Environmental, charitable, religious, health, educational, sport, and recreational organisations, together with political parties, have grown and established themselves in Australia over the last 100 years, turning the not-for-profit sector into a significant part of the country’s economic, cultural, social, and political systems. For a very long time not-for-profit organisations have been considered as a third sector and have not been receiving enough attention by the researchers. Although the not-for-profit sector has grown very large it was not properly controlled or regulated by the federal or state government until the end of 2011 when the Australian government released its ‘Review of not-for-profit governance arrangements’ paper. This document stipulated the need for reform, with the aim of improving government funding, not-for-profit sector quality management, establishing best practices, reviewing old and introducing new accounting standards, and re-visiting taxation arrangements and legal structures. It became clear that the level of reform required would have a major impact on the sector as a whole.
As a result of introducing these government reforms, the Australian not-for-profit organisations’ operating environment became unstable and unpredictable. By 2014, the whole not-for-profit sector showed a significant decline in operational performance as well as a decline in organisational performance. From the first days of introducing the reforms, most not-for-profit organisations showed a desperate need for developing systems and measures to evaluate performance and for greater accountability. The increasing interest among not-for-profit organisations in improving performance has been very encouraging. The current research was conducted during the peak of introducing the reforms, and developed an analytical framework to examine the factors that influenced the researched organisation to introduce and even change its performance measurement systems. The Australian government’s reforms of the not-for-profit sector also revealed that the institutionalisation of the not-for-profit organisations was important for the development of the sector; however, there was a gap in the literature and in the practices of how to measure that development. To fill the gap, and to bring a new insight into the literature of institutionalisation, my research looks at the institutionalisation of performance measurement systems in not-for-profit organisation in Australia by drawing on institutional theory.
DiMaggio and Powell’s (1983) notion of institutional isomorphism and Laughlin’s (1991) framework of organisational change highlight the stability of a chosen not-for-profit Australian organisation. The current research developed an analytical framework for examining the factors that influenced the chosen not-for-profit case organisation to look at implementing or changing its performance measurement system.
To achieve a deeper understanding of institutional change and of the process of institutionalising performance measurement in my case organisation, three separate and parallel analyses were carried out. The results were combined to generate a richer understanding and more reliable results.
The first panel of data used for the longitudinal and historical analysis of the case study consisted of publicly available documents. The reasons for setting up this panel of data were to examine the organisation’s financial and non-financial performance measurement systems; to track the organisation’s historical timeline and development, and to examine the impact of the government’s reforms on the organisation.
The second panel of data consisted of the organisation’s internal and external documents. Content analysis was applied to these sets of documents in order to test theoretical issues and to enhance understanding of the data.
The third panel of data consisted of two surveys that had been conducted by management consultants since 2007. The objective of the research is to explore the institutionalisation of performance measurement systems, and to achieve this an interpretive method is used to analyse the third panel of data. This method is the second most commonly used analytical method for studying organisations, and arguably the first to be applied to the study of institutionalisation in organisations. All the panels of data were analysed using thematic analysis, MindManager, and NVivo analytical software.
The thesis finds that the case organisation operated in an institutional environment and responded to mimetic, coercive, and normative pressures. The board, the public, and the government were all environmental agents of the organisation. The institutionalisation of a performance measurement system in the not-for-profit case organisation is explained by three forms of isomorphism. The results show that these forms of isomorphism existed at various periods and times of the case organisation’s growth and development. Coercive isomorphism appeared to be more dominant during the early period of the government’s reforms of the not-for-profit sector. Mimetic isomorphism appeared to be dominant in the organisation between 2007 and 2010, during and after the global financial crisis, and normative isomorphism was apparent in late 2012, during the preparation of the accruals and applications for government funding.
The results suggest that the extent to which the performance measurement system had been institutionalised in the not-for-profit case organisation was very limited. The case organisation’s responses to institutional isomorphism resulted in the formal practice of performance measurement becoming decoupled from the organisation’s activities, implying that the existence of formal rules and procedures for performance measurement were for ceremonial purposes only.
This research has several practical and theoretical contributions. Its main practical contributions are that the findings could be used by senior personnel of other not-for-profit organisations, and researchers could continue the study and examine changes in performance measurement systems which could then lead to the successful and effective establishment and implementation of performance measurement systems. The theoretical contribution of this research is that it attempts to bring a new approach to the systematic analysis of changes to a performance measurement system. The research not only draws on institutional isomorphism and organisational change, but also touches on the strategic responses to change. This is very different to the approaches suggested by Burns and Scapens (2000) or Greenwood and Hinings (1996) in the management accounting literature. Therefore, this framework can be used by other researchers in other sectors. Finally, this research highlights the importance of the not-for-profit sector in Australia, the sector’s needs, and the areas for its improvement.