Using Benchmarking to Increase Profits

11 January, 2013

It is rumored that the process of benchmarking was started by cobblers. A person would place their foot on a bench and then the cobbler would draw an outline of the foot as a measurement for correct shoe size. Benchmarking allows company to compare themselves with similar companies in the same area of business and or geographicallocation. The modern day process of benchmarking or measuring has been used by many companies to drive out expenses, improve productivity, and customer service levels.
Today we will review the five steps to use benchmarking to improve profits and
1- planning
2- data gathering
3- analysis and integration
4- a limitation and execution
5- recalibration
Step 1 – Planning
Planning is the major step in the benchmarking process. We start planning by identifying the area or process to be benchmarked. Priority should be given to an area of significant impact on the profitability of the business. Next we establish the desired end result. This could be a guarantee of delivery of a product or service within a certain time frame, or a guarantee of 100% accuracy on an order or a service. After the desired result has been established then the benchmarking team made up of people who are involved in delivering the product or service is established. There must be an owner of the particular process improvement team empowered to make the appropriate decisions or be able to interface with senior management to get results. Having a management accountant involved gives the team the big picture view of the business.
If the benchmarking involves a similar industry there needs to be a set of criteria established to select a company for benchmarking. Size, market share, geographic location, etc can be established. The company may be a similar company but located thousands of miles away. For example a restaurant serving similar food to a similar client demographic located in Vancouver could be benchmarked against a similar restaurant located in Montreal. Finally we must determine the methods of collecting information. Sources for information inside the company should be used. Sales people, customer service people and customers are excellent resources.
Information on generic benchmarking on numerous industries is available through us here at Numbersplus. This can help you look at similar businesses in many different cities in your immediate region or across the country.
Step 2 – Data Gathering
The success of any data gathering is the quality of questions used to ask the participants. The team should explore all question types from multiple choices, open ended, scaled and forced answer questions. Test the type of questions internally using some known data, to see if the desired result can be obtained by use of different question styles.
Step 3 – Analysis and Integration
In this step we can begin to compare the data gathered about process involved with companies we have chosen to benchmark against. The company that is rated highest in the process being measured and our company performance is compared. The difference in the performance is between the two companies is referred to as the current performance gap. This gap can be positive, negative or zero. The negative gap is the one we are concerned with as it indicates an area where we need an improvement. We now need to project the gap further out to ensure we are targeting to meet future expectations not just the current status quo. A list of issues must be created and the corresponding actions to be taken to close the performance gap.
Step 4 – Implementation and Execution
The first phase of implementation and execution is obtaining approval from management on the recommendations and course of action. When presenting this data to management, there must be a logical flow to arguments put forth to management including factual data with realistic solutions. Once the recommendations have been accepted by management, then a set of action plans needs to be developed. Goals and objectives must be clearly defined and understood by the implementation team to ensure everyone is kept focused and on schedule. Progress during the implementation stage must be monitored and reported to the group daily to resolve any issues that are created and to ensure training is provided to overcome resistance to change.In certain cases goals may have to be adjusted as unforeseen obstacles could now reveal themselves during implementation
Step 5 – Recalibration
Recalibration is the process of constantly reviewing benchmarks to ensure they are up to date and can react to competitive pressures. A regular review of benchmarking keeps the company thinking of the future and making changes to improve profits.
Let’s look at a restaurant business as an example. The business owner has decided to benchmark his business as even though the restaurant appears to be full, he feels he is not receiving the maximum revenue from his clients.  Also, a large number of customers have expressed dissatisfaction over the delays in receiving their orders. Many feel they are not getting good service from their server as they “cannot be found”. Over a 90 min period on a typical night our restaurant serves 30 meals with a value of $35 per meal. Since the flow of food orders has a major impact on the business, we have decided to benchmark this process.
We benchmarked this restaurant against other family restaurants with a similar menu, clientele and demographic. As part of the planning process we created 3 questionnaires targeting three of the major groups affected by the order cycle. The customers, the servers and the kitchen staff were all given simple questions to gather our data.
The customers were asked how much time is acceptable between ordering and receiving their food. The serving staff was asked what is preventing them from spending more time with their customers and what in their view is the delay in getting food to their customers? The kitchen staff was asked what was required to help get food orders completed faster and with less backup.
In summary the data revealed that the customers wanted their food within 15 minutes, plus they wanted to be able to have contact with their server during that time. The serving staff felt they could spend more time with the customer and increase the amount of food and drink ordered by each table but they were preoccupied with standing near the kitchen to keep track of the food orders.
The kitchen staff said that if the orders would not come in all at once, then they could handle the workload. If they had better visibility to the orders they could adjust accordingly.
When they approached another restaurant in a city 500 miles away they were happy to learn that this restaurant had the same challenges. This restaurant had a great reputation and was handling 50 meals and $125 dollars per customer over the same time period.
The major difference between the two restaurants was the successful restaurant had implanted wireless technology into the ordering process.The serving staff had small wireless touch screen handheld devices that had all menu options on screen. The server could send the food order to the kitchen staff immediately without walking to the kitchen. This gave the kitchen staff better visibility and better order flow, thus keeping their workload more even Any drink orders were sent via the wireless devices as well, so when the server walked to the bar the drinks were ready to be picked up.The server could spend more time at the table This gave an image of increased customer service as well as the server has the chance to up sell wine, or appetizers as they build rapport with clients. This would reduced the feelings by the customers that their server was gone, as now the server would only leave the table area when the drinks or food was ready.
The expected results would be an increase of 10% in the first 3 months and 20% in the second three months, with the ultimate goal of 45% increase in sales.
There were additional suggestions about using wireless technology to target business people by giving customers free wireless access in the restaurant and the possible construction of a small meeting room that could be used by businesses not wanting the expense of a hotel meeting room.
Once management accepted the ideas, then the action plans are put into place. Software and hardware was installed, servers were trained on the handheld devices and the project implemented.
The results we as projected and the business has incorporated benchmarking as a culture to expand on new ideas and create a better work environment.
As the benchmarking process develops it soon becomes embedded in the culture of an organization. The culture of constant and continuous improvement allows for the business to always be re-calibrating itself to adjust to market forces. Employees in this environment are always embracing change. They are on the look out for ways to improve methods and products everyday. It becomes part of their role in the organization. The small improvements in day to day processes will accumulate over the months and the organization finds it self getting better without any major initiative.
If you are planning to sell the business, being able to show a prospective buyer or investors that you have benchmarked the business will have a positive impact on the price that gets offered for the business.
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