Raise the Bar on Performance By Benchmarking
Benchmarking is a useful approach to measuring and continuously improving a business’s performance. It not only establishes a standard or baseline for comparing your business with past performance, but with other business competitors as well, which ultimately leads to identifying further opportunities for improvement. The benchmarking process essentially involves collecting and analyzing key performance indicator (KPI) data, which measures your company’s progress on the critical success factors necessary to meet your strategic business goals. KPIs can deliver a number of benefits to your business, including:
- Better understanding of company strengths and weaknesses
- Increased awareness of marketplace opportunities and threats
- Stronger focus on factors critical to success
- Clearer business direction and enhanced strategic decision-making
- Greater accountability for decisions
- More effective use of capital and resources
Planning and Requirements
Determine what performance indicators, financial or nonfinancial, are critical to achieve your company’s goals. These indicators can fall into a variety of categories such as business strategy and planning, financial management, operations management, quality assurance, human resources management, customer management and technology leadership.
Information Infrastructure and Support
Making indicators as quantifiable as possible helps to facilitate the measurement process and allows you to gain meaningful insight. Review and refine your current information infrastructure to ensure you can obtain the necessary data for measuring the indicators you select. Additionally, employee advancement opportunities and compensation should be aligned to focus on improving performance indicators. For example, your business identifies the increase in sales revenue as a KPI. Awarding bonuses to your salespeople based on their achieved sales is one way to tie the indicator to compensation. Of course, you only want to reward based on sales if you, rather than your salespeople, control the sales price. The benchmarking process should remain relatively consistent to facilitate comparing performance. However, be prepared to modify some indicators as your business situation and goals change.
Collection and Analysis
Once you’ve developed a plan and satisfied any requirements for its execution, you’re ready to begin comparing your company’s operations: Internally: Start with a self-assessment of your operations, including comparing performance across functions and business units. This will allow you to identify best practices you can apply to other parts of your business and provide a baseline for comparison with other companies. Against direct competitors: Performance indicator information from competitors is typically harder to come by and limited to what’s publicly available. Potential sources include the competitor’s website and literature, media coverage, advertising, industry organizations, and hearsay or anecdotal commentary from suppliers and customers. You can glean more meaningful data through surveys to suppliers and customers, asking them to rate your performance in critical areas against your competitors. Against other leading companies: Looking outside your markets of operation can spark new ideas and other opportunities for improvement because it’s easier to identify willing benchmarking partners (companies willing to share their data in exchange for your information). This includes benchmarking against leading companies in the same industry but in noncompeting markets, and leading companies in different industries. Make sure you’re up front with benchmarking partners by using formal agreements that spell out expectations, use of information to be exchanged and confidentiality requirements. It can also be helpful to visit their companies to view firsthand their business systems, processes and practices. Before you make the trip, review the objectives of your visit and questions. Against other family businesses: Benchmarking against other family businesses gives you the chance to learn from their successes and failures in handling the ownership, compensation, succession planning and conflict resolution issues unique to family businesses. Resources for identifying potential benchmarking partners include The International Family Business Network (http://www.fbn-i.org), industry trade associations, local chambers of commerce and family business councils.
Set the Record
To deliver value to your business, your benchmarking efforts must be driven by your strategy and goals. The process also must be embraced as an ongoing commitment – not a one-time event – to have any measurable effect. Doeren Mayhew’s Business Advisory Group assists clients with KPI setup and analysis, trend analysis, strategic planning, benchmarking, budgeting and more. For more information, contact our advisors in Troy, Mich., or Houston, Texas.