Sunday, October 16, 2011

Benchmarking: The Good, The Bad, The Ugly

Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. (source)

As many of you may have experienced, it is common practice for companies and/or their specific business units to undertake Benchmarking exercises, often by paying exhorbent fees to Professional Services companies to provide the required facts.

I recently came across an old video of Tom Peters discussing Benchmarking in a presentation (note: the video is at bottom of this post). Tom states, "... I hate Benchmarking! Benchmarking is Stupid! Why is it stupid? Because we pick the current industry leader and then we launch a five year program, the goal of which is to be as good as whoever was best five years ago, five years from now."

Tom has a point. And it is a good one. This is the "Ugly" in Benchmarking. There is no use setting your objective based on trying to achieve a specific measure if the reality is the best-in-class company is going to continually move the goal posts forward. This is why innovation is so important. If you only chase the leading benchmark you will always be a follower. To quote Steve Jobs, "Innovation distinguishes between a leader and a follower." Or as Seth Godin wrote, "The reason it is so hard to follow the leader is this: The leader is the leader precisely because he did something remarkable. And that remarkable thing is now taken - so it's no longer remarkable when you decide to do it."

However I do not totally agree with Tom. As the first part of the definition states, Benchmarking is the process of comparing one's business processes and performance metrics... In my view is this is critical. Obvious, but critical. I liken it to going on a journey. It is impossible to get to point B or C if you do not know where your starting point i.e. point A, is. Hence, in my view, this is the "Good" in Benchmarking as having a solid factbase about your own business (and not necessarily everybody else's)  is an essential starting point of executing any strategy.

The 2 minute video below, includes the Tom Peters quote above:

BTW. There is no "Bad". It just made for a good blog title :)


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