New Management Techniques: An International Comparison

By Linda A. Kidwell, Shih-Jen Kathy Ho, John Blake, Philip Wraith, Raafat Roubi, and A. William Richardson

Governments around the world are under great pressure to control their costs and improve their service. In response to chronic fiscal constraints, local governments are considering management tools used in the private sector, such as activity-based costing (ABC), activity-based management (ABM), total quality management (TQM), benchmarking, process reengineering, and the balanced scorecard. Some government leaders believe that such tools are helpful in meeting the challenges of increased accountability while others dismiss them as merely another fad.

Management Tools

Traditional budgeting and financial management tools, such as line-item budgeting and financial trend monitoring, were not included in this study, but the following six tools were.

Activity-based costing (ABC). A procedure that measures the cost of objects, such as products, services, and customers. Activity-based costing first assigns resource costs to the activities performed by the organization. Activity costs are then assigned to the products, customers, and services that benefit from or create the demand for the activities.

Activity-based management (ABM). Activity-based management consists of performing activities more efficiently, eliminating activities that do not add value for customers, improving delivery of services, and developing better relationships with customers and suppliers. The goal of ABM is to satisfy customer needs while making fewer demands on organizational resources.

Benchmarking. Benchmarking is the process of studying and comparing how other organizations perform similar activities and processes. The other organizations are generally selected because of their excellent performance of the benchmarked process.

Process reengineering. This technique has been described as "the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service, and speed" (Hammer and Champy, Re-engineering the Corporation: A Manifesto for Business Revolution, Harper Business, 1993).

Total quality management (TQM). TQM is a management-led, organization-wide commitment to quality, as defined by both internal and external customers. It requires the development of a clear vision of what the organization does, what its values and goals are, and how it is going to achieve them. TQM focuses on understanding customers and their needs, as well as the needs of employees, while focusing on processes.

Balanced scorecard. A balanced scorecard is a set of measures that give top managers a fast but comprehensive view of the business. It complements traditional financial measures with operational measures of customer satisfaction, internal processes, and the organization's learning and growth activities-operational measurements that are the drivers of future financial performance. The balanced scorecard can help management form a link between long-term strategic objectives and short-term actions.

Research Method

The authors conducted a survey to understand the use of contemporary management techniques by municipal governments, their effectiveness, and future expectations. In addition, information was collected about the characteristics of the government unit, major barriers to implementation, and management tools helpful in developing alternate reporting.

Questionnaires were mailed to the chief administrative officers of various municipal jurisdictions in the United States in the summer of 1998, and the survey was administered in the United Kingdom and Canada in the winter of 1999/2000. Of the completed questionnaires, 140 were from the United States, 105 from the United Kingdom, and 157 from Canada (for response rates of 35.7%, 22%, and 22.3%, respectively).

The populations of the respondent municipalities are shown in Exhibit 1. American municipalities were distributed somewhat evenly in the six ranges; British and Canadian respondents were skewed toward the smaller ranges, as would be expected. Jurisdictions also reported the number of employees, excluding school employees. The majority of all respondents had less than 5,000 employees. Only about 10% had more than 10,000 employees.

Current Use

The government executives were asked to identify the contemporary management tools used in their jurisdictions, either on a unit-wide basis or in selected areas. Respondents could also indicate whether their jurisdiction had tried the tool previously and if they planned to try it in the future. The summary results are reported in Exhibit 2. The most popular tool overall was benchmarking, with a usage rate of 78.8%, followed by process reengineering at 60.6%. The most popular tool used on a unit-wide basis in the United States was TQM, with a usage rate of 20%; in the United Kingdom, it was benchmarking, at 35.2%; and in Canada, it was process reengineering, at 14.8%.

Combining partial use (use in selected areas) with unit-wide use, benchmarking had the highest combined use rate (82.2% in the United States, 78.2% in the United Kingdom, and 71.6% in Canada). The second most popular tool in combined usage was process reengineering (78.9% in the United States, but much lower levels of 58.4% and 40.2% in Canada and the United Kingdom, respectively). At the other end of the spectrum, balanced scorecard was the least used tool in the United States and Canada, at 17.9% and 17.3%, respectively, and activity-based management was the least common tool in the United Kingdom, at 15%.

Usage across the three countries was significantly different for process reengineering, ABM, and benchmarking. Process reengineering is rarely used in the United Kingdom, but heavily used for selected areas in the United States and Canada, and commonly used unit-wide in Canada. Similarly, the U.K. use of activity-based management is much less than in other countries. Benchmarking is commonly used unit-wide in the United Kingdom, but used less extensively in the United States and Canada. A number of factors have contributed to the popularity of benchmarking in the United Kingdom. The professional body for public-sector accountants, the Chartered Institute of Public Finance and Accountancy (CIPFA), has published a code of accounting practice that leads to common and comparable accounting approaches and has collected and published statistics derived from local authority accounts, both of which have facilitated benchmarking use.

Total quality management usage differs moderately across countries. It is more commonly used in selected areas than unit-wide, although combined use ranges from 56.3% in the U.S. to 30.7% in Canada. ABC usage is much lower in the United Kingdom (30%) than in the United States or Canada (50.8% and 55.3%, respectively). Finally, balanced scorecard usage was low and did not differ significantly among the three countries.

Effectiveness

Respondents were asked to assess the effectiveness of the six tools in program administration and decision-making. Using a 5-point Likert scale, respondents ranked tools from 1 (mostly ineffective) to 5 (very effective). Exhibit 3 summarizes these results. Administrators generally found that the tools were moderately effective (4). Tests of paired mean responses were not significant, but statistical tests of frequency distribution revealed some interesting international differences. British respondents tended to give certain techniques, especially benchmarking and the balanced scorecard, lower effectiveness ratings.

Enthusiasm

Government executives were also asked about their enthusiasm for new management tools. A majority of respondents were somewhat or significantly more enthusiastic about using benchmarking than they were one year ago (57.8%). More U.K. respondents, however, were significantly more enthusiastic than a year ago, while many U.S. and Canadian respondents (40.3% and 48.9%) have had no change in attitude.

Although a majority in each country expressed no change in opinion about ABM, a fairly high percentage of U.S. and Canadian respondents were more enthusiastic (43.2% and 36.3%), while only 19.3% of U.K. respondents were somewhat more enthusiastic and none were significantly more enthusiastic. It is unclear whether U.K. enthusiasm for ABM is low because it is uncommon (72% have never tried it) or whether usage is low because there is no enthusiasm for it.

Enthusiasm about the balanced scorecard was considerably lower than for benchmarking; only 22.8% of respondents were more enthusiastic than they were a year ago. This may reflect a lack of familiarity with the balanced scorecard itself.

Future Involvement

Municipal managers were asked about their expectations regarding future use of the six tools. Most respondents (83.6%) expected the use of benchmarking to increase somewhat or significantly over the next five years. The expected use of process reengineering and ABC were slightly lower; 71.5% expected usage to increase in the next five years. Only 49.7% of the respondents expected use of the balanced scorecard to increase in the next five years.

Attitudes toward future use parallel those toward enthusiasm: 97% of U.K. administrators expect more future involvement with benchmarking, whereas many U.S. and Canadian administrators expect no change in future use (19.14% and 18.7%).

Although only 22.8% of respondents were more enthusiastic about the balanced scorecard than a year ago, 49.7% expect to increase future use of this tool. International comparisons show that a majority of U.S. respondents (56.6%) expect no change in usage, but a majority of U.K. and Canadian respondents expect more usage (54.4% and 52.4%).

Impediments to Adoption

For U.S. administrators, lack of buy-in from staff was the primary obstacle to adopting new management techniques. The second-most commonly cited obstacle was lack of skills and expertise (except process reengineering, for which aversion to change or risk was cited more frequently). Revenue constraints, the second-least cited concern for U.S. respondents, was the primary obstacle for three of the tools in the Untied Kingdom: ABM, benchmarking, and TQM.

Canadian respondents shared the U.K. concern over lack of skills and expertise. It was the most frequently cited obstacle for each tool in Canada, and most frequently cited obstacle for ABC, process reengineering, and balanced scorecard in the United Kingdom. Canadian respondents, however, did not share the British focus on revenue constraints as an impediment. Rather, lack of buy-in from staff was the second-highest factor for all tools. Like U.S. respondents, Canadian respondents were quite concerned about aversion to change.

The U.K. concern with cost and revenue constraints is a unique one. These management tools are popular in the private sector because, however, they ultimately improve profitability. It appears that the U.K. public administrators are uncertain how these tools can improve efficiency. Greater communication about potential benefits is a prerequisite for changing attitudes in the United Kingdom.

Alternative Reporting

The United States, Canada, and the United Kingdom are experimenting with alternative governmental reporting models. Many experts believe that both financial and nonfinancial performance information are necessary to the reporting efforts and accomplishments of governmental entities. The alternative reporting models are called service efforts and accomplishments, results-based control, or accountability reporting. Several suggestions for performance measures are available (see GASB's website, raw. rutgers.edu/raw/gasb/).

Approaches to reporting such measures are not yet standardized. Respondents were asked to indicate the tools that might be helpful in developing such reporting. Benchmarking was cited as the most helpful tool for alternative reporting by both U.S. and U.K. respondents. Benchmark comparisons between similar local authorities have been an important tool in the United Kingdom. A new regime of "best value" analysis, explicitly including benchmark type comparisons, followed the 1997 election of a Labour government. ABC was favored by Canadian respondents. U.S. and U.K. respondents also considered ABC highly, and process reengineering was popular in all three countries. U.S. and Canadian respondents also thought highly of ABM, but U.K. respondents were not impressed with its potential. Only U.K. respondents however, thought highly of TQM. Overall, the vast majority of respondents were enthusiastic about the usefulness of new management techniques to measure and report governmental performance.

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