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Benchmarking Article

  1. 1. A Benchmarking to Become Best in Class: Guiding Principles in Gresham, Oregon Benchmarks make cause-and-effect relationships visible by aligning goals with the external environment, employees with key objectives, and measurementactivities with organizational goals. here is a perception that government is not working very well and it costs too much. Many citizens believe they are paying a lot to government without a clear comprehension of what each governmental entity is doing, why it is doing it, and who is in charge let alone who is accountable. The issue of accountability is frequently highlighted at election time, when voters are asked, "Are you better off now than you were before?" Voters respond with a form of "benchmarks" of what "better off than before" means to them. If government is to answer this fundamental question, then government needs to target some specific outcomes, find ways of measuring progress towards them, and hold itself accountable for the achievement of these outcomes. Benchmarks can serve this need. Recognition of benchmarking began as part of the "quality movement" in the late 1980s. An ongoing outreach activity, benchmarking has as a goal the identifica- tion of the best operating practices and processes that, when carried out, produce superior performance. As used in the corporate world, benchmarking is viewed as the process of seeking the best examples of good practice, often by the most profit- able companies, and setting a target to meet or exceed that standard. This requires becoming the "best in class," not just in profitability but in long-term improvements in efficiency of core business functions and adaptability to the marketplace. For pur- poses of benchmarking, only that which can be measured exists. In local government, benchmarking is being used to gauge the organizational and community efforts in accomplishing pre- defined and measurable desired outcomes developed with the participation of policy makers, management, staff, customers, and stakeholders. Benchmarks in the public sector are indicators that convey informa- tion about the level of achievement of policies, programs, or services. Benchmarks require two things: a fixed point and metrics-a means to measure. Benchmark selection requires first the identification of what is to be improved and secondly the application of metrics to the improvement process. Benchmarking requires a commitment of time and re- sources, beginning with top management. Approval of benchmarking by the most senior executive within the scope of the functions to be analyzed and one person at a higher level (i.e., a champion) is vital. The Organizational Framework The City of Gresham developed a five- year management plan consisting of 10 city goals established by the council. Depart- ments then identified their respective ongoing core business functions that support each goal and established objec- tives for their respective departments supporting each goal, which linked imple- mentation of the departmental objectives to the achievement of the council goals. Each council agenda item is required to identify to which council goal, departmental core business function, and/or objective it is linked. Employee progress reports include a section that links some aspects of employee performance to a particular departmental core business function and/or objective. Budget decision packages also identify the goal that they support. The degree of standardization within this process and continual improvement of the process increases the linkage of departmental, employee, and program outcomes. FEBRUARY 1997 " GovERNmENT Fn4ANcE REnEw By Anthony H. Rainey A benchmarking model based on this management plan could be formulated, but first it was necessary to communicate the big picture to employees about how the organization works and how benchmarking fits into the way the organization works. To aid in this effort, an organizational model was developed (Exhibit 1). This model identifies and describes the relation- ships among: +the levels and/or roles employees in the organization may have; *some of the generic position(s) in the organization for employees to find where they fit; *the typical emphasis at each level; *the nature of the information typically required at each level; "the type of report typically required at each level, with an accounting example to denote the increasing comprehensiveness of reporting requirements; and *the type of software that would be best suited for each level.' The model enables employees at all levels to understand and acknowledge the varying relationships within the organiza- tion and to identify their role in achieving the objectives in the management plan. Hierarchical in its structure, the model characterizes five levels of governmental concerns: strategic planning, management control, operational control, operational performance, and customer satisfaction. The role of strategic planning by the executive, legislature, and senior manage- ment is to define-in the form of a policy- why the enterprise is headed in a desig- nated direction. It typically requires a broad-based strategic plan and information support in financial accounting. The role of management control by program managers is to determine what is to be accomplished 5
  2. 2. 6 in the form of a program and to formulate a management plan to monitor the re- sources used and measure the attainment of the objectives. Operational control by operational management or supervisors establishes and ensures when things will be accomplished in the core business func- tions. It requires the formulation of a detailed operating or project plan, which typically is supported by cost accounting. The mission of operational performance by staff is to designate how to do things as a process, task, or activity. Cost accounting provides costs for some types of procedures and/or practices. The customer satisfaction process seeks to ensure that all employees identify who their customers are and what products or services will meet their needs. The metric at this level is quality. A table such as Exhibit 1, depicting the Gresham organizational model, is used as a training tool, alerting employees to the importance of identifying the particular needs of their customers before they try to develop benchmarks. The benchmarking strategy of requiring employees to rethink the needs of the city's customers at different FEBRUARY 1997 * GovERNMENT FINANCE REVIEW Exhibit 1 ORGANIZATIONAL MODEL FOR THE CITY OF GRESHAM Emphasis Development of goals and methods for achiev- ing them. Why the organization is headed in a specific direction in terms ofpolicy. Process of ensuring that goals are being accom- plished. What is to be accomplished in the terms of program. Process of ensuring that specific tasks are being accomplished. Ensure when things will be accomplished. Control of day-to-day operations including feedback of exceptions to appropriate level of management. Designate how things will be done. Request, receipt, and review of products and/ or services. Information Unstructured and irregular, each problem different. Long-range (1-10+ years). Unstructured or semi- structured. Irregular, each problem different. Medium- range (1-5+ years). Semi-structured. More structured; cyclical, largely repeating. Year-to- year, monthly. Highly structured, repetitious. Weekly, daily, hourly. Unstructured and structured. Each problem different. levels of the organization enabled staff to avoid wasting a lot of time and effort. This review of customer needs also helps bring about wide acceptance of performance measures and/or benchmarks. Customer needs are important determi- nants of appropriate benchmarks and the type of information to collect and report. Customers at the strategic planning level require information of a global perspective with less detail than what is needed at lower levels in the organization, where more accurate, timely, and detailed infor- mation is necessary. Benchmarks and Performance Although benchmarks are a measure of performance, their application is distinctive from that of performance measures, which typically are used in a budget to communi- cate an annual result, such as "reduced costs by 30 percent." Performance mea- sures fail to provide the metrics to aid in responsibly managing operational perfor- mance throughout the levels of the organi- Reports Planning oriented In terms of entire enter- prise. Financial accounting. Comprehensive and planning-control oriented. Financial and management account- ing. Detailed and control oriented. Management and cost accounting. Detailed work specifi- cations that are job oriented. Cost ac- counting. User-friendly, timely, and consistent. Bills, receipts, statements. Software Executive information system Management Information system Transaction processing system User-friendly transaction processing system zation and throughout the year. High-level performance measures, for example, cascade to lower levels of the organization, usually in the same units of measure, despite the fact that the methods, out- comes, and metrics may change at each level. As a result, senior management and employees can be stuck with an efficient but ineffective tracking system. When benchmarking is used, metrics are customized to fit the means, and the achievement of a goal represents the outcome of a series of reliable sequences. By controlling the methods and limiting them to measures, benchmarking improves the likelihood of achieving the desired outcome and planned results. Benchmarks control the means at every Jevel of the hierarchy. As a goal rolls down through the organization, benchmarks serve to convert strategies into tactics and projects, through alignment and linkage, into action. The metrics change accordingly so employees can monitor the results and adjust behavior for the desired outcomes. Every objective is translated into one or more means by assigning every means a Level/Role Position(s) Strategic planning. Executive, Formulating strategy legislative, and resources. senior Vision, mission, management values, goals. Management Program control. Directing management implementation of plans and resources. Objectives. Operational con- Supervisory trol. Managing or team implementation of management plans and resources. Processes. Operational perfor- Individual mance. Carrying out management plan components. Tasks, activities. Customer satisfac- Internal and/or tion. End-user or external receiver of product/ customers service.
  3. 3. measure or indicator (desired outcome). In this way, words and numbers link the objectives and the outcomes, and managers can verify that the combination ofpro- gram plans adds up to delivery of the organizational requirements. Benchmarks make cause-and-effect relationships visible through a process of alignment: " alignment of an organization's goals with changes in the external environment; " alignment of employees with key objec- tives; and " alignment of process, task, and activity metrics with organizational goals. The result is an organization that consis- tently focuses on a fixed number of priori- ties, clearly communicates that focus throughout the organization, and identifies improvements in core business functions to achieve program objectives. To this end, benchmarking requires that managers understand the cause-and-effect relation- ships that drive their programs and that they document and study the rationale of their choices. It also demands an under- standing of the key relationships that generate and control the process of change and designing change strategies to reflect these relationships. Three Types of Benchmarks Benchmarks are tools for managing, reporting, and correcting which are used at three basic levels: strategy, performance, and operations. Strategic benchmarks measure the success of a policy that ad- dresses broad community goals, perfor- mance benchmarks compare a program's accomplishments with similar programs, and process (operational) benchmarks deal with finding improvements in the delivery of a service to the customer. (See Exhibit 2.) Strategic Benchmarks. A pioneer of benchmarking in the public sector, the State of Oregon looked at benchmarking as a tool for addressing its economic downturn in the mid-1980s. Although some of Oregon's strategic benchmarks are stated in terms of moving the state up in the ranking of states, Oregon strategic benchmarks often call for improving the lives of the people in the state. This mea- sured improvement is relative to their present situation or compared to some objective standard of health, safety, eco- nomic well-being of the state's population, and the state's resulting economy and public finances. This is the bottom line for the government, just as the bottom line for a private company is its ranking against other businesses or financial profit for the owners or shareholders. Strategic benchmarks assess where the entity or state intends to be in the future and indicate progress toward achievement of its strategic vision. They keep leaders, employees, and citizens focused on achiev- ing these outcomes. Tracking results through benchmarking enables decision makers to set priorities and adapt and modify programs as they learn what works best. Gresham's Use of Strategic Benchmarks: Housing. Goal 10 of the city's management plan is to create opportunities for living in a full-service community through economic development and housing. Strategic plan- ning requires considering what housing in Gresham should be like in the next 10, 20, and 30 years; what should be the average selling price, percentage of income to qualify for a mortgage, or percentage of single versus multifamily housing units? Clearly, they should be bette; but better than what? Strategic benchmarks will provide the focus of what the strategic outcomes for housing efforts should be. The attainment of the housing outcomes set out in Goal 10 makes the lives of Gresham citizens better-measurably better-in specific ways. In 1995, city council created the Gresham Progress Board to identify and develop strategic benchmarks as a means of providing community-based benchmarking. Board members were selected on the basis of geographic and other demographic factors to ensure most of the neighbor- hoods within Gresham were represented and to include a diversity of views and opinions. Applicants were solicited from neighborhood and civic associations, religious organizations, service groups and clubs, as well as business and educational organizations. The progress board believes this type of neighborhood representation provides the best input from a local per- spective so that the strategic benchmarks for housing can be especially targeted at a neighborhood level. The following scenario illustrates the application of housing benchmarks cur- rently under development in Gresham. Target areas of affordability and housing mix are being formulated by each neighbor- hood district. This requires examining historical housing data, trending them to 'ek ib I . , . , . g TypI-& OF BENCHM'1 KS j pUbfie, .prldate,and nonprofit otganiIa- tlone'dcMnpM With-each other. Strategic `, ber~dlircfa Cingfs seldom Industry focused. It . ~ioves'acr ;ndwslries and cities to deter- ,,mina what;are th best-:kclass strategic orne&h,6 Oregon Progreas hoard's ehchiriaf '4ro'rin example of strategic ~i'rchmad'cs* . f loWVt t lit, povater andnonprofit organize- ,'tipiss, ;:gititpare thernaepres with each other in terrM,61 prodocf aril service, Performance l nch rfcin uaualryfo~Crases onelements of prlce~ teofsnfr;al quality, atloillary product or seryice-fel~t~re~s,,sp~9ast, reli~hility, and other 'Qrni oornpadsons. .W pxiblic,'ptivafeyand nonprofitorganize- mns' cem~are through the identification ofthe `taa~`stw;rfteafi ie:bperetirlg praoficea from many prgai'llzdtionstl~t perlorm similar work pro-. . ;ct~ss~ . FEBRUARY 1997 GovERNMENT FINANCE REVIEW
  4. 4. TIPS FOR GETTING STARTED Before modifying an existing planning system, draw a map of it and take time to identify defects. Map the various components, inputs, and calendar aspects of current processes to figure out where to start. This is essential, even though the existing strategic planning process may be an informal or unstructured one. Create an open and safe setting to review the planning process so that senior managers will not be reluctant to report candidly the extent to which they currently manage their plans. Emphasize the need to identify opportunities for improvement. Senior management leadership and support must be visible. Target initial efforts to gamer a quick but effective success and plan time to learn on the smaller, doable projects. Benchmark selection may lead towards a complex and time- consuming program or to one that needs only minor tweaking of current practice . Keep it simple in the beginning, with additional detail and complexity being the result of refine- ments. Utilize what already exists; include the Internet and professional organizations among your resources. Other jurisdictions may have worked on a particular area to benchmark, and staff will probably be more than happy to share their experiences. Employees must recognize the long-term importance of the effort . Be persistent in staying the course. Do not arbitrarily try to adopt a carbon-copy approach of benchmarking or performance measurement from another organization . Employee buy-in, acceptance, and ownership of the new techniques are necessary. Success cannot be imported without participation and acceptance by the creators and users of information. Communicate. Be ready to crumple it up and redesign it. 8 1995, and factoring in some future-year demographic assumptions to derive desired outcomes. Staff and community stakehold- ers review and refine these outcomes, then present them to the Gresham Progress Board, which will solicit feedback from private, public, and not-for-profit stake- holders for further revisions. The board will then present these housing strategic benchmarks to city council for adoption. The success of Gresham's housing policy will be measured by these strategic bench- marks. Strategic benchmarks will be formulated in only those areas that the city can directly control or influence. The housing strategic benchmarks, specifying targets for particu- lar future years, will influence the city's budget, along with other stakeholder organizations, and guide efforts toward the attainment of these outcomes. The benchmarking process may suggest budget shifts by revealing costly programs or efforts that do not work and prompt new approaches to the problems of housing. Performance Benchmarks. Performance benchmarks compare one organization's products and services against those of another. They will indicate how a jurisdic- FEBRUARY 1997 GOVERNMENT FINANCE Review tion compares but do not reveal why the numbers differ. The difference between performance benchmarks and performance measures is comparability. Jurisdictions usually create performance measures to establish targets for a program or activity they have defined or is unique to that jurisdiction; this means that comparing performance measures is often comparing apples to oranges. The challenge with performance measures arises when citizens or elected officials look at the performance measures and ask, How do we compare with another jurisdiction? Many govern- ments can do this, while others cannot. Performance benchmarks, on the other hand, require that a common attribute or similarity exists so that apples-to-apples comparisons are possible. The purpose of performance benchmarks is to enable one unit or organization to compare itself easily with others. Performance benchmarks are used for this purpose constantly in the business world. One example of a performance bench- mark related to housing is a comparison of permit processing, inspections, lot size, new infrastructure, average family income, zoning, grant funded housing projects, or plan reviews with jurisdictions of similar size. A popular source of data for perfor- mance benchmarks is the American Sub- urbs Rating Guide and Fact Book, which provides information on the suburbs of the 50 largest metropolitan areas throughout the nation. They are benchmarked and ranked from best to worst, overall, and in seven categories: economics, affordable housing, crime, open spaces, education, commuting, and community stability. While many jurisdictions may not yet have committed themselves to do any type of performance benchmarking, it is no sur- prise they are already included in these performance benchmarks by the private sector as a means of comparison with other areas of the country. Learning from others-determining who has the best performance through perfor- mance benchmarking and studying the practices they use (known as best prac- tices)--can be a precursor toward the attainment of breakthroughs in the way business is done. Performance bench- marking provides a baseline from which to make a comparison and identify gaps to close in relation to an entity's best perfor- mance and to the best in class. The International City/County Manage- ment Association (ICMA) is using perfor- mance benchmarks in its Comparative Performance Measurement Consortium. The City of Gresham is using ICMA's support services performance benchmarks as a means of comparing itself to other municipalities in core business functions, such as fleet management, facilities man- agement, human resources, risk manage- ment, information technology, and pur- chasing. These benchmarks provide Gresham a basis of measurement to assess its standing with other municipalities. City staff will examine the feasibility of utilizing the lCMA's performance benchmarks relating to neighborhood services and housing and will work with other juris- dictions and professional organizations to select the most appropriate and beneficial performance benchmarks. Process Benchmarks. Process bench- marks are used to assess the effectiveness, efficiency, and service quality of a program ' or core business function. Before a process can be improved, it is important to know how the process is currently working and to monitor the key input, process, output, and outcome indicators that customers use to evaluate service delivery. Process bench- marks, the lowest level of the benchmark hierarchy, can serve as the basis for initiat-
  5. 5. ing improvements through a variety of tools and techniques. The City of Gresham has used a modi- fied service efforts and accomplishments model that measures the flow of inputs, processes, and outputs that affect the desired outcomes of programs or functions. As the city establishes its strategic and performance benchmarks, they are used in efforts to improve processes related to housing. Staff of city programs involved in housing will participate in the formulation FOR FURTHER INFORMATION ON BENCHMARKS Comparative Performance Measurement Consortium, International City/County Manage- ment Association, 777 North Capitol St. N.E., Suite 500, Washington, DC 20002-4201 (202/289-4262) . Contact: Michael Lombardo (e-mail: mlombardo*icma.org) PUBLICATIONS, HANDBOOKS, AND GUIDES American Suburbs Rating Guide and Fact Bookby Alan Willis and Bennett Jacobstein (1993). Contact: Toucan Valley Publications, 142 N. Milpitas Blvd., Suite 260, Milpitas, CA 95035 Benchmarking: A Manager's Guide by Meredith Bolon and Amy Weber (1995) and pub- lished by Coopers Lybrand. Contact: Bookmasters (800/247-6553) Business Process Benchmarking: Finding and Implementing Best Practices by Robert C. Camp (1995). Contact: American Society for Quality Control Press, P.O. Box 3005, Milwau- kee, WI 53201-3005 Benchmarking ManagementGuide by International Benchmarking Clearinghouse (1993). Contact: American Productivity and Quality Center, 123 N. Post Oak Lane, 3rd floor, Houston, TX 77024 Effective Benchmarking (SMA #4V) by the Institute of Management Accountants (1995). Contact: Institute of Management Accountants, Publications, 10 Paragon Drive, Montvale, NJ 07645 Strategic Benchmarking: How to Rate Your Company's Performance Against the World's Best by Gregory H. Watson (1993). Contact: John Wiley Sons, 1 Wiley Drive, Somerset, NJ 08875 WORLD WIDE WEB SITES WITH BENCHMARKING INFORMATION American Productivity and Quality Center (http:/twww.apgc.org) American Society for Quality Control (httplAvww.asgc.org) Benchmarking for Quality Management and Technology (http./Avww.mcb.co.uk/services t contentsAiblink/webpages/hl31001001 .html) Centerfor Advanced Purchasing Studies Benchmarking Reports (http:/Avww.napm.org/ capslbmr-hmpg .htm) Department of Energy's Business Practices Homepage (htipJ/www.prdoe.gov/pr5.htm1) Performance Benchmarking (httpJ/www.lbb.state.tx.us/Ibb/memberst reports/strat/ SPAPP3.htm) Education best practices (httpJ/www nhmccd.cc.tx.us/groups/stw/srvy-W.html) EuroOual Benchmarking (httpJ/www.euroqual.orglgtdAlit/bench.htm) National Performance Review Reinventing Government Toolkit (http://www.fc.ul.ptt npr-page.htmi) National Institute of Standards and Technology Quality Program (http:l/ www.quality.nist.gov) Oregon Progress Board (hnp://www.scon.state.orus/opbAndex.htm) The Strategic Planning Institute Council on Benchmarking (httpJ/www.spinet.orM of efficiency, effectiveness, and service quality desired outcomes that will be linked to the budget. Process benchmarks for the city mediation program and fire and emergency services department have been developed and are used as a tool to im- prove service delivery continuously and as a reporting mechanism. The process of developing these benchmarks involves the identification of desired outcomes for programs, and the sifting of the key inputs, key processes, and key outputs. Lessons Learned Each customer has different information needs; this translates into different types of benchmarks. A clear understanding of this was necessary for Gresham staff to create a model for linking and aligning information needs. As information systems profession- als well know, there must be an architec ture from which to design, develop, and deliver information to meet the needs of the various users of the system. It became apparent to Gresham staff that numerous benchmarking, strategic planning, perfor- mance-based budgeting, and total quality management efforts throughout the coun- try lacked the necessary architecture, often prompting users to ask, Where does this fit into the big picture? Examining the experiences of other jurisdictions and analyzing their own initial efforts has led officials in Gresham to four conclusions about what benchmarks should do. Benchmarks must link operations to strategic goals. Departments and func- tions should know how they are contrib- uting separately and together in meeting their strategic mission. The benchmark system has to integrate financial and nonfinancial information in a way that is useable by program manag- ers-management and employees need the right information at the right time to support decisions. The real value of benchmarks for the city would derive from their ability to focus efforts on core business functions related to customer requirements. Benchmarking must provide added value to the user. Reports should not be created for the sake of measuring but rather to help people manage, make decisions, assess past performance, and plan for future performance. O NOTE 1 This extended model was derived fromPlanning and Control Systems:A Frammork for Analysis by Robert N. Anthony (Cambridge, MA. Harvard Business School, Division of Research, 196S). ANTHONY H. RAmYis administrator ofbenchmarks and strategic planning for the City ofGreshamand a member ofGFOA's Committee on Governmental Budgetingand Management. Heformerly served as budget and benchmarks director for the City of Gresham, planning and budget director for the Seattle Municipal Court in Washington, andregional informa- tion resources managerofthe SmallBusiness Adminis- tration Seattle Regional once. He can be contacted by telephone (5031618-2362) ore-mail (rainey®ci.gresham.orus). FEBRUARY 1997 9 GovERNmENT RNANa REviEw 9 .

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