Benchmarking
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How to Use Benchmarking to Improve Your Performance
Benchmarking Defined
A benchmark is a standard against which a thing or group of things can be measured and evaluated. In a business setting, benchmarking is the process of comparing one or more factors (cost, time, productivity, output, efficiency, etc.) of company data against industry standards for these issues.
Benchmarking Problems
If used wisely, benchmarking is a useful tool to measure the efficiency and success of your staff, teams, departments, and management. However, independent research entities have issued regular criticism of many companies because of their perceived misuse of benchmarking. Much of the criticism is not related to a failure to use this tool, but directed at the many companies that overuse benchmarking. They contend that many companies study and measure too much. The companies become swamped with numbers, making a meaningful comparison impossible.
Another common problem is how benchmarking is used. Some companies use it correctly, but restrict their analysis to their industry exclusively. Some expert commentators point out that using tunnel vision provides little insight into the (often higher) standards that companies in other industries achieve.
Companies restricting their benchmarking often miss opportunities to improve their process and performance they might discover via a comparison to similar businesses in different industries. For example, the Global Benchmarking Network (GBN) performed a study of over 450 companies. They found that, while around 20% of the participants received an observed benefit of around $250,000, almost 30% received much lower benefits. The reason: They really didn’t know how to use benchmarking, they weren’t trained in its proper use, and they didn’t follow standard methodology or management practices.
However, properly used, benchmarking can help you become a better manager and improve the performance of your team. Here are some suggestions to effectively use benchmarking, regardless of your industry or the size and composition of your team or department.
How to Use Benchmarking to Improve Performance
- Keep your eyes on the prize. Don’t totally focus on the details. Your benchmarking project can be formal or informal. You can deem it a major project or keep it running “in the background” like some valuable computer programs. The key to successful benchmarking is to know exactly what you are measuring and what your goal really is. What do you want to learn?
- Compare your performance to the “best in class,” not those companies you believe are equal to or less than your own. Typically, “best in class” is defined at the top 20% of the universe of companies you might use as the primary benchmark. This is a better choice. Compare yourself against the best; don’t settle for less.
- Fully understand the “questions” you’re asking as well as the goal you target. The process may quickly become time consuming, if not meaningless, if you are “cloudy” about your questions and/or your true goal. Ask yourself, “If I change practices, conditions, or action plans as a result of benchmarking, will I enjoy a meaningful, profitable return on the investment (payback)?” If the answer is “yes,” go forth and measure.
- Include organizations from other industries in your search for the “best of the best.” Don’t restrict your options to businesses in your own industry. Unless your team performs a function that is vastly different from other industries, use some of the top companies from different industries to create your “best of the best” menu. For example, if you manage a customer service, accounting, or marketing team, inject some benchmarks from some top performers in other industries. They will be just as relevant, if not more so, than competitors in your own industry.
- Be aware – and unafraid – that using “best-in-class” benchmarking will offer a strong challenge to you. Often, the results of your study will present a formidable test of your ability (and that of your company) to make hard decisions and changes to operations. To get the best benefits, treat the results as a direct challenge to your ability to influence change for the better.
Benchmarking can often become complex, time consuming, expensive, and convoluted if used improperly. Assigning inappropriate “weight” to the process instead of focusing on the goal of the study often results in incorrect or meaningless conclusions.
However, adopting these basic suggestions will keep you on track and on point to achieve meaningful results. You may – or may not – be overly pleased with your original performance against “best-in-class” opponents. Initial scores should not discourage you. Even if you find yourself behind on the scoreboard, proper benchmarking will display the reasons for your shortfall, which illustrates the roadmap you should follow to move your team into the “best-in-class” category.