Benchmarking

Benchmarking compares organisational performance and processes systematically through predefined indicators. Its purpose is to expose the distance between current results and stronger practice, then use that evidence to set better standards and improve how work is performed.

When to use it

The design of a benchmark should follow the decision it needs to support. Typical questions include:

• How well do we perform the work today?
• How does that performance compare with others?
• When another organisation performs better, what practices and conditions explain the difference?

Many exercises compare the organisation with the mean of a peer population, clarifying whether current performance is typical. A more demanding benchmark uses the best performer or top quartile. Connecting those outcome differences with the practices behind them helps identify where improvement activity is most relevant.

Set scope according to the likely organisational impact, the freedom to communicate findings to the people who must act on them, and the effort required to produce evidence useful in practice.

A benchmark identifies where to investigate; it does not automatically explain how to improve. A deviation is not inherently good or bad. Higher training expenditure, for example, may reflect a deliberate investment in skills rather than inefficiency. Understand the strategic and operating reason for the gap before treating it as a problem.

Origins

Performance comparison is ancient, but modern management benchmarking is particularly associated with Xerox in the late 1970s and early 1980s. Under pressure from Japanese competitors, Xerox compared not only product features and costs but also the processes producing superior outcomes. Robert C. Camp led important work at the company and codified the method in his nineteen eighty-nine book Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance. The practice then expanded beyond competitive product comparisons into internal, functional and cross-industry learning.

What it is

Five basic forms can be distinguished:

1. Historical benchmarking compares today’s indicators and results with the organisation’s own performance at an earlier time.
2. Internal benchmarking compares practices and outcomes across parts of the same organisation, such as business units.
3. Competitive benchmarking measures the organisation against direct rivals.
4. Functional benchmarking compares a function with similar functions across a broader industry group.
5. Generic benchmarking looks across unrelated industries for practices that represent an overall standard of excellence.

Each type can reveal strengths and weaknesses, make problems visible, indicate improvement opportunities and introduce new norms, practices or ideas. Its objectivity depends, however, on consistent definitions, reliable data and appropriate comparators.

Methods differ in how well they account for situational characteristics and other explanatory factors. Some also incorporate forward-looking trends, emerging practices and industry-specific implementation issues.

How to use it

Benchmarking places information side by side, but credible comparison is harder than it appears. Define every measure unambiguously and establish a method that captures the intended phenomenon consistently. If internal measurement is already difficult, obtaining equivalent data from another organisation will be harder still. Competitors may also refuse to share sensitive information even when all participants receive the results, which is why independent benchmarking databases are often useful.

Select peers that perform at least as well as the target and preferably better, because they offer the greatest learning potential. Industry experts and publications can help identify them. Direct comparison is complicated by differences in products, processes, structure, leadership and management style. Improve comparability by controlling for factors that influence the measure. Delivery reliability, for example, depends partly on product complexity; firms with similar complexity form a more credible peer group for that indicator.

After completing the analysis, report comparative performance for each participant and identify the deviations that warrant investigation or action.

Benchmarking entails the following (sometimes overlapping) steps:

1. Define the project’s scope.
2. Select suitable benchmarking partners.
3. Specify measures, units, indicators and collection methods.
4. Gather the data.
5. Investigate discrepancies and the facts behind them.
6. Present the analysis and agree its implications for goals.
7. Create an action plan and supporting procedures.
8. Repeat the benchmark to monitor progress.

Final analysis

Benchmarking frequently fails when sponsorship is weak, measures are improvised or the analysis lacks appropriate tools. The result becomes an “apples and pears” comparison. Even a structured project may produce no change if managers dismiss every difference with “we are not like them.” Sensitivity about competitive information can restrict learning even between units inside one organisation.

Explanatory factors turn comparison into a more useful diagnosis. The work can highlight performance opportunities and surface proven but unexpected solutions to difficult problems. Differences between peers should therefore be explored rather than automatically used to exclude organisations with apparently non-comparable products or processes.

Matching the benchmark—especially the population average—is not a strategy in itself. Competitive advantage requires more than becoming indistinguishable from the comparison group.

Top practical tip

Write a precise definition, unit, boundary, time period and data rule for every measure before collecting comparisons. Shared definitions matter more than a large sample of inconsistent numbers.

Top pitfall

Do not copy a headline number or practice without understanding its context. Different definitions, customer promises, operating models and accounting rules can make similar measures incomparable, while a practice detached from its enabling conditions may reduce performance.

Further reading

Watson, G.H. (1993) Strategic Benchmarking: How to Rate your Company’s Performance against the World’s Best. New York: John Wiley & Sons.

Camp, R.C. (nineteen eighty-nine) Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance. Milwaukee, WI: ASQC Quality Press.