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Learning from the Best: Benchmarking for Organizational Improvement
Principles of Management · Chapter 14: Strategic Management and Decision-MakingSection 14.6 · lesson 100 of 11712 min · free with a free account
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In this lesson
Benchmarking for organizational improvement.
- Define benchmarking and distinguish its 4 types
- Describe the 10-step benchmarking process
- Explain why a gap needs a practice explanation
- Assess the errors benchmarking invites
Transcript
Everything said in the video, section by section (1,571 words). Read along, or search it.
Strategic Management and Decision-Making
Learning from the Best
Every manager eventually asks the same question. How good are we, really? Benchmarking answers it by comparison, against a deliberately chosen reference point. This section defines benchmarking, and distinguishes its four types. We'll look at what can be benchmarked, and walk through the ten-step process. We'll see why gap analysis is the real substance, and why it has two parts, not one. Then we reach the real point of the section. The errors that benchmarking invites. We'll cover data quality, the ethical and legal boundary, and when internal analysis serves better. And we'll finish with a copied practice that produced almost nothing.
Benchmarking Defined
A Systematic Comparison
Benchmarking is the systematic comparison of an organization's processes and performance against a reference point. Its purpose is to identify improvement opportunities. As with many definitions, one word carries real weight. Systematic. Benchmarking is a structured, deliberate comparison. It isn't an informal glance at how another organization appears to be doing. And it isn't an occasional one, either. That distinction matters, because casual comparison is everywhere in management. A manager hears that a rival is doing well, and assumes she knows why. Benchmarking replaces that assumption with a structured look at what is actually happening.
The 4 Types
Chosen by the Comparison Organization
Benchmarking comes in four types, distinguished by the organization chosen for comparison. Internal benchmarking compares against another unit within the same organization. Competitive benchmarking compares against a direct competitor. Functional benchmarking compares against organizations performing the same function, in other industries entirely. Generic benchmarking compares against a recognized exemplar of a process, regardless of industry. Now a notable observation, and it runs against intuition. You might expect a direct competitor to be the most useful comparison. Often it isn't. Functional and generic benchmarking often yield more than competitive benchmarking. The reason is simple. In those cases, the comparison organization isn't defending competitive information. A firm in an unrelated industry has no competitive reason to withhold how it runs a shared process. A direct competitor has every reason to guard exactly that information closely.
Table 14.6.1
Access and Transferability
Table fourteen point six point one compares the four types on two practical dimensions. How hard is access, and how well does what's learned transfer? Internal benchmarking has low access difficulty. The data is already accessible inside the organization. Transferability is high, because the shared organizational context transfers directly. Competitive benchmarking has high access difficulty. Competitors guard information that reveals their advantage. Transferability is moderate. A similar business context helps, where data can be obtained at all. Functional benchmarking has moderate access difficulty, because the other side has no competitive stake in withholding. Its transferability is moderate too. The function transfers, though the industry context may differ. Generic benchmarking has low to moderate access difficulty. A recognized leader is often willing to share. Its transferability is variable. It depends heavily on whether the underlying conditions also transfer. Keep that last phrase in mind. Underlying conditions will matter a great deal later in this section.
What Is Benchmarked
Process, Performance, Strategy
So what exactly gets benchmarked? Three things. Process benchmarking examines how work is actually carried out, step by step. Performance benchmarking examines the measured results that a process or function produces. And strategy benchmarking examines the broader competitive choices an organization has made. Of the three, process benchmarking is usually the most actionable. A specific, described process can be directly compared, and adapted. A performance metric alone works differently. It tells an organization how large a gap exists. What it doesn't explain is what to actually do about it. That limitation returns shortly, because it sits at the heart of gap analysis.
The Benchmarking Process
10 Steps, Gap Analysis at the Center
The benchmarking process runs through ten steps. First, identify what to benchmark. Second, identify the comparison organizations. Third, determine the data collection method. Fourth, collect the data. Fifth, analyze the gap between current performance and the comparison's performance. Sixth, project future performance, based on that analysis. Seventh, communicate the findings to relevant stakeholders. Eighth, set goals informed by the gap analysis. Ninth, develop and implement plans to close the gap. And tenth, recalibrate, once those plans have had time to take effect. Notice where the analysis sits. It's step five of ten, right in the middle. Everything before it gathers the comparison. Everything after it acts on what the comparison found. And the last step matters too. Benchmarking ends by recalibrating, rather than simply stopping.
Gap Analysis
Performance Gap, Practice Gap
Gap analysis is the substance of benchmarking. And it involves two distinct things, not one. The first is the difference in performance. How much better is the comparison organization's result, actually? The second is the difference in practice that explains it. What does the comparison organization actually do differently, to produce that better result? Of the two, the second is more important. A performance gap without a practice explanation isn't actionable. Suppose you learn that a competitor processes orders twice as fast as you do. That's interesting. But on its own, it says nothing about what to change. It becomes useful only once the specific practice behind that speed has been identified.
Figure 14.6.1
A Gap, and the Practice That Explains It
Figure fourteen point six point one shows a performance gap for a process at Harborline Manufacturing. The figures are illustrative, constructed for this exercise. Our performance stands at fifty-five percent. The benchmark stands at ninety percent. That's a large gap. But on its own, it says nothing actionable. The practice differences beside it are what actually explain the gap. The benchmark organization uses a standardized intake process. It has a dedicated triage role. And it holds a weekly cycle-time review. Then comes the most important note in the figure. A condition that may not transfer. A dedicated triage role needs a volume of work that this unit doesn't yet have. That's exactly the kind of underlying difference that decides whether copying a practice will work. Here, it's the process volume needed to justify a dedicated role. Hold onto that detail.
The Errors It Invites
When Benchmarking Misleads
The errors benchmarking invites are the real point of this section. Done carelessly, benchmarking actively misleads. The most common error is copying a practice without the conditions that made it work. This connects directly to the contingency principle from Subchapter five point five. A practice that succeeded somewhere succeeded under a specific set of conditions. Adopt it without those conditions, and it typically fails to reproduce the result. The second error is comparing against a non-comparable organization. The gap analysis then rests on a fundamentally unlike comparison, and that undermines every conclusion drawn from it. The third is benchmarking a metric without understanding its definition. Organizations frequently define even seemingly standard metrics differently. So two numbers may not measure the same thing. The fourth is treating the benchmark as a ceiling. A comparison point isn't a maximum. The comparison organization itself may be improved upon, not simply matched. The fifth error is strategic. It's converging on competitors' practices until no one is meaningfully differentiated. That undermines the differentiation position from Subchapter fourteen point two. Pursued indiscriminately across an industry, benchmarking can erode the distinctiveness each competitor originally had.
Further Limits
Data Quality and the Legal Line
A genuine data quality problem runs through all benchmarking work. Published comparative figures are frequently defined differently by each organization that reports them. So a figure that looks directly comparable on the surface may, on closer inspection, measure something subtly different. The danger is a comparison that looks precise, while quietly comparing two different things. There's also a genuine ethical and legal boundary around gathering competitive information. Consistent with its standing position, this course offers no legal advice on where that boundary sits. That holds for any given jurisdiction, and for any given situation. Where a genuine question of legality or confidentiality arises, an organization should seek qualified counsel. It shouldn't assume that any general principle stated here settles the matter.
Choosing the Tool
When Benchmarking Fits
So when is benchmarking the right tool? When an organization genuinely doesn't know how good its current performance is, relative to what's achievable. And when a comparable external reference point can realistically be identified. Both conditions matter. Without the second, there's nothing sound to compare against. Internal analysis would serve better in two situations. One is when the organization's own historical data already reveals a clear, actionable gap. That's a gap between current performance and prior performance. The other is when no genuinely comparable external organization exists at all. Forcing a benchmarking exercise in either case produces the appearance of rigor, without its substance. It looks like analysis. It isn't.
Case Vignette
A Copied Practice That Produced Nothing
Here's a composite case, constructed for instruction. Harborline Manufacturing's customer service division learned something about a much larger competitor. The competitor had cut its average response time substantially, by introducing a dedicated triage role. That's a specialist whose sole job is sorting incoming requests, before they reach the rest of the team. Harborline's division copied the practice directly, creating an identical role. Response times improved only marginally. The new specialist spent much of each day without enough incoming volume to justify the position. And the rest of the team saw little real relief in their own workload. Why? The competitor's role worked because its request volume kept a dedicated specialist genuinely occupied. Harborline handled a fraction of that volume. It copied the practice, without the condition that made it work. That's the contingency error, and it's the most common way benchmarking goes wrong. This closes Chapter fourteen. The chapter moved from the strategic management process, through strategy frameworks, to decision-making and its biases. It covered decision conditions and quantitative tools, and closed with benchmarking, which carries its own risk of misapplication. Chapter fifteen turns to productivity and quality management.
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