iSixSigma

Benchmarking Is Not an Option

Over the course of the last year, I have had the privilege to speak with many companies that are either starting or are in the early stages of business transformation. It is astounding how many have not engaged in any form of benchmarking and even more astounding that many never intend to. Most understand the value, but they consider benchmarking to be an optional exercise.

Benchmarking is not optional if you wish to become best in class.

By benchmarking, I am not just referring to collecting market intelligence or the sort of competitive intelligence a marketing team might gather for you. Yes, this is critical. Any business leader who does not understand his competitors’ price point, value proposition and market share is uninformed. This data allows leaders to rank their companies in the market and understand where they can compete effectively and where improvements are needed. These facts and figures do not, however, give them insight as to how these improvements can be made. Process benchmarking fills this gap by providing know-how.

Market intelligence is what mathematicians call “necessary but not sufficient” for creating a competitive advantage. Without this data, you can’t know whether the improvements you make to your products and services are making a significant impact where it counts – in your customers’ market behavior. The data, however, doesn’t help you find the path toward actually making those changes. Process benchmarking helps you change your process by exploring best practices. Without this data, your engineering and business transformation teams will busy themselves relearning what your benchmarking partners have already discovered, slowing your progress and consuming resources unnecessarily. To be truly effective, your benchmarking strategy should include both market and process benchmarks.

Market intelligence can be effectively outsourced. In fact, it can be argued that outsourcing this part of your deployment is more effective than building the capability in house. Adding market benchmarking to your strategy is easy. Process benchmarking, however, is the act of learning best practices and adapting them to fit your products and business strategy. Not only can this not be outsourced easily but if you did outsource this activity, you would essentially giving away your intellectual property. Process benchmarking is a skill all companies that wish to become world-class must master.

Process benchmarking is the art of learning best practices about a particular function, process or application – often from companies in other industries – and translating that learning into knowledge that can be employed to make your use of these functions, processes or applications better. The focus of this exercise is not so much to learn what is best or who is best but rather to learn what is possible. We are hoping to expand our understanding of our processes by examining how others use similar processes to deliver value to their customers. Through process benchmarking, we learn which activities are critical, which strategies work (even when the ones we observe don’t), and where the practical process limits really are. By comparing how we run similar processes in different companies and for different customers, we get something much more valuable than an understanding of what is the best practice. We learn how to make both processes better. We create a new best practice.

Unlike competitive benchmarking which is largely an analytical activity, process benchmarking is a creative activity – it’s an art. As we broaden our understanding of how processes can be employed, even if we ultimately reject the implementation, we increase our understanding of how those processes work. Equipped with this increased knowledge, we are better prepared to innovate. It is these innovations, not the simple adoption of best practices, which give us true competitive advantage.

One of the keys to becoming an industry leader is constant, focused, and deliberate change. True leaders are not waiting for market trends to develop so that they can follow them. Leaders create these trends by driving change in how they service their markets. This constant change means their employees are exposed to and must process new ideas every hour of every day. To lead, you must innovate and to innovate your people must learn to seek out, evaluate and adapt new ideas and perspectives constantly. This is a business culture issue. If you create a culture where it is not just accepted but expected that ideas are sought, processed, and incorporated; your employees will innovate. They will create new approaches to the work they do. Similarly, if you quell this flow of innovation, it will stop. Process benchmarking is a key part of promoting an innovation culture.

So many companies struggle with innovation. They expect to find people who are innately creative and tap into that strength while simultaneously shutting them off from the very stimuli that foster and sustain that creativity. Leaders must not just allow but facilitate the open exchange of knowledge if they want to drive change. Shut down the feed and the creativity dies. Without new knowledge, there can be no focused improvements. Without focused improvements, there can be no growth and what is left is slow decline.

It takes surprisingly little to instill a culture of innovation. You don’t need fancy consultants or a corporate innovation coach. There is no magic pill. You simply need to promote the free sharing of ideas and acknowledge that you must seek ideas from outside your firm to perpetuate that free sharing. When we “own” our corporate know-how we risk that know-how becoming obsolete and irrelevant.

“Don’t tell me what you value, show me your budget and I’ll tell you what you value.” — Joe Biden, VP, USA 2013

So, is benchmarking optional? Well, to the extent that you are not interested in long-term profitability, sure. If you are content to have your market share eroded by those who execute better, who innovate more, and who understand their processes better than you do, then by all means do not send your people out to learn from others. If, on the other hand, you hope to grow and survive, learn to benchmark. Grab market intelligence wherever and whenever possible – it’s worth the price. Go see how others run their businesses and show them how you run yours – it’s worth the risk. Innovate, compete, and succeed. More is gained by being a full partner in your industry and a lone player with lots of secrets.

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