**7. Summary and outlook**

Benchmarking is an already well established concept in the German water supply sector. It is performed in all of the German *Bundesländer*. However, if we compare the number of companies which take part in such a metric benchmarking with the total number of water suppliers the percentage will be less than 2 %. One reason for the companies to not

Analysis of the Current German Benchmarking

Cheltenham, pp. 29-61.

benchmarking

available from:

available from:

**8. References** 

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 http://www.bdew.de/internet.nsf/id/40873B16E2024175C125785A00350058/\$file /110321\_Branchenbild\_dt\_WaWi\_2011\_Langfassung\_Internetdatei.pdf ATT et al. (2008). Profile of the German Water Sector 2008, Berlin, Germany, available from:

BDEW (The German Association of Energy and Water Industries) (2010). Benchmarking:

http://www.bdew.de/internet.nsf/id/DE\_Benchmarking\_Learning\_from\_the\_bes

Brenck, A., Grenz, M. & T. Beckers (2010). Auswertung und Begutachtung aller öffentlichen

Coelli, T. J., Estache, A., Perelman, S. & Trujillo, L. (2003): A Primer on Efficiency Measurement for Utilities and Transport Regulators, Washington D. C. Coelli, T. J., Prasada Rao, D. S., O'Donnell, C. J. & Battese, G. E. (2005): An Introduction to

De Witte, K. & Marques, R. (2010). Designing performance incentives, an international benchmark study in the water sector, CEJOR (2010) 18, pp. 189–220. Dijkgraaf, E., van der Geest, S.A. & Varkevisser, M. (2006). The efficiency gains of

Dutch water companies. Working Paper Erasmus University Rotterdam, Draft Version,

EUREAU (European Federation of National Associations of Water & Wastewater Services)

Country Profiles and European Statistics, Brussels, Belgium, available from: http://eureau.org/sites/eureau.org/files/news/EUREAU\_statistics-edition\_2009.pdf. Jamasb, T & Pollitt, M. (2003): International Benchmarking and Yardstick Regulation: An Application to European Electricity Utilities,: Energy Policy, Vol. 31, S. 1609-1622. Lin, C. (2005). Service Quality and Prospects for Benchmarking: Evidence from the Peru

Marques, R.C. (2010). Regulation of Water and Wastewater Services – An International Comparison, IWA Publishing, ISBN 978-184-3393-41-2, London, UK.

(2009). EUREAU Statistics Overview on Water and Wastewater in Europe 2008 -

Efficiency and Productivity Analysis, 2nd edition, New York.

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groups/tilec/events/seminars/dijkgraaf.pdf .

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y/\$file/Profile\_German\_Water\_Industry\_2008.pdf

water industry, Berlin, Germany, available from:

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http://www.bdew.de/internet.nsf/id/DE\_Profile\_of\_the\_German\_Water\_Industr

'Learning from the best' - Comparison of performance indicators in the German

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Projektberichte Benchmarking (Trinkwasser), IGES Report fort the BDEW (The

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participate might be the quality of the feedback they receive. Currently, the structural variables which a company faces are not taken sufficiently into account. Many reasons, besides inefficiency, can explain why one company encounters higher costs than another water supplier.

Efficiency analysis techniques, which imply not only a comparison of companies according to key performance indicators but a measurement of performance, are tools which better analyze the existing benchmarking data. They take into account differing structural conditions of the companies and, therefore, give a more valuable feedback to a company in which parts of the value chain they have potentials to increase their efficiency. Using the data of Rödl & Partner, the most prominent metric benchmarking consultant in the German water supply industry, we showed for the first time that these methods can be easily applied. Our results show that the rank correlations between DEA- and SFA-results are much higher than in other network sectors and other countries. They also display that companies should be clustered. A small and a very large company seem to have different production functions and can hardly be compared with one another. It, therefore, makes sense to cluster the companies according to groups. Overall, we may conclude that the enhancement of the current metric benchmarking systems by performance measurement is displaying if a company seems to have potentials to increase its efficiency in the operational distribution costs. It may also give a quantitative indication of the extent of inefficiency.

The analysis of the operational distribution cost, which has been performed here, certainly is only the first step. The feedback for the companies will further increase if a performance measurement is offered for all parts of the water supply value chain and the total cost.16 An introduction of performance measurement into the current benchmarking is, therefore, a big leap forward. We may hope that such an improved benchmarking system is giving incentives for more German companies to participate voluntarily.

Otherwise, the question certainly arises of how to proceed. Due to the situation, that companies in a natural monopoly sector are particularly accountable to the public, the German water sector faces similar questions than those ones in other European countries which are employing metric benchmarking systems. Sooner or later the countries face the necessity to decide which kind of information they want to display publically and whether companies should be obliged to participate in benchmarking. The Netherlands, for example, made it compulsory to take part in such programs. Every three years they are publishing reports which also display the performance development of a water supply company both in relation to all other companies as well as over time. By publishing these data, companies did not only detect efficiency potentials but also faced the public pressure to use measures to actually improve their performance. Between 1997 and 2005 the average efficiency of a Dutch water supply company increased by 23 % (Dijkgraaf et al., 2006, p. 8). Such incentives in benchmarking systems to actually increase performance are essential that benchmarking could be regarded as an alternative to an introduction of an economic water utility regulator.17

 16 First, preliminary results for the total cost calculations reveal that the rank correlations between DEA and SFA-results are even higher than for the operational distribution costs.

<sup>17</sup> Cross-country comparisons of benchmarking systems in the drinking water sector in the Netherlands, England and Wales, Australia, Portugal and Belgium recently revealed that the average efficiency correlates with the incentives of such benchmarking systems (De Witte/Marques, 2010).
