Benchmarking has become an organisational catchphrase in recent years, but there is still room for improvement when it comes to doing it properly. So what is benchmarking and how can it help you grow your business?
Benchmarking can be one of those bywords that upper management throw around occasionally without really having an effect on project management or the wider organisation. But benchmarking is more than just a byword; it’s actually an effective way of examining your projects and/or your organisation. Through comparison to others, you can understand how you’re tracking in the real world.
“Benchmarking is a process of comparing cost, time, quality and what an organisation does compared to other organisations. It can be looking at people, processes and the policies they have. It’s actually saying, what do you currently do? Who is doing it better? And why are they doing it better? And could you do it better as well?” says Neil Macdonald, general manager of Management Consulting at UXC.
Larry Gould, managing director of Australia-wide Business Training, believes organisations can benchmark against anything they can measure. “It can be within the organisation, it can be against a required standard, it can be against competitors and it can be against an industry average,” he says. “What an organisation needs to do is understand what’s important to them and what they actual want to trap and measure.”
One mistake is to seek to benchmark externally before understanding where you currently sit. Therefore, the first step is to take an internal view to establish a baseline from which to measure your progress.
“Secondly, work out the areas that you think will have the highest pay-off, the highest benefits for the cost you’re going to invest,” suggests Macdonald. Doing this will help organisation avoid the mistake of wanting to benchmark everything. “They might say ‘I want to benchmark the whole procurement process’ rather than saying ‘Are there some obvious bits in the procurement process that we should benchmark?’ You tend to do the whole lot rather than the bit that’s going to give you the high value, high impact area first.”
Gould agrees that organisations should look internally first. “One of the major pitfalls is that people get so carried away with benchmarking against competitors or the industry, they forget it actually tells them a lot about their own organisation,” he remarks. “If they benchmark from one year to another, it will give trends. You need to understand where you’ve travelled from and need to have established acceptable levels. You then measure your performance against those standards.”
He adds: “Benchmarking is threefold: it’s about establishing your trend and understanding the journey you’ve travelled, it’s about understanding and comparing against competitors, and then it’s about understanding and comparing against the industry you’re in.”
Us and Them
Lynn Crawford, a director of benchmarking organisation Human Systems International, says benchmarking is really part of the process of improvement and can begin at a project level. “Project managers may look at their project management processes or the success rate of their projects or profitability of their projects, the number of projects they have, the number of resources they have,” she lists.
“Also look at the project management capability of the organisation. You can benchmark individual projects or program, or your overall organisation’s project management, or both, because they are related. Some parts of the organisation do something really well, other parts really badly.”
Once an organisation has measured itself, it can then look externally to begin comparisons. Crawford says finding a benchmarking network where everyone can be assessed will help an organisation see the areas where it needs to lift its game. The important part here is to keep in mind your goals without getting carried away with other people’s targets. “Don’t just strive for something that someone else has, because it may not be the thing that you want, and it may not be the best use of your resources,” she advises.
Macdonald recommends that organisations benchmark by function rather than industry as this can deliver better results than just looking at what is considered good within your sector. “Your closest competitors are not likely to share their innermost details with you, which is why you should think about other industries,” he says. “Just say you’re in building and you’re off to see a travel agency: you say ‘we’re really good at our contracts’ so you share that and they tell you how they engage with customers.”
The best part about benchmarking is that it can be a shortcut to integrating best practice into your organisation. To do this, Macdonald suggests you visit a place that’s doing it better than you. “Not only do you see what the best practice is, you often get a solution that can be delivered rather than a hypothetical ‘yes we can improve by 25 percent but we don’t know how to’. You see a solution that’s working, that has been tested, and is more efficient than the one you have. You’re learning from other people’s mistakes rather than your own mistakes.”
According to Gould, it is acceptable to benchmark against anyone or anything as long as you understand what you’re benchmarking, and the context of the different organisational drivers that influence performance.
Crawford agrees. “A construction company is really good at cost control, estimating. If you’re in the finance sector, you don’t have good data for estimating because so much of it is knowledge work, therefore it’s much harder to control the cost. They can look to how the construction industry does it. If they have an open mind they’ll see things. Find somebody else’s burning platform and you’ll find they’ve really worked on doing something better.”
Supporting Strategy
Strategy comprises the steps you need to take to achieve a goal, and benchmarking is a way to find out what your goal should be and how to measure your progress.
“You need to know where you are,” says Crawford. “If you want to maintain and improve your performance, then you need to have a baseline to know where you’re starting from and you need to have a realistic view of where you want to go to. What benchmarking does is give you realistic targets.”
If an organisation has gone through the benchmarking process properly by identifying the key areas where improvement is required, then the target should be obvious. Once a strategy has been developed, Crawford reminds organisations that it is important to then implement it. “Senior managers see the development of strategy as really important, which it is. The failure of strategy is the failure to do. Its logical to be able to demonstrate that you are able to do it and you are implementing it.”
The essence of benchmarking, having understood your position in relation to others’, is to find good practices—the processes underneath the results, Crawford says. “The distinctive feature in terms of benchmarking in project management is that it’s about processes, so you do need to speak to other people. You can have all the fancy tables and diagrams in the world, but you need to be talking to other people.”
Borrowing a strategy as solution is not uncommon, Gould concurs: “If you’re benchmarking against an external, and the industry is not far away from that, what are they doing that you’re not doing and what can you do to change?”
However, he also says it is possible to find strategy drivers internally, especially if you’ve benchmarked against yourself for a period and your performance has fallen. At that point you can work backwards to find out why, then either reinstate the former strategy that enabled you to reach a particular standard previously, or find a new solution.
“It becomes an innovation strategy to get you to where you need to be,” he says. “If you’re looking at results and you understand why, you can take steps to become more innovative and more proactive and more focused on taking the business forward. You can’t be complacent.”
Benchmarking and Innovation
One of the drawbacks of benchmarking is that it has an upper limit, according to Macdonald. He relays an experience he had working for a financial institution. The institution charged $250 for a certain transaction but, when benchmarking, found that competitors were only charging $150 for the same transaction. After tweaking some of their processes, they managed to get the transaction cost down to $125. “Later I found out that the same transaction in the US costs $25,” recalls Macdonald.
His conclusion? “Benchmarking can’t deliver any breakthrough thinking. It doesn’t take into account the question ‘what could we do if we got everything right?’ It tends to limit itself by the best in the market,” he believes.
Crawford disagrees and says benchmarking is a driver of innovation. “Organisations that get to that point then have to be innovative to better that. If you don’t keep improving, you fall backwards. From 65 case studies there was evidence that organisations not actively endeavouring to improve will fall backwards in capability. It’s not just that other people are improving, it’s that they will become complacent.”
Having tasted success after implementing a strategy, an organisation should then recognise that benchmarking is a continual improvement cycle that involves re-measurement to ensure that not only do they maintain their previous standard and compare well with others, but that they also build on it with ongoing improvement.
“Never think that you’re so good that you can’t learn something new. As soon as you do that there’s a barrier: you’re arrogant, you’re complacent and you will start to go backwards,” says Crawford. “Benchmarking keeps you honest, it’s a way of demonstrating performance. You have to keep coming back because the bar keeps being raised and the nature of the environment changes.”
Crawford thus recommends that organisations put into place a process for regular benchmarking activities to ensure that they can keep track of their progress and can see whether they are deriving benefit from investments into the changes driven by the benchmarking process.
Benchmarking also needs buy-in from as many people in the organisation as possible, she advises, and commitment needs to come from the top down for it to work effectively. Macdonald agrees. “I see a lot of benchmarking exercises that sit on a shelf. That’s benchmarking without the cultural change or the necessary change management. It will just be a good idea and an exercise rather than get you the result you were hoping for if that’s the case.”
Gould says the resistance often comes from people who think benchmarking takes away from core operations, but he believes organisations can’t afford not to do it. “It’s like any other form of planning or business development, unless you do it, you can’t improve.”
7 Steps to Set the Standard
1. Identify what you would like to benchmark, and a process of measuring it.
2. Find a baseline by looking at your internal processes.
3. Do a cost-benefit analysis and find the areas that will have the highest pay-off.
4. Choose whether you would like to benchmark against a competitor, your industry or by function.
5. Compare your organisation against others according to your choice.
6. Implement benchmarking as an organisation-wide process and ensure everyone understands its importance.
7. Remember that benchmarking is a continual process, so keep measuring your progress against evolving standards.
This article was first published in the February/March 09 issue of The Project Manager, magazine of the Australian Institute of Project Management. Please visit www.aipm.com.au for more information on the Institute.
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