Setting, Benchmarking
Setting and comparing standards
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Benchmarking involves the comparison of internal service costs with those of external service providers, or others that may be considered 'best in class'. During the grace period, immediately following the initial establishment of a shared-services unit, benchmarking can be used to compare the cost and quality of the unit's services with those of external suppliers. Later, it can be used as a guideline for measuring performance and setting targets for improvement, or for making decisions on whether to outsource certain activities.
The shared-services unit should continue to benchmark its costs, services and overall performance on a ongoing basis, not only against those of external suppliers, but against those of internal units in other organizations.You can prove anything
Benchmarking data, like any other statistical comparison, is highly susceptible to interpretation. Great care must be taken to ensure that the services being compared are similar and that cost comparisons are relevant and reliable. Internal service costs should include all costs associated with the delivery of that service, including asset depreciation, for example. It is only valid to compare fully loaded internal service costs to those charged by external suppliers.
Benchmarking against similar services supplied by other internal shared-services units often provides a more transparent and valid performance comparison. This can be extremely useful in defining targets for the new unit, not only in service costs, but also in staffing and customer-satisfaction levels. When it is impossible to make direct cost comparisons, a comparison of ratios is often a useful alternative (the number of employees for which one member of the human resources department is responsible, or the cost of processing one financial transaction).
It is important to step back regularly and remind yourself of the reasons behind the benchmarking exercise. Ask yourself what the results will tell you about your business. When benchmarking training expenditure per employee, for example, is a high or low number preferable? Depending on your viewpoint, a high number can indicate either inefficiency or a stronger commitment to training. A high percentage of employees receiving training could demonstrate either a well-trained workforce or a lack of strategic training allocation. Similarly, the number of days training each employee receives is also open to interpretation. A high number can indicate a greater commitment to training, but by the same token, a low number could indicate more efficient and effective workplace-based training.
Benchmarking can be an extremely valuable tool, especially during the first year of a new shared-services unit's operation. It should, however, be approached cautiously and open-mindedly. Only valid comparisons provide valid information and determining a comparison's validity is often the hardest part of the exercise.
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