Self-help gurus as well as books that analyze the habits of highly effective people often focus on learning from the best and most successful in order to improve. That's the concept behind benchmarking. Benchmarking is a process to discover best practices by identifying the companies that excel within various business processes and functions and studying their practices, then determining how to apply those best practices to your own business. Companies that use benchmarking effectively discover ways to reduce costs, increase efficiency, profit, and performance. In the process, they learn how to think outside the box, make more informed decisions, and manage change more effectively.

“Traditional” Benchmarking

In the past, the process for gathering information about best-practice companies has been a relatively long one. A company interested in benchmarking other firms assembles a benchmarking team consisting of three to eight individuals within the organization who are key stakeholders in the initiative. The team designates a high-level executive as benchmarking champion, preferably someone who has prior benchmarking experience.
The team creates a benchmarking document that will guide its efforts, including a statement of purpose, reason for the study, proposed metrics that will be benchmarked, the potential benefits expected, and a planning statement that spells out the time, people and resources needed to complete the project.

How would the team determine which companies to benchmark? Before answering that question, they first identify what they want to benchmark – such as number of on-time deliveries, cycle times, percentage of late payments, number of duplicate payments, production costs, customer satisfaction levels, etc. Next, they gather information about competitors and industry leaders. They look at statistics such as market share, revenue growth rates, earnings per share, and financial statements (much of this information is available on the Internet). They look for companies that have won awards, such as the Malcolm Baldridge National Quality Awards, which are given out for performance excellence.

Once they have a list of candidates, they create and send out a questionnaire designed to solicit information from those candidates. Based on the responses, they choose anywhere from five to ten companies that appear to be the most appropriate. Then they gather data and exchange information with the participating companies, through site visits, teleconferencing, and/or e-mail communications. Finally, the team prepares a report for senior management that defines best practices, and makes recommendations for change in the organization.

The problem with this traditional kind of benchmarking is that it can take up to nine months or more to produce results. The question then becomes: how valuable are those results by the time you get them? As the months pass by, the original purpose of the benchmarking initiative may lose some of its appeal, or the business may shift its strategic focus and make the benchmarking effort less relevant. More and more companies don't have the patience or luxury of waiting months for results. They're looking for quicker answers to problems they're facing right now.

Speed is of the essence. The accelerated pace of technological change has caused markets to change faster, product lifetimes to become shorter, and strategic planning time frames to shrink. These trends have created a sense of urgency to do business faster and more efficiently in order to keep pace. Forward-thinking companies realize they need to shorten the amount of time it takes to get the right information and act on it, and become more nimble to capitalize on an opportunity before it disappears. By learning faster than your competitors can learn, you can gain a sustainable advantage.

Tailoring Benchmarking to Your Time Frame

The Internet has helped accelerate the benchmarking effort. As a result, benchmarking is now more of an online activity. Now there are repositories on the Web that contain best practices, and companies are using this kind of data rather than making personal visits to best practices companies. Today's benchmarking teams include representatives from the information technology (IT) department, which is playing a much greater role in every aspect of benchmarking. Companies seldom tackle a reengineering project without having a member of their information technology (IT) department on the benchmark team.

Thanks to the Internet, companies can now tailor their benchmarking efforts according to the amount of time they have to produce results. Suppose, for example, that you need your benchmarking results within a few days. Obviously you won't have the time to visit a best-practice company personally. You could, however, obtain some information about the best practices of two highly regarded companies by accessing Web-based benchmarking information about those companies. Doing so would require that you limit the number of items you wanted to benchmark, so that you would have a manageable amount of information to collect, analyze and present.

If you had more time, such as two or three weeks, you would be able to provide quantitative as well as qualitative data on the group of companies you're looking at, which would give your presentation more strength, and to underpin your analyses. If your time frame were even longer, such as three months, you would have time to create a questionnaire for benchmarking participants, conduct your study, get the results, evaluate your methodology, cleanse the data, and make recommendations about what to do with your findings. If you have six months or more, then you would be able to follow the traditional benchmarking steps, including the site visits where you could talk face-to-face with your fellow benchmark participants. The amount of time you have to benchmark dictates the kind of benchmarking initiative you utilize.

Benchmarking's Biggest Pitfalls – and How to Avoid Them

New opportunities for accelerated benchmarking have also spawned some potential problems. Recognizing the following ten biggest benchmarking traps can help you steer clear of them and keep your initiatives on the right track:

1. Relying too much on Web-based benchmarking information. Data reported on the Web is not always accurate. It may not be current, or it may be presented in a confusing way. For instance, Web-based benchmarking information may not utilize consistent standards for measuring things like revenue or productivity. Unfortunately, most companies that benchmark don't check the information being presented on the Web for accuracy and reliability. There are some standard accounting practices that companies must obey, but even within those parameters there's still some room for different interpretations, definitions and discrepancies in the data. Following a balanced approach to benchmarking that includes your own research data obtained through questionnaires, for example, as well as site visits, will make your results richer and more reliable.
   
   
2. Forgetting to set performance targets first. Know your niche and your business strategy before you begin benchmarking. That kind of knowledge will give your benchmarking efforts clearer direction. Too many companies believe it's sufficient to just look at their industry's standard metrics and let those metrics drive their strategy. While it makes sense to benchmark industry averages regularly in order to set performance targets, you also need to develop measures that evaluate your niche, that is, the things that make you different as a company.
   
   
3. Treating It as a One-Time Event. Benchmarking is most effective when used as an ongoing process, not as a one-time event. Benchmarking regularly enables your company to make smaller, more frequent incremental changes within your organization, as opposed to attempting to implement larger, more sweeping changes, which can be more disruptive to your corporate culture. In addition, larger projects take longer to complete, which can compromise the relevancy of the results, particularly if the organization's strategies shift during the benchmarking effort.
   
   
4. Attempting to Go It Alone. Many companies tend to bite off more than they can chew, and end up wasting time and money collecting a lot of information that has little value to their bottom line. To stay on track, seek out a consultant with benchmarking experience.
   
   This expert can help you determine what you want to benchmark, and help you narrow your focus to only those things that support the company's main strategies. To quicken the pace of a benchmarking project, some companies hire consultants who assist with various phases of research. Organizations find it helpful to target consultants familiar with specific subject matter who can get to the core issue quickly and provide detailed solutions within two or three months.
   

5. Dealing with dueling business models. Make sure the company you're benchmarking follows the same kind of business plan you're using. For instance, if a competitor has been able to reduce their turnaround time on a process, it may be because they've chosen to outsource that particular process. If you don't have that information, you may try to find ways to cut your own process time internally, with disastrous results. You need all of the facts before trying to emulate a best practice idea you've gleaned from another company.
   
   

6. Swimming only in the shallow end. Rather than looking at how one business may perform an entire process, analyze which companies excel within different parts of that process. For example, one company may excel at the first step of the process, while another may excel at the final step. That deeper kind of analysis forms the basis for combining all of the best procedures within the process being benchmarked.
   
   

7. Failing to motivate employees. To make your benchmarking results "stick," you need to create performance targets based on your results and tie employees' compensation to those targets. For instance, if your benchmarking results show that you need to increase your customer satisfaction ratings by 30 percent, tie employees' accountability and compensation to hitting that target.
   
   
8. Overlooking the big picture. Don't limit benchmarking efforts to your own industry. Look at several industries to find where the best practices lie for a particular function or process. It also makes sense not to benchmark companies that have strategies different from your own. For instance, if you're cost-driven and the company you're studying is known for its innovation, you probably won't get much out of it.
   
   
9. Failing to convince other companies to participate. One essential benchmarking challenge is convincing other companies, some of which may be your competitors, to participate in your benchmarking efforts. To promote participation, particularly from a competitor, let them help in the creation of your questionnaire. Your competitor may say, 'If you add some questions about order accuracy, then we'll participate in your project." You may even need to create a marketing program touting the benefits a benchmarking partner may gain by participating.
   
   
10. Failing to tie your efforts to financial results. Successful companies understand how they'll use the results to change the way they're doing business and how to get a quick ROI on their benchmarking investment by targeting quick-win opportunities. Track the amount of improvement each benchmarking initiative has on your bottom line.

Final Thoughts

Any company unwilling to change and improve the way it operates risks losing market share to its competitors. Companies with successful benchmarking programs tend to take a balanced approach. They collect data from both the Web and consultants, as well as from face-to-face contact with participating partners. They don't work in a vacuum; they seek input from key constituents. They tie employee performance to benchmarking findings. And they seek out resources for information from a variety of sources, including trade associations. A number of trade groups put together networks that help ensure an effective comparison of companies in search of best practices. Trade groups have become clearinghouses of information suited to a specific industry or niche.

The most important ingredient for benchmarking success is change management. Effective managers of change are consistently and quickly able to get their people to accept and adopt new practices.

Related stories (some related materials and links may be to other websites that require registration or subscription): Best Benchmarking Practices: Look in Your Own Backyard