The Value of Benchmarking
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The Value of Benchmarking
Cheryl Yaeger
BenchMark Consulting International
find value in using internal benchmarking programs OVERVIEW
to improve their performance across geographic
sites, business lines and functional support units.
Benchmarking has begun to play an ever increasing
role in the acquisition of business intelligence in Benchmarks may be very specific and narrow in
many organizations. Obtaining a “referenceable” scope, focusing on a discrete segment of a process
benchmark from others performing similar activities chain or product offering, or in some cases a much
can help organizations understand the range of broader measure. Generally, the broader the scope
performance levels that are possible. And of measurement, the more difficult it becomes to
understanding the underlying attributes or drivers of align the measures for comparability. For example, a
that performance is equally important. Only then narrow comparison might be “number of items
can the information be used to improve encoded per machine hour” while a broader measure
performance. might be “total number of items processed per paid
FTE”. Since the number of discrete activities
Obtaining accurate, credible benchmarking data can included in both the “total number of items
be a challenge since this generally comes from processed” and the “per hour or FTE” will vary
competitors. The value of this challenge has long from organization to ...
Copyright © 2006 BenchMark Consulting International, N.A., Inc. All Rights Reserved.
Cheryl Yaeger
BenchMark Consulting International
OVERVIEW
Benchmarking has begun to play an ever increasing
role in the acquisition of business intelligence in
many organizations.
Obtaining a “referenceable”
benchmark from others performing similar activities
can help organizations understand the range of
performance
levels
that
are
possible.
And
understanding the underlying attributes or drivers of
that performance is equally important.
Only then
can
the
information
be
used
to
improve
performance.
Obtaining accurate, credible benchmarking data can
be a challenge since this generally comes from
competitors. The value of this challenge has long
been recognized by high performing organizations
and improving companies alike. Knowing what to
measure, when and how, all create the foundation
for successful benchmarking.
What is benchmarking?
Webster
defines benchmarking as
“the
study
of
a
competitor’s product or business practices in order to improve
the performance of one’s own company”.
While Webster’s definition of benchmarking focuses
on external competitors, many organizations also
find value in using internal benchmarking programs
to improve their performance across geographic
sites, business lines and functional support units.
Benchmarks may be very specific and narrow in
scope, focusing on a discrete segment of a process
chain or product offering, or in some cases a much
broader measure. Generally, the broader the scope
of measurement, the more difficult it becomes to
align the measures for comparability. For example, a
narrow comparison might be “number of items
encoded per machine hour” while a broader measure
might be “total number of items processed per paid
FTE”.
Since the number of discrete activities
included in both the “total number of items
processed” and the “per hour or FTE” will vary
from organization to organization, it becomes more
difficult to compare the values without benefit of the
underlying details.
Why benchmark?
Determining Value
Those who engage in benchmarking look to
incorporate this information into a larger picture not
only evaluating overall performance, but more
importantly,
understanding
what
levels
of
performance
are
possible.
The
value
of
benchmarking is driven by several key components.
The Value of Benchmarking
BenchMark Consulting International
2
Value of Benchmarking – April 2006
What to measure –
determining the appropriate
granularity of data required to be meaningful; if you
could measure the activity accurately, and if you
could get comparable data from others performing
similar activities, what would the data tell you?
Simply having the data isn’t enough, understanding
the drivers behind the data are required to enable
change or improvement.
In any process chain, there are multiple steps or
activities.
It is often difficult to measure these
discrete activities accurately. It can be even more
difficult to compare those measures against others
with any degree of certainty regarding comparability.
Organizations beginning the benchmarking process
often seek out high-level industry measures which
may be available and then subsequently attempt to
align their measures to them.
A more effective
approach would be to measure the discrete activities
within a process that can be accomplished in a well-
defined range; where reliable measurements are easily
attainable, then build more detailed measures going
forward. Seeking benchmarks from others for the
most significant processes measured may help to
prioritize the efforts.
Your business may or may not align well with others,
from a measurement or a performance standpoint.
If your business is concentrated in a unique strategic
position, then measuring against those targeting
other audiences may not be particularly helpful. For
example, many loan servicing activities may be
similar or comparable between a prime and non-
prime portfolio; however, it is not likely that you
would find comparable results when measuring
delinquency or collections activities.
In this case,
benchmarks would be required from others with
similar portfolios.
The value of benchmarking is derived when you
have the combination of comparable data and
understand the drivers behind the performance
generating the data or results. The outcomes may
show widely divergent results across companies for
various processes.
While your business may not
desire to achieve the same performance levels in
some of these activities, it can be important to
understand the trade-offs you are making vis-à-vis
the competition.
Accurate
benchmarking
can
produce
tangible,
quantifiable targets and goals which can be measured
in a consistent fashion over recurring time cycles.
This allows management to understand where they
are positioned today and to measure performance
against future goals in order to modify actions
accordingly.
Benchmarking Cycles
In
general,
frequent
recurring
benchmarking
generates the greatest value. This removes some of
the variability created by large interval measurements
(seasonality or cyclicality).
A natural outcome of
frequent and regular benchmarking is the ability to
measure changes in your own performance relative
to changes in the industry during comparable
periods.
For example, you may elect to pilot a
change
in
one
of
your
processes;
frequent
benchmarking allows you to see if the change has
moved your performance faster than the industry as
a whole or if you’re just closing a gap.
Frequent benchmarking will also reduce the risk of
“measurement error” that can occur with a single
snapshot in time. Measurement anomalies will be
normalized over time in a frequent measurement
cycle. Depending upon the processes measured and
the amount of change these are subject to, annual
benchmarking can be used as a general guideline. In
areas that are being impacted by changes, either
internally
or
externally
imposed,
increased
measurement
and
benchmarking
frequency
is
recommended.
As the financial services industry
continues to evolve into shorter and shorter cycle
times for customer service, the need for increased
benchmarking cycles will also accelerate to ensure
customer service delivery supports the strategic plan
and remains competitive.
Benchmarking Models
The term “benchmarking” is often used loosely by
organizations
referring
to
general
product
or
performance comparison. The acquisition of data or
information about the competitions’ products or
performance is helpful in a number of regards. Most
organizations gather business intelligence from a
variety of sources. This often includes participating
in
industry
surveys,
conducting
research
or
purchasing available data sets. While each provides
an increased breadth of knowledge that is useful, it
should not be confused with benchmarking which
requires common measures to quantify a company’s
performance position relative to others in the
industry. Benchmarking is specific to products or
processes that are currently in existence.
BenchMark Consulting International
3
Value of Benchmarking – April 2006
Surveys versus benchmarks
Surveys typically measure opinion. The better the
survey design, the more accurate the results;
therefore, increasing the ability to rely on the
information.
In combination with other statistical
data, survey outcomes can play a powerful part in
predictive models.
A number of surveys attempt to measure the
organization’s performance at the process level. One
shortfall of surveys to keep in mind is that
respondents may influence the outcome given their
desire to achieve a higher score. Or the respondent
may chose not to answer questions that ask for data
perceived as confidential, thereby reducing the value
of the results. Perhaps more frequently a cause for
concern is the lack of understanding or definition of
the discrete activities the survey is attempting to
measure.
One key advantage to surveys is the collection of
attribute or non-quantitative data.
This type of
information often supplements the quantifiable
benchmarking data an organization uses. It allows
companies to identify attributes of interest or
forecast
future
capabilities
which
cannot
be
accurately measured from current processes.
There is some general trending which can be drawn
from surveys, however, caution should be exercised
to determine the statistical significance of the data
used, in particular, what is the respondent mix year-
over-year.
Research versus benchmarks
There are a number of industry research houses that
provide ongoing information about financial services
trends.
They typically cover a plethora of topics
ranging from consumer behavior to business buying
practices and forecasting growth in new products
and services. Their publications are often based on
primary
research
conducted
via
survey
and
interviews within the industry; therefore, the value is
often the combination of the survey results with
their interpretation of the data.
This type of information is particularly helpful to
organizations considering significant changes in
business lines, product offerings, infrastructure, etc.
They provide insight into future trends, associated
issues and applicability for various segments of the
industry.
Shopping for pre-existing data
Data at your fingertips is always an attractive
prospect.
The
risk
can
be
mitigated
by
understanding the source of the data and the details
that support it. Data for purchase typically has two
inherent risks associated with it.
1)
It is generally survey based, therefore carries
all
of
the
potential
flaws
of surveys
mentioned above, and
2)
It is generally at a fairly high-level which
may make it difficult to understand the
underlying activities and relate them to your
organization.
The data may be helpful as a part of your overall
business intelligence; exercise caution in how you try
to apply it.
Sources of benchmarks
Traditionally benchmarks have been fairly specific to
each industry.
Organizations tend to focus on
measuring
their
performance
against
their
competitors. As markets expand, the need to reach
beyond current benchmark partners is likely to
occur. Banking services today are being provided by
a variety of financial services companies, no longer
limited
to
“banks”.
Business
models
for
sales/product as well as delivery are changing
rapidly.
There is an ever-increasing demand for
information about related services inferring that
competition is likely to spill over into these markets
soon.
Can it be benchmarked?
There are any number of processes that are difficult
to benchmark, including those that cause some of
the greatest challenges to organizational success. An
often
cited
challenge
is
organizational
communication. This may be an example of an area
that
would
achieve
limited
benefit
from
benchmarking.
The specific activities would be
difficult to define in a way that is common across
other organizations.
That is not to say it isn’t
important to measure the process internally and
evaluate its effectiveness.
There may also be
significant value in surveys and research to identify
alternative methods and processes that may have
value.
BenchMark Consulting International
14 Piedmont Center NE, Suite 950
Atlanta, GA 30305
(404) 442-4100
www.benchmarkinternational.com
Benchmarking Partners
One of the largest obstacles to benchmarking is
bringing together competitors in the industry for
purposes of self improvement. There is a natural
cause for concern on multiple fronts.
1.
Confidentiality of information
2.
My high performing ideas will now be
available to the competition
3.
Defining consistent measures
4.
Validation of measures
Effective benchmarking requires the sharing of
information for learning. This will not occur unless
participants trust the partner and the credibility of
the results.
A third party is often the vehicle to
facilitate this process.
Select a partner that has
demonstrated expertise both in benchmarking and in
the subject matter. Subject matter expertise ensures
the data collected will not only be comparable, but
will be valuable and actionable.
Summary
Benchmarking is one form of business intelligence
that
organizations
can
use
to
improve
their
performance.
Using well defined measures and
ensuring comparability at frequent intervals will help
create a foundation for actionable information.
Before entering into a benchmarking program, give
consideration to how the information will be used in
your organization.
Access to empirically derived,
factual data can be a powerful catalyst for change. It
helps many organizations overcome the internal,
emotionally-based arguments that have the potential
to sabotage change initiatives.
The use of a strategic partner to provide your link to
the industry facilitates trustworthy, credible results.
The right partner can not only align you with the
appropriate competitive organizations, but can also
help you identify the performance drivers underlying
the
data
that
could
positively
impact
your
organizational performance.
Cheryl Yaeger
is President of BenchMark Consulting International. She has extensive experience in the financial
services industry with the delivery of large integrated change initiatives such as bank mergers and consolidations,
technology integration activities and strategic alignment evaluation and adjustment.
BenchMark Consulting International
has specialized in improving the financial services industry since 1988.
The company is a management consulting firm that improves the profitability of its financial services customers
through the delivery of management decision-making information and change management services to realize the
benefits of business process changes.
BenchMark Consulting International’s expertise is in the measuring,
designing, and managing of operational processes.
The firm has worked with 38 of the top 50 (in asset size) commercial banks, all 14 automobile captive finance
corporations, several of the largest consumer finance corporations and many regional and community banks
throughout the United States. Internationally, BenchMark Consulting International has worked with the five
largest Canadian commercial banks, more than 40 European organizations in 11 different countries, in addition to
financial institutions in Latin America, Australia and Asia.
The company is a wholly owned subsidiary of Fidelity National Information Services, Inc., with clients in more
than 50 countries and territories, providing application software, information processing management,
outsourcing services and professional IT consulting to the financial services and mortgage industries. BenchMark
Consulting International has dual headquarters in Atlanta, Georgia and Munich, Germany.
For more information please visit
www.benchmarkinternational.com
