Do performance measurement and incentive systems in the public sector work to improve government outcomes?

The use of performance measurement systems based on explicit and objectively defined metrics has been a fundamental component of both public- and private-sector organizations. This literature has emphasized the importance of designing and using relevant measures that reflect the issues of relevance to the business (Lynch and Cross, 1991) and the organization’s context and strategy (Waggoner et al., 1999). However, research evidences a large number of failures in performance measurement design (Pidd, 2005). Furthermore, little attention is paid to what factors explain the design of measurement systems that does not reflect adequately the organization’s business environment. We use the case of Italian Universities to highlight how the resource allocation systems of faculty positions to academic departments are impacted by performance-based funding. Findings show a variety of performance measurement systems in use within Universities ranging from the use of formula-based allocation to discretionary systems. Differences across systems arise from differences in strategies and priorities of Universities. We have limited evidence that the systems’ features can explain the disparities in research performance and funding across universities, which suggest that a substantial part of the explanation may reside in the size of the organization or in the politics of power across fields and disciplines