Performance Measurement and Accountability in Indonesian Local Government

298 Pages·2012·2.75 MB·English

School of Accounting
Curtin Business School

Performance Measurement and Accountability
in Indonesian Local Government

Rusdi Akbar

This thesis is presented for the Degree of
Doctor of Philosophy
of
Curtin University

July 2011
Declaration

To the best of my knowledge and belief this thesis contains no material previously
published by any other person except where due acknowledgement has been made.
This thesis contains no material which has been accepted for award of any other
degree or diploma in any university.

Signature :.....................................

Date : 4 July 2011

ii
Dedication

Love begins at home
"My home is my heaven"

(The Prophet Muhammad)

This thesis is dedicated to my family members:

Elin – Almer – Arrania
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Abstract

Performance measurement and accountability in the management of public sector
programs have long been seen as central factors in public management research
globally. For more than two decades, in many developed countries, heightened
interest in performance measurement in government organisations has held
tremendous promise for both academics and practitioners.

Despite the global trend, there has been little research on performance measurement
and accountability in Indonesia. This paucity exists even though regulations have
been in existence for more than a decade requiring government organisations to
prepare and submit an ‗accountability of performance report‘ as a crucial component
of Indonesia‘s public sector reform. This thesis investigates the implementation of
performance measurement systems in Indonesia during the first wave of public sector
reform. Specifically, it examines factors affecting the development and use of
performance indicators in Indonesian local government (ILG).

Employing a mixed research methodology, the thesis utilises a combination of a
nation-wide survey and follow-up in-depth interviews with local government senior
officials who are responsible for preparing performance reports. Specifically, the
study explores the experiences and perceptions of government officials regarding the
development and use of performance indicators and accountability practices in
Indonesian local governments. The research findings contribute not only to the
academic literature but also to practical public policy. The results indicate that metric
difficulties, technical knowledge, management commitment, legislative requirement,
and organisational capacity all have an effect on the development and use of
performance indicators and accountability practices in ILG. Legislative requirement
and management commitment have the strongest influence.

The more contextual reasons and motivations behind the implementation process
were also investigated and are illustrated in this thesis. For this purpose, institutional
theory was used as the theoretical framework to better explain and understand the
issues. The findings revealed that institutional isomorphism did contribute to the
process of decision making. All three institutional components of isomorphism—
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coercive, mimetic and normative pressures—were found in ILG with coercive
pressure found to be the strongest influence.

The findings of this research have academic implications for scholars in public sector
management and practical implications for many different parties, namely: 1) central
government; 2) local government; 3) government auditors; and 4) universities. The
findings provide an overview of performance measurement and accountability
practices in a local government context. Specifically, this thesis provides important
evidence regarding factors influencing the development and use of performance
indicators, as well as factors hindering the implementation of performance
measurement systems. In addition, it reveals the influence of isomorphic pressures in
the implementation of performance measurement systems in Indonesia.

Results revealed in the thesis are useful in evaluating the success or failure of the
past implementation process. More importantly, the findings will be essential in
helping to determine current and future policies and to ensure their continued
success. This thesis provides analyses on the results of a decade of reform efforts in
the area of public sector performance measurement and accountability in Indonesian
local governments. With the recently-launched bureaucratic reform marking the
second wave of reform (2010-2025) to improve Indonesian government, a reform
effort that includes for the first time the vice-president‘s office, research into
performance measurement and accountability practices in the first wave of reform
(1999-2009) is especially timely.

In summary, the significant contributions this thesis makes to performance
measurement and accountability literature are threefold. Theoretically it provides a
relevant exemplar regarding the application of institutional theory on performance
measurement research in a developing country. Methodologically it contributes to the
increasing use of mixed-method research. Analytically it provides evidence of the
use of partial least squares as a relevant analytical tool. Further, this thesis paves the
way for future research in the relatively unexamined area of public sector
performance measurement and accountability in Indonesia.
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Acknowledgement

Proclaim (or read) in the name of thy Lord who created.
Created man out of a leech-like clot:
Proclaim and thy Lord is most bountiful,
Who taught (the use of) the pen,
Taught man what he knew not.
(Al-Alaq: 1-5)

First of all, I would like to say thank you to Allah the Almighty for the countless
blessings given to me and my family, not only during my doctoral journey but also
throughout our entire lives. Without the blessings of Allah everything I do in this
world is simply meaningless. Many people have played a role directly or indirectly in
the completion of this thesis and hence deserve recognition and appreciation.

I would like to thank my supervisors Associate Professor Dr Robyn Pilcher and Dr
Brian Perrin for their excellent supervision; they provided invaluable guidance
throughout my doctoral study. My appreciation also goes to Professor Alistair
Brown, Professor John Neilson and Professor Greg Tower for their guidance during
the early stage of my thesis. Many thanks also to Joanne Boycott (administrative
support) and Fay Rola-Rubzen (Higher Degree by Research Academics Coordinator)
of the Curtin Business School. Their assistance has made my day-to-day doctoral
journey easier.

I would like to express my appreciation to Professor Dr Mardiasmo for providing an
endorsement letter in support of my survey and for his invaluable assistance in
accessing important data regarding local governments from the Ministry of Finance
Database. I am also very grateful to Dr Akhmat Makhfatih and the staff at Magister
Ekonomika Pembangunan (MEP) Universitas Gadjah Mada (UGM) Yogyakarta,
Indonesia, for their assistance during the period of conducting my pilot testing, and
also to the Dean of the Faculty of Economics and the Rector of UGM for their
support during my field research in Indonesia.

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Many thanks to all the MEP students who gave up their precious time to participate
as respondents during the pilot test. Your constructive feedback and contributions
were much appreciated. My thanks also go to all the Indonesian local government
(ILG) officials who were directly involved in my research as respondents during both
the survey and the interview process. Without your participation and commitment the
completion of this thesis would not have been possible. Your contributions are very
much appreciated.

This is also an excellent opportunity to thank all my family members both in Java
and Kalimantan Island. Gratitude is especially directed to my mother, Moetni (1939–
1989) who was a loving support. Her noble heart was reflected in her sincere and
pure smiles, which used to soothe my heart and will stay with me forever. To my
father (Moedjelan), father-in-law (Abu Tauhied), and mother-in-law (Siti Aisyah)
who have been very supportive with their encouragement and prayers for me in
pursuing my doctoral degree, I offer my warmest thanks.

Finally, I thank and dedicate this thesis to my soul mate, Laeli Nisfi Makiyatul
Burhani. Together with our two gorgeous children—Al Ameer Muhammad Rusel
Akbar and Arrania Rusel Akbar— she has been the ultimate source of support for my
studies and in my life. As a result of her understanding and steadfast commitment, as
a wonderful wife and full-time mum to our two highly demanding children, I have
been able to work on and finally finish this thesis. No words can describe her
struggle and sacrifice during the years I devoted to my doctoral journey—the
toughest years of our life together. Truly, from the depths of my heart, I thank my
beloved family for being at my side and for serving as my spirit and inspiration in
my doctoral journey and in life, and I will continue to do so. I love you.

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T able of Contents

Declaration ................................................................................................................... ii
Dedication ................................................................................................................... iii
Abstract ....................................................................................................................... iv
Acknowledgement....................................................................................................... vi
List of Appendices .................................................................................................... xiii
List of Tables............................................................................................................. xiv
List of Figures .......................................................................................................... xvii
List of Abbreviations............................................................................................... xviii
Thesis Related Publications ....................................................................................... xx
Chapter 1: Overview of the Thesis ........................................................................... 1
1.1 Introduction ........................................................................................................ 1
1.2 Background ........................................................................................................ 1
1.3 Research Context ................................................................................................ 3
1.3.1 Indonesian reform ........................................................................................ 3
1.3.2 Indonesian local government ....................................................................... 6
1.3.3 Accountability and performance measurement in Indonesian government. 8
1.4 Research Methods ............................................................................................ 10
1.4.1 Research objective and questions .............................................................. 10
1.5 Significance and Contribution of Research ...................................................... 11
1.5.1 Significance ............................................................................................... 11
1.5.2 Contributions ............................................................................................. 12
1.6 Limitations of Research Methods ..................................................................... 13
1.7 Organisation of Thesis ...................................................................................... 14
1.8 Chapter Summary ............................................................................................. 15
Chapter 2: Literature Review ................................................................................. 16
2.1 Introduction ...................................................................................................... 16
2.2 New Public Management and Good Governance ............................................ 16
2.3 Accountability .................................................................................................. 19
2.3.1 Five forms of accountability ...................................................................... 20
2.3.2 Government and accountability ................................................................. 25
2.4 Performance Measurement ............................................................................... 26
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2.5 Performance Measurement Systems ................................................................ 29
2.6 Performance Measurement Systems in Indonesia ............................................ 34
2.7 Summary .......................................................................................................... 37
Chapter 3: Theory, Conceptual Model, and Hypothesis Development .............. 39
3.1 Introduction ...................................................................................................... 39
3.2 Theoretical Background ................................................................................... 39
3.3 Institutional Theory .......................................................................................... 41
3.3.1 Institutional theory and performance measurement systems ..................... 47
3.4 Prior Studies Using Institutional Isomorphism ................................................ 52
3.5 Conceptual Schema .......................................................................................... 56
3.5.1 Performance measurement: development and use ..................................... 56
3.5.2 Accountability: internal and external ......................................................... 57
3.6 Hypotheses Development ................................................................................. 60
3.6.1 Metric difficulties ...................................................................................... 61
3.6.2 Technical knowledge ................................................................................. 62
3.6.3 Management commitment ......................................................................... 63
3.6.4 Legislative requirements ............................................................................ 64
3.6.5 Organisational capacity.............................................................................. 66
3.7 Summary .......................................................................................................... 67
Chapter 4: Research Methodology ......................................................................... 68
4.1 Introduction ...................................................................................................... 68
4.2 Paradigmatic Debate ......................................................................................... 68
4.2.1 The role of mixed-method research ........................................................... 70
4.3 Research Plan ................................................................................................... 74
4.4 Quantitative Phase ............................................................................................ 76
4.4.1 Dependent variable constructs ................................................................... 78
4.4.2 Independent variable constructs................................................................. 80
4.4.3 Translation ................................................................................................. 81
4.4.4 Quantitative data collection phase: questionnaires .................................... 81
4.4.5 Quantitative data analysis .......................................................................... 82
4.4.6 Pilot Testing of the survey instrument ....................................................... 89
4.5 Qualitative Phase .............................................................................................. 90
4.5.1 Qualitative data collection phase Interviews ............................................. 90
4.5.2 Qualitative data analysis ............................................................................ 91
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4.6 Ethical Considerations ...................................................................................... 93
4.7 Summary .......................................................................................................... 94
Chapter 5: Quantitative Analysis Part 1 ................................................................ 95
5.1 Introduction ...................................................................................................... 95
5.2 The Survey ....................................................................................................... 95
5.2.1 Response rate ............................................................................................. 95
5.2.2 Non-response bias ...................................................................................... 97
5.2.3 Demographic information .......................................................................... 99
5.3 Test of Validity, Reliability, and Normality ................................................... 100
5.3.1 Validity .................................................................................................... 100
5.3.2 Reliability................................................................................................. 103
5.3.3 Normality ................................................................................................. 103
5.4 Measurement and Profile of Variables ........................................................... 105
5.4.1 Development of performance indicators .................................................. 105
5.4.2 Use of performance indicators ................................................................. 105
5.4.3 Accountability .......................................................................................... 106
5.4.4 Metric difficulties .................................................................................... 108
5.4.5 Technical knowledge ............................................................................... 109
5.4.6 Management commitment ....................................................................... 109
5.4.7 Legislative requirements .......................................................................... 110
5.4.8 Organisational capacity............................................................................ 110
5.5 Comparison of Indonesian Local Governments ............................................. 111
5.5.1 By type ..................................................................................................... 111
5.5.2 By location ............................................................................................... 112
5.5.3 By size...................................................................................................... 113
5.6 Independent t-Tests for Control Variables ..................................................... 114
5.6.1 By type ..................................................................................................... 114
5.6.2 By location ............................................................................................... 115
5.6.3 By size...................................................................................................... 116
5.7 Hypotheses Testing ........................................................................................ 117
5.7.1 Development of performance indicators .................................................. 117
5.7.2 Managerial use of performance indicators............................................... 119
5.7.3 Higher use of performance indicators ...................................................... 121
5.7.4 Internal accountability ............................................................................. 122
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