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“If you do not have control of the benchmarking purpose and process, then the data is worth nothing. If we had a choice, we don’t need more data but rather the right data at right time to drive the right discussion.”

During a number of years, I ran the benchmarking function at a multinational corporation IT division as part of Performance Management. We cooperated with a number of consultant companies to benchmark our performance against peers in our industry. Benchmarking was quite simple. We spend enormous amount of time gathering performance data, shipping it off to the consultants, receive a 200-page report that was presented once or twice in management teams – and then never used again. What knowledge did we actually gain? What strategic discussion did we actually drive? The only true winner of the set-up was the consultant firm – they gaining access to all our performance data (generating sales leads), we did all the hard work gathering data – and also paying heavy fees for participating. Where did we go wrong? What is the right way?

To summarize the workings of benchmarking in a blog is very difficult. My aim here is to get the discussion started as it is increasing in popularity and is one source of frustration and irritation. The situation is that approximately 49% of organizations (Wikipedia 2013) use performance benchmarking as management tool to raise performance. Additionally, over 60% of organizations not using performance benchmarking is likely to implement such program in the next three years. It is fair to say that performance benchmarking in focus in many organizations but still many organizations (especially in IT) have difficulties of leveraging the benchmarking process and data. Many say that IT is impossible to benchmark since it is too complex and therefore difficult to compare. I would say that the value of benchmarking depends on your view on the organization and the governance model. A tradition model based on “command and control” focusing on operational excellence has little value of benchmarking as it uses benchmarking data to control employees. The purpose is more sophisticated than that. My view is that benchmarking is a tool to raise performance by learning and driving the right strategic discussions. It requires a more flexible and dynamic view of performance management (customer intimacy). There are many consultants out there that supply benchmarking data – but if you do not have control of the benchmarking purpose and process (governance), then the data is worth nothing. If we had a choice, we don’t need more data but rather the right data at right time to drive the right discussion. So where to begin?

Key questions to ask yourself before benchmarking:

  • Why does your organization want to do benchmarking? What are you trying to achieve?
  • What strategic discussions (what, where and when) are you trying to create?
  • What area is in focus of your benchmarking? Who do you want to benchmark against?

In my case, we could not answer these simple questions resulting in quite useless benchmarking data. The fact is that the benchmarking should not have started before all these questions had been clarified and communicated. Also, we had a clear traditional governance model based on “command and control” and operational excellence – that created a culture that did not utilize the power of benchmark. It was a separate activity out of context and limited impact. It mostly provided “facts and figures” to control and blame managers rather than creating a constructive strategic discussion.

The benchmarking should, together with other environmental scanning, show a complete picture of the current performance, and opportunities and threats in the industry. The management team should, based on facts and figures, be able to make sound decisions and prioritization based on discussions. For example, the benchmark shows that weakness in our performance since we have twice as many applications as our peers – is this problem? What is the consequence of this finding? Is this a strategic decision to optimize resource usage? How do we prioritize this finding in relationship to other findings?

I received the same question each time I presented the benchmark. “Is it actually possible to compare the performance between two organizations. Don’t we have different definitions and different pre-requisites?” This magical question was the silver bullet to stop any performance comparison in the organization – and it was used year after year. The fact is that benchmarking is not an exact science – meaning that data is not exactly comparable. But it shows a “big picture” comparison and trends of our performance. We cannot guarantee that our company has exactly 1,234 more applications than our peer, but rather that we have too many applications (around 1,000). That is good enough to drive the strategic discussions. It the number of application based on a strategic decision? What does it actually mean for us? Do we need to re-prioritize our governance model and investment portfolio?

Considering the increased unpredictability in many industries, the importance of continuously understanding the working environment is significantly increasing in importance. Knowledge about business and your environment is the key resource of any organization and therefore practices like benchmarking is gaining in importance. How we gather knowledge and how we act upon it is the new competitive advantage in IT organization. Therefore, rather focused benchmarks containing 20-30 metrics every quarter than big batch (300-400 metrics) every year. It is important to notice that knowledge needs to be “fresh” in our unpredictable world. To base decisions and discussions on 12 – 18 month old data is rather destructive. Strategic decisions should therefore not be based on benchmarking data older than three months.

Another interesting consequence of the increased unpredictability is our view of target setting. An annual targets setting is based on the pre-requisite that we accurately can forecast the future. This is not true any longer. We frankly do not know how the business demand, technical advances and competition will evolve during the year. More and more companies are therefore moving into relative targets based on benchmark. Instead of a setting an exact target (uptime of business critical applications = 99,75%), we set relative targets (business critical application availability should be best 3 in our peer group). The relative perspective actually follows the unpredictability and trends, as they are the same for all peers in the group. The relative targets will should how well we managed the unpredictability compared to peers (did we take the right decisions) – and that is interesting!

“Benchmarking is about supporting a process to raising performance, not place blame based on individual scores”

In our organization, we used internal benchmarking to display relative performance between different units. The tool is very powerful as it creates a high level of transparency in the organization – and therefore was seen as a serious threat to managers (low performers). A consequence is that the tool easily can backfire and actually create more harm than good in terms of motivation and performance. The way internal benchmarking is interpreted is very much linked to the governance structure (see above). If benchmarking is used to “control and command” employees (traditional governance) – then it obviously will be seen as a threat and will be fought or disregarded. If the benchmarking, on the other hand, is used to drive learning, strategic discussions and performance – then it seen as an asset and it creates engagement and change. It is therefore important to understand how to use the internal benchmarking tool and adjust it to its purpose.

I am interested in new digital trends and how they interact to raise performance and engagement. Gamification is a new trend where a “competition” between employees, units or companies is created to do just this. To combine gamification with benchmarking is a powerful tool to jointly drive performance and engagement. This is quite large topic and will be the subject of a future blog.

My recommendation:

  1. Think about the purpose and focus of the benchmark before starting up. What are you trying to achieve? What discussion do you want to have? What do you want to benchmark?
  2. Think about the influence of your governance model on the value of benchmarking. To receive full value of benchmarking demands a more flexible and agile governance model far from the traditional “command and control” model.
  3. Go for a limited benchmark (20-30 metrics) with high frequency rather than the massive benchmark (300-400 metrics) on annual basis. Quality before quantity!
  4. Seek help on how to optimize your benchmarking work! There are experts in this area and it might be worth contacting someone.

To conclude, benchmarking is an extremely powerful management tool to use to drive strategic discussion, performance improvements and change culture – “positive benchmarking”. But it is also a tool that can easily be misused and become destructive – “negative benchmarking”. The line between these two scenarios is quite thin and depends in essence on the culture and leadership of the organization. The fact is that a culture based on “command and control” to force change in an organization (with “negative” benchmarking) will never achieve cultural change – but only create more “command and control”. To break the vicious cycle, leadership and management need to adapt a more flexible and adaptive governance based on trust – to drive cultural change and achieve high level of performance (though “positive” benchmarking)! Where are you? What do you want to achieve?

Hans Legend 1