department from scratch and handles all health care and COBRA benefits, 401(k) plans, and disability, immigration, and disciplinary issues- and those are just some of her responsibilities.

She knows she should conduct benchmarking in a number of areas but feels certain that now is not the right time. Im still establishing policies and procedures, she said. I must go through one complete cycle of coverage enrollment and at least one full year of assessing the existing benefits offered before I have enough grounding in the company. Prior to benchmarking, I must understand the firms needs, strengths, and weaknesses. That takes time.

a primer on benchmarking

This section outlines the key elements of implementing a benchmarking program and outlines the specific steps and analyses that should be part of the program.

performance measures

Benchmarks are performance measures. Benchmarking is an action that involves discovering the specific attributes that lead to higher firm performance, understanding how these practices work, and adapting and applying them to your organization. Benchmarks are facts that, when applied, enable real business improvement.

Performance measures are the vital signs of a business. They quantify a process or the results. There are many ways to measure a company, a department, or a persons performance, but all share a single trait: They are fact-based, not subjective. They are measurable and quantifiable. Performance measures focus on cost, quality, and time:

Cost-based measures cover the financial aspects of performance (e.g., direct labor cost).

Quality-based measures assess how well a companys products or services meet customer needs (e.g., client satisfaction).

Time-based measures focus on the efficiency of the process (e.g., how long it takes to produce a proposal).

There are two different types of performance measures. Outcome measures identify the results of a process and allow firms to evaluate how well they are performing in a particular area. Typically, they are based on a companys overall goals and objectives and are intended to demonstrate the effect of a process on the companys finances and efficiency.

Activity measures focus on the incremental efforts that are necessary to enhance process improvement, specifically issues that concern the employees

in charge of process-specific activities. Therefore, managers identify problems in a business process as soon as they occur, which allows for correction.

One example of an activity measure is full-time equivalents (FTEs) versus number of invoices, as compared to revenue. For the professional services firm, it is critical to invoice clients and collect cash. How accurate, fast, and efficient these processes operate has a significant impact on revenue and cash flow of the organization. A three-day reduction in the invoicing process can improve cash flow by 10 percent. Conversely, a three-day bottleneck in the invoicing process can reduce cash flow by 10 percent. No matter how great the client service delivery of a company, there is an bottom-line impact if the firm cant bill correctly or collect revenue in a timely manner. Billing rate and hours billed errors also erode client satisfaction and trust.

how are benchmarks determined?

To conduct benchmarking, measurements are required-ones that can be performed consistently and reliably with a basis in fact. The specific benchmarks are typically determined through surveys, questionnaires, and interviews. Question sets are designed to establish qualitative as well as quantitative metrics for the following performance dimensions:

Process Technology Leverage Organization Strategic alignment Partnering activity

Qualitative tools are used to gauge where a firm stands in relation to best practices for a particular business process. They are subjective, judgmental, and focused on activities behind a particular business practice.

Quantitative tools are used to see how an organization compares itself to others for a particular business process. They are objective and focused on the measurements of specific operating or financial performance metrics.

best practices

Best practices are a key focus of benchmarking. Simply stated, they are the best way to perform a business process or practice within specific parameters, as perfected by the leaders in a given industry. Best practices, documented by quantitative and qualitative data, serve as a framework for achieving or striving for excellence. Benchmarking is one of the fastest ways

to determine where the firm stands with industry best practices and to identify areas where best practices may be of highest benefit to the firm.

The American Productivity and Quality Center (APQC) offers a definition of best practice:

There is no single best practice because best is not best for everyone. Every organization is different in some way-different missions, cultures, environments, and technologies. What is meant by best are those practices that have been shown to produce superior results; selected by a systematic process; and judged as exemplary, good or successfully demonstrated. Best practices are then adapted to fit a particular organization.6

The best practices method is an integrated, comprehensive way of doing business more efficiently or with greater operational effectiveness. Best practices are determined by interviewing experts, sifting through company experiences, reviewing current business literature and academic research, and gathering information from employees, experts, consultants, and field specialists.

potential benchmarking targets

What processes are typically benchmarked? A benchmark target can be any function within a firm that is important in enabling the organization to successfully deliver its products and services. Almost all professional services

Operating Processes

Management Processes

(&) Develop and manage human resources

(9) Manage information resources and technology

(10) Manage financial and physical resources

(Ц) Manage environmental, health, and safety issues (12 Manage external relationships (13) Manage improvement and change

Exhibit 2.1 Operating and Management Processes