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What are the best practices and pitfalls of using benchmarking as a strategic evaluation technique?

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Benchmarking is a strategic evaluation technique that involves comparing your performance, processes, or practices with those of other organizations, usually the best-in-class or industry leaders. It can help you identify gaps, opportunities, and areas for improvement, as well as set realistic and achievable goals. However, benchmarking also has some pitfalls and challenges that you need to avoid or overcome to make it effective and beneficial for your business strategy. In this article, we will discuss some of the best practices and pitfalls of using benchmarking as a strategic evaluation technique.

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Andrew Constable, DBA (Cand), MBA, BSP

Creating Value with Strategy | Strategy Consultant @ Visualise | Lead Coach @ Strategyzer, Leanstack | BSI Balanced…

1 Define your purpose

Before you start benchmarking, you need to have a clear and specific purpose for doing so. What are you trying to achieve? What are the key performance indicators (KPIs) or metrics that you want to measure and improve? How will you use the results to inform your decisions and actions? Having a well-defined purpose will help you narrow down your scope, select the most relevant and reliable sources of data, and align your benchmarking efforts with your strategic objectives and vision.

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Andrew Constable, DBA (Cand), MBA, BSP

Creating Value with Strategy | Strategy Consultant @ Visualise | Lead Coach @ Strategyzer, Leanstack | BSI Balanced Scorecard Professional (BSP) & Senior Associate | Blue Ocean Strategy Certified | Six Sigma Black Belt??
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A crucial step in benchmarking is determining what you're trying to achieve, which sets the direction for goal setting, guides the selection of relevant benchmarks, optimizes resource allocation, and aids in interpreting actionable insights from data. Without clear objectives, the benchmarking process can become aimless and unproductive, potentially leading to meaningless results that offer no useful insights for enhancing performance. Thus, identifying your goals is essential for assessing performance over time and implementing effective improvements.

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2 Choose your benchmarking type

Depending on your purpose, industry, and context, there are various types of benchmarking that you can use. Internal benchmarking looks at your performance or processes in relation to other units, departments, or divisions in your organization, while competitive benchmarking compares you to direct competitors. Functional benchmarking assesses your performance or processes against similar functions in different industries or sectors. Generic benchmarking evaluates your performance or processes against the best-in-class or industry leaders regardless of their industry or sector. Each type of benchmarking has its own advantages and disadvantages, so it is important to choose the one that best suits your needs, goals, and resources. You can also combine different types of benchmarking to get a more comprehensive and holistic view of your performance and potential.

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Andrew Constable, DBA (Cand), MBA, BSP

Creating Value with Strategy | Strategy Consultant @ Visualise | Lead Coach @ Strategyzer, Leanstack | BSI Balanced Scorecard Professional (BSP) & Senior Associate | Blue Ocean Strategy Certified | Six Sigma Black Belt??
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Start by identifying the most relevant methods for your objectives, such as internal, competitive, functional, or generic benchmarking. Set clear goals for each method, whether it understands your standing compared to competitors or identifies best practices in similar processes across different industries. Depending on resources, implement benchmarks concurrently or sequentially, then consolidate and analyze the data from all methods. This composite view can then create a detailed improvement plan, addressing insights gained from each method. Remember to review your progress and adjust strategies based on results consistently. This approach, combining different benchmarking ways, enables continuous learning and improvement.

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3 Collect and analyze data

Once you have defined your purpose and chosen your benchmarking type, you need to collect and analyze data from your own organization and from the organizations that you want to benchmark against. You can use various methods and sources of data, such as surveys, interviews, observations, reports, publications, databases, or websites. However, you need to ensure that the data is accurate, relevant, timely, and comparable. You also need to apply appropriate analytical tools and techniques, such as statistical analysis, gap analysis, SWOT analysis, or benchmarking matrix, to interpret and visualize the data and identify the strengths, weaknesses, opportunities, and threats of your performance or processes.

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4 Implement and monitor changes

The final and most important step of benchmarking is to implement and monitor changes based on the data and insights that you have gathered and analyzed. You need to translate the findings into actionable plans and strategies that address the gaps and leverage the opportunities that you have identified. You also need to communicate and involve your stakeholders, such as employees, customers, partners, or investors, in the change process and ensure their buy-in and support. Moreover, you need to monitor and evaluate the impact and outcomes of the changes that you have implemented and adjust them as needed to achieve continuous improvement and excellence.

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Andrew Constable, DBA (Cand), MBA, BSP

Creating Value with Strategy | Strategy Consultant @ Visualise | Lead Coach @ Strategyzer, Leanstack | BSI Balanced Scorecard Professional (BSP) & Senior Associate | Blue Ocean Strategy Certified | Six Sigma Black Belt??
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I always start by establishing relevant Key Performance Indicators (KPIs) that align with your benchmarking goals. Regularly collect and analyze data about these KPIs, leveraging benchmarking tools to automate this process if possible. Frequent comparison of your current performance against the benchmark will help track changes and progress. Review and adjust your benchmarks periodically to accommodate your goals, industry, or competitive landscape changes. It's crucial to regularly communicate these benchmarking results and any shifts to relevant stakeholders and promptly act upon any significant change or trend. Think of benchmarking as a continual cycle—constantly monitor, learn, iterate, and improve for effective performance enhancement

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5 Avoid common pitfalls

Benchmarking can be a powerful and useful strategic evaluation technique, however, it also has some pitfalls and challenges that need to be avoided or overcome. For instance, benchmarking without a clear purpose can waste time, resources, and efforts. Additionally, benchmarking against the wrong organizations can lead to misleading or inaccurate data and insights. Furthermore, copying or imitating the best practices of other organizations without considering your own context can result in failure or backlash. Lastly, benchmarking as a one-time activity without learning from the data and insights can lead to stagnation or complacency.

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Andrew Constable, DBA (Cand), MBA, BSP

Creating Value with Strategy | Strategy Consultant @ Visualise | Lead Coach @ Strategyzer, Leanstack | BSI Balanced Scorecard Professional (BSP) & Senior Associate | Blue Ocean Strategy Certified | Six Sigma Black Belt??
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Benchmarking can be riddled with pitfalls if not correctly executed. These include a need for clearer objectives, leading to unfocused and misleading results, and inappropriate comparisons, which can set unrealistic expectations. Overemphasis on competition could make you lose sight of innovation opportunities and internal issues. Misinterpreting data can lead to ineffective strategies, while failure to act on benchmarking findings diminishes its benefits. It's also crucial to continuously benchmark over time, as performance metrics can change, and to recognize qualitative factors like company culture and employee satisfaction.

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6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

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What are the best practices and pitfalls of using benchmarking as a strategic evaluation technique?

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3

4

5

6

1 Define your purpose

2 Choose your benchmarking type

3 Collect and analyze data

4 Implement and monitor changes

5 Avoid common pitfalls

6 Here’s what else to consider

Business Strategy

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What are the best practices and pitfalls of using benchmarking as a strategic evaluation technique?

1

2

3

4

5

6

1 Define your purpose

2 Choose your benchmarking type

3 Collect and analyze data

4 Implement and monitor changes

5 Avoid common pitfalls

6 Here’s what else to consider

Business Strategy

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