Most business leaders would confess to comparing themselves with the competition; but taking this one step further and carrying out regular benchmarking activities can lead to a number of benefits and improvements to performance, as Ray Wilkinson, director of the Best Practice Club, explains.
Let’s start with a controversial statement: ‘envy is a very good thing’. Sounds like a good subject for a business school debate doesn’t it? How often have you looked enviously or admiringly at the car someone’s driving, or the shoes they’re wearing, or the ease with which they carry themselves? Some people might describe that envy as negative, but if it results in you doing something in an improved way, isn’t that positive?
Gary Hamel said: “My fundamental belief is that if a company wants to see the future, 80 per cent of what it is going to have to learn will be from outside its own industry.” I contend that the motivation for that learning is provided by a feeling of discontent with where you are at present; and that feeling of discontent is something that has to be fostered if complacency isn’t to set in.
The conclusions of research carried out by the London Business School on behalf of the CBI in 1997 are as true today as they were then—in essence the research found that the more complacent an organisation, the less effective it is in delivering service. It also found that there is a direct positive correlation between an organisation’s service performance and the amount of benchmarking it does. In other words, the more benchmarking you do the better your performance!
Lawler & Worley, in Built to Change, articulated a major temptation for organisations to “institutionalise best practices, freeze them into place, focus on execution, stick to their knitting, increase predictability and get processes under control”. These ideas are all premised on stability and consistency as the keys to effective performance. Organisations are positively encouraged through the deployment of models and templates to support enduring values, stable strategies and bureaucratic structures, not to change—in short, to set best practice in aspic!
So how then do organisations overcome complacency and inertia? My favoured way is benchmarking, i.e. learning what others do and the appropriate application of that learning to your own organisation in order to improve performance. A simple definition is: benchmarking = comparative analysis + improvement action.
Benchmarking activities are either informal or formal. The former, most of us do unconsciously and is the constant comparing and learning from the behaviour and practices of others. This learning can come from talking to peers within your own organisations, consulting with experts, online and face-to-face networking with people from other organisations, or using online databases that share benchmarking information.
Informal benchmarking remains extremely popular for effective performance improvement. Recent research among the Best Practice Club’s membership indicated common key areas of focus in operational efficiency, cost management, employee engagement in difficult times, and the environment. All respondents stated they would be carrying out benchmarking in the next 12 months to help them address those areas of focus and the vast majority of that benchmarking would be informal. In a typical year the Club receives around 150 benchmarking requests of all types and well over 90 per cent of all delegates attending Club workshops state they will make changes to their organisations as a direct result of their attendance. I suggest that in today’s challenging economic climate, such cost effective methods of performance improvement will be even more popular.
As for formal benchmarking, there are two types: performance and best practice. In the vernacular, the first is about ‘what’ and the second is about ‘how’.
Performance benchmarking is the comparative analysis of key measures of performance from similar activities and, if that analysis reveals shortcomings in performance, can often be a very good ‘driver for change’. Unfortunately a significant number of organisations consider this comparative analysis to be all that’s involved in benchmarking and thus do little more than collect ‘league table’ information about themselves, carrying out any improvement projects as separate and detached activities. This situation can often be found in organisations where ‘politically’ or ‘regulatory’ defined measures are used by external stakeholders to judge their performance. The risk that is run here is that of a disconnect between the impact of the improvement interventions made and the defined measures. Another common occurrence in such cases is the inordinate amount of time and effort that is put into ensuring the measures used are consistent across the reference group used, i.e. the perennial problem of ensuring ‘apples with apples’ comparisons.
Best practice benchmarking, as defined by the Centre for Organisational Excellence Research (COER), is: “The comparison of performance data obtained from studying similar processes or activities and identifying, adapting and implementing the practices that produce the best performance results.” As such, it is an extremely powerful process improvement methodology. However it should be noted that this type of formal benchmarking is resource-intensive and typical projects take from two to four months to identify best practices. Given the level of investment, care must be taken to ensure project focus is aligned with strategic intent and maintained throughout its life.
A classic example of formal best practice benchmarking is that of Xerox. In the late 1970s it faced stiff competition from Japan and, unsettled by the success of its competitors, it compared its performance in a number of key areas. Its findings included:
- Key competitors had a ratio of indirect to direct staff of half its own
- It had nine times the number of production suppliers
- Its time to market for products was double that of the competition
- Its defect rate was seven times worse
You can imagine the unsettling effect that this comparative analysis had on the Xerox executives! The organisation embarked on a massive programme of learning, predominately from outside of its own industry, to identify and implement best practice. And the success it had is well documented.
A recent study conducted by COER, on behalf of the Global Benchmarking Network (GBN), involved nearly 500 organisations that used best practice benchmarking and this indicated an average financial return per project of $100,000 to $150,000 with some reaping benefits of more than $1,000,000.
The wide appeal and acceptance of benchmarking has led to various processes emerging. COER’s TRADE, as recognised by the UK Benchmarking Institute, is one such methodology. It consists of five stages:
- Terms of Reference (aims, objectives, scope, resources, cost/benefit analysis)
- Research (current performance)
- Act (data collection and comparative analysis)
- Deploy (communicate and implement best practices)
- Evaluate (review process and outcomes to ensure aims met)
Many benchmarking gurus advocate a 10-step generic process that includes:
· Select process to benchmark
· Put in place resources
· Plan bencharking project
· Train staff
· Research and engage partners
· Collect and exchange data
· Analyse gap/s
· Adapt superior practice
· Develop and implement new process
· Review results
Most organisations’ benchmarking teams are small (typically less than four people), so if you are considering formal benchmarking then please ensure that you’ve thoroughly prepared the ground and put in place the critical success factors necessary for you to succeed. Below is a summary of the critical success factors for effective benchmarking identified by Keki Bhote, courtesy of the Best Practice Club knowledge base.
· Tie in with strategy or goals
· Win top management support
· Tie in with other improvements
· Establish a robust infrastructure
· Get the planning right
· Link to key business outcomes
· Link internal customers to project
· Pick the right project team
· Get help from support services
· Get training for the project team
· Benchmark internally to ‘know yourself’
· Run a pilot project
· Pick the right partners
· Use and test a questionnaire
· Plan on site visits thoroughly
· Be prepared for defeatism/scepticism
· Communicate your findings
· Repeat the process
Finally, the key word in all benchmarking projects for me is ‘adapt’. No two organisations are exactly the same and what works in one organisation may not do so in another. Best practice always has to be adapted to the organisation concerned. Done well, best practice benchmarking is a force multiplier in the performance improvement world; but done badly it can be little more than an expensive ego massaging device.
Ray Wilkinson is the director of the Best Practice Club, providing benchmarking and learning opportunities for large organisations through personalised service support and a self administered knowledge management portal.
