Page 1

Reprinted with permission from Leaders’ Edge, Nov/Dec 2004, published by the Michigan Association of CPAs.

November / December 2004

The Lost Art of Benchmarking By David A. Brockman, Brockman, Coats, Gedelian & Co. Commitment to benchmarking and performance measurement during rough economic times is critical to ensuring the little things are done right. This dedication will certainly be rewarded through increased business and improved performance. The best part is, benchmarking doesn’t have to be an expensive process to have a positive impact. Getting Started Sources of Information – Start Internally How to Involve Employees Creating Success Some business practices must always be in play, regardless of the state of the economy. In fact, some are even more important during troubled times or when the economy is improving. One such initiative is benchmarking – an activity that looks outward to find best practices and then measures or judges actual business operations against those standards. Benchmarking is a tool that can help improve your business, no matter what your business may be, through the process of identifying, understanding and adapting outside practices. While “benchmarking” was a key buzzword in business in the 1990s, the term – as well as the concept – seems to have lost its luster in recent years. However, despite the fact that this business buzzword has been replaced with other jargon, the art of benchmarking is still extremely helpful in determining Key Performance Indicators (KPIs), profit improvement opportunities, compensation guidelines and more. Benchmarking not only helps provide a roadmap for your company, but also is beneficial in employee relations. During this latest economic downturn, many companies found themselves in crisis management mode. With all efforts focused on simply surviving, there was little energy put forth on improving business. Benchmarking suffered because organizations were focused solely on weathering the storm. However, those companies that remained committed to benchmarking are successfully emerging from the downturn with a clear plan for the future. While their competitors may be using benchmarking tools for the first time in years to help assess the current situation, those companies that have integrated benchmarking into their process, regardless of the economy, benefit from customer loyalty and a clearer future. Getting Started In recent years, the word benchmarking has connoted a certain mystique. Too often business owners equate benchmarking to expensive market research and fail to recognize that benchmarking can be conducted internally and inexpensively if planned correctly.

Further, collaborating with the right partners and creating clear goals can simplify the benchmarking process. In fact, the first step in benchmarking is to identify areas in need of improvement. It is important to ensure these tie-in with your overall company goals. Further, these goals need to be quantifiable. For example, communication issues are hard to benchmark, because they are too intangible and difficult to measure. However, if a business goal is to improve client satisfaction, benchmarking will yield a baseline, and a customer survey at the end of the year – after tactics have been implemented to improve customer perceptions – will generate meaningful and measurable data. A common mistake when beginning the benchmarking process is trying to track too much information at once. Instead, it is important to identify a few key areas that need to be monitored and build benchmarking into your business as a meaningful tool. Operations and procedures, especially if your organization is challenged in a particular area, are typically a good place to begin. Many firms have benefited from the experience their CPA can contribute to this discussion and process. Not only does a CPA have the unique ability and expertise to help establish baselines and obtain and track information, they also likely have an understanding of your industry and other similar businesses. As part of your existing relationship, many CPA firms provide trend analysis and ratios for clients. This information can provide the basis for your benchmarking discussions. Further, your CPA can help establish means to track and measure results and establish realistic goals. Sources of Information – Start Internally Too often, there is a perception that benchmarking is an expensive, outward process that requires organizations to assemble data and research from external sources. However, many companies – especially small- to medium-sized business – have great difficulties obtaining good information that applies to organizations their size. After all, business magazines and MBA courses typically highlight the industry giants, not the small companies; and there simply is no one-size-fits-all solution in business. However, internal sources of information can provide valuable data for the benchmarking process. By starting small, you ensure success. For example, by establishing an internal goal that can be easily tracked by your own people, you gain the ability to see progress. This progress and vision will result in confidence in future benchmarking efforts that may be wider spread or even external in nature. Further, the initial internal benchmarking process enables cost-effective tracking resources. Another important resource and means to begin benchmarking is the Internet. Never before have we had access to so much information, yet we often forget to use the information to our advantage. For example, review the web sites of competitors to see how they are positioning themselves in the market. The Internet also allows for a quick review of articles and research on virtually any topic, enabling a crash course on today's trends. There also are many Internet services that offer data, mailing lists and other research information for a fee. Take caution to compare “apples to apples” when using this information. Finally, don't overlook the importance of active involvement in industry associations as a means of obtaining data. Not only do trade associations offer a wealth of information specific to your industry, they also provide a forum for exchange with other business owners in a non-competitive environment. How to Involve Employees With a clear vision in place as to what you want to benchmark, the next step is to involve your people. In order for the benchmarking process to be successful, the entire organization needs to be engaged. For example, employees on the production floor can provide valuable insight about how to improve and track processes, while customer service representatives will provide valuable insight with regards to simplifying the order process.

During the goal-setting process, it is important to include team members and involve them in areas where they have interest. Ensure that all employees are aware of the goals they are working toward; and reward them when their performance meets this level. Rewards can include bonuses, time-off or even lunch for the team. It is a proven piece of business wisdom that “what gets rewarded, gets done again,” so be sure to include incentives in your benchmarking process. With a growing focus on doing more for less, benchmarking can be the catalyst enabling employees to focus on what is important – customers and meeting their needs. For example, a growing medium-sized manufacturing company recognized a need to create more efficient processes. They identified the amount of downtime verses work time and their percentage of errors as key performance indicators (KPIs). This is a solid benchmarking example since both indicators can be easily measured and rewarded for improved performance. With employee participation, goals were set for each of these KPIs. They identified two activities that have an affect on improving the performance indicators: (1) ensuring equipment operators received training and (2) performing key set-up inspections on a regular basis. Training and inspection activities were monitored and tracked. By establishing a clear process for gauging improvement, benchmarking enabled this client to streamline their processes and increase customer satisfaction levels. Quality improved and training and inspections lessened the amount of factory downtime experienced. Creating Success As detailed above, establishing benchmarking practices does not have to be a complicated or expensive process. Contrary to popular belief, it is not necessary to purchase a sophisticated software package; rather, a simple Excel spreadsheet can do the job. Further, many companies have successfully integrated their CPA firm into the benchmarking process as the trusted business advisor. Your CPA firm should possess good communication skills to lead your team through the process and an in-depth understanding of your business and a familiarity with other companies in your industry. By starting the process slowly, possibly even internally, a company can focus on one key area to determine the power of the benchmarking process. Benchmarking will help get your team focused on what is important – improving processes to put customer needs first. About the Author David A. Brockman, CPA and co-founder of Brockman, Coats, Gedelian & Co., directs the firm’s business and assurance services practice, combining a strong client service background in accounting and auditing with particular expertise in management advisory services. Brockman, Coats, Gedelian & Co. is a full-service regional CPA and consulting firm that offers comprehensive financial and tax services, as well as management and technology consulting.