Best Practices

(Based on an article published in the Bottom Line in June 2005)

Have you ever wondered what Best Practices really mean? You will find generic explanations that best practices improve efficiency and effectiveness and achieve operational excellence. But what does this mean for a specific organization? You're going to have a hard time finding anything specific to your industry.

Even if you do - be careful. The so called best practice may be great for another company but a disaster for you. The costs to implement the best practice could be prohibitive. It's not best practice if the costs outweigh the benefits.

It turns out that best practice is not about specific things you should do to improve your business. It is about learning from others. It's about measuring how you're doing compared to history or others, and most importantly doing something about it.

You don't have to go far to learn from others. A common problem in many companies is that each department solves problems on their own without sharing their solutions with others. The reason for not sharing is that each department has a narrow mandate - they need to meet their own objectives, and so they think they should not waste their time with another department's problems.

But they are missing the big picture - they are not thinking corporately working towards the improvement of the company as a whole. They develop a home grown solution, when a better one is available from another department. These departments need encouragement to work together. Compensation should be linked to achieving corporate goals rather than just departmental goals. It also requires a change in culture, which can be the biggest hurdle to the various departments working together.

Best practices requires comparison to benchmarks or metrics. Ideally you can compare to metrics for your industry and size of company, but good luck in finding this data. Perhaps your accountant will be able to help you. They probably have clients similar to you. They should be able to provide average, best and worst metrics. If they don't have this information, ask them why not. The technology exists to generate and maintain this information. If you are an accountant, what are you waiting for? This is an ideal way to provide value-added service to your clients.

Which benchmarks should you choose to measure? First, you should choose metrics that are linked to your critical success factors - those things that you must do well in order to be successful. You should also understand the difference between what is called leading and lagging indicators. Lagging indicators tell you about results - sales, gross profit, customer satisfaction… Leading indicators foreshadow things that could happen. For example rising error rates in shipping or longer time to ship often precede declining customer satisfaction.

Metrics should be SMART - Specific, Measurable, Actionable, Relevant, and Timely. Without being specific, the numbers are ambiguous and there can be many ways to interpret the results. You should not choose metrics that are can't be measured accurately or take a huge effort to obtain. Actionable means that the metric is easily understood and that it ties back to a specific team that is being measured. Relevant was already covered in the discussion on critical success factors. Timely is obvious.

But the most important part of all is what you do about it. First you need to understand what caused the problem in the first place. Only then, can you fix it.