How Do I Know Who the Benchmark Performer Is in My Industry?

Answer: Narrow your questions and search for the answer

Published: Thursday, May 5, 2011 - 06:00

This is one of the first questions that executives always ask me. Because it is a broad question, the answer is often challenging. I usually respond with a few examples that have been gathered in Juran Institute’s 20-year benchmarking practice database, such as Company A is this, and Company B is that. The executives then respond, “We are better than that company. Why are they the benchmark and not us?” Or, “Look what happened to them last year; their business tanked. Ours did not.” My response then is, “You have not tanked yet, but you will because you are not doing what the best do, and your customers do not look at you as the best.”

The benchmarks, or world class, or those that provide superior quality, are those companies, large or small, whose customers cite them as the best. Why? Because their business results are sustainable over time, and they continue to drive to new and better performance levels to stay ahead of the competition.

Why benchmark at all? After all, it is an old tool first made popular by Xerox during the 1980s. Our experience has convinced us that an organization benchmarks its competitors, or the best outside an industry, for three reasons:

1. The organization wants to improve performance but does not want to reinvent the wheel.
2. It is looking for a means to attain a new target of performance and wants proof it is doable.
3. To convince the leaders that others, like their competitors, are moving far beyond them, and so they need to move faster.

The concept of one individual observing how another performs a given task and then applying any learning to improve how the task is executed is one of the fundamental ways in which human beings learn and develop. In the context of business, learning from one’s competitors has also been in existence for as long as business has. However, the application of learning in a structured, methodical, legal, and ethical way is relatively new.

Benchmarking has evolved to become an essential element of the business performance-improvement tool kit, and is now frequently used by many organizations in a range of industries. But despite this, it remains one of the most widely misunderstood improvement tools. Executed correctly, benchmarking can provide a powerful focus for organizations, enabling the identification and achievement of excellence, based on the realities of the business environment.

Benchmarking and strategic planning

An organization’s goals all too often fall short of stakeholder expectations. A primary contributor to this failure is that, in many organizations, goal-setting is based on past trends and current practices. Customer expectations are driven by the standards of the best providers in the industry and by their experiences with superior providers in other industries. Benchmarking can capture these external references to provide the basis for comparative analysis and learn from best practices.

Essential are a well-defined process, a clear understanding of the scope of what is to be benchmarked and why, and a systematic approach that is thoroughly planned. Assessing current performance and measuring the gap between this and the vision are critical to an organization’s long-term sustainability. Benchmarking will clearly define an organization’s current performance, clarify its position in relation to both the external business environment and the vision, and identify the performance gaps. This enables the organization to make adjustments to the strategy to close the gap between reality and the future vision.

The findings from benchmarking enable organizations to understand exactly how much improvement is required to attain superior performance. Benchmarking provides an external perspective of what levels of performance are achievable, and what working practices are required to achieve them. This in turn allows organizations to identify where their performance is weakest and where it is strongest, offering useful input for prioritization of improvement projects.

Frequent and regular benchmarking supports the establishment of specific and measurable short-term plans, based upon reality rather than historic performance. The objective is for the organization to overtake the performance leaders, turning a performance gap into superior performance leadership.

Critical to benchmarking success are a number of key factors:

1. Scope the study and determine objectives.
2. Identify and define all metrics.
3. Agree on a schedule and stick to it.
4. Ensure resources are available to support the benchmarking.
5. Provide support to participants throughout the process.
6. Validate all data.
7. Normalize the data.
8. Clearly and effectively report the findings.
9. Enable sharing of best practices.

The objectives can be summarized as follows:
1. Determine superior performance levels.
2. Quantify any performance gaps.
1. Identify best practices.
2. Evaluate reasons for superior performance.
3. Understand performance gaps in key business areas.
4. Share knowledge of working practices that enable superior performance.
5. Enable learning to build foundations for performance improvement.

Legal and ethical aspects of benchmarking

The legality of benchmarking is governed by competition (antitrust) law and intellectual property law, and all those who benchmark must be aware of the legal and ethical implications of their benchmarking activity. While the ethos of benchmarking is the sharing of knowledge and information to the mutual benefit of all participants, organizations must not lose sight of the potential value of their corporate knowledge and the necessity to adequately control its use.

During the benchmarking process, knowledge and information are often shared among the participants. Thus, there arises the possibility of infringing on the intellectual rights of those who are benchmarked who offered the information. Care has to be taken when exchanging information in a benchmarking study. Although competition laws and antitrust laws are well documented, their applicability to benchmarking is a gray area. Any organization considering entering into a benchmarking exercise is strongly urged to seek legal advice before doing so.

Essential in all benchmarking studies is the requirement for some degree of confidentiality. The strictness of it will depend on the sensitivity of the subjects being benchmarked, the requirement to comply with competition law, and the degree of willingness by the participants to share information openly. The degree of confidentiality can vary enormously. The most preferred, pragmatic approach involves making sensitive data anonymous and less sensitive data being shared more openly.

Irrespective of the level of confidentiality, it is essential that all parties in a benchmarking study, including the facilitator, sign a confidentiality agreement. This will be legally binding and will spell out how the data, information, and findings of the study will be shared, used, and disseminated by all parties.

Managing for effective benchmarking

For any benchmarking initiative to succeed, it must be managed effectively. Each participating organization will normally establish a benchmarking team comprising individuals from a range of disciplines who will manage the benchmarking activities from outset to completion. The team will be responsible for delivering the benchmarking project, setting internal targets, and ensuring they are met.

While senior managers are unlikely to be involved directly in conducting the benchmarking, they play a key role in ensuring it is executed successfully. Key roles of senior management include the following:
• Setting benchmarking goals: The intent to benchmark must be established and clearly communicated within the organization.
• Integrating benchmarking into the organization’s strategic plan: Benchmarking must form a fundamental element of the organization’s business plan.
• Acting as a role model: Senior managers must openly demonstrate their commitment to the benchmarking effort, even though they are unlikely to be involved in the day-to-day benchmarking exercise.
• Establishing the environment for change: Managers must demonstrate a willingness to accept the findings of the benchmarking and to act upon them, creating a change environment to realize the potential improvements in performance.
• Creating the infrastructure for benchmarking: Reward and recognition must be provided for benchmarking team members, and those members of the organization whose efforts have led to superior performance as determined by the benchmarking.
• Monitoring progress: There must be a commitment from the outset to provide the resources required for successful benchmarking. Where necessary, training must be provided to those involved in the process.

Benchmarking is a systematic process that facilitates the measurement and comparison of performance and the identification of best practices. The required resources must be provided by management if any real value is to be gained. If you are looking for an effective way to stay ahead of the competition and provide your customers with the finest service they have ever experienced, benchmarking can make all the difference. In the continual effort to improve performance, it is an indispensable tool that provides perspective, and allows for realistic and achievable improvement goals.

If you want to know who the best are, you need to narrow your questions and search for the answers. The answers are there—you just need to know where and how to look.

For additional information visit www.juran.com.

About The Author

Joseph A. De Feo, Alexander Janssen, Brad Wood Ph.D

Joseph A. De Feo is president and executive coach with Juran Institute. He is recognized worldwide for his training and coaching expertise which enables organizations to achieve superior results.

Alexander Janssen is executive vice president and the managing director with Juran BV in Amsterdam, The Netherlands, where he oversees Juran’s Global Performance Benchmarking Practice.

Brad Wood, Ph.D., is director with Juran Institute. In this capacity, Wood is responsible for the development and delivery of benchmarking and performance improvement services.