Using numbers that do not count: how the latent functions of performance indicators explain their success
| Author | Wouter Van Dooren,Shirley Kempeneer |
| Date | 01 June 2021 |
| Published date | 01 June 2021 |
| DOI | 10.1177/0020852319857804 |
| Subject Matter | Articles |
Article
International
Review of
Administrative
Sciences
Using numbers that do
not count: how the latent
functions of performance
indicators explain
their success
Shirley Kempeneer
University of Antwerp, Belgium
Wouter Van Dooren
University of Antwerp, Belgium
Abstract
Performance indicators have had to endure severe criticism. They are said to lack
accuracy, encourage gaming and ultimately fail to improve performance. Yet, despite
their well-documented weaknesses, performance indicators abound in governance.
This article asks under which conditions performance indicators can improve perfor-
mance outcomes, despite these proven weaknesses and dysfunctions. Our case study is
the stress test of the European banking system, a high-profile performance indicator
used for risk regulation. Based on interviews with risk managers in Belgian banks as well
as staff at the European Central Bank, the European Banking Authority and the National
Bank of Belgium, we find that the process of calculating the stress test improves per-
formance outcomes in itself. It does so by fostering banks’ capacity to self-regulate,
tying into Foucault’s notion of governmentality. As such, practitioners and academics
should not only pay attention to how performance results can be used, but also exam-
ine how the process of calculating the performance indicator might be designed to
improve performance outcomes latently.
Keywords
banking stress test, governmentality, performance indicators, performance measurement
Corresponding author:
Shirley Kempeneer, University of Antwerp, Sint-Jacobstraat 2, Antwerpen 2000, Belgium.
Email: shirley.kempeneer@uantwerpen.be
International Review of Administrative
Sciences
2021, Vol. 87(2) 364–379
!The Author(s) 2019
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/0020852319857804
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Introduction
Since the global financial crisis, stress testing has become part and parcel of reg-
ulators’ toolkits for monitoring and maintaining financial stability globally.
In Europe, the European Banking Authority (EBA), in close coordination with
the European Central Bank (ECB), now conducts system-wide stress tests to
simulate the ability of the big, so-called systemic, banks to deal with an adverse
scenario, making it easy to rank banks from worst to best ‘performer’.
At first sight, the success of stress tests is easy to explain. As awareness for risks
increases, the demand for instruments that measure and control risks is growing
(Power, 1997). Performance indicators’ success hinges on their ability to simplify,
standardise, compare and control complex systems. The European Union (EU)-
wide stress test delivers on this demand for control. The stress tests are designed to
show at a glance the banks that would weather a crisis.
However, decades of research have also exposed the adverse effects of perfor-
mance indicators. They are said to lack accuracy, encourage gaming, demotivate
workers, be biased towards what is quantifiable and ultimately fail to substantially
improve performances (Berten and Leisering, 2017; Bevan and Hood, 2006;
Bouckaert and Balk, 1991; Davis et al., 2012; Pollitt, 2018). Research has also
identified the misuse of performance information as a key factor hampering per-
formance improvement (Taylor, 2011; Van Dooren et al., 2015). Some scholars go
so far as to claim that ‘evidence-based’ and ‘rational’ policymaking is a myth
because policy work is fundamentally political (Boswell, 2015). Adverse effects
are primarily at play when highly incentivised performance indicators are used
(Bevan and Hood, 2006). The stress tests have not been spared this criticism,
especially in financial media. Stress tests are said to not make sense economically,
be biased towards certain banks and be little more than communication exercises
to reassure financial markets (Cecchetti and Schoenholtz, 2016; Dowd, 2015;
Elliott, 2016).
To be sure, there are studies that show how performance measurement posi-
tively affects performance outcomes (Boyne and Chen, 2006; Nielsen, 2014;
Walker et al., 2011). Yet, we do not have a clear understanding of why perfor-
mance indicators improve performance outcomes in some cases and fail to do so
in others.
Despite these differing and seemingly contradictory effects of performance indi-
cators, regulators continue to promote them as indispensable tools for regulation.
Over the past decades, the use of performance indicators has proliferated in
(global) governance (Davis et al., 2012). The ambition of this article is thus to
explain the enduring success of performance indicators, and explore under which
conditions they can improve performance outcomes, despite their proven weak-
nesses and dysfunctions.
We find that performance indicators have important latent functions that have
so far been under-studied in the literature. We borrow the concept of a latent
function from Merton’s (1968) functional sociology. Merton distinguishes between
Kempeneer and Van Dooren 365
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