Article

Busi­ness Transformation

Should you be bench­mark­ing? Prob­a­bly not.

December 15, 2021

Author

Krish­na Paupamah

Country Manager Regional Country Manager

Every com­pa­ny wants to improve its per­for­mance. Con­ver­sa­tions about how to do so will hap­pen in board­rooms, espe­cial­ly in the last quar­ter of the year. How­ev­er, when the word “bench­mark­ing” starts being thrown about, this is when I want to say, “Been there, done that. Let’s come up with anoth­er idea!”

Typ­i­cal­ly, com­pa­nies embark on a bench­mark­ing exer­cise to see how they com­pare with oth­er com­pa­nies. They hope that by doing so, they can gain mag­i­cal insights on how to improve their per­for­mance. Unfor­tu­nate­ly, in my expe­ri­ence, almost every com­pa­ny that tried bench­mark­ing will spend a lot of time and mon­ey only to end up frus­trat­ed with the results.

I’m not say­ing that bench­mark­ing is entire­ly pointless.

Some key indus­try bench­marks are impor­tant – espe­cial­ly when it comes to com­peti­tor analy­sis. A com­pa­ny must always be aware of its posi­tion in the market.

In the book, The Game Chang­er, Alis­tair Gray described how Gen­er­al Motors (GM) dis­cov­ered that a Toy­ota assem­bly plant could stamp one mod­el to anoth­er in eight min­utes. GM plants took eight hours. Obvi­ous­ly, this was some­thing they had to improve.

How­ev­er, bench­mark­ing usu­al­ly works best in very nar­row fields. For exam­ple, in the oil and gas indus­tries where the bench­mark­ing is often exten­sive. Even then, it is focused on refiner­ies because their per­for­mance can be eas­i­ly measured.

But out­side of this, bench­mark­ing often ends up being a waste of time.

For exam­ple: How many peo­ple should we have in a Human Resources depart­ment? How many days should it take to come up with a new mar­ket­ing campaign?

Bench­mark­ing these will be a futile exer­cise because every company’s mar­ket­ing or human resources depart­ments are set up dif­fer­ent­ly, so it will be point­less to com­pare one com­pa­ny with another.

Why bench­mark­ing may cause more problems

Bench­mark­ing can indeed high­light per­for­mance gaps. But as I men­tioned before, it only works in cer­tain sit­u­a­tions. Often, bench­mark­ing caus­es more problems.

While bench­marks can eas­i­ly be obtained from trade asso­ci­a­tions — there are even bench­mark­ing ser­vices — the data is often out­dat­ed. Also, they are often not rel­e­vant to the company’s unique sit­u­a­tion or con­text. Would it make sense to com­pare the per­for­mance of a race car with a city vehi­cle? Yet, that’s what many com­pa­nies end up doing. Anoth­er argu­ment can be made: Do you real­ly want to be like your com­peti­tors or dif­fer­en­ti­ate your­self from them?

Sec­ond­ly, it sets every­one on the defen­sive. You can end up in end­less, point­less dis­cus­sions as exec­u­tives try to defend why they are not where a bench­mark said they should be.

Bench­mark­ing exer­cis­es are often time-consuming and expen­sive. Assem­bling the appro­pri­ate data in the required man­ner takes a lot of time and expense.

The oth­er prob­lem with exter­nal bench­marks is fraud. Num­bers can be eas­i­ly mas­saged to give the appear­ance that the com­pa­ny meets indus­try stan­dards while it hides mas­sive inter­nal prob­lems. The Ever­grande Group in Chi­na built hous­ing using more debt to give the appear­ance that it was grow­ing. It was only when Bei­jing insist­ed on some healthy bench­mark lev­els that the prac­tices inside Ever­grande were said to be cor­rupt. In real­i­ty, Ever­grande shouldn’t have need­ed an exter­nal bench­mark to do this.

They should have been look­ing inter­nal­ly to dri­ve health­i­er practices.

It is far more effec­tive to use an alter­na­tive approach: Mea­sure cur­rent per­for­mance against the results that the com­pa­ny wants to achieve. Mean­ing, con­duct an inter­nal benchmark.

This means mea­sur­ing the company’s cur­rent inter­nal per­for­mance and set tar­gets are chal­leng­ing to achieve. Iden­ti­fy improve­ments to be made and work towards the goal. You’ll make much more progress this way than try­ing to com­pare your­self exter­nal­ly because that’s a very dif­fi­cult thing to do.

A com­pa­ny should con­tin­u­ous­ly improve, tweak and refine per­for­mance so that it becomes a bet­ter ver­sion of itself. That’s the bet­ter way forward.

It’s human nature to want to com­pare your­self to oth­ers. Per­haps that’s why we see the same desire in com­pa­nies. How­ev­er, as they often say in self-help cir­cles: Don’t com­pare your­self to oth­ers. Instead, strive to be bet­ter than you were yes­ter­day. In oth­er words, be the best ver­sion of your­self. This, too, is true for companies.

Krish­na Pau­pamah has worked with com­pa­nies glob­al­ly to trans­form their busi­ness for over 35 years. He is the Founder and Group CEO of Renoir Con­sult­ing. He can be reached at [email protected].

This col­umn was first pub­lished in Busi­ness Today.

Author

Krish­na Paupamah

Country Manager Regional Country Manager

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