Although very useful as one component of a business process improvement project, a best practices audit has important limitations that you should recognize upfront.  First, you must be sure you know and understand the real problem.

This powerful tool originated from a simple, almost obvious premise: at some level, most business organizations do the same things.  Therefore, by examining those organizations that do these common processes extremely well, we can quickly find ways to improve our own business.  Significantly, best practices offer a way to learn from any organization in any industry, provided that both organizations share a “common process.”

Right to the Point

Faulty Diagnosis

• Your perceptions are accurate. You have solid performance measurements that identify your operational deficiencies. 
• You have correctly determined the root cause (s) behind these symptoms. You know that solving the root cause will eliminate the symptoms.  
• This root cause is a “critical constraint” to your business.  You know that elimination of this root cause will be immediately evident on the bottom line because there are no larger bottlenecks in your operation. 
• The problem, root cause and criticality are so obvious to everyone in your organization that you will have the required buy-in when a solution is selected. 

If you can answer “yes” to all of the above it is probably appropriate to embark on a search for solutions.  A survey of best practices can be a valuable part of this search.  If not sure, however, you should probably retreat from investing in changes until you’re more confident.  Think of best practices as a set of possible prescriptions. Just like a drug, a major process change may fix the problem, or it may fail to fix the problem and result in serious side effects. 

Inherent Limitations

Although very useful as one component of a business process improvement project, a best practices audit has important limitations that you should recognize up front. 

Top down rather than bottom up.  Best practice audits look at the correlation between basic financial performance and specific business practices.   It’s usually very difficult to “drill down” from an income statement or balance sheet to a specific process deficiency.    Consider, for example, the simple measurement of inventory turns.  Most distributors must carry a mix of fast and slower moving items to satisfy their customers.  Poor inventory turnover could indicate that your purchasing or forecasting processes are weak.  However, it could equally mean that your supply chain is unable to meet demand for higher moving items, thus reducing the portion of high movers in the average figure for assets.  The solution to the former problem is diametrically different from the solution to the latter.  The unfortunate reality is that business is often chaotic – small details can have a huge effect in determining the most appropriate process.  Like the butterfly that creates a hurricane, they can ruin solutions based on logical, top down designs. 

Correlative not causative.  Best practice audits deal with patterns and statistics rather than the mechanics of a specific process.  Therefore, there is no way to be sure whether the best practice is the cause of good performance or just the random by-product of the true source of good performance.  For example, it is well known that a high percentage of successful firms have regular, quantitative customer feedback.  Does this mean that the practice of getting customer feedback produces the good performance or is it just that those companies that are highly customer-focused tend to both perform well and do customer surveys? 

No prioritization.  At this point you may be thinking, “Okay, so maybe customer feedback isn’t the root source of better performance.  Clearly, though, it is of some benefit.  So what’s the harm in doing better customer surveys just like the best in class companies?”  The simple answer is that everything carries a cost.  You have a limited number of employees, there are only so many hours in the day and management bandwidth is fixed.  If you focus on customer surveys you must necessarily reduce your focus on something else.  If this “something else” is closer to the root cause of your biggest problem, then the activity of getting customer surveys will weaken your performance rather than strengthen it.  Anyone can come up with a list of important things that you should be doing everyday – the key is to find the MOST important things.  A list of best practices used by great companies doesn’t tell you what to work on first.  (And if you have enough spare time and money to do them all, then you have the greatest company in the world!)

Generic instead of specific.  This is both a strength and a weakness of the best practices comparison.  By going outside your industry, best practices can give you a creative edge.  However, because they do not deal with the causes of good performance, they cannot tell you how well they apply to your industry and organization.  The hospitality industry may have excellent call centers, but do their typical customers have the same needs as yours?  Remember the basic premise of best practices: that all companies do the same things at some level.  The problem is no one really does exactly the same things for exactly the same customers.  Once you get below the trivial level of “buying, making and selling,” it becomes important to look at your specific processes. 

The Proper Role

What, then, should we do with the vast collection of best practices and associated statistics?   Certainly, they can be a valuable resource for process improvement.  The key is to realize that best practices are a library of potential solutions to be considered only after you know the problem.  In our experience, clearly understanding your organization’s most significant barriers and obstacles is by far the hardest part of process improvement.  Often, once a problem is identified and plainly stated, its solution becomes almost trivial.  In those situations in which it is not, best practices from both within and outside your industry offer a rich source of alternative solutions.  It is especially effective to use best practices in conjunction with “brainstorming” sessions by your management team. 

Before you look at best practices, consider the following steps for identifying your key barriers: 

Listen.  Your critical operational constraints are probably not a mystery.  The trick is to listen carefully to your customers and employees.   Look for the things that really have a bottom line impact.  Confidential surveys can help.  Consider using outside resources to collect information – they can offer some objectivity and perspective.

Measure and model.  Look at your basic financials and then drill down to the next level or two. Do you have low gross margins because your overhead is too high or because your pricing doesn’t reflect the value of your services?  Do you know how much the end of month spike in business costs you?  Do you know the longest step in your order cycle?  We have found that operational modeling can be invaluable in quickly finding the “low hanging fruit.”  Remember, you don’t have to find every deficiency, just the most critical ones.

Be objective and honest.  You must be prepared to slaughter your sacred cows – no one’s turf should be more important than the overall financial success of your company.  Don’t fall into the trap of fixing a less critical problem because the real issue is considered untouchable.  The truth shall set you free. 

Steve Deist is responsible for the Operations Practice at Indian River Consulting Group. IRCG is an experienced based firm specializing in Distribution. Started in 1987 by J. Michael Marks, IRCG’s specialists consult with distributors and suppliers to make the changes necessary to maintain competitive advantage. You can contact them by calling 321- 956-8617, or visit www.ircg.com for more information.

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