The use of performance contract as a performance strategy has been acclaimed as an effective and promising means of improving the performance of public sector. The objective of this study was to explore on the effect of the Government‟s performance contracting strategy on the performance of public health institutions in Kenya. Despite the availability of extensive existing literature on the effect of implementing performance contracting in various public sectors in Kenya, there is no information on its implementation effect on the performance in the health sector in Kenya. The research was an explanatory survey; since it‟s aimed at describe the state of affairs as they exist at present and why. The specific objectives of the study were to determine the effect of PC agreement; the effect of PC appraisals and the effect of PC awards and sanctions on organizational performance of public health institutions in Kenya. The target population and the sample size were all the public health institutions in Nairobi and Kiambu Counties. The study adopted census inquiry. The study used a Likert type 5-scale questionnaire to collect quantitative primary data. The Secondary data was obtained from the documentary analysis of the existing customer/employee satisfaction survey reports, analysis reports on service charters and customers‟ complains/complements, staff performance appraisals and ISO audits findings. Data was analyzed using descriptive statistics (percentages, means and standard deviations) and inferential statistics (Pearson Correlation and Multiple Regression Analysis). There was positive influence of performance contracting agreement, appraisal and awards and sanctions. From the multiple regression model, all the predictors accounted for about a third of the variation in organization performance in health sector. There was significant effect of performance contracting agreements, appraisals and awards and sanctions on organization performance. Adoption of performance contract in health sector enhances the ability to discharge duties through the setting substantial Hospital‟s PC targets. The evaluation feedback mechanism and information was effective, with performance monitoring, evaluation and appraisal mechanisms timely for corrective/review measures. The reward and sanction system for individual staff performance in the hospital was fair. The study recommends that public health institutions adopt PC strategy to improve their organizational performance. The government policy makers develop effective and more efficient performance appraisal programs in order to enhance health sector performance. Policy makers should device ways to continuously improve and expand the scope of PC‟s agreements and award and sanctions policies. Lastly, the government should improve the health workers‟ remuneration and their general welfare and incorporate public-private partnerships in order assist in provision of medical facilities and equipment to bridge the government‟s budgetary gap. The scholars are advised to research on other factors which influence performance in health sector and also the effect on performance of the other performance indicators as contained on the standard GoK contract.

Background of Study 
Kumar (1994) defines Performance Contracting (PC) as a Memorandum of Understanding (MOU) which is rooted in an evaluation system; which ensures improvement of performance management comprehensively as cited by Kobia (2006). It is also viewed as an agreement between a manager and an employee about the employee‟s responsibilities and behaviors during a review period. Performance contracting refocuses the mindset of the employees from looking within to focusing on customers and results. From the Government of Kenya guided books, Performance Contract in the Kenyan context is a written agreement between government and a state agency (local authority, state corporation or central government ministry) delivering services to the public, wherein quantifiable targets are explicitly specified for a period of on financial year (July to June) and performance measured against agreed targets. It closely mirrors the OECD (1999) definition „as a range of management instruments used to define responsibilities and expectations between parties to achieve mutually agreed results. 

Performance contracts have their origins in the general perception that the performance of the public sector in general and government agencies in particular, has consistently fallen below the expectations of the public, Trivedi (2004). There have been several Government initiatives in form of strategies and legal framework since 2002 meant at improving delivery of services. The current performance management system popularly known as performance contracting in Kenya was introduced in 2004. Performance contracts are based on the premise that what gets measured gets done. The results of performance contracting have been mixed. In some countries there has been a general sustained improvement in public enterprise management while in other countries some public enterprises have not responded or have been prevented by government policies from responding to the current and modern expectations of the tax payers. The biggest challenge is to match the targets sets by the public institutions with the performance expectations from the citizens (Mbua & Sarisar, 2013). There have been incidences where some institutions are score high only for the public to disapprove and contest the score, owing to the contrast between the targets and their achievements on one hand and the clients objective and subjective expectations on the other(Report of Panel of experts on review of performance contracting, September,2010). 

Organizational Performance 
One of the important questions in business has been why some organizations succeeded while others failed. Organization performance has been the most important issue for every organization be it profit or non-profit one. It has been very important for managers to know which factors influence an organization‟s performance in order for them to take appropriate steps to initiate them. However, defining, conceptualizing, and measuring performance have not been an easy task. Researchers among themselves have different opinions and definitions of performance, which remains to be a contentious issue among organizational researchers (Barney, 1997). Organizational performance can achieve efficient objectives or goals than economic results. This vision reveals that financial and economic measures present critical limitations in assessing performance. The balanced scorecard model developed by Kaplan and Norton in 1991 was used to measure the effect of turnaround strategies on performance of public corporations in Kenya. The model groups‟ measures of performance into four distinct categories of performance: financial, customer satisfaction, internal business processes, and innovation and learning perspectives (Chong, 2008). 

Improvement in individual, group, or organizational performance cannot occur unless there is some way of getting performance feedback. Feedback is having the outcomes of work communicated to the employee, work group, or company. For an individual employee, performance measures create a link between their own behavior and the organization's goals. For the organization or its work unit's performance measurement is the link between decisions and organizational goals (Dye, 1992). Measurement of organizational performance is the first step in improvement. But while measuring is the process of quantification, its effect is to stimulate positive action. The management should be aware that almost all measures have negative consequences if they are used incorrectly or in the wrong situation. Hence they have to study the environmental conditions and analyze these potential negative consequences before adopting performance measures (GoK, 2004). 

Performance Contracting Strategy 
The use of Performance Contracts has been acclaimed as an effective and promising means of improving the performance of public enterprises as well as government departments. Fundamentally, a Performance Contract is an agreement between a government and a public agency which establishes general goals for the agency, sets targets for measuring performance and provides incentives for achieving these targets. They include a variety of incentive-based mechanisms for controlling public agencies, controlling the outcome rather than the process. The success of Performance Contracts in such diverse countries as France, Pakistan, South Korea, Malaysia, India, and Kenya has sparked a great deal of interest in this policy around the world. Governments are increasingly faced with the challenge to do things differently but with fewer resources. Performance contracting provides a framework for generating desired behavior in the contest of devolved management structures (Hunter & Gates, 1998). 

Employers view performance contracting as a useful vehicle for articulating clearer definitions of objectives and supporting new management monitoring and control methods, while at the same time leaving day-to-day. The OECD (1997) alleges that the use of contracting in government services is increasing, as the evidence is fairly clear that contracting out can lead to efficiency gains, while maintaining or increasing service quality levels. The expected outcomes of the implementation of the performance contracting were; improved performance, decline in reliance on Exchequer funding, Increased transparency in operations and resource utilization, Increased accountability for results, Linking reward on measurable performance, Reduced confusion resulting from Multiplicity of objectives, Clear apportionment of responsibility for action, improvement in the correlation between planning and implementation, creating a fair and accurate impression on the performance, greater autonomy, creation of enabling legal and regulatory environment (Kobia & Mohamed,2006). 

The Performance Contract is implemented through the Performance Appraisal System (PAS) which has been adopted in the Public Universities (GoK, 2008). The Performance Appraisal System is premised on the principle of work planning, setting of agreed targets, feedback and reporting. It is linked to other Human Resource Management Systems and process including competitive recruitment and placement of staff, Training and development, reward and compensation, recognition and sanctions (Muthaura,2008). The Performance Contract‟s stipulates the duties of employees and the expected results within a time frame (Gianakis, 2002). It commits the public official to perform to, or beyond the specified levels which holds them accountable for results and creates a level of transparency in the management of public resources (Muthaura,2008). This process is cyclical, reflecting continuous improvement (Neely et al., 2001). 

Performance Contracting Strategy in Global and National Perspective 
In the final report on Evaluation of performance contracting by LOG associates published on 31st March 2010, the consultancy firm notes that the Performance Contract System originated in France in the late 1960s and has been used in about 30 developing countries in the last fifteen years. Performance contracting use has been acclaimed as an effective and promising means of improving the performance of public enterprises as well as government departments all over the world. Its success in such diverse countries as France, Pakistan, South Korea, Malaysia and India has sparked a great deal of interest in this policy around the world. The latest country to adopt the system is Rwanda. A large number of governments and international organizations are currently implementing policies using this method to improve the performance of public enterprises in their countries. International experience with privatization suggests that the process of implementing a well-thought-out privatization program is a lengthy one (Kobia & Mohamed, 2006). 

Performance Contract in Kenya is a hybrid system borrowed from the international best practices and Balanced Score Card. The best practice has been drawn from countries such as Korea, China, USA, UK, Morocco and Malaysia but contextualized/domesticated to suit the native context. The Balance Score Card connects the government‟s Vision, Mission and Strategic objectives in provision of desired results to its citizens and stakeholders needs, financial/budget, internal processes and capacity building (learning and growth) and links long term targets and annual budgets to strategic objectives. In Kenya, the key features of a performance contracting system include: Aligning national policies and development with Performance Management system at the: National level (Vision 2030) and its related Medium Term Plan (MTP); Sectoral level (sector plan); and institutional level (strategic plans which inform both annual performance target and work plans); Monitoring, Reporting and Evaluation i.e. Performance Measurement and Feedback mechanism including rewards and sanction system which is effective Performance Contract in Kenya is hinged on the existing Government planning and Performance management tools (Kobia & Mohamed, 2006). 

Public Health Institutions in Kenya 
Before the year 2010 when Kenyans enacted a new constitution and devolved the health sector to be managed by county governments, the Government managed both the Sector‟s policy and operations centrally through the Ministry of health: from the four national referral hospitals (KNH, MTRH, Mathare mental and the Spinal Injury Hospital) to the provincial, district, sub- district hospitals, health centres, clinics and dispensaries. Funds were allocated in the state budget for: putting up of new Hospitals, health centres and dispensaries; training, employment and management of health workers; purchase of drugs, non-pharmaceuticals and equipment (through KEMSA) and maintenance costs. Since the state funding has always been inadequate in almost all aspects in the sector, donor funding has played a substantial supplementary role in sustaining the sector (Oyaya & Rifkin, 2003). 

There has been a consistent public outcry about: shortage or pilferage of drugs/non- pharmaceutical/equipment; unaffordability; lack of or absenteeism of medical personnel; corruption, medical mal-practices and negligence that have resulted to deaths and other forms of health damages and consistent strikes, unhygienic practices and uncleanliness. Some of the historical structural adjustment policies reforms undertaken include: introduction of cost sharing, development of insurance system, increased use and development of the non-governmental (NGO) sector, and decentralization of health services through the District Health Management Boards (DHMBs) and Facility Improvement Funds (Koivusalo & Ollila, 1996). The recent ones include: reforming the NHIF, giving more focus on preventive and chronic diseases rather than curative services, Public-private/NGOs partnerships on health, improvement of health workers‟ remuneration, leasing of medical equipment and increased representation in decision making (Mwabu, 1998).

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Item Type: Kenyan Topic  |  Size: 53 pages  |  Chapters: 1-5
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