While benchmarks can reveal useful insights that may lead to improvements in performance, there are numerous pitfalls and mistakes to be negotiated and avoided if you are to get the most value out of them. We look at their advantages and disadvantages.
Broadly, benchmarking breaks down into two types:
Internal: comparing one area of the organisation against another
External: comparing the business to another company; this can be a competitor or an entirely different industry
Advantages of benchmarking
Benchmarking done well identifies opportunities for your business to improve performance, practices and processes. These may include customer satisfaction, employee engagement, reducing recruitment costs, staff attrition or streamlining production. External benchmarking helps you learn more about your industry and competitors.
Disadvantages of benchmarking
No two organisations are the same: Your company has a unique culture, perspective and challenges. Benchmarks heavily generalise across companies of different sizes, maturity and cultures; they are too general a way to assess the performance of your business accurately.
Data is not easy to find: Some companies don’t want to share their information with a benchmark provider, and aggregator sites (e.g. TripAdvisor, Glassdoor, Checkatrade) that rely on feedback may not be sufficiently reliable or available for your industry. You may have to resort to using data that’s generic or not industry-specific to you – this won’t give you great insights.
You might pick a bad benchmark: An average, uninspiring comparison group not only stifles innovation, it can be used to justify middling performance by your business simply because you’re better than that benchmark.
No context: You may have the benchmark data that tells you what a competitor has achieved, but there’s no information about how they’ve achieved it. You won’t be able to pinpoint areas for improvement without this insight.
Survey compromise: Benchmarking surveys are limited to asking the questions that are included in an existing benchmark. These will not be 100% aligned to your organisation’s unique needs.
Different measurements: Different companies have their own ways of doing things, and therefore, of measuring the outcomes. Measurements may be skewed by circumstances affecting only one industry or company that are irrelevant to your business.
Benchmarks are backwards-looking: Benchmarking tells you only what’s happened in the past. It doesn’t take account of what’s happening in the real-time here and now or give an indication of future performance and results.
Benchmarks focus outwards, not inwards: You’re spending time and resources looking outwards at what others are doing, rather than channeling it inwards towards your own organisation and employees.
You may be signing away your data: When you subscribe to a benchmark provider, it’s likely you’ve given them permission to add your response data to their database. This will eventually become their intellectual property. Do you want this to happen?
You will have noticed that the disadvantages of benchmarking substantially outweigh the advantages. Are there any ways that you can use benchmarks successfully in your lifecycle program?
See benchmarking as only part of the picture
You need a combination of clear strategy, targets, key performance indicators (KPIs), and practical initiatives that deliver real change as well as benchmarks to understand and improve your performance.
Make strategy key
Firstly, clearly map out the strategic goals for your business. Then, set out critical business questions: what you need to understand to achieve your strategic goals. Design KPIs which are meaningful, answer your critical business questions, and trackable towards your goals. Once these are in place you can use internal and external benchmarking to compare performance.
Avoid the easy route
Rather than benchmark against easily-available data or track KPIs that are easy to measure, think more creatively. Dig deeper and use KPIs and benchmarks that will measure what really impacts your unique business. This data will help you understand and predict performance, guiding your action plan and improvement strategy.