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19 Mar 2015
Benchmarking enables businesses to measure how well they perform against other similar high performing businesses. Not only is it interesting to see how you perform against others, a smart operator can establish targets which can make a dramatic difference to the overall performance of the business.
If you want to be successful, you've got to have something to aim for. And if you're going to spend time working towards a goal, it needs to be a goal worth achieving. Successful businesses are always setting themselves targets in key areas, and constantly monitoring their progress towards them.
In choosing the numbers in your business that you will put into a benchmarking exercise, it is important to recognize the difference between a Key Performance Indicator ("KPI"), and a Key Result Indicator ("KRI"). A KPI is a measure of something which influences your results, as compared with a KRI, which is a result in itself. For example, for a shoe shop a KPI might be the number of different shoe styles the business has on it's shelves. A KRI might be the net profit of the business. KPIs are closer to the start of a chain of events, and the KRIs are closer to the end.
The distinction is important for a benchmarking exercise to be useful. Whilst it is interesting to know how your results compare with other similar organisations, what you're really trying to do is to find out how you can change what you do, to achieve results which are closer to those of better performing organisations.
There are numerous examples of KPIs. In our business, one of the KPIs that has a big effect on our results is what we call "WIP lock up". That is the amount of accumulated time our team has spent at the end of each month that has not been billed out. For any business that makes it's living by charging out time, this is a critical figure, and is a prime symptom of efficiency in a number of areas. In our business the way we get figures to target, is to benchmark ourselves against the achievements of other similar good Accountants.
Benchmarking is equally relevant to "Not for Profit" organizations, as it is to "For Profit" business. And it is also relevant to all kinds of business, be they shops, cafés, farms, plumbers, forest contractors, hospitals or anything else you can imagine.
The hard part about benchmarking is getting the data from other organizations. You've got to find a way to get these critical figures from others without compromising confidentiality and competitiveness.
Fortunately, this information is available from many sources. In our business, we have aligned ourselves with Waikato University, which produces one of the largest benchmarking data bases in NZ. We can compare the results of our clients with the results of similar businesses throughout NZ without divulging or obtaining the identity of any of the businesses involved.
There are many other sources of benchmarks. For example, dairy farmers can benchmark against the DairyNZ stats report, and forestry contractors can benchmark against the annual Informe data report.
Your Chartered Accountant will often also have a good general understanding of how different organisations perform (KPIs), and what the drivers of performance (KRIs) are."It is important to recognize the difference between a Key Performance Indicator ("KPI"), and a Key Result Indicator ("KRI")".
For more information on how we can help your business, get in touch