Organizational Design and Performance: A Practical Guide to Functional Benchmarking

Introduction

Functional benchmarking is an invaluable tool for organizations looking to optimize performance, streamline processes, and improve their organizational design. By comparing your functions with industry best practices or top-performing competitors, you can identify gaps, implement improvements, and ensure your organization is operating at its highest potential.

This guide provides practical insights into the following topics:

• The Top Three Metrics for Functional Benchmarking
• How to Conduct Functional Benchmarking in Five Steps
• Best Data Visualization Tools for Functional Benchmarking
• Examples of Functional Benchmarking in Action
• Common Challenges in Functional Benchmarking and How to Overcome Them
• Future Trends in Functional Benchmarking
• Conclusion

The Top Three Metrics for Functional Benchmarking

Effective functional benchmarking starts with identifying the right metrics. The specific KPIs you choose will depend on your industry and goals, but here are three metrics that we see being commonly used:

1. Revenue per Employee: This metric is a simple and standardized way to measure productivity in terms of revenue. The first step is to measure revenue per employee at the total level to understand the overall productivity of your current workforce relative to similar businesses. From here, we recommend that you measure the revenue per employee for the commercial functions in your organization - These typically include Sales, Marketing, and Customer Support.
2. Employee Mix: For the operational and support functions we recommend that you benchmark the mix. This means that you calculate the percentage of your workforce for a specific function (e.g. Finance), then compare that to benchmarks. If you have a large percentage of your workforce in a particular function, then it should be investigated to understand whether there are opportunities to improve the efficiency in that function.
3. Cost Efficiency: Effective cost management is an important activity for many businesses. We recommend that you measure cost efficiency by first looking at the cost a particular function as a % of revenue. This is an easy way to quickly identify parts of your business that may be cost inefficient and require further investigation.

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How to Conduct Functional Benchmarking in Five Steps

Conducting a functional benchmarking exercise can seem daunting, but breaking it down into clear steps makes it manageable. Here we will walk you through the five steps that we follow:

1. Identify the Functions to Benchmark: Start by choosing which functions or processes are most critical to your business or present the greatest opportunities for improvement. Focus on areas that will impact your strategic goals.
2. Select Benchmarking Partners: Identify other organizations or industry standards against which to benchmark. These could be competitors, industry leaders, or even companies from different sectors with similar processes.
3. Collect Data: Gather quantitative and qualitative data from your internal processes and your benchmarking partners. This can include financial data, performance metrics, and workflow analyses.
4. Analyze the Data: Compare your performance against the benchmark data. Identify gaps, areas of improvement, and practices you can adopt from the leading examples.
5. Implement Improvements: Develop an action plan based on your analysis. This should include specific initiatives to close performance gaps, timelines for implementation, and key people responsible for each task.

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Best Data Visualization Tools for Functional Benchmarking

Several tools can simplify the data collection and analysis involved in functional benchmarking. The right visualization software will depend on your needs, but some popular options include:

Tableau: Known for its data visualization capabilities, Tableau allows you to create dynamic dashboards that compare your metrics against benchmarks in real time.

IBM Cognos Analytics: This tool is excellent for both benchmarking and predictive analytics, helping you not only compare performance but also anticipate future trends.

KPI Fire: This cloud-based tool enables you to manage benchmarking projects, track key metrics, and integrate improvement plans across your organization.

Using these tools can make your benchmarking efforts more efficient and provide you with actionable insights faster.

Examples of Functional Benchmarking in Action

Functional benchmarking has proven to be a game-changer for many organizations. For instance, a global electronics manufacturer used functional benchmarking to identify that their operations function was heavy.

The subsequent investigation and efficiency initiatives implemented reduced the production cycle time by 23% (and required fewer employees). By implementing automation technologies and refining their supply chain the management team were now able to compete with other top companies.

Another example comes from a financial services firm that benchmarked the efficiency of its customer service function against those of leading e-commerce companies - They were in the bottom quartile of their benchmarking cohort. By adopting more efficient communication channels and automating routine inquiries, the firm improved its revenue per customer service employee, while customer satisfaction scores also increased by 18%.

These are just a few examples to illustrate how benchmarking can lead to tangible improvements in organizational performance.

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Common Challenges in Functional Benchmarking and How to Overcome Them

While functional benchmarking can yield significant benefits, it is not without challenges. One common issue is the availability of reliable data. Benchmarking depends on having access to accurate data, but not all organizations are willing to share sensitive information. You can overcome this by partnering with benchmarking data providers such as CompanySights or industry groups that facilitate data sharing in a secure, anonymized manner.

Another challenge is resistance to change within the organization. Even when benchmarking reveals clear areas for improvement, employees may be hesitant to alter established processes. To address this, involve stakeholders early in the process, communicate the benefits of change, and ensure strong leadership support to drive implementation.

Finally, benchmarking fatigue can occur if organizations conduct too many benchmarking exercises without taking action. Ensure that each benchmarking effort has a clear objective and follow-through plan to avoid wasting resources.

Future Trends in Functional Benchmarking

One of the most significant emerging trends is the use of AI and machine learning to automate data collection and analysis. This allows for more real-time benchmarking, enabling organizations to make quicker adjustments based on the latest data.

Another trend is cross-industry benchmarking, where companies compare their processes with those from different sectors. For example, healthcare organizations might benchmark their patient intake processes against the hospitality industry to improve customer experience.

A final but interesting point is the rise of remote and hybrid work. Organizations now need to benchmark not just traditional office functions but also remote processes, ensuring productivity and engagement remain high in a distributed workforce.

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Conclusion

Functional benchmarking is a powerful tool for optimizing organizational design and performance. By focusing on key metrics, using the right tools, and learning from real-world examples, organizations can unlock significant performance gains.

However, challenges such as data availability and resistance to change must be navigated carefully. As new technologies and trends emerge, the future of functional benchmarking looks bright, offering even greater opportunities for innovation and growth.

By adopting these practical strategies, you can use functional benchmarking for organizational design and performance improvement initiatives.