With few external competitors for professional regulatory services, benchmarking will prove essential to the new best value regime, Dr Terry Smalley explains

When Government decided to relax compulsory competitive tendering for the pilot best value authorities and to remove compulsory tendering from the best value regime, something was needed to fill the gap and ensure competitive services.
"Where the market is weak or poorly developed, authorities may want to consider ...replicating the competition that a mature market provides - through comparative competition for example..." suggested the DETR's document Preparing for Best Value.(1)
Benchmarking for best value may therefore be defined as "comparative competition". But what exactly is "comparative competition"? Comparison and competition are both prescriptive procedures. They tell us in very general terms what to do but not exactly how to do it. We must look at the early experience of benchmarking to examine the procedures and outcomes in order to understand the concept and evaluate its likely success.

Best Value and Benchmarking
Best value for a local authority is described in Section 3 (1) of the Local Government Act 1999 as: "Arrangements to secure continuous improvement in the way in which its functions are exercised, having regard to a combination of economy, efficiency and effectiveness."
This is a laudable objective but the act does not tell us what these "arrangements" are. For this we have to refer to the 1998 English and Welsh green and white papers on modernising local government.(2) The most important aspect is the "review" of functions, a process which reflects and informs corporate objective setting, with the outcomes forming the structure of the local performance plan. This process must involve "challenge", "comparison", "consultation" and "competition".

Perhaps the most appropriate and official definition of benchmarking is that given by the Benchmarking Reference Centre: "The continuous process of measuring products, services and practices against leaders, allowing the identification of best practices which will lead to measurable improvement in performance."(3)
Benchmarking is relevant to all four aspects of the review process. It is appropriate in challenge since justification of a service rationally requires a cost-effectiveness comparison of options. Consultation also, in ascertaining what people want, assists in the determination of performance indicators and targets for the "informed comparisons". It is, however, in comparison and competition that benchmarking comes into its own.

Comparison
An important feature of the reviews will, according to the English Green Paper, be a "rigorous comparative approach to the setting of targets and the consideration of alternative means of delivering services."(2) The government recognises the limitations of the statutory performance indicators and reports slow progress in measuring performance outcomes. There is, however, due acknowledgement to the development of "increasingly sophisticated approaches to the setting and use of indicators" and a reference to some local authorities having joined together "to develop important benchmarking and other arrangements which have enabled authorities to learn from each other, and to improve their performance". The Welsh Green Paper refers to the establishment of the Local Government Benchmarking Reference Centre as having "helped authorities to make progress with the use of process benchmarking.(2)"
Authorities will thus have to compare their performance with other authorities, both public and private (where appropriate), in two ways: using national performance indicators and locally developed information such as that from benchmarking clubs.

Competition
The Government is firmly committed to competition in order to cut costs, increase quality and openness, and reduce public expenditure in relation to local government. This is made clear in their criticism of CCT in the white papers:
"Real competition is not delivered through the imposition of rules which invite avoidance rather than ownership. CCT made the costs of services more transparent. But its detailed prescription of the form and timing of competition led to unimaginative tendering, and often frustrated rather than enhanced real competition."(2)
The requirement for competition, however, does not mean that everything must be put out to tender. Indeed, the list of ways suggested by the Government in the white papers for a local authority to meet the test of competitiveness is headed by benchmarking (followed by various examples of partial and total tendering): "Commission an independent benchmarking report so that it could restructure the in-house service to match the performance of the best private and public sector providers."(2)
The primary strategic decision for authorities is whether to provide services directly themselves or to secure their provision elsewhere, the test being value for money.

Benchmarking in Practice
The benchmarking option was favoured by the majority of pilot authorities, probably because of the offer of suspension of CCT, and early results from the government-commissioned Research Team(4) have raised several interesting issues associated with its use.

There appear to be two analytical requirements for the successful implementation of benchmarking:
a) "Very detailed comparable data" which have rarely if ever been available in the past. This has meant considerable effort and cost in devising, getting acceptance for and setting up "comparable data collection systems, with shared definitions and protocols". Many authorities have great difficulty in identifying, apportioning and allocating costs to cost centres and units and assessing the variability and negotiability of elements of expenditure and activities. This is compounded by the fact that many local authorities since reorganisation, particularly in Wales, have been facing problems of adapting to a changed matrix of relationships with local government services and other statutory and non-statutory organisations. Another difficulty was identifying and analysing baseline data for planning and management purposes which in many areas have been inherited from former authorities.

b) A "significant level of technical analysis, not always readily to hand". The measurement of the impact of resources is the most difficult aspect of analysis. The relative effectiveness of activity outputs in achieving policy outcomes has to be determined to provide the evidence base for the allocation of resources. Local authorities, and in particular environmental health services, need this evidence to allocate resources across a wide portfolio of activities in order to maximise their overall effectiveness. Without a knowledge of these cause-and-effect relationships, the effectiveness of service provision cannot be measured and justified.
It is important, however, to be pragmatic. The essential first step is to try to get comparative baseline cost data for what might be termed "input" benchmarking. Only once this has been achieved should there be an attempt to move to process and "output" benchmarking (including "final" outputs or outcomes). For these later stages, use should be made of whatever resources are available. It is not absolutely necessary to employ consultants unless this is a requirement of the club. The expertise should be available within most environmental health departments. As an essentially incremental learning experience, analytical expertise will develop and this should be an important part of environmental health professional development.

Resources
The Government recognised some of the limitations associated with comparison in its letter to local authorities.
"Useful insights can be provided through comparison with neighbouring or similar authorities, but there is a risk that comparison can become an end in itself requiring ever more detailed information at ever higher costs."(1)
It is important to assess the likely costs and expected benefits from any new procedure before implementation. Indeed, some form of cost-benefit assessment is likely to be a recommendation of the Research Team. This is because the benchmarking exercise can be very expensive, particularly in terms of labour. It requires an input from officers at all levels in the authority's hierarchy, analytical and IT support and, not least, member involvement.

The involvement of both members and officers is recognised by the Government as essential for the success of best value: "If it is used as a technical device operated by specialists it will fail to live up to its potential for delivering substantial change. That is why best value requires the engagement of the political leadership of the authority and other elected members, as well as that of the officers."(1)

The Research Team has also pointed out the desire of many authorities to involve backbench and even opposition members in the best value exercise. The variety of political decision-making structures in the pilot authorities has so far made it difficult to evaluate the relative effectiveness of different approaches. It is an important issue, however, particularly as the government is proposing to encourage new and diverse political structures.(5)

Organisational Behaviour
As the Benchmarking Reference Centre has pointed out: "A key to successful benchmarking is knowing your organisation before seeking to change it. ... only through detailed local understanding of processes can we begin to identify appropriate partners, the performance gap that exists between us and higher performers and what action is required to achieve change."(3)

Within legislative parameters each local authority inevitably has different sets of policies, shaped by local needs and structural constraints, and reflected in differential activities. Output benchmarking, as implied in the Government's proposed national performance indicators and standards, has to accommodate the fact that the same output can be produced in many different ways. For similar reasons, process benchmarking must take account of constraints on alternative courses of action. This is why the Research Team considers that the externally imposed "independent benchmarking report" recommended by the Government is not likely to be the best way forward. This type of benchmarking could lead to managerially and externally imposed indicators that may have little or no beneficial effect on the learning process of the organisation. Indeed, it is feared that it may have the opposite effect of producing a "defensive" approach and of stifling innovation. The situation could be exacerbated where external consultants are brought in to plan, organise and direct the operation.

Local authorities should, as the green papers recommend, involve their staff in the best value consultation process, in producing indicators and targets and in managing change. Such a participative process should help overcome any negative and defensive attitudes and promote a convergence of organisational, group and individual goals.

Organisational effects over time
Benchmarking should not be an ad hoc, one-off, short-term procedure. To ensure that it is not, it must be systematised into the internal management of the local authority. The five-year review cycle, however, suggests a partial and sequential approach, eg environmental health may be reviewed only one year out of five. As multifunctional organisations, there may also be different sets of authorities for each function benchmarked and the duration and timing of each exercise will inevitably vary. At any one time, a local authority may be involved with several sets of authorities for different functions. It is extremely improbable that an authority's review of environmental health will coincide with benchmarking of that activity. There must therefore be procedures in place to allow for feedback into the review process.

A related issue reported by the Research Team is the effect of benchmarking on levels of performance across local authorities over time. The "best" authorities may become complacent and let standards slip, differentials between authorities may persist despite overall improvements in local government, benchmarking may have the most effect on the "worst" performers, or, more controversially, the process may justify the status quo. Best practice is of course to be welcomed from a professional standpoint but convergence is unlikely and perhaps not desirable in view of its possible centralist consequences.

Confidentiality
Benchmarking is of course easier to carry out in an environment that is not as competitive as the private sector. However, the research team came across some pilot authorities subject to CCT that were reluctant to share information where this could have led to their in-house team losing out in the next bidding exercise.
This situation could arise for any local authority as competition is one of the main tenets of best value. There was also some evidence, however, that joint working and the sharing of information were not mutually exclusive. This is more likely to be the case where they partners have different and mutually exclusive customers and will use the learning process to become more competitive with other rivals. There is also the probability that many authorities will be reluctant to divulge sensitive information on, eg unit costs to other authorities, companies and inevitably the public, over and above statutory requirements of the Audit Commission and the government.

The research team has also reported "relatively little benchmarking against private sector practice". They point out that it "may not be easy if the private sector believes it will gain nothing from the exercise" and give a warning from the CBI that its members may take this view. Confidentiality is obviously important where sensitive information is concerned or authorities are competing for the same customers. The whole issue of confidentiality and ethics, however, should be addressed and resolved through the code of conduct adopted by the benchmarking reference centre.3 This code is based upon European practice and recommendations and takes account of European Union competition law.

CONCLUSION
The history of local government, particularly since the 1960s, is littered with failed attempts at corporate decision-making procedures and analytical techniques and it would be a great pity if benchmarking went the same way. Indeed the latest Consultation Paper on Draft Guidance for best value makes precious little reference to benchmarking and emphasises the importance of tendering.6 It is to be sincerely hoped that the Government has not downgraded this issue in the light of recent experience. It is inevitable with any new approach that there will be teething problems. The issues that have been recognised must be addressed in a positive way. Best value is here to stay, at least for the foreseeable future, and government audit and inspection will ensure that benchmarking, if not tendering, is implemented successfully.

Benchmarking has been shown to be an integral part of the whole best value regime and not merely a substitute for tendering. As comparative competition, it unites the comparison and competition elements of review, reflects consultation and informs challenge. It is a recognition that the public sector needs to be treated differently from the private sector. The relative lack of inter-authority and external competition, the nature of the "product" like environmental health and intra-authority democratic openness and accountability all combine to produce a fertile climate for the growth and development of the concept. These unique characteristics of local government are conducive to benchmarking as comparative competition for this public sector "market". Local authorities should take this opportunity while it is still on offer and avoid a return to CCT Mark II.

References
1. Department of the Environment, Transport and the Regions, 1999, Preparing for best value, London.
[ www.local-regions.detr.gov.uk/bestvalue/bvindex.htm]
2. Department of the Environment, Transport and the Regions, 1998, Modern local government: in touch with the people, London; Modernising local government: improving local services through best value, London. Welsh Office, 1998, Local voices: modernising local government in Wales, Cardiff; Modernising local government in Wales: improving local services through best value, Cardiff.
3. Benchmarking Reference Centre, 1997, Introduction to the benchmarking reference centre, Wrexham.
4. Department of the Environment, Transport and the Regions, 1998, Achieving best value through competition, benchmarking and performance networks, Local government research programme, Warwick/DETR Best Value Series, Paper 6, Aston University, Birmingham.
[ www.local.detr.gov.uk/research/bestva~1/paper6/]
5. Department of the Environment, Transport and the Regions, 1999, Best value baseline report, Local government research programme, Warwick/DETR Best Value Series, Paper no.4, Volume 1, University of Warwick, Coventry.
[ www.local.detr.gov.uk/research/bestva~1/bvpap4.doc]
6. Department of the Environment, Transport and the Regions, 1999,
Implementing best value-a consultation paper on draft guidance, London.
[ www.local-regions.detr.gov.uk/bestvalue/bvindex,htm]

Dr Terry Smalley is a senior lecturer at the University of Wales Institute, Cardiff
The views expressed in this article are those of the author and do not necessarily represent those of his employers.