Defining and measuringproductivity in the public sector:

managerial perceptionsPaula Linna

Poverty and Social Development Cluster, UNDP Viet Nam,Ha Noi, Viet Nam, and

Sanna Pekkola, Juhani Ukko and Helina MelkasLahti School of Innovation, Lappeenranta University of Technology,

Lahti, Finland

Abstract

Purpose This paper aims to identify what productivity means in the public sector, how it ismeasured and how it should be measured and improved, according to municipal authorities inmanagerial positions.

Design/methodology/approach The approach is both theoretical and empirical. The first part isa literature review of research concerning public sector productivity. The second part presentsfindings of empirical research that is based on interviews and workshops with municipal authoritiesrepresenting: special healthcare services; basic healthcare and social services, and educationalservices. The research was carried out in the Paijat-Hame region, Finland.

Findings According to the results, there is a certain mismatch between perceptions concerningproductivity and the potential that lies in this concept as a functional tool in the public sectorsdevelopment efforts. Public sector productivity cannot be developed and discussed without taking intoconsideration the issue of effectiveness.

Practical implications Deeper common understanding concerning productivity and effectivenessand their measurement are likely to facilitate municipal decision making and service processes inindividual workplaces as well as within and among different spheres of authority and thus facilitatemutual learning.

Originality/value This paper contributes to development and application of productivity andeffectiveness thinking in the public sector. It is linked to service excellence, performance measurementand management systems, creativity in process delivery and deployment of improvement techniquesin the public sector. It is of interest both to researchers and practitioners.

Keywords Cost effectiveness, Public sector organizations, Performance management,Performance measurement (quality), Finland

Paper type Case study

1. IntroductionThe issue of productivity of the public sector is very topical in Finland. Finland, likeother European countries, faces major challenges due to rapid ageing of the populationand financial difficulties of municipalities. The Nordic welfare state has come to aphase, where its mere existence is sometimes questioned. Municipalities are thus at acrossroads trying to assure how to produce services. One solution is to improveproductivity of public services. It is argued that discussions about productivity inthe context of public services are likely to arouse contradictory feelings, or even theconcept itself may be understood differently.

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International Journal of Public SectorManagementVol. 23 No. 3, 2010pp. 300-320q Emerald Group Publishing Limited0951-3558DOI 10.1108/09513551011032491

This study investigates how public sector productivity is understood amongmunicipal officials in managerial positions within three different spheres of authorityin the Finnish region of Paijat-Hame, and how productivity is measured and should bemeasured according to the interviewees. Understanding these issues becomesincreasingly important also because it is expected that the share of the public sector ofthose entering the labour market will grow in Finland.

2. Productivity in the public sectorPublic sector productivity is as important to economic performance of a country as thatof the private sector. Thornhill (2006) identifies three main reasons for why publicsector productivity is crucial. First, the public sector is a major employer. Second, thepublic sector is a major provider of services in the economy, particularly businessservices (affecting cost of inputs) and social services (affecting labour quality). Third,the public sector is a consumer of tax resources. Changes in public sector productivitymay have significant implications for the economy.

In the case of Finland, besides the above-mentioned reasons, it is necessary to takeinto consideration future challenges facing the public service delivery. It has beenclaimed that it will become harder in the future to raise the standard of living or even tomaintain current good quality of public services. The labour supply is shrinking, andinternational competition is becoming more demanding. Finland is located away fromthe fastest growing international markets. Public sector finance will remain scarce, andtax competition will restrict available policy alternatives. Information andcommunication technology allows reorganisation of many services but reluctance toreshape established practices may constitute a bottleneck. Whatever the uncertaintiesabout underlying conditions are, a need to accelerate productivity will serve as a policyrecommendation and a key economic policy objective. Economic growth and risingliving standards depend on higher productivity. The less manpower and capital areavailable, the more productivity growth must be accelerated (e.g., Waller, 2006; Kaitilaet al., 2006.)

Productivity is generally defined as a measure of the amount of output generatedper unit of input. In many countries, public sector productivity has been assumed to bezero in the national accounts. The output of the government sector has been measuredas equal in value to the total value of inputs. This output input convention hasincreasingly come under scrutiny in recent years. The challenge is to devise alternativeestimates based on output measurement in a public sector context where collectiveservices are provided and where there is, in most instances, no market transaction inservices provided to individuals. (Boyle, 2006.)

The definition of productivity as being concerned with the relationship betweeninput and output does not cover issues that many people have in mind when they talkabout public sector productivity. A more general interpretation of productivityencompasses broader concerns about the outcomes achieved by the public sector. Incommon parlance, many people talking about public sector productivity have in mindthe general question of what value they receive from public services in return for theutilisation of public funds. Putnam (1993) rejects the idea of including outcomes inproductivity measurement. His argument is that to focus on outcomes (changes inhealth rather than patients treated; changes in educational status rather than numbers

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of lessons taught) includes changes over which the government has no control. Thehistorical development of the Nordic welfare state showed, however, that thegovernment might control, or rather support, quite holistic changes. There may benational differences in these views.

Holzer and Seok-Hwan (2004) argue that although the concept of productivity hasbeen utilised for many years, it is often simplified, misinterpreted and misapplied.According to them, the concept of performance may represent a more attractiveconceptual path toward improvement. Still, both concepts are underlying premises ofpublic administration and the core of an ongoing effort that persists because itaddresses a fundamental linkage: a productive society is dependent upon ahigh-performing government.

Although the issue of productivity and performance enhancement in the publicsector is nothing new, scholars and practitioners have worked for decades to identifywhat makes government productive and effective. In fact, the use of the concept ofproductivity has been intermingled with the concept of performance (e.g., Jackson,1999; Stainer and Stainer, 2000.) Researchers have identified each concept in differentways. Productivity and performance are functions of many factors ranging from topmanagement support, committed personnel at all levels, a performance measurementsystem, employee training, reward structures, community involvement and feedbackto correction of budget-management decisions. It is thus important to build upcapacities for productivity improvement (Holzer and Seok-Hwan, 2004).

In research literature concerning services, central points of view are the role andproductivity of customers as well as quality issues that widen the traditionaltechno-economic view of productivity. Special attention should be paid to productivityissues departing from the special characteristics of services such as intangibility,openness and process-basedness. The service research literature emphasiseseffectiveness instead of productivity. Thus effectiveness and productivity are notopposites but they should be understood as mutually complementary (Brax, 2007). Thetask of understanding productivity in the context of services and ways in which itcould be raised is challenging. Insufficiency of such knowledge has been brought up inrecent works. Productivity of services should be understood more deeply as aphenomenon and pay attention to the relationship between productivity and quality,measurement of productivity and factors that raise productivity and quality. More andholistic empirical research on the topic has also been called for (Martin and Horne,1992; Johnston and Jones, 2004; Johnston, 2005; Van Ark, 2006).

Research literature on productivity at organisational and process levels has focusedon manufacturing industry; it is based on an assumption of an organisational coreprocess as an industrial production process (e.g., Gummesson, 1992; Gronroos andOjasalo, 2004). Productivity of services has been studied less from the point of view ofmicro economy than from the point of view of macro economy. Still, themicro-economic view concerning service productivity would be just as important,and the importance of productivity for industrial and service organisations is equal.Discussion on service productivity has also been characterised by a narrow emphasison traditional services consumer services and/or labour intensive services such asrestaurants, cleaning and maintenance, retail sales, education, health care, etc. Thereare however also many other types of services. Consumer services have been the most

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common context for developing theory concerning services, but the context should bewidened (Brax, 2007).

In manufacturing industry, labour intensive manual work and automation may beseen as opposites, but in services, the situation is different. Productivity is also oftenlinked to discussions concerning general efficiency. In such cases, productivity isunderstood in a wider sense and combined to rationalisation of work and improvementof wellbeing in the work community (Uusi-Rauva, 2006). Some researchers howeverargue that productivity is a conceptual phenomenon, and widening the conceptweakens its characteristics as a tool for research and development (Brax, 2007).Pritchard (1995) distinguished three categories for definitions concerning productivity:

(1) the techno-economic approach, i.e., productivity as an efficiency measure(output/input);

(2) productivity as a combination of efficiency and effectiveness(output=input output=goal; see, e.g., Rantanen, 1995); and

(3) a wide approach that contains everything that makes an organisation functionbetter.

According to the techno-economic approach, the concepts of productivity, efficiencyand effectiveness are distinguished. Many researchers have claimed that in definingproductivity, the basic concept of productivity should be seen as separate from itssister concepts, but for investigating services, the concept should again be widened(Vuorinen et al., 1998; Johnston and Jones, 2004). If only efficiency improvement issought, the choice of the term is somewhat less relevant, but when it is the aimed tomeasure and analyse performance somehow, the terminology becomes important. Theterminology is thus a tool from the point of view of research and practical work. (Brax,2007.) This is the understanding concerning the terminology that underlies this presentstudy, too.

Drucker (1963) has expressed the difference between efficiency and effectiveness ina very practical way: efficiency means doing things right and effectiveness meansdoing the right things. One must do the things that produce the desired end result mostefficiently. The concepts of productivity and efficiency focus on quantitative changeand presume that no qualitative changes take place in the process, its inputs or itsoutput, or possible quality changes are left out of the investigation. From the point ofview of effectiveness, the quality changes are focused on as well as the quantitativechanges produced by exploiting the quality changes. The discussion concerningshort-term and long-term solutions is related to the same theme: the short-term viewoften concentrates on doing things right; the things as they are at the moment. Thelong-term view again may question the present way of doing things and comparedifferent options (Brax, 2007). Tangen (2005) noted that effectiveness often impliespaying attention to value creation for the customer, and this is harder to quantify.Changes in effectiveness show primarily as changes in outcomes, and effectiveness hasno maximum value in practice.

Service contains conducting activities, and thus a more thorough investigationrequires a process-based view. The point of view of quality is very important withregard to services, because a more efficient process may have an impact on the

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character of the service supplied. The impact may be positive or negative. Servicesmay also be investigated from the point of view of customers, which makes theresearch come closer to marketing research rather than operational managementresearch. As far as processes are concerned, they may be further broken downaccording to their level of rutinisation (a continuum ranging from rigid service processto fluid service process) (Brax, 2007). According to Gronroos and Ojasalo (2004), due toopenness of processes, services may well be investigated from the point of view ofdeveloping productivity as a mutual learning process of customers and serviceproviders, in which resources and production and consumption processes of bothgroups are reconciled. This is more appropriate (than the traditional productivitymodel) to the context of fluid service processes, according to them.

If productivity is improved only by producing more in a quantitative sense, thismay lead to a greater share of defective or low-quality performance (Van Looy et al.,1998), so service research literature recommends measuring productivity so that alsoquality is taken into account (Sahay, 2005). Technical quality is related to quality of theend result of the service process: what is the end result of the service like? Functionalquality is related to quality of the delivery process: how well was the serviceconducted? Gummesson (1993) distinguished four basic types in service productionaccording to the relationship between service provider and customer:

(1) the service provider produces the service apart from the customer;

(2) the customer produces the service as self-service;

(3) the two parties produce the service together or in interaction; and

(4) the customers produce the service amongst themselves.

According to these four basic types, Gummesson (1998) took into account the largercontext: productivity arises from the service providers own actions, actions of thecustomer, interaction between the service provider and the customer; or interactionamong customers.

Gummesson (1998) also noted that the customer is rather than an end user anactive actor in a continuous cycle of value creation. The customer has many roles as aproduction resource, as affecting quality, satisfaction and value creation, and as acompetitor of the service organisation (Bitner et al., 1997). The customers impact onproductivity may be positive or negative. As the input of the customer increases, theservice providers possibilities to control the service production process decrease andinsecurity increases. Thus Ojasalo (2003) noted that it would be beneficial for a serviceprovider to aim at selecting her/his customers somehow.

Definition of inputs and outputs is the most central question in analysingproductivity (Gadrey, 1988; McLaughlin and Coffey, 1992; Gallouj, 2002). Thetraditional way of measuring productivity is based on physical units; physical inputmay be hours of work and physical output may be customers served. Also time may beseen as corresponding to physical units (Uusi-Rauva, 1996).

One notable issue in discussing productivity in the public sector is that the publicsector has very different characteristics and logic in different countries, and thusliterature on public sector productivity may be problematic. The Nordic welfare statewas a social innovation that managed to reconcile the different interests of the capital

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and labour (Karisto, 2009). Its rationale, development and traditions are very differentfrom those of most other countries (see, e.g., Melkas and Anker, 1998). Today this israrely brought up, and the public sector is seen automatically as stiff and a barrier toinnovativeness, while it could be seen from a more holistic perspective that would alsocontribute to seeing service productivity in a new light.

3. Measuring public sector productivityAnother important question regarding public sector productivity concerns how tomeasure it. Productivity can be measured in a number of ways. The interpretation ofproductivity growth is greatly dependent on the way in which productivity ismeasured. Public sector productivity is most often measured as labour productivity. Inaddition to labour productivity, multifactor productivity should also be measured. Amajor problem in the interpretation of single factor productivity is that it attributes allincreases in efficiency to one factor, even though the increased production may havebeen partly or even completely due to changes in other factors. Productivity measuresexamined have also commonly been sectoral or national in nature, and often drivenfrom a top down perspective. It is important to note that at a micro level productivity measurement in the public sector may also take place at the level of anindividual organisation, and from a bottom up or service user perspective (Boyle,2006).

Ammons (2004, p. 147) points out that many government managers are inclined tofocus on their departments activities or workload its outputs, rather than on thebigger picture of whether their efforts lead to positive changes in the lives of citizens orproduce other results they were designed to bring about. According to Ammons (2004),by fixating on simply maintaining or expanding the activities of the department inquestion, the managers may overlook opportunities, perhaps procedural innovations orfundamental service delivery alternatives that might improve the results or outcomesof these activities. It is thus not enough to measure productivity only in an input andoutput way in the public sector context, but also quality needs to be taken into account.

In measuring service productivity, conceptual, technical and strategic problemsmay be distinguished (Nachum, 1999; Brax, 2007). First, one needs to identify theinputs the measurement of which is the most important in the process in question.Second, if intangible characteristics are related to inputs, it needs to be solved how theinputs can be measured at a sufficiently accurate level or even at a rough level.Third, services are combinations of many different components, so it needs to besolved in how detailed a level productivity is investigated. Fourth, it needs to bedefined at which level measurement and monitoring of productivity is most efficientwith regard to the aims (McLaughlin and Coffey, 1992; Klassen et al., 1998). The moreintensive and participatory customer contact or the more tailored service product is,the harder it becomes to study productivity. The complexity of inputs and outputs andtheir number also add to the difficulty of measurement. How many differentcomponents are combined into the service? How many different components may bedistinguished in inputs and outputs of the service? Does one service process produceseveral end results simultaneously? (Brax, 2007). Especially in services that require alot of human contribution, measurement problems are caused by mutual impact andconvergence of resources, when teams collaborate or colleagues guide each other

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(Mohanty, 1992). These issues characterise the services focused on in the present casestudy.

Intangibility of the elements that affect productivity and fluid service process incertain service contexts are characteristics that have an impact on reliability ofmeasurement, too. The factors affecting productivity are difficult to express in ameasurable form (the problem of operationalisation). Indicators should not beoverlapping in the sense that several indicators utilised together should not focus onthe same production factor or end result. If such indicators were used in a combinationof several indicators, the role of some individual production factor or output could beemphasised more than other factors. It is generally difficult to distinguish relationshipsbetween different factors. Measurement should produce information on productivity inlight of the purpose and strategy of the organisation and in order to support those. In atheoretical sense, however, it is problematic to define inputs and outputs linking themto the strategy of the organisation, as this leads in practice easily to measuringefficiency and effectiveness rather than productivity (Brax, 2007; Borg et al., 1995).This again shows how easily the concept of productivity becomes obscure.

Customer relationships are related to measurement problems in three ways. First, ithas been discussed how the input of customers into the production process should betaken into account when investigating productivity. Second, it has been suggested thatoutputs should be defined from the point of view of customers. Third, thecustomer-based quality view that characterises services causes questions concerningvalidity of measurement. Service researchers have called for linking the customers roleinto the traditional productivity understanding so that it would suit better to describeservices. Measuring productivity becomes more difficult, as often only the serviceproducers production input is taken into account. In a service, the customer has therole of a partial producer; increase in productivity through contribution of the customeris not visible in numbers. Gummesson (1998) recommended that more attention shouldbe paid to the relationship between inputs of customers and service producers whenmeasuring service productivity (Brax, 2007; Gummesson, 1998).

4. Performance management and measurement in the public sectorThe concept of productivity is often confused with the wider and more commonconcept of performance and performance measurement. Productivity is one of themany ways in which performance may be measured and defined (Byus and Lomerson,2004). Performance contains both economic and operational perspectives (Tangen,2005). According to Brax (2007), any characteristic of an organisations aims may bemeasured under the title of performance measurement such as quality of outputs, orit may be a question of individual indicators or whole measurement systems andmethods.

The public sector is devoting more attention, time and money to performancemanagement, measurement and evaluation than in earlier times (McAdam et al., 2005).Many public sector organisations have implemented performance measurementsystems, such as the Balanced Scorecard. However, such adaptation of private sectorapproaches has caused a number of difficulties because of multiple stakeholders inpublic sector organisations in comparison to private sector organisations thatmainly focus on customers.

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Rantanen et al. (2007a) identified specific problems faced by Finnish public sectororganisations in designing and implementing performance measurement systems.They are:

. many stakeholders with conflicting needs;

. undefined end products and goals;

. lack of ownership of the property; and

. poor management skills.

The main reasons for the problems of performance measurement in publicorganisations were identified by using the results of three case studies (Rantanenet al., 2007a, b):

. Difficulties in solving the conflicts between the needs of different stakeholders(owners, employees, customers, suppliers and the community); i.e., not clear whatshould be measured.

. Difficulties in target setting (i.e., not clear what the goal of the operations shouldbe).

. Representatives of different stakeholder groups influence the development ofindividual measures at too detailed a level.

. The personnel does not understand the objectives of the measurementdevelopment.

. Too many persons responsible for the measurement development leads tonon-responsibility.

. The personnel does not see the usefulness of the project with regard to theirwork, and ignores or resists it.

. Overlapping projects hamper the measurement project because they take upresources.

It is becoming more usual to say that when developing and implementing performancemeasurement systems in the public sector, the starting point and key driver should bestakeholders needs and expectations. The public sector should thus preferperformance measurement systems that pay sufficient attention to stakeholders. Forexample, Performance Prism (Neely et al., 2001) was found to be suitable in identifyingand categorising stakeholders of an organisation. However, there are also dangers insuch thinking. There is firstly the legislation that dictates many things concerningpublic services. Legislation at its best should be based on, for instance, research onhealth promotion and long-term health effects of various societal choices andenvironmental factors, for instance. Concentrating too much on stakeholders needsand expectations may lead to an erosion of this valuable societal foundation thatshould be based on long-term thinking and public value as well as clear aims.

Current literature also highlights the role of rewarding in the performancemeasurement context. Ukko et al. (2008), for example, stated that one of the mostimportant factors behind successful operative level performance measurement is thelinkage between measurement and rewarding. Public sector organisations do not,

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however, have similar financial resources for rewarding their employees as privatesector organisations do, because the municipal economy limits financial rewarding(Pekkola et al., 2007). Rewarding may well be non-financial, too such as greater jobsecurity in a period of economic recession. Rewarding in the public sector appears to becharacterised by similar challenges as measurement, as some ways of rewarding areindirect, invisible and unidentified. In spite of the limitations concerning finance, thepublic sector has a clear need to develop its appraisal, reward and recognition schemes,along with other motivational influences. McAdam et al. (2005) claim that this ensuresthat employees targets are consistent with organisational and stakeholder objectives.

According to Mohanty (1992), productivity whether it is understood as a concept,a philosophy, a measure, or a method is a useful view into all kinds of work systemsregardless of their aims (e.g., aiming at producing profits or not). Mohanty, however,noted that measurement should be looked at with a critical approach, as measurementthat is poorly conducted and implemented may also hinder an organisations activities.Also the measurement process itself should be looked at from the points of view ofefficiency and effectiveness. Measurement may be too hard in relation to the benefits itproduces, so it takes away resources from core processes. Measurement directs thepersonnel to improve the things that are measured and in the way in which the thingsare displayed in light of the indicators. This is a problem, when false things aremeasured or right things are measured with false kind of indicators. For instance, thequantity of outputs may be measured, although it would be more reasonable to monitorthe quality of the outputs. Measurement may also produce false information fordecision-making within the organisation. Inaccurate or incorrectly operationalisedindicators may produce false end results. Combining the pieces of information intoaggregate level measures multiplies the errors. Measures should not be seen asunambiguously objective. (Mohanty, 1992; Brax, 2007.)

5. Case study: managerial perceptions concerning definitions andmeasurement of productivity5.1 Methods of the case studyThis case study is based on empirical research concerning how to define and measureproductivity in the public sector, especially in the municipal context. Findings arepresented of research on how different actors approach the concept and meaning ofproductivity in the public sector. This case study concentrates on one specific Finnishregion Paijat-Hame, where municipal officials in managerial positions in threedifferent spheres of authority were interviewed. The research themes looked into arehow the municipal officials define productivity, and how productivity is measured andshould be measured and improved, according to them. The Paijat-Hame region hasfaced many public sector reforms during the last few years for example setting up ofa social affairs and health district following the principles ofpurchaser-provider-model.

The three different spheres of authority focused on are:

(1) special healthcare services;

(2) basic healthcare and social services; and

(3) educational services.

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In Finland, the municipalities need to take care of educational services, social careservices and basic healthcare services, as well as fund hospitals providing specialhealthcare. Changes related to the ageing population, growth of service needs,diminishing labour force and increasing age dependency ratio affect especially thesethree spheres of authority (e.g., Moisio, 2006). If the municipalities wish to maintain alarge amount of public services, it is necessary to look into these three spheres.

Background information on the interviewees is presented in Table I. All the eightinterviewees worked at the managerial level in their municipality or organisation. Theinterviews were semi-structured to explore interviewees views on how they see thatproductivity is defined in their sphere of authority, how it should be defined, howproductivity is measured and how it should be measured. The interviews lasted forabout one hour, and they were recorded and transcribed. In this study, differencesbetween the three spheres of authority are not focused on; on the contrary, we searchfor similarities that are common in each sphere of authority.

5.2 Results and analysis5.2.1 Definitions of productivity and effectiveness. The respondents were asked to tellhow they define productivity in their own sphere of authority. Some of the responsesare cited in the following:

[. . .] what comes to special health care, productivity is that we are able to produce as muchhealth impact for the citizens as possible using as few financial inputs as possible [. . .]however, financial inputs cannot be reduced endlessly because this leads to a situation whereit is not possible to achieve health impact anymore [. . .] (Interviewee B).

Productivity and effectiveness were not well understood by many respondents; theywere unclear as to what they mean in the spheres of authority in question. Definitionsof productivity covered a wide spectrum. On the one hand, productivity was defined asthe relationship between inputs and outputs, but on the other hand, much more holisticviews were expressed showing careful consideration of the complicated issue. Manyinterviewees emphasised that productivity (in the public sector) cannot be analysedwithout taking into consideration the impacts on citizens. Efficiency and quality werefelt to be strongly linked to productivity, and effectiveness was seen as related to, forinstance, impacts on health, qualifications for further education, impacts on quality oflife of citizens depending on the sphere in question. The respondents highlighted

Interviewee Sex Organisation Sphere of authority

Interviewee A Male Public service provider Special healthcareInterviewee B Male Public service provider Special healthcareInterviewee C Female Municipal Basic healthcare and social servicesInterviewee D Female Public service provider Basic healthcare and social servicesInterviewee E Female Municipal Basic healthcare and social servicesInterviewee F Female Municipal EducationInterviewee G Female Municipal EducationInterviewee H Female Municipal Education

Table I.Background information

on the respondents

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that should financial costs be reduced endlessly, benefits to the society are alsostrongly reduced. It was acknowledged that it is vital to find an area where theresources spent give the best possible results. Despite the lack of clarity, there weremany thoroughly considered responses that reflected the multi-faceted and highlychallenging character of the concepts that was discussed in the literature review:

[The definition] . . . depends on how productivity is measured. [. . .] At least in the publicsector, comparisons are often made to productivity in the private sector. [. . .] the public sectoris built for the kind of service production that is related to basic safety and security ofcitizens, and it is an issue that [. . .] needs to be assessed by politicians how much it maycost and how good a coverage it has and on what grounds people can benefit from it [. . .] Asto its grounds, experts are the ones who are responsible there. This has an essential impact onproductivity; how comprehensive is the production, how close to the people etc.; the wholeservice concept there (Interviewee A).

An interesting result was also that one of the respondents could not define productivityin any way. Reasons for this can only be speculated on: does it mean that productivityis such a new phenomenon or concept in the municipal context that it feels impossibleto define what it is? Or does the person find the issue so complex and difficult thathe/she has not made up his/her mind yet? Or perhaps the discussions concerningproductivity are politically so sensitive in the municipality that she/he thought that itis better not to say anything.

Some of the responses reflected a thinking that appears to outsourceresponsibilities and decisions related to productivity. For instance, decisions bypoliticians and experts were called for. An interesting question is, however, who theseexperts are. If productivity-related decisions are left to be made by such anonymousexperts who may not have sufficient knowledge of daily operations in variousmunicipal fields, sustainable results may be difficult to achieve. On the other hand, thisis the everyday life of municipal personnel there are multiple stakeholders and acertain degree of outsourcing of decisions is inevitable. If, however, productivity is feltto be an issue that is so difficult to grasp that it is willingly left for others to decide andconsider, this may contain risks for services. This may lead to quite one-eyed decisionsat the municipal level for instance, emphasis on the traditional industry-basedengineer thinking about productivity. A common understanding of everyones rolesin productivity improvement should be strived at.

Rather than outsourcing productivity thinking, networking and collaboration in itsadvancement and in creating a common understanding are needed, according to theresults. Productivity and effectiveness thinking may be argued to be part of corebusiness in municipalities, and decision-making and responsibility concerning themshould not be outsourced by anyone on the contrary, they should be internalised.The situation could be compared with outsourcing of operations in companies toomuch outsourcing may lead to a situation, where the managers have no or poor controlover the operations that have been outsourced. The producers of such operations maynot know the needs of the company. Learning and experience do not accumulate in thecompany. In municipalities, such a situation may arise, if the experts of dailygrass-roots operations and their close managers are not involved in shaping a common,realisable understanding of productivity and effectiveness, and in implementing thisunderstanding.

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And the aim of productivity is that all these resources are spent in a way that leads toproviding services that are as good as possible. That resources are spent in a sensible way,and especially hopefully also in an equal manner. [. . .] it would be more correct to talkabout efficiency instead of productivity, because as far as definitions are concerned, efficiencyincludes the element of effectiveness. When we think of traditional definitions in healtheconomics, for instance, efficiency is the right concept, in my view. Productivity is toomeagre, effectiveness should always be included. [. . .] We may, of course, assume that if wegive transportation services and interpretation services, [. . .] that a person then acts moreindependently, naturally. So such cause-effect relationships do exist, of course. [. . .] but thelevel of legislation does not really depart from effectiveness. It departs from citizens rightsand responsibilities of municipalities. There is still a long way to go (Interviewee C).

Productivity, effectiveness and efficiency were often somewhat mixed up in theinterviewees responses. All of these issues are not discussed in greater detail in thisstudy. The problematic situation is, however, understandable, as althoughproductivity and effectiveness have been developed for a long time already, theyhave only been brought up in public debate to a greater extent in recent years especially in relation to financial crises. This negative context is likely to affect peoplesviews and analyses, making the concepts themselves negatively coloured. Thenegative attitudes that may be based on false or overly narrow impressions towards the whole theme are especially clearly visible at the grass-roots level ofmunicipal employees (e.g., Makinen et al., 2006). The concepts often come originallyfrom economics, and they have not been applied and clarified to suit into the differentsectors and spheres of operation before their use has become more prevalent. This wasvisible in these responses, too, although many of the respondents tried to apply theconcepts better into their own field.

In the research community, many conflicting views concerning concepts exist, asshown in the literature review. There is a jungle of definitions. The interviews showed,however, that in practical contexts, definitions are not that relevant in themselves, butthe crucial issue is how people grasp the aims of the operations in their own field and inthe municipality more generally, and how these aims may be achieved in themunicipality as a whole (for instance, health promotion). Smooth processes were alsodiscussed by the respondents, as was the inseparability of productivity and quality inpublic services. Development of productivity as a mutual learning process ofcustomers and service providers was not emphasised, but the role of customers waslooked at with a certain degree of powerlessness. Customers are nowadayssometimes too demanding and badly behaving, and municipal personnel feelpowerless when facing such behaviour. In order to increase interactive serviceproduction between customers and service providers, also customers attitudesconcerning services would require changes so that they would affect quality,satisfaction and value creation positively.

The relationship between legislation, productivity and effectiveness that wasbrought up is interesting. Should legislation indeed depart increasingly fromconsiderations of effectiveness, measurement issues would gain even more importance.Moreover, many issues related to healthcare and education, for instance, would benefitfrom proactive services rather than reactive services based on illnesses or schooldrop-outs. Questions related to this are:

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. In which situation or phase should these proactive services start? This is notalways obvious.

. What is the time frame for considering causes and effects?

. What about life-style choices of adults (see Putnam, 1993)?

Proactive services aim at anticipating and affecting causes and processes that mayworsen peoples living conditions, quality of life and self-management. These issueswere also brought up by the interviewees.

An additional difficulty lies in drafting a list of issues concerning effectiveness. It ismore straightforward to draw up a list of citizens rights. Apart from the legislationand the important and impartial guiding role of the state, a list of issues would be arelevant topic at the municipal level in order to further comprehensiveconsiderations of cause-effect relationships versus fragmented and short-sightedbudgeting practices in municipalities:

And another issue is, in my view, a more valuable output is actually when the same inputleads to outputs that are clearly of better quality. [. . .] Because this shows that something elsehas happened there [. . .] that things have changed. [. . . On effectiveness] except that aimshave been achieved and it is naturally also good to hear if we have done the right things.Because as public authorities, we may believe that such and such things are expected from us,but the people who are targeted and provided services to they may be of quite differentopinion (Interviewee F).

Productivity, what is produced with these staff resources [. . .] I would summarise it asthe outputs. [. . .] If we think about our own sphere, this is what we get: reception visits,days in care, customer contacts and visits in social work, and so forth, this is what I seeas productivity. [. . .] Well, effectiveness is, in my view, what we accomplish in the lifeand well-being of municipal citizens. So there the aim is to affect with these services sothat the citizens can cope with their daily life, and their well-being is good. Thiswell-being is a large area, but our aim is that the citizens can cope with their life. Andhow we can affect this with our own operations both directly or indirectly, this iseffectiveness (Interviewee D).

On the basis of the interviews, the views concerning productivity could be divided intotwo categories a mechanistic and a functional point of view. The mechanisticview is technical and based on higher-level rhetorical arguments concerning inputsand outputs. This view does help establish a common understanding between thosewho are already acquainted with the topic. This takes place much in the same way as,for instance, innovations have earlier been linked to top-level science and technologypolicy only although they are relevant at other levels, too (see Harmaakorpi andMelkas, 2008). In the same way, the concept of productivity was set by some on ahigh-level pedestal, while it could be treated increasingly as a tool for thinking andcollaboration between different levels. The functional view, again, emphasises linksbetween productivity and effectiveness, quality, and benefits to the society from thepoint of view of people. This view was also well visible in the responses. Making such adistinction might advance increasingly holistic discussions of productivity in thefuture (see Melkas, 2008.)

5.2.2 Measuring and improving productivity and effectiveness. Measurement ofproductivity and effectiveness was seen as quite a difficult topic when discussing

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public sector productivity. The respondents acknowledged the problems andshortcomings in the measurement quite well with regard to what has been broughtup in the research literature. The results of the interviews revealed that public sectorproductivity is measured in two different ways. First, the most common tradition inmeasuring and evaluating productivity is related to how well the sphere ororganisation holds on to the budget:

[. . .] if I think very realistically and a little bit cynically, public sector productivity isevaluated mainly in money. It is simple to measure how much the whole of the activities coststo the hospital (Interviewee C).

Second, public sector organisations measure their productivity with how much we getwhen we have that much money to spend thinking. Especially in the healthcareservices, organisations collect information to see which amount of services has beenproduced in the organisation in one month and how much these services cost. Theresults of the interviews also highlighted that productivity was most often measured aslabour productivity:

So, one way to measure productivity in the healthcare organisation was to add up medicaloperations or clinic visits and then check up how much these cost in money. It is the easiestway (Interviewee C).

This was seen as problematic, as the labour productivity was only counted on the basisof, for example, the number of patients per doctor, without taking into account theeffectiveness of the decisions made by the doctor. These kinds of measures give quite alimited view of the actions in the public sector. There is a temptation of partialoptimisation to increase the labour productivity. Productivity should, however, bemeasured and evaluated from a wider perspective to be able to assess long-termeffectiveness.

Long-term effectiveness is a crucial aspect when discussing improvement ofproductivity in the public sector. According to the interviewees, measurement ofeffectiveness is very complicated. Todays economic policy is commonly quiteshort-term oriented, which is why results of productivity improvement are often hopedto be visible rapidly. This problem was emphasised especially in the sphere ofeducation, where effectiveness of teaching realises and becomes visible only in the longrun:

When thinking about effectiveness from the perspective of education, results of productivityimprovement can only be seen after many years (Interviewee F).

Even if effectiveness of various actions seems to go hand in hand with productivity,traditional measures do not give an overall view of the state of public sectorproductivity. According to the respondents, measures including aspects of quality andlong-term effectiveness should be developed to give a more reliable view of publicsector productivity. This kind of measurement information helps politicians to see theholistic state of productivity and to make more influential decisions in the municipalpolitics.

The interviews also indicated that current measures of productivity andeffectiveness are quite poor and fragmented. The measurement results make theview biased and only provide information on the apparent state of productivity in the

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organisations in question. This problem is especially emphasised in the healthcareservices, according to the interviewees:

[A Finnish national research and development organisation] annually announces the mostproductive hospital. [. . .] [It] measures how many patients the hospital has taken care of, howmany surgeries have been done, and how much money has been spent [. . .] Like this, theymeasure productivity of the organisations, but the results, unfortunately, do not take intoaccount the quality of the medical care. They just measure numbers of the outputs(Interviewee B).

The respondent noted that the results of the above-mentioned assessment gain widevisibility in the Finnish media, as public sector productivity is a popular theme inFinnish politics. The results of the assessment in question may to some extent guideactions of politicians. This, again, may encourage them to make decisions that mayhave unfavourable effects on daily operations in hospitals. The media should alsounderstand its role in furthering a holistic understanding of these issues:

If a doctor only sees ten patients a day, he/she can examine a patient better and make moreinfluential decisions. [. . .] It should be measured how the actions of the doctors and nursesenhance the health benefit of the patient rather than measuring how many surgeries havebeen done (Interviewee A).

When improving and developing measurement, certain key issues were found thatshould be taken into consideration. The selected measures have to support theorganisations long-term objectives and lead the operations of the organisations toproper and appropriate directions. Some of the interviewees proposed that short-termproductivity and long-term effectiveness should be combined into one indicator orindex. The indicator or index would take into consideration all the spheres of authority(healthcare services, education, social services, etc.) and result in a calculation of totalproductivity and effectiveness. Taking into account the research literature, creatingsuch a measure is hardly possible.

On the other hand, the interviewees highlighted that measures should be easy to useand measurement results should be clear enough and easy to analyse. They also statedthat organisations should measure productivity and effectiveness formally andsystematically. At the moment, measurement efforts were understood to befragmented:

I definitely see that measurement, both of productivity and effectiveness, should besystematised. At first, top level objectives should be defined that are the long-termobjectives at the same time (Interviewee D).

Although the budget has an important role in most organisations, it is not a synonymfor the concept of productivity. Public sector organisations could put more effort ondefining aims, inputs and outputs, and on developing and implementing morecomprehensive measurement systems including also the aspects of quality andlong-term effectiveness, in addition to the short-term productivity measures. Deeperunderstanding concerning measurement and evaluation of productivity andeffectiveness may well facilitate municipal decision making. Improved andcomparable measurement systems together with the deeper understanding may alsohelp benchmarking between the different spheres of authority, if relevant and thus

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facilitate learning. In the measurement of productivity and effectiveness, the focusshould be wider than just the financial dimensions and labour costs. Improvement anddevelopment of work methods and processes are alternative and probably better waysto increase productivity than cutting down costs; this was acknowledged by therespondents (see also Table II).

The respondents were also asked to indicate how exactly they thought productivityand effectiveness could be improved. They emphasised factors related to, for instance,reorganisation of work, new prioritisation of tasks, competence development,increasingly efficient use of information systems, wider regional collaboration inservice provision as well as reconsideration of the scope of municipal services. Theresponses are summarised in Table II. The responses covered a wide spectrum.Development practices for improving service productivity were understood in arelatively holistic way, only the human relations point of view was perhaps less wellacknowledged (human relations with customers; guiding customers in partialproduction of services; collegial relations, etc. (see Dobni, 2004).

What are productivity andeffectiveness?

How are productivity andeffectiveness measured?

How should productivity andeffectiveness be improved?

Productivity was defined as therelationship between input andoutputEfficiency and quality were feltto be strongly linked toproductivityEffectiveness was seen asrelated to, for instance, impactson health, qualifications forfurther education, impacts onquality of life of citizens(depending on the sphere ofauthority in question)Productivity and effectivenesswere not well understood bysome; there was lack of clarity asto what they mean in the spheresin question

Measuring productivity andeffectiveness was seen to bechallengingThere are many ways tomeasure, but some of themfalsify the truthMany partial measurementmethods exist, but holistic waysof measuring are lackingMeasurement is based roughlyonFinancial figures (necessary tostay within the budget)Sector-specific nationalmonitoring results, such ashospital productivity, placementin further education, etc.Numbers of outputs; diagnosisrelated groupings (DRGs) inhealthcareFeedback and surveys ofcustomer satisfactionTime frame for measuringeffectiveness (the desired quickeffectiveness/ long-termeffectiveness) ! a suitablelevel for measurement should befound

New ways of work andoperation: personnelmanagement, reorganisation ofwork (resourcing), motivation,reward practicesNew prioritisation of tasks:elimination of side steps andwobbly practices; attitudesoften cause barriersCompetence development:information and communicationtechnology, new ways ofoperation and work practicesUse of information systems:electronic statements fromdoctors to patients, virtuallearning systemsRegional concrete and efficientcollaboration: common schoolsat municipal border areas,common authorities for severalmunicipalitiesReconsideration of what servicesmunicipalities are to provide inthe futureIncreased functional (ways oflife) and financialresponsibilities for municipalresidents

Table II.Summary table on the

results of the interviews

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6. Discussion and conclusionsThis study analysed the concept of public sector productivity and its measurement as well as effectiveness. Empirical findings were presented of interviews withmunicipal managers from different spheres of authority in a Finnish region. Accordingto the results, there is a certain mismatch between perceptions concerning productivityand the potential that lies in this concept as a functional tool in the public sectorsdevelopment efforts. The results highlighted that public sector productivity cannot bedeveloped and discussed without taking into consideration the issue of effectiveness and vice versa. Special attention is needed when comparing productivity in differentorganisations. The focus of this study was to find similarities across the spheres ofauthority rather than differences, but the interviews also reflected the difficultiesrelated to such comparisons.

On the basis of the interviews, the points of view concerning productivity weredivided into a mechanistic and a functional point of view. The mechanistic view isbased on higher-level rhetorical arguments and helps establishing a commonunderstanding between those who are already acquainted with the topic ofproductivity. Productivity is set on a high-level pedestal, while it could be treatedincreasingly as a tool for thinking and collaboration between different levels. Thefunctional view emphasises links between productivity and effectiveness, quality, andbenefits to the society from the point of view of people. Making such a distinctionmight advance increasingly holistic discussions of municipal service productivity inthe future. (See service productivity as a learning experience and a holistic serviceproductivity model in Gronroos and Ojasalo (2004).) Concepts of the service-basedproductivity approach need to be developed further.

As to the measurement issues, according to the interviews, there is a clear need formeasurement frameworks that consider the entirety of a municipalitys operations.The budget should not be a synonym for the concept of productivity. More effortshould be put on developing more comprehensive measurement systems that alsoinclude the aspects of quality and long-term effectiveness. The respondentsacknowledged that the focus should be wider than just the usual financialdimensions and labour costs. Using manufacturing-oriented productivity models inservice contexts is likely to give managers wrong directions for action.

Deeper understanding concerning productivity and effectiveness and theirmeasurement is likely to facilitate municipal decision-making as well asbenchmarking between the different spheres of authority, if appropriate. The viewsconcerning productivity and effectiveness were already quite holistic andcharacterised by useful critique, but some respondents appeared to outsourceproductivity thinking to experts. Networking and collaboration in the advancementof productivity thinking and in creating a common, realisable understanding areneeded at an individual organisation and more widely. This should also cover thepolitical decision-makers and the personnel together, without forgetting the customersroles in service production. Productivity and effectiveness thinking are part of corebusiness in municipalities, and decision-making and responsibility concerning themshould be internalised by the whole staff in order to implement the deeperunderstanding. Increasing emphasis and skillful use of the concept of effectivenessmight help in practical development efforts in municipalities. The concept of

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effectiveness is not as negatively charged as productivity. Effectiveness is vital fromthe point of view of municipal citizens, and improvement in effectiveness also improvesproductivity as understood in a stricter sense.

The industrial tradition in investigating productivity was visible, but therespondents also attempted to adapt the concept more successfully to their ownorganisations. The research data of this study were not large, but the study contributedto understanding how productivity is understood by municipal service managers andhow measurement systems should be designed in their view. When productivity isunderstood more widely, certain benefits may be achieved. A service provider may, forinstance, understood service actions better from the point of view of a customer. Thereis also a large and growing number of so-called hybrid products, where the core of thesupply is a combination of service and product. Both elements are vital. Suchcombinations have barely been focused in research so far, and the point of view ofproductivity has been neglected. Examples in the municipal sector may be found in, forinstance, technology-based services for the ageing population (assistive devices andthe related services). Changes like this also highlight the need to continue studyingperceptions about municipal service productivity in the future.

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About the authorsPaula Linna has worked previously as a Researcher at Lappeenranta University of Technology,Lahti School of Innovation, Finland. Her research interests focused on public-private sectorpartnership, networks and organisational innovativeness. Currently she is working at UNDPViet Nam on issues related to poverty monitoring and project management.

Sanna Pekkola is a Researcher in the Performance Measurement Team at Lahti School ofInnovation, Department of Industrial Management, Lappeenranta University of Technology. Hercurrent research focuses on performance measurement systems and performance management inprivate enterprises and public organisations.

Juhani Ukko is a Senior Researcher and Project Manager in the Performance MeasurementTeam at Lahti School of Innovation, Department of Industrial Management, LappeenrantaUniversity of Technology. His research interests focus on performance management,management systems and management accounting.

Helina Melkas, D.Sc. (Tech.), is a Senior Research Fellow and Adjunct Professor atLappeenranta University of Technology, Lahti School of Innovation. Her research is related to,inter alia, elderly care services, technology use and public sector innovations. Helina Melkas isthe corresponding author and can be contacted at: helina.melkas@lut.fi

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