Essential Finance ? Best practice

Mahmood Reza considers benchmarking as a means of assessing organisational performance.

Arts organisations often find themselves trying to do a lot with a little. The adage that ?people work so hard to make sure things are done right, they don?t have time to decide if they are doing the right thing? is appropriate here. Organisations undertake a continuous balancing act between doing the right things and doing things right. This requires the development of good business strategies and efficient operations to deliver these strategies.

Organisations need to be strategically and operationally excellent to survive and meet tomorrow?s challenges; but ?excellence? is sometimes difficult to recognise, and always difficult to measure. The process of benchmarking can help with both. It is the practice of measuring an organisation?s products or services against ?best practice?, with the primary objective of improving processes or activities. Through benchmarking, organisations learn about their own practices and procedures by understanding the best practices of others. Benchmarking enables them to identify where they fall short of best practice and then determine action programmes to help match and surpass it.

Benchmarking originated in the USA in the 1970s, pioneered by Rank Xerox, and was ?exported? to Europe and the UK in the 1980s. A number of public sector and not-for-profit organisations have successfully embraced and adapted the technique, and it is a popular and effective management tool. Any activity that can be measured can also be benchmarked. However, this is not always either feasible or practical.
The starting point for any benchmarking exercise is to determine the key performance areas that are critical to the organisation, operationally and strategically. Successful and effective benchmarking therefore requires commitment and support from the board and senior management, who should focus on those areas that:

(a) tie up most of the resources;
(b) can significantly improve the relationship with their client groups; and,
(c) have an impact on the viability of the organisation.

For example, an organisation that relies on grant aid as its main source of income might benchmark fundraising activities. Managers need to be as specific as possible when identifying areas to benchmark. For example, a theatre that wishes to benchmark customer service needs to identify the specific dimensions of customer service that need to be examined. Customer service encompasses a diverse range of activities, such as dealing with enquiries, handling disappointed customers, issuing refunds and taking payments. Each of these activities involves quite different thought processes, techniques and controls. A suitable team must be assembled to deal with the affected areas; for example, an arts centre that wants to improve its booking systems will probably involve a team consisting of front of house staff, marketing and IT.

Once the key performance areas have been decided upon, an organisation must then set the standards and variables to measure, usually known as ?key performance indicators? (KPIs), and identify the most relevant competitors and ?best-in-class? organisations against which their own performance can be measured regularly and objectively. For example, an arts centre wishing to improve its booking system may look to a travel agency or hotel as a suitable partner. Benchmarking Clubs can be formed whereby representatives from a number of organisations meet and compare their activity and performance in a number of areas, using external consultants to facilitate and direct the process, to ensure that clubs do not drift and end up with a lack of direction.

Once best practices have been identified, the benchmarking team collects data, analyses it, and then plots performance against best practice to help identify improvement opportunities. It is the analysis of their performance relative to best practice that can lead organisations to close the gap. Having measured actual performance and compared it with some form of target, benchmarking moves from simple measurement through to performance improvements. Many organisations forget this stage and therefore miss the real benefit of benchmarking. It is essential that programmes and actions are implemented and that ongoing performance is monitored. The benchmarking team that should decide what is needed to adapt best practices to suit their own particular circumstances. This will involve a re-evaluation and re-design of existing procedures and approaches. A cost?benefit exercise will usually be carried out and an implementation timetable with priorities will be established.

Benchmarking can be a powerful and effective management tool. The keys to its success are:
? support and understanding from all
? focus
? openness and a willingness to share
? appropriate suitable partners.

By studying other organisations, one can set targets, identify the most effective approach to development and apply it to improve both skills and performance.