The balance sheet is only a snapshot of the business at a particular moment in time. Therefore, any ratios based on balance sheet figures like the liquidity ratios may not be representative of the financial position of the business for the whole year. For example, the stocks and debtors may be low at the balance sheet date, and the liquidity ratios may also be low as a result. Benchmarking practice is a mean to promote continuous improvement in organisational performance.
Also, it has stressed the importance of initiating a benchmarking project only after going through a detailed analysis of competitive dimensions and business processes most in need of improvement. In doing that the benchmarking team not only guarantees that the project will be aligned with strategic objectives and needs, it also provides a basis for learning what a company’s weakness and strengths are. According to Carpinetti and Melo (2002) that the fist step is to gather information on product characteristics, target customer and markets, competitive priorities, manufacturing and financial strategies and general areas for improvements.
This will help to understand what dimensions and activities are most crucial to competitiveness. This step will need to gather information on customer expectations and perceived quality for different categories of customers or products and rank relative importance of requisites for most important customers. Also, gather information on performance against competitors in attending customer expectations. This helps to identify dimensions most in need of improvement.
Then, map all the processes and activities belonging to or supporting the value adding chain and understand their relationship with the dimensions most in need of improvement. This process helped by constructing a matrix relating processes to dimensions and focus on the attention on the processes and activities that most impact performance on prioritised competitive dimensions. It this step, conduct a qualitative or quantitative assessment of performance of the critical processes and activities is necessary in order to diagnosis the current situation to realising what areas or activities are the weak points and need to be addressed.
Quantitative information can reveal areas and dimensions in need of improvement. After performing the analysis proposed in steps 1 to 5, the dimensions and activities most in need of improvements become evident. From this point onwards, the benchmarking project itself can start for those subjects for which a benchmarking application is considered to be adequate. To become a World Class Company, management need to benchmark other world class company’s performance to improve current performance for greater achievement in business.
But, first, companies need to understand which company to benchmark and what is worth to benchmark, so that when benchmarked can lead own company to become excellent in performances. From there, we can set on new strategies to achieve better performance and win over our competitors. Therefore, a proper selection of the companies to benchmark must include the competitors as well. In juxtaposition, all methods used in this report are useful in many ways in finance decision making. The methods will be used to analyse financial statements and collect as much information as possible to make right decision in the business.