By Susan J. Leandri
In Brief
Combining Analytical Tools and Proven Strategies
Technology has freed CPAs from many traditional responsibilities and opened the door to a broader, more strategic role in their client or employer’s business. CPAs can leverage their expertise in analyzing quantitative information while contributing to decision-making. The techniques of benchmarking and best practices allow CPAs to move beyond presenting financial data “as is” and take a more active role in shaping financial performance as it “should be.”
Benchmarking is a means of comparing operations with the performance of others; best practices are the best ways to perform a business process. When used as a one-two punch, benchmarking and best practices work together to explain the “why” behind the numbers. They can aid CPAs in transforming a client or employer’s reporting data into actionable knowledge.
Technological advances and business process improvements have been a mixed blessing for CPAs. On one hand, these advances have streamlined much of the practitioner’s work: No longer are CPAs up to their elbows in financial statements and reports. On the other hand, technology has usurped many traditional duties and left the CPA’s role more open to discussion. In the past, accountants often found themselves in the role of corporate cop: detecting and correcting problems and enforcing proper procedures. But this is not enough. CPAs can—and must—take on broader roles as business analysts, consultants, and change agents. They are expected to be more proactive participants on the front end, keeping problems at bay and creating an atmosphere for continuous improvement.
Moving to this next level means that CPAs cannot just evaluate their client or employer’s balance sheets and operations “as is.” The focus needs to shift to the “should be,” steering organizations to improve performance and results. Determining this ideal calls for a broader understanding of a company’s underlying business processes and strategic goals.
Because CPAs are skilled in detecting problems, they’re a natural choice to spearhead comprehensive financial initiatives. Two effective tools for unearthing the bigger picture are benchmarking and best practices. By adding these business improvement tools to their toolbox, CPAs can increase their value to clients and employers and broaden their professional opportunities.
What Are Benchmarking and Best Practices?
The terms benchmarking and best practices are established in today’s business lexicon, but CPAs may not be sure what they really involve and what role they really play.
Benchmarking is a means of comparing operations—usually a specific business process—with the performance of others. These comparisons can be both quantitative and qualitative. Benchmarking projects can also have different focuses: universal, competitive, or internal.
Universal benchmarking compares a company’s results with high performers, regardless of their industry, size, geography, or products. Companies frequently stumble across breakthrough ideas for business improvement through venturing outside of their industry in search of insight. Competitive benchmarking assesses a company’s performance against that of competitors or similar companies. Comparisons are typically made by industry, size (e.g., revenues or employees), or geography. Internal benchmarking entails measuring one part of a company against another. All benchmarking approaches have the end goal of identifying problem areas, establishing ideal performance levels, and creating an improvement plan.
Best practices enter the picture in the improvement plan. They are simply the best ways to perform a business process. In the process of gathering quantitative benchmark data, project leaders also seek to identify best practices and, as a result, the two techniques complement each other. For example, if a company discovered that a benchmark peer could close its books in two rather than 12 days, then it would make sense to investigate and document the best practices that enable the peer to close its books quicker. Similarly, if a company is benchmarking its performance internally (e.g., among business divisions) the benchmarking project leaders should identify the best practices a division or manager uses to achieve such results.
Benchmarking and best practices in action. When used as a one-two punch, benchmarking and best practices reveal the “why” behind the numbers. Together, they can transform data into actionable knowledge.
To undertake a benchmarking project, companies often need some form of outside assistance. External consultants or professional or trade organizations are good sources for benchmarking data and expertise. Quality off-the-shelf surveys and benchmark data are often reasonably priced and are adequate for the baseline stages of a benchmarking project. Depending on a project’s goals, it may be worthwhile to seek out competitors and encourage them to participate in a cooperative benchmarking project.
Whether a company participates in a prepackaged benchmarking exercise or performs a customized project, key performance indicators for a business process must be determined. Performance measures enable companies to express the results of a business process in precise quantitative terms. Instead of using subjective terms like good, fast, or low cost, performance measures translate those judgments into precise metrics. For example, the following approaches would be ways to analyze the accounts payable process:
By identifying performance levels and understanding what drives them, CPAs take the first step toward acting as change catalysts. The following cases illustrate different approaches to benchmarking and best practices projects.
A Universal Approach to Process Improvement
A small subsidiary of a large conglomerate wanted to improve its accounts receivable process. An audit team noted that the company had high bad-debt expense and declining accounts receivable turnover. The company’s controller wanted to reverse this trend by uncovering the root cause of the problem and suggesting ways to improve the situation.
The controller used qualitative and quantitative surveys from a business information provider to collect key data and develop a picture of the accounts receivable process. After explaining the project goals, the controller worked with staff members to gather the necessary quantitative and qualitative information and compile a list of process strengths and weaknesses.
After gathering the data, the controller compared the quantitative data to existing universal benchmarks. Qualitative information was compared with best practices in the areas of billing, credit, and collections. A report discussing the findings from the benchmarking survey and best practices review identified improvement opportunities as well as areas of good performance. One critical problem highlighted by the report was staff turnover (stemming from cost concerns), which caused ongoing problems with the quality and timeliness of credit and collection work. Specific improvement opportunities were identified, categorized as either immediate or longer-term initiatives, and incorporated into an action plan for improvement.
CPAs can employ similar approaches to isolate and tackle problem areas. Once aware of an obvious negative trend, most companies are eager to reverse it. Sometimes all they need is a trusted advisor to point the way.
Learning from Internal Benchmarking
In another case, a new liaison to the CFO at a multinational construction aggregate company undertook an internal benchmarking project to determine how well the decentralized finance units were operating. The liaison saw the project as an opportunity for the various units to learn from one another and share best practices.
The company used a survey designed to benchmark its global finance and accounting functions. A project team of members from each division convened to collect quantitative data. Following the data collection, team members received reports that illustrated their division’s performance relative to others. A consultant then visited each division to collect qualitative process information. Upon completion of the site visits, all team members received a summary of qualitative responses from each division and templates for preparing action plans to submit to management. The templates included guidance in identifying next steps for wider implementation of best practices uncovered by the benchmarking survey.
Although this example involves a large company with multiple operations, internal benchmarking also benefits smaller companies. Even on a small scale, companies can achieve greater operational consistency and improve their processes by sharing best practices internally.
Looking to Peers
Business processes that are particularly critical to operations are obvious benchmarking targets for CPAs looking to enhance the bottom line. Consider the example of an international transportation provider that wanted to improve its contract administration process. The process was critical for several reasons: It consumed significant cash flow and involved people in multiple functions, thousands of contracts were outstanding at any given time, and risks were high if the process broke down. Yet the company was unsure whether this key process was functioning at peak performance.
The company decided it could improve through competitive benchmarking. First, internal auditors assessed the company’s contract administration process. Then, site visits were conducted at six companies of similar size in the same industry. The company also wanted to compare its process with best practices in contract administration and identify performance gaps, so it turned to external knowledge bases of best practices research. The findings highlighted trends in contract management that pointed to improvement ideas. These opportunities were organized into strategy, structure, people, process, and technology. From there, the company was able to set priorities for improving its process.
A Learning Process
Benchmarking surveys and best practices reviews are useful tools for uncovering problems, discovering ways to improve, and stimulating positive change. But a word of caution is in order.
“Benchmarking and best practices are tools for business improvement, but they will not solve everything that is ailing a company,” cautions Jeffrey Berk, manager of benchmark development and services for Arthur Andersen Global Best Practices. “Benchmarking and best practices initiatives are most successful when they’re approached with an open mind and the belief that they represent a learning process.”
As trusted advisors that already have a keen understanding of the ebbs and flows of a client or employer’s business, CPAs are in an ideal position to collect benchmark data and study best practices. Many companies are eager to participate in benchmarking surveys and best practices reviews—especially once they see the results.
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