcc
E. External accountability
H3e
Com ! EAcc
H4e
Leg ! EAcc
H5e
Cap ! EAcc
Sign.
Coeff.
t-value
20.162
0.195
0.322
0.240
1.956 *
2.224 *
2.534 *
2.735 * *
20.092
0.171
0.529
0.187
1.500
2.077 *
7.243 * * *
2.346 *
0.002
0.108
0.377
0.115
0.020
0.854
3.498 * * *
0.987
0.472
0.261
0.042
3.621 * * *
2.298 *
0.346
0.374
0.245
0.299
3.449 * * *
2.618 * *
2.398 *
strength of each relationship and, as indicated, are obtained by using the bootstrapping
technique in SmartPLS software. The t-values (robust scores) need to be significant to
support the hypothesized paths and should be above 1.96 or 2.56 for alpha protection level
of 0.05 and 0.01, respectively (Gefen et al., 2000, p. 35). Using this criterion, the results for
the structural relationships are reported in Table VI followed by an examination of
implications for the hypotheses. The discussion of the results appears in Section 7 with
Figure 1 (reviewed in Section 4) providing a graphical representation of the results.
Development of indicators (H1a-H4a)
The results show a strong positive association between the development of indicators in
ILG and performance reporting legislation (H4a, p , 0.01). In other words, as new
regulations related to performance reporting emerged, ILG responded promptly by
providing more indicators as required by those regulations. Further, the development of
performance indicators in ILG increased as officers and staff gained more related
technical knowledge offering support for H2a ( p , 0.05). The results also show support
for H1a ( p , 0.05) and H3a ( p , 0.05). This indicates that metric difficulties are
negatively related to the development of performance indicators and that management
commitment from ILG managers is positively related to the development of indicators.
Managerial use of indicators (H1b-H4b)
The results reveal that the proposed relationship between management commitment
and managerial use of performance indicators (H3b) is highly significant ( p , 0.001)
Performance
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277
Table VI.
Summary of hypothesis
testing results
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and therefore supported. This result clearly indicates that the use of performance
indicators in ILG at managerial level is highly influenced by the commitment of ILGs
top-level management. The results also show the proposed relationships between
legislative requirements, technical knowledge and managerial use of performance
indicators (H4b and H2b) are both moderately significant ( p , 0.05) and hence
supported. This implies that the extent of use of performance indicators by mid-level
management is affected by the level of their technical knowledge and legislative
requirements. The greater their level of knowledge, the more extensive the use of
performance indicators. The results determine that there is no support for H1b,
indicating that using performance indicators at the managerial level is not associated
with the problems that exist in the process of developing performance indicators.
In other words, and supporting prior literature (Mahmudi, 2003), once indicators
become available, ILGs managers just use them without a need to consider the
problems that existed when they were developed.
Higher use of indicators (H1c-H4c)
The results reveal a strong positive association between the use of indicators at a higher
level and the commitment of ILG management (H3c, p , 0.001). It is not surprising that
the results provide no support for H1c. This suggests that higher level ILG managers
simply use the indicators that are provided to them. As for Cavalluzzo and Ittners (2004)
findings, this is logical, given that in government (or in this case ILG), the responsibility of
developing performance indicators is usually that of senior finance officers (or equivalent).
Further, results offered no support for H2c, indicating that technical knowledge is not a
determinant in the use of performance indicators by higher level ILG managers.
Finally, the results provided no support for H4c implying that, unlike at managerial level,
the use of indicators in ILG at the higher level is unaffected by regulatory
mandates received by ILG. It seems that regulations related to performance reporting
(mainly imposed by central government) had no impact on level of use of indicators at a
higher level. This was inconsistent with the finding in H4b. ILG managers at a higher level
respond differently to the regulatory mandates than those at managerial level.
Internal accountability (H3d-H5d )
The results provide strong support for H3d ( p , 0.001) and moderate support for H4d
( p , 0.05). This implies that the extent of internal accountability is influenced by both
the level of commitment by ILG officers and the amount of legislative mandates
imposed by central government. The results offer no support for H5d suggesting that
organizational capacity (i.e. management information systems and staff capability)
had no association with the extent of internal accountability practiced in ILGs.
External accountability (H3e-H5e)
First, similar to the results for H3d, strong support for H3e ( p , 0.001) indicated that
there was a positive association between external accountability and management
commitment. This implies that the extent of external accountability provided by ILGs
to their stakeholders was affected by managements commitment to implementing
PMS. The results also provide support for H4e ( p , 0.01) indicating that legislation
mandates had an impact on the level of external accountability of ILG. It also suggests
that the mandatory nature of performance reporting regulations did ensure
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relevant at managerial levels than for higher levels. This may indicate that at managerial
level ILG officers are more concerned with technical indicators while higher level officers
normally use more macro (high level) indicators which are less technical, thus easier to
comprehend. Furthermore, technical training on performance measurement for ILG is
usually aimed at managerial and operational levels, not higher level managers. This,
in turn, provides support for normative isomorphism. Widespread training by audit
firms and universities, and the sharing of this knowledge, assist ILGs to maintain
legitimacy. This dissemination of information is most common at managerial level.
In line with expectations, the positive association between management commitment
and use of indicators both at managerial and higher levels (H3b and H3c) was highly
supported. This finding is not surprising given organizational commitment is extremely
valuable. What was surprising, given Cavalluzzo and Ittners (2004) findings, was that
use at managerial level was supported as their study only determined support for higher
level use. Other literature, such as Fernandez and Rainy (2006), contends that successful
change relies on participation by employees along with direction and commitment from
management. de Lancer Julnes and Holzer (2001) also found that commitment has a
positive impact on the use of indicators. In a country (Indonesia) that is relatively
new to a decentralised form of government, commitment to use at both levels is an
encouraging finding.
With regard to legislative mandates, the results were mixed. Support was found for
H4b that managerial use of indicators was positively associated with legislative
mandates, but that was not the case for higher use (H4c). As in technical knowledge, the
concern about regulation is also more relevant at managerial level than at the higher
level. Again this differed from Cavalluzzo and Ittner (2004), where there was no
association found for use at either level. Since the emergence of regulation on LAKIP in
1999, more technical indicators were expected to be developed and then reported in an
ILG performance report. This requirement placed more pressure on managerial level
officers who deal with the use of technical indicators than higher level officers who are
expected to use higher level indicators that, again, are less technical. With pressure from
central government to comply with legislative requirements linked to funding, coercive
pressure is felt by those at managerial level.
Accountability
The research found that the existence of leadership was critical to the success of
developing and using performance indicators in ILG. It is generally expected that the
success of performance measurement implementation, in turn, will increase an
organizations internal and external accountability. Both internal and external
accountability were associated with management commitment. Wang (2002) found
associations between internal accountability and leadership or management commitment,
however, not between external accountability and management commitment. Support
here was also found for the variable legislative mandate. This indicates that one important
factor that makes ILG discharge accountability is legislative requirement. The pressures
from central government were still strong despite decentralization being in place for
a decade. This indicates the potential existence of coercive isomorphism.
With regard to organizational capacity (i.e. MIS, human resources capability), results
were mixed which was unexpected. Organisational capacity is crucial to ensure
success of an organisation, including achieving accountability goals. Strong support for
Performance
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Academically, the model as adapted and modified for this study can now be used
in other developing countries to analyse similar factors. As well, with its unique use of
SmartPLS in the given context, this paper lays the foundation for further exploration of
other theories. In saying that, in this particular environment, institutional isomorphism
provided an excellent lens through which to explore and explain the possible motivations
behind the development and use of PMS. Although there have been many recent
suggestions (Schneiberg and Soule, 2005; Falkman and Tagesson, 2008; Lounsbury,
2008) of other ways institutional theory can be relevant, this should not detract from the
work of the early authors such as Meyer and Rowan (1977) or DiMaggio and Powell (1983,
1991) and the strength of institutional isomorphism as shown here.
Practically, a major contribution of this research is that it provides an understanding
of factors influencing the development and use of performance measures in Indonesia
and, in particular, in local government. Cavalluzzo and Ittner (2004) found that
implementation of externally mandated PMS in US Government organisations was used
merely to fulfil regulatory requirements, and tended to be symbolic in nature, without
substantive impact on internal operations. The Indonesian Government at every tier has
embraced PMS and reported performance since the reform process began. Findings here
will assist local and central government, accountants, auditors, professional bodies and
universities to name a few have more of an understanding of the factors influencing
the development and use of performance measures in Indonesia. Further, they will assist
with future research in other developing countries. The knowledge of these factors
could, in turn, be utilised to evaluate and improve or even formulate future government
policy. Local government is the government closest to the citizens and provision of
quality services as measured by effective performance indicators would be an ideal
outcome. Finally, to enhance external accountability more interaction and/or training
could assist stakeholders (putting normative isomorphism to good use) to have more of
an understanding of PMS, and accountability may not then be such an onerous
requirement. Future research will consider how performance indicators are used by the
various ILG stakeholders. Another area of future research is to consider why in ILG
management commitment had an effect on the use of performance indicators by both
levels of managers. Is ILG doing something other countries/organisations could adapt?
Finally, future research will explore the development and use of PMS in other developing
nations and whether alternative theories can provide as rich results as offered here.
Notes
1. A list of acronyms is available in Appendix 3.
2. If you would like a copy of the survey please contact the author.
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(The Appendices follow overleaf.)
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Table AI.
Constructs used
in the model
Development of
indicators
Items
288
No. Construct
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Appendix 1
10
Legislative
requirements
Organisational
capacity
Management
commitment
Technical knowledge
Metric difficulties
No. Construct
Items
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Table AI.
PAR
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Appendix 2
Characteristics
Gender
290
Age group
Education level
Field background
Work experience
Type
Table AII.
Demographic information
of respondents (n 98)
Location
Female
Male
Missing
,30
30-40
41-50
.50
Missing
Undergraduate
Post-graduate
Missing
Accounting
Others
Missing
,2
2-5
6-10
11-15
.15
Missing
District
City
In-Java
Outer-Java
Frequency
Percentage
9
87
2
1
12
36
44
5
33
63
2
2
87
9
1
3
6
32
43
13
76
22
43
55
9.2
98.8
2.0
1.0
12.2
36.7
44.9
5.1
33.7
64.3
2.0
2.0
88.8
9.2
1.0
3.1
6.1
32.7
43.9
13.3
77.6
22.4
43.9
56.1
Huse
IAcc
EAcc
Met
Kno
Com
Leg
Cap
Performance
measurement in
Indonesia
291
1. Rusdi Akbar, Robyn Ann Pilcher, Brian Perrin. 2015. Implementing performance measurement systems.
Qualitative Research in Accounting & Management 12:1, 3-33. [Abstract] [Full Text] [PDF]