At Leadenhall Financial Management we can provide businesses in the London area with assistance and advice on a wide range of business issues. The following is a guide to best practice benchmarking…
A profit-driven organisation must be committed to continuous improvement and always strive to be the best in its field. One way to achieve this is through best practice benchmarking.
In essence, benchmarking entails:
- Establishing standards that will help you achieve the best relationships with your customers and the best results on your bottom line
- Observing how others, either outside your organisation or elsewhere within it, attain these standards
- Applying the knowledge gained to achieving and maintaining those standards yourself
Benchmarking is not about copying others' successes but about learning from them. If you want your firm to be a world leader you need to be constantly researching the best practices and adapting them to your own situation.
Clients who benchmark on a regular basis report beneficial results, including:
- Improved understanding of your customers' needs
- More satisfied customers and improved customer retention
- Greater insight into your competitors
- Greater emphasis on innovation and continuous improvement
- Less waste, fewer rejects, fewer quality problems
- Better firm reputation and increased marketing power
All of these benefits, of course, eventually trickle down to the bottom line and show up as improved profits.
Benchmarking takes time and energy and you need to commit the necessary resources and empower the right people. If you restrict the process to a few key areas to start with you will soon come to see it as an investment rather than an expenditure.
Benchmarking works only if you can measure the activity in some way and compare like with like. You might start with areas that directly impact the customer such as quality of product, accuracy of invoicing, timeliness of delivery, or speed of service.
The best way to gather this information is to ask your customers directly through questionnaires and other feedback mechanisms. Analysing complaints and warranty claims will also reveal useful data in these areas.
You might also begin to benchmark internal processes such as stock levels or stock turnaround times, quantity of waste or rejects generated, cost of sales or sales per employee.
You might not have this data ready to hand and some adjustments might need to be made to your management accounts to enable you to monitor these areas.
Smaller firms especially can have difficulty in finding the equivalent information about other firms with which to make comparisons, especially if the other firm is a competitor, But you do not need to source the data directly from the other firm. There is a surprising amount of such information available in magazines and newspapers, trade association reports, and various publicly accessible databases.
To benchmark successfully, however, it is not always necessary to compare your performance with that of a competitor. Comparing certain procedures with businesses in parallel industries or even in completely unrelated industries can often be very revealing and lead to creative, lateral thinking, a key element in the process of innovation.
Often the most useful benchmarking is achieved by comparing procedures between different parts of your own business. Besides facilitating continuous improvement, this also helps to create a culture of settling for nothing but the best within your organisation.
If you are in the London area and would like professional assistance from experienced accountants and business advisers, contact Leadenhall Financial Management.