TQM as a Framework for Sensible Performance Metrics for State-Owned Enterprises : Evidence from Korean Government Performance Evaluation

Government performance evaluation (GPE) is adopted by many governments to address the agency problems of their state-owned enterprises (SOEs); however, empirical proof of its effectiveness is limited. Researchers attribute this lack of empirical evidence to three reasons: i) the lack of sensible performance metrics, ii) insufficient incentives, and iii) the lack of the state’s commitment to GPEs. This study identifies its main cause as the lack of sensible performance metrics because the performance metrics are sensible and, therefore, the results of GPEs are reliable, there is no reason for the state to be reluctant in providing sufficient rewards and commitment to GPEs. Given these, this study derives four conditions that constitutes such sensible metrics from relevant theories. This study also argues that total quality management (TQM) is able to act as a theoretical framework for generating sensible performance metrics for SOEs. The organizational context of SOEs is more complex than private sector firms: SOEs should be as efficient as private companies, but they should contribute to social values as public institutions. Hence, there is a wide range of factors that are critical to the performance of SOEs. TQM is able to encompass all of those factors. Subsequently, it empirically tests whether the performance metrics of TQM-based Korean GPE, called Annual Business Performance Evaluation (ABPE), meet the four conditions using ABPE results in 2009 and 2010 which are regarded as the most faithful implementation of TQM concept. The empirical results provide that ABPE performance metrics of these years met the four conditions derived and support the proposition of this study that TQM is able to act as a framework for generating sensible performance metrics for SOEs. From these results, this study derives three policy implications. First, the reason for the frequent failure of GPEs should be attributed to inappropriately designed performance metrics rather than insufficient incentives or commitment from the state. Hence, practitioners of GPEs should focus on formulating sensible performance metrics. Second, the results support that TQM can be used as a right framework for designing such sensible metrics. Third, there may be a drawback when GPE practitioners do not fully understand and reconcile the differences between TQM and GPE in the course of design and evaluation. The empirical results show some examples.