Benchmarking in the 21st Century11 Dec, 2006 By: Todd Johnson imageSource
Benchmarking in the 21st Century
For over 20 years we have talked about benchmarking in our industry. This
practice began at Alco Standard in the eighties and is still being used widely
in the industry today. Also called the “Copier Model” or “Johnson Model,” this
tool is the foundation for Global Imaging System’s operations nationwide. It
was also the basis of BTA’s Pro-Finance course and key to several well known
industry consultant’s practices like Heyand Hanson.
Why should you measure your business against the model?
The first reason is to gauge your performance accurately against the best in
the industry. There are too many variables between companies to compare results
without this standard measuring stick. Second, it is a way to identify
opportunity areas for growth and or profit improvement. The model is an
excellent tool for management decision making. With the 20 key metrics and
50-plus overall benchmarks, an owner can quickly identify weak areas and drill
down to the underlying reasons. Lastly, it becomes another tool for compensation
programs for key managers.
Webster’s dictionery defines a benchmark as:
1) A point of reference from which measurements may be made.
2) Something that serves as a standard by which others may be measured or
3) A standardized problem or test that serves as a basis for evaluation or
At Global we have an additional definition: “Minimum acceptable
performance.” This is often confused with “best practice.” In order for a
benchmark to be useful, it must be achievable. We believe it must be
over-achievable. Therefore, we generally target a benchmark at the 90th
percentile of the best practice. In this way, we can constantly measure
ourselves from the point of reference of one company’s best practice.
I am often asked if the benchmarks that Global uses apply equally to small
and large companies. The answer is no. Economies of scale definitely exist.
However, in our opinion it is not necessary to have several versions of the
model, because it is merely a guideline for management decision making.
Altering the benchmarks to fit your company is counter to the model’s purpose.
There are very few companies that look exactly like the model because it is a
generalization. Global’s test of validity is our ability to achieve the
benchmarks in total. If any one company is under-achieving a certain benchmark,
and understands why and is taking steps to improve, then we are accomplishing
Another key understanding is that the benchmarks change over time. As our
industry continues to mature and experience technology changes, we must
re-evaluate the best practices. Also, productivity is constantly improving.
Therefore, Global goes through an analytical process every few years and
compares performance trends to the existing benchmark model and makes updates as
appropriate. We also do our best to ensure that there is linkage between the
benchmarks, meaning that they can all be achieved simultaneously.
The last point to cover before getting into the numbers is the effect of
print management, scanning solutions, document storage, facilities management,
and even color on the model. We are often asked what changes we are making as a
result of these, or if we are breaking them out to manage distortion of the
model. While it is true that these components of the business all affect our
results differently, it is counter to our benchmark philosophy to micro measure
every one. Our benchmarks are designed to be the high end of the best
performances of an average dealer. It is a generalization that encompasses all
of the above. If we see a series of companies performing better than others and
then go on the understanding that their results all include a higher mix of
print management, then emphasizing that portion of the business becomes a best
So finally, the moment of truth. What are the key changes to the Global
benchmarks? As it has been in the past few updates, the largest changes are in
employee productivity. We have seen very steady increases in productivity
across the board. These are primarily measured in revenue/employee metrics
(see figure 1).
Productivity enhancements come from a combination of sources. One is the
technology that facilitates our business, including laptops, remote access,
automated dispatching, improvements in operating systems like OMD, and
web-enabled leasing. Another is training. Good investments in the training of
employees enables them to perform better. A key productivity enhancement comes
from the machines themselves, which are more reliable than ever. Lastly,
sharing best practices for monitoring activity and rewarding high performance
with compensation programs is critical follow through.
Departmental Income Statements
Equipment Sales – It has always been difficult to accept, but our
benchmark model ultimately shows that equipment sales provide a net loss to the
business. This is because the contribution of the department is less than the
allocated administrative overhead. Don’t worry. Equipment sales fuel growth
and maintenance contracts, which make it critical to our business model. The
key is to have a healthy mix. Too much equipment sales can sink you. Not
enough risks your future. Additionally, we are more concerned with the
departmental contribution than gross profit or sales expense alone. These
percentages change relative to each other, and are acceptable in any combination
that hits the contribution target (see figure 2).
It is important to note that Cost of Goods Sold (COGS) in the model includes
all discounts and rebates recognized in conjunction with their corresponding
equipment. Achieving this component of the model includes a productive sales
force, smart purchasing, smart leasing, and a compensation plan that rewards the
Service and Supply Sales – There is no contradiction between good
service for your customers and good profitability. Service is the most
measurable component of the business, and therefore, should be heavily
measured. First call completion, recalls, parts per call, average calls per
day, average travel time, clicks per technician, average car stock, machines per
technician, service and supply dollars per machine, are just a few of the
metrics Global uses to measure and manage this portion of the business. In any
case, this aftermarket component of the business is the profit driver in our
benchmark model, and we are continuing to achieve our target of 52 percent gross
A quick word on revenue allocations. Don’t get too worried about it! There
is more controversy on this particular topic than any other, and I have never
understood why. The allocations are somewhat arbitrary to begin with. The key
for Global is to have consistency from company to company, and from year to
year, so that we have solid comparisons. Our general allocations on supply
inclusive copier contracts are 65 percent service, 35 percent supplies. Yes,
that includes color. On all printers we use 35 percent service, and 65 percent
supplies. If you allocate differently, your results do not necessarily compare
to our benchmarks. With these allocations, we achieve or over-achieve all of
our benchmarks as a group. Global also looks at the two departments as a whole.
We are even considering collapsing them together to eliminate the issue (see
The last significant component of the benchmark model is administrative
expense. We have attempted to sub-divide this category for years without
success, until now. The previous benchmark was 15 percent of sales.
Historically, we find that companies are all over the board regarding the
components of admin expense. After some internal analysis, we have subdivided
it into four major categories: Compensation 7.7 percent; Facilities 3.6 percent;
Health/Medical 2.0 percent; and Other 2.2 percent, for a total of 15.5 percent.
We see relative consistency in these major groupings, although companies still
vary. The increase from our last model is primarily due to health care costs.
Overall, we still believe 15 percent is the correct operating profit target
(see figure 4).
So even though the model is getting some age, it is constantly changing and
adapting to our 21st century world. The good news is, this remains a great
industry, and that the copier benchmark model can help you achieve significant