Benchmarking is the practice of comparing business processes and performance metrics to industry bests and best practices from other companies.
It is used to measure performance using a specific indicator or indicators resulting in a metric of performance that is then compared to others to assess how well or how poorly a company is performing.
This is sometimes referred to as “best practice benchmarking” or “process benchmarking”. Management uses this process to evaluate various aspects of an organization’s processes in relation to best-practice companies’ processes, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, usually with the aim of increasing some aspect of performance.
In the process of best practice benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compares the results and processes of those studied to one’s own results and processes. In this way, they learn how well those studied perform and the business processes that explain why these firms are successful.
The challenge with this approach is if the industry is performing poorly, benchmarking simply indicates whether you stink, really stink, or stink to high heaven. As my colleague Steve Banker has pointed out in some of his writings, in logistics, Class 1 railroads meet their estimated time of arrivals less than 70 percent of the time. And these are not narrow two hour windows like in truckload, but based on arriving the day they promised to arrive. The Class 1 railroads perform so badly, in comparison to truckload, that their very competitiveness as a mode of transportation is in jeopardy once truck platooning technology becomes a main stream technology.
In an analogy of humanity, you could be the tallest in a tribe of pygmies but when compared to an NBA basketball team, you don’t really register.
How to Avoid Being the Tallest Pigmy with Best Practice Benchmarking
When you think about benchmarking, who do you consider as ‘best-practice’ companies and why? Many manufacturing companies are far behind in areas such as digital transformation. It is imperative that manufacturers look outside their microcosms and into industries that are further down the digital transformation path; the medical, marketing, and internet companies are over a decade ahead in many areas. Instead of listing off a litany of reasons why those industries aren’t similar, find why they are. Network outside the manufacturing community and visit other conferences. Digital transformation encompasses a lot of different domains, which many industries share.