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ACCY312
Benchmarking
Group 5

Chuxiong Tu 3977699
Fei Feng 3851187
Sizhu Shen 4209199
9/21/2012





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Summary
It is necessary for organisations to use benchmarking engaged in reengineering their
processes and systems. This report provides a critique analysis and the importance
of benchmarking. Meanwhile, the four financial and four non-financial performance
measures a service organisation could benchmark externally and internally will be
identified and discussed.


















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Part A
Provide a critique of the Chenhall and Langfield-Smith, 1998, journal article with
specific focus on the use of benchmarking in Australian organisations. Why do you
think the application of benchmarking was expected to be of greater emphasis by the
survey respondents?

Benchmarking is a process of comparing the products, functions and activities of an
organization against other business to identify areas for improvement and to
implement continuous improvement. (Reider, 2000) It is a newly-developed
technique in management accounting practices and it could link companys
operations with its strategies and objectives, meanwhile benchmarking could focus
on both financial and non-financial performance measures, it could let a company to
make a best decision.
According to the case study, it use surveys to identify the adoption rates of traditional
and newly-developed management accounting practices and benefits received from
those practices. In the survey of relative adoption of management accounting
practices, benchmarking of operational processes, strategic priorities and
management processes were in the relatively high adoption group. However, these
practices were in the relatively low ranking in benefits received. But in the survey of
future emphasis, respondents indicated they would place more emphasis on all form
of benchmarking in the future (Chenhall & Langfield-Smith 1998, pp11-12) .
From those surveys we could find that Benchmarking was important to most of the
organizations, moreover the adoption rate of management accounting innovations in
Australia was higher than other countries. Hence, it would enable Australian
organizations learn from competitors, and places the organizations in a continuous
improvement mode easily.
In the background of global market competition, it is very important to keep a high
performance level for organizations. Thus, benchmarking offer organizations a very
essay and convenient way to study from leading organizations and make necessary
changes. According to Wilson and Nathan (2009, p104), there are two reasons to
undertake benchmarking, the primary reason is to help set performance goals above
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a minimum acceptable value. Another reason is that it gives credibility to the goals
and objectives of process redesign goals. From this point of view, benchmarking is a
great way for organizations to measure themselves against their competition in order
to improve internal processes and ensure they stay in an improvement level to face
the challenges in the competition.

Part B
Identify and discuss four financial and four non-financial performance measures a
service organisation could benchmark externally. In your discussion ensure you
justify the selection of the performance measures to benchmark as well as with who
you would recommend to benchmark these measures against.

Four financial performance measures
Budget variance
The analysis of budget variance is increasingly important for organization.
Comparing the variance with the competitors in the same industry is beneficial to the
organization to find out the cause of variance and the problem in the budgeting
management. Through the comparison it seems can study good method from the
competitor to aid budgeting.
Financial return
Financial return is related to the return on investment for company. It contains the
company get profit through investing some business activities. The benchmarking
against the best practice companies in the industry can guide the companies to
invest a high return project and it is reported that high benefits were received from
budgeting.
Working capital
Working capital is an important financial performance measure could benchmark
against. The study from the best practice companies through measure the working
capital can provide some understanding about how to make decision to enhance
their short-term solvency and ensure not effect companys operational actions.
Profitability
Profitability is the ultimate goal for business owners and shareholders. Profit
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performance is watched by owners, the financial markets and creditors and therefore
it must be important to managers (Watts 2010). The benchmarking against
competitors can get an understanding of operate strategy from them to help
company improve short-term and long-term profitability and find out some
shortcoming in own company.

Four non-financial performance measures
Market share
Market share in service organization reflects its control capacity for the market and
more market share can bring the competitive advantage and attract customer to
some extent. It seems that there is strong price-competition between these small-
parcel-delivery companies due to the increase of market share (Wouters et al. 1999,
p448). Therefore, the better method to increase market share can be found by
benchmarking against the best practice company in the same industry.
Customer satisfaction
Customer satisfaction is an essential factor to externally benchmark non-financial
performance measures. Through compare to the best practice company, they can
find out the cause of low customer satisfaction then plan the new method to increase
customer satisfaction and decrease the number of customer complaints.
Quality of service
Quality of service includes many types of measures. High quality of service can
attract more customers and bring future profits and a potential growth. Benchmarking
against the best practice companies would recommend the company how many
perspectives about quality of service should take into consideration and also provide
information on how a particular high performance level is achieved by other
companies.
Ongoing supplier evaluation
Ongoing supplier evaluation is a term used in business and refers to the process of
evaluating and approving potential suppliers by factual and measurable assessment.
The measure of ongoing supplier evaluation can get moderate benefits. From
benchmark against competitor, the measures would bring some information of the
better supplier from competitors. A good ongoing supplier can decrease the risk and
ensure a stable operation.
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Part C
Identify and discuss four financial and four non-financial performance measures a
service organisation could benchmark internally. In your discussion ensure you
justify the selection of the performance measures to benchmark as well as with who
you would recommend to benchmark these measures against.

It is usually helpful to compare a service organization against businesses in the
same sectors. However, the service organization market position and its objectives,
among other things, will affect the specific comparisons it wants to make. It can also
benchmark internally within s service organization (Watts 2010).
Four financial performance measures
Profitability
Profitability ratios offer several different measures of the success of the firm at
generating profits. Gross profit margin is a measure of the gross profit earned on
sales. The gross profit margin considers the firms costs of goods sold, but does not
include other costs.
Gross profit margin = (Sales - Cost of Goods Sold) / Sales
Liquidity
Liquidity ratios provide information about a services organizations ability to meet its
short-term financial obligations. They are of particular interest to those extending
short-term credit to the firm. Two frequently-used liquidity ratios are the current ratio
and the quick ratio.
Current Ratio = Current Assets / Current Liabilities
Quick Ratio = (Current Assets- Inventory) / Current Liabilities
Capital structure
Capital structure decisions play a pivotal role in maximizing the performance of firm
and its valve. Capital structure involves the decision about the combination of the
various source of funds, a firm uses to finance its operations and capital
investments. These sources include the use of long term debt finance, short term
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debt finance called debt financing, preferred stock and common stock also called
equity financing (Abor 2005).
Market ratios
Stock market ratios focus on the relationships between share prices and earnings
and dividends. In one leading companys recent annual report, the chairman started
his report to shareholders by noting four criteria which are most commonly used to
measure company performance:
1. rate of growth in earnings per share
2. free cash flow before dividends
3. dividend cover
4. debt and interest cover

Four non-financial performance measures
Effectiveness
It is necessary to provide a series of the training in order for employees to improve
their knowledge of the subject material, to increase their ability to perform their jobs,
to improve their service skills, and improve their ability to offer better services.
Responsiveness
The measurement of this perception obtained from many type of measures such as
responsiveness, cleanliness, communication and the internal satisfaction survey,
and this enables us to carry out actions for continuing improvement focused on
employee relations and so to develop products and services solutions and enhanced
services.
Efficiency
The amount of money spent on trainings per month. It is common that to use this
measure with the program director, who ultimately decided not to include it (Banker,
Potter & Srinivasan 2000).
Reputation
To measure a services organization, it is important to use or passed on the
information employees received, the number of respondents who scheduled a follow
up training, and the percentage of respondents who stated that they would
recommend the organization to others.
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Reference
Abor, J 2005, The effect of capital structure on profitability: an empirical analysis of
listed firms in Ghana, Journal of Risk Finance, vol. 6, pp. 438-47.
Banker, R. D., Potter, G., and Srinivasan, D. 2000, An empirical investigation of an
incentive plan that includes nonfinancial performance measures. The Accounting
Review, 75(1):6592.
Chenhall, R & Langfield-Smith, K 1998, Adoption and benefits of management
accounting practices: an Australian study, Management Accounting Research, vol.
9, pp. 1- 19.
Reider, B 2000, Benchmarking Strategies: a Tool for Improvement, John Wiley &
Sons, New York.
Watts, T 2010, Management Accounting: Theory and Strategies, Custom publication,
Sydney, McGraw-Hill.
Wilson, A & Nathan, L 2009, Understanding Benchmarks, Home healthcare nurse,
vol.21, no.2, pp102-107.
Wouters, M, Kokke, K, Theeuwes, J & van Donselaar, K. 1999, Identification of
critical operational performance measures a research note on a benchmarking
study in the transportation and distribution sector, Management Accounting
Research, Vol. 10, pp. 439- 452.