Benchmarking, using other companies' performance to help set standards for your own, is as much a part of business as budgeting and strategic planning, and for obvious reasons. Besides the value of understanding your market, it just makes sense to learn from the experiences of others rather than having to make every discovery (and every mistake) for yourself.
There are also serious, even fatal pitfalls associated with benchmarking, however, and these have often been overlooked in the urgent heat of measuring and comparing that can characterize benchmarking initiatives. Jeffrey Pfeffer, the Thomas D. Dee II Professor of Organizational Behavior at Stanford University's Graduate School of Business, has been cautioning managers on how to avoid these problems for some time, most recently in a new book written with fellow professor Robert Sutton called Hard Facts, Dangerous Half-Truths, and Total Nonsense: Profiting from Evidence-Based Management, published in Boston by Harvard Business School Press this year.
According to Pfeffer, there are three inherent problems with benchmarking, perhaps not as it was intended, but as it is often practiced. First of all, if your business strategy is simply to copy what others do, then by definition the best you can hope for is to be a perfect imitation. Then there is the problem with what companies choose to copy, which is “often only the most visible and superficial aspects of another company's management approach,” he notes.
Finally, Pfeffer takes issue with what he describes as “casual” or “mindless” benchmarking, in which companies try to copy what others are doing without first asking basic questions, such as, Why might this practice enhance performance? Is it the right thing to do for us? Would we see the same results? “Something that helps one organization can damage another,” he warns.
Tom Doyle, vp-business development at Qualcomm Wireless Business Solutions concurs with Professor Pfeffer, especially when it comes to benchmarking and innovation. “Qualcomm is founded on innovation,” he explains, “so we tend to be a bit irreverent when it comes to benchmarking ourselves against other companies. From our perspective, benchmarks frame the problem statement; they are the jumping off point for creativity and innovation, not the destination. Great leaps forward do not come from simply comparing yourself to industry norms, but from saying, ‘We can do better than that!’”
“A benchmark is just an assessment of something at a given point in time,” adds Garrick Hu, vp-advanced engineering for ArvinMeritor, “so if you are trying to catch up, it better stand still or you'll always be lagging behind. So much also depends upon who is doing the benchmarking. That is why it's important to have cross-functional teams involved. It helps you keep an open mind.”
Professor Pfeffer also offers his own list of suggestions to help organizations successfully learn from others, without falling into the common benchmarking traps: 1) It is insufficient to assume that because a successful company uses a practice, it is the reason for the company's success, he warns. 2) Management practices do (or do not) work as systems, so borrowing individual practices seldom makes sense, and 3) It is important that managers have the confidence to act on what they know at the moment, while still leaving themselves open to learning new things as they see the results of their actions.
As useful as benchmarking can be, it is clearly not as simple as A, Benchmark, C. We hope to explore this process further with Professor Pfeffer and others in a future issue. In the meantime, you can learn much more at: www.evidence-basedmanagement.com.