Performance-Based Organizations: Lessons From the British Next Steps
Initiative (Testimony, 07/08/97, GAO/T-GGD-97-151).
GAO discussed the British Next Steps initiative, a model the
administration used in crafting its performance-based organization (PBO)
proposal, and the lessons that the Next Steps experience suggest for
PBOs in the United States.
GAO noted that: (1) the administration has proposed the creation of PBOs
modeled after the British Next Steps agencies; (2) PBOs, like Next Steps
agencies, seek to separate service delivery functions from policy
functions; (3) in exchange for flexibilities from some governmentwide
requirements, the head of the agency is to be held directly accountable
for the agency's performance; (4) Next Steps agencies are the British
government's predominant form of service delivery; (5) these agencies
have reported that, over the years, performance has improved, in some
cases substantially; (6) some agencies have reported significant cost
savings; (7) the British government has confronted some difficult and
continuing issues Congress may want to consider as it considers the PBO
concept; (8) these issues include a lack of clarity in the relationship
between agencies and their parent departments, an uncertainty concerning
who is accountable for performance, and difficulties in developing and
setting performance goals; (9) the British have found that the roles of
the Next Steps agencies and their parent departments often remain
unclear because of the problems inherent in trying to delineate
responsibilities; (10) management decisions made by Next Steps agencies
can have impact on policy choices made by their departments; (11) lack
of clarity in roles between agencies and departments affects
accountability; (12) it is sometimes difficult to tell if a poor result
was due to policy or inadequate implementation of that policy; (13)
British evaluations identified three areas of concern regarding
performance measurement: (a) goal setting does not always reflect what
is realistic as much as adding incremental improvements to prior
results; (b) it can be difficult to determine exactly what to measure;
and (c) it is important to ensure that performance information is put in
a proper context and used to improve performance; (14) GAO reported to
Congress in May 1997 on the administration's proposal to convert the
Saint Lawrence Seaway Development Corporation to a PBO. GAO found that
such a conversion would result in significant changes in the Seaway's
management structure, funding mechanism, and relations with Congress;
and (15) however, since PBOs must be created through enactment of
enabling legislation, Congress has an opportunity to define its role
with regard to the Seaway or any other PBO.
--------------------------- Indexing Terms -----------------------------
REPORTNUM: T-GGD-97-151
TITLE: Performance-Based Organizations: Lessons From the British
Next Steps Initiative
DATE: 07/08/97
SUBJECT: Reengineering (management)
Intergovernmental relations
Public administration
Foreign governments
Accountability
Comparative analysis
Customer service
Interagency relations
IDENTIFIER: Great Britain
United Kingdom Next Steps Program
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO report. Delineations within the text indicating chapter **
** titles, headings, and bullets are preserved. Major **
** divisions and subdivisions of the text, such as Chapters, **
** Sections, and Appendixes, are identified by double and **
** single lines. The numbers on the right end of these lines **
** indicate the position of each of the subsections in the **
** document outline. These numbers do NOT correspond with the **
** page numbers of the printed product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
** A printed copy of this report may be obtained from the GAO **
** Document Distribution Center. For further details, please **
** send an e-mail message to: **
** **
** **
** **
** with the message 'info' in the body. **
******************************************************************
Cover
================================================================ COVER
Before the Subcommittee on Government Management,
Information, and Technology
Committee on Government Reform and Oversight
House of Representatives
For Release on Delivery
Expected at
9:30 a.m. EDT
Tuesday
July 8, 1997
PERFORMANCE-BASED ORGANIZATIONS -
LESSONS FROM THE BRITISH
NEXT STEPS INITIATIVE
Statement of J. Christopher Mihm, Acting Associate Director
Federal Management and Workforce Issues
General Government Division
GAO/T-GGD-97-151
GAO/GGD-97-151T
(410148)
Abbreviations
=============================================================== ABBREV
COO -
DOT -
PBO -
GAO -
PERFORMANCE-BASED ORGANIZATIONS:
LESSONS FROM THE BRITISH NEXT
STEPS INITIATIVE
====================================================== Chapter SUMMARY
The administration has proposed the creation of performance-based
organizations (PBOs), modeled after British Next Steps agencies.
PBOs, like Next Steps agencies, seek to separate service delivery
functions from policy functions. In exchange for flexibilities from
certain governmentwide requirements, the head of the agency is to be
held directly accountable for the agency's performance.
Next Steps agencies are the British government's predominant form of
service delivery. As of March, about 75 percent of all British civil
servants were employed in one of the 130 Next Steps agencies or
agencies that operate along Next Steps lines. These agencies have
reported that, over the years, performance has improved, in some
cases substantially. Some agencies have also reported significant
cost savings.
The British government has confronted some difficult and continuing
issues Congress may want to consider as it considers the PBO concept.
These are:
First, a lack of clarity in the relationship between agencies and
their parent departments. The British have found that the roles of
the Next Steps agencies and their parent departments often remain
unclear because of the problems inherent in trying to delineate
responsibilities. Management decisions made by Next Steps agencies
can have an impact on policy choices made by their departments.
Second, an uncertainty concerning who is accountable for performance.
Lack of clarity in roles between agencies and departments affects
accountability. It is sometimes difficult to tell if a poor result
was due to poor policy or inadequate implementation of that policy.
Third, difficulties in developing and setting performance goals.
British evaluations identified three areas of concern regarding
performance measurement. First, goal setting does not always reflect
what is realistic as much as adding incremental improvements to prior
results. Second, it can be difficult to determine exactly what to
measure. And third, it is important to ensure that performance
information is put in a proper context and used to improve
performance.
GAO reported to Congress in May 1997 on the administration's proposal
to convert the Saint Lawrence Seaway Development Corporation to a
PBO. GAO found that such a conversion would result in significant
changes in the Seaway's management structure, funding mechanism, and
relations with Congress. However, since PBOs must be created through
the enactment of enabling legislation, Congress has an opportunity to
define its role with regard to the Seaway or any other PBO.
PERFORMANCE-BASED ORGANIZATIONS
LESSONS FROM THE BRITISH NEXT
STEPS INITIATIVE
==================================================== Chapter STATEMENT
Mr. Chairman and Members of the Subcommittee:
I am pleased to be here today to discuss the British Next Steps
initiative, a model the administration used in crafting its
performance-based organization (PBO) proposal, and the lessons that
the Next Steps experience suggest for PBOs in the United States.
According to the British government, the aim of the Next Steps
initiative has been to improve the delivery of government services,
obtain better value for the taxpayers' money, and give staff more
satisfying work and working conditions. Under Next Steps, a
government department's service delivery functions, such as paying
social security benefits, repairing military vehicles, and doing
inspections to enforce regulations, are separated into distinct
organizational units, referred to as agencies. Agencies are
responsible for delivering those services and are accountable to
their parent departments for their performance, while departments
continue to be responsible for policy decisions. Agencies generally
are given broad flexibility in managing operations while being held
accountable for meeting specific, agreed-upon performance goals.
The administration's proposed PBOs have some important similarities
in design with Next Steps agencies. For example, both are intended
to separate the delivery of services--the agency's role--from policy
functions--the department's role. Also, like the Next Steps
agencies, the administration proposes that PBOs be granted
flexibilities to deviate from some governmentwide requirements, such
as certain personnel and procurement processes. Both are to be led
by a chief executive--to be called a chief operating officer in a
PBO--who is selected competitively and evaluated annually on the
basis of his/her agency's performance. The chief executive's pay and
job security are to be directly tied to annual agency performance.
The chief executive is to be directly accountable to the head of the
parent department, who, in Great Britain, is accountable to
Parliament, or, in our country, to Congress and the President.
The administration expects that the orientation of management and
accountability in PBOs will shift from a focus on processes to a
focus on customers and achieving program results. This shift in
focus is to be achieved by establishing clear measures of performance
which are also required by the Government Performance and Results Act
of 1993. According to the administration, PBOs are to commit to
clear management objectives, measurable goals, customer service
standards, and specific targets for improved performance. These
clearly-defined performance goals, flexibility in managing
operations, and direct ties between the achievement of performance
goals and the pay and tenure of the head of the PBO, are intended to
lead to improved performance. The administration expects that, in
most cases, the creation of a PBO will require statutory changes.
As agreed with the Subcommittee, today I will first provide an
overview of the Next Steps initiative, including the number and size
of British agencies participating in the Next Steps program and the
reported performance of those agencies. Second, I will discuss the
lessons the British have learned about the Next Steps experience that
we believe are most relevant to PBOs. Finally, I will highlight some
of the major issues that Congress may wish to examine as it considers
the administration's proposal to transform the Saint Lawrence Seaway
Development Corporation into a PBO.
My statement today is based on our May 1997 report on the PBO
initiative and the Saint Lawrence Seaway Development Corporation's
candidacy.\1 It also is based on our continuing efforts to track
reinvention initiatives overseas. Our work in this area began with
our May 1995 report on management reforms other counties were
undertaking and the insights those reforms provided for reform
efforts here in the United States.\2
--------------------
\1 Performance-Based Organizations: Issues for the Saint Lawrence
Seaway Development Corporation Proposal (GAO/GGD-97-74, May 15,
1997).
\2 Managing for Results: Experiences Abroad Suggest Insights for
Federal Management Reforms (GAO/GGD-95-120, May 2, 1995).
NEXT STEPS IS THE CENTERPIECE
OF BRITISH MANAGEMENT EFFORTS
-------------------------------------------------- Chapter STATEMENT:1
The Next Steps initiative was launched in 1988 under then Prime
Minister Margaret Thatcher. According to the British government,
Next Steps was undertaken in response to the government's desire to
have the public sector provide services through markets or
market-like arrangements, managed by people with the resources and
authority to provide those services. The reforms were also carried
out to streamline the central government, which, the government
concluded, was burdened by high operating costs and a workforce that
was too big and insufficiently focused on results.
Beginning with the first Next Steps agency--the Vehicle Inspectorate
of the Department of Transport which was created in August 1988--Next
Steps agencies have become the British government's predominant form
of service delivery. As of March 1997, about 75 percent of all
British civil servants were employed in one of the 130 Next Steps
agencies or in agencies that operate along Next Steps lines. Nearly
one-third of the agencies employ 250 or fewer staff, and more than
half the agencies employ 700 or fewer staff.
However, some agencies are fairly large. The largest agency is the
Social Security Benefits Agency, which has about 75,000 employees.
Other large agencies include those responsible for the prison system,
employment training, and defense evaluation and research. Each of
these agencies has over 10,000 employees. While not formally Next
Steps agencies, Inland Revenue (which administers income and other
taxes) and Her Majesty's Customs and Excise (which, among its
responsibilities, enforces import and export restrictions) operate
fully along Next Steps lines. Each of these organizations has over
20,000 employees.
Many agencies provide services directly to the public--for example
the United Kingdom Passport Agency and the Social Security Benefits
Agency. Other agencies provide services to other parts of the
government, such as those agencies that provide information
technology support or logistics support for the defense forces. Next
Steps agencies also cover a range of service and program types. For
example, several agencies have a research focus, such as the agencies
that do research on agricultural issues, while some other agencies
have regulatory responsibilities, such as those concerning food and
vehicle inspection.
Next Steps agencies have reported that, over the years, performance
has improved, in some cases substantially. For example, the United
Kingdom Passport Agency reported that since 1993 it has made
significant and consistent improvements in the timeliness of its
processing of passport applications. Overall, the British
government's most recent annual summary review of the Next Steps
initiative notes that 79 percent of the agencies' key performance
goals were met for the 1995-1996 time period.\3 This level of
accomplishment generally is consistent with the levels reported in
previous years. Eight agencies reported that they achieved at least
80 percent of their goals for 1995-1996, even after they had set at
least 80 percent of those goals at a more stringent level than in
previous years. Not all goals are comparable from one year to the
next, but for those that are quantified and are comparable, about 60
percent reported the same or better results for 1995-1996 as compared
to 1994-1995. On the other hand, 14 agencies reported that they had
failed to achieve at least half of their key performance targets.
Some agencies also have reported significant cost reductions. For
example, both the National Health Service Pensions Agency and the
Scottish Office Pensions Agency showed significant savings in their
"running costs," which essentially include employee pay, benefits,
and other administrative costs. The National Health Service Pensions
Agency reported that it reduced its running costs by 11 percent in
1994-1995, and the Scottish Office reported that it reduced its
1995-1996 running costs by 17 percent. In addition, the United
Kingdom Passport Agency reported that it had reduced the unit cost of
passport services by 4.3, 5.2, and 7.25 percent over the past 3
years, respectively.
--------------------
\3 Next Steps Agencies in Government, Review 1996, London, The
Stationary Office, Cm 3579.
ASSESSMENTS OF NEXT STEPS
PROVIDE INSIGHTS FOR PBO
PROPOSALS
-------------------------------------------------- Chapter STATEMENT:2
In moving forward with the Next Steps initiatives, the British
government has confronted some difficult and continuing
implementation issues that Congress may want to consider as it
assesses the PBO concept. These issues include (1) a lack of clarity
in the relationship between agencies and their parent departments,
(2) an uncertainty concerning who is accountable for performance, and
(3) difficulties in developing and setting performance goals.
AGENCY AND DEPARTMENT ROLES
------------------------------------------------ Chapter STATEMENT:2.1
The British have found that the roles of the Next Steps agencies and
their parent departments often remain unclear because of the problems
inherent in trying to delineate responsibilities.\4 For example,
while in theory departments make policies and agencies implement
those policies, a British evaluation found that there has not always
been a clear separation between policymaking and implementation.
Management decisions made by Next Steps agencies sometimes have had
an impact on policy choices made by their parent departments. For
example, if an agency's goal is to reduce an operating deficit, it
may propose to do so by creating a user fee. While this proposal may
be viewed as a decision by agency management on how to implement the
policy of reducing costs, it could also be viewed as making a policy
decision about the type of public program for which user fee funding
is appropriate.
The British government has taken steps to address the issue of
unclear department and agency roles, but with limited success,
according to published studies. One step taken by the British
government has been the establishment of the "Fraser Figure," a
senior official who is to improve coordination between the agency and
the department. The Fraser Figure is used in about 40 percent of the
Next Steps agencies. However, evaluations suggest that this approach
has not worked well because (1) the Fraser Figure rarely is able to
represent the views of both the department and agency in a balanced
way, and (2) this official does not have sufficient staff to
coordinate activities. In addition, advisory boards have been
established in about 30 percent of the Next Steps agencies, but they
too are reported to have had limited success. Available reports
indicate that the boards tend to be unbalanced in their advisory and
monitoring responsibilities, generally emphasizing one over the
other.
--------------------
\4 Trosa, Next Steps: Moving On (Feb. 1994) and After Next Steps:
The Massey Report (Jan. 1995).
ACCOUNTABILITY
------------------------------------------------ Chapter STATEMENT:2.2
The lack of clarity concerning the respective roles and
responsibilities of agencies and departments also affects
accountability for results. Since the distinction between
administration and policy often remains unclear, one British
evaluation described the task of assessing accountability as a
"complex web of issues."\5 For example, because policies and their
implementation are inherently linked, it is difficult at times to
distinguish who is truly responsible for a result--the department
minister who makes the policy or the agency chief executive who
implements the policy. Questions have arisen about whether a poor
result was due to poor policy or inadequate implementation and about
who was ultimately accountable for the resulting performance. To
mitigate this concern, the British government has encouraged greater
collaboration between ministers and chief executives, facilitated by
Fraser Figures--an approach that, as I have noted, has had limited
success.
--------------------
\5 After Next Steps: The Massey Report (Jan. 1995).
PERFORMANCE GOALS
------------------------------------------------ Chapter STATEMENT:2.3
The British experience with Next Steps has underscored the fact that
public sector performance measurement is a complex, iterative process
involving a number of competing considerations. A British evaluation
suggested that three major concerns have arisen in connection with
Next Steps goal-setting.\6 First, goal-setting does not always
reflect what is realistic; it often consists of no more than adding
incremental improvements to prior results. As a result, targets are
sometimes set simply to reflect an improvement on the previous year's
achievement rather than being based on an assessment of what might be
possible. Tensions can arise between the agency and department over
target magnitude, with departments generally favoring more ambitious
improvement targets.
A second challenge to performance measurement is the difficulty of
determining exactly what to measure. The evaluation showed that
performance measures frequently focus on what agencies can measure,
rather than on what is most important in assessing performance. For
example, one enforcement agency had established a performance measure
to count the total number of enforcement actions. However, the
agency had no information about how many infractions actually
occurred, so the agency did not know to what extent, if at all, its
enforcement actions contributed to reducing illegalities. Further
complicating the determination of what to measure is the fact that
some targets, such as efficiency and quality, may even be in conflict
with one another, requiring a careful balance.
Finally, a third issue raised by the study was the need to ensure
that performance information is put in a proper context and used to
improve performance. The study stated that all the chief executives
interviewed believed goals and performance information should be the
basis for decisionmaking and resource allocation, but only as a
starting point and tool for subsequent discussions. Using unmet
targets to criticize agencies, rather than attempting to examine the
reasons why the targets were not reached and developing strategies to
meet unmet goals, may simply lead agencies to establish more easily
achievable targets. For example, one British official commented that
the goal-setting process can be discouraging when an agency is
criticized for reaching 98 percent of a 100 percent target without
considering how much effort the 98 percent represents.
The British government has initiated several efforts to address the
performance measurement issues it, in company with other governments,
confronts. For example, in an attempt to provide a basis for making
summary judgements on the overall performance of agencies, Next Steps
agencies are moving to what the British are calling "indexation."
Indexation is a method of measuring an agency's overall performance
whereby each performance goal is given a score that is weighted to
its level of priority. The scores of all goals are then combined to
produce an overall score for an agency. By comparing overall scores
over time, ministers of departments and agency chief executives can
tell if overall performance is improving and whether targets are
becoming more challenging. Some agencies are already adopting this
approach in reviewing performance and setting targets, and reporting
will begin in the Next Steps' 1997 annual summary report.
--------------------
\6 Trosa, Next Steps: Moving On (Feb. 1994).
POTENTIAL ISSUES WITH THE SAINT
LAWRENCE SEAWAY DEVELOPMENT
CORPORATION PBO PROPOSAL
-------------------------------------------------- Chapter STATEMENT:3
The administration's proposal to transform the Saint Lawrence Seaway
Development Corporation into a PBO suggests how the Next Steps
experience can be illustrative for Congress as it considers the
administration's initiative. We reported to Congress in May on the
administration's proposal to convert the Seaway into a PBO. We noted
that a such a conversion would result in significant changes to the
Seaway's current management structure, funding mechanism, and
relationship with Congress. I will briefly highlight the points we
raised with regard to each of these issues:
-- First, as a result of the Seaway's conversion to a PBO, the
Seaway's leadership would change from an administrator appointed
by the President and confirmed by the Senate to a contracted-for
chief operating officer (COO) selected by the Secretary of
Transportation. The COO would be directly accountable to the
Secretary of Transportation who would, in turn, continue to be
accountable to Congress and the President for the activities and
performance of the Seaway PBO.
British evaluations of Next Steps have shown that developing and
monitoring a chief executive's contract is a long-term and iterative
process. We noted that, since the Seaway is a relatively small part
of the Department of Transportation (DOT), the Secretary may have to
spend a disproportionate amount of time in crafting and monitoring
the COO's contract with specific and measurable performance goals.
This degree of oversight and accountability has not been applied
before to the Seaway. However, if the Seaway is one of the first
PBOs, administration architects of PBOs may pay particular attention
to the development of the contract, since it could be a model for
other PBOs.
Although the PBO would remain part of DOT, it would have greater
autonomy in its relationship with its parent department. The Seaway
proposal follows the Next Steps program in attempting to separate
policymaking from the carrying out of services. The Seaway has
started to work on this separation by drafting a list that divides
the functions to be performed between itself and DOT under the PBO
concept.
-- Second, the Seaway is currently funded through the annual
appropriations process. However, as a PBO, the Seaway is
proposed to be funded through a mandatory payment, whose amount
will be determined by a formula based primarily on the tonnage
of cargo moved through the Seaway. Because of its design,
Seaway officials told us that they believed the formula would
provide a more predictable funding mechanism than annual
appropriations, and that this would allow them to operate in a
more businesslike manner and better plan Seaway operation and
maintenance functions. We noted, however, that the proposed
funding mechanism raises a potentially significant issue of
budget policy, in that funding would shift from a discretionary
account to mandatory funding.
-- Third, the relationship between Congress and the Seaway PBO
would fundamentally change. Congress would no longer have a
direct role in funding the agency or in selecting the agency
head. It is also unclear what type and level of oversight
Congress would have over the Seaway. However, since PBOs must
be created through the enactment of enabling legislation,
Congress has an opportunity to define its role with regard to
the Seaway or any other PBO.
------------------------------------------------ Chapter STATEMENT:3.1
In summary, PBOs would seek to emulate Next Steps agencies in
important ways in both intent and design. Both are to operate in a
more businesslike manner, gaining flexibility and freedom from
constraints in exchange for greater accountability for results.
Because of their similarities, unresolved issues from the Next Steps
experience can provide lessons for the U.S. effort, such as the need
to focus on clarity in relationships between agencies and their
parent departments, certainty concerning who is accountable for
performance, and developing and setting good performance goals.
Mr. Chairman, this concludes my prepared statement. I would be
pleased to respond to any questions you or other Members of the
Subcommittee may have.
*** End of document. ***