Performance Measurement in Italian and Spanish Local Governments: Comparative Policy Analysis

ABSTRACT

NPM reforms have become a global trend and performance management systems are considered suitable to enhance the decision-making process and accountability. The aim of the paper is to carry out a comparative study on the adoption of performance measurement tools in Italian and Spanish (medium-sized and large) local governments. It seeks to find out how widespread these tools are and how their usefulness is perceived. The results show differences between the two countries and that the presence of professional managers – experienced with performance measurement tools – positively affects the adoption of these tools. Moreover, performance measurement tools are perceived as a support for accountability purposes.

Keywords:

• financial reporting
• performance measurement
• accountability
• local governments
• comparative research

Introduction

Public management systems have experienced a number of changes over the last 20 years, leading almost all European countries to shift from a bureaucratic to a managerial approach, under the umbrella of the New Public Management (NPM).

Nevertheless, each country (and sometimes each administration) has introduced different reforms, thus producing a wide range of results (Pollitt and Bouckaert 2011). Even though some more proactive and change-oriented countries have gone through phases of enthusiastic implementation of managerial and market-based techniques in public administrations, in other countries, especially in Southern Europe, evolution of political and public management is still in progress, and there is a lack of uniformity both between countries as well as within them (Kuhlmann 2010).

The aim of this paper is to analyse to what extent performance measurement (PM) has been implemented by medium-sized and large local governments (LGs) in Spain and Italy, as well as to identify conditions that can favour it. In the analysis, we adopt the framework of the new institutional theory (Scapens 1994; Burns and Scapens 2000), assuming that there is often a large gap between the intended and actual changes prompted by reforms (Olson et al. 1998; ter Bogt and van Helden 2000). Results collected allow us to discuss how the usefulness of PM in the decision-making process and for accountability purposes is perceived in the two countries. The paper presents some novelties because it depicts the adoption of performance measurement tools (PMT) in two countries generally under-investigated. There is a lack of comparative studies in this field and such comparisons are potentially useful for advancing public management theory (Lidström 1998) since they allow the consideration of contexts and factors that help us to understand the requisites for improvement and what factors favour the implementation of managerial tools. Although a large number of empirical studies have been devoted to PMT, most of them are concentrated in the so-called NPM countries (the UK, the USA, Australia and New Zealand). For Southern European countries, empirical research is scarce, especially with a comparative approach (Kuhlmann 2010; Rhodes et al. 2012; Wollmann 2012).

Our analysis highlights that country-specific factors and the presence of professional managers – experienced with PMT – positively affect the adoption of these tools, perceived mainly as a support for accountability purposes. Furthermore, results highlight a lesson to learn both for legislators and practitioners, as well as the need for further comparative studies in the field.

The paper is structured as follows. First, we present the Italian and Spanish scenarios. Then we review the current literature on performance measurement through the lens of the new institutional theory and develop the hypothesis to test. The following section introduces the research methodology and, after that, the results of the survey are presented using a comparative approach. In the last section, the results and their implications are discussed.

Performance Measurement in Italy and Spain: The Legal Framework

Italy and Spain are Southern European countries with a Weberian public administrative culture that is largely inspired by the French legal model (Rhodes et al. 2012). In both countries, since the 1990s a number of laws have introduced NPM principles, and political and social pressure for improving public services has made PM highly popular with politicians, managers and citizens, sometimes even including it in the political discourse as a tool capable of increasing transparency (Kuhlmann 2010).

In both Italy and Spain, local governments provide accrual-based financial reports, although budgets are still drafted on the cash basis of accounting (Mussari 2005; Dasí et al. 2013). The main actor in the introduction of accrual accounting in both cases has been the central government, setting administrative laws and accounting standards for local governments. However, current literature criticizes the fact that although accrual statements are prepared, the emphasis is still on budgetary reporting (Anessi‐Pessina and Steccolini 2007; Brusca and Montesinos 2009), considered by the legislation as the main tool to authorize expenses and raise taxes. This can lead to an underestimation of the usefulness of accrual accounting, since this duality may cause confusion for managers who receive conflicting signals from two parallel sets of accounting figures (Guthrie 1998). Moreover, it makes the implementation of PMT more difficult because they should be based on accrual accounting measures.

The introduction of performance measurement has also been supported by legal rules. In Italy, a set of performance indicators was introduced (DPR 194/96), mostly aimed at measuring efficiency, effectiveness and economic performance. Financial reports are related to the budget, with an accrual-based statement consisting of a balance sheet and an operating statement having to be presented. Italian LGs are expected to adopt managerial control tools. However, the law does not require an accrual-based budget or any year-end reports to be compared with the Executive Management Plan (EMP), in which the resources assigned to managers and the related objectives are detailed. Each year, the Ministry of the Interior issues a report (containing performance indicators for a three-year period) comparing all Italian LGs, grouped according to size. This allows a comparison and benchmarking among them, and also increases transparency and accountability. Moreover, the assigning of a target to managers through the EMP was strengthened by a reform in 2009 (D.Lgs. 150) with a different system of remuneration: since then, managers can obtain an increase in their pay according to the results achieved (Kuhlmann 2010).

In Spain, since 2006, local entities with more than 50,000 inhabitants have had to include performance, financial and economic indicators in their financial reports for external purposes. However, there are no compulsory requirements for performance measurement systems or quality tools, and consequently each entity has voluntarily adopted those that it deems most suitable. At present, there are no standards establishing a cost accounting system to calculate the cost of services, despite the fact that this system is the basis of performance measurement; however a recent standard requires it for 2017. The lack of measurement systems is an obstacle to the implementation of performance indicators. Furthermore, previous research (Martí et al. 2012) shows that, in practice, very few entities include this information in their financial reports or publish it on their websites.

Theoretical Framework and Development of Hypotheses

The implementation of PM is not a new concept – as shown by a widespread literature on the subject – and a long list of uses of PM has been identified (ter Bogt and van Helden 2000; Moynihan and Pandey 2010; van Dooren 2011). One main factor strongly supporting the importance of PM is the increasing focus on accountability and results (Moynihan and Pandey 2010). In this context, PM has been considered as a means to enhance accountability and strengthen democracy (Ospina et al. 2004), despite the fact that elected representatives do not always express much interest in it (Pollitt 2009). Scholars have discussed a possible gap between intended and actual changes related to the adoption of different tools and the need to involve more actors in the use of information provided by them (Olson et al. 1998; ter Bogt and van Helden 2000; van Dooren 2011).

From a theoretical perspective, it is possible to examine the introduction of PM in public sector entities and the implications in practice through the lens of the institutional theory (Scapens 1994; Burns and Scapens 2000).

Undoubtedly, under the NPM wave, the adoption of PM has been promoted internationally for its capacity to improve both decision-making processes and accountability (de Lancer Julnes and Holzer 2001; OECD 2005; Moynihan and Pandey 2010).

The promoters of the new institutional theory (Scapens 1994; Burns and Scapens 2000) claim for more research examining accounting practices as well as institutional arrangements and social processes, rather than discussing accounting practices in a conventional way. In this vein, the new institutional theory has also argued that local governments may introduce performance measurements to meet external requirements and thus reinforce legitimacy by providing an impression of rationality and efficiency, but not necessarily using the system to improve internal performance (Modell 2004, 2009; Taylor 2009).

DiMaggio and Powell (1983) refer to institutional isomorphism when organizations compete in order to obtain institutional legitimacy. These authors distinguish three types of isomorphism: coercive, derived from external pressure, like laws, sovereign institutions or more powerful organizations; mimetic, which derives from an imitation process, occurring especially when uncertainty is dominant; and normative, that could be ascribed to the opportunity to comply with a model regarded as successful. However, the new institutional theory emphasizes the need to be aware of the intrinsic limits of deterministic predictions regarding the outcomes of institutional pressures (Modell 2009). In addition, Laughlin (1991) makes a distinction between morphostatic (superficial) and morphogenetic (authentic) change, where the latter involves changes in beliefs, values, rules and mission statements inside the organization.

New institutional theory is also useful to explain the practical implications and level of usefulness of this information. In particular, it leads to the idea that producing documents can often become more important than management and achieving results. In this vein, the results collected by Taylor (2009) show that Australian agencies use performance indicators less for achieving internal improvements than for meeting external reporting requirements. More empirical research will be beneficial for a deeper understanding of the concrete use and usefulness of performance measurement.

Assuming this point of view, we intend to test to what extent some specific conditions can favour the adoption of PMT in Italy and Spain and to understand the usefulness perceived by actors within LGs. With this aim, we first depict the state of the art in the adoption of PMT in the two countries and then test some hypotheses.

Previous research (Bouckaert and Halligan 2008; Pollitt and Bouckaert 2011; Rhodes et al. 2012) states that the practice of performance measurement varies considerably between countries, so it would be useful to compare the different practices and the adoption of different tools in order to capture a range of factors that help to explain the diversity. To this end we have studied the adoption of several PMT in Italy and Spain, including a set of financial performance measurement tools (i.e. cost accounting, performance indicators, participative budget and balanced scorecard) and quality and environmental performance measurement tools. In fact, the quality of the services delivered and quality management is gaining growing attention in local governments (Bovaird and Löffler 2009). In particular, the use of quality plans and quality management systems – aimed at improving service delivery – has been advocated by scholars (Montesinos and Brusca 2009). Environmental tools have been developed in recent decades: local entities are very close to the citizens and the environmental problems in their surroundings. They share, with other administrations, the responsibility of seeking the social welfare of their inhabitants in all fields. Thus, they have an important role both in the conservation of the environment and in supporting cultural change with regard to this issue. These goals require a strategy of sustainable development as well as the implementation of adequate internal systems of environmental management (Giménez Leal et al. 2003).

Previous research has investigated the relationship between the size of LGs and the adoption of PMT, above all for accountability purposes, with Moynihan and Pandey (2010, p. 851) reporting mixed results. Some scholars (Jordan and Hackbart 1999) clarify that organizational capacity is vital to the implementation and use of performance measurement for budgeting. It is considered that medium-sized and large entities are more likely to adopt these techniques (Balaguer-Coll et al. 2007; Torres et al. 2011).

Considering all this, we propose our first hypothesis:

H1:

The size of the entity influences the adoption of PMT and larger entities are more likely to adopt PMT than medium-sized entities.

A further condition investigated by scholars regarding the implementation of performance measurement is professionalism. Ingraham (2005) suggests that excellent leadership drives and supports performance; Berman and Wang (2000) consider professionalism as a key to improving the capacity for PM because of heightened concern for accountability and performance. Managers have an important role in the implementation of PMT, and will be influenced by their past knowledge and experience (Vigoda-Gadot et al. 2005). In fact, within the NPM, one of the keys of public administration reform has been the improvement in selecting and developing top managers, since they can support the introduction of management techniques from the business world. They can adopt innovative tools and techniques, signalling to the organization that there is a need for change (Caccia and Steccolini 2006). In some entities, professionals are even hired from the business sector because they have more experience and training with these tools and help local entities in the “managerialization” process (Ongaro and Valotti 2008). This can explain why entities with professional managers implement more advanced PMT. Accordingly, the presence of professional managers acts as a driver for implementing PM. Thus, we can propose our second hypothesis:

H2:

The adoption of PMT is positively affected by the presence of professional managers.

The literature states (Gianakis 2002; Bagnoli and Megali 2011) that the introduction of cost accounting is the first step for introducing PM, since it provides comparable and reliable accounting figures, allowing the calculation of the cost of different activities (Chan 2003). These data can be useful for both the measurement and evaluation of the results of management, as well as providing support for the decision-making process. In this sense, cost accounting will encourage the construction of performance indicators. Assuming this, we want to verify to what extent the adoption of PMT in Italian and Spanish LGs has been favoured by the introduction of cost-accounting systems. Thus, we propose our third hypothesis:

H3:

The use of cost accounting can be a driver for the introduction of other PMT.

Scholars have widely discussed the results achieved with the introduction of NPM tools (Olson et al. 1998; Lapsley 1999). Regarding the adoption of PMT, previous research highlights some ambiguity in their use (van Dooren 2011), while others have discussed whether this use is rational or symbolic, depending on the pressure exercised by different stakeholders (Brignall and Modell 2000). Halachmi (2005) suggests that there are two main implications in adopting PMT: to enhance accountability (external use) and to improve performance and productivity (internal use). Assuming this perspective, we want to test the following hypothesis:

H4:

The adoption of PMT is used mainly as a support for accountability.

Research Methodology

A questionnaire was sent to all the Italian and Spanish LGs with more than 50,000 inhabitants in order to map the behaviour of medium-sized and large LGs. This choice was coherent with our hypothesis and takes into account that the Spanish law requires entities with more than 50,000 inhabitants to adopt performance indicators.

The questions were prepared with the aim of investigating which PMT have been adopted and a list of possible tools was proposed. In addition, the questionnaire was designed to collect the point of view of the respondents about the usefulness perceived in the adoption of performance indicators.

To analyse the data, first, a descriptive exploration was carried out to evaluate the implementation of the different tools. Then we applied the T-test of the difference of means to test our hypotheses with two samples: entities with and without professional managers, larger entities (with more than 100,000 inhabitants) and medium-sized entities (between 50,000 and 100,000 inhabitants).

Finally, and coherent with our last hypothesis, we used principal component analysis to summarize the usefulness perceived by the respondents with regard to PM. Principal component analysis allows reducing a data set based on observations of variables into a set of values of new variables called principal components. The reduction into dimensions makes the visualization of the data more straightforward and the subsequent data analysis more manageable; in fact, it allows a reorientation of the data so that the first dimensions account for as much of the available information as possible (Lattin et al. 2003).

Results

Of the 140 Italian and 130 Spanish local entities with more than 50,000 inhabitants, 34 Italian LGs (22.9 per cent) and 48 Spanish LGs (36.9 per cent) answered the questionnaire. Medium-sized LGs (with up to 100,000 inhabitants) were the main respondents (in Italy, 59 per cent of the answering entities had fewer than 100,000 inhabitants, while in Spain this figure was 71 per cent), and there was only one entity with more than 1000,000 inhabitants among the respondents in each country (Valencia for Spain and Rome for Italy).The respondents were mainly financial directors (93 per cent in Spain and 50 per cent in Italy) or the person responsible for internal control.

In addition, in 59 per cent of Italian LGs there was a professional manager while in Spain only 13 per cent of the municipalities investigated had professional management in charge. The Italian professional managers usually come from the private sector or from other organizations such as the department of the public function (Mussari 2005; Wollmann 2012). This result is consistent with previous research (Wollmann 2012) on the large presence of professional managers in Italian LGs, whereas Spanish LGs are mostly run by civil servants. This is a relevant point that will be discussed later.

With the aim of depicting the current state of the art, the PMT have been grouped into three different sets: tools strictly related to performance measurement, quality tools and environmental tools. Table 1 summarizes the results of the survey on the adoption of main PMT in the two countries.

Table 1. Performance measurement tools in Italian and Spanish LGs

	Italy		Spain
	N	%	N	%
Cost accounting	18	53	4	9
Performance indicators	22	65	18	39
Balance scorecard	9	26	2	4
Participative budget	11	32	12	26
Service charters	14	41	10	22

Scholars consider cost accounting data as basic for PM (Gianakis 2002; Bagnoli and Megali 2011), but only 53 per cent of Italian LGs have implemented a cost accounting system, and this decreases further to 9 per cent for Spanish entities. The results show that Italian LGs are making an effort to adopt managerial accounting techniques and tools, even if previous research highlights that cost accounting and performance indicators are often based on cash data rather than on accrual data (Caccia and Steccolini 2006; Pavan et al. 2009).

Although performance indicators are compulsory in both countries, they are only largely adopted by 65 per cent of LGs in Italy and 39 per cent in Spain. Another technique that is now emerging in local governments is the balanced scorecard, a management approach that translates an organization’s mission and strategy into a comprehensive set of performance measures that provide the framework for a strategic measurement and management system (Kaplan and Norton 1996). However, despite the great deal of attention given to it by scholars (Chan 2004; Hoque and Adams 2011), only a few entities have introduced it (26 per cent in Italy and 4 per cent in Spain). LGs that implemented this tool pointed out that it was used by the council globally and that the performance indicators were contemplated for the following perspectives: clients, finance, growth and learning, employees and environment.

A few Italian (32 per cent) and Spanish (26 per cent) municipalities have adopted participatory budgeting. This is an important tool for democratic participation, enabling citizens to participate in budgetary decision-making processes (He 2011; Bassoli 2012). However, the low level of adoption can be explained by the fact that this tool is not compulsory in either country.

According to the data collected, there is a larger adoption of service charters in Italy (41 per cent) than in Spain (22 per cent). This tool has been compulsory in Italy since 1995 (Law 273/1995) while in Spain it is not mandated by law, although some local entities are adopting service charters for some services, following initiatives by the central government (where service charters are compulsory) and regional governments.

With regard to quality tools (Table 2), the citizen satisfaction survey is the most used quality tool in Italian municipalities (65 per cent); this result can be explained by the compulsory adoption of Service Charters in Italy. The most widely used quality tool in Spain is ISO 9000 (35 per cent), and the ISO 9001 certification has been awarded to 32 per cent of the Italian LGs and 26 per cent of the Spanish ones. In both countries, municipalities are encouraged to obtain the certification in order to improve their relationships with their various stakeholders. Thanks to ISO 9001, LGs are more transparent and can improve their fundraising ability by increasing the coherence between different sectoral policies (Salomone 2008).

Table 2. Quality tools adopted in Italian and Spanish LGs

	Italy		Spain
	N	%	N	%
Pluriannual/annual quality plan	5	15	6	13
Quality management system	6	18	8	17
Citizen satisfactory surveys	22	65	13	28
EFQM models	10	29	9	20
CAF model	1	3	2	4
ISO 9000	8	24	16	35
ISO 9001 certification obtained	11	32	12	26

Moreover, only ten Italian (29 per cent) and nine Spanish (20 per cent) entities have adopted the European Foundation for Quality Management (EFQM) excellence model. This tool permits the local governments to improve the quality and cost-effectiveness of their services and goods, with a particular emphasis on customers (George et al. 2003). The Common Assessment Framework (CAF) model is used by only one Italian respondent and two Spanish respondents, even though this tool is widely used in the EU. This model, based on the Total Quality Management approach, is a self-assessment tool available to public organizations is aimed at improving performance (Barresi et al. 2013).

The last area investigated is environmental management. As can be seen in Table 3, there is a widespread adoption of the Local Agenda 21 (LA21) in both countries: 65 per cent of Italian LGs and 59 per cent of Spanish LGs have adopted this tool, although it is not compulsory in either country. The LA21 plan is a comprehensive strategic plan of action that a local government can develop to ensure environmental protection, economic prosperity and social equity and is necessary to obtain specific European grants (Tang et al. 2010).

Table 3. Environmental tools adopted in Italian and Spanish LGs

	Italy		Spain
	N	%	N	%
Local Agenda 21	22	65	27	59
Environmental management system	1	3	15	33
Standardized EMS (EMAS or ISO 14000)	4	12	8	17
ISO 14001	3	9	7	15
Environmental indicators	9	26	15	33

The Environmental Management System is the least used tool in Italy, being adopted by only one municipality, while in Spain it is adopted by 15 entities. This tool is not compulsory in either country although it has been regulated by the European Union (EC Regulation no. 761/2001). It requires organizations to be committed to developing an environmental statement as well as to ensure its maximum dissemination to the public. In this way, citizens are made aware of the efforts of LGs to operate in compliance with the goal of continuous environmental improvement (Giménez Leal et al. 2003). This situation shows that Spanish LGs pay more attention to environmental management than Italian LGs, demonstrating that they are more sensitive to the institutional pressure coming from the European Commission which has implemented a variety of policies to encourage local governments to adopt environmental reports and tools voluntarily (Giménez Leal et al. 2003).

The standards ISO 14000 and ISO 14001 are adopted by few Italian and Spanish local governments. These standards, related to environmental management, help organizations to minimize how much their operations (processes, etc.) negatively affect the environment (Heras-Saizarbitoria et al. 2011).

Conversely, the data show a greater attention to PMT in Italy. Indeed, the influence exercised by normative pressure has been stronger in Italy, where the adoption of performance indicators has been mandatory since 1996, while the same requirement was introduced into Spain only in 2006 and is limited to LGs with more than 50,000 inhabitants.

In order to compare the state of the art in the adoption of PMT by the LGs of Italy and Spain, the T-test of difference of means has been used. As can be seen in Table 4, some differences are found for nearly every tool, with the overall situation showing a more favourable framework in Italy. In accordance with previous research (Piotrowski and Bertelli 2010), these results suggest that specific country factors influence the behaviour of municipalities.

Table 4. PMT in Italy and Spain (T-test)

Performance management, environmental and quality tools	T-test	P value
System of cost accounting	−5.181	0.000
Performance indicators	−2.365	0.020
Balanced scorecard	−2.794	0.006
Participative budgets	−1.123	0.265
Service charters	−3.755	0.000
Pluriannual/annual quality plan	−2.589	0.11
Quality management system	−2.561	0.012
Citizen satisfaction surveys	−3.382	0.000
EFQM techniques to manage some services	−2.875	0.005
CAF model to manage some services	−43.958	0.000
Standardized systems of quality management: ISO 9000	−1.210	0.230
ISO 9001 certificate	−0.557	0.579
Local Agenda 21	−1.097	0.276
Environmental management systems (EMAS or ISO 14000)	−22.116	0.000
Standardized EMS (EMAS or ISO 14000)	−2.359	0.000
ISO 14001 certificate	−2.359	0.021

In order to test the first hypothesis, we compare the entities with between 50,000 and 100,000 inhabitants and those with more than 100,000 inhabitants using the T-test of difference of means (Table 5). Unlike previous research (Balaguer-Coll et al. 2007; Torres et al. 2011), our findings highlight that size is not a factor that always facilitates the introduction of these techniques. Firstly, size does not influence the introduction of financial performance measurement tools, such as performance indicators, the balanced scorecard and participative budgets. Secondly, there are some differences in the use of quality and environmental performance measurement tools. Medium-sized entities have made greater efforts to introduce quality management techniques, such as quality plans and quality management systems (EFQM) and, on average, they have obtained the certificate ISO 9001 more frequently than bigger entities.

Table 5. Size of local governments and PMT (T-test)

Performance management, environmental and quality tools	T-test	P value
Performance indicators	0.861	0.392
Balanced Scorecard	−1.160	0.330
Participative budgets	−0.991	0.325
Service charters	−1.146	0.259
Pluriannual/annual quality plan	2.105	0.049
Quality management system	2.021	0.048
Citizen satisfaction surveys	0.078	0.938
EFQM techniques to manage some services	2.088	0.041
CAF model to manage some services	−1.202	0.233
Standardized systems of quality management: ISO 9000	0.859	0.393
ISO 9001 certificate	2.216	0.031
Local Agenda 21	−1.293	0.204
Environmental management system	−1.503	0.137
Environmental management system (EMAS or ISO 14000)	−2.236	0.032
ISO 14001 certificate	−2.069	0.046
Environmental indicators	−2.242	0.032
Economy indicators	−0.403	0.688
Efficiency indicators	−1.495	0.145
Efficacy indicators	−1.451	0.157

Thirdly, bigger entities are more interested in environmental management systems than medium-sized entities, as a higher percentage of them have implemented Eco-Management and Audit Scheme (EMAS) or ISO 14000 and have received 14001 certificates.

With regard to the second hypothesis, we tested whether the presence of professional managers affects the adoption of PMT. The results of the T-test of differences of means between the group of entities with professional managers and those without (Table 6) indicate that there are differences in the use of cost accounting and the elaboration of performance indicators (mainly intended to measure efficiency and efficacy).

Table 6. Professional manager and the use of PMT (T-test)

Performance measurement tools	T-test	P value
Cost accounting	3.620	0.001
Performance indicators	2.206	0.030
Balanced scorecard	0.694	0.491
Participative budgets	1.046	0.304
Service charters	1.825	0.078

This shows that entities with professional managers are more inclined to introduce performance measurement, demonstrating that these professional figures favour cultural change through the implementation of performance management tools coming from the private sector (Caccia and Steccolini 2006; Ongaro and Valotti 2008). In accordance with our second hypothesis and following the literature on the matter (Berman and Wang 2000; Ingraham 2005), professional managers can be considered a factor that promotes the widespread use of performance measurement tools. This also supports the hypothesis of Huff (2011) about the influence of personnel practices on all other functions of management.

With regard to the third hypothesis, Italian and Spanish entities adopting cost accounting have been observed as a whole (16 Italian LGs and four Spanish LGs), in order to evaluate the effect of using this accounting system on other performance measurement tools.

The result of the T-test of differences of means (Table 7) shows that there are no differences in any of the items. Therefore, it seems that the introduction of cost accounting has not been a factor promoting the introduction of other PMT. Even if scholars consider cost accounting as a prerequisite for the adoption of PMT (Gianakis 2002; Chan 2003; Bagnoli and Megali 2011), performance indicators are built on cash and commitment-based accounting rather than on accrual data (Caccia and Steccolini 2006; Pavan et al. 2009). Consequently, even when entities introduce cost accounting, the implications are poor and information is not related to the evaluation of economic performance, efficiency and efficacy.

Table 7. Cost accounting and the adoption of PMT (T-test)

Performance management tools	T-test	P value
Performance indicators	−0.067	0.947
Balanced scorecard	1.817	0.075
Participative budgets	0.075	0.941
Service charters	0.469	0.641

In order to test the fourth hypothesis, assuming that performance indicators are the most widespread adopted tool, local governments that adopt this kind of tool were asked to express a judgement about their perceived usefulness on a scale of one to five (items in Table 8).

Table 8. Extraction method: principal component analysis with three component extracts

	Components
	1	2	3
Support the preparation of the budget	0.192	0.033	0.822
Support decisions on service delivery	0.831	−0.076	0.236
Evaluate results achieved by managers	0.123	0.814	−0.030
Support decisions on services to be cut or reduced	0.737	0.292	0.243
Support decisions on services to be increased	0.825	0.148	0.248
Support space comparison	0.519	−0.054	0.565
Allow time comparison	0.649	0.548	−0.127
Presenting results to Council	0.787	0.249	0.029
Support the preparation of electoral programme	0.542	0.582	0.075
Assign targets to employees	0.085	0.949	0.096
Fix targets for each service according to the budget	0.213	0.917	0.100
Support the preparation of electoral programme	0.033	0.610	0.616

The results (Table 8), analysed through the principal component analysis, reveal that the first three dimensions explain 73 per cent of the variance. The association of each item to the components can be seen in Table 8.

“Component 1” explains 46 per cent of the variance (Table 9) and it could be referred to as the “accountability dimension”. In fact, it is strongly and positively related to the following motivations: explain decisions on service delivery; explain decisions on services to be cut or reduced; explain decisions on services to be increased; allow comparison over time; support managers when presenting results to the Council.

Table 9. Matrix of the principal component

Component		Initial Eigenvalues
		Total	% of variance	% cumulative
Dimension	1	5.486	45.717	45.717
	2	2.187	18.224	63.941
	3	1.139	9.494	73.435

“Component 2” explains a further 18 per cent of the variance, and it could be called the “evaluation dimension” because it is strongly and positively related to the following motivations: evaluate results achieved by managers; assign targets to employees; fix targets for each service according to the budget; support manager in presenting results to citizens.

“Component 3” explains the remaining 9 per cent of the variance and it could be called the “budgeting and political dimension” because it is strongly and positively related to these motivations: support the preparation of the budget; support comparison between entities; support the preparation of the electoral programme. The variable “support the preparation of electoral programme” is positively related to both Component 2 and Component 3.

The analysis of the three components shows that, in support of the fourth hypothesis, there is a large predominance of the “accountability dimension” over the other two dimensions (the “evaluation” and “budgeting and political” dimensions). These results show that Italian and Spanish LGs use performance indicators mainly to justify their decisions or changes in service delivery, as well as to discuss the results achieved, rather than to drive the decision process. Ultimately, the use of performance indicators for the evaluation of results and budgeting as well as political purposes is below desirable levels.

The outcomes are in line with previous research (Taylor 2009), highlighting that PMT are often considered mainly as a tools to enhance external transparency and accountability (OECD 2005). Despite performance indicators being required by law, and in spite of the many advantages presented in the literature (Smith 1990; Bouckaert 1993; Askim 2007), managers still seem unaware of the potential benefits of their use for evaluation and budgeting.

Table 10 synthesizes the results obtained through the survey with respect to the hypotheses formulated.

Table 10. Summary of the results

Hypothesis		Results
H1	The size of the entity influences the adoption of PMT and larger entities are more likely to adopt PMT than medium-sized entities.	Confirmed only for environmental tools
H2	The adoption of PMT is positively affected by the presence of professional managers	Confirmed
H3	The use of cost accounting can be a driver for the introduction of other PMT	Not confirmed
H4	The adoption of PMT is used mainly as a support for accountability	Confirmed

Discussion and Implications

The introduction of PM in local government can be a useful tool to improve economic rationality and efficiency and has been one of the most widespread trends within the NPM (Pollitt and Bouckaert 2011). Nevertheless, there is still very little comparative research in this field with regard to European continental countries. Assuming the lens of institutional theory, which claimed for research that examines accounting practices and looks at institutional arrangements and social processes, rather than discussing accounting practices in a conventional way (Scapens 1994; Burns and Scapens 2000), our comparative analysis tries to shed light on the drivers of the adoption of PMT by LGs in Italy and Spain.

The data collected highlight that, despite having a similar political-administrative setting (Kickert 2003), performance measurement tools have been spread differently in the two countries. Probably due to their earlier introduction, some tools – particularly performance indicators – are more widely adopted in Italy than in Spain. The presence of professional managers appears to be a key factor in the introduction of PMT. The greater presence of city managers in Italian LGs – most of whom are not civil servants but professionals – heralds the use of performance indicators and other tools aimed at controlling efficiency and effectiveness on a large scale. Despite the legal requirements, the results highlight that both countries are still in an embryonic stage with respect to the application and integration of PMT in the decision-making process. The reason for this may be related to the lack of a proper cost accounting system. As previous empirical research highlighted (Pavan et al. 2009; Montesinos and Brusca 2009), cost accounting is not fully developed in either country and in Italy, even although some entities have implemented it, the data are based on cash accounting. As a consequence, service costs are not extensively calculated.

Even though the last decade has witnessed the emergence of very different reform trajectories and approaches to assessing the performance of municipalities in Italy and Spain, there is still a long road ahead. The normative changes imposed by law in the two countries seem to have prompted almost morphostatic changes (Laughlin 1991) in both Italian and Spanish LGs, but PMT cannot be introduced as an isolated measure as they require organizational and cultural changes (de Lancer Julnes and Holzer 2001). A highly bureaucratic culture in public administration and the lack of involvement of their management in measuring the results achieved (Navarro Galera et al. 2008) can be considered one of the main obstacles to any real change (Sanger 2008). A radical change in accountability and decision making requires the adoption of both cost accounting and other performance measurement tools.

A genuine relationship between the objectives assigned to and those fulfilled by managers can be an effective driver towards achieving this kind of improvement. Another driver is a real interest from politicians in obtaining information from performance measurement systems because they greatly influence the implementation of “NPM-type” instruments and the possibilities of change (Schedler 2003; van Dooren 2011). However, this driver depends, in part, on citizen pressure: if performance is not evaluated by governments and, above all, if this evaluation is not publicly available, citizens will rely mostly on anecdotal sources (Yang and Holzer 2006). Further comparative research assessing how citizen pressure can be a stimulus to politicians for the introduction of PM would be beneficial for the development of studies of PMT in local entities.

In conclusion, empirical evidence demonstrates that the mandatory enforcement of certain tools by law is not sufficient to ensure the adoption and use of PMT. Confirming some insights from institutional theory, another relevant consideration arising from the results of our analysis is that “the idea of reforming the public sector by importing business-like practices appears to be overly simplistic” (Cristofoli et al. 2010, p. 368). It seems that in both Italy and Spain, despite NPM reforms, bureaucratic systems tend to resist and politicians have the power to make decisions without considering the information from PMT, making these tools partially useless and delaying their real implementation. In accordance with Bouckaert and Halligan (2008), it seems that the administrative culture is a key factor affecting the speed of reform. Similarly, the attitude of politicians and managers is also a crucial piece of the puzzle (Pollitt and Bouckaert 2011). Further comparative research in other countries could add new insights to the discussion.

Additional information

Notes on contributors

Isabel Brusca

Isabel Brusca is a professor in the Department of Accounting at the University of Zaragoza. She has participated in numerous research projects about public sector accounting and management and is the author of several articles and books about this field. She has been consultant of the Committee on Local and Regional Democracy (CDLR) of the Council of Europe.

Francesca Manes Rossi

Francesca Manes Rossi is associate professor of accounting in the Management and Innovation System Department at Salerno University, where she teaches and conducts research on accounting and management in both the private and public sector.

Natalia Aversano

Natalia Aversano holds a PhD and is research fellow in public sector accounting at Salerno University. She conducts research on public and private sector accounting and her publications mainly concern IPSAS, heritage assets, governmental transparency, and accounting education.