Business Planning - Benchmarking: improved performance

Measure within an area where you know you are underperforming, Neville Stein recommends.

Neville Stein - image: HW
Neville Stein - image: HW

Over the past few decades many manufacturing disciplines have become embraced by the horticultural sector. Processes such as "total quality management", "just in time" and "lean" are now commonplace and deliver significant results to the bottom line.

Benchmarking has also been used in our sector to deliver improved financial performance. Thought to have originated in Japan, most researchers and writers agree that 1979 was the point when benchmarking publicly emerged as a valuable management tool, being first used by Xerox.

There are many definitions to describe benchmarking but in essence it is the process of assessing what you are doing as an organisation against the "best in class", wherever that is to be found. The aim is to improve your own company's performance. I like the definition that says benchmarking is "the practice of being humble enough to admit that someone else is (maybe) better at something and being wise enough to try and learn how to match or even surpass their performance".

In other words, you compare yourself to others and are motivated to do better. In some ways we have all informally been doing this for years both inside and outside the world of business. Humans are naturally competitive and curious, and even subconsciously we are constantly comparing ourselves to others.

Many of history's greatest events and achievements have been produced by this innate competitiveness, such as Scott versus Amundsen galvanising exploration of the North Pole. Benchmarking is simply this competitiveness supported and guided by data.

So what can be benchmarked in your business? The simple answer is anything that can be measured. My old favourite maxim "you can't manage what you can't measure" is crucial to benchmarking and it is vital to first have your own systems of measuring, monitoring and data collection in place to then accurately benchmark. What you measure is down to you and it probably should be an area in which you intuitively know you are underperforming. Areas to measure and then benchmark will typically be profit, liquidity, gearing, employee productivity and efficiency and return on investment.

Measuring input costs

If you want to start at a basic level, you can use benchmarking to simply compare input costs. If you are a landscaper, for example, your largest cost might typically be labour, so you might want to benchmark direct labour costs as a percentage of total sales. On the other hand, retailers typically measure and benchmark average transaction value, transaction numbers, gross profit, stock turn and wages as a percentage of sales. Nursery producers might benchmark return per square metre, wastage or input costs.

As you can see, benchmarking has a wide variety of applications. The key is to identify those areas where you think you might be underperforming or benchmark those areas that will have the most improvements on your bottom line. It might be that you want to start simple and benchmark key input costs - a straight forward price comparison with other companies similar to yours. Even doing this will net some improvements to your financial performance. The realisation that you are overpaying for inputs, for example, is a strong argument for benchmarking.

A retailer may be more interested in benchmarking their average transaction value (ATV). The easiest way to grow sales in a garden retail operation is to sell more to existing customers and the effectiveness of this is gauged by the ATV. Measuring this and comparing it with the industry measure might make you realise that you are falling short and could really improve in this area.

First you need to decide how to collect these measurements - keep the method the same as industry standard so you will really be able to compare like for like - and then collect the data, keeping your staff in the loop about the process so they feel involved and can learn from the end data. The next step, if you have the information, is to compare against yourself - so in the case of the ATV you can compare against the same period last year, for example.

You can then start to compare with others, making sure that they are using the exact same measurements. For example, some garden retailers will measure ATV including VAT, while others will measure it excluding VAT - it does not really matter as long as you are comparing with a figure measured in exactly the same way.

Obviously benchmarking is a process that requires a partner in the form of objective accurate data from other businesses - it takes two to tango, so to speak. So how and where can this be found? This is perhaps the aspect that most challenges our traditional formal business culture in the UK. How and why should we share?

The "why" is now, I hope, self-explanatory - we will benefit, the industry as a whole will benefit and the stronger the horticultural industry the stronger the businesses within it. We are fortunate that there is a sense of camaraderie in our sector and that also primarily being a sector physically based in locations rather than online there are many businesses just beyond a business's geographical area that will not be direct competitors.

Greater accuracy

However, direct competitors can also be a more accurate benchmarking source because they will experience similar challenges and opportunities to your business. The crucial thing to get the most out of benchmarking is to develop a relationship of mutual co-operation and trust so that both sides benefit and gain accurate data. This can be achieved through your own networking or various schemes such as the HTA's Retail business Improvement Schemes or the Garden Centre Association's data resource. It is also possible to buy data online from Companies House.

Ever since Roger Bannister broke the four-minute mile in 1954, athletes have striven to outperform each other. The sports industry has produced a range of gadgets and software to measure performance such as heart rate and blood pressure to produce benchmarks and we now need to replicate such attention to targets in our industry.

Yes, we are in competition, but that competition should drive us all forward rather than divide. Remember that benchmarking is using historical data and figures, and if history has taught us anything it is that no one can rest on their laurels.

Neville Stein is managing director of business consultancy Ovation

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