The Success FactorPosted on Saturday, January 4th, 2003 by Mark Mehler
The Success Factor
You know where your company has been. Any idea where it’s going next month or the rest of 2003? Benchmarking, which sounds about as much fun as a weekend of tax preparation, isn’t all that painful. And it can help your company grow faster than ever before.
Off-road racing is not just an adventure. Among thousands of Southern Californians, it’s a way of life. Nicole Pitell, whose company, Total Chaos Fabrication (www.chaosfab.com), builds suspension parts for off-road vehicles, knows that the only way she can survive in a cutthroat business is to tap into the consuming passion of her customers.
“I need to know what potential customers are thinking, all the new products that my competition is coming out with and how they’re pricing them,” says Pitell, whose five-year-old Corona, Calif., shop employs two full-time and two part-time people. Toward that end, Pitell spends endless hours surfing off-road Web portals and chat rooms, where she picks up the latest industry gossip: whose suspensions are breaking apart on the brutal desert terrain, which suppliers are generating a positive buzz and how much discretionary income off-road racers are spending on their trucks.
|OK, NOW WHAT?
|There are three key steps in beginning the benchmarking process, says Stephen Windhaus, founder of business planning firm Windhaus Associates in Port St. Lucie, Fla.1. Determine why you need to start benchmarking. Are margins slipping or revenues falling? What do you hope to accomplish through the process? By identifying your objectives, you can determine what should be benchmarked. For example, if your concern is declining market share, you may have to benchmark only sales and marketing.2. Examine your product and market. This includes looking at everything from pricing and promotion to market trends and competition. You can find much of this information in business libraries and on the Internet. Start with a Standard Industrial Classification Search (www.osha.gov/oshstats/sicser.html). This will provide you
with your SIC code, which is key for finding information on industries, customers and competitors.3. Scrutinize your operational overhead. “You need to look at all expenses,” says Windhaus. “This will help expose anything you’re spending money on that’s not getting results in terms of revenues and sales.” This assessment can help you set benchmarks for improving things such as sales and operational expenses.
Pitell then applies this voluminous data to her own research, manufacturing and marketing operations. The Internet feedback has led Total Chaos to fabricate high-end, custom parts—a niche that has differentiated the company from its competition, helped it avoid the ire of chat room participants and contributed to higher sales and profits.
“Benchmarking,” Pitell concludes, “is the reason our company still exists.”
It’s a new year, and the economy is still about as stable as a toddler with new legs. You’re thinking about tomorrow, next month and the rest of 2003. One way to figure out the short road ahead is through benchmarking—which is a “systematic procedure for comparing the performance of an organization, function or process” against that of another company or companies. Translation: How does your company stack up against the other guys? Many experts think the process is an essential skill for any large or small business.
“You can get along fine without benchmarking until supply starts exceeding demand,” argues Chris Bogan, the CEO of Best Practices LLC (www.best-in-class.com), a Chapel Hill, N.C.–based boutique that specializes in benchmarking research and publishing. “When economic times get bad, as they inevitably do, without any objective reality on which to base your strategic decisions, you’re completely lost. All the lofty goals you’ve set for your company mean nothing if you’re operating in a vacuum.”
Adds Mark Czarnecki, president of the Benchmarking Network (www.benchmarkingnetwork.com), which helps companies form benchmarking relationships, “Any business, no matter how successful, must constantly be thinking about how to do things better. Benchmarking is the core competency of any quality initiative.”
The following are some key benchmarking do’s and don’ts for small firms:
1. Begin by asking four questions that will lay the groundwork for all your benchmarking activities: Am I growing as fast as my top competitors? Are my operating margins as good as or better than theirs? How do my products and service offerings stack up against the competition? And how does my pricing strategy compare?
“These are the four critical questions you want to answer,” says Bogan, the author of Benchmarking for Best Practices—Winning Through Innovative Adaptation (McGraw-Hill Trade, 1994, $29.95).
2. Limit the number of benchmarking criteria to those key performance indicators that offer the highest payoffs. Benchmarking your payroll function with an eye to trimming 10 percent of the cost doesn’t make sense if you employ only one payroll clerk. Measure only those parameters that truly determine success.
For example, measures of a restaurant’s growth rate (in addition to annual revenue) could include the number of daily walk-ins, the number of daily reservations filled and the amount of money spent per table. “The problem many small businesses have is the vastness of the available databases,” explains David Weir, a senior manager at BearingPoint Inc. (www.bearingpoint.com), the consulting firm formerly known as KPMG. “A small-business owner doesn’t have the time or the resources to break out and segment all of that data. The best advice is to keep the benchmarks at a high level, limit the number of [key indicators] and the number of companies you benchmark against.”
3. Do a thorough internal assessment to establish your own baseline measurements. In other words, you can’t compare your company with other companies if your performance data are spotty or inaccurate.
4. Don’t always limit yourself to benchmarking against companies in your own industry. Bill Enloe, CEO of Los Alamos Bank in Los Alamos, N.M., says that his managers measure employee and customer satisfaction against top-flight firms outside of the banking industry. Last year, Los Alamos won the Malcolm Baldrige award for small-business excellence.
|WHAT’S YOUR PLAN?
|The value of benchmarking and business planning varies—and may depend on your business personality. For Fast Trackers, who look for any opportunity to grow, these tools can help you pinpoint the best opportunities and make sure that you’re on track in going after them. They also can provide an early alert system if your expectations exceed the hard realities of the marketplace.Jugglersare typically so involved in day-to-day operations that they may not see the big picture. Business planning enables you to look at the business and your market from 30,000 feet, while benchmarking can help you stay focused and set priorities.In contrast, Idealistslike to think outside the box and look well into the future. A thorough business plan—backed up by closely monitored benchmarks—can ensure that you don’t overlook important short- and long-term details. The process also helps you keep tabs on how you stack up against the competition.Optimizersdon’t like surprises. Strategic planning—plus performance indicators—helps you plan and monitor orderly growth. And with your knowledge of financial matters, you can use these tools to optimize opportunities to increase margins and trim overhead.In turn, Traditionalists don’t like to rock the boat, choosing order and comfort in their business and family life. Benchmarking will ensure that your operation remains stable. Long-term planning will help you prepare for the day when you turn your business over to a family member or associate.
Not sure what your business personality is? Take a quick quiz at www.pitneyworks.com/roadmaps.
5. Don’t copycat. Although there’s a powerful temptation to emulate the best practices of companies you are benchmarking against, you must adapt those practices to your own company. “It was a classic mistake on our part,” admits Thom Crosby, president of Pal’s Sudden Service, a small fast-food chain in Kingsport, Tenn., and a past Baldrige award recipient.
In benchmarking itself against a Saturn dealership, Pal’s was impressed by the dealer’s effort to recognize those salespeople who most “delighted customers,” Crosby says. The auto dealer would post the employees’ photos and otherwise celebrate their achievements. “We thought that was a wonderful idea, but we didn’t think it through for our company,” he laments. “The personalities of car salesmen and people working in a kitchen are not the same. For our people, making all that hoopla and taking their photos in their work clothes was not a reward for excellence—it was a punishment. We were forcing recognition on our people, and the impact on morale was disastrous. Fortunately, we dropped the program before things got too bad.”
6. To locate companies that would make good benchmarking matches for your organization, contact trade associations, benchmarking exchanges or independent consultants. Also get in touch with the regional development authorities or your local chamber of commerce. Even some of your own direct competitors might be willing to share some of their performance data.
But when the competition is tight-lipped, advises Bogan, you still can unearth valuable benchmarking data from talking to their customers and their vendors, particularly if you happen to share those customers and suppliers. “Customers can provide data about pricing and service, while vendors are apt to tell you about your competitors’ buying patterns. Of course, gathering this information requires a certain degree of sensitivity and tact.” (With some small companies, this might not be the best way to understand pricing. Also, be careful: Some confidentiality agreements preclude sharing information about pricing in the marketplace.)
7. Benchmark continually rather than occasionally. This is a given in a fast-moving business environment.
8. Have a mechanism in place for translating your benchmarking data directly into daily operations. “This should be one aspect of the benchmarking process where a small business really shines,” says Weir, of Bearing Point. “Small businesses tend to be more nimble than large companies. On average, they should be able to generate benchmark numbers and [translate] them into operational improvements in the space of a single calendar quarter.”
Finally, don’t view benchmark results as absolute signposts of success or failure. “They’re just indicators of direction,” concludes Weir. “View them in the context of a broader set of data.”
In other words, you must strike a balance—at least in your head—between what your business is and what you want it to be. Who knows? You might wake up one day and find that your business reality has become a well-oiled machine.