Steve Rossiter
C.W. Silver Industrial Services
Salt Lake City, Utah
Management Services Committee Member

I recently read an article titled “Learning from Google” in a local busi­ness magazine. The article focused on Google’s business model of developing incredibly valuable Web services and software and then giving them away free to the public. 

Phenomenal advertising revenue is generated (commission free) through companies bidding for keywords. These companies write their own text ads that are seen by a targeted audience through Google’s massive Web pres­ence. The article noted that with this business model being so successful, some believe that Google will surpass Microsoft in size in only a matter of a few years.

So, you might ask, how is this information related to the electrical apparatus sales and service industry? Actually, it’s an example of benchmark­ing. And benchmarking can be a valu­able management tool for our industry.

Benchmarking, both inside and outside the industry, is a tool business owners and managers can use to gain competitive advantage. When many of us started in business, tradition, intuition, or “gut feeling” was often our principal business strategy. If nothing in our business environment changed, that might have been good enough. However, we’ve learned that external comparison and analy­sis, or benchmarking, is a valuable management tool necessary to recog­nize and take advantage of changes occurring both inside and outside of our industry. 

Gathering external information
Benchmarking, by definition, is a proactive process of gathering external information that provides a basis for measuring current performance against an identified objective target.

With its segmented financial data, EASA’s Operating Performance Re­port can be a valuable resource to start your own benchmarking process. All EASA firms that participated in the 2005 survey received a free copy (via e-mailed PDF) of the final industry report. The report now has five differ­ent segmented areas to compare your firm’s financial data with others in the industry.

These include high profit, sales volume, line of business, cus­tomer focus, and geographic segmen­tation. This is a change over previous EASA financial surveys and is a vast improvement.

Meaningful information
As an example, an EASA firm with a distribution sales focus will find the 33.6% gross margin much more realistic than the 44.9% reported by traditional service firms. At the same time, distri­bution oriented firms reported sales per employee of $168,659 compared to the $129,954 achieved by traditional service firms. As participation increases in future surveys, these segments will become even more meaningful.

Once relevant comparative infor­mation is identified, measurable target objectives need to be set. This was made even easier for the firms that purchased the Profit Improvement Profile (PIP).

Section Four identified an action program based on five Criti­cal Profit Variables (CPVs). The CPVs suggested are sales volume, gross margin, operating expenses, inven­tory turnover and collection period. A complete financial analysis was pro­vided in the PIP based on projecting a small 3% improvement for each one of these individually. It was especially eye opening for me to see an example where simultaneous improvement in each area as small as 3% resulted in a projected 350% potential improve­ment to the bottom line.  

Credible financial resource
The EASA Operating Performance Report is probably the only credible financial resource available for our industry. Several firms I have talked to already take advantage of this and review these reports with their bank and CPA. With the continual ups and downs and changes in our industry, it is hard to believe that anyone would not want to engage in a benchmarking process of some sort each year. Unfor­tunately, many of us find ourselves too busy working in the business rather than on the business. 

Expanding the google model 
What if the next generation takes this benchmarking idea seriously? We might wake up one day and find them using the Google model to make more money on vendor advertising than on the motor repair itself. I can see repaired motors looking like race cars with all kinds of endorsement stickers bringing in $10 to $100 each.

Some of them might read:

• Core iron integrity preserved by our XYZ brand controlled temperature burn-out oven;  
• Perfect coil every time; ABC brand automated winding machines;
• Precision balanced on an XXX brand balance machine or;
• Vibration tolerance certified by an XXX brand trained technician.

On a more serious note, I encour­age those who have the 2005 EASA Operating Performance Report to dig out his or her copy and set a few measurable objectives. Those who did not participate can still buy the 2005 industry report from EASA using the enclosed form. Or better yet, plan on participating in the 2006 Operating Performance Survey (see article on Page 1) and get a free copy of the in­dustry report.

Categories: Technical topics

Tags: Benchmarking

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