Why Benchmark Your

Organizations Operations?

WhyBenchmarkYourOrganizationsOperations?

Ifyoucannotmeasureit,youcannotimproveit.
LordKelvin

Companiesareexperiencingtighterbudgets,longersalescycles,anddecliningrevenues.Afocuson
reducingcostsandimprovingefficienciesandeffectivenessthroughouttheorganizationmayprovidea
growthpath,ifnotsurvival.Asaresult,strategicinitiativessuchasbenchmarkingareontherise,
providingbusinessexecutiveswithvaluableinformationthatwillhelpthemremainattheforefrontof
theirindustry.

Benchmarkingprovidesthequantitativemethodbywhichcompaniesmeasurefunctional
improvements,operationalefficiencies,andcostreductionopportunities.Itservesasanobjective
measuringstickusedbybusinessmanagerstomakeinformedbusinessdecisions,developstrategy,
createinitiatives,aswellasimprovebusinessprocessesandsystems.Benchmarkingcanalsohelp
identifywheregapsorinefficienciesexistandprovideinsightforimprovingthatprocess.
Finally,benchmarkingiscriticalfordevelopingabusinesscaseforchangeandprovidingaquantitative
baselineanalysisofexistingprocesses,technology,aswellasotherkeyperformanceindicatorswhile
becomingthemeasurementagainstwhichongoingeffortsarecompared.Essentially,benchmarking
providesareferencepointforimplementingandmanagingchange.

WhatisBenchmarking?
Benchmarkingistheprocessofcomparingthecost,cycletime,productivity,orqualityofaspecific
process/methodtoanotherthatiswidelyconsideredtobeanindustrystandardorleadingpractice.
Similartoabalancesheet,benchmarkingprovidesasnapshotofperformancemeasurementatapoint
intime,andneedstoberemeasuredonanongoingbasis.

HowisBenchmarkingUsed?
Strategically,benchmarkingprovidesabaselinetodayforgrowthtomorrow.Executivesusethisbusiness
dataandanalysistodrivestrategicdecisionsandinitiatives.Thecontinuousmonitoringofthemetrics
associatedwiththestrengthsanddeficienciesofbusinessprocessesorsystemsallowsorganizationsto
focusontherightleversforgrowth.Benchmarkingshowsthevalueassociatedwithanyimprovements,
efficienciesandcostreductionsgained,whichcantranslateintoincreasedprofit.
Organizationsalsousebenchmarkingfortrendanalysisandtargetsettingaspartoftheirannual
strategicplanningprocess.Establishedbaselinemeasurementsenabledecisionmakerstobetterplan
andalignbusinessinitiativeswithcorporatestrategy.Themetricsandinsightsderivedfrom
benchmarkingprovidethequantitativeevidenceintotheeffectivenessofcriticalbusinessprocessesor
operations.Thisinformationenablesmanagerstoproactivelycraftsolutionstoaddressissueswhich
2

WhyBenchmarkYourOrganizationsOperations?

increaseefficienciesandreducecost.Benchmarksbecomethevisiblelineinthesandagainstwhich
incrementalimprovementsaremeasured,asmanagersdrivetowardtheirtargets.
Benchmarkscanalsobeusedtoimproveemployeeperformance.Whileprocessimprovementand
benchmarkingsometimeshaveanegativeconnotationforemployees(suchaslayoffsresultingfrom
efficiencygains),theyprovideaneducationalopportunityifcommunicatedcorrectly.Thebaselinedata
servesasareportcardforemployeeslettingthemknowhowprocessesandsystemsareperforming
whilealsosettingexpectationsforfutureimprovements.Inadditiontoincitingacompetitivedesireto
improve,employeesshouldalsobeencouragedtoworksmarter,notharder.Employeestendto
respondbetterwithadeeperunderstandingoftherootcauseandquantitativevaluederivedfromthe
data,thusallowingemotionsandegostoremainincheck.

WhatDoCompaniesBenchmark?
So,whatdocompaniesmeasure?Typically,organizationsmeasurethebusinessmetricswhichare
importantindicatorsofthebusinessoperationalandfinancialhealth.Becauseofitsstrategicuse,
benchmarkingoffersorganizationsanddecisionmakerstheabilitytomeasurecriticalbusinessfunctions
andoperationscloselytiedtorevenuesandprofits.Forexample,atechnologycompanywithan
establishedproductmayfocusonitssalescostperleadwhereasaretailcompanymaygaininsightfrom
costpertransactionmetrics.Anotherexamplewouldbeacompanytryingtobreakintoanewmarket;
measuringitsengineeringormanufacturingcosts,aswellassalesandmarketinginvestments.
Otherbusinessfunctionslikefinanceandaccountingmaynotbedeemedcriticalforbenchmarking
becausetheyareperceivedasstandardprocessesthatareperformingonpar.However,itis
imperativeforbusinessestotakeacloserlookatthesefunctionsmetrics.Benchmarkingiscriticalto
improvingtheperformanceofthefinancefunctionandultimatelydefiningasound,costeffective
financialstrategyfortheorganization.
Mostareasofanorganizationcanbebenchmarkedandtodosowouldseemquitedaunting.When
initiatingabenchmarkingstrategywithinyourorganization,itsimportanttofocusonareaswhere
efficiency,effectivenessimprovement,orreductionofcostswouldhavethegreatestimpactonthe
business,asmeasuredbydollarsorvalue.Essentially,focusonareaswhereyoucangetthebiggest
bangforyourbuck.

SelectingBenchmarks
Whenbenchmarkingprocesses,itisimportanttokeepanopenmindaboutthealternativesornon
typicalsolutionsforyourbusiness.Why?Thecomparisonbetweenleadingpracticesforcertain
functionsversusyourindustrysbestpracticesmaybeeyeopeningformostexecutives.Benchmarking
canpointtoseveralopportunitiesforimprovementorinvestigation,andthatsthepoint.Managers
mustfocusonthequantitativeevidenceandobjectivelyaddressissues.
Whenselectingmetricsandtheircomponents,theSMARTmetricguideline,asoutlinedbelow,ensures
yourmetricsaresimpleandstraightforward.Ifyouhavetodefine,explain,ordefendthemetrics,then

WhyBenchmarkYourOrganizationsOperations?

collectingandtranslatingdatawillbeachallenge.ByusingSMARTmetrics,themeasuresareeasierto
sellandhaveastrongerimpactontheprocessandpeoplewhousethem.
TheSMARTguideline:

Specific:metricsarespecificandtargetedtheyanswerwho?what?where?when?why?which?
Measurable:thedataisaccurateandcomplete
Actionable:metricsareeasytounderstandandareclearwhenchartingperformance,sotheappropriate
actioncanbetaken
Realistic:metricsshouldrepresentanobjectivethatyouarebothwillingandabletoworktowards
Timely:youcangetthedatawhenyouneedit

Benchmarkingismorethansimplyselectingtherightsetofnumbersandwatchingthemchangeover
time.Therealinsightcomesfromcomparingthesenumberstothoseoutsideoftheorganization.There
areafewmethodsorganizationscanusewhencomparingmetrics.Anorganizationusuallycompares
theirmeasurementsagainst:

toporganizations(bestpracticesmethod)
relativepeergroups(competitivemethod)
acombinationofthesetwomethods

Whichmethodisbestforyourorganizationandtheprocess?Thatdependsonwhatyouare
benchmarkingandonyourorganization.Thecomparisontotoporganizationbenchmarksworkswellfor
certainbusinessfunctionsthataresimilarenoughinanyorganization,regardlessofsizeorindustry.For
example,accountspayablemetricsmaywarrantcomparisontoleadingpractices.Alternatively,
comparingthetransactionprocessandtechnologyspendofanorganizationwithlimitedvolumeversus
thoseofatransactionheavyorganizationwouldbecomparingapplestooranges.Assuch,thebetter
methodmaybetousetherelativepeergroups.

TheBenchmarkingLifecycle
Thebenchmarkinglifecycleisingrainedwiththeideaofcontinuousimprovement.Improvementsoccur
incrementally,thusmetricsneedtobemonitored,analyzed,andrecalibratedperiodically.Thereare
somebestpracticestoconsiderbeforeundertakingaproject.
Focusonthepeople,process,andtechnology.
Analyzingthesethreeitemsindividuallyandhowtheyrelatetoeachotherwillfocustheimprovement
effortonthecorrectareasoftheoperation.Spendingtimewithaswellasinterviewingorobservingthe
keyprocessownersgivesthebenchmarkingteamadeeperunderstandingofexistingbusiness
workflowsandrelevantbusinessoperations.Therefore,managerscandeveloptheoptimalsolutionto
addresscurrentandpotentialissues.

WhyBenchmarkYourOrganizationsOperations?

Uncovertheoverarchingstrategicobjectivesgoverningtheinitiative.
Interviewkeystakeholderstoclarifythevisionanddirectionoftheorganization.Relatingthese
objectivestothebenchmarkingeffortprovidescontextforthebaselineevaluationwhileensuringthat
aneffectiveplanalignedwiththebusinessshortandlongtermobjectivescanbecreated.
Dontunderestimatethevalueofcommunication.
Aprojectssuccessisinherentlydependentontheindeliblesupportfromtheorganizationsexecutive
managementteam.Withoutexecutivesupport,projectsareoftennotviewedascriticaltothe
organizationssuccess,andemployeeswilltreatthebenchmarkingeffortassuchnotcritical.
Todiffuseanyresistanceorresentmentassociatedwithanalyzingaspecificbusinessfunction,besureto
distributeandsharebenchmarkbestpracticesandresultswillinglyandonaconsistentandtimelybasis.
Withholdinginformationonlyraisessuspicionsandcreatesunnecessarydelays.Creatingcooperation
andbuyinaswellasgatheringdatafromkeystakeholdersiscrucialtoasuccessfulbenchmarking
process.
Withtheseconceptsinmind,thebenchmarkinglifecycleisoutlinedbelow.

Figure1TheBenchmarkingLifecycle

Benchmarkingisnotafiniteprocess.Itisa
continuous,evolvingcyclewithsixdistinctphases:

Plan

1)
2)
3)
4)

planningandsettingscopeandgoals
gatheringtherelevantdataandinformation
assessingandanalyzingthedata
creatinganactionplanbasedonthe
analysisanddesiredchanges
5) executingandimplementingtheactionplan
6) reviewingresultsandrecalibratingmetrics
basedonexpectedvs.actualresults

Review&
Recalibrate

Gather
Data

Benchmarking
Analyze

Implement
Change

Theprocessdoesnotendafterreviewingand
recalibrating,butreturnstotheplanningphasefor
thenextiteration.

Create
Action
Plan

1) PlanningandSettingtheScopeandGoals.Successcomesintheplanning.Whendecidingwhich
benchmarkingprojectstoundertake,acostbenefitanalysis(seefigure2)isuseful.Again,
benchmarkingidentifieswhichprocessesandsystemsneedattentionandprovidesbothdata
andmetricsusedtocalculatesavings.Whilethecostmaybebasedonatechnologysolutionor
processimprovement,thesavingsarebasedonimprovedperformanceforexample;thecost
toprocessaninvoiceisreducedfrom$25to$15foranestimatedsavingsof$1.2Mannually
($10x120,000invoicesprocessed).Theinformationcontainedinthechartprovidesauseful
5

WhyBenchmarkYourOrganizationsOperations?

COST

LOW

MODERATE

HIGH

visualizationofthedataandhelpsfacilitatediscussionanddecisionmakingwhendevelopinga
plan.

Additionally,besuretosetthescopebydeterminingthemetrics,thepeopleinvolved,the
systemsused,andstepsinvolvedintheprocess.Detailedplanningenablesthebenchmarking
teamtodeveloptherightrecommendationsthatleadtocostreductionsandincreasedcontrol
overtheprocess.

2) CollecttheData.Thebestapproachtowardsbusinessimprovementservicesstartsby
understandingtheexistingprocessesandsystems.Thedatacollectedincludesanyquantitative
dataspecificforthebusinessfunction,thestepsinvolvedintheprocess,andwhointheprocess
executesthesteps,includingwhenandhow.Inaddition,thedatamustbecollectedinamanner
consistentwiththebenchmarkingdataandguidelines.Forexample,theprocurementfunction
canbeperformedasacentrallymanagedfunctionwithinasingledepartment;however,the
benchmarkingdatamayincludecompanywideeffortsintheprocurementprocessandnotjust
theprocurementdepartmentseffort.Iftheorganizationsdataandthebenchmarkingdataare
inconsistent,thenresultswillnotberelevantandtheanalysismayprovecontradictory.

3) AnalyzetheData.Withanunderstandingoftheexisting Figure2CostBenefitAnalysis
people,processes,andtechnologyinvolvedinthe
processbeinganalyzed,themetricsareanalyzedand
B
comparedagainstdifferentpeergroupbenchmarks.The
analysisshouldanswerthefollowingquestions:Whatdo
themetricsmean?Howdothesefindingsrelateto
A
C
similarfindings?Whatdotheresultsmean?What
D
E
conclusionscanbedrawn?Whereshouldimprovement
resourcesbedevotedtoreceivethelargestimpact?

LOW
MODERATE
HIGH
VALUE
Analyzingandunderstandingyourdatawillhelpdevelop
aroadmapdetailingsolutionalternativeswiththeappropriatestepsandbestpracticestoachieve
therecommendedstate.Withtheseanswersinhand,avisualcostbenefitanalysiscanbedrawnto
helpshowhowtoprioritizeprojects.

4) CreateanActionPlan.Thedatacollectionandanalysisphasesprovideteammembersthe
quantitativeevidenceandprioritizedprojectsitneedstodevelopthebusinesscaseforchange.
Thecomparisonbetweentheasisandthedesiredtobestatedrivestheactionplanand
roadmapofinitiativesandmilestonesthatwillhelpthecompanyrealizeitsgoals.Itisimportant
tosetobjectivesforbothnearandlongtermsolutionsinordertoachievethedesired
outcome.Ultimately,theactionplanorroadmapdetailsfeasiblealternativesolutionsandthe
stepstoachievetherecommendedstateduringaspecifictimeperiod.

WhyBenchmarkYourOrganizationsOperations?

5) ImplementingtheActionPlan.Projectmanagementandchangemanagementarekey
componentstoensuretheprojectsuccess.Itiscriticalthatallkeystakeholdersareapprisedof
theprogressoftheinitiative.Whileaclearandeffectivecommunicationprocessisvitalfor
raisingissuesandopportunitiesinatimelyandefficientmanner,opencommunicationandsolid
projectmanagementensuresthesupportfromtheorganizationsexecutivemanagementteam
andemployees.

6) ReviewandRecalibratetheProcess.Verysimply,thisphaseinthelifecycleentailsreviewing
theresultsoftheimplementedchangeandidentifyingtheopportunitiesoradditional
recommendationstoimprovetheprocessorsystem.Thisanalysisisthenincorporatedintothe
planandtheprocessbeginsthenextiterationinitslifecycle.Itisimportanttonotethatwhen
maintainingalongtermcommitmenttoaroadmap,aonetimebenchmarkingeffortisnot
enough.Astheorganizationchanges,itneedstoremeasureandcomparethoseresultsto
ensuretheimplementedchangesdrivetheprocesstowardstheintendedresults.

KeyBenefitsofBenchmarking
Inadditiontothepointsmadeabove,benchmarkingcanhelpyourorganizationinotherways.Someof
theseincludeproviding:
Actionableinformationtohelpcompaniesgrow.Organizationsthatregularlybenchmarktheir
operationsusetheseinsightstomaptheirstrengthsandweaknesses.Withcontinuous
monitoringanddatainhand,organizationscanreactfasterandmaketheappropriate
adjustments.

Quantitativeinformationdrivesstrategicdecisionsandinitiatives.Insightintothebusiness
processesorsystemsallowsorganizationstofocusontherightleversforgrowth.Knowingwhat
wastetocutorwhereinvestmentsneedtobemadebasedondatadrivenevidencegives
executivesconfidenceintheirdecisions.

Reduceduncertainty.Benchmarkingprovidesquantitativeevidencethathelpscompanies
measureanychangeinperformance.Asignificantbenefitofbenchmarkingistheinsightinto
criticalbusinessprocessesitprovidestherebyenablingmanagerstoproactivelycraftsolutions
toaddressissues.

TacticalActionPlan.Misallocationofresourcesisoftenaresultofaninefficientorineffective
process.Comparingtheprocess,staff,andsystemsinvolvedinrelationtoapeergroupallows
managerstoaddresslaggardprocesseswithlesseffortandgreaterknowledge.

Enhancedunderstandingofcoststructurerelativetoothers.Comparingrelativebusinesscosts
totoporganizationsandpeerscandrivetheinitiativetoimproveprocesses,systems,orstaff
functionstogainacompetitiveadvantage.

WhyBenchmarkYourOrganizationsOperations?

WheretoApplyBenchmarking
Anythingthatcanbemeasuredcanbebenchmarked.Somecommonapplicationsinclude:

9 FinancialManagement
AccountsPayableandExpense
Reimbursement
AccountsReceivable
TheFinanceOrganization
GeneralAccountingandReporting
InternalControls
OrdertoInvoice
Payroll
PlanningandManagementAccounting
9 SupplyChainManagement
SupplyChainPlanning
Procurement
Manufacturing
Logistics

9 HumanCapitalManagement
TheHROrganization
CreateandmanageHRstrategy
Source,recruit,andselectemployees
Develop,train,andcounselemployees
Rewardandretainemployees
Salary,reporttime,andprocesspayroll
taxes
Redeployandretireemployees
Manageemployeeinformation
9 BusinessProcessManagement
9 CustomerService
9 Innovation
9 KnowledgeManagement
9 ProductDevelopment

Theonlyreallimitationofareastobenchmarkistheavailabilityofpeergroupdataforcomparison.

Conclusion
Organizationsseekwaystoreducecostsandincreasetheeffectivenessandefficienciestogrow.
Organizationscanusebenchmarkingresultstojustifybusinessinitiativesandinvestigatepotential
solutionsbyverifyingprocessperformanceagainstcompetitors.Thequantifiableperformancepoints
provideastrongbusinesscaseforsuchinitiativesandinvestments.Definingaroadmapwithmeasurable
targetsandgoalsfurthersupportstheargumentforchangeandimprovement.
Whilesomecompaniesmayseektotakeonbenchmarkingprojectsinternally,therearebenefitsin
usingoutsideconsultants.

Objectivity:often,thirdpartiesremainobjectiveandenableclientstohavegreaterconfidence
intheresultsandrecommendations
Expertise:consultantsoftenhavespecificbenchmarktrainingandclientexperienceacross
differenttypesofindustries,companysizes,andgeographiclocations
Credibility:withproventoolsandmethodologyformanagingprojects,consultantscanprovide
consistent,predictableresultsutilizingopencommunicationmethodsforsharingofinformation
andinsights

Inshort,benchmarkingbusinessfunctionsandprocessesprovidesacreditablereferencepointandhelps
analyzetheareasneedingimprovement.AndasquotedbyLordKelvinabove,ifyoucannotmeasureit,
youcannotimproveit.

Forinformationregardingourperformance
managementoradditionalservicesprovidedbyour

managementconsultingteam,contact:

JimCashin
VicePresident

james.cashin@caturanoandcompany.com
617.241.4694

DanWheadon

Director
daniel.wheadon@caturanoandcompany.com

617.241.4691

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