Commonalities and Differences in Public and Private Sector Performance Management Practices: A Literature Review

Abstract

Abstract Purpose An examination of the commonalities and differences between performance management practices in the public and private sector. Methodology/approach A literature review of 100 publications in international academic journals over the last 20 years. Findings The chapter develops a framework which links the dimensions of the public/private-distinction (ownership, funding, control and type of goals) to the design and use of performance management systems (PMS). This framework subsequently informs a literature review, which can be summarised as follows: Multi-dimensionality of the PMS is core in both public and private sector organisations, but quite many private sector papers point to a financial focus at the top of the PMS, while public sector organisations show a broad variety of performance indicators, including those on societally relevant goals. In addition, a link between the PMS and strategies can be found in the public and the private sector, but the match between different strategies and PMS design is more elaborated in the private sector. These findings are largely in accordance with our expectations. The review also finds support for the assumption that performance information in public sector organisations is primarily used for external accountability reasons, while internal managerial control is the main purpose in private firms. The use of performance information is quite intensive and mostly functional in both sectors, which does not meet our expectations. Overall, the differences between performance management practices in the public and private sector are less stringent than expected. Research limitations Due to limited evidence about the importance of performance-related pay systems and no evidence about targeting in both sectors, a more focused literature review on these issues would be desirable. Practical implications Mutual learning between both sectors, for example the public sector can learn from the private sector on how to link strategy to the PMS and the private sector can learn from the public sector about serving a multitude of stakeholders in the PMS. Originality/value A comprehensive review of performance management practices in the public and private sector.