Significant advantages can be gained through benchmarking and embracing this process should be an essential part of business. Put simply, without benchmarks how can your company tell what ‘good’ looks like?
One of the most significant barriers to growth and a major contributor to business decline is a failure to adapt to changing environments and competition. Understanding your competitive position is critical and failure to evaluate, to benchmark and to change can make you a Kodak, Myer or Borders.
Benchmarking is a calibration process: testing and adjusting your business to a recognised high standard of achievement. It is a continuous process in the world’s leading organisations and a cultural imperative that drives continuous improvement.
What is benchmarking?
Benchmarking is comparing performance against a practice standard established by another organisation. Any time the term ‘compared to’ is used, a benchmarking process is invoked.
Benchmarking is actually a relatively modern feature of scientific management and interestingly, Xerox is credited with inventing it in the mid 1970s. They introduced a (then) typically Japanese approach, identifying “the best”, copying and then improving on it.
Xerox at the time defined benchmarking as the ‘continuous process of measuring products, services and practices against the toughest competitors or those companies recognized as industry leaders’. Among many of the world’s great firms and the world’s toughest sectors, benchmarking is an embedded management practice used extensively in the strategy process.
However, in their most recent global survey of 454 organisations in 44 countries, the Global Benchmarking Network found that best practice benchmarking was highly under utilized at only 39%.
The survey also found that:
o Mission and Vision Statements and Customer (Client) Surveys are the most used (77%)
o SWOT was used by (72%),
o Informal Benchmarking (68%)
o Performance Benchmarking (49%), and
o Best Practice Benchmarking by (39%)
Why is there such low usage for benchmarking in organisations? It all comes down to time and effort required and the limited ability, plus commitment of many businesses to manage this type of process.
Do KPIs differ from benchmarking?
The difference between KPIs and benchmarking can be summed up as external versus internal. Benchmarking generally involves looking outside the organisation to identify and understand examples of best practice, whereas KPIs allow an organisation to measure performance against strategic business objectives.
The comparative assessment provides evaluation against the benchmark, and identifies the need for a company to address certain areas of operations. It also enables evaluation of the potential financial gain from successfully improving that area and an input to an ROI calculation for cost benefit of analysis.
Why should I use benchmarking?
Benchmarking forces to you look outside and to be aware of what the market, industry, sector or segment is doing. It is essential and without benchmarking, you will always evaluate your performance against yourself, with only your history and your ambitions as points of evaluation.
Challenges and risks of benchmarking
· Inappropriate or irrelevant selection of benchmarks. The key to successful benchmarking is analysis.
· Failure to employ data driven quantitative KPIs.
· Too much all at once.
· Sustaining mediocrity. Many benchmarking groups, especially in retailing and automotive, use group data to define benchmarks. These are often run by accounting or financial firms and don’t actually set a true benchmark – they define the norm.
· Poorly or partially using a process. For example, SWOT is often used very poorly and rarely provides quantifiable actions and outcomes. It is narrow and shallow in perspective. At a macro level, a practice such as PESTEL is of more value, though again it must produce actionable and measurable plans.
· Imbalance (internal or external as dominant, financial not operational).
· Focus on outcomes, not causes; results not drivers. Too often, business improvement initiatives fail when a focus is applied to an outcome without identifying causal factors. It is essential that adequate and rigorous analysis be applied to the identification of causal factors for benchmarking.
· Inadequate resourcing and/ or organisational focus.
How to benchmark in your business
There are many references available and processes defined for development of benchmarking.
Generally, at top level the following steps apply:
1. Understand in detail existing business processes; establish KPIs.
2. Analyse the business processes of other closely relevant organisations.
3. Compare own business performance with that of others analysed.
4. Implement the steps necessary to close the performance gap.
At detail level, this is obviously more complex and may involve 10 or more distinct stages. This is made more complex through the many unique “models” that are developed by consultancy organisations academics, each seeking a unique position in a growing industry.
Types of benchmarking
As with benchmarking processes, there are many descriptions and definitions of benchmarking. The most usable summary is to define benchmarking by the basis of comparison:
1. Internal – benchmarking within an organisation, usually against other business units.
2. Competitive – benchmarking against competitors with similar business models.
3. Industry or Functional – benchmarking similar processes within an industry.
4. Generic – benchmarking against unrelated industries or against “general best practice”.
The Benchmarking Wheel (pictured, below), is designed to aggregate the attributes of approximately 60 distinct models.
Selection of the type of benchmarking that is most appropriate will be governed in part by the scale of your organisation. Internal benchmarking requires a large-scale business. Generic benchmarking may be used if there is no access to industry or competitive benchmarks.
A combination of industry and competitive benchmarks is most effective, as this provides a live, real world and relevant basis for benchmarking.
The question for you is are you benchmarking properly and, if not, isn’t it time to begin?
Gary Watson owns and runs Odyssey Business Improvement. For more information, click here.