Financial management change in local governments:
empirical testing of a model
Paper for the 2012 EGPA Annual Conference
PSG XII: Public Sector Accounting and Financial Management
Leuven, Belgium
25/07/2012
Elke DEMEULENAERE, Katrien WEETS1 and Geert BOUCKAERT
KULeuven – Public Management Institute2
1
The research findings outlined in this paper are based on the doctoral dissertation of Katrien Weets.
2
This text is based on research conducted within the frame of the Policy Research Centre on Governmental
organization in Flanders (SBOV II - 2007-2011), funded by the Flemish government. The views expressed herein
are those of the author(s) and not those of the Flemish government.
KU Leuven – Instituut voor de Overheid – Public Management Institute
Parkstraat 45 bus 3609– B-3000 Leuven – Belgium
Tel: 0032 16 32 32 70 – Fax: 0032 16 32 32 67
[email protected] – www.instituutvoordeoverheid.be– www.publicmanagementinstitute.be
Financial management change: empirical testing of a model
Abstract
Since the nineties and in line with international public sector changes, Flemish local governments
have been experiencing the push towards results-oriented public management. Essentially, their
performance is at stake and its improvement is assumed to benefit citizens. As such, the current
research project focuses on the integration of performance information in local governments’
financial cycle and on the factors that facilitate this integration. This paper reports on the
introduction of performance budgeting. First, based on a large scale survey, the extent to which
Flemish municipalities have introduced this practice is mapped. Second, we elaborate on a case study
in which the explanatory power of the model of ter Bogt & van Helden (2000) on accounting change
is explored. This leads to an adapted and refined conceptual model and allows for the formulation of
policy recommendations. Moreover, it sets the ground for further research.
1 Research objectives
Integrating performance information in the financial cycle can be understood as a three-step
mechanism of measuring, incorporating and using performance information (Bouckaert and Halligan,
2008) in budgeting, accounting and auditing. Ideally, this integration realizes or follows from a strong
connection with the policy cycle (namely planning, monitoring an evaluating). Figure 1 visualizes this
three-step integration of performance information in both the financial and policy cycle. This
constitutes the scope and ambitions of our research project with regard to local governments’
performance. Essentially, it fits the ambitions of the financial and accounting dimension of New
Public Management (Hood, 1991), also labelled as New Public Financial Management (Guthrie, Olson
and Humphrey, 1999).
This paper will be confined to the state of affairs of performance budgeting in Flemish municipalities
and of the factors influencing this practice. This mainly relates to the first phase of the policy and
financial cycle, namely planning and budgeting. Within the context of planning and budgeting,
especially measurement and incorporation of performance information is examined. This implies that
the actual use of performance information does not belong to the primary objectives of the research
described here. Future research endeavours will address this use, not only concerning planning and
budgeting, but also regarding the second phase (monitoring and accounting) and the third phase
(evaluating and auditing activities) of both the policy and financial cycle.
2
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Financial management change: empirical testing of a model
Figure 1 Integrating (measuring, incorporating and using) performance information in the financial cycle
(budgeting, accounting and auditing) and policy cycle (planning, monitoring and evaluating) (based on
Bouckaert and Halligan, 2008).
2 Performance budgeting in Flemish municipalities
This paper focuses on the practice of planning and budgeting and their interrelationship in Flemish
municipalities. Though performance budgeting has been defined in various ways to refer to similar or
various practices (Joyce & Sieg, 2000:3), there is a general agreement in literature that, increasingly,
performance is integrated in the budgeting practices of public organisations, though to different
degrees and in different ways (e.g. Guthrie et al. 1999; Pollitt and Bouckaert 2004). Globally
speaking, the practice of performance budgeting is described in three separate ways: (1) in a broad
sense, it is the supply of information in the budget document explaining what the organisation has
done or expects to do with the money put at her disposal (e.g. Jordan and Hackbart, 1999:69; Van
Reeth, 2002; Melkers and Willoughby, 1998:66); (2) in a narrow sense, it refers to a budget in which
every increase of resources is explicitly coupled to an increase in the number of products or services
(e.g. Robinson and Brumby, 2005:5; Young, 2003:12; Snell and Hayes, 1993:1; Garsombke and
Schrad, 1999:9; Epstein, 1984:2). The allocation and financing aspect is essential to this view; (3)
finally, according to the last position, performance budgeting can be understood both in a broad and
narrow sense, and sorted into several ‘categories of performance budgeting’ (e.g. Schick, 2003:101102; Shah and Shen, 2007:153; OECD, 2007;21-22).
Because relevant regulation at the time of data collected was mainly confined to stipulations
concerning the integration of policy goals in the budget and their connection with budget allocations,
performance budgeting is understood in the broad sense described above. To picture to what extent
this has been introduced in the Flemish municipalities, a survey was carried out between November
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Financial management change: empirical testing of a model
2008 and February 2009. Labelled as “Management and Innovation in Local Governments”, it was
addressed to all municipal treasurers (n=308) and resulted in a response rate of 80% representative
to the population of Flemish municipalities (both regarding the geographical spread and the scale of
resident population). A full discussion of this survey is outside the scope of this paper. Below, we
confine ourselves to a summary.
The construction of the dependent variable in first instance needed to conform to prevailing
regulation. In this regard, test interviews pointed out that when municipalities did not succeed in
coupling annual policy and planning documents, they would equally not succeed in integrating the
long-term policy and planning documents. As such, based on the regulatory stipulations with regard
to planning and budgeting and on findings resulting from test interviews, table 1 below lists the items
making up the scale of the degree in which `elements of performance budgeting` are introduced.
Preconditions for the introduction of
‘elements of performance budgeting’
Indicators for the introduction of
‘elements of performance budgeting’
•
Did the administration set up a policy note for the year 2008
according to article 150 of the Municipal Decree? (Yes/No);
•
Did the administration formulate policy goals in the policy note
of 2008? (Yes/No).
•
Does the policy note of 2008 give an estimation of revenues
and expenses? (Yes/No/Partly)
•
Does the policy note of 2008 point out for each policy goal how
its execution will be funded? (Yes/No/Partly)
•
Does the policy note of 2008 point out the budget item(s) each
policy goal will be influencing? (5 point Likert scale: totally
untrue – totally true)
•
Does the policy note of 2008 refer to the budget 2008, at least
for each policy goal? (5 point Likert scale: totally untrue –
totally true)
Table 1 Items in the scale 'extent of introduction of elements of performance budgeting'
Based on the scores assigned to these items, a new ordinal item was constructed. To this end,
answers on the 5 point Likert scales were recoded into 0 (replacing 1-2), 0.5 (replacing 3) and 1
(replacing 4-5). Answers on the two first questions in the indicators section of table 1 were recoded
into 0 (replacing “no”), 0.5 (replacing “partly”) and 1 (replacing “yes”). These recoded items
appeared to be sufficiently internally consistent (Cronbach Alpha = 0.73). By adding the
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Financial management change: empirical testing of a model
corresponding scores, a compound index concerning the link between the policy plan and the budget
document could be constructed (ranging from 0 to 4).
The final scale regarding the degree in which elements of performance budgeting are introduced, is
based on the answers of the questions formulated in table 1. This scale points out to what extent the
administration has already introduced ‘elements of performance budgeting’ and consists of several
phases a Flemish municipality should complete to be able to introduce ‘elements of performance
budgeting’. Three general phases are (1) the construction of a policy note, (2) the formulation of
policy goals in this note and (3) coupling financial information in the budgetary document with these
policy goals. Within this last stage, four substages are distinguished that point at the extent of
integration of policy goals and financial information in the budgetary document. Here, the compound
index mentioned above is used to position the municipalities. As such, the setup of the scale is
informed by a cumulative logic. Table 2 presents the format of this scale. In the right column, the
relative spread of the Flemish municipalities across the different stages is presented.
Some findings stand out from this table. For instance, 28% of the Flemish municipalities do not
formulate any policy goals at all. Further, 8% of them does not provide a link between policy
objectives and the budget. On the other hand, from the 63% of the administrations that do link policy
objectives to the budget, only 18% does this in profound way. As such, we could assert that the
introduction of performance budgeting in Flemish municipalities is rather modest. Of course, these
data are essentially based on the perceptions of members of the administrative top and, therefore, a
social desirability bias cannot be excluded. This would suggest that the percentages in table 2 are
overestimated.
These results inform the examination of factors influencing the introduction of this new practice in
local governments. After describing the conceptual model, the utilization of survey results in the case
study will be explained.
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Financial management change: empirical testing of a model
Score
0
Phase
No policy note
1
Policy note without policy goals
2
Policy notes with policy goals
Without a link to the budget
3
Policy note with policy goals linked to the budget in a
limited way
4
Policy note with policy goals linked to the budget in a
moderate way
5
Policy note with policy goals linked to the budget in a
strong way
Operationalization
Policy note = 0
Policy note = 1
Policy goals = 0
Policy note = 1
Policy goals = 1
Link policy note – budget
0/0.5
Policy note = 1
Policy goals = 1
Link policy note – budget
1/1.5/2
Policy note = 1
Policy goals = 1
Link policy note – budget
2.5/3
Policy note = 1
Policy goals = 1
Link policy note – budget
3.5/4
%
12
16
document =
document =
document =
document =
8
24
21
18
Table 2 Format of the scale of the degree in which elements of performance budgeting are introduced
3 Factors influencing financial management change: a conceptual model
The conceptual model on accounting change of ter Bogt and van Helden (2000) proves useful to
describe the change processes in planning and budgeting practices and to structure our findings. Ter
Bogt and van Helden base their research concerning accounting reforms in Dutch governments (such
as midsize municipalities) on three academic approaches: the institutional work of Burns and Scapens
(2000), the ‘Seven Cs’ model of Shields and Young (1989) and the behavioural theory of the firm of
Cyert and March (1963). Below we give a short description of the model. We end with an overview of
the propositions we derived from it.
A first variable in the model (see figure 3) is the presence or absence of external and/or internal
pressure. Ter Bogt and van Helden (2000), based on Cyert and March (1963), point at the fact that
when actors in an organization are satisfied with the existing procedures, there is little or no
reason/incentive to change. The authors also state that when actors in an organization notice that a
certain conduct leads to success, these actors will be inclined to reproduce this conduct and the
underlying procedures, i.e. not to change. As such, the presence of pressure to change is a first
demand to change the existing procedures within the organization.
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Financial management change: empirical testing of a model
Accounting change in Dutch Government
External &
internal
pressure
Organizational
culture
Initiator/
stimulator
Organizational
goals
Ideal concept
of formal
accounting
change
Development
gap
Enablers –
technical &
organizational
Development
of formal
accounting
change
Actual
accounting
change
Usage gap
Figure 2 Influencing variables according to ter Bogt and van Helden (2000:275)
The internal and external sources of pressure to change would, in turn, influence the organizational
culture and goals. Furthermore, the authors state that a stimulating and powerful leader needs to
propagate the necessity of change within the organisation. This is the initiator/stimulator. He or she,
also labelled as a ‘champion’ in change management literature, must convince the other actors
within the organisation of the necessity of change. Mostly, this `champion` will specify an ideal
concept of the change proposed, leaving the actual execution to others. According to ter Bogt and
van Helden (2000), this ‘champion’ influences the organisational culture, while his or her conduct is
in turn at least partly defined by this organisational culture. After all, he/she must take into account
the habits and customs within the organisation when estimating the feasibility of the change
trajectory.
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Financial management change: empirical testing of a model
Next, the change process is developed and executed. According to ter Bogt and van Helden (2000),
several technical and organisational enabling factors need to be present. The authors refer in this
matter to the ‘Seven Cs’ model of Shields and Young (1989). The choice for certain facilitating factors
would be defined by the ‘champion’ on the one hand, and the ‘organisational culture’ on the other,
which delineates the reference framework for the relevant stakeholders. In the end, the change
process results in the introduction of new formal financial instruments on the one hand and in
actual change of the financial procedures and practices on the other. However, the authors remark
that the extent in which the financial procedures and practices are actually changed is also largely
dependent on the prevailing organisational culture.
Finally, ter Bogt and van Helden (2000) identify two potential gaps: a ‘usage gap’ and a ‘development
gap’. This development gap refers to the difference between the ideal concept of change as initially
put forward and as finally executed. As such, it mainly concerns the technicalities of the change
process. Then again, the usage gap refers to the difference between the usage possibilities of the
new financial instruments and the extent in which they are actually applied.
The authors admit that this model implies a certain simplification of the change processes of financial
systems in governmental organisations. They acknowledge that besides the relationships they
identify, there can be other, probably less important, relationships and that specific changes in the
variables can cause other changes. A large ‘development gap’, for example, can turn into an incentive
to start the search for new and better financial instruments. A large ‘usage gap’ can lead to a
stronger use of certain facilitating factors, for example the provision of training, or to a weakening of
the initial ambitions regarding the change process. This latter effect could, according to the authors
and mainly based on Cyert and March (1963), also appear in organisations whose members are
relatively satisfied with the existing financial instruments. As such, an organisation can settle for less
radical change of the existing set of financial instruments, because of its fit with the prevailing
organisational culture.
There are several reasons to apply the above described model. First, this model conceptualizes the
introduction of new financial instruments as a change process. As such, the model goes beyond the
mere mapping of organizational motives to introduce new instruments; it also pays attention to the
change dynamics within organisations. Second, the model does not only include the technical aspects
of the change process, but also the organisational ones. Changing financial instruments does also
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Financial management change: empirical testing of a model
require changing the organisational culture. This holistic approach of the change concept fits change
management literature and the vision that informs the Municipal Decree. Third, the research model
has already been applied on midsize municipalities. Despite historically grown differences and a
different municipal context, It could be stated that Dutch and Flemish municipalities are frequently
confronted with similar developments (Steen 2007). Moreover, Dutch municipalities are generally
always one or more steps ahead of their Flemish counterparts, at least with regard to financial
instruments. As such, this offers a unique opportunity to learn from their experiences and to test
whether similar findings can be recorded for the Flemish local governments examined.
A full discussion of the operationalization of the conceptual model of ter Bogt and van Helden (2000)
is outside the scope of this paper. However, in table 3 we summarize the propositions and note the
references that informed or guided the formulation of these propositions and their
operationalization. The next section elaborates on the case study that examined these propositions.
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Concept
P
1
Elements of performance
budgeting will be introduced
to a larger extent when…
the change trajectory is mainly
driven by technical motives.
Change pressure
2
3
Organisational
culture
4
respondents evaluate the NPM
agenda in a more positive way.
5
to a large extent, future change
initiatives are in line with the
current change trajectory.
Organisational
goals
6
Initiator /
Stimulator
actors are dissatisfied with
existing planning and budgeting
practices.
change initiatives along the line
of ‘New Public Management’
(NPM) have been implemented
and incorporated into
procedures and practices.
7
actors feel less hindered in the
pursuance of other objectives
and in the setup of other
activities as a consequence of
time and resources invested in
the change trajectory.
one or more actors take(s) on a
strong leadership role in the
References
Operationalisation
What was the reason to initiate the change trajectory
regarding the introduction of elements of performance
budgeting?
How do respondents evaluate the existing practices of
planning and budgeting?
(1) What modernisation and change initiatives were taken in
the past. (2) To what extent do Osborne & Gaebler’s (1993)
pillars agree with the reality of this organisation?
Questions regarding the attitude respondents have
concerning certain “NPM-like” initiatives (e.g. making head
of departments responsible, steering on objectives…)
(1) To what extent do (other) planned change initiatives fit
with current change trajectory? (2) To what extent do
respondents refer to the change trajectory when explaining
(other) planned change initiatives?
Selznick (1957); Cyert & March (1963);
March & Olsen (1976); Meyer & Rowan
(1977); Di Maggio & Powell (1983);
Tolbert & Zucker (1983); Scott (1995);
Staw & Epstein (2000); Scott (2001);
Rogers (2003); Lounsbury (2008); ter Bogt
& Scapens (2009); Van Roosbroek (2009)
Cyert & March (1963); Oliver (1997)
Hofstede et al. (1990); Schein (1992);
Osborne & Gaebler (1993); Trice & Beyer
(1993); Oliver (1997); Davies et al. (2000);
Aardema (2002); van Helden & Janssen
(2003); Pollitt & Bouckaert (2004);
Demuzere et al. (2008); Halligan (2011);
Kickert (2011); Hansen (2011) & Cheung
(2011)
Simon (1973); Covaleski & Dirsmith
(1988); Oliver (1991); Verhoest (2002);
Rainey (2003)
To what extent do respondents feel hindered by the change
trajectory in striving for other objectives and activities?
(1) Who is responsible for the execution of the change
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Shields & Young (1989); Rothwell (1994);
Shields (1995); Bouckaert (1997); Berman
Financial management change: empirical testing of a model
change trajectory.
Enablers:
Continuous
Education
8
actors in non-financial positions
take on a leadership role in the
change trajectory.
9
to a larger extent, members of
the political and administrative
top support the change
trajectory.
To what extent (1) does the respondent support the change
trajectory? (2) do members of the organisational top
support the change trajectory?
10
the municipality provides
education concerning the
change trajectory.
(1) How many times has the organisation organised
training? (2) What is the nature of this training? (3) What
are the target groups?
11
Enablers:
Compensation &
controls
12
to a larger extent, the
municipality monitors the
change trajectory and provides
feedback regarding steps taken.
to a larger extent, the
municipality provides
incentives to get the change
trajectory accepted.
13
to a larger extent, employees
support the change trajectory.
14
the municipality allocates more
resources to the change
trajectory.
15
to a larger extent, actors
Enablers:
Commitment
11
trajectory? (2) What tasks does he/she take on? (3) What
interpretation does he/she give to these tasks?
What parts do several actors have in the change trajectory
regarding the introduction of elements of performance
budgeting?
To what extent (1) is the change trajectory monitored? (2) is
feedback provided regarding the steps completed?
& Wang (2000); Hartley & Allison (2000);
Newman et al. (2001); van Helden &ter
Bogt (2001); Bradford & Florin (2003);
Painter et al. (2003); Ridder et al. (2005);
Windels (2007)
Shields & Young (1989); Oliver (1997);
Ridder et al. (2005), Housden (2000);
Newman et al. (2001); Windels (2007)
Burns & Stalkers (1961); Hall (1982);
Shields & Young (1989); Oliver (1997);
(1) Are incentives provided to get the change trajectory
adopted? (2) What are these incentives? (3) How does the
respondent evaluate these incentives?
(1) To what extent do respondents support the change
trajectory? (2) To what extent do employees support the
change trajectory? (3) Are there any differences between
services regarding the extent in which employees support
the change trajectory? (4) Has the support of employees
changed throughout the course of the change trajectory
and, if so, to what extent has this happened?
(1) Have external actors been hired to support the change
trajectory? (2) To what extent are specific functions
provided to support the change trajectory? (3) How much
time do other actors in the municipality spend on the
change trajectory?
(1) Does the respondent perceive the change trajectory as a
KU Leuven – Public Management Institute
Shields & Young (1989); Oliver (1997);
Christiaens (1999); Ridder et al. (2005);
Sterck et al. (2007); Windels (2007)
Financial management change: empirical testing of a model
perceive the change trajectory
as a priority.
Enablers:
Change process
Development
gap
Usage gap
priority? (2) Do other actors within the municipality perceive
the change trajectory as a priority?
Comparison of indications pro and contra the position that
the change trajectory is based on a determined change
strategy (i.e. in advance it is decided what interpretation is
given to the trajectory, what track is going to be followed to
enable this and what the result should be)
Greenwood & Hinings (1988 & 1996);
Miller & Friessen (1984); Nadler &
Tushman (1989); Shields & Young (1989);
Nadler et al. (1995)
16
to a larger extent, the change
trajectory is based on a
purposeful change strategy.
(1) If and with what practical and technical impediments
respondents are confronted in executing the change
trajectory? (2) To what extent these impediments actually
disrupt the change trajectory.
Shields (1995)
17
a municipality experiences or
has experienced less technical
impediments in introducing
elements of performance
budgeting.
Sterck et al. (2007)
to a larger extent, actors are
convinced that the information
offered by introducing
elements of performance
budgeting is or will actually be
used.
* management: If the change trajectory (1) has added value
to the organisation?; (2) has influenced the decision making
process in the organisation?; (3) has influenced the
political-administrative steering?; (4) has influenced the
cooperation with and/or guidance of other local actors?; (5)
if the integrated planning and budgeting information is used
by employees to report or monitor?
* accountability: (1) If the change trajectory has influenced
the way in which account is given to the board?; (2) If the
integrated planning and budgeting information is used to
give account to the board?
* allocation of resources: If the change trajectory has
influenced (1) the budget setup process?; (2) the division of
resources between several sectors?
18
Table 3 Propositions derived from the conceptual model of ter Bogt and van Helden (2000)
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4 Factors influencing financial management change: a case study
To explain the extent in which elements of performance budgeting are introduced, an in depth
examination of the change processes in a few Flemish municipalities was carried out. Because past
research has pointed out that such change processes are mostly very complex (e.g. Burns and
Scapens, 2000; Burns and Vaivio, 2001), a case study was set up in which certain decisions and events
could be scrutinized in depth (Yin 2003). In the context of public management, a mix of research
methods, like surveys, literature studies, analyses of primary documents (e.g. budgets, annual
reports,…) and face-to-face interviews, is necessary to grasp the reality of the reforms.
Simultaneously, this mix enables compensating the weakness of one method with the strengths of
another. Within case, the information of the survey-research was also supplemented with data
gathered through documentary analysis and semi-structured face-to-face interviews. The
documentary analysis focused on the municipal long-term policy plans, long-term financial plans and
their annual counterparts. Moreover, semi-structured interviews were set up with the mayor, the
secretary, the treasurer, one or more aldermen, one or more member of the management team, one
or more head of department and other staff members (n=45, each interview lasted 2 hours on
average). To safeguard a balanced spread of the respondents across the organization, characteristics
of the different services were taken into account (i.e. history with policy planning, ‘hard’ or ‘soft’
sector, inside or outside service).
Figure 3 Graphic representation of the case selection (case A, B, C & D)
The research design is a cross-case comparative case study (based on diverse cases). More
specifically, two larger and two smaller municipalities were selected. In each set, one municipality
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Parkstraat 45 bus 3609– B-3000 Leuven – Belgium
Tel: 0032 16 32 32 70 – Fax: 0032 16 32 32 67
[email protected] – www.instituutvoordeoverheid.be– www.publicmanagementinstitute.be
Financial management change: empirical testing of a model
had a high score and one had a low score on the dependent variable (i.e. based on the results from
the survey, see table 2 above). Besides size, municipal software to integrate financial and policy data
was held constant. After all, past research has shown that these factors influence the introduction of
management accounting (e.g. Ridder et al. 2005; Van Dooren 2005; Gomes et al. 2009). Moreover,
the provision of software in Flemish municipalities is mostly historically grown out of intermunicipal
companies. Therefore, only municipalities using the software application called ‘Olympus’ to
integrate financial and policy data (i.e. from one specific provider) are included in this research.
Figure 3 visualizes this research design.
First, within each set, both municipalities (i.e. both large or both small) were compared to each
other. As such, it was explored which factors lead to the diverging score on the dependent variable
(i.e. high or low). Second, across all cases, each concept was analysed regardless of the size of the
municipality. In this way, an attempt was made to generalize the explanatory power of the variables
examined. To this end, the dimensions of each concept and the position of the cases within each
dimension were visualized in one or more positioning maps (see figure 4). In each instance, it is
pointed out where we expect the cases to be positioned based on the formulated propositions. The
positioning maps are constructed in this way so that the bottom right quadrant always delineates the
position where cases are expected to have implemented performance budgeting to a large extent. Of
course, the data from the case study will point out whether this deductively based positioning is
correct. All positioning maps meet the following conditions: (1) dimensions are independent, (2) each
dimension has a certain order, (3) it is analytically possible to allocate cases to each quadrant and (4)
dimensions are derived from the propositions. Moreover, the allocation of cases to quadrants and,
hence, the position of the cases should be understood in a relative and not in an absolute way. In
other words, cases are positioned relative to other cases.
Finally, from the above it follows that cases are selected with different values for the dependent
variable (Y). As we have information regarding the values of this variable, the research design may be
qualified as Y-centered. This implicates, according to Seawright and Gerring (2008:297) that this
research is exploratory-explanatory by nature. Selecting the cases based on the values of the
dependent variable (i.e. high or low), follows from the lack of empirical data with regard to the
independent variables. To meet the limitations of a cross-case analysis, a detailed in-depth study of
the within-case perspective is added (King et al. 1994:160). The advantage of this extra perspective is
that information is gathered not only regarding the influence of the independent variables on the
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Financial management change: empirical testing of a model
dependent variable, but also, if applicable, regarding the way how and the processes through which
this influence is exerted. In the next section, the findings from the case study are visualized and
DIMENSION 1
discussed.
DIMENSION 2
Figure 4 Example of a positioning map
5 Factors influencing financial management change: empirical results
Below, the positioning maps visualize the different dimensions of each proposition, the bottom right
quadrant expected to be occupied by cases A and C (which are the cases with a high score on the
introduction of elements of performance budgeting) and the actual position of the four cases (based
on the data assembled in the case study). In general, cases A, B en D act as deductively expected.
After all, cases B and D (municipalities that introduced elements of performance budgeting to a
lower degree) are generally not positioned in the bottom right quadrant of the positioning maps,
while case A (a municipality that has introduced elements of performance budgeting to a high
degree) mostly is. On the other hand, case C (a small municipality that has introduced elements of
performance budgeting to a high degree), acts not as deductively expected. Indeed, looking at the
positioning maps, case C is generally not positioned in the bottom right quadrant. What is even more
striking, is that for the most part case C conforms to the positioning of cases B and D. As such, while
case C has obtained a high score with regard to the introduction of elements of performance
budgeting, the data obtained in the case study point out that case C acts as a municipality that did
introduce elements of performance budgeting to a lower extent. The positioning maps clearly
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visualize the conformity in conduct between cases C, B and D on the one hand and the singular
position of case A.
To examine the possibility that case C was undeservedly classified as a municipality with a high level
of performance budgeting, we performed a quick scan of the way in which this municipality had
introduced elements of performance budgeting. An interview with the municipal treasurer set up in
the framework of this quick scan pointed out that in the budget document, policy objectives were
coupled with budget items. The reverse process however did not happen (correctly): budget articles
were not itemized across the different policy objectives and action plans. In other words, budget
articles are allocated to certain policy objectives as a whole. As such, the introduction of elements of
performance budgeting in municipality C seemed to be a mere formalistic matter. Simultaneously,
this finding points out that our scale of the degree in which elements of performance budgeting are
introduced (see table 2) cannot discriminate between a formalistic and a non-formalistic
introduction. Therefore, to make sure that case A actually did introduce performance budgeting
elements to a high degree, a similar quick scan was performed in this municipality. This confirmed its
position as a case that does have the necessary budget registrations, that assembles budget
proposals and couples them to the objectives on a decentralized basis, that itemizes budget articles
across objectives (or, vice versa, couples multiple budget articles to one objective) etcetera. As such,
it appears that case A has not been introducing elements of performance budgeting in a formalistic
manner.
Next, based on the cross-case and within-case analyses performed, the propositions put forward can
be examined (see table 3 above). Proposition one and two concerned the pressure to change. From
the case study it appears that the introduction of performance budgeting would indeed be enhanced
by technical motives (P1). Then again, concerning the satisfaction of employees (P2), the proposition
had to be rejected, as rather the reverse seemed to be true: when actors were satisfied with
prevailing budgeting and planning practices, elements of performance budgeting were introduced to
a larger extent. This could point at the beneficial influence of capacity built up (in casu with regard to
budgeting and planning practices) which would work as a self-reinforcing mechanism within the
change trajectory. Further research could shed more light on this aspect.
The first proposition within the concept organizational culture referred to the extent in which other
change initiatives along the lines of NPM were implemented and incorporated (P3). The case study
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pointed out that especially initiatives in accordance with the policy component of ‘Decentralized
Government’ (i.e. ‘from hierarchy to participation and teamwork’ by e.g. making head of
departments responsible, involving them in policy preparation…) and ‘Community-owned
Government’ (i.e. ‘empowering rather than serving’ through e.g. citizen satisfaction surveys…) (see
Osborn and Gaebler, 2003) had a positive influence on the introduction of performance budgeting.
Next, concerning the opinion of the actors with regard to NPM (P4), only the way in which the actors
evaluated the aspects ‘Community-owned Government’ (i.e. ‘empowering rather than serving’ e.g. by
engaging citizens…) and ‘Customer-driven Government’ (i.e. ‘meeting the needs of customers, not the
bureaucracy’ e.g. by appointing a quality coordinator, installing complaint management, organising
user surveys…) appeared to be relevant to the introduction of elements of performance budgeting.
Concerning the concept organizational goals, the degree in which change initiatives planned were in
line with the change trajectory (P5) (e.g. monitoring activities, follow up on objectives, changing
organogram…) proved to have explanatory power regarding the degree of performance budget
elements introduced. Then again, the proposition regarding the extent in which actors feel hindered
in their accomplishment of other goals and activities due to the change trajectory (P6) could not be
confirmed. However, the corresponding motives do seem to be related with the introduction of
performance budgeting elements, as in cases B, C and D most respondents said not to feel any
hindrance, because, so far, only little time had been invested in the performance budgeting change
trajectory. In case A, on the other hand, employees actually felt their pressure of work was
heightened because of the change trajectory, but in their eyes, this had not disrupted their daily
work. The strategic plan had, to a certain level, actually been embedded in daily practice, and did, as
such, rather serve as a guideline than as a disrupting element.
The initiator/stimulator concept is related to a first proposition concerning the extent in which
actors within the municipal organization have taken on a leadership role to implement the change
trajectory (P7). This seems necessary to introduce elements of performance budgeting to a large
extent. After all, cases in which there was no clear leader only introduced performance budgeting to
a low degree. However, the case study points out that a refinement is needed. After all, derived from
case A, not only the presence of a leader seems to be relevant, but especially how this leader
executes his role. More specifically, actively carrying out the change trajectory in the organization,
both during the decision-making process and the implementation phase, would prove particularly
beneficial to the change trajectory. Next, the extent in which also actors with non-financial functions
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take on a leadership role (P8) appears to be relevant, as case A is the only one of the four selected
municipalities that actually succeeded in involving non-financial employees in the change trajectory.
Furthermore, the degree of support from the political and administrative top (P9), seems to be a
requisite to extensively introduce elements of performance budgeting. Secondly, it is necessary that
this support is explicit. In case D, for example, support from the political top was not perceived by the
administration; employees were quite on the contrary convinced that the political top did not
support the change trajectory. The reverse holds true for case B: while employees were convinced of
the political support, the political top acknowledged not to have championed the change trajectory.
These are both municipalities with a low level of elements of performance budgeting introduced.
Then again, in case A, both political and administrative top explicitly supported the change trajectory
and, consequently, were perceived to do so by employees.
Next, concerning the enabling factors, the first proposition relates to the extent in which training
was provided (P10). The case study points out that training is relevant. Moreover, a connection was
remarked between the nature of the training organized in cases C and D and the further
development of the change process in these municipalities. What discerns municipality A, is that in
this municipality training was provided both regarding policy and management matters (e.g. strategic
planning) and software-related matters (e.g. inputting data in ‘Olympus’). As such, it seems that both
types of training are relevant. Apart from this, case A also appeared to mobilize structures to enable
internal knowledge transfers. This too seems to be beneficial for the introduction of performance
budgeting elements.
Regarding compensation and controls, the extent in which incentives are provided was scrutinized
(P11). This proposition could not be confirmed. However, in this research very few formal incentives
were examined in cases A and B. In these municipalities, employees were obliged to couple all board
and council proposals to policy objectives. If this coupling was lacking, the proposal was simply not
discussed. No other specific incentives were noticed. Moreover, this one explicit incentive found did
not seem to have any explanatory power. However, in case A, besides this formal incentive, informal
pressure was exerted by the municipal mayor to proceed with the change trajectory. This could point
out that besides formal incentives, informal ones should equally be taken into account.
Next, the extent in which the trajectory is monitored and feedback is provided (P12) proved to be
relevant (i.e. regularly evaluating the trajectory, giving feedback to the steering group, providing
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feedback concerning objectives, plans and indicators formulated…). On the other hand, employee
support (P13) appeared not to be related to the introduction of performance budgeting. Still, in case
A, specific attention was paid to employee support and throughout the trajectory, this support
actually increased. Further examination should throw more light on the influence of this specific
variable.
The influence of resources allocated to the change trajectory (P14) then again appears multifaceted.
First, regarding the (1) use of external consultants, there was no direct relationship observed with
the introduction of elements of performance budgeting. This contrasts past research (cfr. Christiaens,
1999; Windels, 2007), but could be ascribed to the angle of this research (namely management
accounting versus financial accounting) and the consultancy that corresponds with this. In this way,
there is a possibility that consultants within the domain of financial accounting have a more direct
impact on the extent and way of adopting new instruments than management accounting
consultants. Testing this proposition however exceeds the scope of this research and could be
addressed in the future. In the study of Windels (2007), only the adoption of new management
accounting instruments, as put forward by relevant regulation, was scrutinized. The focus was not on
the actual implementation of these instruments in practice. Inductively it could be asserted that case
A diverges from other cases in how this municipality treated external consultants hired. More
specifically, only in case A, the actors succeeded in keeping control over the change trajectory.
Several respondents indicated that this was considered to be very important. As such, the use of
external consultants may not be relevant an sich to the introduction of elements of performance
budgeting, but to keep control over the consulted change trajectory is.
Apart from this, the (2) extent in which municipalities had one or more specific functions to support
the change trajectory seemed beneficial to this trajectory. Finally, (3) the time spent by other actors
within the municipal organization to the change trajectory did not seem to be relevant. However, no
single municipality where little time was spent to the change trajectory obtained a high score
regarding the introduction of elements of performance budgeting. As such, this could be a necessary
but insufficient condition. Otherwise, the frequently slackening attention from other actors over
time, could actually cause the low scores on the introduction of performance budgeting. Seen in this
way, the time spent by other actors would directly affect the change trajectory. Indeed, respondents
from case D pointed out that the lack of a more intense coupling between objectives and budgets
leaded several actors to wonder about the added value of the change trajectory. As such, the
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engagement and initial enthusiasm from these other actors decreased. In general, while this variable
appears to have no direct relationship with the introduction of performance budgeting elements, the
time spent on the change trajectory does however appear significant. A final proposition regarding
‘commitment’, refers to the extent in which actors perceive the change trajectory as a priority (P15).
A clear positive relationship between this variable and the introduction of performance budgeting
elements was found.
Concerning the change process, a purposeful change strategy (P16) appears to be fruitful to the
change trajectory, both regarding the content (e.g. scope of the plan, goal structure, cover rate…)
and the process of the changes implemented (e.g. step-by-step plan, consultative structures,
communication…). In the case study, the lack of an a priory defined change strategy seemed to cause
an unsystematic setup of the strategic plan and the corresponding policy notes, which, in turn,
caused several technical impediments. According to multiple respondents, these technical
impediments in turn hindered the organisation to move forward regarding the introduction of
performance budgeting.
Related to the concept of the development gap is the extent in which a municipality experiences or
has experienced technical impediments (P17), such as incomplete programs, lack of uniform planning
between departments, action plans that are too detailed to handle (or vice versa)… This variable
seems very relevant to the introduction of performance budgeting elements, as an inadequate
coupling between planning and budgeting resulted in (1) disuse of the newly formulated documents
and the information contained within, which on its turn made employees (2) fall back on traditional
documents. As such, the change trajectory was not perceived as delivering any added value and a
resulting lack of motivation hampered any further change initiatives. Moreover, there appears to be
a connection with the extent in which training is provided, the extent in which the trajectory is
monitored and feedback is given, the degree in which the changes are perceived as a priority
matter, the extent in which the trajectory is based on a purposeful strategy and, finally, the usage
gap. Also, a refinement should be made, namely whether the impediments actually disrupted the
change trajectory. After all, while case A experienced impediments, this municipality (contrary to the
other ones) did not feel that this caused a disruption of the change trajectory.
The usage gap consists of a first proposition, namely the extent in which actors think the information
offered by introducing performance budgeting elements will be used or not (P18). Concerning the
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use of this information for management purposes, case A is differentiated from other municipalities
by (1) the influence the change trajectory has on the decision-making process, (2) the influence the
change trajectory has on the cooperation between members of the political and administrative top
and (3) the influence the change trajectory has on the cooperation with other organisations within
the municipal territory. Concerning the use of this information for accountability purposes, this
research pointed out that case A was different because of the extent in which aldermen actively
referred to policy objectives in their explanations to the board. Concerning the use of this
information for the allocation of resources, in case A, as opposed to the other cases, there was (1) an
influence of the change trajectory on the budget setup process, both regarding administrative and
political aspects of this process and (2) an influence of the change trajectory on the division of the
resources available between the different sectors. In this way, information offered by introducing
performance budgeting elements is thought to be used in case A. As this case has a high level of
introducing performance budget elements, we conclude that this variable is relevant.
6 Conclusion
Based on the above outline of the findings of the case study carried out, this conclusion first
formulates some remarks concerning the model used. Second, it will sum up the policy
recommendations that logically following from this research. Third, future research endeavours are
explained.
Above, the relevance of the variables in the model of ter Bogt and van Helden (2000) are discussed.
Inductively, while carrying out this case study, some variables seemed to prove relevant to the
introduction of performance budgeting in the Flemish municipalities that were not incorporated in
this model. First of all, the profiles of the members of the political and administrative top appeared
important. More specifically, future research should take into account, for example, the external
orientation, level of education and motivation of administrative top members and, besides their level
of education, the frequent presence and involvement of political top members. In this context, it
could also be worthwhile to examine the nature of the political constellation.
Next, and somewhat straightforward, organisational characteristics are important: does the
organisation have a lean structure, what is the role of the management team, how does the
organogram look like, are debate platforms constructed etcetera. Concerning the process, for
example, the presence of quick wins, the level of detail of the municipal program, the existence of
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Financial management change: empirical testing of a model
objectives regarding the internal functioning of the organisation could equally be included in future
research. Also, attention should be paid to environmental factors, such as the financial(-economical)
position of the municipality, prevailing regulation and other factors. Also, rhetoric proved important.
A general critique on the model is its underestimation of the importance of ‘agents’ and their profile.
Furthermore, environmental factors, such as the pressure to change, are not only present at the start
of the change trajectory, but also further down the line (e.g. changing regulation, financial-economic
crisis etcetera). To this end, and based on the research carried out, a revised model of the one of ter
Bogt and van Helden (2000) was constructed. Figure 5 illustrates this. Some components were added
(in italics), some were preserved (found relevant) and others were removed (found irrelevant).
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KU Leuven – Instituut voor de Overheid – Public Management Institute
Parkstraat 45 bus 3609– B-3000 Leuven – Belgium
Tel: 0032 16 32 32 70 – Fax: 0032 16 32 32 67
[email protected] – www.instituutvoordeoverheid.be– www.publicmanagementinstitute.be
Financial management change: empirical testing of a model
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25
Not used to give
account to Board
Influence on budget
construction
No influence on
budget construction
KU Leuven – Public Management Institute
Large added value
No added value
Influence on
politicaladministrative
relations
No influence on
politicaladministrative
relations
Use for reporting and
follow-up
No use for reporting
and follow-up
Financial management change: empirical testing of a model
Used to give account
to Board
Financial management change: empirical testing of a model
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Moreover, the model is now divided into three boxes: (1) the cause of the change trajectory, (2) the
change trajectory and (3) the outcome of the trajectory. Finally, it is stressed that change trajectories
of financial instruments constitute an iterative process (see the arrow added from the lower box to
the upper box) and that environmental factors influence the whole change trajectory (see the right
vertical box).
Policy recommendations that follow from this research are the following:
(1) do not only emphasize regulations, but also the advantages for the organisation, her
functioning and her employees;
(2) stimulate the involvement of the board through training, systematic provision of information
and the emphasis on the need for input;
(3) make sure the profiles of the members of the management team fit the change trajectory,
through training and hiring the right competences. Also make sure the decisions of the
management team are perceived as legitimate;
(4) appoint a leader, preferably from a policy service, and assure the involvement of other actors
by means of a steering group;
(5) stimulate involvement of non-financial functions, by appointing a leader from a policy service
and setting up a steering group (consisting of political and administrative members);
(6) pronounce the support of political and administrative top;
(7) provide training concerning policy and management aspects, but also concerning software
aspects. Stimulate internal knowledge transfer;
(8) do not only install formal incentives, but also informal ones;
(9) pay attention to follow-up and feedback;
(10) control the cooperation with consultants;
(11) create a supporting function for the change trajectory;
(12) stimulate other actors to spend time to the change trajectory;
(13) stimulate that other actors perceive the trajectory as a priority;
(14) develop a change strategy that focuses on both technical and process aspects. To this end,
map which technical choices will be made and how the trajectory will be carried out in the
organisation prior to the changes. Enable quick wins and utilize an organizational
improvement rhetoric;
(15) don’t let the trajectory get halted on technical impediments;
(16) frame future initiatives in line with the change trajectory;
KU Leuven – Instituut voor de Overheid – Public Management Institute
Parkstraat 45 bus 3609– B-3000 Leuven – Belgium
Tel: 0032 16 32 32 70 – Fax: 0032 16 32 32 67
[email protected] – www.instituutvoordeoverheid.be– www.publicmanagementinstitute.be
Financial management change: empirical testing of a model
(17) do not let the organisational structure and culture hinder the trajectory;
(18) control the development gap, by creating a purposeful change strategy, by controlling the
development of the trajectory and by establishing a close cooperation with the software
house;
(19) control the usage gap, by using information for management, accountability and allocation
of resources.
In this paper, a study on the introduction of – what we have called – ‘elements of performance
budgeting’ in Flemish municipal organizations has been explained. First, we examined to what extent
Flemish municipal organizations have introduced elements of performance budgeting. Secondly, we
explored to what extent the conceptual model presented by ter Bogt and van Helden (2000) as
operationalized by us, can account for the state of affairs regarding the introduction of elements of
performance budgeting in individual Flemish municipal organizations. Finally, taking the adapted and
refined conceptual model as our starting point, we have made policy recommendations to managers
within Flemish municipal organizations who want to introduce elements of performance budgeting in
their organization. Amongst other things, the research shows that the model of ter Bogt and van
Helden (2000) underestimates the importance of agents and their profile. Besides, we find that
contrary to the model of ter Bogt and van Helden (2000), environmental factors influence the course
of the change process throughout the entire change trajectory. Finally, the research suggests a
number of adjustments and refinements to the operationalization of the concepts in the existing
model.
In future research, we want to systematically build on these research findings and on the revised
model presented in this paper (see also the research objectives outlined at the beginning of this
paper). A first question will be to what extent performance information is measured, incorporated
and used in local governments (Bouckaert and Halligan, 2008). Here, the focus will be on the first two
phases of the financial cycle (namely budgeting and accounting) and on the link between both.
Secondly, future research wants to examine to what extent factors described in the revised model
above facilitate this measurement, incorporation and use of performance information in budgeting
and accounting. The influence of the variables modeled should be further refined and tested on a
large scale. As such, an attempt is made to unravel the black box of financial management change in
local governments.
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