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Avoid Pitfalls in benchmarking

Insights - How the F-TOP beat traditional benchmarking

Benchmarking is a very interesting, much used and sometimes abused concept. After being in the market since 1999 we’ve developed a unique approach which avoids the pitfalls of many traditional projects.

1 It’s really just a sales tool

Benchmarking is frequently used to not only support the client in finding gaps, but also to support the benchmarking company in order to generate more business (especially when the benchmarking provider is part of a larger consulting group or even a consulting company itself). Benchmarking results can be interpreted in many ways and it is important that the provider is an independent institution in order to get absolutely honest and usable results. Make sure your external partner has no hidden agenda – selling you more work.

2 Too much focus on numbers, not actions

Benchmarks work with numbers and therefore suggest that the measurements need to be absolutely exact. This is not correct- benchmarking should only give indicators as to where improvements can be made. Some benchmarking organisations produce huge amounts of numbers, but very little useful information. At the F-TOP Institute we get the necessary numbers, but because we have linked all the key numbers to detailed activities, we focus on what actions our clients need to take to close the gaps to financial top performers.

3 Benchmark is done at too high a level

Many companies think that one overall corporate benchmark is sufficient. But you have to split larger organisations into logical units to get a useful benchmark. If you group together units with large differences you might run into the problem that the results do not reflect reality – and wrong conclusions are drawn (e.g. a high and a low number in 2 units give on average a result which might appear satisfactory – but actually fails to reveal that in both units there are different kinds of problems which need to be addressed).

4 The numbers are not linked to underlying activities

Benchmarking is very often understood as comparing numbers – and the activities influencing the numbers are neglected. However, in many cases only the underlying qualitative activities can explain a gap in the numbers – and on that level you have to change things to improve the metric. Therefore, it is vital to also look at all the activities which are connected to the metrics in focus. That’s why we have around 4000 activities identified which drive our metrics. When we find a gap between a client’s numbers and the financial top performers, we can quickly identify what the company needs to do to close the gap.

5 '5 Metrics are enough'

We’ve met many organisations who want to run the whole people management area with a dashboard of 5 to 10 metrics – like driving a car. But there is one thing people forget: First of all, even if there are only few metrics and symbols on the car dashboard, there are far more measurement points below – so if one control lamp is on it could mean many different things. Secondly, driving a car is like running a household, but running a company is more like flying an airplane. And have you seen the dashboard of an airplane? Of course it’s important to limit the number of metrics to useful ones with business impact, but 5 to 10 are far too few in order to control all people management processes.

6 The Benchmarking Approach and Process

Over 16 years ago in our first pilot round we tried something like an online survey. We sent out CDs with a questionnaire and very good descriptions. But looking at the data we got back we figured out that – even with excellent descriptions – 10 companies interpret a single term (e.g. number of talents) in 10 different ways. So the very fancy and easy approach using online tools is limited. It is much more important to sit down in a thorough process with the client and walk him through all raw data definitions in detail, understanding the company specifics and freezing together the data in a way that it can be compared within the Knowledge Base. Only this ensures you are comparing apples with apples.

7 'Focusing on single metrics'

Companies often tend to pick out single metrics (for example number of people in HR per 100 employees) and focus on them rather than looking at whole management processes. Looking at metrics covering whole processes and the underlying activities allows us to identify what needs to be changed and the financial results of making those changes. Furthermore, it’s important to combine metrics from different areas with each other to spot correlations and interdependencies. If you do something about one area you have to be sure that there are no negative impacts on others – or in the best case you can improve different areas by just solving one major problem.