With cost pressures continually placed upon water and electricity utilities by governments, owners and regulators, our clients continually face challenges in delivering efficiency gains year-on-year.
Marchment Hill Consulting (MHC) has worked closely with a number of clients to develop improvement strategies that drive unprecedented, yet expected, levels of performance improvement. In this process, benchmarking is a crucial element and just the beginning of the efficiency journey.
Effective benchmarking means fully understanding the operating context to set realistic performance targets.
The ideal use of benchmarking involves the following steps:
Figure 1: MHC’s benchmarking approach
In response to a client’s desire to improve performance, a clear understanding of the current performance is required. This serves a dual purpose:
- It provides a diagnostic as to where the opportunities for improvement lie (noting each organisation has inherent strengths)
- It sets a baseline to measure future performance against.
Appreciating the importance of setting realistic performance targets, particular diligence needs to be taken to ensure reasonable comparisons are made with the industry benchmarks. Specifically:
- Comparators in peer group must be similar to target client – ensures relevant assessment
- Data gathered needs to be thoroughly validated – ensures robust analysis
- Multiple areas of the organisation need to be assessed – reflects accurate picture of broader organisational performance
- The process should not be intrusive – minimise disruption to organisation
- A qualitative understanding of work practices and performance drivers holds the real insight – explain the cost and service level drivers behind the numbers.
MHC uses industry leading cost and service level benchmarking data that embodies these characteristics. Our water civil maintenance dataset has over 25 data points able to make powerful comparisons with any water organisation in Australia.
Raw performance gap
Understanding current performance relative to a series of relevant benchmarks exposes the raw performance gap to industry leading practice, which helps to contextualise and set realistic performance targets. However, it is important to note that the raw performance gap is a notional concept. A common organisational mistake when interpreting this benchmarking outcome is to accept it as a hard performance target. This is a mistake for the following reasons:
- The target does not include any consideration of the organisation’s corporate objectives or constraints which may be prohibitive to achieving industry leading cost and service level performance (e.g. a priority on service levels and customer engagement).
- There has been no tangible consideration of how these performance levels are achieved. It is easy to recommend an organisation operates with 10% less FTEs in a given function to be efficient. The difficult, and infinitely more useful, recommendation involves explaining how to operate with 10% less FTEs and a credible transition plan from current state.
- The target is based on past performances of the peer group and does not account for future improvements. Suppose an organisation has the goal of being industry leading in three years’ time. It not only needs to improve to achieve present best practice levels, but also track the performance improvement of the industry in general over the subsequent three years. See Figure 2 below.
Feasible options need to be critically evaluated to understand the magnitude of improvement that is achievable. At this point, an organisation needs to acutely understand and articulate their corporate objectives (their ambitions) and their constraints (which could be philosophical, political, functional, structural, legal, etc). There is naturally interplay between the two; corporate objectives may deliberately constrain the options worth considering (e.g. ‘we always want to achieve the lowest possible cost, but we must always comply with our regulated service levels and not compromise customer engagement’).
Once these are articulated, a plausible set of options that fit with existing corporate objectives and constraints should be devised. Notionally, these should range from “business as usual” to “change as much as we can to achieve industry leading practice”. Concurrently, an option based on an unconstrained view should be assessed to demonstrate the maximum possible improvement. Detailed cost-benefit analyses of options will inform the realistic and aspirational performance improvement that can be expected, or the degree in which the raw performance gap can be closed.
This analysis should culminate in the selection and recommendation of a preferred option.
Realistic performance expectation and organisational reflection
Senior management review the options analysis and either approve or reject the preferred option based on likely achievement of realistic performance improvement. If a plausible option is recommended, then the organisation can immediately confirm the performance target and move forward with implementation.
However, if management believe a reasonable performance improvement is not achievable, or they desire performance that exceeds what is possible under current restrictions, they must then decide which corporate objectives and constraints can be relaxed in order to consider a series of alternative options. For example, an organisation might lack scale to access industry leading works management systems (a serious constraint). They might work to overcome this by partnering with another authority to increase their collective scale and make the investment affordable. Revised plausible options can then be assessed until management has an option that provides acceptable and realistic performance improvement.
Ultimately, benchmarking gives the organisation context of its current performance and the magnitude of possible improvement.
However, this is just the beginning and does not alone deliver value to the organisation. Real value from benchmarking is captured when an improvement option that meets the necessary corporate objectives and constraints is implemented that yields tangible cost and service level results.
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