How does your company’s key critical performance measures stack up when compared to similar businesses in the industry? In technical jargon, this comparison process is called benchmarking. As with any management process, there are pros, cons and pitfalls. To drive your company to maximum performance, you need the right critical measures, correct analysis, and then appropriate management actions.
Which measures? To be effective, measures must be directly linked to company goals. You shouldn’t peruse benchmarks, decide which benchmarks you want to use and then set goals. Instead, set goals first and then create benchmarks to support those goals.
The next key for success is keeping measures simple. Performance experts have found that too many measures create confusion and inactivity. Their research has shown that concentrating on no more than three key measures concurrently produces the best results. This does not mean a company should only set three benchmarks. In practice, each department or even each individual within a department can and should have their own three measures. By using this three-measure system throughout the entire organization, the aggregate number of measures can be staggering, yet each employee (including the CEO) focuses his or her personal effort on only three. This focus produces results!
Correct analysis – Before taking any action on benchmarking results, particularly those where your company results appear to be sub-standard compared with industry, make sure the industry benchmark is truly comparable to your own. Check the actual computation and its components.
Another pitfall in benchmarking is comparing your numbers to dissimilar companies. For instance, if you supply product to store locations, but don’t operate any of those stores yourself, you wouldn’t want to compare your gross profit to an industry average that includes direct operation of retail units.
Also, note that any sales and expense data based upon percentage of sales is very poor for benchmarking because of fluctuations in fuel price.
You can also internally benchmark without using outside sources of data. Internal-only benchmarking is appropriate for companies with very unique operations where there is no readily available accurate and similar industry data. With pure internal benchmarking, you track only your own results over time to detect positive and negative trends and compare locations or divisions to one another.
Appropriate Actions – Once you have accurate data, the tough part is first acknowledging any deficiencies and then acting to cure them. Although it’s commonplace for company management to justify or rationalize poor results, avoid that temptation. Come to grips with the fact that the results are indeed poor, then develop an action plan that when executed, will create positive trends.
Any good action plan should include three distinct items: sequenced individual steps, a timeline to complete each step, and a single individual responsible for completion of that step. If any of these three components are missing, you don’t have a true executable plan. Action plans should be in place at each level of the organization that benchmarks goals. Even if goals are being met, there should be a plan in place to keep the company hitting its targets.
Goal Achievement – Once goals are being met consistently, they are no longer targets. It’s important to monitor and update goals and benchmarks to keep them meaningful and propel the company toward continuous improvement. Review and reset goals no less frequently than annually with subsequent revamping of benchmarks as needed. With diligence and adherence to this process, you will drive your company’s performance to new heights.
