CTG 3 - AW 20/9/02 9:28 am Page 1

Benchmark Index is a Business Link Service

For further information contact Benchmark Index at
Field House, Mount Road, Stone, Staffordshire. ST15 8LJ
Benchmark Index Hotline 08700 111143
e-mail [email protected] www.benchmarkindex.com

Cranfield University - School of Management

Data analysis in this publication has been carried out by the Centre
for Business Performance at the Cranfield School of Management,
Cranfield University. The analysis has been headed by the Centre’s
Director, Professor Andy Neely with support from Chris Adams.

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Closing the Gap 3

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Contents
3 introduction to Benchmark Index
4 executive summary
6 sector comparisons
11 case study - contract trade frames
21 case study - linden foods
22 closing the gap
32 appendix 1. benchmarking glossary
34 appendix 2. public policy implications
36 appendix 3. benchmark data sources
37 appendix 4. benchmark index analysts
38 case study - aqua cure

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Benchmark Index

Benchmarking can play a key part in boosting business performance.

Benchmarking provides a structured process that enables individual businesses to

measure their performance in key areas, such as staff retention levels and
productivity. It also provides an opportunity to compare that business with its
sector’s counterparts.

Acting on the findings of the snapshot of where the business is now can make a
real difference to where that business goes in the future.

Facilitated by trained business advisers, the Small Business Service’s Benchmark

Index takes a holistic look at a company in around 80 aspects of performance,
highlighting strengths and weaknesses and resulting in an action plan from which
organisations can develop the policies and strategies that will enable them to bring
about sustained improvement.

This approach has proved remarkably successful, with over 6,000 companies
having benefited from the service since its introduction in late 1996, resulting in
Benchmark Index’s current position as the biggest service of its kind in the world.

Indeed, the companies that have taken part

have boosted their profits by tens of
thousands of pounds. over 6,000
companies having
A by-product of this extensive benchmarking benefited from
activity has been the accumulation of a the service since
considerable amount of performance data, which
has provided a mine of information in recent years
its introduction
on trends in SME performance across the board.

So not only do individual businesses reap the benefits of benchmarking, but it

also helps the Government to make decisions to help the small business sector.

This report draws extensively upon the invaluable information resource that
Benchmark Index has amassed and provides telling insights into company
performance and also presents potential lessons that managers and policy
makers may utilise to set a course for future development.

It is an important contribution to the drive for improved productivity and

competitiveness.

Nigel Griffiths - Minister for Small Business

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Executive summary

At one point in the new economy, people were waiting

for normality to return. Today, many acknowledge
that they can not even define what normal is anymore.
We are living today in an economy where the fast
simply eat the slow! The painful upheavals in so
many companies in recent years reflect the failure
of one-time industry leaders to keep up with the
accelerating pace of industry changes.

The painful upheavals in so many companies in recent years organisation and must manage and improve all aspects from
reflect the failure of one-time industry leaders to keep up shareholders’ requirements to customer satisfaction to
with the accelerating pace of industry changes. employee motivation to corporate social responsibility.
Organisations need to continually re-think their structures, Developing best practice through benchmarking
products, processes, and markets. They must re-establish features as a critical activity in the business world. Companies
themselves to be quicker to market, more customer focused, across the globe have embraced these concepts, but have
more innovative, nimbler, flexible and to handle rapid done so with a varied level of success. Some have managed
change. This continuous change and improvement translates to create huge market place advantages, whilst others have
into one key capability that no future organisation can afford fared less favourably. In this regard, this report aims to
not to excel in - continuous learning. Learning from one’s provide some insights to help UK managers and public
own mistakes, learning from industry leaders, learning from policy makers to set a course for future development. Relying
competitors, customers, suppliers, academic partners, and on data gathered using Benchmark Index, the report
other sectors. A main tool in this learning arsenal is presents performance comparisons and potential lessons
benchmarking; Benchmarking one’s performance with the from the Manufacturing and Service sectors in the UK.
world’s best and adapting and adopting best practice as The organisations that took part in the study used
appropriate. This type of comparing, studying, adapting, and Benchmark Index as the main tool to submit data that
learning from other’s best practices is not simply popular, but allowed over 60 performance measures to be calculated
virtually mandatory for future success. under the general headings of finance, customers, suppliers,
Moreover, this learning through benchmarking should employee, growth and future investments.
not only relate to traditional views of performance (namely
financial) but should cover a balanced portfolio of practices
and capabilities that ensure both short and long term
success. Managers now have to take a balanced view of the

Benchmarking - comparing, studying,

adapting and learning from other’s best
practices is not simply popular, but virtually
mandatory for future success.

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The bottom 25%

receive 3 times
more complaints
per customer
than the top 25%

In both service and

manufacturing
sectors, turnover
per employee in
the upper quartile
is at least double
that of the lower
quartile

On average, upper
The average organisation
quartile firms in the UK is spending
spend at least four
times as much on around £140 per
marketing than do
lower quartile firms employee per annum on
training & development.
This is equivalent to an
average employee
receiving one day of poor
quality training each year!
25% of firms (across
all sectors) are
destroying value
and achieving less
than half of the
accepted cost of The top 25% of
organisations in the
capital
UK are achieving
around eight times
more return on capital
than the bottom 25%
This is a huge gap in
value creation

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section one
Sector comparisons - financial performance

The sector comparison uses eight sectors, illustrated in

the Sector Coding table below. Benchmark Index uses
a series of measures to track the financial performance
of companies. Clearly there are differences within the
sectors when it comes to the benchmarking data and
this section will show that companies in all sectors can
be potentially successful with the right combination of
people, product and processes.

Financial performance
Benchmark Index relies on two subcategories of measures to track the financial
performance of firms. These are – (i) sales and profit performance, and (ii) value
creation and asset management.
Colour coding
In the graphs throughout the this section, the various industry sectors are
represented by a specific colour as indicated in the table below.

Sector coding

Sector
■ Chemical
■ Metal products
■ General machinery
■ Electrical & electronic
■ Food, drink & tobacco
■ Transport manufacture
■ Manufacturing (all sectors)
■ Service industries (all sectors)

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Sales and profit performance

When looking at the sales turnover per employee, the

gap between the upper quartile and lower quartile
organisations in all UK industry sectors is evident.
On average, and within the Manufacturing sector as a
whole, sales turnover per employee in the upper quartile
organisations is double that in the lower quartile ones,
while in the service sector, the ratio is more than double.

Given that these firms are operating in more or less the same products in the sector command from the external customer.
markets, from the same country, and thus arguably subject to Food, Drink and Tobacco command premium prices in the UK
similar external conditions and pressures, one can conclude market but a huge proportion of these do go to the cost
that those in the top 25% are managing their operations in a base and governmental taxes. On the other hand, we note
way that is resulting in no less than double the sales per that the Electronics sector is achieving the highest pre-tax
employee. This is a huge difference, and is only the first profits per employee in the manufacturing industry (and very
measure in this report that shows what a difference comparable to the service results).
advanced management and operations can make. The differences between the upper and lower quartile
Moreover, when comparing different sectors based on their firms in terms of pre-tax profits per employee are startling.
reported sales turnover per employee, the following is noted: On average, and for all sectors, the bottom 25% organisation
are making 10% (or less) of the pre-tax profit per employee
• on average, the service sector has the lowest sales the top 25% organisations are making. Again, when we
turnover per employee (less than all the consider that those organisations are operating under the
manufacturing sectors) same regulations, same markets, and have the potential to
• within the manufacturing sectors, there are variations command similar premiums, then the implications are that
between upper quartile organisations where the the upper quartile organisations either have much better
Chemical and Food, Drink, and Tobacco sectors have cost base management, superior marketing and brand
markedly higher (20% or more) sales turnover per management practices for market penetration and growth,
employee than other sector averages. or a combination of both. Whatever it is, there are a lot of
lessons that need to be learned by the median and lower
However, the sales turnover is just one aspect, and it is quartile organisations, and fast.
interesting to note who is retaining most of their sales These figures and argument points are again reflected in
turnover as profit. In terms of pre-tax profit per employee the the data regarding the per-tax profit levels as a percentage of
service sector is ahead of all others. One reason could be to turnover, where the service sector is achieving around 6% while
do with the fundamental differences between service and the average for the manufacturing sector is no more than 4%,
manufacturing industries where the service sector has a with upper quartile organisations in both sectors achieving 16%
mush smaller cost base in terms of physical assets (and all and 10% respectively. Across all sectors, this percentage is, on
the related fixed costs like maintenance, machine average, 1% for lower quartile organisations and the variation is
depreciation, etc.). In numbers, the service sector is making startling when studied in each sector between upper and lower
double the pre-tax profit per employee than the quartile organisations.Within the manufacturing industry, the
manufacturing sector. Within the manufacturing sector, it is Electronics sector seems to be ahead by a comfortable margin
interesting to note that while the Food, Drink, and Tobacco in terms of per-tax profit as a percentage of turnover while the
sector had the highest sales turnover per employee, it has Food, Drink and Tobacco sector seems to be doing the worst.
the lowest pre-tax profit per employee levels. Within this This is the opposite of the sale turnover per employee picture
sector, this might be explained not by the lack of good cost and does highlight the importance to study the cost
management practices, but by the low margins the end management practices of the Electronics sector.

Sales turnover per employee (£) Pre-tax profit per employee (£) Pre-tax profit/turnover (%)
120000 14000 18
16
100000 12000
14
10000
80000 12
8000 10
60000
6000 8
40000 6
4000
4
20000 2000 2
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

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Value creation & asset management

While sales and profit performance data are useful in

assessing how well a firm is performing, they do not
reflect the whole picture. Indeed, their main
shortcoming as measures is that they do not
establish whether or not a firm is creating value.
Organisations need to create value by demonstrating
high returns on capital and net assets.

The key to achieving these goals is through successful asset Should one choose the latter option, the investor can achieve
management, which is related to the firm’s strategy. a guaranteed return of approximately 3-4% by placing the
Strategies vary based on the firm’s sector, stage in the life money in no risk bonds. However, one must consider
cycle, external conditions and so on. Well planned and inflation (roughly 2-3%) which will result in the money
managed strategies usually have short and long terms becoming worthless over time. Add to that the tax that has
visions and tactics. In this regard, some organisations might to be paid on any returns received (equivalent to another
accept low returns in the short term if they are investing in a 3%). These numbers amount to the cost of capital being in
major project and/product for the long term. All the region of 8-10%. Therefore, if an organisation is
organisations will require a form of investment at every life generating less than 8-10% return on capital employed, then
stage they go through. Depending on the firms’ size, risk the capital that has been invested will effectively be worth
factors, and management less at the end of the investment period than it was at the

25% of UK organisations strategies and views, the

investment can come from banks,
start, and the firm is effectively destroying value.
From the data we have from UK organisations, 25% of UK
are destroying value - venture capitalists or private organisations (across all sectors) are destroying value and
finance. A key role of management achieving less than half the accepted cost of capital.
achieving less than half is to optimise the amount of Moreover, the variations between upper and lower quartile
capital that has to be invested and, firms are startling. The top 25% of organisations are
the accepted cost more importantly, to maximise the achieving around eight times more return on capital that the

of capital return on that investment. In the

longer term, however, it is essential
bottom 25%. This is a huge gap in value creation. A closer
look also reveals that service organisations are also ahead of
that the return on capital all other sectors in the upper quartile results where the top
employed and the return on net assets is driven up. 25% service organisations are achieving a return on capital of
Two significant levers for driving up returns can be just over 40% while the average of their manufacturing
identified through Benchmark Index data – cash counterparts and just under 30%. It is noted however that
management and overhead management. within the manufacturing industry, the Electronics sector and
Cash rich investors have various options to invest in the Food, Drink and Tobacco are both achieving better
today’s markets. The main options are usually investing them median return on capital employed than the service, and
in firms on the stock market or simply in banks and bonds. indeed, manufacturing averages.

45
40
35
30
Return on capital employed
45
40
35
30
value
Return on net assets
2.5

2.0
Acid test

1.5
25 25
20 20
1.0
15 15
10 10 0.5
5 5
0 0 0.0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

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The picture for return on net assets is equally alarming, with in the bank, Chemical and Food, Drink, and Tobacco sectors
the bottom 25% organisations all achieving percentages have over 8%. There might be a lesson here for all the upper
below 3% and the average manufacturing median is just over quartile firms as rather than simply leaving cash in the bank,
10%. Again, the upper quartile firms are ahead by comfortable some of these firms should be looking to expand their
margin (up to 8 times more in the case of the Service and investments, most of all in high paced sectors like Electronics
Electronics sectors). What is interesting is that while in the where research is generating daily changes.
upper quartile Service organisations are ahead of the Having studied their incoming cash practices, we can
manufacturing average (manufacturing 27%, service 41%), one now look at the organisations debts and how they manage
sector in manufacturing (Electronics) is achieving levels similar those. Interest cover measures the proportion of profits that
to those of the Service sector in the upper quartile range and are required to cover interest payments. On this dimension of
is achieving higher return on net assets in the median range. performance the difference between upper and lower
The key to achieving high return on capital and return quartile firms varies between 7 and over 22 depending on
on net assets is asset management. Clearly from the data we the sector. That is, some firms are spending 7 - 22 times as
have, there seem to be some sectors, like Service and much of their profits as others to simply cover interest
Electronics, that seem to be doing something better than the payments. The sectors particularly badly hit by this are the
others. Experience shows that there are two main General Machinery, Electronics, and Services (confirming the
components to driving up these returns, namely managing earlier notes on its liabilities). It is interesting to note here
the organisation’s cash and its overhead. that the same three sectors have previously scored the
In this context, the acid test can be a very useful highest cash in bank as percentage of turnover.
indicator. The acid test compares the value of liquid assets to On top of having to make these interest payments (resulting
the value of current liabilities. If the ratio is less than 1 it in the firms having such small amounts of cash),
means that the organisation does not have enough liquid organisations are having to wait, on average, for 70 days
assets to cover its current liabilities. Looking at the UK before their debts are settled. Even upper quartile firms suffer
industry sectors, over 25% of them do not seem to have with an average number of debtor days of just under 52.5.
enough liquid assets to cover liabilities. All the lower quartile However, this still compares very favourably with lower
organisations, along with some median ones (such as Food, quartile firms, who have to wait on average of 90 days before
Drink and Tobacco) fall in this category. Moreover, the gap is their debts are settled. Looking at differences between
again evident between upper quartile and lower quartile sectors, the organisations in the Service sectors upper
organisations. It is interesting to note here that the Service quartile seem to demonstrate best practice and are thus the

90
sector is among those with the worst acid test ratio amongst ones to learn from with an average debtor days of 24. Within
all sectors, lower than the manufacturing average, and far the manufacturing industry, the least number of days was
behind manufacturing sectors like Electronics. reported by the Food, Drink and Tobacco organisations. On
A significant reason why so many firms have a problem the other hand, the worst performers are the lower quartile
with the acid test is that they have very little, if any, cash in firms in the Metal Products and Electronics sectors that
the bank. Lower quartile firms have, on average, less than averaged over 100 days.
0.5% of their sales turnover as cash in the bank. Even the
median firms only have around 3% of their sales turnover as
cash in the bank. Interestingly upper quartile firms are cash
rich and have, on average, 10% of their sales turnover as cash
in the bank. Within the upper quartile, there are also
significant variations. The Service sector demonstrates a
higher percentage than the overall manufacturing sector but lower quartile companies are having
less than specific sectors within manufacturing like
Electronics and General Machinery. It is interesting to note to wait over 90 days to have their
that while the Service sector reports some of the highest
percentages of cash in bank, they still reported the lowest in invoices paid... at the same time
the acid test measure – potentially revealing higher liabilities.
In fact, the more revealing numbers are the percentages they spend between 7-22 times the
reported by the upper quartile firms within the
manufacturing sector. Organisations in the Electronics and amount of upper quartile companies
General Machinery have more than 12% of their sales as cash
simply covering interest payments

Cash in bank/turnover (%) Interest cover Debtor days

14 25 120

12 100
20
10
80
8 15
60
6 10
40
4
5
2 20

0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

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Value creation & asset management

The final piece in the financial puzzle is the overhead The same themes are also reflected in the data regarding
management. In this area, the top 25% organisations across the number of employees per manager, which swings from
all sectors reported having at least double the ratio of directs 14 in upper quartile organisations in the Food, Drink and
to indirect than those in the bottom 25%. This means that Tobacco to just over 2 in lower quartile Service organisations.
the lower quartile firms require around two times as many Overall, and as an average of the whole UK sample, managers
indirect employees as do upper quartile firms with the same are responsible for just under 8 employees. Managers in
number of direct employees. The better performers are upper quartile firms are responsible for at least double the
noted to be the Service sector along with the Food, Drinks, employees as are managers in lower quartile firms. This lends
and Tobacco firms, while the worst performing sector is support to the argument that the lower quartile firms require
Electronics. These differences, in the ratio of directs to more management intervention, because they have not
indirect, can stem from various reasons. They do however taken control of their basic business processes and indeed
point to one main issue, which is that lower quartile firms do not trust their performance measurement systems to
require far greater management monitor and control the operation. Experience has shown
managers in the upper intervention to run their business that leading organisations have all focused on empowering
process. Whether this is due to employees to reduce the need for control. Employees are
quartile are responsible poorly designed process, lack of given the support and development they need to be able to
employee ability and skills, or handle larger responsibilities with less control. At the same
for at least double the management style is not clear. time, leading organisations have focused on state of the art

amount of employees as Quality management and Business

Excellence advocates would argue
performance measurement systems to help act as means of
improvement, control, warning, and navigation systems thus
their lower quartile that there are various practices reducing the need for traditional managers who used to be
that have been preached for some mainly inspectors over other people’s work and acting as the
equivalents time to help organisations improve ‘process police’.
their business processes and
develop performance measurement and management
systems that would streamline operations and minimise
management interventions (the traditional command,
inspect, and control manner which is now seen as a waste of
resources). Still, the data shows that while upper quartile
organisations seem to have understood and implemented
the better practices, median and lower quartile firms have a
lot of learning and improvement to pursue.

x
8
the top 25% of organisations are
achieving around eight times more
return on capital than the bottom 25%

Direct to indirects Number of employees per manager

8 14
7 12
6
10
5
8
4
6
3
2 4

1 2

0 0
lower quartile median upper quartile lower quartile median upper quartile

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Case Study
Contract
Trade
Frames

“ Benchmark Index is a business must. I really

don’t know if we would have achieved so much if we
hadn’t done it. But now we have been through the
benchmarking process and seen how much it has to
offer, it has become a regular part of our business.
Alun Ware - Managing Director, Contract Trade Frames

Contract Trade Frames started business in South Wales in

”
"We took immediate action," says Alun. "We set about
1997 with just Alun and two colleagues using a converted gaining accreditation such as ISO 9001 for design and
school as premises to make windows, doors and manufacturing and ISO14001 for environmental care, as well
conservatories for sale to building contractors. Over the next as Investors In People and Secure by Design."
four years the staff grew to 43 and the company relocated to Despite increasing prices to raise money, funding
a modern industrial estate on the outskirts of Cardiff. In 2001 remained an issue, so Alun agreed a package of financial
the company achieved sales of more than £2m on which it support from UK Steel Enterprise and Welsh Fund Managers.
made profits of 11%. Benchmark Index report was helpful in supporting the case
By the end of 2001, Contract Trade Frames was working for investment. "Benchmark Index has helped us in lots of
regularly for 12 different house builders including Westbury, ways," says Alun. "It provided a real boost for our
Wilcon Homes and Kings Oak Homes. At any one time its management team in helping us identify where to focus our
products were being supplied to more than 30 building sites, attentions. Doing Benchmark Index regularly – as we now do
varying in size from ten to 200 homes. The value of sales every year - is an excellent discipline."
ranges from £1400 to £12,000 per property, depending on "I really don’t know why every business doesn’t get
the number and specification of windows and doors. benchmarked," Alun adds. "They are really missing
"Our rapid growth has been based on very simple something valuable. The only thing that can be holding some
principles," says Alun. "We make quality products and we people back is a lack of professionalism – and they are the
deliver them promptly to our customers, exactly when and ones who are going to be the losers."
where they are required. It might sound so simple it’s crass,
but there are lots of rival companies that cannot even get
those basics right."
Alun knew his company would have to reach greater
heights if it was to achieve his sales targets of £3m in 2002
and £10m by 2004. He sought advice from business adviser
John Huish of Fooks Business Development, who strongly
recommended Benchmark Index as a way of quantifying
the company’s strengths and weaknesses against
comparable firms.
"It was an easy process," says Alun. "John was able to
draw on information that was readily available and came
back a week later with the results and his analysis."
Benchmark Index showed Contract Trade Frames was
achieving a high standard in terms of production quality,
“ It was an easy process, John
was able to draw on information
that was readily available and
internal controls and customer relations. But it was very came back a week later with
unimpressive in having achieved no formal qualifications
and its future was threatened by the fact it was under
funded and over-trading.
the results and his analysis.
”
Alun Ware - Managing Director, Contract Trade Frames

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Customer perspective

The customer is king. Without customers there

are no revenues, profits or any value to the
shareholders. Yet, many organisations these days
seem to forget this fact and take the customer for
granted. In today’s competitive environment, excellent
service is quickly becoming an organisation’s ‘licence
to practice’ as opposed to a competitive advantage.

The statement that ‘the customer is king’ is now more for frustrated customers to complain and has no
valid than ever. This is an age where customers have vast mechanism in place for capturing, and presumably
choice of products and services, and the internet is giving resolving, complaints once they are received.
more power to these customers by providing knowledge In capturing data about customer satisfaction,
and the ability to compare products and services globally. Benchmark Index acknowledges the fact that it is a
In this context, customer focus is complex and multi-dimensional issue. The data captured
it is crucial for firms to the key driver for sustainability thus comprises various indicators of customer
and measuring customer satisfaction and covers: complaints per customer,
realise that no customer satisfaction, and managing it as a complaints per order, order value of complaints as a
process becomes crucial. It is percentage of turnover, orders not delivered on time as a
dissatisfaction does not important to realise here that % of total orders and orders rejected during warranty as
necessarily equate to various sources of research work a % of total orders.
have demonstrated that only one
customer satisfaction out of ten dissatisfied customers
actually complain while each
dissatisfied customer will tell of his/her experience to up
to ten other people. This, in an age where even loyal
customers are more liable to move to a competitor
offering marginally better value propositions. Thus, it is
crucial for firms to realise that no customer dissatisfaction
(absence of complaints) does not equate to customer
satisfaction. Moreover, zero complaints per customer
might simply indicate that the firm does not make it easy

Complaints per customer (%) Complaints per order (%)

6 9
8
5
7
4 6
5
3
4
2 3
2
1
1
0 0
lower quartile median upper quartile lower quartile median upper quartile

Order value of complaints/turnover (%) Order not delivered on time (%) Order rejected during warranty (%)
2.0 35 3.0
1.8
30 2.5
1.6
1.4 25
2.0
1.2 20
1.0 1.5
15
0.8
1.0
0.6 10
0.4 0.5
5
0.2
0.0 0 0.0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

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Overall, the median number of complaints per customer quickly resolved by competent staff as they arise and before
across the UK manufacturing industry is 0.6% (i.e. an average they escalate to a complaints.
of 6 complaints per 1000 customers) while the service sector For both sets of measures, the comments made earlier
is averaging 0.5 complaints per 1000 customers (0.05%). The apply. These low percentage of complaints are not automatic
data on complaints per customer reveals three major points: symptoms of good performance. Instead they may be noting
that the organisation does not make it easy for customers to
1. Although lower quartile organisations are averaging complain, or potentially does not capture the data when the
less than 2% complaints per customer, these figures are customer does complain.
at least three times more than what the upper quartile The third customer related measure analysed is the order
organisations reported. Thus, again, there is a major gap value of complaints as a percentage of turnover. This
between the top 25% and bottom 25% and a lot of measure illustrates what proportion of the firm’s total order
learning and knowledge transfer can, and should, take value spent on resolving customer complaints and is usually
place in either direction as the reason for this gap might a good wake up call. The bottom 25% performers receive
be that those reporting higher percentages have better complaints totalling about 1.5% of their orders by turnover,
measurement systems that capture such data, cultural which comes straight off the bottom line. More worrying is
differences that encourage people to complain more the well known fact that this reflects the direct costs
often, or simply have more defectives in their outputs. associated with the complaint and is usually accompanied by
a substantial set of hidden costs (potentially more than the
2. Within all sectors, the Service sector is the one direct cost itself ) – i.e. the cost of collecting the faulty
reporting the least percentage of complaints per goods/services, replacing them, scrapping them (if necessary)
customer. It is not clear if this is due to the Service and re-building the relationship with the customer (when
sector providing better value (less defects) or if it is possible). Within the bottom 25% firms The General
that customers are more prone to complain about Machinery seems to be doing the worst (potentially due to
manufactured goods (tangible complaints). the nature of the industry and size of the orders). Across the
sectors, the better performers in this measure were the
3. Within manufacturing, the Chemical sector is reporting Service sector and Chemical sector. While expected in the
almost five times the average percentage of complaints case of the services (who reported the least complaints per
per customer across all the categories (lower quartile, customer and per order), it is interesting to see the Chemical
median, and upper quartile). The data does not reveal sector in this category as firms there reported the highest
the causes, but it clearly points out to that either the complaints per customer. Upper quartile firms claim that the
sector needs immediate attention to this issue, or that it order value of complaints they receive is less than 0.18% on
is more strictly regulated (due to nature of products) and average emphasising the gap and learning opportunities.
thus has to capture these complaints more systemically. Another measure that is incorporated in Benchmark
Index is delivery on time. The definition of ‘on time’ can vary
From another angle, Benchmark Index collects data on the from sector to sector, but the benchmark definition is ‘on
complaints per order (%). This is usually revealing as many time in full’ (OTIF) – i.e. everything the customer ordered
organisations find it easier to capture complaints in this should be delivered at the time requested by the customer.
format as opposed to the previous (per customer). Indeed, The data from this measure is alarming, mostly for the lower
the data reveals that the percentage complaints per order quartile organisations who, on average, do not deliver on
are slightly higher across the board which give more backing time for 15.6% of the orders. In an age where this customer is
to the theory that while they cannot track complaints per king and competitors are fiercely fighting to gain their
customer, firms seem to be able to track complaints by business, 15.6% of the orders not delivered on time could
orders, a reflection of most traditional accounting systems mean 15.6% of the customers defecting to another supplier
where the unit cost is the measure basis. The average for (due to lack of operational efficiency on the firm’s side, i.e.
manufacturing organisations here is that they report 13 ‘pushing’ customers away). On the other hand, upper quartile
complaints per 1000 orders while the service organisations organisations reported only 2% of the orders not delivered
average 6. Interestingly, the Chemical sector is reporting the on time. While the goal for everyone should be 100% on time
least number of complaints per order (possibly indicating delivery, there is a huge gap between the bottom 25% and
that they do not capture their data in this format and focus the top 25%. Within the manufacturing sector, the best
on per customer basis). However, comparing service with performers seem to be Food, Drink, and Tobacco sector (as
manufacturing, the Service sector is still reporting the least one would expect by an industry strongly governed by
percentage of complaints per order. This data might be product freshness and expiry dates), and the worst
useful for some cross learning. The numbers are not performers are General Machinery.
necessarily telling us that service providers have better Finally, the measure of % of orders rejected during warranty
processing capabilities, or better processes. It might be is analysed.While the top 25% organisations have reported less
indicating that due to the nature of the service delivery than 0.5%, the bottom 25% have another significant gap (and
process and the face-to-face engagements, issues might be thus learning) to think about, as they are averaging 1.7%.

13
CTG 3 - AW 20/9/02 9:28 am Page 15

People - the employees perspective

The new world of work is introducing flexible working

hours, knowledge workers, working from home, etc.
So while these patterns emerge, organisations must
change the way they deal with their people to achieve
maximum benefit.

It is firmly believed that the success of an organisation lies Benchmark Index collects people performance data
more in its intellectual and systems capabilities than in under several different headings - new employees, total
physical assets. Without altering human knowledge, skill, and leavers, early leavers, days lost to absenteeism, accidents,
behaviour, change in technology, processes, and structures is number of employees per manager, directs compared with
unlikely to yield long-term benefits. People are not the most in-directs and graduates as a % of employees. Some of this
important resource of the organisation, they are the data was presented early when the question was explored –
organisation. Everything else is part of a ‘system’ that can be are the companies featured in Benchmark Index managing
implemented, copied, adapted, removed, and improved by overheads well? This section will concentrate on the
people. remaining data.
Research and experience clearly note that although the Employee recruitment comes with large cost bundles
statement so often articulated ‘the most important resource including advertising, interviewing, induction and training.
of this business is its people’ is Thus, recruitment, ideally, must be an activity undertaken for
without altering human increasingly meaningful, not growth. On the other hand, when employees leave the
knowledge , skill and merely as rhetoric but also in organisation, they take with them knowledge and experience
behaviour, change in practice, the type of people that that are losses to the company (losses not usually captured
today’s organisations require, and by the traditional accounting techniques).
technology, processes and are dealing with, today and
structures is unlikely to tomorrow, are different from a
yield long-term benefits decade ago.
In an age defined as the
‘knowledge’ era, organisations depend more and more on
fewer people; people whose loyalty can no longer be assumed
but rather must be earned and retained, then clearly they need
to be concerned about how they utilise them, develop them
and resource them and about the opportunities for rewards,
promotion and success which they provide.

New employees/total employees (%) New leavers/total employees (%)

45 45
40 40
35 35
30 30
25 25
20 20
15 15
10 10
5 5
0 0
lower quartile median upper quartile lower quartile median upper quartile

Early leavers/total employees (%) Days lost to absenteeism per employee Accidents per employee
30 10 0.7
9
25 0.6
8
7 0.5
20
6 0.4
15 5
4 0.3
10
3 0.2
5 2
0.1
1
0 0 0.0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

14
CTG 3 - AW 20/9/02 9:28 am Page 16

Looking at the data gathered, and on average, UK person year has 220 working days). In the upper quartile, the
organisations seem to be recruiting around 17% of their days lost to absenteeism per employee come up to an
employees annually – while this might be positive if it is average of 1.5. This is clearly far better than the bottom 25%
done for growth, diversity, and bringing new ideas in, it is firms (a gap that must be closed by cross learning).
expensive, most of all if it is happening due to the Absenteeism is worst in the lower quartile performers in
organisations loosing a similar percentage. The data for total Food, Drinks, and Tobacco sector potentially reflecting less
leavers does show that about 15% of the employees actually employee motivation than other sectors. Combining this with
do leave annually. A certain percentage of those might fall the total leavers/total employees percentage in this sector, we
under natural attrition (like retirement), but chances are the can see that there is an issue to be tackled here. Meanwhile,
majority are moving between jobs for better offers. The term the service sector reports the least days lost to absenteeism
‘war for talent’ is more true than ever in this environment across all quartiles, making it the sector to learn from.
where even the life span of a CEO has dropped to just over The final measure for the employee’s category is the
three years as some research studies revealed. A more number of accidents per employee (a measure of employee
worrying measure is the percentage of early leavers (those motivation and indeed the effectiveness of the health and
who joined the firm in the last 6 months). The UK safety procedures in the firm). The assumption here being
organisations are averaging around 7% of their total employees that motivated employees are more likely to be engaged in
falling in the early leavers category – these are people who cost their jobs and will be thus paying more attention while at
the organisation all the recruitment and induction costs, and work and suffering less accidents. The upper quartile firms
most probably did not have any time to add real value. A more reported an average of 0.1 accidents per employee, while the
detailed look at these three measures reveals: lower quartile ones reported 0.4. While there is a gap that
can be addressed and reduced, the data demonstrates that
1. The gap is huge between upper and lower quartile attention is being paid these days to reducing these
organisations when it comes to the percentage of their occurrences (the overall sample average for UK organisations
employees that they have to recruit annually. The lower is 0.2 accidents per employee). As one would expect, the
quartile organisations recruit 30% of their staff annually Service sector reported the least number of accidents.
while the upper quartile ones recruit 10%. However, one sector that is markedly over the average, and
2. Most probably, the new employees recruited are to replace thus needs more attention is the Chemical sector.
leavers. Lower quartile organisations are averaging just under
30% leavers annually while the upper quartile ones are
reporting around 7%. If this is the case, then the recruitment
is not taking place for ideal reasons like growth and knowledge
development and acquisition.With 30% leaving the bottom
25% firms annually, these firms are required to undertake a
serious rethink about the way they manage their people.
3. Again, the gap is also wide between the upper and lower
quartile organisations in terms of early leavers/total employees.
This percentage is more than double in the bottom 25% firms.
4. Overall, the Service sector is averaging more recruits, more
leavers, and more early leavers than the Manufacturing sector.
Not surprisingly as the Service sector is more focused on
‘knowledge’ workers who seem to be in the most demand.
5. Within the Manufacturing sector, most sectors are
demonstrating around average performance expect two:
Food, Drink and Tobacco and Electronics. Both are reporting
new employee percentages that are higher than the average,
and simultaneously more than average total leavers
(markedly less so in the Electronics sector). In the Food, Drink
and Tobacco sector, the percentage of early leavers is also
high and it seems that this sector is most affected by staff UK firms lose about 7% of their staff within
turnover, and thus has most to learn.
6 months of taking them on – these people
In terms of measuring employee satisfaction, it has
become generally accepted that one alternative measure of cost the organisation recruitment and
employee satisfaction and motivation is absenteeism. Lower induction costs, and have little or no time
quartile firms lose, on average, 6.9 days a year per employee
through absenteeism. To put this in perspective, this is
to add any real value
equivalent to a 1000 person firm losing 31.4 person years
through absenteeism for every year worked! (assuming a

15
CTG 3 - AW 20/9/02 9:28 am Page 17

Supplier performance

The trends that are driving the new economy caused

various organisations from different sectors to
consider outsourcing more and more. Organisations
have pursued different programmes to outsource
their non-core activities for different reasons varying
from cost reduction, change in strategic direction, or
efficiency improvements.

However, as the trend grew and encompassed most of the In terms of the percentage of supplies received that are
firms’ direct inputs and indirect support processes, it did found to be sub standard, the organisations in this lower
result in firms becoming ever more reliant upon their quartile are reporting an average of 3.5% as opposed to only
suppliers. Organisations learned that quality, responsiveness, 0.5% in the upper quartile. The gap is obvious and when
service, and problem solving are looking at the details of the lower quartile organisations, we
In the top 25% firms, only every bit as important as price in find the situation clearly worse in three sectors, namely Metal
0.5% of supplies are developing effective supplier Products, Electronics, and the Service sector, while the better
partnerships. In parallel, there has performing sector across the board is the General Machinery.
sub-standard, the lower
been a lot of work and A possible explanation is the cost of supplies, which can be
quartile have 6 times as developments in Supply Chain lower for individual components or services in the
many sub- standard supplies. Management highlighting how Electronics and Service sector as opposed to the General
an effective approach could drive Machinery where most of the supplies would be of high
substantial costs out of the supply chain. When coupled value. It that respect, the General Machinery sector could
together, these factors have caused an increasing interest in have worked on better developing its supplier relationships,
supplier management approaches and techniques. enforced strict service level agreements, or both.
Benchmark Index captures data about supplier
performance using several different measures, most notably -
% of sub standard supplies by value, % supplies delivered on
time by value, turnover/number of suppliers and stock turns.

On average, the upper quartile

firms get 97% of their supplies
in on-time compared to just
66.5% in the lower quartile
Sub standard supplies (%)
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
lower quartile median upper quartile

Supplies delivered on time (%) Value of supplies per supplier (£) Stock turns
100 200000 80
90 180000 70
80 160000
60
70 140000
60 120000 50
50 100000 40
40 80000 30
30 60000
20
20 40000
10 20000 10
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

16
CTG 3 - AW 20/9/02 9:28 am Page 18

As for the other angle of supplier performance, namely on organisation requiring less overhead and focusing resources
time delivery, the top 25% organisations seem to be getting on building relationships with a limited number of suppliers.
an average of 97% of their supplies on time. However, the A close look at the sectors in the sample reveals that sector
picture with the lower quartile organisations is not with highest value of supplies per supplier (least number of
encouraging and reveals a huge gap as they only receive an suppliers) is the Food, Drink and Tobacco sector followed by
average of 66.5% of their supplies on time. The worst the Chemical sector.
performers here are the General Machinery sector potentially 2. Stock turns (a reflection of internal operations
due to the size of orders and complexity, but this goes against management). Another measure that demonstrates the large
the argument driven earlier on their supplier management gap between upper and lower quartile organisations. The
capability as they seem to be getting the best quality of bottom 25% firms reported an average of 8 stock turns per
products, but mostly late! There is a lot of improvement year. The gap is obvious when this is compared top the 32
potential for all organisations in all sectors in this regard and stock turns per year that the top 25% firms in the sample
there is a lot to learn about supplier management in the achieve. The highest stock turns achieved by far is reported
overall framework of supply chain performance. by the Service sector most probably due to the nature of the
industry. However, when we compare the performance of
There are various reasons why supplier management is not manufacturing sectors, it is noted that Metal products and
ideal, and the following points highlight two potential reasons: Food, Drink and Tobacco sectors are leading. In the case of
the latter, again the high stock turns is dictated by the nature
1. Too many suppliers to deal with. The value of supplies per of the product lifecycle. As for the Metal products, the lead
supplier provides an indication of how many suppliers a might be a reflection of best practice being implemented
company requires to support its operations. The gap in this within internal operations management, one that can prove
case between the top 25% and bottom 25% firms in the a learning opportunity for many. In this regard, even the high
sample is massive (£10,358 to £92,592 respectively). This performers have a scope for learning, as by applying best
suggests that upper quartile performers use one ninth (or practice like collaborative planning and Enterprise Resource
less) of the number of suppliers that lower quartile Systems, world-class organisations are achieving stockless
performers use. Using less suppliers translates into the production and Just in Time delivery levels.

One of the biggest

problems facing
lower quartile
companies is that
they simply have
too many suppliers
- up to nine times
more than those in
the upper quartile

17
CTG 3 - AW 20/9/02 9:28 am Page 19

Building for the future

So far, we have looked at financial performance,

satisfying customers and employees. While these are
excellent indicators, they are also lagging ones, i.e.
they are reporting history. If an organisation decides
to manage its performance by relying only on the
lagging indicators, it would be like driving a car using
only the rear view mirror.

Organisations need to look to the future, prepare for it, plan and Transport sectors. Moreover, and on average, the
how to influence it, and invest to ensure they are part of it. Manufacturing sector seems to be spending slightly more of
Sustainability is all about the long term and requires present its turnover than the Service sector on capital investment.
planning and investment in new products, processes and In terms of R&D spending, the gap between the upper and
ways of working to be made continually. The cliche that lower quartile organisations is still considerable. The biggest
‘change is the only constant’ is more true than ever and the spenders on R&D are the Electronics sector and the Services
future will be for those who invest now, based on a clear sector. In the Electronics sector this is probably dictated by
vision and well articulated, the nature of the industry where the life cycles of their
the cliche that measurable, strategy to build their products are shortening by the day. A similar picture can be
capabilities and strengthen their
‘change is the only competitive advantage.
drawn for the Service sector where the intense competition
is forcing everyone to compete on new innovations in
constant’ is more true Benchmark Index data set contains service to provide a differential offering. Having said that,
than ever and the significant information about the
investments made by manufacturing
other sectors are not immune against change and

future will be for firms in the EU countries in the

shortening life cycles and the low investment levels in R&D
are indeed worrying (the overall UK sample average spend
those who invest NOW sample, using the measures – capital on R&D as a percentage of turnover is no more than 1.3%).
investment, R&D expenditure, From R&D, we turn to find even more worrying figures
training expenditure, training days/employees, training for investment in developing the organisation’s intellectual
expenditure/employees, ratio of graduates to employees and capital, namely employee training. On average, the UK
marketing expenditure. organisations sampled spend 0.3% of their turnover training
Within the whole sample of UK organisations, upper their employees (arguably their most important asset). Even
quartile organisations are investing, on average, 6 times as with this small percentage spend, there is still a gap between
much of their turnover on capital investment as lower the top 25% and the bottom 25% (who are averaging no
quartile firms do. A huge gap in preparing for the future, one more than 0.1% of their turnover on training). This in a time
that might be reflected in the numbers of those where most SMEs are reporting frequently they are facing a
organisations who will actually still be there in the future. The skills shortage and can not attract qualified people to work
biggest investments seem to be taking place in the Chemical the top 25% and the bottom 25% (who are averaging no

Capital investment/turnover (%) R&D expenditure/turnover (%) Training expenditure/turnover (%)

10 9 1.0
9 8 0.9
8 7 0.8
7 0.7
6
6 0.6
5
5 0.5
4
4 0.4
3 3
0.3
2 2 0.2
1 1 0.1
0 0 0.0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

Training expenditure per employee (£) Graduates/employees (%) Marketing expenditure/turnover (%)
500 40 3.5
450 35 3.0
400
30
350 2.5
300 25
2.0
250 20
200 1.5
15
150 1.0
10
100
5 0.5
50
0 0 0.0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

18
CTG 3 - AW 20/9/02 9:28 am Page 20

more than 0.1% of their turnover on training). This in a time serious implications for the future sustainability and
where most SMEs are reporting frequently they are facing a competitiveness of UK firms. We are now living in ‘the
skills shortage and can not attract qualified people to work knowledge economy’ and it is forecasted that the future will
for them. They do forget that investing in training has various fall to those that develop, manage and exploit knowledge to
benefits spanning from developing their intellectual capital its full potential. Whatever the reasons for this lack of
which, if done well, translates into operational efficiency and investments, UK firms, on average, still do not seem to realise
improvements, to acting as an attractor for qualified people that training is an ‘investment’ not a ‘cost’, and to that end, a
who view personal development as a key part of any job. critical investment for long term success.
A similar picture is presented when studying the On average firms in the sample spend 0.7% of their
numbers for actual training expenditure per employee. The turnover on marketing. This is less than what they spend on
average UK organisation is spending around £140 per R&D and Training, and while this reflects a healthy balance
employee per annum on training. The upper quartile between focusing on the present and building for the future,
organisations are averaging around £350 while the lower it still reflects low investment levels overall. Marketing is
quartile organisations are averaging less than £100. Given becoming more important these days as competition
that an average course in the UK market costs anywhere intensifies both from within the UK and abroad. It as noted
between £450 and £1000, the data seems to be telling us that these days, everything is of much better quality, but at
that an average employee in a UK organisation is getting the same time becoming extremely similar. In this context,
around one day of poor quality training per annum. marketing and brand management could provide a powerful
Of course this caricature picture is not the case as some edge. The gap here is also huge; on average upper quartile
employees will be going to high quality (and expensive) firms spend at least four times as much on marketing than
courses, but some employees will have to be attending none do lower quartile firms. The service sector spend more than
to achieve these averages. These numbers are very worrying the manufacturing sector average, but less than the
and either reflect that organisations do not realise the Electronics sector who seem to be the leader in marketing
importance of knowledge, continuous improvements, and spend (this coupled with them being the leaders in R&D
building for the future, or that they are under a lot of spend in symptomatic of there fast moving environment and
pressure from shareholders to produce short terms financial qualifies them as a main sources of best practice to learn
results (that they opt to cut training and other ‘costs’), or from on managing in a fast moving world).
indeed a combination of both.
It could be that firms employ highly trained people
rather than build their skills once they have joined the firm.
If this was the strategy for all the organisations in Benchmark
Index database, then it would be reasonable to expect that
they would employ a high number of graduates. In fact, even
in upper quartile firms, fewer than one employee in 5 has a
degree at best (in the Service and Electronics sectors) while
in lower quartile firms, it is reported that the average is less
than one in every hundred employees. This clear lack of
investment in training and hiring graduate employees has

We are now living in the ‘knowledge

economy’ and it is forecasted that the
future will fall to those that develop,
manage and exploit knowledge to its
full potential

19
CTG 3 - AW 20/9/02 9:28 am Page 21

Market growth & penetration

Customer loyalty can no longer be taken for granted.

Even the most loyal customers will leave for a better
value proposition.

Competition as a whole has long left the ‘traditional’ and e-commerce (which is a good indication of the take up
arena and it is now common practice for organisations and use of new technology if that was the actual case).
(even whole countries) to try to lure customers away with Moreover, the gap is quite substantial between the top 25%
‘special’ offers. The markets have also changed and distance and bottom 25% of firms as the upper quartile organisations
has been redefined. Geography is no longer a barrier to seem to be generating at least 8 times more of their income
entry, and agreements such as the World Trade Organisation from new geographies than lower quartile ones. So there is a
are redefining regulatory constraints. The bottom line is: clear opportunity to go down the path of exploring and
globalisation is not the future, it is the present. Organisations exploiting new geographies, but the message, and indeed the
must have strategies for growth that span opening new practices, do not seem to have infiltrated every organisation.
markets, offering new products/services, and reaching new A similar picture is revealed when studying the data on
customers. The data provided from Benchmark Index for the income from new segments. The General Machinery and
UK industry provides mixed messages in this regard, but Service sectors lead the pack, and the gap between upper
clearly shows a movement in the directions discussed. On the and lower quartile firms is huge. It is interesting to note
whole, while firms seem to be reasonably successful in that on average, firms seem to be generating more new
generating new income, there is a big gap between the top income by going into different segments than by going into
25% and bottom 25% firms, and there are also major different geographies.
differences between industry sectors. Another measure is the new income from new products.
On average, around 10% of the UK sample’s turnover has Here, firms are reporting, on average, around 6 -7%. This is an
come from new income. The upper quartile organisations impressive and surprising percentage given the low levels of
reported an average of over 25% while the lower quartile investment reported earlier on investment on R&D. However,
ones reported less than 5%. A huge and worrying gap that the sectors that lead the pack in R&D expenditure
needs to be addressed if one subscribes to the ideas (Electronics and Services) did report the highest percentage
discussed above. The sectors that seem to be outperforming in income from new products (in their upper quartile firms,
the others, and thus the ones to benchmark and learn from overtaking other sectors by at least 5%). A clear indication
are the Electronics and Service sectors respectively. that investment does pay off.
Firms are generating just Finally, the measure that assesses how many new
Total new income/turnover (%) customers the firms have gained (the percentage of new
over 3% of the new income from
50
45
new geographies. However, this customers to total customers). The whole sample average
40
35
number is heavily influenced by is just over 16%, which clearly reflects the intense
30
25
the General Machinery sector competition out there (for these firms to recruit these new
20
15
who are generating, on average, customers, someone down the road must have lost them!).
10
over 10%. Whether this is due to The Service sector is leading, especially the upper quartile
5
0
implementation of best practices firms who are reporting more than 40% new customers.
lower quartile median upper quartile
in promotion, quality of The other leading sectors are the General Machinery (who
products, or taking advantage of seem to have a well planned and executed market
Income from new geographies (%)
trade shows and agreements, it penetration strategy) and the Electronics sector (where it
16
14 is clearly a place to start learning is well known that it faces tough competition, from all over
12
from.The upper quartile the world). This message about new customers is a coin with
10
8 organisations in the Service two faces. Are firms recruiting these customers because
6
sector reported 16% of new demand for their products is growing (growth mode), or
4
2 income from new geographies, is it because they keep losing their existing customers
0
lower quartile median upper quartile probably aided by the internet (survival mode)?

Income from new segments (%) Income from new products (%) New customers/customers (%)
25 25 45
40
20 20 35
30
15 15
25
20
10 10
15

5 5 10
5
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

20
CTG 3 - AW 20/9/02 9:28 am Page 22

Case Study
It is true of many small firms that the only evidence they have Resources, scoring below average for staff turnover and
Linden to tell them whether they are performing above or below absenteeism.
Foods average is anecdotal or hearsay. Most never find the time to
measure their strengths and weaknesses. Staff also said that communication inside the company was
poor. Information wasn't being shared in the way the
For Paul Johnston, Financial Director of Linden Foods, the company would have liked, and there was a lack of
problem was a familiar one: "Even though we had a good idea understanding of one another's roles. This was identified as
of what was happening around us, it was still hard to establish the root cause behind poor performance in other areas.
exactly what we were doing well or where we were falling
below the mark". Now that Linden Foods has had the chance to pinpoint were
changes were necessary, the benefits of benchmarking are
Based at two sites in Northern Ireland Linden Foods is a 350- beginning to be felt across the company.
strong beef producing company formed in June 1998 from
the merger of Granville Meats and Milltown Livestock & Meat Investment is being directed into a range of improvement
Company. On average, it processes more than 80,000 cattle projects - in Sales Planning, Production Planning and
and 100,000 sheep a year for export to customers that Production Systems Operations - that are already starting to
include ASDA, Marks & Spencer, Somerfield, Safeway, Tesco, bring real, tangible benefits to the business. Using a system of
McDonalds and Burger King. scorecards is helping to give staff measurable objectives
against which they can see the progress being made. The
Even though its customer base is strong, the company is structure of the company has also been reorganised to clarify
nevertheless under pressure to compete in an industry individual responsibilities.
struggling with overcapacity. Its senior management, Paul
Johnston included, were well aware of the need to improve Early estimates suggest that overall operating costs have
the company's financial performance. already been cut by a remarkable 20% and absenteeism rates
have dropped from 12% to less than 6%. The potential
Paul was sceptical savings for the company in unnecessary overtime costs could
about how beneficial add up to in excess of £50,000 a year.

“ There's no question it has benchmarking could

be for Linden Foods. What the company had considered to be a staff recruitment
been a very valuable first step bHis mind was problem has now been more accurately defined as a staff
towards starting to evaluate changed by a call from retention issue. In consequence, staff turnover rates among
Business Adviser longer-serving employees fell by 11%, with further
our performance as a Andrew Horne [of the improvements anticipated. Much remains to be done, though,
company. We think that IDB, now the INI]. on the retention rates for those who move on within months
"Andrew rang out of of being recruited.
repeating the process will give the blue. He did a good
us a fresh insight into our job of explaining that Even more impressive is the £250,000 a year that could be
strengths and weaknesses our problems were far saved as productivity continues to improve and the new
from unique. But he 'make it right first time' approach starts to eliminate costly
and help remind us how still had to convince us returns.
far we've come.
”
Paul Johnston, Financial Director, Linden Foods
that Benchmark Index
could be of real value
to our company. It took
two attempts".
Linden Foods is also confident of making early and
substantial gains on its current turnover of just under £70
million.

Paul describes the Benchmark Index process as time Paul is planning a follow-up benchmark within 6-9 months as
consuming, but thought-provoking. Comprehensive part of the plan to continuously drive the business forward.
assessment questionnaires were handed out to all of the "There's no question it has been a very valuable first step
directors, supervisors and managers of the company - once towards starting to evaluate our performance as a company.
the staff involved had been assured that their confidentiality We think that repeating the process will give us a fresh insight
would be protected. into our strengths and weaknesses and help remind us how
far we've come".
The results were compiled into a detailed Benchmark Index
report. "We weren’t just left us to decipher the figures for Every indication is that Linden Foods will adopt
ourselves. An external consultant went as far as to help us benchmarking as part of its organisational culture adds Paul:
focus on an action plan that included specific areas where it "Had we not done it, I can only imagine we would still have
was essential we started to do better". Says Paul. been debating old problems for hours on end, without ever
really getting to grips with the important issues. Now, instead
Against the comparison group chosen, the company of living with the status quo, our plans for growth are far
registered in the upper quartile for most operational areas more ambitious".
and was particularly strong when it came to its customer
focus. But it was a lower quartile performer in Human

21
CTG 3 - AW 20/9/02 9:28 am Page 23

Closing the Gap

This section provides a look at the changes that took place over the period 1996
– 2002 in UK industry performance using Benchmark Index data. Benchmark
Index has compiled data for the same set of measures in the UK industry over
three distinct periods:
■ 1996-1998
■ 1999-2000
■ 2000-201
The following analysis overviews this data and discusses whether there areas
improving areas, areas showing negative trends, and whether we are actually
closing the gap between the upper and lower quartile organisations. The data is
presented separately for both the manufacturing and service sectors.

Sales & profit performance

The data on the sales and profit performance is

concerning in the Manufacturing sector. All three
quartiles in the sector have seen declining performance
since 1999 (and some had the downward trend started
in 1996) to date in their sales turnover per employee,
pre-tax profit per employee, and pre-tax profit/turnover.

This is reflective of the tough times the manufacturing sector While the sales turnover per employee has declined in the past
in the UK is going through and the recent downturn in the two years, as one would expect given the overall economic
economy is showing its clear effects on this sector.The decline downturn, service organisations seem to have managed to
could be related also the fact that implementation of best increase the pre tax profit per employee and pre tax/turnover
practice and recommendations from initiatives such as percentage. One reason for this could be the implementation
Benchmark Index has not spread and was not taken to heart. of best practice in cost base management.There is clearly a
The data from the service sector offers a more positive picture. learning opportunity from this sector.

Period Coding
Manufacturing Service
■ 1996 - 1998 ■ 1996 - 1998
■ 1999 - 2000 ■ 1999 - 2000
■ 2000 - 2001 ■ 2000 - 2001

Sales turnover per employee (£) Pre-tax profit per employee (£) Pre-tax profit/turnover (%)
100000 14000 18
90000 16
12000
80000 14
70000 10000
12
60000
8000 10
50000
6000 8
40000
30000 6
4000
20000 4
2000 2
10000
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

22
CTG 3 - AW 20/9/02 9:28 am Page 24

Value creation & asset management

The messages from the data on value creation and

asset management are mixed.

Firstly, in the Manufacturing sector, there has been a downturn, they seemed to have been able to either sustain
consistent decline in the return on assets generated while or improve their value creation and asset management
the Acid test ratios remained more or less the same. Cash practices. The same goes for the number of employees per
in bank numbers have shown an increase on average, but manager which reduced in the upper quartile
the upper quartile organisations seem to be leaving less organisations but unfortunately increased in average and
cash in the banks potentially following on from the lower quartile ones. If anything, this reflects that
messages on the need to invest such cash. The interest improvement is possible, there are best practices out there
cover has shown positive signs in that the numbers are being implemented, and the upper quartile organisations are
reflecting a downward trend as they should and a similar all showing improvements if we look at the big picture here.
improvement has been witnessed in That goes to strengthen the call for systemic and

££
Interest cover has terms of Interest cover. As for Debtor continual efforts to close the gap by learning from each
shown positive signs in days, both the average and upper other.
quartile organisations are moving in
that the numbers are the right direction (reducing these
reflecting a downward days) but the lower quartile are
trend as they should showing a slight increase. Another
positive message is reflected in the
Directs to Indirects ratio which is showing an increasing
trend. So far, a lot of the messages seem to have been
accepted and improvements implemented. The bottom
line is, the average and upper quartile organisations have
gone for better practice and, despite the economic

£ improvement is possible, there are best

practices out there being implemented,
Return on net assets
45
and the upper quartile organisations are
40
35
30
all showing improvements
25
20
15
10
5
0
lower quartile median upper quartile

Acid test Cash in bank/turnover (%) Interest cover

2.0 14 20
1.8 18
12
1.6 16
1.4 10 14
1.2 8 12
1.0 10
0.8 6
8
0.6 4 6
0.4 4
2
0.2 2
0.0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

23
CTG 3 - AW 20/9/02 9:28 am Page 25

Value creation & asset management (continued)

As for the Service sector, the overall picture is again of

mixed messages regarding the value creation and asset
management capabilities and practices. While the return
on capital increased between 1996 and 1999, it decreased
in the last two years potentially due to the economic
conditions. Nevertheless, there has been an increase in the
upper quartile organisations’ return on net assets (while
the average decreased slightly). The Acid test ratios did

?
not show any considerable changes while the cash in the
bank has gone through an upward trend (service firms
seem to be investing less and holding on to more cash –
potentially because of the turbulent investment climate).
Positive signs came from the debt management issues
where the interest cover and the debtor days have both
decreased consistently. However, overhead does seem
to be a problem as the number of directs to in directs
have shown a downward trend noting that more indirect
(support) employees are involved. This, coupled with
the fact that the number of employees per manager
is also reducing send a strong signal for the service
organisations to re-think their employee empowerment
and involvement initiatives as opposed to adding more on
the management layer.

would your company pass the

acid test
The acid test compares the value of liquid assets to the
value of current liabilities. If the ratio is less than one it
means that the organisation does not have enough
liquid assets to cover its current liabilities. Well over
25% of the companies benchmarked are in this position

Debtor days Direct to indirects Number of employees per manager

100 7 12
90
6 10
80
70 5
8
60 4
50 6
40 3
4
30 2
20 2
1
10
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

24
CTG 3 - AW 20/9/02 9:28 am Page 26

Customer perspective

The data on customer service highlights that, overall,

there has been improvements over the past six years,
especially in the lower quartile organisations. It seems
that we are closing the gap, albeit slowly.

In the Manufacturing sector, the following is noted: 3. The positive impact is also clear in the order value of
complaints and orders not delivered on time. Both measures
1. On average, the complaints per customer have shown an seem to be moving in the right direction.
increasing trend. Whether that is due to increasing customer 4. The percentage of orders rejected during warranty has also
demands and thus higher expectations leading to more decreased, more so in the lower quartile firms which again
complaints or whether organisations have become better at lends further support that we are closing the gap.
capturing these complaints, it is not clear. However, while the
upper quartile organisations maintained their low levels of In the Service sector all the customer related measures are
customer complaints, the lower quartile have shown an moving in the right direction, i.e it seems that the message is
improvement in the past two years. getting through and improvements being implemented.
2. The numbers on the complaints per order (%) draw a very Moreover, the pace of improvements is faster (larger
academic picture of new theory application. Organisations improvements) in the lower quartile organisations who seem
started by reporting low levels of complaints at all levels, the to be working hard on the issues that need attention.
next phase (1999-2000) reported increasing complaints, For example, in lower quartile organisations, the order value
potentially due to the learning that took place and thus their of complaints/turnover dropped from around 3% in 1996-
improved ability to capture the customer complaint data, and 1998 to around 1.5% in 2001-2002; that is a 50%
the third phase saw a decrease in customer complaints, with improvement. Similarly, The percentage of orders rejected
the assumption that organisations identified the issues that during warranty in lower quartile organisations dropped over
needed improvement and commenced working on them. the same period by more than 50% (from 2.5% to 1%).

3%
in lower quartile organisations,
the order value of complaints as
a % of turnover dropped from
around 3% in 1996-1998 to
around 1.5% in 2001-2002

1.2

1.0

0.8

0.6
Complaints per customer (%)
5.0
4.5
4.0
3.5
3.0
2.5
Complaints per order (%) 1.5%
2.0
0.4
1.5

0.2 1.0
0.5
0.0 0.0
lower quartile median upper quartile lower quartile median upper quartile

Order value of complaints/turnover (%) Order not delivered on time (%) Order rejected during warranty (%)
3.0 18 3.0
16
2.5 2.5
14
2.0 12 2.0
10
1.5 1.5
8
1.0 6 1.0
4
0.5 0.5
2
0.0 0 0.0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

25
CTG 3 - AW 20/9/02 9:28 am Page 27

People - the employees perspective

The data on employees shows that both

Manufacturing and Service sectors have not done
much to change or improve. Indeed, both sectors
have shown no significant change (either way) in the
percentage of new employees that they take.
At the same time, both have reported slight increases in the
total leavers and the early leavers, which goes to emphasis
the new labour market and the war for talent. It also shows
that no real efforts are being put in place to reduce the
numbers of leavers (especially the early ones).
In terms of days lost to absenteeism (an indicator of
employee satisfaction), the Manufacturing sector did not
register any changes (apart from the lower quartile
organisations reporting an
The Manufacturing sector increase), and the number of
does not seem to be accidents per employee did not
have any changes in their level
paying enough attention to either. Unfortunately, these
improving the conditions number are a clear message that
for its employees the Manufacturing sector does not
seem to be paying enough
attention to improving the conditions for its employees
despite the messages over the past years. On the other hand,
increase in the total leavers
the Service sector is showing some improvements as the and the early leavers goes to
number of days lost to absenteeism has shown a decreasing
trend, as did the numbers of accidents per employee. Still, the
emphasise the new labour
gap between the top 25% and bottom 25% organisations market and ‘war for talent’
remains roughly the same.

New employees/total employees (%) New leavers/total employees (%)

40 30

35
25
30
20
25
20 15

15
10
10
5
5
0 0
lower quartile median upper quartile lower quartile median upper quartile

Early leavers/total employees (%) Days lost to absenteeism per employee Accidents per employee
18 8 0.40
16 7 0.35
14 6 0.30
12
5 0.25
10
4 0.20
8
3 0.15
6
4 2 0.10

2 1 0.05
0 0 0.00
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

26
CTG 3 - AW 20/9/02 9:28 am Page 28

Supplier management

Both the Manufacturing and Service sectors reported

positive improvement trends in all the measures
related to suppliers (apart from the value of supplies
per supplier in the Manufacturing sector).

Overall, the message seems to be clear and actions put in

place as improvements have occurred including reductions
in sub standard supplies in both sectors, improvement of on
time delivery records (by more than 30% in the lower
quartile firms in both sectors), and an increase in stock turns.
The only negative trends was in the values of supplies per
supplier as organisations seem to have reduced those values,
on average, in both sectors. While everyone has been talking
about supplier partnerships and supply chain management
in the past few years, the dawn of the internet
(e-procurement, internet bidding, reverse internet bidding,
etc.) has potentially caused organisations to go back to
focusing on price at the expense of having more suppliers.
The full consequences of such actions will become more
apparent in the future and will strongly be related to the
e-procurement rules and regulations on a global basis.
on-time delivery of
The gap between the top 25% and bottom 25% firms
does seem to be reducing, albeit with small percentages and supplies has
not in any major way that one would expect with the all the
support on offer to lower quartile organisations. improved by

5.0
4.5
4.0
3.5
Sub standard supplies (%)
30% in lower quartile
firms in both sectors
3.0
2.5
2.0
1.5
1.0
0.5
0.0
lower quartile median upper quartile

Supplies delivered on time (%) Value of supplies per supplier (£) Stock turns
100 140000 80
90 70
120000
80
60
70 100000
60 50
80000
50 40
40 60000
30
30 40000
20
20
20000 10
10
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

27
CTG 3 - AW 20/9/02 9:28 am Page 29

Building for the future

!
From the trends revealed by the data, it seems like
building for the future has given way to focusing on
the shorter term for organisations in the
manufacturing sector.

The numbers reveal that over the period 1996-2002, As for the Service organisations, a close picture is drawn.
manufacturing firms in the UK are: They do not seem to be spending less on building for the
future, but none of the investment measures captured by
• Spending less on the capital investment as a Benchmark Index is increasing. They are at best maintaining
percentage of turnover the same levels.
• Spending less on R&D expenditure as a percentage Moreover, the gap between the upper and lower quartile
of turnover organisations remains the same and has not changed in any
• Not increasing their spending on training as a significant way which shows that the learning in this
percentage of turnover and spending less on perspective has not taken place.
training per employee.
• Investing less on hiring graduates.
• Spending less on their marketing activates as
a percentage of turnover.

These are extremely alarming messages and while the short

term pressures and the economic unrest are understandable,
firms potentially need some help in being able to balance
their approaches to address the short term with acceptable
success levels, and still build for the future to make sure they
are part of it.

alarming messages are emerging from

the benchmark data with most
companies concentrating too much on
the short term at the expense of longer
term planning and investment

Capital investment/turnover (%) R&D expenditure/turnover (%) Training expenditure/turnover (%)

8 5.0 1.0
7 4.5 0.9
4.0 0.8
6
3.5 0.7
5 3.0 0.6
4 2.5 0.5
3 2.0 0.4
1.5 0.3
2
1.0 0.2
1 0.5 0.1
0 0.0 0.0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

Training expenditure per employee (£) Graduates/employees (%) Capital investment/turnover (%)
500 50 8
450 45 7
400 40
6
350 35
300 30 5
250 25 4
200 20 3
150 15
2
100 10
50 5 1
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

28
CTG 3 - AW 20/9/02 9:28 am Page 30

Market growth & penetration

The growth perspective is one with some positive

messages. The upper quartile organisations in the
manufacturing sector are showing a slow, but
steady increase in the total new income/turnover
and a percentage point increase in the income from
new geographies.

Unfortunately, for both measures, the UK average is

reducing. A similar picture is drawn by the income from
new segments, while the income from new products is
on a downward trend (unsurprisingly after we saw the
trends in the investment in R&D). Still, the overall ratio of
new customer/total customers in on the increase.
Overall, the leading upper quartile organisations seem
to be improving their performance while the lower
quartile are moving in the opposite trend and thus
widening the gap.
In the service sector, the picture is much more
positive as all the growth measures are showing a
positive trend and while the gap remains the same, at
least everyone is moving in the positive direction. A lot of
learning and knowledge exchange still remains to be
done to reduce the gap.

the overall ratio of new

customers/customers
is on the increase

Total new income/turnover (%) Income from new geographies (%)

40 16
35 14
30 12
25 10
20 8
15 6
10 4
5 2
0 0
lower quartile median upper quartile lower quartile median upper quartile

Income from new segments (%) Income from new products (%) New customers/customers (%)
20 25 45
18 40
16 20 35
14
30
12 15
25
10
20
8 10
6 15
4 5 10
2 5
0 0 0
lower quartile median upper quartile lower quartile median upper quartile lower quartile median upper quartile

29
CTG 3 - AW 20/9/02 9:28 am Page 31

Benchmarking Impact

Are organisations following the advice they get from

Benchmark Index? Are they improving as a result?
In this section we explore the impact that Benchmark Index has
had on organisations in the UK - specifically those that have
been benchmarked twice. The data provide presents the
results for one set of companies who have taken part in two
benchmarks with a minimum gap of six months between them.

▲ Improving performance ▼ weakening performance ■ no significant change

Variable 1st Benchmark 2nd Benchmark

Sales turnover per employee (£) 63054 687661 ▲

Pre-tax profit per employee (£) 408071 233489 ▼
Pre-tax profit/turnover (%) 10.6 12.5 ▲
Return on capital employed 25.2 33.7 ▲
Return on net assets 18.5 22.5 ▲
Acid Test 1.6 1.7 ▲
Cash in bank/turnover (%) 9.2 6.9 ▲
Interest cover 13.3 10.9 ▲
Debtor days 65 67 ▼
Direct to indirects 3.7 3.1 ▼
No. of employees per manager 7.9 8.0 ■
Complaints per customer (%) 1.2 0.8 ▲
Complaints per order (%) 3.1 2.9 ▲
Order value of complaints/turnover (%) 1.1 0.9 ▲
Order not delivered on time (%) 16.8 13.4 ▲
Order rejected during warranty (%) 3.1 3.4 ▼
New employees/total employees (%) 23.4 22.6 ▼
Total leavers/total employees (%) 23.8 24.3 ▼
Early leavers/total employees (%) 18.3 21.7 ▼
Days lost to absenteeism per employee 6.1 4.5 ▲
Accidents per employee 0.4 0.3 ■
Sub standard supplies (%) 3.3 3.2 ▲
Supplies delivered on time (%) 81.3 82.4 ▲
Value of supplies per supplier (Euro) 3250118 1905502 ▼
Stock turns 35.9 40 ▲
Capital investment/turnover (%) 5.9 6.3 ▲
R&D expenditure/turnover (%) 1.0 1.1 ▲
Training expenditure/turnover (%) 0.4 0.6 ▲
Training expenditure per employee (Euro) 20027 18943 ▼
Graduates/employees (%) 12.7 14.9 ▲
Marketing expenditure/turnover (%) 1.7 1.4 ▼
Total new income/turnover (%) 25.5 27.5 ▲
Income from new geographies (%) 5.9 5.4 ▼
Income from new segments (%) 8.7 11.2 ▲
Income from new products (%) 15.6 14.6 ▼
New customers/customers (%) 29.4 28.7 ■

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CTG 3 - AW 20/9/02 9:28 am Page 32

Benchmarking impact

From the data presented in the table, the overall

effect of using Benchmark Index on participating
organisations has been a positive one.

Various areas like sales & profit performance, asset, customer People – the employee perspective
and supplier management have all shown general Again, the people management area is the one where the
improvements. It can be concluded that organisations are worst performance has been recorded. All the measures have
benefiting from the insights and recommendations provided seen declining performance (apart from the days lost to
by Benchmark Index. However, there are some areas where absenteeism which was reduced). Organisations seem to be
performance has declined; these are the ‘trouble’ areas like losing more employees, many of them early leavers (in the first
cost base management, people management, and investing in six months of joining). However, days lost to absenteeism were
building for the future.The following is a brief description of reduced along with the average no. of accidents per employee,
the impact of benchmarking as reflected by the above data. which suggests that some things are being done right . It is
probable that the increased staff turnover is not solely to
Sales and profit performance blame on the organisations own process but is also affected
The picture here is mixed as organisations seem to have been by the global war for talent which means that good
able to improve their sales turnover per employee as well as employees are being headhunted.This implies that
their pre-tax profit as a percentage of turnover, but their cost organisations need to work harder to maintain their
base management has been poor.The actual pre-tax profit per employees and need to provide even better incentives and
employee has almost halved which means organisations are environments to get the maximum value of their employees.
either using double the employees to achieve the increase in
sales turnover, or they are not handling their internal cost Supplier performance
management issues well, probably giving them less priority Improvements recorded in this category demonstrate that
while focusing externally on generating sales. Whatever the organisations participating in Benchmark Index sample are
reasons, there is a need to re-focus efforts on achieving a improving their supplier management practices. They have
balanced focus on external and internal activities. simultaneously improved the quality of their supplies, their
arrival on time, and their own internal operations (reflected
Value creation and asset management by stock turns). What has had a negative trend is the value of
Again, there are significant improvements in value creation supplies per supplier (an indicator of the no. of suppliers).
as the ROCE improved from 25.2% to 33.7% and the RENA This growth of supplier base will pose problems in that
has jumped by almost 4% while at the same time improving organisations need to be managing more suppliers and goes
the Acid Test ratio and reducing the cash in the bank as a against the advise of building supplier relationships and
percentage of turnover (the assumption is that they followed trying to work closely with fewer suppliers. However, it might
the advice on the need to invest this cash as opposed to well be the way the corporate world is heading with the
them running out of cash!). Moreover, organisations also increased competition in the age of e-purchasing and
improved other areas of asset management like reducing the globalisation as discussed in an earlier section of the report.
interest cover. However, they are getting worse at collecting
their money as the debtor days increased slightly. Building for the future
Things have not improved in overhead management as This is an area of concern as even with the insights they get
the ratio of directs to indirects has reduced, and there was no from Benchmark Index, organisations seem to be only
significant increase in the no. of employees per manager. This marginally increasing their investments to build for the future,
reconfirms the message that the cost base management or, in some cases, even decreasing them . While their overall
(including human capital management) is not improving. capital investment as percentage of turnover increased
slightly, the money they spend on R&D, Training and Marketing
Customer perspective has either stayed the same or reduced.This could have serious
Very positive impact is seen in the customer measures as all implications that will only be revealed in the future when it
but one have improved. Organisations managed to reduce might be too late to act (or too expensive to fix).
the complaints and their total value and improved their on
time delivery. However, there has been a slight increase in the Market growth and penetration
orders rejected during warranty, probably with more Overall, Benchmark Index seems to have succeeded in
implications on product and service design as opposed to helping organisations focus on growth and generate new
customer management processes. income. However, the main sources for this income seem to
be limited to new segments and new customers while income
from new geographies and new products has reduced.

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CTG 3 - AW 20/9/02 9:28 am Page 33

Appendix 1. Benchmarking Glossary

The data provided to Benchmark Index is used to

analyse company performance across a
comprehensive range of measures. The glossary
below explains how each of the measurement criteria
is calculated.
Accidents per employee (#) - this measures the number of Directs to indirects (#) - this measures the number of
accidents per employee. It demonstrates the level of employees directly involved in output-related activities
commitment to safety that the organisation displays and compared with supporting activities
importance that is attached to providing a safe working Calculated as: (no. of employees directly involved in the provision of
environment. service or product / (no. of employees - no. of employees directly
Calculated as: (no. of accidents or incidents / no. of employees) involved in the provision of service or product))

Acid test (short term assets / current liabilities) - this ratio Early leavers / total employees (%) - this indicates the extent
measures the company’s liquidity, and it’s ability to pay all to which the organisation has been successful in recruiting
their short-term liabilities instantly. and selecting people who are right for the position and right
Calculated as: (debtors + stocks + cash in bank) / (creditors + short for the organisation. A large ratio of early leavers to
term loans + other current liabilities) employees indicates a mismatch of expectations between
the individuals recruited and the organisation or job that
Capital investment / turnover (%) - this is an indication of they were recruited to perform.
how much the company continues to invest in itself. Calculated as: (no. of people who leave within six months of joining /
Calculated as: (capital Investment / turnover) x 100% no. of employees) x 100%

Cash in bank / turnover (%) - small companies find the non Graduates / employees (%) - this looks at the ratio of
availability of cash their largest problem. This ratio gives an graduates to all employees. It is one way of assessing the
indicator as to the accessibility of cash. Companies which level of education that is incorporated within the
hold too much cash may however not be investing their organisation.
funds to the best advantages of their business. Calculated as: (no. of graduates / no. of employees) x 100%
Calculated as: (cash in bank / turnover) x 100%
Income from new geographies (%) - this identifies how
Complaints per customer (%) - this is a method of assessing successful a company is being at developing new
the average number of complaints per customer geographical territories.
independent of number of orders and customers. The trend Calculated as:(turnover from new geographical markets / turnover) x 100%
for this measure can be useful to indicate improvement in
performance. Income from new products (%) - this measures a company’s
Calculated as: (no. of recorded customer complaints / no. of success rate at developing and introducing new products.
customers) x 100% Calculated as: (turnover from new products/services / turnover) x 100%

Complaints per order (%) - this is a method of assessing Income from new segments (%) - this identifies the ability of
customers satisfaction with the product and services a company to generate sales from new market segments.
supplied. It is sometimes desirable to seek complaints from Calculated as: (turnover from new market segments/turnover) x 100%
customers as it is better to know that they are not happy
with the product or service in order to put it right. However, it Interest cover - this ratio indicates the proportion of profit taken
is important to look at the nature of complaints to ensure up by interest payments.The larger the ratio the less vulnerable
that repeat ones are rectified as soon as possible. The trend a company is to a fall in profits or a rise in interest rates.
for this measure can be useful to indicate improvements in Calculated as: pre-tax profit / interest paid
performance, and is also a key indicator for lost business.
Calculated as: (no. of recorded customer complaints / no. of orders Marketing expenditure/turnover (%) - this is an indication of
received) x 100% the company’s investment in its marketing activity.
Calculated as: (marketing expenditure / turnover) x 100%
Days lost to absenteeism per employee (#) - this measures
the amount of time that people spend away from work due New customers/customers (%) - this figure, expressed as a
to sickness, unexplained absence and other reasons why percentage, identifies the growth in customer numbers
people do not attend work on a ‘voluntary’ basis. regardless of new business generated.
Calculated as: (absenteeism rate / no. of employees) Calculated as: (No of new customers / No of customers) x 100 %

Debtor days (days) - this is the debtor value divided by New employees/total employees (%) - this is a measure of
turnover and represents the average collection period that the relative experience level of a workforce. A higher figure
customers take to pay their bills. It is an indicator of signifies a low experienced workforce or it may reflect a high
profitability and customer relationships. growth rate.
Calculated as: (debtors / turnover) x 365 Calculated as: (no. of new employees / no. of employees) x 100%

32
CTG 3 - AW 20/9/02 9:28 am Page 34

Number of employees per manager (#) - this measures Sales turnover per employee - this is the ratio of sales
the number of employees to each manager / supervisor. divided by the number of employees. It is an indicator of
It enables organisations to see the appropriateness of profitability.
their level of management and supervision. Calculated as: turnover / no. of employees
Calculated as: (no. of employees / no. of managers)
Stock turns (#) - this is the turnover divided by stocks,
Orders not delivered on time (%) - this shows how well a giving the number of times stocks are turned over during
business is meeting its commitment for delivery promises. a year, or how quickly stocks are moved through the
A lower figure indicates better performance. business. It is an indicator of profitability.
Calculated as: (no. of orders which were not delivered when Calculated as: (turnover / stocks)
promised / no. of orders received) x 100%
Sub standard supplies (%) - this figure highlights the
Orders rejected during warranty (%) - this shows how quality of suppliers expressed on a percentage of total
satisfied customers are with the quality of the products purchases.
supplied. The lower the percentage, in general, the better, Calculated as: (value of supplies which are sub standard on
as it means that more orders are supplied with which delivery / value of bought in materials) x 100%
customers are satisfied.
Calculated as: (no. of orders rejected during the specified warranty Supplies delivered on time (%) - this percentage
period / no. of orders received) x 100% measures the ability of a company’s suppliers to deliver on
time. A higher figure demonstrates use of reliable suppliers.
Order value of complaints / turnover (%) - this figure Calculated as: (value of supplies delivered on time / value of bought
expressed as a percentage measures the total in materials) x 100%
dissatisfaction of customers independent of the number
of orders and customers. Total leavers / total employees (%) - this measures the
Calculated as: (order value of recorded complaints received / rate at which the staff of an organisation turnover per
turnover) x 100% year. It can give an indication as to how happy staffs are
with their workplace, it can also demonstrate the
Pre tax profit per employees (Eur) - this is pre-tax profit effectiveness of the selection procedures in terms of
divided by the number of employees. It is an indicator of getting the right people in the right positions.
profitability. Calculated as: (no. of people who leave the organisation / no. of
Calculated as: pre-tax profit / no. of employees employees) x 100%

Pre tax profit / turnover (profit margin, %) - this is the Total new income / turnover (%) - this identifies the
profit before tax expressed as a percentage of turnover. ability of a company to generate additional turnover from
It is an indicator of profitability and growth and provides new customers.
a useful comparison for how well the costs have been Calculated as: (turnover from new geographical markets + turnover
controlled. from new market segments + turnover from new products and
Calculated as: (pre-tax profit / turnover) x 100% services / turnover) x 100%

R&D expenditure / turnover (%) - this is an indication of Training expenditure / turnover (%) - this is an indicator
the company’s investment in the future, of its capacity to of the company’s investment in its employees.
be innovative. Calculated as: (training expenditure / turnover) x 100%
Calculated as: (R&D expenditure / turnover) x 100%
Training expenditure per employees (Eur) - this
Return on capital employed (ROCE, %) - this is the profit measures the company’s financial investment in its
before tax expressed as a percentage of the capital employees, expressed as an average training spend per
employed, where capital employed is taken to be the employee.
aggregate of shareholders' funds, long term loans, and Calculated as: (training expenditure / no. of employees)
long term liabilities. It is an indicator of both profitability
and growth as it measures how effectively the business is Value of supplies per supplier (Eur) - this ratio measures
using its funds in growing the size of the business itself. the average value of business for each supplier. A higher
Calculated as: pre-tax profit / (shareholder’s funds + long term loans figure demonstrates a minimising of supplier relationships.
+ other long term liabilities) x 100% Calculated as: (value of bought in materials / no. of suppliers used for
delivery of core products and services)
Return on net assets (RONA, %) - this is the profit before
taxes expressed as a percentage of net assets (fixed,
intangible and intermediate assets plus current assets less
creditors and other current liabilities). It is an indicator of
both profitability and growth regardless of method of
financing.
Calculated as: pre-tax profit / (total assets - other current liabilities -
creditors) x 100%

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Appendix 2 Public Policy Implications

The report has covered a wide cross section of the UK

industry and investigated various aspects of their
performance. The analysis has highlighted numerous
issues that require attention among several areas of
strength that can be built upon for the further success.
To build on these findings and support performance competitive market. National efforts to support people
improvement in participating organisations, the following development and intellectual capital management
notes provide some high level proposals for action. It is would go a long way in generating the required
prudent to note at this point that due to the complexity of awareness.
organisation and indeed their current and future operating • Overall, and by comparing the performance indicators
environments, any sustainable improvement effort must over a period of six years, it seems that there are some
involve a joint effort between the employees, management, positive changes in improving performance mainly on
investors, regulators, and policy makers. It is hoped that this areas like customer management, market growth, and
report will provide some common ground. In that context, supplier management. However, some areas that did
the following points are believed to be the main Public Policy not improve (or even worsened) like finances and asset
Implications from the analysis undertaken. management and people management. This
strengthens the argument that while conducting the
• Institutionalise ‘learning’ to close the gap - There is a benchmarking exercise is useful, the real benefit will
substantial gap between the top 25% and bottom 25% only be achieved if clear action plans and follow up
organisations in the UK industry. A gap that most result from that exercise. Organisations that participate
probably exists due to better management and in such benchmarking exercises could benefit from
business practices in the top 25% firms. More further support on what to do next, how to do it, and
importantly, a gap that can be reduced (with a goal of by when! It is not enough to know what your malaise is
eliminating it) by learning from each and spreading if you are not prescribed the right medicine, and
these best practices and advanced techniques. The key indeed you have the commitment to take it.
issue is embedding the ‘learning’ culture and thinking
mode in all organisations. Once these firms accept the
need to learn, and have a genuine will and
commitment, there seems to be no shortage of best
practice in UK organisations for them to learn from.
• Learning can take many forms, and one proven
approach is benchmarking and best practice transfer
(best practice reports, benchmarking visits, knowledge
transfer teams, employee exchange, etc.). From the
areas highlighted in the report, the main areas that all
UK sectors could benefit from improving include: cost
base management and optimisation, people
(employee) management, and investment (building for
the future) aspects.
• The study revealed a low focus on organisational
people (employees). UK organisations do not seem to
be focusing on, or taking care of, their employees. In
today’s markets, advanced economies are all working
on becoming ‘knowledge’ based acknowledging that
this will form the future competitive edge (and most
are already suffering from skills shortages). From a UK
organisational perspective, this translates to managing
their intellectual capital and recruiting, developing,
and retaining the best talent. This simply does not
seem to be happening. Organisations must change the
way they deal with their people to achieve maximum
benefit. The war for talent will only intensify in the near
future and people management practices will be one
of the one determinants of who wins in the

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• Among all UK organisations in the sample, there is a

concerning lack of investment in building for the
future (mainly research and development and
training). While we do live in turbulent times, one
might argue that investment in R&D, employee
development, and marketing are what will help some
winners to emerge from this environment. R& D can be
encouraged as part of a national policy via providing
tax benefits to such activities, providing research
forums, facilitating organisational cooperation with
dedicated research centres and educational
establishments. As for employee development, steps
have been taken to spread and subsidise learning for
employees, but what might be missing is educating
the firms themselves on why this is necessary and
leave it to individuals to determine if they should use it
or not. A view of ‘every organisation is a learning
organisation’ can be the goal, one that is very far from
the current reality.
• There seem to be several cross-sector learning
opportunities were upper quartile organisations in
some sectors seem to be leading. The following is an
example of some sectors that seem to be able to offer
good/best practice in certain areas:

area sector offering good/best practice

(based on performance numbers provided by Benchmark Index data

cost base service • general machinery • electronics

asset management service • general machinery • electronics

overhead management
(employee empowerment & management control) service • food, drink & tobacco

on-time delivery food, drink & tobacco

absenteeism
(work environment & employee motivation) service

supplier management
(no.of suppliers, stock turns) food, drink & tobacco • chemical

investing & building for the future chemical • electronics • services

market growth electronics

• There are also some sector specific learning that needs

to take place, i.e. some sectors seem to be under
performing in certain when compared to all UK
industry sectors. These could benefit from sector
specific learning targeted and tailored to them and
their environment. The following is an example of
some sectors specific areas that need targeting:

sector learning area

general machinery customer management • delivery on-time

food, drink & tobacco people management

(employee retention;staff turnover; absenteeism)

chemical safety (employee accidents)

transport investing & building for the future

metal products investing & building for the future

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Appendix 3. Benchmark Index data sources

The report relied on data collected via Benchmark Index from

organisations in the UK. The sample composition is described
in the following table;

Industry %
Farming, forestry & fishing 6.9
Mining & ore extraction 0.3
Food, drink & tobacco 3.5
Textiles & clothing 1.6
Wood & paper 4.8
Chemicals, plastics & ceramics 4.3
Metal products 14.3
General machinery 4.0
Electrical & electronics 4.4
Transport 20.0
Utilities, telecommunications & post 0.4
Retail & wholesale goods 6.0
Tourism 2.2
Transport services 2.0
Financial/property services 1.5
Social/governmental service 1.4
Other services 9.8
Construction/contracting 6.9
Other manufacturing 5.2
Education 0.5
Total 100%

Turnover %
Less than £1m 35.9
£1 - £4.9m 36.3
£5 - £9.9m 12.2
£10 – £29.9m 9.9
£30m + 5.7
Total 100%

Number of employees %
10 or less 22.5
11 – 20 16.8
21 – 50 25.0
51 – 100 16.1
101 – 250 15.0
251 – 500 3.8
More than 500 0.8
Total 100%

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Appendix 4. Benchmark Index Analysts

Data analysis in this publication has been carried out

by the Centre for Business Performance at the
Cranfield School of Management, Cranfield University.
The analysis has been headed by the Centre’s
Director, Professor Andy Neely with support from
Dr. Marek Szwejczewski and Dr. Yasar F. Jarrar

Professor Andy Neely BEng MA PhD prior to coming to Cranfield was Marketing Manager with
Director, Centre for Business Performance Motorola. After completing his MSc, Marek joined the
Professor Andy Neely is Director of the Centre for Business Operations Management Group at the School of
Performance at Cranfield School of Management and Management, to work on the Best Factory project. His current
Professor of Operations Strategy and Performance. Prior to research interests are manufacturing strategy, performance
joining Cranfield University he held a lecturing position at measurement and world class manufacturing. He is the
Cambridge University, where he was a Fellow of Churchill author and co-author of a number of articles and reports on
College. Andy has been researching and teaching in the field manufacturing performance and strategy and supply chain
of business performance measurement since the late 1980s. management.
He chaired the first and second international academic
conferences on performance measurement, in July 1998 and Dr. Yasar F. Jarrar BSc MSc PhD
July 2000 respectively and co-ordinates the Performance Yasar joined the Centre for Business Performance in January
Measurement Association, an international network for those 2001 as a Research Fellow, and is currently involved in
interested in the subject. He has completed numerous applied research for sponsoring organisations (DHL, Bank of
research and consulting projects and authored over 100 Scotland, Arla Foods, BTCellnet, Greggs of Yorkshire and
books and articles, including "Measuring Business Accenture). Currently, major research areas include
Performance", which was published by the Economist. He has Performance Measurement and Management, Customer
consulted to and worked with a wide variety of organisations Relationship Management and Six Sigma. Yasar is also
including 3M, Accenture, Aventis, British Aerospace, British involved in research projects for NGO’s like the Productivity
Airways, British Telecom, DHL, Diageo, Hogg Robinson, KPMG, and Standards Board (Singapore) and The Government of
NatWest, Pilkington, Posten, Reckitt and Colman, Rolls Royce Dubai (e-government initiative). Yasar is currently an
Aerospace and Schering. Honorary Visiting Fellow in Total Quality Management at the
European Center for Total Quality Management, University of
Dr. Marek Szwejczewski BA MSc MSc DipM PhD Bradford, UK, and has been an invited speaker in numerous
Senior Research Fellow in Operations Management national and international events. Yasar also previously
Marek is responsible for the administration and is involved in worked as a Quality Management Consultant and Industrial
the judging of the Management Today/Cranfield School of Engineer in the Middle East.
Management Best Factory Awards scheme. His first degree is
in Economics and he completed his Master of Science in
Computer Integrated Manufacturing at Cranfield University
in 1991. Prior to joining Cranfield he worked for eight years in
marketing management. He has worked in various industry
sectors, ranging from retailing to telecommunications and,

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Case Study
NOT CONTENT TO SIT ON THEIR LAURELS Karani believes benchmarking has helped in all areas of
Aqua operation, the main benefits being in relation to cost-saving
Cure With over a hundred years experience in business, one may and better communication. “Small companies can get used to
think there is not much for Aqua Cure to learn. But rather wearing 20 different hats and lose sight of what their goals
than getting complacent, the firm have taken the opportunity are,” says Karani,“The Benchmark Index is a new set of eyes
to stand back and look at their performance in order to for businesses - the constructive criticism can be very useful.”
continue their success.
Two advisors facilitated Aqua Cure in working through the
Founded in 1859 Aqua Cure is one of the United Kingdom’s Benchmark Index. Karani explains that they could not have
largest suppliers of water filtration, purification and treatment completed it without the advisors as some of the questions
systems. With just 70 employees it has remained small but are more general and need tailoring to the specific company.
successful in its field. The company occupy two sites in He hopes Aqua Cure will be able to continue expansion and
Merseyside where they manufacture and supply products development at a steady rate over the next four years, and
from as small as water filters for the kitchen sink to large possibly join forces with other businesses in the market.
engineered treatment plants capable of dealing with Benchmarking helped clarify Aqua Cure’s strengths but also
thousands of gallons per day. revealed some areas for improvement showing that
profitability is not the sole indicator of a healthy business.
Aqua Cure caters for approximately 20,000 customers, across
the public and private sectors, the largest clients being local And would Aqua Cure recommend benchmarking? Karani
councils, NHS trusts and the prison service. Although most of explains that any company that thinks it is doing well should
their business is national they export some products overseas do the Benchmark Index because there are always areas that
and hope to expand this market at an international exhibition can be improved. “Simple improvements can make huge
in Amsterdam later this year. changes in business,” he says.

The firm’s reputation has been built on customer satisfaction

with its products, installation and maintenance facilities and
after-sales service. Current turnover stands at £4 million and
has been growing at 20 per cent per annum for the last three
years.

Nevertheless, managing director Minoo Karani is keen not to

let things slide. “There may be companies who are growing
at 50 per cent. We wanted to do the Benchmark Index to see
if we were doing well compared to others in the industry.”
After hearing about the Benchmark Index through a Business
Link presentation, the company took part in the process for
themselves in April this year. Five managers were involved in
benchmarking over a two and a half month period. But this
“ Small companies can
get used to wearing 20
different hats and lose
sight of what their goals
was time well spent according to Karani, who says
benchmarking has been wholly worthwhile.
are, The Benchmark
Index is a new set of
When Aqua Cure received the results six weeks later there
eyes for businesses -
were no real surprises. Profitability was good in comparison
to the rest of the industry and the Benchmark Index also the constructive criticism
can be very useful.
”
affirmed that the company’s approach to sales and customer
satisfaction was good, through effective marketing methods.
Minoo Karani , Managing Director, Aqua Cure

However, the report invited Aqua Cure to look more closely at

its expenditure in order to be more cost-efficient in relation
to production. The main weakness highlighted by the index
was in terms of communication. It seemed that
communication down the line was not always working well
and Aqua Cure needed to examine this at all levels of the firm.
The company have now taken steps to improve this by
introducing fortnightly meetings for all staff to make
everyone aware of changes in the business, even if they do
not affect all employees directly. A committee of
representatives from different areas of the company was also
formed to pool information and improve communication
across teams.

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