Identifying value creation potential with Baselining

• Baselines are the first step in identifying value creation potential.
• They enable a holistic view of topics such as finances and staffing levels and help to identify hidden values.
• Baselining is an objective way of measuring and improving business and value creation processes.

In situations where competition is fierce, companies need to realise their full value creation potential if they want to hold their own in the market. Where are there opportunities for optimisation or savings along the value chain? Does the business model meet current requirements or are there unutilised market opportunities?

Baselines are the first step in identifying value creation potential. They enable a holistic view of a company's finances or staffing levels, for example. They therefore play an important role in identifying opportunities to increase value.

At first glance, determining the current status of a company's entire value chain appears to be a relatively simple task. However, the financial issues alone are usually scattered throughout the company. A quantifiable, data-based approach is required in order to create transparency and establish an in-depth understanding.

Companies should answer three important questions: Do they have enough resources? Are the resources too expensive or price-efficient? Are the right people in the right places?

Baselining is a process in which reference points or initial values are defined. These serve as a basis for comparison in order to create transparency about the current status. The term originates from data analysis. There, baselining refers to the determination of initial values or benchmark data.

The data points obtained during baselining provide a basis of comparison for evaluating performance in the future. A baseline makes it possible to recognise changes or trends over time and to assess whether certain decisions have had a positive or negative impact.

Baselining is therefore an important method for monitoring and improving business and value creation processes, as it provides an objective way of measuring progress, performance and the effectiveness of measures over time.

An organisational baseline provides companies with a complete view of all employees. The data that needs to be collected for this creates transparency about the true level of activity within an organisation.

This baseline offers numerous opportunities for optimisation. It provides the basis for a mechanism with which complex organisational structures can be simplified, as well as the information to identify potential savings.

A financial baseline is the overall picture of a company's financial performance within a specific period - for example, a quarter or a financial year. It provides a complete and transparent picture of revenue generation and the costs incurred.

The financial baseline is of particular importance as a data point because it is intended to be the "single source of truth". As far-reaching decisions are made on the basis of these data points, it is essential that they are valid.

There are two subtypes of financial baselines: one for costs and one for revenues. In some cases, however, only one of these subtypes is applicable.

So how can baselines uncover hidden values in practice? Let's take a company that wants to understand and optimise its cost structures and headcount across several departments and uses baselining to do so. All cost and sales items are identified and analysed in order to obtain a holistic view of finances and staffing levels.

This approach offers companies several advantages: With the transparency gained, more effective measures can be taken to improve performance. For example, if it turns out that stock levels are accumulating or sales are being prevented due to the misallocation of employees, these findings can be used to directly derive improvement measures.

A holistic view of the processes involved in value creation provides further insights and starting points, for example for the transformation or automation of processes. These can also lead to further cost savings.

In order to create baselines that both generate a transparent picture of the organisation and allow an understanding of all processes and components of value creation, a four-phase approach is necessary:

1. data input and preparation

2. linking and synchronisation of data sources

3. development of baselines

4. validation and implementation of further analyses

This approach is facilitated by pre-populated data and a series of automated processes in the creation of Excel files. Input validation processes ensure that errors or discrepancies are recognised. Templates can be converted into Excel formats, databases and dashboards to create organisational and financial baseline reports.

Baselines are an important component of solutions for improving performance and increasing the value of companies. They offer a holistic view of, for example, finances and headcount and help to uncover hidden value. Using the four-phase approach as well as data and analysis tools helps companies to identify value creation potential, improve their performance and utilise their resources more efficiently.