I often get annoyed when people talk about benchmarking. It’s not that I dislike the whole idea of benchmarking, but that a lot of discussion on the topic is plain wrong.
For example, benchmarking programmes should not be implemented in the absence of a management framework that already tracks performance measurements. Good performance measurements reflect the most critical operating aspects of business processes, systems, governance and function.
In almost all instances, benchmarking benefits from an environment where business excellence frameworks like the Singapore Quality Class (SQC) or the European Foundation for Quality Management Excellence Model are actively applied. Instead of being an orphaned afterthought, benchmarking becomes a natural extension of business, and a core component of knowledge management.
A comprehensive benchmarking programme internalises 4 guiding principles: the four guiding principles 1 are Measurement Focus, Measurement Perspective, Measurement Control and Collection of Data.
Organisations are fond of cluttering their dashboards with performance metrics that measure almost every aspect of their operations. After all, common wisdom is that what cannot be measured cannot be improved. However, a lot of times, organisations are measuring things that just not that important. Worse, things get measured and reported, but lead to no real change. How useful is soliciting the customer satisfaction rating of every phone-call if the scores are simply parked in a database, and only dragged out in quarterly meetings?
Performance measurements must be actionable, and for them to actionable, organisations need to:
- establish where value to a customer is created in either a work area or business process.
- determine where value is lost, either through process wastes like errors, rework, duplication, or high costs and workplace accidents.
- focus on business functions whose performance clearly deviates from standards, service levels or regulations.
Like performance measurements, benchmarks arrive in two forms: leading and lagging indicators. While leading indicators are predictive, lagging indicators are reactive. Most leading indicators do not measure actual performance, but predict them instead. Thus, a high turnover rate in the Engineering department- the leading indicator– may forecast a future dip in customer satisfaction, presumably because of a decline in product quality.
Lagging indicators describe, often posthumously, the actual performance of processes over a given duration. Financial metrics like sales, profits and expenditures are traditional examples of lagging indicators that organisations use to compare the impact of actual outcomes versus targeted outcomes.
A comprehensive benchmarking effort enlists both leading and lagging indicators.
Although benchmarks can be set at almost every level of the organisation- cascading from the enterprise level right down to the individual employee– benchmarking is essentially people-centric. From the outset, the benchmarking effort must establish clear ownership over who owns what performance metric, based on the individual level of authority, scope of responsibility, and skill sets. It is unfair to assign employees responsibility over benchmarks that they may not have direct control over.
Gathering of Data
While it’s true that performance metrics must be quantifiable to be effective, some organisations rush headlong into creating as many as they can, without evaluating if the data is easy to collect in the first place. The problem is made worse by the fact that most entrenched organisations still lack a robust data-driven culture. Again, business excellence adopters possess a clear advantage, since business excellence frameworks emphasise the importance of collecting and acting on the results of key business enablers like processes, products and services.
The best performance benchmarks are collected without investing heavily in either time, systems, manpower or budget.