Public managers perceive performance measurement as an indispensable element of modernising the public sector in the quest to achieve ‘more for less’, despite research showing that performance measurement in the public sector is risky in terms of unexpected and undesirable effects. Through a case study of the introduction of a performance measurement system (PMS) in a Danish municipality, our analysis focuses on how internal transparency unfolds in terms of addressing performance measures and aligning them with the criteria of efficiency and effectiveness. We conclude that there are two main reasons the PMS fails to address the desired effects in terms of modernising the municipality. First, an overarching focus by top management on outcome measurement results in inattention to the measurement of resource consumption and efficiencies. Second, empowerment of lower‐level managers in the formulation of key performance indicators (KPIs) results in competence problems related to PMS design. Therefore, many of the KPIs are designed as milestone measures, chosen to constrain the influence of the PMS on daily activities. These factors hinder the organisation's ability to design KPIs that attribute costs to outputs and therefore render the goal of internal transparency impossible to achieve for the municipality. The consequence is a PMS that loses track of its very purpose along with a false sense of security among top management regarding the optimisation of scarce resources.