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Rules of thumb from statistics and experience in applying rigorous methods of benchmarking suggest you will need at least 30 observations. This means you will need at least 30 benchmarking units among the partners. You can make do with less, but your ability to identify practices that are better for any one of the benchmarking units will decline accordingly. Large agencies such as state transportation agencies can perform customer-driven benchmarking without forming partnerships: they can benchmark internally among subunits--areas, garages, counties, and regions--all under the state's jurisdiction. For many states, internal benchmarking may be the best way to start customer-driven benchmarking, allowing you to proceed more quickly. Subunits within the organization usually share a common vision, a mission, overall political goals, measures, data, a management structure, and communications networks. The principal disadvantage of benchmarking within your own organization is that the best practices that you can potentially identify are limited to the best practices of your organization. By looking outside your organization, you are open to new possibilities. No matter how good your own practices are, the further you look beyond your organization, the greater your opportunity to learn from others and to improve how you serve your customers. NEGOTIATING A CUSTOMER-DRIVEN BENCHMARKING PARTNERS AGREEMENT Once benchmarking partners have been identified, it will be necessary to negotiate a benchmarking agreement. There are many important issues to address, and some may be difficult to resolve. If yours is the lead organization, while getting ready to benchmark you should identify a person in your agency who has excellent facilitation and negotiating skills. That person should be the primary point of contact with each benchmarking partner and should take the lead in forging a benchmarking agreement. You should take advantage of any existing relationships among managers in each partner organization. Frequently the head of maintenance in your organization will know the head of 37

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Chapter 2: Selecting Benchmarking Partners maintenance in many of the partner organizations and can help close the deal on the benchmarking agreement. Also, the chief executive officer (CEO) in your organization may know his or her counterparts in other organizations. Reaching agreement to benchmark sometimes requires considerable political sensitivity. The CEO is likely to have the sensitivity to get the commitments of time, effort, and resources from other organizations that are necessary to succeed. Principles of Partnership Agreements Many years of experience by large numbers of organizations have led to a benchmarking code of behavior that has two overriding principles: 1. The golden rule, "Do unto others as you would have others do unto you," and 2. Do not do anything illegal or unethical. In the private sector, competitors have to be very careful to protect proprietary information and not run afoul of antitrust laws, which prohibit anti-competitive practices. A set of principles, based on the Benchmarking Code of Conduct adopted by the International Benchmarking Clearing House and the Strategic Planning Council, is as follows: 1. Principle of Legality: Avoid discussions or actions that could be considered or are, in fact, illegal. 2. Principle of Exchange: Be willing to provide the same type and level of information that you are asking others to provide. 3. Principle of Confidentiality: Never breech an agreement to protect proprietary or confidential information. Do not share the results of benchmarking information without prior permission of partners. 4. Principle of Use: Restrict your use of benchmarking information to the improvement of partnership organizations. Do not extend the results of one benchmarking study to another without the consent of each organization that participated in the original study. 38

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5. Principle of First-Party Contact: Each benchmarking partner should designate a "first point of contact." Exchange of information and interaction with others in the organization should begin with those contact points. 6. Principle of Third-Party Contact: Do not give out an individual's name without his or her permission in response to a contact request, particularly in private firms. 7. Principle of Preparation: Show your commitment to the efficiency and effectiveness of the benchmarking process by being thoroughly prepared, especially when you initiate a contact with a partner. 8. Principle of Completion: Follow through in your commitments to a benchmarking process by sharing information about processes, offering to arrange reciprocal visits, and completing meetings and visits on time. Consider sharing study results. Benchmarking Agreements These principles are most likely to be followed if there is a formal agreement among benchmarking partners. A formal agreement clarifies the objective of the partnership and sets out the essential responsibilities of the partners. Generally, an oral agreement is not recommended unless the partners have strong mutual trust, have done benchmarking together before, and understand fully what is involved in producing and sharing information on performances and best practices. In general, each partner should sign a benchmarking agreement that addresses the points described here. Objective and Goals The agreement should set out the goals and objectives of customer-driven benchmarking. The objective should be to improve customer satisfaction and observable customer-oriented outcomes or to reduce the cost of delivering the product or service, or both. 39

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Chapter 2: Selecting Benchmarking Partners Partners and Benchmarking Units The partnership agreement should list the name and address of each participating organization and a first point of contact with name, phone, and e-mail information. The agreement should also provide the number and unique identification of the benchmarking units that each partner offers for possible participation. This list can change if the level of the benchmarking unit changes or if a partner has reasons to drop or to add benchmarking units. Lead Partner and Roles The agreement should state which organization will serve as the lead organization and the name and contact information (address, phone, e-mail, and fax) for the individual who will coordinate the benchmarking activities of all the partners. The lead agency will be responsible for forging agreement with the partners on the following: Developing customer-oriented measures, Establishing procedures for data collection procedures, Ensuring measurement and data quality, Scheduling data collection, Formatting and sharing data, and Documenting and sharing practices of benchmarking units. Target Products, Services, Activities, and Business Processes The partnership agreement should identify products, services, activities, and business processes that are candidates for benchmarking. In general, the agreement should be flexible and should not specify precisely what will be benchmarked. However, in some situations, you will need to be specific in order to obtain agreement from your partners to participate. Roles and Responsibilities of Partners Above all, each partner has a responsibility to diligently build consensus on what performance measures to use, to collect 40

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accurate data in accordance with agreed-upon performance measures, and to provide documentation on business processes. Each partner depends on the others in order to obtain meaningful results and to ensure that the benchmarking partnership succeeds. If too many partners shirk their responsibility, a large amount of time and effort for everyone involved will be wasted. In a small partnership, only one or two agencies failing to uphold their end is enough to undermine all the benefits of working together. Time Period The time period for the agreement must be defined. Recognize that if the partners are defining product or services, establishing measures, and collecting data for the first time, 1 year can easily pass before any measurements are taken and the performances of the benchmarking units are evaluated. A longer time period will be required if the partners want to go through more than one measurement cycle. Therefore, partners should be thinking in terms of agreements of 2 to 5 years. Common Measures There should be a clause in the agreement that says that parties to the agreement will use the same outcome, output, input, and external measures and will take the necessary steps to take the measurements, including collection of underlying data. The agreement should specify the general types of measures that will be used. There should be flexibility to change the measures as the benchmarking partners work together and become clearer regarding what to do. Data Quality The agreement needs to say that partners will abide by mutually agreed-upon procedures to ensure data and measurement quality. The agreement could leave these procedures open to future determination or could specify them. Examples include the accuracy and the confidence level of data and measurements. 41

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Chapter 2: Selecting Benchmarking Partners Sharing Information on Performance The agreement should contain a clause stating that each participant agrees to sharing information on performance in terms of each of the following: Outcomes and outputs; Inputs (labor, equipment, material, and costs; financial information may be problematic for private firms); Levels of external factors; and Details of business processes associated with each performance. This clause might specify that partners agree to store information in a database having a particular format to facilitate exchanging information. The agreement could also specify other forms of information sharing--for example, willingness to complete a questionnaire or permit videotaping of operations. Confidentiality It is quite likely that potential partners will not participate in benchmarking unless there is confidentiality regarding sharing of data. The confidentiality clause might require that all results and data be attributed to organizations only by code, not by name. This is an important issue not only for private firms, but also for many public agencies that are reluctant to exchange information that could be used to compare performance unless they can be assured that the results of comparisons will not be made public. However, open record laws (e.g., freedom of information acts), may make it difficult to guarantee that public data gathered at taxpayer expense remains confidential. The confidentiality clause could specify that any database have security features that restrict different users from accessing various types of data and results. Some database users would have rights to create, update, and delete data. Others might have "read only" rights, while still others could be restricted to viewing only certain subsets of information. 42

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Documentation There should be a provision in the agreement that requires benchmarking partners to document, for the consideration of others, any practices that are determined to be superior or best practices. The documentation might include the following: Sources of data on outputs, inputs, and external factors; Information on the reliability, accuracy, and repeatability of data and measurements; Raw and reduced data from systems that provide the data for benchmarking; Description of work methods that may exist; Existing procedural manuals; Business process flow charts prepared according to conventions agreed upon by the benchmarking partners; Training, education, and experience levels of labor; Vendor information regarding the materials and equipment used; and Costs (variable and overhead). (Note: some organizations may not be willing to provide cost data, and the benchmarking agreement should provide the flexibility to not do so. However, it may be impractical not to use cost data as a measure of the resources used. Furthermore, if products or services are sold, sharing of pricing or cost information could violate antitrust laws). Adding Benchmarking Partners The benchmarking agreement should allow additional partners to be added to the group, provided they agree to all the terms and conditions of the agreement. Resigning from the Partnership The agreement should set out the conditions under which a participant can resign from the benchmarking partnership. It is desirable for the agreement to state that each partner will satisfy its obligations under the benchmarking agreement as 43