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Monday, August 29, 2011

Benchmarking: The Good, The Bad, and The Ugly

When organizations want to improve their performance, they often benchmark. Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. The discussion of whether benchmarking is good or bad is an old one.

Benchmarking can be an effective means to learn new skills and to develop your organization. However, it should be a process of continual improvement. Once you have implemented changes, you should benchmark your business again to see the results. This will tell you what is working, and where you can still improve.

The process of benchmarking can benefit your organization:

An holistic approach: It is both qualitative and quantitative, ensuring more accuracy in developing a whole picture of your business.

Opens minds to new opportunities: While the results can make for uncomfortable reading, the process usually raises new challenges for businesses.

Leads directly to an action plan: Rather than simply highlight problem areas, it undertakes a strong review of turnover and profitability.

Improving productivity: Businesses following improvement action plans can expect gains in cost, cycle time, productivity, and quality.

Some feel that benchmarking can limit the true potential of an organization by focusing on how well their competitors are doing. Somewhere I heard the comment that "if you benchmark against your best competitors, your best product will look like your best competitor's crap.” Your competition won’t stand still and you shouldn’t either. Maybe there’s a case then for benchmarking organizations from other industries and not your competition.

The worst mistake is to simply adopt a best practice without first identifying the problem you are trying to solve. Tools and best practices must be applied in response to a specific, defined problem, not just because it seems like a good idea. Instead as we do in Lean you should learn about waste and value. Then analyze your processes to reduce waste and improve value to your customers. Learning from others can be very powerful, but you must learn to apply the right tools and ideas for your particular situation. The problems of your competition or that of other companies you benchmark may not necessarily be the same as yours.

Benchmarking is not a perfect process but done properly and consistently it can be the start of improving your business and creating a more optimal learning environment. Avoid using it as a means to judge your competition at the expense of creating customer value or solving someone else’s problems.

What are your views on the benefits or drawbacks of benchmarking?

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  1. When I see benchmarking, most organizations visit companies, and then decide what they learned. A more purposeful approach is to decide what you need to learn about, and then go visit a company.

  2. Good point Jamie. This ensures you are solving your problems and not implementing the nice things you might see. Go with a specific plan to learn a particular item before the visit.