Sunday, March 3, 2013

How Should You Benchmark Business Performance?

Way back in 1998, Sik Fong, Eddie Cheng and Danny Ho wrote a great article citing Camp (1989) referring to benchmarking as “the search for industry best practices that will lead to superior performance”.  Where they state that “this definition is broad enough to accommodate all levels or types of practices to benchmark;” going on to say that “benchmarking can work in all possible areas of products, services, and related processes across different national or business boundaries. It involves changing the current work practices or business methods to achieve predetermined goals. For example, Motorola’s general systems division learned from the delivery systems of Domino’s Pizza and Federal Express, aiming at shortening the cycle time between order receipt and delivery of its cellular telephones,”(p. 408).
But in 2013 with most organisations operating in a double or triple dip recession, or the aftermath thereof,  is it smart to benchmark yourself against other organisations when whole industries are operating in uncharted territory and ‘comparisons’ could easily give a false picture, as you might not be comparing like with like in terms of the business environment.
Benchmarking against competitors makes sense in a reasonably stable business environment where you’re looking to ensure you’re either setting the standards for others to follow or at least being competitive; and making strategic and operational changes to improve specific key performance areas in line with current ‘best practice’ in your industry sector.
But what if the market is so volatile that benchmarking yourself against your competition could just lead you to follow them to obscurity, highlighting that maybe there are times when the business environment is so uncertain that it requires ‘great leaders’ to go with their experience, knowledge and instincts (not necessarily in that order) to lead their organisation through the ‘hard times’, where they prefer to ‘watch’ and manage their internal key indicators; have a very dynamic strategic process, where the organisation is ‘primed and able’ to change direction at a moment’s notice; and actively listen to their customers. 
Maybe there are times in the business cycle where ‘optimal future success’ is more dependent on leadership than comparing yourself with your competition through benchmarking in its classic form; and where you, as the leader, have the confidence in your people and your products and/or services to make it through to better times.
Where at the same time those unfortunate leaders promoted to a level beyond their real capabilities find themselves standing out like a sore thumb, following traditional business practices hoping (and praying) this will see them through and simply survive until normality returns to their market and business environment.
There are times in business and the industry life-cycle when history can tell us a lot and help us define our future strategies and actively allow us to monitor and improve performance; but we must be alert to the fact that there also times when history in itself can detract from performance improvements, and if used as a benchmark can lead to unrealistic performance target and expectations; leading to misdirection, demotivation and suboptimal outputs that could, if not checked in time, lead to corporate failure.
Sik Fong, Eddie Cheng and Danny Ho highlight four essential themes for performance benchmarking offered by the Design Committee of the International Benchmarking Clearing House in the USA, (p. 408);
1. The value of learning from contexts outside an organization’s usual frame of reference (Cox et al., 1997);
2. The importance of undertaking this learning using a structured, formal approach (Cox et al., 1997);
3. The comparisons of practices between oneself and the best-in-class on a continuous basis; and
4. The usefulness of information to drive actions for performance improvement.
Critically though even these definitions neglect to highlight the possibility of benchmarking based on internal comparisons when the external environment is too uncertain to be trusted to guide you to ‘best practice’ performance.
When the business environment is uncertain, you cannot simply assume that your competitors, who were successful ‘yesterday,’ are actually on the right strategic path for sustainable growth; and if you’re a truly effective leader you must trust your instincts to guide your organisation through these uncertain times to arrive safely ‘on the other side’. Check on what the competition are doing by all means, but don’t blindly follow them, as they could be more lost than you.
Fong, S.W., Cheng, E.W.L. and Ho, D.C.K. (1998). Benchmarking: a general reading for management practitioners. Management Decision. Vol. 36, Issue 6, p. 407-418.


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  2. I was reading your post this is really good, Thanks for sharing this kind of idea.