Few elements of the New Zealand reforms have attracted as much favourable comment from Ministers, chief executives, and senior managers as have the strategic and key result areas. The SRAs and KRAs have been so rapidly and fully integrated into the reformed public sector that it is easy to forget that they were added only a few years ago, when it became apparent that the original design gave inadequate attention to strategic and collective capacity. The SRAs and KRAs are the best evidence of the malleability of the reforms and their capacity to adapt to fresh ideas and reconsideration of old ones.
Ministers like the SRAs/KRAs because they can more easily align their priorities to those of the government, and they can also lay claim for additional resources on the argument that they are responding to the government's initiatives. Chief executives welcome SRAs/KRAs because they have a clearer notion of what is expected by way of their performance, and managers because they can organise operations to optimise achievement of the specified results.
The SRAs/KRAs were introduced in response to perceived shortcomings in the original reforms, in particular, apprehension that the collective interest was slighted, difficulties in specifying and assessing outcomes, and the short-terMaorientation of policy. They unfolded in three stages which, in retrospect, appear to have been more logically connected than was apparent at the time. The first stage was publication of the government's vision statement, Path to 2010, in 1993. This document pointed in the direction that the government hoped to move the New Zealand economy and society over the long term, but it did not spell out the actions that would be needed or taken to implement the vision. The second stage was formulation of strategic result areas as an expression of the government's medium-term ambitions. The Prime Minister's foreword to the 1994-97 SRAs (issued in February 1995) describes the result areas as "the link between the Government's long-term objectives and the operational activities of departments. They aim to bridge the gap between the broad vision of a future New Zealand as stated in the 1993 document Path to 2010 and the one-year focus of existing departmental budgets and chief executive performance agreements." The third stage has been the formulation of departmental KRAs that are linked to the SRAs and form the basis for the performance agreements.
In the few years they have been in circulation, the SRAs have been effectively incorporated into governmental decision making. Publication of the SRAs has been advanced so that it now coincides with the release of the Budget Policy Statement and is available before detailed examination of the Estimates commences. Moreover, the SRAs have been worded so as to sharpen their focus and to indicate the activities or priorities on which particular emphasis will be placed. While the SRAs inherently are broad statements, they nevertheless signal the government's priorities and interests over the next several years. One might wish for more specific statements, but given the size of the Cabinet and the scope for public policy, the SRAs must be cast in general terms to obtain consensus.
The government has enunciated nine strategic areas; a close look at one of these shows how the statements may affect policies and budgets. SRA #2 "Enterprise and Innovation" communicates the government's intention to reinforce "a successful enterprise economy through maintaining and progressing an open trade environment that:
- is conducive to the fair and efficient conduct of business;
- is conducive to the efficient operation of markets;
- rewards work, enterprise, and innovation;
- enhances investor confidence."
The SRA then identifies eight matters of particular emphasis, including policies that promote the open flow of goods, ideas, and services between New Zealand and other countries; establishment of legislative frameworks for the fair and efficient conduct of business; development of a simplified and viable fisheries management regime; completion of gas and electricity reforms; programmes to enhance the performance and capabilities of small to medium-sized businesses; policies for the sustainable growth of the tourism sector; and ensuring that public investment in science and research is well targeted. As broad as some of these interests are, they leave little doubt as to the direction the government is heading.
The SRAs (and KRAs discussed in the next paragraphs) have had a marked, and generally favourable, influence on budget decisions and managerial accountability. Ministers and chief executives use the SRAs/KRAs as talking points in support of budget bids and to show how their requests promote the government's priorities. Given the broad sweep of some SRAs, it is not hard for most Ministers to demonstrate that their initiatives are justified by the government's strategic result areas. A few Ministers feel excluded because their departments do not directly contribute to the SRAs, but this situation is inevitable in any priority-setting process.
The SRAs strive to define outcomes; the KRAs that serve them generally resemble output measures. SSC guidelines for the 1995/96 performance agreements advise chief executives to identify the major contributions they and their departments will make to the government's objectives over a three-year period. These KRAs should identify the goods and services to be provided in support of the SRAs, along with critical aspects of departmental management. Although the KRAs also are somewhat broadly stated, progress toward achieving them should be expressed in observable and verifiable milestones. The milestones (which, like the KRAs, have a three-year focus) should outline the results expected, target dates, and wherever feasible the qualitative and quantitative standards to be achieved. SSC advises large departments to have five to seven KRAs and small departments to have fewer. A few have many more. Treasury had sixteen for 1995/96; Justice had fourteen before the department was reorganised. All told, departments have more than two hundred KRAs and more than three times as many milestones.
My review of a sample of performance agreements confirms that the KRAs and milestones are cast in actionable terms. These agreements give readers a clear idea of the actions chief executives pledge to take in implementing the KRAs. For example, in response to the government's Enterprise and Innovation SRA, the Ministry of Foreign Affairs and Trade specifies enhancement of the international trading system, resisting protectionism and building on the Uruguay round agreement as one of its key result areas; Customs specifies increasing the efficiency of its tax collection system; Fisheries agrees to develop and implement environmental standards to sustain utilisation of New Zealand fisheries; Agriculture will amend arrangements which inhibit primary sector performance; and so on. With so many departments contributing to the same SRA, the process gives the government a much clearer picture than before of how the various activities relate to one another. The process may also become a tool for examining duplication or inconsistencies in public policies.
This potential has been enhanced by efforts of the central agencies to review departmental KRAs and milestones. The KRAs and milestones are drafted by chief executives in consultation with their Ministers. They are then reviewed by the central agencies, at which point the process has become somewhat controversial. The chief executives of these agencies closely review the KRAs and assess their linkage to the SRAs as well as to KRAs agreed by other departments. SSC in one recent year used a twenty-eight-item checklist, since simplified, for assessing the KRAs in terms of strategic alignment (linkage to the SRAs and to the Minister's key objectives); significance (evidence that the KRAs were derived from a strategic planning process and reflect departmental priorities); specification and assessability (whether the KRAs are clearly defined and the milestones are measurable in terms of quality, quantity, and time); coherence (determination whether each KRA is consistent with other KRAs); consultation (evidence that the relevant Vote Ministers and chief executives have been consulted); and collective interest (assessment whether the collective interest has been advanced, or at least not compromised, by the KRAs).
In addition to reviewing each performance agreement, the central agencies have developed a rating system for assessing the quality of the KRAs, as well as a matrix for linking the KRAs to the SRAs. For example, they identified at least forty-five KRAs that contribute to the Enterprise and Innovation strategic result area and comment on the quality and suitability of the KRAs. A typical comment is the one recorded for a certain department: "Although well specified, all [their] KRAs would benefit from the addition of measurable targets in the milestones."
The analysis conducted by the central agencies found a number of deficiencies in the KRAs. But perhaps the most consequential finding was that there are difficulties in using the KRAs for both chief executive accountability and linkages to the SRAs. "If departments are encouraged to continue refining KRAs for CE accountability purposes, the KRAs selected are likely to become less . . . meaningful from a SRA/KRA linkage point of view."
Some chief executives and senior managers complain that the central agencies have become too eager to intervene and substitute their judgment to that of the parties to the performance agreement. They evidently feel that the KRAs should serve more as an instrument for accountability to their Ministers than as a means of ensuring that departments promote the government's strategic priorities. The other side of the argument, however, is that inasmuch as contemporary management doctrine holds chief executives accountable for results, they should produce the results sought by the government. In balancing the claim of chief executives for discretion in managing operations and of the central agencies for the need to represent the collective interest, I would urge some forbearance by the central agencies. They should intervene only on an exceptions basis, when there is substantial risk that the government's interest will be ignored or impaired. The central agencies should continue to have a prominent voice in managing the government's strategic interest, but they should assume that departments do take care to align their KRAs with the government's objectives. My own assessment is that the current arrangement works rather well. The performance agreements and the chief executives are mindful of the government's interests and priorities. If the SRA/KRA link were made too tight, the process would rigidify and become less useful. A bit of slack allows the KRAs to contribute to accountability as well as to strategic objectives.