organizations perform similar business functions that are categorized as either operating or management oriented. Exhibit 2.1 shows a process classification framework codeveloped by PricewaterhouseCoopers Global Best Practices® and APQCs International Benchmarking Clearinghouse with its founding members. The framework targets the objectives behind benchmarking the major operating or management processes.

These categories create a common ground for business professionals in different industries to compare similar processes, ensuring an apples to apples approach to benchmark processes against one another and against best practices,7 as business processes are the lowest common denominator of companies, says Susan Leandri, managing director of Global Best Practices, for PricewaterhouseCoopers.

when is it time to benchmark?

There are no predetermined points in a firms life cycle when executives should initiate benchmarking. Still, there may be some clues or triggers. It could be the realization that the HR department isnt running as efficiently as possible. Or, it might be when the firm reaches the next plateau in size, such as when a law firm that had comfortably run with 15 employees suddenly expands to 50 employees following a merger. Or, it could arise in considering, Are there ways to bring administrative costs per professional staff down? Change is difficult, but the stress of change on staff can be mitigated by implementation of benchmarks that have a visible, positive impact. Furthermore, the objective nature of benchmarks can help highlight the need for change and reduce the impression that the firm is simply rearranging the deck chairs.

when there isnt time to benchmark

The chief financial officer of a medium-size consulting firm of 1,100 people, of whom 850 are billable professionals, has 70 people reporting to him in the areas of finance, HR, real estate, and IT. He believes in running a lean operation, with staffing for each function kept at exactly the headcount required to get the job done.

Still, he tries to stay ahead of the curve; since 1999 there have been six acquisitions, and as a result he maintains a staff that verges on over-staffing because he never wants to be caught at the next acquisition with inadequate back office support. His mission at the time of an acquisition is to physically integrate functions such as billing almost immediately after the transaction closes. When the company was launched five years ago, it had $35 million in revenue. It went though a public offering and today has revenue of approximately $500 million, with SG&A coming in at 20 percent of revenue.

Should I benchmark to be more efficient? he asks. Of course I should. But I dont have the time. My one concession: I try to pay close attention to billing rates and how billable the professionals are, as well as establishing criteria for billing hours at each level that are market-based and cost-driven. And one day Ill do a formal benchmarking study. For now, this interim system works for us. This chief financial officer (CFO) has discovered that whether he likes it or not, triage is often the operative phrase in a professional services firm. The outlay of time for a benchmarking exercise wont equal the benefits-at this point in the firms life.

getting started

An early decision in the benchmarking process is whether to handle the project internally or whether to hire an outside consultant. For a number of industries with large and organized professional associations, such as the American Bar Association (ABA), Society of Human Resource Managers (SHRM) or the American Medical Association (AMA), the data required for benchmarking can be easily and reasonably purchased. For example, the ABA can provide statistical data on the industry standards for billable hours for associates and partners and for hourly fees, broken down by firm size and geographical location. There are numerous other large industry organizations that offer dependable information and forums in which they discuss performance issues and other useful information resources.

If the internal benchmark targets are complex, if there are too many areas to benchmark, or if it is difficult to access data for your particular industry, the firm should consider hiring an outside consultant. To minimize the costs of consultants, a firm can do a great deal of preparation work itself and/or pare down the list of possible benchmarks to critical categories so that there are fewer areas to explore.

Whether conducting the benchmarking internally or using an outside consultant, the following multistep process will help achieve reliable benchmarking results:

1. Decide specifically which area(s) to benchmark.

2. Identify and communicate the objective of the benchmarking study.

3. Understand and communicate the processes involved.

4. Recognize and understand the best practices.

5. Compare performance data.

6. Import and adapt new standards.

7. Implement change.8

Other factors for success are less obvious or process-driven but are just as critical to the success of any benchmarking effort:

Management commitment

Clear objectives and plans Consistent and accurate data

Openness/willingness for improvement (and change) Implementation9

It is essential that the firm identify the objective of the benchmarking process. All too often firms do not identify the objective of the project and find themselves losing sight of the targeted goal for the exercise, whether it is continuous improvement, understanding the process, or just for informational purposes.

benchmarking a professional services firm

We now take a closer look at the benchmarking process in four areas that are key functions in any professional services firm: revenue and expense, finance and accounting, IT, and HR. These benchmarks are best developed through collaboration with the professional and administrative staff in each area. They are in the best position to suggest changes and innovations-and they will know best which changes will work.

benchmarking revenue and expense

Within the actual business of the services firm, there are five critical areas to examine: time management, revenue drivers, controllable costs, professional costs, and profitability.

time management. Executives, partners, and vice presidents time is usually oversubscribed between competing priorities and activities. These activities could include but are not be limited to:

Client service

Marketing and business development to sell and promote the firm and related tactics to build the business pipeline and generate future revenue for the organization

Managing and developing people-the firms principal asset