Finance, like other key corporate functions, is under pressure to reduce operational costs while increasing the business value it generates for the larger enterprise. To do so, executives need reliable information that can help them understand whether they are accomplishing their objectives and how their performance stacks up against their peers. Such information can be acquired with benchmarking.
What's surprising is that fewer than a third of finance organizations, according to Accenture's own data, use benchmarking. That may be why, as reported in the Accenture report, "The Changing Role of the Finance Organization in a Multi-Polar World," that only 29 percent of 350 survey respondents said they have a good understanding of where their organization stands in relation to finance functions in comparable enterprises.
But what really is benchmarking?
Benchmarking is the process through which an organization captures specific data related to its costs and performance, and then evaluates this cost and performance data against those from other entities. It can be a critical tool for self-evaluation. Benchmarking provides useful comparisons on key metrics such as total cost of finance, allocation of FTEs across processes, cost per invoice, percentage of time spent on analytics, or effective tax rate. In this way, benchmarking helps leaders define the right improvement strategy for their organization, by enabling them to identify where the organization leads, lags or operates at par with other organizations. In addition, benchmarking provides the basis by which an organization can articulate key issues, helping to identify and address the areas that most urgently need improvement.
Benchmarking delivers four critical benefits for organizations looking to improve the performance of functions:
- Benchmarking provides a current-state assessment of the finance function. This assessment involves a rigorous baseline of cost, quality and cycle time, external and internal comparisons (for example, by region or business unit) of cost and performance, and the identification of meaningful gaps. The assessment is a fact-based, more defensible understanding of the function's cost and performance drivers.
- It creates a strong foundation for transformation programs. An effective benchmarking initiative enables an organization to more easily identify and prioritize opportunities -- by process, region and cost driver -- which, in turn, results in more informed and relevant improvement targets and a stronger overall business case for the transformation effort.
- Benchmarking delivers a basis for continuous improvement. It does this in part by creating or renewing a culture of managing by metrics and by enabling periodic measurement against the initial baseline. Importantly, this baseline assessment is process-based, so it remains relevant regardless of subsequent organizational changes.
- Finally, benchmarking sets forth a standard set of terms and definitions for key aspects of a company's business processes, thus enabling everyone in the enterprise to share the same level of information about the state of the enterprise's operations.
So what does the benchmarking process look like? It involves four main steps that help organizations to discover, deliver and maintain enhanced business value from the function being evaluated.
In the first phase, a company formally launches the initiative and devises its plan for gathering required data (which should include a definition of the initiative's scope, including which metrics to evaluate and relevant data sources). As part of this effort, the company also identifies -- and trains, if necessary -- the people who will be responsible for collecting the data. It's critical for a company to get this step right, as time spent here can pay significant dividends later in the process.
The second phase involves, first, the gathering of the data to be evaluated, typically using a standard data collection and formatting template. When data collection is completed, the company produces a preliminary benchmark comparison with the peer group, validates the data, and, if necessary, corrects any inaccuracies. While the second phase of the project typically lasts between one and four weeks, it also is the most common source of delays in benchmarking projects. Thus it's important to have -- and follow -- a solid data collection and validation plan.
In the third phase, a company performs a qualitative assessment to help reveal insights behind the quantitative data collected in the preceding phase. Leading practice evaluation and interviews with relevant executives form the core of the qualitative assessment. This enables the company to put quantitative benchmarks in context and understand the "why" behind the numbers.
During the fourth and final phase, a company reviews the cost and performance gaps revealed in the comparisons with the peer group and identifies the root causes of those gaps. The company also develops a set of recommendations for addressing the root causes and closing the gaps, which should be reviewed with key stakeholders to get crucial buy-in. Indeed, benchmarking can be a highly political exercise, so getting everyone affected engaged with and supportive of the initiative is vital to success.
Ultimately, benchmarking should become an automatic (and automated) process within finance. When used with other analytic tools, such as leading practice comparison and internal voice of the customer, benchmarking provides insight not available by other means, and can be the basis for better decision-making in finance.
Chuck Wise is a senior principal in Accenture's Finance & Enterprise Performance practice and is the global lead of Accenture Benchmarking Solutions. More on this topic is available at http://www.accenture.com/us-en/Pages/insight-value-benchmarking-summary.aspx.