Why Benchmarking Doesn't Always Lead to Best Practices
CFOs who are getting maximum payoff for their efforts tell how to grab the benefits and dodge the pitfalls.
Benchmarking is rapidly becoming an indispensable tool for savvy finance executives. Used wisely, it can transform a company's vision and clarify decisions on performance, markets and internal efficiency. But as the availability of back-office metrics has increased, misuse of the practice has become widespread. "In many cases, companies are looking out of the wrong end of the telescope," says Robert Howell, distinguished visiting professor of business administration at the Tuck School of Business at Dartmouth in Hanover, N.H.
Most companies' benchmarking efforts focus too narrowly on cost reduction, and that keeps finance's arms pinned in cost-center mode rather than enabling the function to flex its strategic muscles. "I would argue that the primary job of a finance function is to support the business and to support the senior executives in effecting strategy and ultimately producing results for shareholders and other constituents," says Howell, who frequently does consulting work for corporate finance departments. "I'm not so sure that the finance function has been enhanced by this concern about being in the top quartile in terms of relative cost relationship."
Howell insists that finance can strive for greater efficiency without making the mistake he calls "benchmarking the numbers" -- that is, myopically focusing on efficiency metrics at the expense of larger corporate objectives and needs. John Deane, founder and managing principal of The Alta Group, a Glenbrook, Nev.-based consulting firm that provides services and benchmarking information to the equipme ...