Better Benchmarking

Benchmarking is not all its cracked up to be according to an excellent 2006 Harvard Business Review article by Jeffrey Pfeffer and Robert Sutton.

Benchmarking is one of the most common analytical tools used across all industries.  Its premise is relatively straightforward:  compare yourself against your peers, identify your weaknesses and adopt the industry’s best practices.  However, improperly practiced, benchmarking does not work and could end up compromising your performance.

A good example of this is the U.S. automobile industry.  The Big 3 benchmarked Toyota’s production system for decades.  In particular, they studied and adopted innovations like Kaizen, just-in-time inventory and statistical process control systems.  While benchmarking did help them improve performance, the U.S. firms were never able to catch up in terms of productivity, quality and production cost.  The Big 3 continued to lose market share, not only because of weakeness on the factory floor, but also as a result of other non-benchmarked factors including design, service and branding.

The Big 3’s benchmarking initiatives fell prey to some common pitfalls. For example, people mimic the most obvious , most measurable, and, frequently, the least important practices. The secret to Toyota’s success is not a set of techniques per se, but a culture that preaches total quality management, continuous improvement and employee engagement.  Second, companies have different strategies, cultures, workforces, and competitive environments.  What one of them needs to do to be successful is usually different from what others need to do. It is questionable whether the U.S. firm’s individual-centered (and at many times confrontational) style would ever have provided the same fertile soil to fully embrace and leverage Toyota’s culture-based best practices.

How can your benchmarking initiatives avoid these traps?  My experience suggests the following-

  1. Avoid the trap of only benchmarking to market share or profitability leaders.   Best practices often come from firms whose strategy dictates they “try harder” or be more innovative;
  2. Only compare and analyze variables that drive your firm’s key performance indicators and that can be linked to employee evaluation systems;
  3. For each variable, look beyond the ranking to truly understand the cause for the target’s strength or weakness; 
  4. Compare your firm to other relevant industry and non-industry firms who share similar internal and external conditions to yours;
  5. Considers the strategic, skill and cultural fit of the ‘best practice’ before you commit to adopting and implementing it;

Properly done, benchmarking is an extremely valuable exercise.  However, use the results with caution.

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8 comments so far

  1. leanexecution on

    This article presents an accurate perspective of my 25 years experience working in the Automotive Industry as a supplier to all of the major OEM’s. It’s all about the culture and the passion for process excellence that drives innovation. Toyota and Honda both present starkly different cultures from their North American counterparts.

    Many companies are too focused on benchmarking the results rather than focusing on the process of innovation itself. Unfortunately companies that adopt best practices do not have benefit of the many lessons learned along the way. Secondly, they are only aware of the current performance levels versus the real goal that has yet to be achieved by the originator.

    I enjoyed reading the article. Thanks for sharing.

  2. mitchellosak on

    Thank you for taking the time to comment. I appreciate your validation and insights. I did not mean pick on the US automotive industry per se. In fact, I have seen the same benchmarking problems in a variety of industries. The challenges in implementing best practices [sic] will be the topic of a future post.

  3. leanexecution on

    I think many companies have learned enough over the last 6 months or more that something must change and, true enough, not just NA automotive companies.

    I would also like to suggest a book I’ve recently been reading titled “Chasing the Rabbit” by Steven J. Spear. He does a great job describing 4 core capabilities that differentiate high velocity companies from others. The examples used are from diverse industries including hospitals (medical practices), manufacturing (Alcoa), and NASA versus the NAVY, and Toyota to name a few.

    It’s a great read and may add some insight to your benchmarking research. It has confirmed much of my leadership and management approach to running our business.

    Good luck. I look forward to reading your future posts.

    • mitchellosak on

      Thank you for the positive feedback and the book suggestion. I will check it out.

  4. […] go down the same strategic path as their competitors but somehow achieve better results. Management over-reliance on benchmarking and best practice analysis can easily lead to “copycat” strategies that do not deliver strategic […]

  5. […] firms will mistakenly look to out-execute the leaders by mimicking their strategies through the flawed use of benchmarking and best practice tools.  Yet, no matter how well followers execute they will still be unable to challenge the leaders who […]

  6. […] firms will mistakenly look to out-execute the leaders by mimicking their strategies through the flawed use of benchmarking and best practice tools.  Yet, no matter how well followers execute they will still be unable to challenge the leaders who […]

  7. Cape Town Winter Specials on

    This is my first visit to your blog! We are a team of
    volunteers and starting a new initiative in a community in the same niche.

    Your blog provided us useful information to work
    on. You have done a extraordinary job!

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