Today’s modern organizations are buffeted by dramatic changes in markets, technology, and competitive pressures. In that context, reliable, objective, and actionable benchmarking information is needed. While the traditional approaches to benchmarking are still relevant, the time has come to consider more decisive benchmarking practices that can consistently result in driving a competitive advantage. Management accountants and financial leaders have a vital role to play in improving the deployment of benchmarking in strategy formulation, financial planning and analysis, and business performance.


This article discusses how management accountants currently apply benchmarking and how leading organizations have taken traditional benchmarking to new levels aimed at sustained profitable growth. The benchmarking alliance approach presented in this article enables enhanced benchmarking information that can drive improved financial performance and decision-making confidence. This proven approach can be deployed in a variety of contexts and industries.


What Is Benchmarking?


Benchmarking is defined as something that serves as a standard by which others can be measured. Peter F. Drucker refined this generalized definition with application to business: “What a business needs most for its decisions—especially its strategic ones—is data about what goes on outside it. Only outside a business are there results, opportunities, and threats.” From a management accounting perspective, Horngren’s Cost Accounting: A Managerial Emphasis defines benchmarking as “the continuous process of comparing the levels of performance in producing products and services and executing activities against the best levels of performance in competing companies or in companies having similar processes.” It should be noted that this definition highlights the need for benchmarking as a regular ongoing activity: Many companies turn to benchmarking only when problems arise instead of using it regularly as an effective tool.


Benchmarking has become a widely used tool to support a variety of significant business decisions. Without quality benchmarking information, mission-critical business decisions could be supported by information that’s significantly biased or ill-informed. Examples of benchmarking decision support include:

  • Talent acquisition: What is the current salary, benefits, and overall value proposition for new hires in the controllership function? How do we compare with leading companies? Financial reporting assumptions: What is the asset capitalization threshold for companies like ours?
  • Regulatory requirement: How does our cost of compliance for the Federal Trade Commission’s Robinson-Patman Act compare with others?
  • Technology deployment: What progress have companies like ours made in using AI to automate finance, accounting, and other administrative responsibilities?

The focus of benchmarking is on the value of the external view. Yet some larger companies also have adapted this external view by benchmarking similar activities among its divisions. For example, a major beer company that has six brewing and bottling sites in North America benchmarks manufacturing costs for both its regular and seasonal brands. The purpose of the company’s benchmarking exercise is twofold: (1) to surface and understand internal best practices and to implement those practices in the other five sites, and (2) to help identify the lowest cost producer of the six sites to help decide which of the plants would be the best choice to expand production capacity. This is an example of internal benchmarking.


Many advisory firms, professional education suppliers, and not-for-profit organizations have supported and encouraged benchmarking efforts for decades. Until 2011, the American Institute of Certified Public Accountants (AICPA) published Accounting Trends and Techniques, an annual comprehensive report covering Generally Accepted Accounting Principles (GAAP) reporting alternatives and compliance that provided answers to questions such as:

  • What percent of publicly held companies in a given industry use last in, first out (LIFO) vs. first in, first out (FIFO) for inventory accounting and reporting?
  • What percent of companies use the direct vs. indirect method for reporting cash flow?
  • What are the longest estimated useful lives for passenger aircraft to calculate annual depreciation in the airline industry?

This invaluable benchmarking report was often referenced in the libraries of professional accountants in private and public practice for decades. However, in the current edition of Horngren’s Cost Accounting textbook, authors Srikant Datar and Madhav Rajan introduce benchmarking and raise the following concerns: “Finding appropriate benchmarks is not easy. Many companies purchase benchmark data from consulting firms. Another problem is identifying comparable benchmarks to make an apples-to-apples comparison.”


Researchers Rani Hoitash, Ahmet Kurt, Udi Hoitash, and Rodrigo Verdi revisited traditional benchmarking using published general purpose financial statements. They developed and tested a new metric, financial statement benchmarking (FSB), to highlight the degree to which two companies are appropriate for benchmarking using information contained in U.S. Securities & Exchange Commission (SEC) Form 10-K. FSB may improve the selection process for companies seeking suitable benchmark partners. 


Risks in Traditional Benchmarking


It’s clear that benchmarking has been embraced by businesses across the global stage for many purposes. However, there are risks and related weaknesses in current benchmarking practices. The following are some risks and how they can be mitigated, resulting in improved benchmarking practices, better decision-making quality, and enhanced financial results.


One risk is choosing a weak benchmarking partner. Benchmarking with similar companies won’t reveal important shortcomings because what’s most accessible, familiar, and easy is also least likely to provide the type of information that could result in building competitive practices. Years ago, established Detroit-based automakers were losing market share to their Japanese counterparts because for a long time, “General Motors benchmarked against Ford and Ford benchmarked against Chrysler,” according to Drucker. This is one reason why U.S. automakers failed to meet the challenge of value, customer focus, and quality presented by their Japanese competitors (see “Thinking Outside the Box”).


Thinking Outside the Box

When a leading U.S. automaker benchmarked the cycle time to introduce a new vehicle, it decided to look outside its industry for inspiration. Given that cycle time for new product introduction is a significant cost driver in the auto industry, understanding how to reduce this cycle time was critical to realizing a reduced break-even point. In a counterintuitive move, the company decided to focus on understanding how a leading toy manufacturer of military aircraft model kits is able to design, build, market, and distribute a new product within six months of the release of information about the new aircraft from the Department of Defense.


Cycle time is mission-critical for this business because the most important toy purchasing season extends from after Thanksgiving through the third week in December. If that new toy model isn’t available for purchase before that period begins, the entire effort associated with this new product introduction would fall short. This automaker was the first to leverage this innovative approach to selecting an out-of-the-box benchmarking partner. The lessons learned from this exercise by the automaker led it, in part, to alter its practices and resulted in the shortest cycle time for new product introduction in the highly competitive auto industry. This approach delivered the lowest break-even point among its global competitors.


Another risk is bias in benchmarking research and reports. Bias can’t be totally eliminated from benchmarking research, but the goal is to minimize it with a view toward more reliable recommendations that are derived from this research. While I was working with a large global company, I was asked to review a consulting firm’s recently delivered benchmarking report on the cost of common high-volume accounting and financial transactions, such as accounts payable and accounts receivable processing. My detailed review of the report analysis and recommendations revealed that the report producers excluded best-in-class (e.g., first quartile) data from their report. Although this is what the client paid for, the firm revealed that it didn’t include the leading benchmark due to its concern about highlighting an “inconvenient truth” that might disrupt its client relationship. This in turn could have jeopardized the acceptance of another engagement proposal in process with the client. The firm decided not to “rock the boat” and instead remove key information from its report. This is the direct opposite of the client’s benchmarking engagement’s objective.


In today’s world, management accountants and financial executives are in a setting where leading freestanding advisory firms and those associated with large accounting firms are particularly focused on sophisticated and aggressive marketing efforts. This is evidenced by how many large companies continue to increase their annual spend on the gamut of advisory services. Today’s corporate leadership is willing to increase its dependence on external services providers, and the resultant risk is that the advisor may distort or exaggerate benchmarks to engender fear or uncertainty in their clients. To mitigate this risk, these “experts” must be questioned rigorously and vetted before companies can consider the objectivity of their recommendations. A dose of healthy skepticism is certainly appropriate in this context.


An artful balance of both internal focus and capturing vital insights from outside is critical for success. Exclusive use of either of these extremes will likely result in consistent failure, particularly in a time-constrained environment. Leading organizations are building on the foundations of benchmarking to innovate, mine, and reveal compelling findings.


Origins for Change in Benchmarking Practices


Early in my career, I worked with The Conference Board, a global, nonprofit think tank and business membership organization. My first role was to plan and facilitate a series of internal audit leader roundtable meetings at several locations around the United States. The following were lessons learned from this experience.


What went well?

  • Consistency in the roles, titles, and responsibilities of the attendees ensured a robust exchange of practices, issues, and solutions.
  • The topic agenda resonated with participant priorities, in part due to the vetting and prioritizing of topics in advance of formal invitation distribution.
  • The location of the sessions was easily accessible.

What was lacking?

  • Little feedback was requested from the organizers, except for a brief participant survey.
  • At times, the hotel meeting room was long and narrow with poor acoustics. This was not helpful in promoting verbal exchange.
  • The number of participants in each session varied widely, from about 20 to more than 50. For a session promoted for peer-to-peer sharing, the higher participant numbers left some participants out of the loop. A sensitivity to group dynamics was lacking.
  • Active engagement and participation were uneven, limiting shared learnings.
  • Lack of real-time feedback prevented midstream remediation.
  • No time was allocated to socialize. True peers will share at a more significant and valuable level if a comfort level can be established by using icebreakers or opportunities to socialize.

As a result of these experiences, I addressed the shortcomings of the program for chief internal auditors, kept what worked well, and introduced methods and practices that would enhance the quality of benchmarking and sharing of best practices between peers, independent of specific roles and responsibilities. This experience and similar ones with groups of corporate controllers were helpful in instituting tactical improvements in traditional benchmarking practices. Yet it took the following experience to open my eyes to the need for a new type of benchmarking and best practices platform.


Not long after my Conference Board experience, I connected two clients—a financial executive of a surgical supplies manufacturer and an executive from a medical technology business—who were both in the middle of an activity-based costing (ABC) implementation. Interestingly, they were both bogged down with similar implementation issues, so I decided they should speak to each other. As a result, both clients were energized, encouraged, and more confident than before they spoke to each other. Although their products/services, business strategies, corporate cultures, and backgrounds were quite different, both peers gained from this benchmarking exchange.


Both individuals also were interested to know if I could continue to facilitate future conversations concerning various aspects of their ABC implementations. As a result, I proposed that we initiate a forum for noncompeting companies with serious and significant ABC initiatives. The group would meet regularly, sign confidentiality and nondisclosure agreements, and commit to open discussion and sharing. Only company implementation leaders would be invited to join and participate.


As these companies became better at planning and implementing ABC, the need for peer-to-peer support and regular benchmarking group meetings waned. After six years, our formal activities ended. However, I was convinced that a better, more effective model for benchmarking and sharing best practices was feasible and could be applied to other areas of business. The proof-of-concept stage of development was complete, but there was more to learn.


I once met with the corporate controller of Chrysler, who asked what other large global companies were doing to systematically recruit, hire, retain, and accelerate the development of their significant numbers of early-career finance and accounting staff. He also wanted to know how large global companies were developing experienced talent. That brief conversation led to the formation of the Finance Development & Training Institute (FDTI) best practices alliance.


Chrysler hosted the first forum in Chicago in late 1994 to discuss and exchange best practices in the CFO talent space. This exclusive event attracted 12 noncompeting companies with substantial finance and accounting head counts. After the two-day event, more than half of the participating companies requested to form a sustainable benchmarking and sharing best practices alliance focused on CFO talent development for large global organizations. I was fortunate to schedule and stage the first official workshop of the FDTI best practice alliance in April 1995. Today, the FDTI alliance membership includes the CFO talent development leaders of Coca-Cola, Dell Technologies, Dow, Ecolab, General Mills, IBM, Johnson & Johnson, and Verizon.


The lessons learned can be adapted for management accountants and financial leaders building competitiveness and realizing sustained positive change and can be applied to a variety of circumstances and groups with common interests, risks, and values. Our team leveraged these lessons to design, launch, and establish other benchmarking and best practices alliances such as the China Finance Institute and the Europe-Finance Leadership Institute. We also founded and developed the Transit-Finance Learning Exchange, a group composed of finance leaders of large public transit agencies in the U.S. and Canada.




The following recommendations should be considered to acquire optimal, sustainable results in establishing an alliance in benchmarking.


1. There needs to be consistent engagement and responsive participation from all members.

2. Only those with similar roles, responsibilities, and span of control should represent their companies.

3. Every member company needs to sign standard nondisclosure and mutual confidentiality agreements to establish a safe exchange platform.

4. Companies that are considered competitors by existing member companies shouldn’t be offered alliance membership in order to maintain mutual cooperation.

5. New members can only join the alliance with a unanimous vote of the existing membership to improve alliance quality after vetting.

6. Advisory and software firms aren’t considered peers and therefore shouldn’t be offered membership in the alliance. This limitation is vital to promote the kind of candor and unencumbered flow of ideas that’s critical to the alliance membership. Additionally, no selling should be permitted in the alliance context.

7. Annual fees should be required for alliance membership to ensure commitment. The fees should be used to support the alliance, including expert facilitation, program planning, event execution, ad hoc research, and related out-of-pocket costs.

8. The alliance should elect a volunteer chairperson to serve members’ interests and interact regularly with the facilitation team to guarantee accountability.

9. Members should host regular face-to-face forums at their respective headquarters to increase peer interaction. Recurring virtual meetings can complement the in-person hosted forums. This would also provide the opportunity for members to gain regular exposure to host finance and business leaders.

10. Business meetings should be held for continuous improvement purposes and to chart the topics and agenda for future alliance programming to drive engagement.

11. Membership should be capped at no more than 15 member companies at any one time in order to optimize high-value interactions.

12. Conversations between meetings should be encouraged: This is when some of the most valuable benchmarking, sharing best practices, and ideation take place.


These recommendations for alliance formation and operation should serve as a basis to consider an evolved way for management accountants and financial leaders to add value to their enterprises. Getting started down this road can begin with the following steps:


1. Identify a specific pain point: What parts of CFO practice are under-performing or what techniques or tools are not delivering as expected (such as the latest version of an enterprise resource planning system)?

2. Identify what companies outside of your industry you respect and admire but that may be experiencing similar contemporary challenges.

3. Share your success. What does your company pride itself in most that could be leveraged by others who don’t compete with you?

4. Ensure that the first meeting of the alliance under formation will produce a sufficient volume of high-value insights and the expectation of many future insights so that all those present trust that the alliance should be established and sustained to continue to produce insights, collaborative problem solving, and decision-making confidence in the future to its member organizations. This is accomplished by assuring that invited participants fully understand the high level of participation involved, completion of a brief pre-event survey, and presentations from at least two peer practitioners who are practice leaders with respect to the role and responsibilities of the invited peers. It’s also important to enlist experienced event facilitation talent to assure a successful outcome.


Management accountants and financial leaders should consider reforming their approach to benchmarking given its key impact on both strategic and tactical decision making across functions and responsibilities. Consistent reliance on traditional benchmarking sources can’t deliver the kind of unbiased, actionable, and independent benchmarking and best practices results. Traditional benchmarking won’t drive the changes that are needed to lead in both growth and profitability. This article offers a modern, proven approach to material improvement in benchmarking practices. Adopting these practices can go a long way in improving information transparency, manager accountability, and methodological coherency.


The author thanks Leonard Goodman, CPA, and Allen Schiff, Ph.D., for their input on earlier drafts of this manuscript.


About the Authors