Best practice benchmarking: a proven road to world-class performance; Best practice benchmarking has been embraced by a number of leading companies, in both good times and downturns. It can lead to marked improvements in specific metrics--but it is a journey, not an event.

• Author: Roth, Richard T.

"If you don't know where you're going, any road will take you there." George Harrison, former Beatle, "Any Road" The benchmarking concept, a familiar one to most executives, keeps gaining converts. Bain & Co.'s most recent Management Tools study, which charts the tools that companies use to set strategic direction, finds that for the past four years, benchmarking has held steady in second place, with 84 percent of all surveyed companies using it. Only formal strategic planning surpassed benchmarking in the ranking.

Moreover, the Harvard Business School's Harvard Management Update has characterized benchmarking as increasingly important for any business unit interested in documenting its contribution to corporate performance, regardless of current economic conditions.

During the economic downturn beginning in the late 1990s, The Hackett Group observed that interest in benchmarking grew sharply, particularly among forward-looking executives seeking effective strategies for weathering the recession, not just cutting headcount. Further, research shows that CFOs, CIOs and other functional leaders traditionally turn to benchmarking during times of economic expansion, in order to identify the most promising ways to meet growth targets.

Unquestionably, when done correctly, benchmarking also helps create a compelling case for change by putting current and optimal performance measures in black and white: "If I implement shared services, it will cost me X and I can expect a return of Y within a period of Z."

The opportunity for generating cost savings, other efficiency-driven improvements and effectiveness enhancements, driven by the insights that benchmarking can provide, is clear.

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An analysis of the most recent finance benchmarks in the 2005 Hackett Book of Numbers finds that world-class performers spend 42 percent less than typical companies on their finance operations as a percentage of revenue (see adjacent chart) and operate with less than half the staff of their peers. At the same time, they close their books more quickly each month, and historically have generated significant additional savings through reducing effective tax rates and days sales outstanding.

The critical differentiator of successful benchmarking is the relevance of data comparisons. A detailed process architecture and rigorous process taxonomy must be applied in order to enable meaningful and relevant comparisons between diverse companies. Only in this way...