Recently one of my clients was rather intrigued when I used the term Internal Benchmarking.
I was talking to him regarding ways to leverage organizational data assets in order to uncover hidden costs and improve efficiency.
I realized that not many people qualify the term Benchmarking when they use it. Oftentimes, Benchmarking is implicitly assumed to be “External Benchmarking” with the underlying assumption that comparative metrics are useful only when compared across companies.
However, there are many scenarios when External Benchmarking may not be the solution to your business problem. For example:
- There is no meaningful comparable outside of your company. Your business is (or perceived by business leaders to be) unique to the extent that it is hard to come up with a meaningful peer group
- The industry/peer group may not be ready for Benchmarking due to some other, more immediate pressures (e.g. regulatory, compliance, etc.)
- You are unable to find a suitable partner (e.g. mismatch on pricing/value expectations, conflict of interest, etc.) to benchmark your organization against peer group
- Historical data from peer group is either unavailable or cannot be trusted
Regardless of whether these objections are legitimate or not, it is often a wise and equally effective strategy to consider Internal Benchmarking.
In Internal Benchmarking, you compare how parts of your organization fare against each other. The power of Internal Benchmarking lies in the fact that it allows you to uncover pockets of excellence already existing in your own business.
If External Benchmarking shows the art of the possible, then Internal Benchmarking illustrates the science of the possible.
In case of Internal Benchmarking, there is no secret sauce for performance whose recipe cannot be unearthed!
If you decide to run an Internal Benchmarking exercise then the following thoughts may come in handy:
- Don’t underestimate the resistance just because it is “Internal Benchmarking”. People don’t like to be compared with others. Business leaders like to believe that their ways of working and adding value to the organization are unique. Be sensitive to the human angle and communicate your reasons for embarking on Internal Benchmarking clearly. Clarify proactively how the results from the exercise will be used.
- Define your “logical entities” carefully – these are the internal entities that you will benchmark with each other. Depending upon the type of the benchmark that you intend to perform, these may be your lines of business, product lines or even functions such as HR, IT, Finance, etc. There may be more than one way to slice and dice data. Carefully consider what you intend to achieve and decide your logical entities for data aggregation accordingly.
- Follow best practices from External Benchmarking:
- Share only anonymised and aggregated data
- Apply adequate adjustments for normalization
- If the Internal Benchmarking is going to be used to set targets for improvement, then make sure the targets are meaningful and achievable
- Pay attention to the data about the data (Benchmarking metadata, if you like):
- Analyse how easy or difficult it is for you to gather data?
- How different is your data gathering experience for each logical-entity?
- How much confidence do different stakeholder groups express in data?
- How easy or difficult it is to refresh data with the data from the latest month/quarter, etc.?
While such data may not be directly relevant to the purpose of Benchmarking, it can potentially point to other issues in the organization (e.g. lack of cohesive systems, manpower shortage, etc.). Hopefully, such findings will be useful for your project sponsors.
Benchmarking remains a valuable tool to unlock value. There is merit not only in evaluating an organization against external peers, but also in comparing it with peer organizations within the same business. Of course, as any other tool, the key to Internal Benchmarking effectiveness lies in its execution.
What do you think about this post? I hope that you found it relevant and useful. Please feel free to comment here or share your thoughts with me on firstname.lastname@example.org.
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