Is it realistic to expect the public sector to perform on par with the private sector?

Given the environment in which governments often operate—characterized by, to one degree or another, dispersed authority, the absence of competition, the duplication of services, antiquated business practices and systems, lax oversight and rigidities associated with civil service and unionization—skepticism on this score is not unwarranted. Perhaps the most important difference between the public and private sectors relates to the governmental mission, which consists of a service orientation that isn't necessarily related to a customer's ability to pay.

Nonetheless, a growing number of reform-minded citizens, elected officials and public managers are coming to believe that by using benchmarking and pushing for the adoption of applicable commercial best practices, they can raise the bar for government performance and, in the process, reduce costs, raise quality and improve service. Combining the two concepts is no accident: Benchmarking and best practices are synergistic—gaps identified by benchmarking can be closed by using select best practices.

Why has the public sector's appetite for benchmarking grown? To answer this, it is useful to consider how the objectives for government reform have evolved. Historically, reform in the public sector has focused on achieving a state of "good government," where, it was envisioned, public managers and employees would faithfully implement public policy using the lowest level of resources possible. But in recent years, the quest for better government has become much more aggressive, and competent management of public resources is no longer sufficient.

These days, there is a call for public managers to be entrepreneurial, integrate performance management in their planning and budgeting, subject services to competition and emulate private-sector best practices. Benchmarking has become a priority because previous reform attempts were foiled by unrealistic or poorly defined project expectations and by the lack of a meaningful yardstick to measure and compare agency performance before and after a major business transformation.

Making the Business Case
There are other factors at work as well. Economic slowdowns and the public's growing resistance to higher taxes have brought urgency to government cost-cutting and streamlining efforts. Governments are also facing an aging workforce, resulting in retirements that may disrupt operations as critical skills and knowledge are depleted (see "Conserving Government's Most Valuable Resource," Outlook, June 2005). These pressures are motivating governments not only to embrace reform but to transform themselves.

Transformation in the public sector involves changing governments from high-cost, ineffective service delivery agents to lower-cost, high-performance organizations that focus on continuous improvement and customer service. And while there are many reasons for the renewed interest in benchmarking, the business case for transformation is perhaps the biggest one.

Many governments spent the past decade embarking on large-scale business transformation initiatives, including implementing enterprise resource planning systems, outsourcing operations, reorganizing agencies and reengineering processes. Some of these projects paid off, while others didn't. But for most, it was simply difficult to tell.

Today, business cases that project overly optimistic returns or don't bother projecting anything at all fail to gain organizational buy-in and/or funding support. Without information on the baseline level of performance or on how it compares with peers, millions of dollars are being spent in the public sector based on "gut feeling" and "instinct" about potential benefits and savings.

Those serious about the responsible stewardship of public resources are demanding better criteria and impact assessments prior to making investments. Benchmarking addresses a common criticism of many misguided large-scale public projects—namely, "If you don't know where you're going, any road will take you there." There are other reasons to conduct benchmarking besides providing a fact-based case for business improvement. While benchmarking is often motivated by the desire to identify areas of excess cost, it's also possible that investment levels are too low. For example, why celebrate a benchmark that shows an organization's cost per employee for the HR function is among the lowest in the industry if turnover and employee dissatisfaction are among the highest? When carried out on a routine basis, benchmarking provides management with useful feedback, control and risk management information as well as a scale for setting priorities.

Benchmarking is also essential to establishing a continuous improvement program, since it allows an organization to compare its performance from year to year. Through benchmarking, organizations can compare their "as-is" operations against organizations with shared services centers or outsourced operations. Although the benchmarking concept itself has been with us for a long time, recent advances in Web-based technologies allow organizations to collect data and collaborate in a manner that makes a comprehensive benchmarking effort feasible and economical.

World-class Status
With the exception of certain citizen-focused services—police and fire, for example, as well as sanitation, employment security and defense—most public-sector managers view administrative processes like accounts payable, recruitment and payroll as comparable to those processes in the private sector and therefore appropriate for similar benchmarking. Benchmarking itself centers around three major concepts identified by Accenture and its benchmarking alliance partner, The Hackett Group (see Figure 1).

Efficiency. We define efficiency as the extent to which an organization utilizes strategies, tools and processes that allow it to operate at the lowest possible cost (that is, does things right). Metrics for efficiency include staffing levels, cost per transaction, cycle times and level of systems integration.

Effectiveness. This is the extent to which an organization generates the highest possible value or service levels (that is, does the right things). Metrics for effectiveness include error rates, utilization of Web-based processes for activities such as benefits administration or vendor payment status, and percent of time spent analyzing data versus collecting it.

World-class. This is the designation given to performance of a specific process or function that is in the top quartile for both efficiency and effectiveness.

Upon identifying performance gaps, it is possible for an organization to seek world-class status in all of its administrative operations. What's more likely, however, is that an organization will prioritize investments to areas that will foster competitive advantage, or in the case of government, provide the greatest net benefit.

Thus, while it is theoretically possible to be world class in all areas, it is also possible that organizations ranking in the lowest quartile in one operational area (timekeeping for payroll, for example) will perform at world-class levels in another (budgeting and planning). By investigating why organizations attain world-class status for specific processes and functional areas, an empirically based inventory of best practices can be compiled that consists of only those practices that are strongly correlated with enhanced performance levels.

A typical benchmarking project is undertaken in partnership with an outside performance management specialist and consists of five main steps.

1. Planning and workshop. The first step to a successful benchmarking project is a sound plan, which begins with data collection. A kickoff workshop, facilitated by the outside partner, describes the data collection process, validates the data requirements, determines process definitions (for example, what activities comprise accounts payable?) and assigns data collection responsibilities to specific individuals.

2. Data collection and executive interviews. Data collection begins immediately after the workshop and is typically an 8- to 12-week process (it can be longer or shorter depending on the scope of the benchmarking effort). During the data collection process, periodic conference calls and meetings are used to maintain communication between the organization's data coordinators and the outside partner, and to assess the status of the data collection effort.

3. Data validation.Once data is assembled, it is reviewed for accuracy, completeness and reasonableness. One or two rounds of changes are often needed to validate the information and take other steps to improve data quality.

4. Analysis and interpretation. Once the data is finalized, it is analyzed by the performance management specialist. A review session is then conducted to discuss the initial findings and conclusions prior to channeling them into business case alternatives or recommendations.

5. Results. These are presented to the organization's executive team in a report that focuses on identifying gaps between the organization's benchmarks and industry performance. Initial ideas concerning short-term personnel, organizational, or management control actions, as well as the application of relevant best practices, are also discussed. The report includes estimates of the levels of savings or value that can be generated if the organization is able to operate at the level of the peer group or at world-class performance levels. At this point, the benchmarking and performance management specialist can develop a detailed implementation roadmap that specifies time lines, staffing requirements, consulting resources, risks and overall investment levels. In this manner, benchmarking galvanizes organizational support for the high-performance journey.

The benchmarking approach presented here contrasts with what commonly occurs in the industry. Typically, governments may make telephone contact with a few neighboring jurisdictions or use mail surveys to collect data. As a result, considerable uncertainty enters the process about whether the benchmarking comparisons are even valid. In the best case, the comparisons that can be made are at a summary level; the government can't assess whether, for example, finance costs are too high because of accounts payable or the general accounting function.

Accenture's research has found that the high-performance businesses in an industry are also those that achieve mastery in such administrative areas as finance and supply chain management. This finding holds significant promise for governments that have operated with high-cost administrative processes or organizational structures throughout their history. The ability of governments to credibly compare their performance against that of their peers and high-performance businesses through benchmarking is a breakthrough that enables fact-based back-office transformation.

About the Authors

Rowan A. Miranda is a Chicago-based partner in the Accenture Finance & Performance Management service line. Dr. Miranda serves on the visiting faculty of the University of Chicago's Irving B. Harris Graduate School of Public Policy Studies.

David A. Wilson is the global managing partner for Accenture Government/Finance & Performance Management. Based in Minneapolis, Mr. Wilson has more than 20 years of consulting experience, especially in the areas of ERP systems and finance operations. He also leads the finance and administration industry segment of the company's US State and Local Government operating group.

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