by David Haynes

The term "benchmark" originates from the chiseled horizontal marks that surveyors made in stone structures, into which an angle-iron could be placed to form a "bench" for a leveling rod, thus ensuring that the rod could be repositioned in the same place. Because of the importance of the benchmark itself, the term soon came to be applied figuratively to any point of reference.

Today, virtually every world-class organization is looking for ways to compare (benchmark) their performance against their competitors and, in a general sense, against other world-class organizations. This benchmarking can be relatively informal (reading available literature and touring other facilities), or it can be more data-driven (comparing financial performance and operational metrics).

Developing the necessary databases for effective benchmarking is extremely difficult and time consuming. For that reason alone most successful benchmarkers use outside firms who specialize in gathering information, “cleaning” it, and building useful relationships between data sets.

The two most important things you can learn from benchmarking are:

• Where your key operational metrics diverge from typical industry measures (for better or for worse)
• What strategies, tactics, and investments the top performers-the “world-class” companies-are using that you’re not

What you can’t learn from benchmarking is what you need to do to improve your performance. The best benchmarkers, however, gain access to databases that allow them to see some of the correlations between what companies are doing (change initiatives, lean training, employee retention and training, etc.) and the financial results that are being generated.

While direct causal relationships may be difficult to confirm, the evidence of correlations across business types or industries begins to paint a picture of common priorities by the best performers, regardless of the industry. One can see, for example, a strong correlation between the amount of money companies invest in employee training and the rate of employee turnover.

If your database is robust enough, you may also be able to see the general market strategies and improvement methodologies being used by market segment leaders. The power of having a specific methodology for improvement shows up continually in benchmarking surveys across all industries and market segments.

In addition to operational measures, you may also be able to see how other companies are doing in trying to integrate their supply chains. As companies continue to optimize their internal operations, they increasingly look to their supply-chain relationships as the next opportunity to improve performance and better serve their customers.

IT, technology and capital investment are also important benchmarking targets. All too often manufacturers automate poor processes rather than improving the processes first, but equipment and IT can be the right investments for those companies that have invested in process improvement and are ready to take the next step toward “world class.”

I have coined a phrase I call the “Copperfield Effect” (after the magician David Copperfield) that describes what every good magician knows: Create a strong enough expectation, and you can get people to see (or not see) almost anything. The Copperfield Effect is what keeps people from really learning anything helpful from their benchmarking – and it is why an outside perspective is often helpful. If you expect that no one else’s experiences really apply to your company, that’s what you’ll see. If you believe that there is no correlation between continuous improvement initiatives and lower labor rates, for example, you’ll never see it.

So what can you do with your benchmarking insights? In the end, your goal is to improve your business, not just to wring your hands – or pat yourself on the back. With thoughtful analysis and honest challenges to your current paradigms, effective benchmarking can narrow your focus and get you to look at those processes most in need of attention. Your benchmarking can also provide a baseline from which to gauge the effectiveness of your ongoing change initiatives.

The lessons? Find the best data, challenge your assumptions of what you can be, get an outside perspective, and, most importantly, turn information into action.

About the author

David Haynes is a senior process improvement consultant for Wipfli.  He brings more than 30 years of experience to each client and excels at providing the link between process improvement and customer satisfaction and identified revenue opportunities.  To learn more about using benchmarking tools to improve your company's profitability, please contact David at dhaynes@wipfli.com.