Why benchmarking is key to unlocking performance in Finance
Anders Liu-Lindberg
Leading advisor to senior Finance and FP&A leaders on creating impact through business partnering | Interim | VP Finance | Business Finance
Benchmarking is an essential tool for assessing the status quo, driving performance, and gaining a competitive advantage. In this blog, we’ll discover how assessing the value-add of the modern finance function can not only uncover valuable insights but highlight areas for improvement and create new objectives.
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The power of benchmarking in Finance
Let’s start by asking the right questions. First let’s ask, what is it we’re hoping to achieve with benchmarking? As we’ve seen throughout our blog series, CFOs in the modern finance function have a digital-transformation mindset driven by where they’re most likely to get results and include their people, their processes, and ultimately business performance.?
We all want to accelerate our progress, so secondly, we need to ask: What business issues are we trying to solve and why? Based on company culture, a clear vision, and our strategic goals, we can choose the areas where the biggest benefits will be felt.
Key metrics: From traditional to value-added objectives
The origin of benchmarking: The story of Xerox?
The origin of benchmarking, as a practice, can be traced back to Xerox in the 1980s.?
The new CEO took over a company in freefall. Their market share had dropped from 87 percent to just 17 percent in less than a decade, and their profits had declined from $1.1 billion to under $300 million in under 4 years.?
To arrest the decline, they implemented a process of understanding their practices against those of their competitors to try to win back market share.?
They learned lessons from their outperforming competitors and turned themselves around to offer better services and business practices to our internal customers and stakeholders. The result of benchmarking at Xerox led to their “Leadership Through Quality” program and ended up revitalizing the company and making it competitive once again.?
So what can we learn from this example and the benefit of value-added benchmarks??
Different options for benchmarking: The shift to a holistic impact
We’ve noted that modern finance functions are more and more focused on value-added metrics like customer satisfaction and strategic contribution. These metrics offer a more comprehensive view of a finance function's impact, moving beyond traditional financial indicators.
But it’s important to be sector-specific. One size does not fit all. Industry-specific metrics provide a more accurate and relevant measure of performance, tailored to the unique challenges and opportunities of each sector, so we need to be specific and analytical.?
It follows that high-performing finance teams often set industry benchmarks. By analyzing their practices, other organizations can identify and adapt strategies to their contexts. This approach is not about imitation but about learning and innovating.
Whether we’re talking about “internal benchmarking” between units from within the same company and industry, “competitive benchmarking” between ourselves and direct competition from the same industry, or “strategic benchmarking” aimed at strategic actions and organizational change, there are key areas we can focus on to categorize and understand our performance.?
Sourcing reliable data for benchmark analysis can reveal areas for improvement in the size, cost, and efficiency of your finance function. So how do we go about starting to look at what and where to benchmark?
1. Your people
Using culture as a benchmark is an innovative approach to measuring the positive, performance-oriented culture of our organizations which can significantly add to the chances of success within the finance function.?
Remember, it's not just about the numbers; it's about how teams work together, approach challenges, and drive innovation and that’s what can set you apart and help you stand out in your sector.?
Give your finance teams new ways to develop and fine-tune underutilized skills and you’re on to a winner.?
2. Your financial processes
It’s important to have a roadmap for effectiveness in Finance but assessing and creating one takes data and metrics.?
Key performance metrics enable you to identify opportunities for saving on costs or ways to increase the effectiveness of your processes, whether that be the size and scale of your finance function, effectiveness and efficiency of your reporting processes, robustness of internal controls, or gaining a better handle on your working capital.?
Where does the comparable data come from? Many leading third-party providers of independent and high-quality information can help by tailoring the analysis to your specific industry sector, company size, and location.?
3. Your performance
How can you tell if your function’s performance is best-in-class? We need to learn from the leaders. As stated, we should benchmark ourselves against the industry’s best but it’s not about playing an imitation game. It’s about robust learning (from mistakes and successes) and innovating solutions that fit your own team’s context.?
After all, as the saying goes, “smart people learn from their mistakes, wise people learn from the mistakes of others.” By analyzing others’ practices, organizations can better identify strategies and initiatives that could be adapted to their own context.
Similarly, top-performing modern finance functions are leveraging technology to enhance efficiency, accuracy, and decision-making. From advanced analytics to AI, technology is a game-changer in the finance world.
The beneficial ripple effect of positive benchmarking
Continuous learning and upskilling are crucial in keeping the finance function relevant and competitive. The landscape of finance is constantly evolving, and so should the skills and knowledge of those who work within it.
There's a growing focus on value-added metrics. Benchmarking is more than a performance assessment tool; it's a catalyst for transformation. Even small changes identified through benchmarking can lead to significant improvements. It's about understanding the bigger picture and making informed decisions that drive the finance function forward.
How do you do benchmarking in your modern finance function? Share your positive experiences, top best practices, or interesting lessons learned below. Together, we’re continuing to redefine what it means to be a modern finance function.
领英推荐
This was the fifth blog post in our new series "The Modern Finance Function". You can read previous articles below.
You can read all blog posts in our previous series "Demystifying AI in Finance & Accounting" below.
Don't forget to catch our previous series "Welcome to Finance Function 5.0" below.
Check out our previous series "Rebranding the CFO" below.
Continue reading below for more articles about trends in finance and accounting.
Anders Liu-Lindberg is the co-founder and a partner at Business Partnering Institute and the owner of the largest group dedicated to Finance Business Partnering on LinkedIn with more than 12,000 members. I have ten years of experience as a business partner at the global transport and logistics company Maersk. I am the co-author of the book “Create Value as a Finance Business Partner” and a long-time Finance Blogger on LinkedIn with 315,000+ followers. I am also an advisory board member at Born Capital where I help identify and grow the next big thing in #CFOTech. Finally, I'm a member of the board of directors at PACE - Profitability Analytics Center of Excellence where I support the development of new analytics frameworks that can improve profitability in companies around the world.
Dad | Data Analytics | OpsTech
4 个月Who provides the external benchmarking data sources?
I help individuals and teams know how to use accounting & finance information to make and evaluate strategic decisions | LinkedIn Learning Instructor | FP&A, Financial Acumen & Leadership Coach & Consultant | Professor
10 个月I agree completely with you that benchmarking is a powerful and necessary process. Without it, the metric we are calculating has limits. I like the "modern" approach of using culture as a benchmark to evaluating people.
Chief Financial Officer | VP Finance | M&A | Integration & Synergy | Global Business Management | Intercultural Management | Business Strategy | Operational Efficiency | International | Automotive
10 个月I always found benchmarking (internal or external) a very good way to really try to ask the right questions! It is very true as highlighted in the article that "even some small changes identified through benchmarking can lead to significant improvement". Often many manufacturers have to walk for instance a tightrope between pricing their goods and not selling them... What is very useful (among other things) is to get to understand the "break even" points between different sites through benchmarking... Anders Thanks for sharing ??♂?
Quality Assurance Project Manager at IBM
10 个月Dive into www.processexam.com/iiba for a seamless IIBA certification journey. Practice makes perfect! ?? #StudySmart
Head of Controlling Services, Process Excellence Book-To-Report, Global Business Services @ Bosch
10 个月FYI Selma Wagner , Sunil Karadkar , cc Christoph Kienzle ??