Measure the success of your business

To measure the performance of your business, you need a target. Get yourself one by benchmarking against the best in the business.

Measure the success of your business
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According to the World Economic Forum, South Africa’s competitiveness has slipped from 52 to 53 out of 168 countries.
Other research shows that we have the most expensive cellphone rates on the continent. BMW benchmarks labour costs in South Africa, and finds that there are many countries where labour is cheaper. The International Trade Administration Commission (ITAC) has 121 full-time employees benchmarking costs and revenues of companies clamouring for protection against cheap imports. Benchmarking is clearly big business these days, but how can it help you?

READ:Quality always wins

The origin of the term
The term ‘benchmark’ originates from bygone days when land needed to be identified precisely, and surveyors without modern instruments had to create permanent reference points. They solved the problem by chiseling a horizontal mark on large immovable stone structures to form a ‘bench’ on which a levelling rod could be accurately positioned and repositioned.
The term stuck and today it is understood as the process of comparing and measuring one organisation’s standards and performance against another, in order to gain information that will help improve its performance.

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It all sounds fairly simple, doesn’t it?

A word of warning: don’t underestimate the difficulty of extracting useful information from two or more organisations. Beginning a benchmarking project unprepared can be a time-consuming and frustrating experience that delivers little of value to you or anyone else. However, if participants are carefully selected and properly prepared, it can turn out to be an enormously valuable exercise.

Here are a few pointers to getting it right:

  • Decide what other company to approach. Start by selecting just one. It’s difficult enough to identify and analyse useful comparable data between just two organisations. 
  • Always benchmark against the best-performing business in your industry and area. There may be some sensitivity to free exchange of data, especially financial information, and you might need the formality of non-disclosure agreements. Discuss and finalise the list of proposed benchmarks. These will fall into two categories: physical factors and financial factors. Physical benchmarks are measurements of yield, product quality, fertiliser, animal feed, fuel, electricity, labour, and so on. These are usually quite simple to define and determine, as long as the figures are available and accurate. Financial benchmarks deal with product selling prices (notoriously difficult to compare due to product quality differences, time of sale and target market), and input costs for major items, such as labour, energy and so on.
  • Each benchmark needs a careful and precise definition. Otherwise, you will not be comparing apples with apples. What units will be used – hectares, tons, litres? – and how will these be determined? Don’t assume they have been accurately measured!  Often, estimates are made based on volume of boxes, bins or trailers and they are wrong. In my first experience of benchmarking, I was concerned about how poor our yields in t/ ha seemed to be. Digging deeper into the figures, we discovered that our benchmarking partner was measuring both tons and hectares incorrectly. It was a great relief for us, but a major shock for them. When it comes to financial benchmarks, the input data from both enterprises must be collected in the same units. The important areas of labour cost and productivity are a case in point. In order to make sense of them, you will have to break the cost down into individual components, and make sure you are comparing the same job. Is the wage daily or hourly? What number of days or hours per week? Then there are factors such as leave benefits, overtime, and benefits in kind such as housing, meals and so on. There is also the question of overheads, which some companies allocate to labour administration and add to labour costs. These distortions make nonsense of comparable figures.
  • Identify the ‘so what’ factors and skip them. Sometimes, even in similar organisations, situations are so different that a benchmark cannot deliver useful information. A good example is to extract and compare electricity costs between farms, where one is entirely gravity-fed and the other has to pump its water from a distant point. The costs will be significantly different and the information useless. Only benchmark items where lessons can be learnt from the comparison.

Turn the lessons that emerge into action! A benchmarking exercise that doesn’t result in improvements is a waste of time and effort.

This article was originally published in the 15 November 2013 issue of Farmers Weekly.