Benchmarking: A Critical Element in Finance Transformation

6 February 2012:

Finance, like other key corporate functions, is under pressure to reduce operational costs while increasing the business value it generates for the larger enterprise. To do so, executives need reliable information that can help them understand whether they are accomplishing their objectives and how their performance stacks up against their peers. Such information can be acquired with benchmarking.

What's surprising is that fewer than a third of finance organizations, according to Accenture's own data, use benchmarking. That may be why, as reported in the Accenture report, "The Changing Role of the Finance Organization in a Multi-Polar World," that only 29 percent of 350 survey respondents said they have a good understanding of where their organization stands in relation to finance functions in comparable enterprises.

But what really is benchmarking?

Benchmarking is the process through which an organization captures specific data related to its costs and performance, and then evaluates this cost and performance data against those from other entities. It can be a critical tool for self-evaluation. Benchmarking provides useful comparisons on key metrics such as total cost of finance, allocation of FTEs across processes, cost per invoice, percentage of time spent on analytics, or effective tax rate. In this way, benchmarking helps leaders define the right improvement strategy for their organization, by enabling them to identify where the organization leads, lags or operates at par with other organizations. In addition, benchmarking provides the basis by which an organization can articulate key issues, helping to identify and address the areas that most urgently need improvement.

Benchmarking delivers four critical benefits for organizations looking to improve the performance of functions:

Benchmarking provides a current-state assessment of the finance function. This assessment involves a rigorous baseline of cost, quality and cycle time, external and internal comparisons (for example, by region or business unit) of cost and performance, and the identification of meaningful gaps. The assessment is a fact-based, more defensible understanding of the function's cost and performance drivers.
It creates a strong foundation for transformation programs. An effective benchmarking initiative enables an organization to more easily identify and prioritize opportunities -- by process, region and cost driver -- which, in turn, results in more informed and relevant improvement targets and a stronger overall business case for the transformation effort.
Benchmarking delivers a basis for continuous improvement. It does this in part by creating or renewing a culture of managing by metrics and by enabling periodic measurement against the initial baseline. Importantly, this baseline assessment is process-based, so it remains relevant regardless of subsequent organizational changes.
Finally, benchmarking sets forth a standard set of terms and definitions for key aspects of a company's business processes, thus enabling everyone in the enterprise to share the same level of information about the state of the enterprise's operations.