By William Mees, Principal Consultant, CSC

If the scandals that have rocked the financial services industry in recent years have proved anything, it is that most companies operating in the financial services market have an immense amount of work to do in terms of implementing and ensuring best practice within their organisations. These high profile incidents apart, there is also enough market research and anecdotal evidence to indicate that financial service providers are still, in general, not particularly well perceived by their customers.

If this translates into missed business opportunities, poor growth and high operating costs, then shareholders (or, in the case of mutual companies, members) are the ultimate losers. Indeed, in a recent survey of 450 CFOs worldwide, improved performance management was cited as the number one challenge to their organisation. Benchmarking, as one of the ways of identifying, understanding, and adapting outstanding processes and practices, both internally and from successful competitors and leaders in other industries, could clearly help to address some of these requirements.

A primary objective of benchmarking is to find examples of superior performance and to understand what drives it. Companies then improve their own performance by tailoring and incorporating the operationally excellent practices identified into their own operations. Not just by imitating them, but by innovating them.

But whilst benchmarking is used extensively within other industries, CSC’s experience is that the use of benchmarking of processes within financial services has been piecemeal. Outside of IT departments and some outsourcing engagements, financial services do not seem particularly keen to benchmark themselves and their processes against the best in class – financial or, as importantly, non financial services organisations. Furthermore, where it has been used, the benchmarking process itself has rarely been implemented with total effectiveness and led to true business process innovation.

One of the reasons for this could be that many financial services institutions lack the in depth understanding of processes internally, which makes it possible for an organisation to start and to ensure a successful benchmarking exercise. How can a company progress to compare itself against another, if it does not, first, fully understand how it operates internally? If it decides to proceed without this, the risk of benchmarks being defined inaccurately is significantly increased.

For example, a bank acquiring another found itself with two supposedly identical specialist units carrying out exactly the same functions. It spent substantial amounts of money on a benchmarking exercise to help decide which of the two units was most efficient and so which it should close. Based on the benchmarks defined, the performance of the two units was close, but the difference sufficient to enable them to make a decision. The acquirer chose to close their original department and set about integrating the acquired unit across the new, enlarged, organisation. Within a few months, it was clear that they had closed the wrong operation and chosen what proved to be a loss-making unit. The acquirer had not fully understood the processes within their original unit and so was not able to compare like with like through the benchmarking process.

Although not confined to financial services, inaccurate definition of processes is one of the most common pitfalls of benchmarking. Another is to choose flawed benchmarking methodology. Benchmarking may compare processes internally within the organisation; with peer groups against competitors’; functional, comparing a process within different market segments or non specific, comparing processes to innovators or thought leaders to understand the potential for innovation. The choice will depend on the nature of the process being examined.

Whilst some benchmarking has been adopted by financial services businesses, there is scope to use the technique more widely to improve operations as a whole and gain a lead over the competition. As well as creating business insights and an appetite to innovate processes, benchmarking involves staff in developing new and improved ways of working, building commitment and motivation as a result.

Benchmarking; although a useful addition to business improvement and performance management initiatives; is not sufficient in itself to achieve all the desired gains. An enterprise rather than operational view is required; comprising an end-to-end view of what CSC calls Enterprise Performance Improvement (ERP). ERP ranges from the development of a performance strategy, through to benchmarking and the implementation of process improvement and innovation to the adaptation of strategy as a result. Benchmarks are selected for their contribution to achieving business critical objectives and not scattered across an organisation’s processes.