Strategic Leadership for Better Public Sector

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Sep 13, 2009 - It was said that a pair of healthy and strong bulls would cost IDR. 4 millions ... Moreover, how much funds should be allocated for public servants that would be enough to make ..... In terms of staff equity in the implementation, it.
Strategic Leadership for Better Public Sector Performance By: Adi Budiarso (University of Canberra) [email protected]

Karapan Sapi and the Public Sector Reform Karapan Sapi, is an annual traditional event originally from Madura, East Java. It is such a bull racing tournament. It is usually held at the week-end within August to September, or ideally before or after the fasting month. Date back to the early begin, Karapan Sapi was existed before 15 Century. The championship starts from the district level to the regency level and moving forward to the level of residence. Finally, the final will be held on September or October in the city of Pamekasan to compete for the President Cup. Looking at the background, bulls are not animal type for racing activities for they are not classified as fast runner animals. To some extent, expecting the bull to race may be similar to expecting bureaucracy to speed up the process of administration or to innovate. You might become crazy yourselves expecting bureaucracy to change. However, I do hope that this will not always be the case. For “karapan” this can be solved by training the bull twice or three times a week, not more than that. The exercise was held around 3pm before dawn. It was said that a pair of healthy and strong bulls would cost IDR 4 millions per pair for their food and other maintenance. Moreover, they were also consuming some traditional herb and dozens of chicken eggs per days. By the same way, could we expect public servants in the bureaucracy to perform well by providing a good salary, long hours of education and abundant time for training and exercise or even an excessive supervision every day? Remember, they are human with mind and soul; they also have families to be taken care of. Pouring budget to satisfy full of their needs would cost the national budget a lot more than IDR 4,000,000 a week (a monthly pension fund received by the Indonesian retired general who used to serve in the military). Moreover, how much funds should be allocated for public servants that would be enough to make them perform better? Everyone may guess.

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Consequently, the first important thing in reforming bureaucracy is to touch public servants heart, motivate them and give them trust to develop better system in the current world with its great volatility, uncertainty, complexity and ambiguity. In addition, unleash the bureaucratic laws and regulations that limit them to innovate. Not to mention, there are some secret information. In order to make the bulls running as fast as they can, their tails were tied with nails and added with the chili and ginger. The jockey’s whip was also equipped with nails. It seems so sadistic here, but that was the game and the culture. The more they get hurt, the more the bulls run faster and faster. Oh my God, should we use such kind of sadistic ways to make public servants to move faster for reform? As citizens, sometimes we ended up by thinking like the “Karapan” audience. We wanted to get good entertainment by expecting public servants to innovate, develop good infrastructures for better development. In fact, we forgot that the “bull” and the jockey had been long-suffering for a decent treatment due to the very low salaries, poor education/training and even low-level of honor and dignity. The public sector system and their people had been easily infected by corruption and dirty politics. Hopefully, there are still many of us who want to strive for the reform, particularly in developing more strategic leaders to induce innovation in the bureaucracy. May God bless the public servants and the Indonesian bureaucracy reform agenda! Source: http://adibudiarso.wordpress.com/2012/03/05/karapan-sapi-public-sector-reform/ http://eastjava.com/blog/2010/10/12/karapan-sapi-madura/astjava.com/blog/2010/10/12/karapan-sapi-madura/

Abstract To cope with the turbulent world in the 21st century, leaders in public sector organisations need to practice an effective leadership framework, particularly in implementing an innovative performance management system. One advance tool to reform the public sector strategic performance management is the Balanced Scorecard (BSC). It can promote an organisation to become high performing and sustain the achievement of its key performance outcomes. By employing explorative-explanatory case study on the implementation of BSC in the Indonesian Ministry of Finance (IMOF) during 2006-2009, the study finds that the organisation demand the application of more strategic leadership style in implementing an innovative performance management system such as BSC. With stronger personal, organisational, performance and social mastery, public sector leaders in the IMOF were more capable of leading and promoting viable strategic intentions to reform the bureaucracy and achieve superior performance. The Strategic Leadership Model in sustaining public sector performance outcome is proposed as a framework in implementing advanced strategic performance management system such as BSC in the midst of the Indonesian bureaucratic culture. Keywords: Strategic Leadership, Balanced Scorecard, Public Sector Performance.

*) The author is a candidate for Professional Doctorate in Business Administration, University of Canberra under supervisory panel: Prof. Mark Turner, Dr. Wahyu Sutiyono, Prof. Monir Mir, Prof. John Halligan. He is also an Australian Leadership Awardee 20092013. 2

Leadership

is the key determinant factor for sustaining organisational superior performance outcomes. In fact, there is growing interest in applying strategic leadership concept to strengthening public sector performance, and to expand more stages of traditional strategic management in four ways: promote employee involvement to create strategy, map the vision publicly, empower followers to lead, and push concrete action and networking (Nutt and Backoff 1993). There is no single answer to the main question on how to improve and sustain public sector performance. However, some researchers belief that strategic leadership concept may become the most apt concept to embracing better value driven culture in public sector reform in the era of the 21st century (Draft & PirolaMerlo 2009 ; Jing & Avery 2008, Ireland and Hitt 2005). This paper offers an insight based on the exploratory study on how can the leadership roles and performance management system based on the BSC influence the public sector performance. A case study methodology based on semi structured interviews method with elites in the Indonesian Ministry of Finance (MOF) was developed to providing comprehensive analysis based on the four key elements associated with the strategic leadership roles and the implementation of BSC in improving and sustaining organisational performance outcomes. A. Strategic Leadership Roles to Sustain Performance Outcome Leaders in public sector tend to face the great challenges due to the prominent rule-based and too bureaucratic leadership styles, non performance based HRM culture, and lack of innovative management practices. Arguably, several key roles of strategic leadership can be offered as strategies to sustain public organisation performance outcome (Evans, 2009; Ireland & Hitt, 2005; Stoker, 2006), as follows: 1. Determine Clear Organisation’s Vision. The first important role of the strategic leader is to determine clearly the organisation’s vision and develop strategic direction involving the whole component of organisation (Hamel & Prahalad, 1989; Ireland & Hitt, 2005). In the public sector, creating long term strategic directions actually demands an improvement of the existing concept of strategic management process (Schall, 1997). Strategic leadership concept is superior compare to two other most prominent leadership paradigms known as managerial leadership and visionary leadership (Ireland & Hitt, 2005; Jing & Avery, 2008). Strategic leadership practically can be defined as a process of transforming an organisation through its vision, mission and values based on sustain assessment of internal and external organisational factors: culture and climate, structure and systems as well as through its strategy (Hughes and Beatty 2004). Strategic leadership probably is a key for the future success of the organisation. The concept promotes ability to anticipate and envision the future opportunities and challenges, maintain flexibility in the midst of internal and external changes, and face a greater pressures from broad stakeholders. Employing the concept of strategic leadership will enable them to reach

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success in terms of winning sustainable competitive advantage for the organisation (Draft and Pirola-Merlo 2009). 2. Develop Human Capital and Organisational Culture “fit”. Strategic leadership may be considered as the key success factor for any change initiatives especially on developing human capital and reshaping current organisational culture to “fit” with the organisational strategy (Ireland & Hitt, 2005; Shields, 2007). Human capital relates to the people knowledge and skills in the organisation. To develop and make it align with the organisational strategy and culture, a leader needs a workable framework in practice. Theoretically, a better strategic leadership framework can be defined as a tool for the aligning of HR practices and business strategy, cascading performance management system from top level to the individual level in order to achieve organisational performance outcomes (O. Hughes, 2003; Kaplan & Norton, 2004a; Rao, 2008; Shields, 2007). Furthermore, in order to hinder the misuse of various leadership frameworks available in the implementation, organisation needs to have better guidance on how to explore necessary variables and determine what factors should be considered in order to improve organisational performance rather than just providing a list of effective leadership qualities (Bolden et al., 2003). 3. Establish Balanced Organisational Performance Controls Strategic leaders in the public sector, under the New Public Management paradigm, demand a strong emphasis on how to lead and manage public sector performance based on the result/outcome and establish balanced organisational controls to promote excellence on performance (Hood, 1995; Ireland & Hitt, 2005; Rose & Lawton, 1999). The term performance management system (PMS) can be referred as the current most appropriate term for the balanced and comprehensive control system for leading a public sector organisation to achieve high performance (Bouckaert & Halligan, 2008). However, Rao (2008) observed that there are five problems found in PMS including: inadequate managerial focus, insufficient managerial skills to improve performance, narrowly defined ownership, disconnect with strategy or inadequate linkage to business drivers and failure to execute. Therefore, growing study on PMS continues and it should involves other disciplines especially leadership and strategic management/human resources studies (Draft & Pirola-Merlo, 2009; Shields, 2007). An important empirical development of the leadership framework and PMS tools has been the emergence of multidimensional performance management system including the European Foundation for Quality Model (EFQM) and Business Excellence Model (Michalska, 2008), the Malcolm Baldrige National Awards Framework (MBNA, 2009) and the Balanced Scorecard (Kaplan & Norton, 1996, 2001; Kaplan & Norton, 2004, 2004a; Rhodes, Walsh, & Lok, 2008). Implementing these approaches requires significant leadership roles in focusing organisation to better serve broad organisation’s stakeholders, setting high value standard for financial and non-financial performance indicators as the key factor for the performance improvement (Brignall & Modell, 2000). 4

To enhance leadership accountability at all level in public sector, Balanced Scorecard (BSC) can become not only as a measurement system, but as a strategic performance management tool to achieve competitive advantage and sustain performance excellence (Kaplan, 2009; Kaplan & Norton, 2004a; Kraines, 2002). In the hand of strategic leaders, BSC is a set of performance measures that gives them a fast and comprehensive view of strategic business performance (Kaplan & Norton, 1996, 2001). It includes financial measures that tell the results of actions already taken and also non financial or operational measures i.e.: customer satisfaction, internal process, and the organizations innovation and improvement activities. Operational measures are also known as the drivers of future financial performance. The implementation of BSC in government institution deals with the process on how leadership provide direction and lead the government institution to focus on the customer perspective ie. society, and achieve high performance in terms of public services value (Estis, 1998; Niven, 2003). Leaders in the public organisation may design organisation’s strategy map in order to create strategy focused organisation and promote organisational alignment (Chan, 2009). It is basically such a comprehensive tool for the strategic management process under BSC approach to achieve performance improvement and promote better communication to organisation’s stakeholders (Kaplan & Norton, 1996, 2001; Kaplan & Norton, 2004a). 4. Promote Performance Governance and Create Value Based Outcome Governance system can be defined as “a process whereby societies or organizations make their important decisions, determine whom they involve in the process and how they render account” (Graham et al., 2003). The governance system as deserves leadership accountability and performance as two of five principles of good governance in 21 st century (Graham et al., 2003). This philosophy also promotes so called ‘performance governance leadership’. It encourages public sector to strengthen emphasis on customer focus strategy, and adopts private sector performance management tools, design better budgeting, and promotes clear individual and departmental/organisational accountability (Behn, 2006). Additionally, there is growing evidence that with regard to the public financial management within the UK and Australia public sector is now linked to the achievement of externally imposed performance targets (Halligan, 2008; Propper & Wilson, 2003). It should be noted that in the era of governance, NPM has several limitations to serve better outcome in terms of public value (Evans, 2009; Stoker, 2006). For instance NPM has too much focus on customer and market rather than citizen, NPM still promotes the dominance of public servant role, and it considers less on politics’ influence and deliberative public policy making (Evans, 2009). So, the new concept of creating public value then emerged and promoted to be the next public sector reform agenda by reforming the governance norms, values and operational rules theme in the new millennium (Evans 2009, Stoker 2006). Governance studies in 21st century emphasize leadership accountability and performance as two main principles of 5

governance (Graham et al., 2003). Leadership accountability deals with how the decision making by leaders in government, the private sector and civil society are accountable and transparent to the public and its stakeholders (Graham et al., 2003; UNDP, 1999). Implementing performance principle is about promoting institutions responsiveness and effectiveness and efficiency in making best use of resources to produce result and serve all stakeholders (Graham et al., 2003; UNDP, 1999). In implementing good governance principles, public sector leaders should improve public services efficiency and public service capacity (Chou, 2008). Overall, the obstacles to the effective application of good governance in some countries (China, Japan, and some Europe countries) have been identified and those include: political problem mainly due to leadership resistance or lack of political will, resource constraints and complexity problem (Chou, 2008; Ding, 2005; Evans, 2009; Yamamoto, 2008). Therefore in order to be successful, reform in the country where the administration is not well protected from political influence, too much bureaucratic practices, lack of leadership commitment to the value of the public service delivery, leaders need to consider strategies offered by the strategic leadership concept as a framework to aim more structural reform in the government to improve public service capacity and efficiency. B. Strategic Leadership Role and the Balanced Scorecard Implementation The framework so called the strategic leadership model has been developed based on four key elements that frame the strategic leadership role for public sector reform. First of all it scrutinizes to what extent the leadership role in promoting effectiveness under the IMOF reform agenda. Secondly, it explores the performance as a leadership strategy in reforming the Indonesian bureaucracy, what are the impacts of reform on the alignment process of strategy with the human resource development to form the Strategic Management and the HRM “fit”. Thirdly, it explores the implementation of BSC in reforming the IMOF strategic Performance Management System. Finally, it investigates the element of performance governance in practice seeking the need for the further coverage of the Leadership governance and accountability for sustainable performance outcome. As a result, a strategic leadership model in improving and sustaining public sector performance outcomes is developed. 1. Leadership Effectiveness: Clear Vision vs Rule Based Bureaucracy In leading the public sector reform agenda, Indonesian leaders face a great challenges in the midst of the cynicism and criticism of the way its bureaucracy behaves; miss-match in policy and personnel practices, especially in recruitment, remuneration, and promotion; the tenure on policy-making processes; problematic financial management; and complex relations with outside groups and all kinds of “too much” mechanistic procedures (Effendi, 2007; Sutiyono, 2007; Toha, 1987; Turner, Imbaruddin, & Sutiyono, 2009; Yudhiantara, 1997). However, during the bureaucratic reform agenda initiated by the former minister Dr. Sri Mulyani Indrawati, and all committed echelons in the ministry, the leadership role to achieve superior performance has been initiated by clearly mapped the strategy and sustaining performance target and achievement. So, the relationship between vision and 6

the organisational efforts to realize it have become apparent to all employees. Moreover, the result of the effective leadership role towards performance outcome can be measured accordingly. In fact, several ministers and top echelons in IMOF have become key change enactor for the bureaucratic reform agenda in the IMOF. An interview with one of echelon I in the IMOF confirmed that: IMOF leadership, under the former minister Boediono, clearly initiated the modernisation of the Indonesian tax office in 2002 and designed the reform on the public financial management in 2003/2004 by the enactment of the law on the state public finance; the law on audit of the state public finance; and the law on the state treasury management. Arguably the former Minister Sri Mulyani Indrawati represents a transformational type of leader who wants to reinvigorate strategic leadership practice in the IMOF. The analysis is based on the qualities of the leaders to cope with leadership and managerial issues in four general qualities: personal mastery: personal qualities, orientation and style; organisational mastery: process and structure, agility and followership; performance mastery: performance and innovation; and social mastery: ethics and value driven and governance (Budiarso 2010). On 5 December 2005, the President Susilo Bambang Yudhoyono appointed Dr. Sri Mulyani Indrawati knowing that there were great leadership challenges to manage Indonesian public financial management post the economic crises in 1998/1999 and in the midst of people demand to combating the systemic corruption issues in the public sector. One year after holding the highest level in the IMOF leadership, Dr. Sri Mulyani Indrawati developed the Minister’s delivery unit and strategy management office so called Pushaka (Pusat Analisis and Harmonisasi Kebijakan). One of the deputy directors of Pushaka commented: Pushaka enhanced and promoted better governance in managing the Minister’s meeting and the private office’s functions, and developed the Minister’s delivery unit and strategy management office. As part of its main tasks, Pushaka provided leadership support in delivering major changes in leadership practices in term of speeding up leadership communication and coordination, better monthly meeting management to promote a cohesive and participative decision-making process in the Ministry top level meetings and the use of advanced information technology to monitor the implementation of the Minister’s decisions and support responsive accountability and communication with the stakeholders. Several key staff from the Minister of Finance’s Strategy Management Office confirmed that: SMI was not constrained by the current structure, systems or process and people, and she was capable of initiating breakthrough in the rule-bound or processedbased structure, agile and adaptive to the shocking changes and challenges, and well-equipped to achieve our fiscal policy and budget performance outcome. She is capable of initiating and facilitating innovation and promoting high organisation 7

performance. In terms of followership, she is superior in nurturing leadership qualities by her request to have talent scout program for nurturing best talents among the junior staff for promotion and further capacity building. She was special in making sure that shared vision and values could drive professional actions and shared commitments to realizing the IMOF vision in dynamic or even chaotic situations. In addition, in her presentation in front of scholars in the University of Oxford in explaining about the bureaucratic reform process, Dr. Sri Mulyani stated that: The expectation is that the bureaucratic reform process in the IMOF will ultimately provide a range of benefits that go beyond just having more satisfied and better rewarded staff. The IMOF should reduce the level of corruption in government, provide better services for stakeholders, decentralise the authority, make the organisation more transparent and accountable, and achieve result in more efficient, effective and productive government (Indrawati, 2008). In terms of leadership vision and support, most Key Performance Indicators (KPI) managers in the IMOF considered that the leadership roles in improving performance are quite important. One of the KPI Managers in the IMOF commented: In the midst of the Indonesian paternalistic culture, the IMOF leadership role is a highly significant (more than 70%) factor in improving organisational performance. In the early stages of implementing the BSC, a top down approach is imposed to enable performance to be measured quantitatively. In the past, it was difficult to measure performance outcomes, but now all units under the Ministry have defined the unit’s key performance indicators and measured its target achievements quarterly in the Minister’s board meeting. The IMOF reform agenda was quite clear. Two of the prominent agenda items, reforming the national budgeting process and IMOF bureaucratic reform have been initiated. In the battle to reform existing Indonesian budget processes, the ministry committed to maintain fiscal resilience and budget sustainability. However, the rule-based bureaucracy and hierarchy seemed to be a real handicap for leaders in developing or introducing strategic leadership characters in the bureaucracy. Practically, the leadership succession laws and regulations are too rigid and fail to provide enough power for the leaders in an agency or department to hire competent managers/staff or fire incompetent managers/staff if necessary for their own organisation. One echelon I in the IMOF indicated: We currently have difficulties in getting rid of employees or middle level managers with very low performance and very low standards in terms of behavior; for example, We don’t have a final solution how to get rid of thousands of incompetent employees that has been identified by the reform agenda. Another director general (echelon I) in the IMOF who was interviewed commented: “We found that the Indonesian bureaucracy apparatus system is too rigid, the same structural leadership positions/patterns are designed for all ministries. For example one directorate will only have a certain level or maximum number of divisions and for a division there must be a maximum level of sub divisions. Even so, we don’t

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have flexibility in designing or redesigning our current leadership structure to better manage our public services”. 2. Strategic HRM “fit”: Performance Strategy vs Loyalty/Control Strategy In terms of leadership pattern, Indonesian bureaucracy still inherited and widely practice loyalty based/control strategy rather than performance based strategy. For instance, in the strategic management and HRM practices in the Indonesian public sector, the leadership focus for the longer performance horizon for the public sector strategic planning is still in question (G. Crawford, 2003; G. Crawford & Hermawan, 2002). According to McLeod (2006), there are three major areas that currently Indonesian public sector Human Resource Management needs to be reformed. Firstly, the mechanistic organisational structure, due to very rigid organisational structure; secondly, mismatch of professional skills and qualifications to the tasks, and thirdly, weak incentive for good performance and no competition for best leaders’ candidates from outside. Mc Leod (2006) concluded that current leadership promotion system promotes no incentive for good performance. There are no competition from inside (below) and outside to be able to get the most competent figure for the managerial position in Indonesia public sector. Moreover, to the extent that there was no competition for positions, there were also no transparent and clear rules of the game for the leadership successions. For some senior staffs, that situation triggered an unethical practice such as seeking promotion not by demonstrating professional competence or superior performance but by approaching their superiors or bribing officials who have authority with regards to the leadership appointments (McLeod, 2006). The loyalty/control concept also clearly implied as a leadership strategy for the remuneration policy. Leaders used the remuneration to maintain control and followers’ loyalty. Turner, Imbaruddin and Sutiyono (2009) found major fundamental problems in Indonesian public sector in terms of very complex reward system and highly bureaucratic personnel policy hold by central agencies and very low remuneration especially for senior officials. In addition, one of key staff in the IMOF’s Human Resource Bureau exposed that: In terms of individual performance appraisal, local government and most of ministries don’t have discipline formal process to evaluate the individual performance evaluation, and there is no reward based on performance in practice. It is commonly understood that the existing salary system then has been weakened the motivation and decrease the productivity of many competent civil servants to perform well in the government’s offices (Turner et al., 2009). Meanwhile, leaders in the public sector have privileges to form the team task forces as a strategy to provide additional salary taken from the budget to compensate the existing low based salary policy. One of the KPI managers mentioned that: “The method of forming a team by selecting several ‘competent’ staffs to run the innovative projects and then providing them with an extra honorarium has become common practice in bureaucracy. In terms of staff equity in the implementation, it can be problematic”.

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With regard to the national laws and regulations regarding the Indonesian civil servants management, the fact seemed to confirm Mc Leod (2006) who observed that the current leadership promotion system promotes no incentive for good performance. There was a multi-based remuneration policy and very complex reward system. Furthermore the highly bureaucratic personnel policy held by central agencies as well as low remuneration especially for senior officials are perceived as fundamental problems in the public sector HRM. According to an echelon I interviewed in the IMOF: A multi based remuneration dilemma exists. Units may create other source of income in addition to their current salary budget. Moreover, a policy allowing senior public sector officials to be appointed as state-owned company’ commissioners results in potential conflict of interest and increasing problematic issues in salary iniquity among echelons in the IMOF. In terms of individual performance appraisal, local government and most ministries lack of a formal discipline process for individual performance evaluation, there is no reward based on performance in practice. The salary system then has weakened the motivation to perform well in the government’s offices and lowered the productivity of many competent civil servants (Turner et al., 2009). One echelon I interviewed commented: The current performance management system needs to be broken down to the personal level. Performance indicators should be cascaded down to the lowest level of the managerial structure or at the individual level. Currently, I don’t have an objective tool to make a decision based on individual performance. In response to those strategic management and HRM issues, under the reform program, the IMOF applied the reform strategy as an attempt to change the mindset government officials from “loyalty” to “performance based” leadership. At the same time the pilot remuneration package based on the 27 grades applied to all of positions in the ministry after the result of professional job analysis done by consultant. This basically improves the lowest salary of the position in the ministry by more than 100% (from IDR 760,500 to IDR 1,330,000) and improve the remuneration for the highest position in the ministry by more than 5 times (from IDR 5,500,000 to IDR 46,950,000) this initiative has been approved by the house representative as a model for the remuneration package which will later be applied towards all ministries in Indonesia under the bureaucratic reform program (Sutiyono, 2007; Turner et al., 2009). In addition, the Ministry has also strengthened its HR management, developed an assessment centre, and encouraged competition to fill vacancies by advertising them internally rather than continuing to rely on promotion by seniority. In addition, it has improved communication and coordination within directorates/agencies under the Minister’s portfolio. The Ministry has also initiated an innovative appointment based on performance of a special “chief officer” in the structural position widely known as “Plt” (Pelaksana Tugas – acting leader). This was a breakthrough policy as prescribed in the old bureaucracy and by the endorsement of PMK number 117/PMK.01/2009 regarding the Appointment of Chief Officer in the Structural post in the Ministry of Finance. It is now possible to accelerate the appointment of young and competent officials to hold the 10

leadership role in the IMOF bureaucracy based on their ability and performance. Another initiative was an attempt to match remuneration to skill requirements and responsibilities, and to align the pay structure more closely with that of in private sector. By making structural alignment between reform in HRM and the reform strategy to modernising its major offices, especially tax, customs and treasury offices throughout Indonesia, the IMOF leadership was successful in accelerating and improving the management of its business processes strategies. The Ministry published clear improvement in more than 35 initiatives in 2007 and many more in 2008 on cutting the administration processes for delivering key public services. Examples include acceleration of the Tax File Number registration from 3 working days to 1 working day only; the tax appeals procedure from 12 months to 9 months; and refunds for custom duties from no specific time to a maximum in 30 days (Budiarso, 2010). 3. Performance Management System: BSC vs IT & Competency issues The implementation of reform on the strategic performance management system in the IMOF based on the BSC in 2007 was enabled by introducing extensive training and agency capacity building to define better strategic mission, vision and strategy objectives as mandated by the reform on state financial management law since 2003/2004. In addition, several change and innovation tools available for organizational change like The BSC approach and the Malcolm Baldrige National Quality Award Approach for public sectors had been introduced since 2004 as part of the course materials discussed in the leadership training program for senior level managers (echelon III and IV) in the IMOF Education and Training Agency (Budiarso, 2010). The implementation BSC in public sector especially in Indonesia may face great challenges on the leadership engagement and commitment in cascading BSC up into individual level, especially with regards to the leadership style and national/organisational culture (Rhodes et al., 2008; Sutiyono, 2007; Turner et al., 2009; Umashev & Willett, 2008). The BSC has served as the strategic performance management system for the IMOF. The implementation of reform in 2007, especially on the strategic performance management system in the IMOF based on the BSC, was enabled by introducing considerable training and agency capacity building to define better strategic mission, vision and strategy objectives as mandated by the reform of state financial management law since 2003/2004. At the end of 2007, the development and implementation of the BSC to promoting sound strategic performance management system was enforced by the appointment of several key performance manager who acting as liaison officers in every echelon I in the ministry. It was their job to work together to run another reforms initiative which has been took in place as part of the public financial management reform. Pushaka has been managed quarterly senior level meeting that directly led by the minister to do high level observation and evaluation of the current performance and achievement of the ministerial strategic outcomes. In line with previous studies (Rhodes et al., 2008; Sutiyono, 2007; Turner et al., 2009; Umashev & Willett, 2008), The implementation BSC in the IMOF posed great challenges to 11

the leadership engagement and commitment to cascading the BSC up into the individual level, especially with regards to leadership style and national/organisational culture. In fact, the recent development of the BSC implementation was evident from the signing of the key performance indicators contract with all 12 Echelon I for the first time in early 2008. The former Minister, Sri Mulyani Indrawati stated to the board meeting as follows: What the ministry has done so far basically was a milestone and achievement for such a big institution with 62,000 employees and several portfolios (including treasury, taxation, budgeting and fiscal balance, customs, capital market oversight and state wealth management). Another echelon I in the IMOF confirmed that the current performance management system can be used to improve organisational performance, commenting: Apparently, there is growing concern in the quarterly performance meetings of the minister and all Echelon I under the IMOF. People are getting serious about paying attention to missing the organisational performance target. Awareness of performance improvement is also increasing. However, the development of the organisational performance information management system and infrastructure in all 12 IMOF portfolios faces another challenge in terms of IT & competencies. The special expert of the Indonesian Minister of Finance for System Information & Technology who was interviewed noted that: Several subsystems exist in the IMOF performance information system. Among those sub-systems are the treasury information system, the tax and customs information system, the budget information system and the BSC information system. Unfortunately these systems potentially create silos in the management of the IT infrastructure and policies in the Ministry and this has become top priority to be solved in the IMOF over the last 5 years. 4. Leadership Governance: Deliberative Leaders vs Silo Bureaucrats. The debates on the role of leaders in promoting governance still exist as indicated by Crawford & Hernawan (2002) and Mallarangeng & Van Tuijl (2004) based on their examination on the partnership for governance reform in Indonesia. It shows that the leaders’ roles in promoting governance reform in Indonesia was challenged especially whether Indonesian or international influences predominate (G. Crawford & Hermawan, 2002). This debate is actually portraying the current tension between reformists and suspicious followers or commentators who may always argue about for whom interest is the outcome of the reform and governance agenda. While the Ministry of Finance has been successfully pioneering reform of the central government bureaucracy in Indonesia, still additional works needed to be done on reforming the remuneration packages and eliminating misalignments due to the very big portfolios of the IMOF. National policy for remuneration should be revisited to support the remuneration based on performance at individual level and to promote fairness and stimulate strong motivation for performance improvement. Moreover, the strategy management at the cabinet level should be developed to provide the national level

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strategy map that can comprehensively frame the development strategies from every sector to improving the whole government performance and accountability. Furthermore, reforming corrupt practices in the bureaucracy seems to become the continuing challenge for Indonesian public sector. More strategic leaders are needed to reform the whole Indonesian government agencies. In fact, the strategic leadership practice in the IMOF has become well known as a good example of driving reform in the Indonesian bureaucracy. This was apparent in the way the IMOF leadership committed to total concern for the promotion of governance and sound practices in the national bureaucracy. In terms of public financial management, Indonesian economic reform leads to its clear performance. Based on the research done by independent researchers from reputable Indonesian universities, in 2007, 2008, and 2009, the Ministry of Finance reform outcome was gaining significant progress across the year based on customer satisfaction survey. This was counted on average per unit under the Ministry portfolio and throughout the major cities in Indonesia. Overall, this reflects levels of more than 74% in 2008 and more than 71% in 2009 in terms of public confidence in and satisfaction with the bureaucratic reform outcomes. It seems that the pilot of Indonesian bureaucratic reform progress in the Ministry of Finance 2007-2009 is on the right track. Its preliminary successful bureaucracy reform apparently indicated by the cutting red tape, systems move towards accountability for achieving results, putting customers first, and empowering public service to get results. However, several corruption cases that can be revealed to public following the reform agenda, gave a clear signal that there are still more works to be done in maintaining consistent implementation of reform in the bureaucracy. In 2010, the newly appointed minister, Mr. Agus Martowardoyo has endorsed further institutional reform and organisation culture transformation in the IMOF leading to more accountable and better performance and governance practices in the bureaucracy. One among other agenda is the continuation process of cascading the organisational performance up to the individual level. Furthermore, additional attempt to promote performance based reward and strengthening HR management initiated in line with the effort to enhance internal control and risk management and integrated information technology to improve IMOF capability to focus on broaden stakeholder and sustain ministry’s performance outcomes. Following his commitment to engage in further reform, during the interview he emphasized that: The current performance management in the IMOF is based on the holding type of system. In addition, the achievement is still limited due to the centralistic decision making process. In practice, there is less coordination between directorate generals/units under the ministry. The holding type system in the IMOF probably is not the ideal for the Ministry performance management. To supervise this big organisation, there is a need to enhance the existing risk management, HRM and management of information and technology infrastructure. Introducing the concept of the entire IMOF for a better decision making process with respect to the stakeholders is still a big challenge for the IMOF.

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Finally, in terms of linking leadership effort with the corruption eradication in Indonesia, as indicated by the figure below, the ranking of corruption perception index that representing the international perspective towards leadership effort of the country to eradicate corruption showed that Indonesia performance has been increasing particularly as noted by the media as follows “Bold reform in the tax and custom administration and the ability of Corruption Eradication Commission to bring forward high profile cases have recently bolstered the perception that corruption is being addressed more aggressively…” (Transparency International 2011) Leadership-Corruption Eradication Performance 2007

2008

2009

2010

Rangking 143 IPK 2.3

Rangking 126 IPK 2.6

Rangking 111 IPK 2.8

Rangking 110 IPK 2.8

Source: Transparency International - Corruption Perceptions Index In summary, the use of existing framework for further analysis can be proposed as described in the following Strategic Leadership Model to frame the roles of leadership in sustaining public sector performance outcome. This updated model is developed based on findings that leadership is key determinant for superior organisational performance outcome. Moreover, it is strengthened by appropriate IMOF leadership responses towards four main key enabler elements (leader’s clear vision & support, performance based strategy, Balanced PMS; and deliberative leadership) and four challenges to sustaining organisational performance outcomes in terms of rule based bureaucracy and hierarchy; a loyalty/control based HRM, IT and competency issues in PMS; and silos bureaucrats surrounding the current leadership practices. The Strategic Leadership Model in Sustaining Public Sector Performance Outcome Performance Mgt System IT & Competencies issues

Balanced PMS tool based on BSC

Rule based Bureaucracy & hierarchy

Leaders’ Vision & Support

Leadership Effectiveness

Strategic Management & HRM “fit’”

Silo Bureaucrats’

Deliberative Leaders

Loyalty / Control Strategy

Performance Strategy

LEADERSHIP

Sustainable Performance Outcome

Performance Governance

Source: Budiarso A, 2010

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Conclusion To cope with the turbulent world in the 21st century, leaders in public sector organisations need to practice an effective leadership framework. It is important particularly in implementing balanced performance management system to lead organisation to achieve higher and sustainable performance outcomes. Findings from the case study on the implementation of BSC in the holding type of public sector like IMOF confirm that the application of a sound leadership framework is increasingly relevant to frame the roles of leaders. To achieving better public sector performance, leaders need to keep maintaining focus on its roles that may support the process of improving performance and seek an innovative ways to minimize the challenges within those four key elements in the process to improve/sustain performance outcomes. It can also be concluded that with stronger personal, organisational, performance and social mastery, public sector leaders in the IMOF were more capable of leading and promoting viable strategic intentions to reform the bureaucracy and achieve superior performance in the midst of the unique Indonesian bureaucratic culture. Recommendation to advance the Indonesian Bureaucracy Reform Agenda This study is limited to Indonesian Ministry of Finance only and generalizing the results of this study to other units in the bureaucracy should be done cautiously. However, the findings confirm that reforming bureaucracy by committed leaders in the IMOF as a pilot for the bureaucracy reform agenda is possible to improve performance. Therefore, some recommendations can be proposed to advance the Indonesian bureaucracy reform agenda as follows: 1. The application of the Strategic Leadership framework is highly recommended for the central Indonesian bureaucracy or at president/cabinet office in addition to the local level (provinces and kabupaten/walikotamadya) or other public sector institutions as well. It may provide a comprehensive approach for Indonesian leaders in leading and managing factors that may support or threaten the leadership capability to improve and sustain public sector performance outcomes. 2. There are four factors that can be framed into four key processes that demand strong key leadership roles: firstly, maintaining leadership effectiveness by providing clear vision and leadership support; secondly, aligning strategy management and HRM ‘fit’ by embracing performance strategy and eliminating loyalty/control based strategy in HRM practices; thirdly, maintaining balanced performance management system and providing continuous support for capacity building and IT support for the employees; and finally, promoting more deliberative leadership practices by opening to the citizen or stakeholder’s participation in performance planning and evaluation. 3. Promoting the whole government leadership concept is a key to advance the roles of Indonesian public sector leaders at all level in the 21 Century. In order to succeed, there is a need to initiate better coordination and synergy in creating national strategy to achieve an intended outcome among central and local government offices under the President’s coordination directly. 4. The strategic leadership framework can also be promoted as the new framework for Indonesian public sector leadership capacity building for multi echelons in the bureaucracy. Alignment of agenda and strategies from multiple echelons in the public sector is necessary for maintaining focus towards the process of achieving national

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