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The Purpose of Benchmarking (and its Limitations)

Categories: Benchmarking
Author: OpsDog Team

What Benchmarking Does (and Doesn’t Do) for a Business

In our last article, we defined what benchmarking is. We also gave you a cool example from the murky case files of Xerox, showing how they’d used benchmarking to identify shortfalls and raise their game vs. the competition.

In this article, we’re going to—apologies in advance—temper your enthusiasm a bit. Just as we’d posted an article showing that KPIs aren’t a magic bullet, neither is benchmarking. It’s a tool in your kit. Use it properly, and it can yield great results. Misunderstand its purpose and limitations, and you can cause more damage than you fix.

Sure, benchmarking can (here’s a quick recap):

  • Compare your performance levels to those of competitors.
  • Identify areas needing improvement.
  • Point the way toward process-improving best practices.
  • Set quantitative targets for performance management.

But you need lots of other pieces to complete the performance-improvement puzzle. These include, but are hardly limited to:

  • Dissemination and implementation of best practices.
  • Change management (that’s a huge one unto itself).
  • Business intelligence and management reporting.
  • Employee training.
  • Employee accountability and incentives.
  • Sustainability (i.e., making sure that improvements stick).

So while benchmarking (like the proper application of KPIs) can give you visibility into issues, it’s essential that your company’s leaders, managers, and employees all understand the identified operational shortcomings, correct them, and sustain improvement over time. That’s a lot of post-benchmarking work. Get it?

Where Benchmarking Efforts Go Wrong, and How to Fix It

Common pitfall 1: Measuring the wrong things.

What? Huh? How could you possibly do that?

In a word, easily. It happens all the time. We’re OpsDog. We see these things.

Far too many companies are—pardon our candor here—frikkin’ clueless when it comes to selecting which KPIs they should be scrutinizing in order to improve performance. While we’re ranting, here are other things that they fail at, often miserably:

  • How to properly calculate these KPIs.
  • Who they should be reported to.
  • Who should be held accountable for corresponding performance levels, based on the KPI data.

More often than not, the kind of documentation that should define all of these rules and roles is hard to find, unclear, user-unfriendly, not standardized, or (don’t be shocked) nonexistent.

So while “knowing what to measure” is truly an obvious starting point, it’s also a major stumbling block for many.

[Shameless self-promotion: Pick-and-click through OpsDog’s wealth of KPIs and benchmarking reports—which you can drill through by industry or business function—to start feeding your brain!]

How to avoid this pitfall. Step One: Determine precisely which areas are going to be covered in the benchmarking effort—then devote time up-front to defining and documenting each of the relevant KPIs for the selected scope.

Don’t design your metrics in a vacuum. Collect input from line managers and employees. Figure out what other companies are measuring. Perform online research. You get the idea.

Common pitfall 2: Comparing apples to oranges.

This one also seems obvious: make the comparisons relevant. But it’s more subtle than that, which is why it’s our Number Two Pitfall. Remember: you’ll be misled by your benchmark findings if the companies you’re comparing yourself to (a.k.a., “the peer group”) aren’t effectively similar to yours. Consider some of these factors that can impact the relevance of your benchmarking data:

  • Company size (e.g., number of employees, total revenue).
  • Industry.
  • Operating model.
  • Customer base.

Want to tear your hair out? That isn’t always true. Many KPIs can be comparable, regardless of demographic factors; see our article on the different types of KPIs and look for the section on “industry vs. operations” KPIs.

How to avoid this pitfall. Before you go and start collecting external data (that is, data based on companies other than your own), set some flexible demographic boundaries to encompass your effort. Then focus your data-gathering work primarily on peers that fall within these bounds. If you do use benchmarking data that lies outside these pre-determined demographics, be sure you make a note of that fact in your ensuing analysis and presentation.

Common pitfall 3: Dismal data presentation.

An old proverb tells us that “People who live in glass houses should not take showers.”

No. It wasn’t that one. “There once was a man from Nantucket…”

Hang on. We’ll get it.

Aha. It’s this one: “Tell me a fact and I’ll learn. Tell me a truth and I’ll believe. But present your benchmarking data in the form of a compelling story and it will live in my heart forever.” Touching, isn’t it?

It’s true. All too often, reports and presentations are packed with great facts, but they fail to tell a story. If you present your benchmarking data as just that—that is, data—without framing it within the context of a compelling narrative, your entire benchmarking initiative can be doomed to failure.

If executives, managers, and employees can’t relate to what they’re seeing—if they can’t tie those findings back to their daily jobs and the bottom line—you’ll never get the buy-in you need. Which would be tragic.

Fortunately, it’s also avoidable.

How to avoid this pitfall. You already figured this one out, based on your shrewd what-if reading of the pitfall described above. But for other readers who aren’t as sharp as you, we’ll spell it out:

Always pair your benchmarking data (i.e., the facts) with specific anecdotes or quotes (i.e., stories) gathered from employees to provide concrete examples of performance issues.

Example: If your benchmarking presentation is focusing on service, include customer anecdotes to accompany and bolster your facts. These real-world stories will solidify and validate your benchmark findings; they’ll also justify your case for the resulting remedial action.

Common pitfall 4: Lack of an action plan.

You presented your benchmarks! You showed how the company stacks up! The key stakeholders have signed off on your findings! Applause! Handshakes! Back-slapping!

Uh. Wait. You’re just getting to the important part. It’s known as “turning these insights into results.”

The absence of a practical, documented action plan will stop any benchmarking effort in its tracks. Without tangible benefits, all of the time, effort, and money your poured into your benchmarking initiative are all wasted. You’ve got to do something with those findings!

How to avoid this pitfall: Pretty obvious, huh? Using your benchmarking data as a backdrop, develop a set of best practices to address the performance gaps you’ve identified. Create desk-level job guides to communicate best practices to front-line employees. Assign oversight of best-practice adoption to the corresponding line managers. Then, using KPIs from your benchmarking effort, develop management reports to monitor progress. That is, keep track of how well (or not) those new best practices are being implemented, followed, and used to drive positive change.

Now you can benchmark while avoiding these common problems!

Whenever you see a congratulatory subhead like that, you know you’ve aced another OpsDog lesson. So crack a beer—or, better yet, crack open our next article, now that you’re on a roll. It shows you how to start benchmarking the operations in your organization.

Or, of course, take a deep dive into the benchmarking reports we’ve got ready for you to download.

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