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Despite
the sophistication of its people, processes and systems,
the investment management business has yet to adopt benchmarking
as a key enabler for process improvements. Yet, outside
of our industry, many companies are conducting assessments
to determine how effectively their technologies are functioning,
their processes are running, their organizations are
structured. Some of these efforts will pay off; others
will not. Why the disparity? Let’s look at what
a successful benchmarking endeavor entails and why so
many firms have made enormous commitments to benchmarking.
Deliver
true value. Companies perform benchmarking exercises to
take stock of their positions in the industry. They expect
the results to tell them where they need to make tactical
improvements. Successful companies will structure their
benchmarks to upgrade capabilities that will result in
measurable, bottom-line improvements. It makes little sense
to change a process or replace an application if the effort
will not support new products, enhance capabilities, deliver
increased revenue, reduce costs, or lessen risk. If the
benchmark’s objectives are tied directly to business unit
goals, it is easier to both justify the investment required
to effect the change, and to value the rewards that it
delivers.
Understand
what you are benchmarking. There is an old saying that,
if you don’t know where you are, a step in any direction
appears to be progress. Without a detailed understanding
of the capability that you are benchmarking, you may be
misinformed by the results obtained. While there is no need
to document every step and decision point along the way,
it is useful to know why each process is performed, the value
it contributes to the operation, and the downstream benefits
that are recognized across the firm. Merely looking at the
internal effects of an operation typically will skew the
results (usually negatively). Define the capability at a
high enough level of detail that the schematic will fit
on a single page. This will force you to abstract the process
to the point where you can easily explain it, avoid the
tendency to benchmark individual activities, and eliminate
analysis paralysis.
Stick
with your peers. One of the real benefits of conducting
a benchmarking exercise is to compare your performance
against that of others. Are you a leader? A laggard? Or,
somewhere in between? You may obtain the greatest benefits
by comparing your processes against that of a world-class
operation in another industry. However, these assessments do
better to create an awareness of best-in-class operations
than to forge incremental improvements in daily operations.
Comparisons are most meaningful when the processes reviewed
are of similar size and complexity. Evaluating your
performance against firms outside of your industry will not
help you identify the areas most in need of improvement.
Define your peer group using a few key characteristics, such
as revenues, customer segment, or product, and collaborate
with these peers to share meaningful performance and cost
data.
Keep at
it. Benchmarks tell you where you stand – the size of
the gap between your performance and the level at which you
aspire to operate. To be effective, conduct follow-up
benchmarks to recalibrate your position and establish new
investment strategies. After you have completed a benchmark,
your firm then has the opportunity to make substantial
improvement. However, the bar may also have been raised
throughout the industry – new players may have entered the
market, competitors may have tweaked their operations, and
customers may have changed their demands. By repeating the
process annually, or at strategic milestones, you will see
progress over time and will be able to re-direct investments
as new capabilities, systems, priorities and threats emerge.
Some
companies in other industries incorporate benchmarking
very effectively into their operations:
Healthcare – A
large regional health insurer noticed a shift in the
market as clients demanded increased online capabilities
to handle routine member services, such as enrollment,
claims processing, and referral handling. Lacking sophisticated
online capabilities, the insurer opted for a benchmark
program to measure progress as it rolled out new functionality
to its member base. The company included several other
insurers in its program, as well as two companies with
strong online presence. The benchmark program, which
is ongoing, identifies the most critical capabilities
requiring development and allows the health insurer
to monitor the progress that its competition is making.
Retail -
For more than a decade L.L.BeanŽ has had the distinction
of being a world-class merchandiser. How did L.L.Bean
earn this recognition? It became best in class by examining
its own processes in light of its organization’s
objectives – revenue enhancement and cost reduction.
By organizing its inventory system around frequency
of sales, it improved accessibility to those items
in greatest
demand. And, by optimizing its warehouse instructions
around the design of the warehouse, it reduced costs.
Companies from far outside its industry, e.g., Xerox,
have benchmarked their logistics operations against
those of this clothing and sporting goods manufacturer.
L.L.Bean
remains best-in-class for customer service and continually
strives to deliver 100% satisfaction to each customer
through a rigorous review of each customer-facing process.
Outsourcing – The
success of technology outsourcers depends on their ability
to accurately predict market prices for commodity services.
They are fairly certain that prices for their services
will decrease – they just don’t know how
much. One savvy firm established a benchmarking program
to collect current prices from both in-house IT shops
and organizations that had outsourced this function.
They combined this data with other market indicators
to create price bands for their services. This information
mitigates the risk they face in every competitive situation
by giving them a better sense of the price that customers
will pay for their services.
Benchmarking
proved key to process improvements in all three of these
industries. In our next installment we will discuss the
value of collaboration as a tool for extracting additional
insight from your benchmarking program.
For
more insight into CutterBenchmarking, please join our
Webcast on November 2 at 11 am EST. CutterResearch
members may register online at www.cutterassociates.com.
Others may register by emailing beth@cutterassociates.com
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