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
- Identify what you would like to benchmark, and a process of measuring it.
- Find a baseline by looking at your internal processes.
- Do a cost-benefit analysis and find the areas that will have the highest pay-off.
- Choose whether you would like to benchmark against a competitor, your industry or by function.
- Compare your organisation against others according to your choice.
- Implement benchmarking as an organisation-wide process and ensure everyone understands its importance.
- Remember that benchmarking is a continual process, so keep measuring your progress against evolving standards.