"What a business needs most for its decisions — especially its strategic ones — are data about what goes on outside it. Only outside a business are there results, opportunities and threats.”
- Peter Drucker
I rate myself as being a better driver than most. Apparently, 93% of US drivers in a study also rated themselves as being in the top 50% for driving ability. So that casts some doubt on my self-rating. In yet another study, 87% of MBA students at Stanford rated their academic performance in the top 50%. Our tendency to overestimate our qualities or abilities is so ubiquitous that psychologists even coined a name for it: Illusory Superiority.
But now, finally, back to the point of this article. Have you ever asked how well your organization is doing? And, if so, has your answer changed because you are now aware of illusory superiority?
"All successful companies are constantly benchmarking their competition. They have to know what they have to match up with day-in and day-out if their company is going to be successful."
- James Dunn
Business success in the 21st century requires taking advantage of all available resources and information to improve. Benchmarking involves comparing performance metrics to industry norms or other organizations. It is one of the most reliable ways to drive performance and develop a point of reference over time. But how to do it?
Standards such as ISO 9000 and ISO 31000 inform the development of management processes. But they don't provide performance metrics, scorecards or Key Performance Indicators (KPIs); you have to bring these. They are indispensable tools in the quest to establish, measure, and achieve the best possible performance; but they don't create themselves.
HOW TO BENCHMARK
There are many things to consider about benchmarking and the following provides a checklist of sorts to help with the process of developing benchmarks:
How do we define benchmarking in our specific context?
How does our organization define metrics? Does it use KPIs? What about Critical Success Factors (CSFs), Key Result Areas (KRAs), etc.?
Which KPIs, CSFs or KRAs does the organization care about?
What is the causal path between threats or opportunities and organizational objectives? For example, you might choose to think about the following: Risk–>CSF–>KRA–>KPI–>Risk Treatment–>Objectives?
Do you want to track lag or lead indicators? Or both? Lag indicators talk about past performance. They include, for example, injury rates, profit, and loss. A leading indicator tells you something about future performance. Marketing response rates this month, for example, suggest how many sales you are likely to make next month.
Do we have a system for developing our specific metrics?
Are there any existing frameworks, such as Balanced ScoreCards, in place already to aid benchmarking?
What sort of phrases, descriptions or word pictures can we use to define performance?
I've developed benchmarking metrics for organizations from a dozen industries and four continents. They all have two things in common: all organizations are unique, and it takes an effort to develop meaningful metrics. But it's worth spending the time. Performance benchmarking is one of the best tools that most organizations can use to improve and compete. A final thought from Good to Great:
"All Good to Great companies began the process of finding a path to greatness by confronting the brutal facts about the reality of their business. When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident.”
- Jim Collins
Start with finding out the truth, then set about improving it.
Most benchmarking is wasted.
We all benchmark; even if only mentally. We compare our salaries, our cars, houses, jobs, spouses, fitness, etc. Most of the time, it's a waste of time, because we don't usually do anything with it. Even worse, we sometimes use it to make ourselves unhappy. Please don't be in that category. Either accept the data and move on or better yet, use it. Information should change your life. Else, why bother? Much of the potential benefits of the time and energy that organizations put into benchmarking is also under-utilized. You should understand what to do about the information when you have it. How it links to threats and opportunities, what the key result areas are and what to do with them. My book on benchmarking is short and practical, but if you want to get into details, I can recommend a couple of longer books. Have a look at The Ultimate Question 2.0 (Revised and Expanded Edition): How Net Promoter Companies Thrive in a Customer-Driven World. Another great read is Doug Hubbard's book "How to Measure Anything: Finding the Value of Intangibles in Business." And if that's all too much reading, just revel in the knowledge that you and I are both better drivers than at least 50% of drivers. :-)