Performance Decline and Turnaround in Public Organizations: A Theoretical and Empirical Analysis*

Abstract

Public sector performance is currently a significant issue for management practice and policy, and especially the turnaround of those organizations delivering less than acceptable results. Theories of organizational failure and turnaround derive largely from the business sector and require adaptation to the public service. The performance of public organizations is more complex to measure, is related to institutional norms, and the idea of ‘failure’ is problematic. Empirical findings from a real‐time, longitudinal study of poorly performing English local authorities are used to develop an initial theory of performance failure and turnaround suited to public organizations. The paper argues that the typical performance of public organizations over time is cyclical. Where cognition and leadership capability are absent, organizations fail to self‐initiate turnaround. In this situation authoritative external intervention is necessary. The strategies applied are principally concerned with building a leadership capability that engages senior politicians and managers in order to overcome inertia and collective action problems. The theory is presented in the form of seven propositions that provide a basis for further research across the public sector.

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