Driving Decisions, Direction and Results Through Benchmarking
The creation of BellSouth Affiliate Services Corporation (BASC) was the result of a formal shared services project. The processes and functions which it performs are shown in Figure 1. The project was initiated based on a vision and hypothesis that a central shared services operating model, focused on standard best practices processes and systems, and with a common management oversight, would benefit BellSouth, as compared to the decentralized model that existed at the time.
The use of benchmarking played a major role in validating this hypothesis. This validation helped secure the executive decision to initiate a more detailed opportunity assessment and project to design and implement a shared services operating model. The benchmark data was also used as input into the business case. The shared services operating model went live in early 2000, with new systems, processes and a central organization (i.e. BASC). BASC has continued to use the concept of benchmarking, both internally and externally, to drive improvements.
Benchmarking: what is it?
Webster's dictionary defines a benchmark as a standard, or point of reference, by which something is measured. The act of benchmarking involves comparing something specific (e.g., activity, process, measurement, etc.) to a similar thing that exists elsewhere. Benchmarking can be done internally within an organization, or externally with companies outside the organization. Examples include comparisons in similar functions performed across work groups within the same department and comparisons made across departments within the company. In addition, the comparisons could be across different time periods, such as year-over-year cost trends. These are examples of internal benchmarking. The other form of benchmarking involves comparisons to things done external to the company. One of the most widely known practices of external benchmarking involves participating in formal benchmark studies facilitated by consultants. There are also many other ways to practice benchmarking, both internally and externally.
How, when and why?
There is no one approach to benchmarking. Multiple approaches and frequency levels can be used. Multiple approaches are not mutually exclusive. In fact, taking different approaches on an ongoing basis provides a tight integration and linkage among performance objectives. For example, external benchmarking information on cost per transaction provides input into the development of internal benchmark cost performance targets. Also, benchmark information on best practices drives direction and decisions on process and system improvement objectives. Figure 2 provides some of the common approaches taken in benchmarking, along with the frequencies, benefits and potential issues.
It is clear that many opportunities exist to use benchmarking. The challenge is to select a balanced mix that drives behavior to optimize value.
Driving Decision: Pre-Shared Services
As mentioned in the introduction to this discussion, external benchmarking played a major role in driving the decision to launch a project to design and implement a shared services center. While BellSouth's scale generated considerable transaction volumes, there was a hypothesis that the current decentralized operating model for transaction processing produced cost and process quality performance that was only about average, when compared to outside companies. A formal external benchmarking study was undertaken to test this hypothesis. A consultant company was selected to facilitate the benchmarking study using standardized collection templates, definitions, and approach. BellSouth also established an internal team to coordinate the data-gathering across the various affiliates. An executive benchmarking sponsor from headquarters provided oversight and assigned a central coordinator to serve as the consolidation and communication point between the affiliates and benchmark consultants. Each affiliate assigned a benchmark coordinator within their entity. The benchmarking consultants provided instructions and training to benchmark coordinators and the benchmark gathering was completed.
The benchmark results were clear. While some processes and cost performance for some affiliates ranked higher then average on an individual basis, most processes on a consolidated company-wide basis ranked average or below. This information was used both to support the decision to pursue a shared services project, as well as to provide input into the business case. In addition, further detailed benchmarking was conducted on standard best practices in order to provide direction and decisions in selecting the processes and systems to be deployed.
Driving Direction: BASC Operations
BASC went live in early 2000 with the objective that benchmarking would continue as a mechanism to learn and to provide direction to continuously improve. BASC uses key performance indicators and detailed metrics at multiple levels to create benchmark targets which drive behavior that yields improvements and favorable results. These measurements are formalized in a balanced scorecard (see Figure 3).
In addition to the higher-level balanced scorecard benchmarks, detailed metrics exist at the process and/or employee level. For example, quantitative and qualitative metrics exist such as volume per employee, turnaround times, keying error rate, etc. The use of benchmarking drives an organization to dig deeper and look at additional measures and benchmarks in an effort to drive improvements. For example, BASC’s focus on unit cost trends resulted in a need to understand the fixed versus variable components of the cost structure. A high-level activity-based analysis was performed to categorize functions as fixed versus variable. This enabled the process groups to properly manage resource levels associated with the variable functions, and avoid overcapacity and higher cost. It also stimulated the process groups to initiate improvements that could change fixed to variable (e.g., self service, automation). Another example of internal benchmarking is to compare organizational design and span of control across processes. BASC recently concluded such a comparison across two different process groups as shown in Figure 4.
A comparison of similar functions across processes shines a spotlight on areas where possible improvements can be made in the process flows, organizational effectiveness and/or cost structure. The analysis shown in Figure 4 resulted in targets being established to improve organizational design, process and cost levels.
BASC periodically conducts formal benchmark studies to measure its status against external companies, as well as to review progress made since its previous benchmark study. This serves as validation for performance success, and highlights additional improvement opportunities. Such analysis is used in developing future plans and internal benchmark target levels.
The most recent benchmark study, conducted in 2001, reflected considerable improvement over the results from the pre-shared services study. About 80 percent of the processes were better than average in lowest unit cost, as compared to those of external companies. Many of the processes were first quartile or better. This marked a significant improvement compared to the preshared services study results, which reported that the majority of processes were below average.
BASC is actively involved in benchmarking and networking with other companies via participation and presentations in shared services industry conferences, as well as networking sessions held with local companies. In addition, BASC serves as a benchmark to others by hosting numerous external companies at its site, and via conference calls.
As the world changes, it is important to also consider new operating model approaches that might create incremental future value. This includes looking at options such as commercialization, outsourcing and/or offshoring. The results from the review of these operating model options can then be compared to the baseline internal shared services model. This baseline scenario includes retaining the in-sourced shared services model, and further leveraging its core skills to drive additional value via further process and systems improvements and/or increased scope.
BASC recently initiated and concluded a project that looked at these various value creation options. This project resulted in a multi-year plan to continue the in-source model and drive further incremental improvements via process automation, system integration and organization redesign.
Driving Results: BASC Operations
Benchmarking activities and measurements has helped BASC make informed decisions, as well as establish clear direction and focus for the organization. In turn, this has resulted in achievement of top-ranked performance in many areas. Figure 5 shows samples of some of the BASC balanced scorecard results.
BASC Continued Evolution
An organization's ability to continuously evolve as the internal and external environment changes is critical to success. To do this, it is important to look externally and internally to fully understand the past and present. This enables an organization to anticipate, plan and drive the future. The "looking" is benchmarking. BASC continues to "look" at improvement opportunities and evolve.