Practical "Best Practices" to Integrate Benchmarking into the Credit Department
Gahala, Charles, Business Credit
After asking several corporate credit managers about whether they have had a positive experience with the integration of benchmarking into the credit function, I was reminded of a quote from a politician. Former Illinois Senator Everett Dirksen's response to a tough political question was phrased: "Some of my friends say yes, and some of my friends say no; me, I agree with my friends."
Benchmarking is one of the best tools available to identify focal points for improving credit department operations. But the practical obstacles of trying to integrate benchmarking into making improvements in the credit function can vary widely from company to company. Credit managers are simply not in agreement concerning how to delve into the use of benchmarking.
This article provides several suggestions from seasoned experts in the credit profession. Their long-running success in the credit profession generates a few "best practices" that can be potentially useful for credit practitioners.
The Rationale for Best Practices
In this issue of Business Credit, Terry Callahan, CCE, president of the Credit Research Foundation (CRF), provides a foundation of knowledge that can be used to better understand benchmarking in the article, "Benchmarking to Measure Your Performance." You will also be provided with information on how to participate in a benchmarking study. Once the data become available, the practical aspects of using the data become the focus. Benchmarking uses data drawn from external comparisons; then comparisons are used to pinpoint differences. Usually, the comparisons are made to companies in the same industry. It should be noted that benchmarking pinpoints specific focal points.
Operating managers are challenged to make improvements. Most companies look for revenue enhancement combined with cost containment, which can push credit managers to experiment with making operating changes. In order to clarify the potential to change, the leading companies in an industry often are used as targets to emulate.
Exceptional performance by an industry leader can be used to establish benchmarking targets. "Best practices" used by the industry leader can be used to achieve lofty goals set as benchmarking targets. However, best practices can become a challenge to emulate. Several pertinent suggestions from credit managers may prove to be useful to achieve benchmarking goals through the use of best practices.
The Need for a Top Management Buy-in to a Process
Hank Hagerich is vice president of credit and collections at Medline Industries located in Mundelein, IL. Hagerich says that all credit departments go through changes and he has a helpful analogy for best practices considerations. Hagerich's experience as an infantry man in the First Infantry Division of the Seventh Air Cavalry in Vietnam can prove useful when benchmarking. During the war, landing zones (LZs) used to unload troops by helicopter were identified by Air Force reconnaissance pilots from the air. The LZs from 1,500 feet up all looked green and clear. Unfortunately, some had high elephant grasses that masked enemy punji spears. The results could be fatal.
In a business environment, Hagerich believes that the upper echelon management can too often fail to see the hidden dangers when making changes. Best practices require consultation with the credit personnel in the trenches who work with day-to-day obstacles. The troops in the trenches need to be incorporated into the benchmarking process.
For example, if cost containment simply leads to downsizing the credit department, then the credit department could become understaffed. Here too, the results could be fatal. Participatory planning is an essential best practice that contributes to effective benchmarking.
The Need to Identify Realities, Cultures and Industry Practices
Paul Brunner, CICP is the corporate credit manager at Mitsubishi Electric Automation Inc. …