Simon Marsden, director at Gambit Corporate Finance, explains how benchmarking can lead to improved business performance, enhancing the value of a company
The Drive for Continuous Improvement
Mark Twain, the famous American author, was once quoted as saying “Continuous improvement is better than delayed perfection”. For business owners, the necessity to continually improve the performance of their business is a key challenge. Set against a backdrop of conflicting priorities, demanding stakeholders, constraints on available resources and adding to that disruption and uncertainty resulting from economic and political events, it can seem a very daunting prospect.
Benchmarking is a highly useful tool for business owners to measure how the company is performing against its competitors, making sure it’s “doing the right things” and, ultimately, improving performance and progressing towards achieving stated objectives.
So, what are the benefits of benchmarking for companies and business owners?
The Benefits of Benchmarking
Most significantly benchmarking provides an objective and independent measure of performance taking away any subjective assessment or pre-conceptions. It can promote better decision-making based on validated data rather than gut feel and emotion which, for many owner managers, can often cloud the picture.
Benchmarking can be helpful in providing confidence to the Board that “you’re doing the right things” and validates the strategy being followed. Its importance can be key during periods of economic uncertainty or where the business is facing challenging times to understand how you are performing against the market or your peers, enabling appropriate action to be taken.
Where performance is considered unsatisfactory it can identify and prioritise areas for operational and financial improvement and lead to more efficient allocation and prioritisation of physical resources and capital.
Businesses should incorporate the setting and attainment of benchmarking targets into employee objectives and performance measurement. This can provide several benefits, including:
What to measure?
To some extent the starting point is to fully understand your own business and positioning in its market. What are the things that drive performance and, therefore, enhance value in your own business? Who are your competitors and who are the companies you aspire to be like? It’s surprising how many businesses give limited attention to these issues, instead being more internally focussed.
Benchmarking will be undertaken during any due diligence process prior to a fundraising or sale process so business owners are well-advised to be ahead of the game. Key is to make the criteria measured relevant to your business, its peer group and to incorporate the measurement and monitoring into regular management reporting. Every business is different but we would typically expect key performance indicators to include NFI growth rate, NFI%, NFI to EBITDA conversion and staff costs as a % of overheads.
This article featured in the August 2017, Recruitment International. To read more please click here.