Consulting » Procurement » Benchmarking? It’s not just about cost

Benchmarking is too often treated as an exercise in cost reduction. Bring the topic up with consultants and conversation will typically drift towards the price of services across different sites and how they compare with an industry standard. While this idea captures the practice in its broadest terms, it also overlooks the scope for more profound changes, especially in the support services sector.

It should come as no surprise that benchmarking continues to be mis-characterised in this way. Customer purchasing behaviour in facilities management, for example, has long emphasised cost as the sole differentiator. This has not only resulted in an inability to compare between price and the standard of services being delivered but also such fine operating margins that even basic service is difficult to manage and deliver successfully.

Despite very public missteps and a demand for more ethical procurement practices the outsourced services industry continues to engage in a ‘race to the bottom’ culture. This is partly due to businesses being prepared to win work at any cost, even if that means running a loss-making contract in the hope of winning more profitable work at a later date, and it’s also down to clients demanding more for less.

The problem is an ardent focus on cost not only compounds the ill effects of commoditisation (weaker brands, lower standards and a barrier to best practice) but also perpetuates the falsehood that outsourcing is expensive and ineffective.

Where’s the value in that?

Of course, this view would be unfair. When done well, outsourcing greatly increases the productivity of client organisations while also freeing them of the obligation to manage the buildings they occupy. That said, there can be little doubt that the purchase and management services is extremely complicated. No two sites are the same and neither are the user profiles that accompany them.

It’s understandable that clients want to lower costs, particularly in the public sector, yet the expectation that ‘best value’ can still be maintained through that reduction is highly problematic.

Even the idea of ‘best value’ has its own complications. The traditional view dictates that the greatest number of hours at the lowest cost is most competitive and therefore ‘best value’. 100 hours of cleaning a week for £1000 (= £10 per hour), for example, is seen as ‘better value’ than 90 hours of cleaning a week for £950 (= £10.55 per hour).

Not all cleaning ‘hours’, however, are the same. If more money is spent in the second option on equipment, training, supervision and staff pay rates, then the increase in productivity can be significantly more in percentage terms than the increase in hourly cost.

Buyers of services have a propensity to micromanage costs by looking at every element in isolation and reducing each to a minimum, yet this invariably proves counterproductive.  Taxis offer a good analogy in this respect. A passenger doesn’t need to ask how much the driver is spending on tyres, fuel and insurance, for example, because they only really need to know how much a journey from A to B will cost.

That same driver might also buy petrol that costs twice as much as other fuel but gets three times more to the gallon. Again, here it would be unnecessary for the passenger to query this approach as the driver already knows what’s most cost-effective over the course of a working day. The same principle applies to buyers of FM services: financial micromanagement will ultimately restrict suppliers’ capacity to invest in more productive methods that will likely lead to lower overall costs.

Looking beyond price

To determine whether a service is truly ‘best value’, then, decision makers need to take into account a much broader array of considerations. This is where a thorough best practice benchmarking process comes into its own: ongoing analysis that not only looks at pricing but also issues like service standards and specifications, staff training and wages, social value and overall productivity.

The process gives organisations the best shot at elevating service using objective evidence and not some subjective understanding of best practice, which is itself always open to interpretation.

Companies that repeat a benchmarking exercise every six to eight months will begin to understand their market position more clearly, as well as being able to make changes that have genuine, lasting effect. Those that understand how to add value beyond price, moreover, will typically find themselves more competitive, especially when bidding for contracts that emphasise less-quantifiable factors like social value.

These seldom measured considerations are now growing in importance as the effects of the global financial crisis ease and customers begin to more closely at what they are getting for their money. While not yet commonplace, there is growing consensus that the cheapest option might not always be best overall.

Indeed, customers that take seriously the connection between workplace, staff engagement and productivity are now looking for a more holistic view from their service partners. They want to know how an organisation’s offering will help to achieve certain objectives, be it in raising overall company output or helping to meet certain CSR targets. In cases like this, best practice benchmarking is helping both customers and service providers to get a tangible grip on issues that are often harder to compare with any measure of confidence.

One-dimensional approaches to benchmarking will only ever provide a partial picture. While important, cost must always be corroborated against other data to determine key differences and help move outsourced services away from a ‘one-size-fits-all’ approach.