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Oct 1993

Benchmarking: learning from the best. (The CPA Manager)

by Haserot, Phyllis Weiss

    Abstract- The accounting services industry should consider adopting quality improvement programs known as benchmarking. This concept can help accountancy firms to establish performance targets and achieve a broader and more suitable organizational managerial style. More particularly, benchmarking can be used by managers in their quest for the most effective procedures in such functions as data collection, database development, professional and staff training, technology systems, client satisfaction evaluation, performance assessment, marketing teamwork and governance systems. The most compelling reason for conducting benchmarking initiatives is that it improves client/customer satisfaction. Aside from this, the process is relatively simple, requiring only planning, observing, analyzing and acting on change. Guidelines for benchmarking are discussed.

The corporate world recognized the benchmarking process in the 1970s, primarily by manufacturing companies who used the process to improve their products. The techniques are now commonly used by service companies and applied to customer service and staff departments. Starting in the 1980s, service companies sought data about the internal workings of companies in their own industry. This information was frequently difficult to obtain without retaining consultants to ferret out descriptions of the top performers of a particular function.

Now companies are looking beyond their own industry to benchmark against the best in any given function, as long as the lessons can be applied to their circumstances. They benchmark against their own customers and vendors. They find the information flows freely, and they are met with willingness to show off the systems as long as no proprietary secrets are involved.

Benchmarking, especially with other types of service firms, vendors, clients, and perhaps non-competitive CPA firms, has extraordinary potential for accounting firms, which generally have a lot of catching- up to do in the management area.

Among other aspects of managing and delivering services, firm leaders and managers can use benchmarking in their search for more successful--

* Data collection, database development, and distribution for engagement management/budgeting, marketing, billing, etc;

* Professional and staff training;

* Technology systems;

* Assessment of client satisfaction;

* Systems for recognizing performance;

* Marketing teamwork; and

* Governance systems;

Benchmarking goes beyond the customary market research and satisfaction surveys that organizations undertake. Its purpose is to analyze what, why, and how your firm is doing compared to the industry leaders. That requires self analysis and produces a better self-awareness.

Why Do Benchmarking?

Benchmarking provides a rational method to set performance goals and to gain market leadership and a broader, more accurate organizational management perspective. Since it is based on what the best are doing, it takes the emotion out of arguments for the need to change.

The most potent reason for benchmarking is the impact of the process on client/customer satisfaction. Business is increasingly competitive. Client needs change, and the keys to satisfaction must be continually explored. With competitors fighting for business and their sophistication increasing, clients' expectations keep rising. They see the best suppliers of other types of services setting higher standards of quality. In this environment, no service providers can afford to be complacent. They must look to the best for ways to improve and welcome, rather than resist, innovation.

Leadership Support Required

The benchmarking process is simple, consisting of planning, observing, analyzing, understanding, and acting on change. But to gain organizational commitment, reach action, and achieve success, management must provide support and ultimate responsibility for communicating and seeing the process through. One requirement is to emphasize the view that benchmarking is not extra work, but rather a way to accomplish more effective work.

Leadership support is needed for planning and organizing for benchmarking as well as for making sure the findings are understood and accepted. It is needed for ensuring strategies and performance levels are based on benchmark practices and are recalibrated, as needed, based on benchmark findings. Leaders must assure that the findings are integrated with objectives, goals, and business plan processes.

Communication is also a crucial management function in the benchmarking process. Leaders must see to it that communications channels and programs are developed to inform professionals and administrative staff of progress toward benchmark targets and goals. They must also publicize and recognize how benchmarking has been used successfully. The publicity serves an important educational purpose. Recognition and reward (nonfinancial as well as financial) are powerful motivators. In addition, management must have and communicate a sense of patience with the process. Benchmarking is long term. It takes time to see results; it is not a one-shot activity, but rather a continuous one.

Firms must understand what benchmarking is not and what the risks in lack of clarity are. Benchmarking should not be used as a tool to justify unpopular decisions and actions or a mechanism for "downsizing" or resource reduction. Etiquette and ethics must be observed. Organizations contacted for information should be made aware of and understand the process and intent. Internally it is important that people not perceive the benchmarking process as simply more work without reward or benefit.

Focus for Benchmarking

Once a firm decides to improve its performance and competitive position by measuring its services, products, and practices against organizations recognized as leaders in their field or against its toughest competitors, there are several approaches it can take:

* Internal Operation Focus--a comparison of internal operations with other professional service businesses.

* Functional Focus--comparisons with similar functions performed by leading firms.

* Generic Process Focus--comparisons of functions or processes that are similar regardless of the industry with firms best at performing those functions or processes.

* Competitive Product (Service) Focus Or Process Focus--comparison of specific products or processes of one or more competitors with the firm's own.

Steps in the Process

Benchmarking can be done formally or informally. The formal process has five phases.

1. Planning. Identify what to benchmark, who, and the data collection method. Choose a process or function that needs improvement.

2. Analysis. Carefully analyze how your firm currently handles the process. Determine the "gap" with competitors, project future performance levels and establish goals. Are competitors better? How much better? What of theirs can be adapted? Choose several companies that perform similar processes in an outstanding manner. Visit their facilities and talk to employees. Find out what they do, and how they handle problems. Ask for advice.

3. Integration. Integrate findings into the firm's processes or procedures; communicate the findings; obtain acceptance; communicate the new direction; develop actionable plans.

4. Action. Implement specific actions; monitor results; report progress on changes; and make adjustment in benchmark parameters.

5. Maturity. Improvements are obtained (leadership position is obtained). New processes, procedures, or services are fully integrated into the firm's operations. Continuous improvement is pursued.

Information Sources

To benchmark, a firm must look to several information sources and data gathering methods--internal and external, original and secondary source research. Possible internal sources are firm financial databases and accounting records, performance evaluations, business plans, firm-wide or practice area and individual marketing plans, staffing assignment records, time sheets, billing records, internal publications and memoranda, library files, and others.

Some external sources include industry and trade publications and special reports, professional associations, general business periodicals, outside seminars and conferences, advertisements, competitors' brochures and newsletters, electronic databases, and professional experts covering relevant industries.

Thorough and accurate benchmarking will require at least some original research such as client assessments and input through surveys, focus groups or other types of dialogues; site visits and exchanges of information with colleagues performing similar functions in other professions or industries; public opinion surveys; etc. While much of the research can be done by internal personnel if they are available and qualified, consultants are often valuable either to obtain the relevant and necessary information, or because they already have useful comparative information in their files. They may have an astute sense of what is needed and the knowledge and experience to help a firm determine what and how to benchmark.

Choosing What and How to Benchmark

Benchmarking will be doomed to frustration and failure if the subject is not chosen carefully. The projects or processes must be well defined. It is dangerous to try to take on too broad an issue all at once. The project must be one for which credible information can be obtained and action can be taken on results. The issue or aspect of the business must be significant enough that improvements will show meaningful results for the overall business of the firm.

In the rush of enthusiasm to get at competitor or business leader information, firms must not forget the first step in benchmarking--to analyze and understand their own operations, specifically the one being benchmarked. This means documenting steps and processes in sufficient detail, recognizing patterns, and developing a flow chart of other tools that will allow for viable comparisons with other firms.

The Xerox Corporation is recognized as an early and very successful benchmarker. To assure Xerox benchmarks topics significant to what its business is all about, a number of questions are asked, according to Robert Camp, manager of benchmarking competency for the United States marketing organization of Xerox. What is the organization's mission? What are the objectives of the business function being studied for benchmarking? What are the outputs (the work done and handed off) that deliver results? Camp says that benchmarking answers such questions as: Is there a need for change? What are we going to change? What will we look like when the change is completed?

Success Indicators

A firm can tell that benchmarking has been successfully integrated into its culture and operations when the following indicators are observed:

* Willingness to adapt and change based on findings generated by benchmarking.

* Active management support.

* Partner support.

* Focus on improvement by researching industry leaders and obtaining client input.

* Recognition that the competition is constantly changing and the firm must also change to improve and retain market share.

* The accountants are willing to share information among themselves and their benchmark company colleagues.

* Benchmarking becomes a continuous process and is institutionalized.

A firm that looks only at its own operations limits its ability to improve. By enabling firms to emulate the world's best service providers, benchmarking helps them realize substantial gains in performance, flexibility, superiority over the competition, and cost savings.

Benchmarking should be viewed as one piece in the firm quality assurance or total quality management (TQM) puzzle. It will assure that firms are going in the right direction with respect to their competitive position and the needs and desires of the marketplace. Kim Mitchell of the Xerox Corporation, during her presentation on benchmarking at the Sales and Executives Club Conference in March 1991, used a Chinese proverb to illustrate the danger of operating without benchmarking: "If we don't change our direction, we might end up where we're heading."

Phyllis Weiss Haserot is president of Practice Development Counsel, New York based consultants on business development and service quality, and author of The Rainmaking Machine (Shepard's McGraw-Hill, Inc., Colorado Springs, CO.).

The CPA Journal is broadly recognized as an outstanding, technical-refereed publication aimed at public practitioners, management, educators, and other accounting professionals. It is edited by CPAs for CPAs. Our goal is to provide CPAs and other accounting professionals with the information and news to enable them to be successful accountants, managers, and executives in today's practice environments.

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