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Does This Benchmark Make Me Look Inefficient?

States compare their back offices to those of other governments and similar private-sector organizations to measure their own efficiency.

by / January 30, 2006
Can the public sector run as efficiently as the private sector? The general answer is "yes" from those driving the new business process-benchmarking movement in state government.

The idea is to systematically compare the efficiency of state government business processes to those of other governments and organizations of similar complexity.

Two states recently implemented multi-agency benchmarking projects, and more look to adopt the budding trend.

The Usual Comparison
People often taunt the public sector for lagging behind the private sector in efficiency, but only few make relevant comparisons. While private companies can centralize authority, allowing decisions and tasks to be executed quickly, government disperses responsibility across multiple agencies by authority of a constitution.

So what is a non-hasty comparison of government that can help it improve?

It is one that compares a government to metrics collected from other governments and private organizations of similar complexity -- or benchmarking, according to the National Association of State Auditors, Comptrollers and Treasurers (NASACT).

Since the inception of benchmarking in the 1970s, private businesses have used it to measure their own effectiveness against metrics collected from similar companies. Now public-sector organizations are beginning to catch up.

"I wouldn't consider this a fad, like you would consider some new management theory or management philosophy, or something like that," said Doug Darling, director of accounting and auditing for the Florida Comptroller's Office. "This is really measuring one state against another -- so comparing apples to apples is where I think the value of this is going to be.

"If it takes Florida 50 people to produce a payroll for 100,000 state employees, and it takes California 25 people to produce payroll for 100,000 employees -- there is something Florida needs to do differently," Darling said.

Benchmarking actually has been used sparingly for years by state and federal agencies, but NASACT took the plunge in August 2005, offering a statewide benchmarking services contract to all 50 states with consulting firm The Hackett Group in partnership with Accenture.

The idea behind negotiating one contract is to build a single metrics database of all states in the republic, measured under the same taxonomy.

"We're very excited about the development of a first database of state government metrics and what that database can do for our member states," said Kinney Poynter, executive director of NASACT.

States can now benchmark four administrative areas through the NASACT contract: finance, human resources, IT and procurement -- all back-office functions that have proven difficult targets for performance measurement in the past.

"If you look at government today, and you look at the citizen-facing programs, there are ways of measuring how successful those programs are -- how many students are being educated, how many are graduating, how many highways are being maintained or built, or how many children are being fed through child support programs," said David Wilson, managing director for finance and administration industry within state and local government at Accenture.

"In a world where we are trying to figure out how to create more citizen-facing programs for less cost, one of the areas for opportunity is to wring some of the costs out of the back office," he added, noting that there was no systematic method for measuring the back office before benchmarking caught fire in the private sector.

"Ultimately, as taxpayers and voters, we don't really care about that back-office stuff," Wilson said, adding that roughly 10 percent to 20 percent of state agencies' budgets go toward back-office tasks.

Getting Started
When a state signs up for benchmarking services, representatives from The Hackett Group and Accenture hold conference calls with the state's leaders to establish the most convenient way of approaching agencies for information.

Company representatives hold an on-site "kick-off session" with agency officials to walk them through the information gathering process. Each official is given a detailed questionnaire, and the representatives make sure officials understand exactly what is being asked in every question.

"[The Hackett Group] provides a workbook that says, 'Here are the definitions of all the processes we are talking about, and this is where to go to fill in the data,'" Wilson said.

It usually takes two days to gather the information and eight weeks to 10 weeks to conduct the studies. The cost of one benchmark study for one administrative area in an agency is $80,000. A progressive discount applies to each additional study purchased after that, as the state benchmarks multiple agencies.

The Hackett Group recommends that states study all agencies for comparison purposes. Sometimes one agency outperforms another in the same state doing the same task, according to Wilson, who added that states would likely attain updating services from the company every three to five years.

The Pilot
Before NASACT established the contract, The Hackett Group and Accenture performed pilots in Tennessee, Alaska, Nebraska, Oregon, Washington and Arizona. Participants were quick to warn of the pilot's deficiencies, but all agreed that it gauged the status of states' back-office operations.

Among the compiled pilot results in the High Performance Best Practices Study for the Benchmarking Committee of the National Association of State Comptrollers was a striking observation -- the public and private sectors spent similar amounts on financial processes, but the distribution of costs and resources was dramatically different.

The public sector paid a lot of entry-level employees to perform tasks mostly done by technology in the private sector. Additionally private-sector organizations hired fewer workers overall, but more professional-level employees, making higher salaries. And private companies vastly outspent governments on technology by more than 2-to-1.

The public sector's use of technology best practices lagged behind the private sector's, according to the pilot studies. Productivity in high transactional areas -- such as cash disbursements and compiling and reporting transaction data -- was significantly lower for the public sector. Government's cash disbursements productivity was, on average, 60 percent lower than the private sector, and transactional compilation and reporting cycles took longer in the public sector than in the private sector.

Jan Sylvis, chief of accounts for the Tennessee Comptroller's Office, said she was initially apprehensive about participating in the pilot.

"I thought, 'Oh man, there it is in all of its glory -- the good, [the] bad and the ugly that we have accomplished,'" Sylvis said.

Washington was one of the first states to perform a multi-agency benchmarking effort in 2002, before the NASACT contract was established. That state's back-office employees had similar concerns.

"The concern about benchmarking that [I] discovered [was] typically, 'If we go out and benchmark, and we find out that somebody else is doing this in 18 seconds, and it's taking us three days, are we going to get nailed or blamed? Is anybody going to take into consideration the fact that they can do it in 18 seconds because they have bigger, better computers?'" said Mary Campbell, special assistant to the governor of Washington for the Office of Management, Accountability and Performance.

Sylvis and Campbell both said a good benchmarking effort emphasizes that faulty systems caused the inefficiencies, not the employees themselves.

A key theme throughout the pilot was automation -- the private sector got more professional-level work done for its money than the public sector by automating most clerk-level tasks.

Reality Check
Clark Partridge, comptroller of Arizona, is negotiating his state's benchmarking services, but warned that states must be willing to spend the money required to change business practices and purchase the necessary technology to see the dramatic improvements promised by their benchmark studies. States will have more efficiently run back offices by making those investments, but as a result, they'll often be spending more overall, mostly due to upfront technology upgrade costs, according to Partridge. He recommended that all states do a benchmark study, but they must realize that initially, many will only be able to implement the changes that require a reprioritization of existing funds and resources -- not the ones that require extra money. Large technology investments might have to wait until legislators are willing to pay for them.

"Lawmakers don't get elected on a new accounting system," Partridge said, adding that his rapidly growing state needs to make those expensive changes in technology and business practices, but he will be patient with legislators.

"They have difficult decisions to make," Partridge said, noting that Arizona is growing so fast that neighborhoods are popping up in areas with no schools.

"Benchmarking has the opportunity to lay good information at the doorstep of the policy decision-makers, and over time -- as the resources become available and they try to manage the growth -- we can incorporate those concepts."

Changes in the Wind
The approaching exodus of retirement-age baby boomers from state government is providing a window to automate clerk-level jobs, according to Bill Kilmartin, director of the finance and administration industry for state and local government at Accenture, and former comptroller of Massachusetts.

"What I observe is an evolutionary change in the composition of the state work force -- it's gradually shifting from a lower-paid clerical focus to more of a higher-paid knowledge worker focus," Kilmartin said.

Florida's Darling explains some of the changes that automated technology will make to back-office procurement processes.

"If you were sitting in front of your PC and you were an authorized purchaser for supplies, you would make the decision to buy office supplies at your PC, and the automated system running behind the scenes would capture the accounting information," Darling said. "It would set up the purchase order -- it would reserve the funds all with you typing in, 'I want to buy a dozen pencils.' The purchasing agent wouldn't have to go out and find a supplier. The accounting clerk wouldn't have to go out and say '[The purchaser] ordered a dozen pencils, so we're going to have to charge that to here.'"

Sylvis described some of the busywork Tennessee HR employees endure with their antiquated legacy equipment, some of which was more than 30 years old. They are required to manually process every garnishment on a paycheck.

"You have to make sure you reduce the amount of pay for that particular individual by the court-ordered amount," Sylvis said. "Then you have to go into our accounting system and prepare the entry to make the payment to the courts on behalf of that person. All the child support that goes on with our employees -- all of the liens out there are handled that way."

That process and others like it will be automated as technology overtakes the back office. The evaporation of such "scut work" would free up budget space to hire more employees for analytical, knowledge work, according to Kilmartin, who pointed to his 10 years as comptroller of Massachusetts as an example.

"We started off with a work force that was heavily clerical," Kilmartin said. "Over the course of time, we professionalized the work force so it became less clerical, and we brought in more technology, and at the end of [my final term], we had [nearly] the same number of employees, but they were doing three times the amount of work."

As the rash of retirements makes room for those positions, government's new showcase of using best practices, current technology and a more professional work environment will help to recruit high-quality candidates, according to Jeffrey Rosengard, senior vice president of The Hackett Group.

"It's going to be a completely different model, so that where you may have a highly educated candidate who [might] not [normally] even consider state government because of the negative perception -- this is really going to help change that," Rosengard said.

Who's In
Many states, like Florida, cheer NASACT's benchmarking agenda, but stop short of joining right away.

"We are in the process of installing a new accounting and cash management software program, so we are smack dab in the middle of redoing all of our business processes, a whole new chart of accounts -- getting ready to roll out agencies," Darling said.

Many states are neck deep in similar rollouts and don't have time to implement new projects midstream.

"If we had [the NASACT contract] a couple of years ago, we could have considered [it]," Darling said, adding that he wants to use it in the future.

Tennessee's back office always has lagged behind the technology curve, but now it's in the market for its first ERP system -- the perfect time to start benchmarking, according to Sylvis. The state was the first to sign on to the NASACT contract, and will conduct all four benchmarks for every one of its agencies. It will do one benchmark before installation of the ERP and one afterward to measure the new system's effectiveness.

Delaware isn't far behind -- another state shopping for an ERP system, and wanting to benchmark before and after implementation to measure its return on investment. The state will do a financial benchmark of all its agencies no later than June 2006, according to Trisha Neeley, director of the Division of Accounting in the Delaware Comptroller's Office.

"We're going to be the first out of the chute," Sylvis said. "We have to wait a little while for that comparative data to come back to us from the other states that haven't signed on to it yet, [but it] is going to be a powerful tool."

The benchmarking studies will depend more heavily on state agency metrics, and less on private-sector metrics as more states get benchmarked. For now, a supplement comparison of private-sector organizations of similar complexity will join the roughly 100 government benchmark studies Hackett already has on its books -- the company has done 3,300 studies of nearly 2000 private-sector organizations.

The consensus from The Hackett Group and Accenture was that a good private-sector candidate for comparison was large, decentralized and domestic -- not a global company with vast geographical dispersion.

"When you do benchmarking, this is not something that is absolutely quantitative down to the last red cent," Wilson said. "What benchmarking really gives you is a good feel for where you are outside of the norms in costs or effectiveness."

For example, a government transportation or public works organization doing a lot of construction might be compared to a large construction company. An agency's collections division could be compared to a utilities or publishing company managing a heavy volume of incoming receipts.

Before the NASACT Deal
Government executives had done various forms of nonsystematic benchmarking for years. It essentially involved sharing stories over the phone with each other about what worked well in their agencies and passing along ideas from conferences -- nothing empirical or quantitative.

Then in 2002, Washington state's 12-agency venture into systematic benchmarking, with the Mercer Group and Sierra Systems, sparked interest in many comptrollers' offices. NASACT secured Sadie Rodriguez-Hawkins, assistant director for the Accounting Division in the Washington state Office of Financial Management to chair the NASACT subcommittee that created the organization's current benchmarking contract. It even recycled Washington's RFP, tweaking it to meet the needs of a 50-state contract.

Even before Washington state's high-profile project, the state's Department of Transportation made its own financial, IT and HR benchmarking effort with The Hackett Group in 2000. The project resulted in lukewarm satisfaction from the agency -- varying by organization and management level.

"Overall, I think it was a relatively fair report," said Marcy Yates, chief of accounting for the Department of Transportation, who dealt with the financial benchmark study.

"As we saw a draft, we would ask questions on, 'Well, why does this look this way? That's not our impression of this' -- so it was a lot of back and forth," Yates said, adding that she had mixed feelings about the project.

"It was a lot of work," she said. "It took a lot of people in our agency a lot of time to gather the information, but we felt we got some things out of it too. We got flow charts, we got numbers, we got information, and that in itself was useful. It may have just been the spirit we had going into it."

NASACT's Poynter said two other unnamed states were on the verge of joining the NASACT contract -- they are still arranging for funding.

"Our goal was to get five or six going the first year, and let this thing gain some momentum," Poynter said. "This is a pretty big project in a new area for state governments, especially our members. We want to get one or two under our belts, and see what the results are."

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Andy Opsahl

Andy Opsahl is a former staff writer and features editor for Government Technology magazine.

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