ORGANIZATIONAL STATUS AND PERFORMANCE: A CONCEPTUAL FRAMEWORK FOR TESTING PUBLIC CHOICE THEORIES
| Author | BASIL DIMITRIOU,KEITH HARTLEY,ANDREW DUNSIRE,DAVID PARKER |
| DOI | http://doi.org/10.1111/j.1467-9299.1988.tb00701.x |
| Date | 01 December 1988 |
| Published date | 01 December 1988 |
ORGANIZATIONAL STATUS
AND
PERFORMANCE:
A CONCEPTUAL
FRAMEWORK
FOR
TESTING
PUBLIC
CHOICE THEORIES
ANDREW DUNSIRE,
KEITH HARTLEY,
DAVID
PARKER
AND
BASIL
DIMITRIOU
Popular belief is that ownership change (from public to private) brings about improved
performance. But (i) ownership displays a spectrum, not an either/or; (ii) degree of
competition is conceptually and often actually independent of ownership; and (iii)
so
is
change-of-ownership’s assumed instruments for improving performance, change in
managerial incentive structures and reporting structures. The article surveys the relevant
theories, popular and scholarly, and develops models for testing the relationships between
status change (ownership) and performance (indices of productivity, profitability etc.),
and between status change and internal organizational change (indices
of
reorganization
and
of
linkage), in a small number of British organizations which underwent change in
recent decades. Preliminary results of one or two analyses illustrate the methods and the
possibilities.
I
INTRODUCTION
The Conservatives’ 1987 election manifesto made a number of assertions about
the relationship between what we are calling ’organization status’ and performance.
Reference was made to productivity and profitability ’soaring’
in
the newly-
privatized companies, and an explanation for the improvement was provided.
It
was claimed that privatization had succeeded because
the overwhelming majority of employees have become shareholders in the newly
privatised companies. They want their companies to succeed. Their companies
have been released from the detailed controls of Whitehall and given more
freedom to manage their
own
affairs. And they have been exposed to the full
commercial discipline of the customer. Even former monopolies now face
increased competition (The Conservative Party 1987, p.
36).
Andrew Dunsire, Keith Hartley and Basil Dimitriou are at the University of
York;
David Parker is
at Leeds Polytechnic. This is a revised
version
of a paper presented to the Public Administration
Committee/Economic and
Social
Research
Council Conference at York
in
September
1987.
The
research
was
funded
by the
ESRC
as part
of
its Management in Government Initiative. (Project number
E
092j006).
The authors are grateful
for
comments from Professor
C.
Hood, Bob Lava, participants
in
the
PAC
Conference at York, colleagues and the referees: the usual disclaimers apply. Later papers
will report more empirical results.
Public Administration
Vol.
66
Winter
1988
(363-388)
0
1988
Royal Institute
of
Public Administration
ISSN
0033-3298 $3.00
364
DUNSIRE,
HARTLEY,
PARKER AND DIMITRIOU
The Conservative manifesto also reported that nationalized industries were now
far
more efficient than before, in terms of productivity and profitability
-
which
by contrast suggests that performance can improve without a change in ownership.
This paper examines the claims made for privatization and other changes in
ownership or legal status, in terms
of
increased productivity or profitability or
other measures of performance. Also, and perhaps more importantly, it considers
the
mechanisms
of
such improvements (assuming they are found) put forward by
some current schools of economic theory, as well as by politicians.
The paper begins by surveying the theoretical background and developing a
model of 'status change' which sees 'ownership' (or the difference between 'public'
and 'private') as a continuum rather than as dichotomy, and which also
dif-
ferentiates between degrees of competition enabling a 'mapping' of different
organizations. There follows a discussion
of
the implicit (sometimes explicit) theory
of the causal mechanisms which are held
to
link status change to performance
change (which are summed up as a change
in
incentive structures).
A
model of
institutional analysis is developed by means
of
which observed changes in actual
companies (both 'internally' and in reIation to their environments) can be mapped.
This is a potentially challenging area for inter-disciplinary work, especially since
many economists have traditionally regarded internal organization as a 'black box'.
Finally, there is a discussion of the indicators which might be used to measure
organizational performance and some of the problems of empirical work in this
field. By way of illustration, some preliminary and tentative empirical results are
presented. Throughout the paper, the aim is to develop a conceptual framework
derived from existing theory, stressing its limitations, and showing how the central
hypothesis developed might be tested. Later papers will report more detailed
empirical results.
II
PROPERTY
RIGHTS
AND
PUBLIC
CHOICE
The
theoretical
background
The theoretical linking of organizational form and performance has not been
exclusively by economists. The 'contingency theory' school of organizational
analysis, for example, holds that the extent to which an organization achieves
'goodness
of fit' between situational circumstances and structural characteristics
determines its performance (Pugh and Hickson 1976; Rainey, Backoff and Levine
1976). But the most striking recent developments (or rediscoveries: Parker 1987)
have been in economics, where attention has focused upon differences in incentives
between public and private organizations, arising from differences in the ability
of
owners
to
monitor managers,
a
problem which arises when the objectives of
principals and agents diverge.
A
good example of this approach
is
the property
rights and public choice literature.
Drawing upon seminal work by Coase (1937), in the property rights literature
an
organization is perceived to
be
a 'team'
of
factor suppliers with contracts
established and monitored by management (Alchian and
Demsetz
1972; Williamson
1975). Where management prevents 'slacking' in the team the result is high produc-
tivity and low costs. But to perform this task well management needs an incentive.
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