Insider Business Club: benchmarking

Shouldn’t every organisation be benchmarking its performance against

Wouter van Gelderen, director of finance
transformation at the Hackett Group

I’m not sure that failing to benchmark is commercial suicide, but if you want
to improve, if you want to be critical and if you want to become world class,
then you definitely need to know the metrics of your performance.

You need to be critical towards yourself and to know where to start
improving. And that is not really about the outcome of the performance, it is
really about knowing where your strengths and weaknesses are. Metrics are the
best and most objective way to help you move to a better performance.

Most companies start by taking a total overview of the finance function and
looking at both quality and effectiveness as well as efficiency metrics. They
then compare themselves with their peers.

Peers by our definition are not really industry counterparts but
organisations that have the same size, complexity and other environmental
factors that influence performance. They then compare themselves to an outside
party to see where they stand. If they know there is a gap in performance, they
can go into more detail, understand the detail and see how best to fill it.

If you want to improve something, get a good diagnosis. It will help you set
an objective, pick it up, and put the pressure on where necessary. And you will
know that you have got the right medicine for the problem inside your

Every company that starts with any benchmarking exercise always wants to be
compared to their next competitor, and the competitor is always within the
industry. But we have found out that the industry is not the key determining
factor to conclude anything about financial performance.

Is benchmarking just about league tables?

Steve Straw, benchmarking manager at IPF

We dislike league tables. We don’t believe in them. To benchmark, first of
all you have got to decide what level of service you are going to provide.
League tables don’t really take into account the quality of service you are

It is quite an acceptable position to be providing a lesser quality service
at a low cost, especially if that is what an electorate within a local authority
wants you to do. It is also possible they may want a higher quality service at a
higher cost, so league tables don’t take into account what you are providing.
They don’t take into account the difficulties that you may be facing at the time
and they tend to be offputting if you know you are going to come bottom of the
league table.

Also, in our experience, if you think you have come bottom of the league
table one year, you don’t do it next year, so you’ve stopped benchmarking and
you have stopped improving. We would much rather say that benchmarking is all
about improvement. If you are not doing it to improve, then I don’t really think
you should be doing it.

A similar point is the theory that you should be working towards being in the
top quartile. My view is that it is setting people up to fail because only a
quarter can be in the top quartile and the other three-quarters by definition
have failed.

The message should be improvement, improvement, improvement all the time and
that is what we try to put across. We would much rather get a group of
authorities together and build a set of measures, a set of products that will
help them to improve and learn from each other. Unlike the private sector, they
are quite willing to share, because they are not competing with each other.

Do companies use benchmarking to justify their position?

John Hayes, financial management consulting
partner at IBM

I wouldn’t say it is a question of justification. People do go into
benchmarking genuinely wanting to know how they fare. People are deeply
interested in what is happening next door, over the road, in other countries

Equally, don’t forget large companies like to compare across the group. IBM
has a huge number of different divisions and units within divisions. It is very
interested in knowing how they perform against each other, as well as other

Do people do it just to justify something? There is always going to be some
of them that have gone in because of that, but I don’t think it is a general
practice. The bigger issue is probably that people go into it not knowing how
much is involved, how they are going to go about it and not really understanding
what they are seeking to measure. We are often looking at apples and oranges
rather than apples and apples.

It doesn’t matter whether benchmarking is annual, daily, weekly or monthly.
The point of the study is to get a comparative answer for the question that you
are putting.

The end of the road is when finance is a silent running machine which is well
automated, which is sourced in the right places to make it function at optimal
cost, and which provides the space for the CFO and the key people to go out and
partner with the business and get involved in growing the business or

Benchmarking provides an ideal method of understanding where businesses are
in performance terms, which areas need looking at, and understanding how other
people carry out their process. It is a vital tool for a one-off snapshot of
what is going wrong.

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