Efficiency by performance indicators? Evidence from australian higher education

In its drive for higher efficiency and effectiveness in higher education, the Australian Commonwealth Government released its policy on higher education, Higher Education: A Policy Statement during the late 1980s which contributed to the introduction of performance indicators to manage and assess the performance of the higher education system. The research component of annual Commonwealth funding to universities, called the Research Quantum, is now distributed by a set of performance indicators: external research income, publications count and higher degree research completions. This paper analysed the impact of these indicators on the research activities of Australian university academics based on Leibenstein's model of X-efficiency. Although the impact of performance indicators on university academics was found to follow the pressure-effort relationship, for some respondents, the increase in effort as a result of heightened pressure had involved strategic behaviour. Two conditions that are identified for the minimisation of an institution's X-inefficiency despite high staff effort are a high ratio of maximising to non-maximising decisions for both the staff and institution, and for all the institution's essential objectives/activities, and not just those which are measured by the performance indicators. The implications of these findings for the development and application of performance indicators are discusse