Most Downloaded Show of 2022 – Innovation Benchmarking

Benchmarking is the comparing of your organization to others to measure your performance and possibly identify areas for improvement. It has been common practice since the early 1900s. Frederick Taylor, an American mechanical engineer, is credited with coining the term “benchmarking” in his book, The Principles of Scientific Management. Benchmarking enables continuous learning and improvement by identifying those that are having an impact and change and following them. These learnings and improvements can nurture the innovation success of your organization.

Benchmarking helps you understand how you compare to others in your industry, making it easier to identify the best practices. For example, benchmarking enables you to identify the companies that use the best technology, the fastest production time, or the lowest costs. Whatever the measurement of success you define in your benchmarking activities, a benchmarking study can help an organization's managers make strategic decisions. It may also provide some insights into where to allocate your corporate resources. A common part of the data that gets collected in benchmarking is headcount. All kinds of weird metrics come out of this, such as dollars per revenue. While this is all good, there are also some challenges that we're going to discuss.

In general, benchmarking could prove useful in business units where benchmarking data reveals which competitors are performing better than others. However, before benchmarking, you must first conduct research to know who to benchmark against. You want to benchmark peers that are similar to you. You don't want something unrelated, such as comparing a software company to a steel manufacturer. You want something similar. Similar peers could be in the same industry, have similar sizes, or they could be selling and servicing in a consistent geographic area. It can be tempting to say we want to be more like Silicon Valley. If a restaurant in Milwaukee benchmarked itself against the leading companies in Silicon Valley such as Apple, Google, or HP, that comparison would be meaningless.

Benchmarking Failures

Benchmarking has been around for quite some time, and it has some strong benefits, but there are bad that can come from benchmarking as well. The key here is that benchmarking can have negative consequences if done wrong. For example, if you benchmark against peers who are poorly chosen, it is not going to work. This can lead to bad decision-making and can destroy organizations. Therefore, it is important to handpick your benchmark peers to get accurate insights. For example, in the late 90s and early 2000s, MCI WorldCom, a major telecom company in the United States, was reporting results far better than any of its peers. AT&T; and others attempted to benchmark themselves to find out how MCI could have a such standout performance. This resulted in the industry changing its strategies and its investment models to chase the MCI WorldCom results. While their competitors tried to play catch up, MCI WorldCom continued to report surprising results. That is until authorities revealed that MCI WorldCom was practicing fraudulent accounting practices. They overshowed the revenue streams, and they misallocated expenses to make their results look good.

People had made decisions based on a benchmark against somebody who looked like they were performing outstandingly. To compete with how MCI was performing, they changed how they operated. MCI WorldCom eventually went bankrupt, but AT&T; survived unscathed. They had size, scale, and all the capabilities. However, others in the industry got trapped in the benchmark. They made bad decisions,