Benchmarking

The year has only just begun but there is already a new hot topic that is flying around among our clients and it will probably be one of our focuses for the year: benchmarking. Interest in this topic is being driven by clients trying to get a handle on what they are doing right, what they are doing wrong and what is the magnitude of those things.

Reports are flying around newspapers and business circles of the economy turning down. This situation leads to companies looking toward ways to improve what they are doing today in order to weather the storm they see coming. Cutting costs is always an initiative on the table but it becomes more important as short-term growth projections are cut. Costs exist across the board but largely fall into a few large buckets: overhead, distribution, manufacturing, and real estate.

Benchmarking comes into play because it allows you to look at people in similar positions as you and helps you identify your strengths and weaknesses. Costs are then cut by focusing on strengths and improving weaknesses. By driving more of your focus into your strongest areas you focus on hitting your higher margin zones that carry less risk. Improving weaknesses shores up the resources to focus on the better areas.

So why is benchmarking the way to go? Let's look at Southwest Airlines and how they benchmark airplane turnover - the time it takes to clean and refresh between flights. When they benchmarked themselves against their competition they couldn't find anyone who was doing it better than them. Instead of turning their focus onto other areas they decided to take the benchmarking to another level and focus on other groups that performed similar operations. Now they benchmark their airplane turnover against the likes of NASCAR pit crews.

The operations being compared are the same processes on different scales and in different environments. But when you are already best in your industry it makes sense to innovate and compete with groups outside of your specialty. If it seems like you've reached the top you probably haven't looked around to see the other mountains around you that go higher yet. There are always ways to improve, some just have yet to be put in place in your industry.

This leaves us with improving the weaknesses. Most companies are lagging behind in some core area. Either their percentage of overhead is too high or their inventory turns are too low or their transportation rates leave something to be desired. It's hard to have an expert around to diagnose every problem. Sometimes it's important to step back and see what you're missing and why it's happening.

If you operate a call center that uses 250 square feet per person then you are using more real estate for that function than most of your competitors. The lease cost associated with that extra space is a cost that you have to pay every month. It may be possible to consolidate another group in with that call center and get rid of real estate that you don't really need.

Benchmarking gives you the final advantage of knowing what to look at long term and the ability to track progress. Improvement is a long-term activity that should be constantly moved towards. If it's not part of your corporate culture it probably should be.