In last week’s column, I discussed how companies, particularly those in service industries, require customer feedback to continuously improve their ability to compete in their markets. Such feedback allows us to determine what we are doing well, what we could be doing better, and what our customers really want. So, we have identified one critical element of continuous improvement coming specifically from the perspective of the customer. However, reflecting on a trip I am about to take allowed me to consider the additional perspective necessary to further travel down the road of continuous improvement.
Tomorrow, I am heading to the Gulf Coast of Florida for a few days of Major League Baseball (MLB) Spring Training. This annual rite of spring from mid-February to late March is when MLB teams set up camp in either Florida or Arizona to prepare for the upcoming season. Although the main goals of Spring Training are for teams to determine their rosters for the season and allow the player to round into shape for the long season, it is also a time for teams to size up the quality of their team relative to the other MLB teams. Teams will play pre-season games (of which I will attend two in the coming week) that will allow them to both assess their ability relative to other teams and observe how other teams go about playing the game in terms of hitting, pitching, defense, and base running. This assessment is what we call benchmarking and what every company should be doing as it aspires to continuously improve.
Benchmarking is something everyone should be doing, whether you are a business, a sports team, or anything else that is competing or trying to improve at something. Benchmarking is a comparison of performance and/or practices. In the remainder of this column, I will discuss the various types of benchmarking businesses can do to continuously improve. The bottom line is that all firms should use a variety of benchmarking types to maximize one’s improvement and they should be continuously measuring, comparing, and emulating to “raise one’s bar.” Benchmarking should ultimately lead to better performance.
The most basic type of benchmarking that all firms should do is “Internal Benchmarking.” Internal Benchmarking is the comparison of performance, processes, and practices within a firm. When you conduct internal benchmarking, it can be done in two ways. First, internal benchmarking can be done by comparing to past performance. For instance, if you compete on fast delivery, you can compare your current delivery performance (e.g., delivery time; percent delivery on time) with your delivery performance in past periods. When benchmarking, you measure your performance over a time period to set a “baseline,” and then compare future performance to see if you are improving. If you have multiple facilities, internal benchmarking can also be done by comparing the performance at each of the facilities and benchmarking the one that performs best. You can examine the best-performing facility to determine what practices it has implemented in order to outperform the other facilities.
While internal benchmarking is absolutely necessary and is an important way to determine whether or not your performance is improving, it is the most limited of the benchmarking techniques. Your only perspective is your firm’s performance, so you have no competitive comparison. While you may be improving, you still might be nowhere near as good as your competitors.
So, the next step in a comprehensive benchmarking plan is to do what you are probably most familiar with, which is called “Competitive Benchmarking.” In Competitive Benchmarking, you compare yourself against the best companies in your industry. This is critical so that you understand what you are up against in your market. Comparisons should be very easy because your competitors are doing the same things that you are doing. So, if you can measure their performance and compare it to yours, you can see what areas you need to improve. Similarly, if you can observe their processes and practices, you can see how what they are doing compares to what you do.
However, this is where things can get tricky. While you will be able to attain publicly available performance data and observe their processes that are visible, some of what they do and how they do it will be inaccessible. Your competitors will not want to give you data on their performance and many of their internal processes will be behind closed doors. So, while competitive benchmarking is an excellent complement to internal benchmarking, your portfolio of benchmarking is still incomplete.
A final type of benchmarking to complete your portfolio is what is called “Functional Benchmarking.” Functional Benchmarking is comparing your processes and/or practices with a firm who is not in your industry, but does something outstanding that is transferable to your business. For instance, if you are trying to improve your customer service, you might benchmark Chick-fil-A, which is known for top customer service. Companies who are not in your industry would be much more willing to share information with you both in terms of performance data and practices. By benchmarking outside of your industry, you are more likely to find something that no one else in your industry does. I recommend a portfolio of internal, competitive, and functional benchmarks to move you further down the road of continuous improvement.
I hope these past two columns have been helpful in your journey of continuous improvement. The use of customer feedback and benchmarking will help make you more competitive in your markets. When I return from Spring Training next week, I will share with you what I learned on my trip that you can apply to your business.
