Magazine article CMA - the Management Accounting Magazine

Benchmarking Performance

Magazine article CMA - the Management Accounting Magazine

Benchmarking Performance

Article excerpt

In 1991, a major U.S. company completed its initial benchmarking project to document externally based performance indicators for key processes and activities critical to the long-term success of the company. In establishing benchmark performance for each key and critical activity, the company took a world view and selected the best of the best companies in each activity regardless of industry, location or other restriction. This broader view enabled them to benchmark against a variety of businesses and industries. For example, the activity of paying vendors could be benchmarked with American Express Company, who perhaps may handle this activity better than anyone in the world.

The purpose of the benchmark project was to compare internal performance with external benchmarked performance. In implementing the project, this company utilized the five-step approach developed by Carl Thor.[1]

1. First, determine what process(es) to benchmark.

Clearly, effort is better directed to something that is important. What processes are (a) essential to achieving strategic goals, (b) of critical importance to your customer's satisfaction, and (c) suspected of not being operated well, and (d) are downstream cost drivers that affect performance of subsequent processes and activities? The answers will help in selection of priority processes for benchmarking.

2. Identify process measures and collect internal data

To benchmark with another organization you must understand your own process descriptions, performance measures and outcome data. Differences in approach may be discovered within the organization, and much progress may be possible before venturing out into the world of other organizations.

3. Select potential best companies in each process

Sources of best practitioner information are few and not too reliable. There is some public domain speculation but help may also come from consultants, distributors, customers, associations, and your own employees who have worked elsewhere.

4. Conduct the benchmarking activity

Contact and arrange to visit the target company only after you are throughly familiar with all that is printed and generally known about that target organization. …

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