We know that data within your department can be used for analysis. But it can also be used for benchmarking the processes within (or outside) your company.
Benchmarking provides the avenue to benefit from process improvements that others have implemented and can stimulate new ideas. Furthermore, benchmarking helps companies determine where they stand when compared to similar entities, enabling them to resolve problems, identify and address “pain points” and opportunities that can improve their performance.
What about the data?
It’s important to identify the data components that are pertinent to the business P2P process area. Some considerations for any analytics or benchmarking process are included below and organized into the following components—general cost and payroll/overhead.
- Salaries – Differences based upon scale, experience, and skill mix required.
- Indirect Salaries – Remote processors and related costs.
- Managerial Salaries – This may or may not include part or all of a department manager such as a director or controller.
- Benefit Costs – Pension, medical and other perks differing based upon benefit plans
- IT Software & Hardware – The business process owner may be considered to be the client for systems supporting the process.
- Equipment – Equipment depreciation and interest on the undepreciated portion within the department, including furniture and fixtures
- Occupancy – Geographical differences influence real estate, property taxes, construction, and utilities, while company standards influence the work environment
- Miscellanies - Travel, telecommunications, and delivery costs
- Regular associates
- Part-time associates
- Contract associates
- Full-time equivalents
- Open positions
- Overtime hours paid
- Sick pay
- Vacation pay
- Business days
Analyzing benchmark results
To make recommendations for change suitable to its environment and increase the likelihood of success, the participants should ask the following questions about the study:
- Who are the leaders? Preferably leaders in the industry and volume categories.
- How did they do it? Were they at our level of progress? How long did it take?
- How are the leaders organized? Look at the relationships. Are they less bureaucratic and more empowering?
- How are we unique? Every organization is unique. Does our uniqueness capture/serve our segment?
- Are our differences necessary? Although some uniqueness is essential, other differences may not be vital, and, may be superfluous, adding cost and effort to the process. This may ultimately result in substandard service.
- Can we apply the approach? Is it achievable in our organization?
- What is most revealing? What are differences?
- Which programs close the gaps? Do not give up if you cannot achieve their level of success overnight. Strive for a single step of progress at a time.
- What are our priorities? Identify the most important areas to improve.
- What are the barriers to change? What obstacles are going to impede a successful implementation? Are they real or perceived?
- How can we gain the advantage? Develop a vision for winning!
There are several important benefits to implementing a benchmarking project and data analysis project which include the following results:
- Forces an external view. This is a competitive world where change occurs rapidly
- Broadens perspective to “see” beyond the barriers. Learning about others helps a company understand itself
- Nurtures thinking “outside the box.” Successful organizations adapt and improve
- Identifies innovation, breakthroughs, and trends. What is happening, or are we missing something?
- Identifies competitive position. Where do we stand when compared with the competition?
- Assists in goal setting and decision-making. Where do we want to be?
- Supports process development. The best companies are doing it; are we only mediocre, or are we missing something?
- Provides organizations with an accelerated change methodology.
Key Point: Here are the lessons learned:
- Builds confidence that objectives can be reached. We can achieve these objectives with the right direction and roadmap.
- Eliminates non-value adding activities. Why should we continue with non-value added processes?
Planning for implementation
The implementation process is comprised of three steps:
The objective of benchmarking is to improve the bottom line by getting, adapting, and improving the successful ideas of others.
Find examples of superior performance and understand the processes and practices that drive that performance. Companies improve their performance by tailoring and incorporating those best practices. Imitation does not work. Adaptation of and innovation on those best practice principles are keys to long-term success.
As an example, an accounts payable director, may be convinced that he/she can lower costs by aggressively expanding electronic invoicing. He or she identifies the benchmarks that will drive that goal to reality. The metrics to be considered for electronic transactions include number of suppliers, supplier size, percent of centralized purchase transactions, and percent of purchase order transactions.
Understanding the process
An individual can perform benchmarking, but using a team approach leverages differing perspectives and skill sets, as well as allowing for distribution of the process improvement activities for faster implementation. Team members profit from group dynamics by learning from and brainstorming with others.
Oftentimes, a consultant facilitates these groups. It is important to understand the difference between a survey and a benchmark. A survey provides good general information. A benchmark process must provide good comparative information.
An important trait for a team member is the motivation to improve the process. Benchmarking team members need to be change-agents; they should not be afraid to upset the status quo, nor should they have a desire to protect their turf.
It is best to select team members who understand the current process, welcome change, and will be responsible for implementing the proposed improvements. An ideal team size is between five and seven people. Team members should bring different perspectives to the team.
Key Point: It’s important to establish a benchmarking process for each specific process and to include the Subject Matter Experts (SMEs) from those areas. As an example, the suggested team for the accounts payable process is included below:
- AP manager
- AP supervisor or team leader
- AP process improvement agent
- Internal audit manager
- IT staff member
- Receiving/Distribution manager
- Purchasing manager
- Internal controls manager
Selecting the right organizations to benchmark
There are two types of resources to obtain external benchmarking data from: independent organization sponsors & ad hoc collaborative groups.
- Independent organization sponsors keep individual results confidential but usually provide the mean, median, and range of performances. Sponsors are catalysts for compiling standardized data, however, there are no strong consistency or accuracy assurances:
- Who are the benchmarking candidates/participants?
- Are they germane to our business/process?
- Ensure that the participants have a good understanding of the benchmarking questions asked.
- An ad hoc collaborative benchmarking group consists of two or more organizations that share their own results and exchange detailed information on how results were obtained. Usually, this approach includes reciprocal visits to the groups’ facilities. By thoroughly grasping the process being reviewed, a reliable baseline of comparison is established. An evaluation of potential groups should include the following questions:
- Are they similar in their business/process?
- Will they share information readily?
- Is their data reasonably standard and reliable?
- Are they above average performers?
A company should be confident that another organization, with which it collaborates, will be candid about their performance and will freely exchange information. Sometimes, taking the lead and opening up will elicit a reciprocal response, as frequently happens in personal relationships.
Benchmarking is just one of the ways that the data in your department is leveraged for results and productivity.
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