21 Jul 2015 17:55 IST

Benchmarking: Does it aim to confuse; mean to copy; or to create?

Essentially, benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practices from other companies.

To grow and succeed, your firm will have to meet or beat most industry benchmarks

When your boss tells you to 'benchmark' your proposal for improving customer stickiness on your e-commerce portal, you may think she is encouraging you to go ahead. She might well be doing so. However, chances are that she might not be. Perhaps, she just doesn't want to commit herself either way. What better way than this to procrastinate on it, right?

Innovative uses

The term benchmarking has other uses too. A customer may ask its vendor to benchmark its 'on-time performance' against others. The customer buys some time or leverage as the vendor gets busy figuring out ways to collect information on existing benchmarks.

Essentially, benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practices from other companies.

But a more 'paying' way is to use benchmarking data for marketing purposes. Most lay people can't figure out difference between a 99 per cent on-time and a 98 per cent on-time performance. Interpreted correctly, the latter is two times worse than the former. With 98 per cent performance you are likely to miss 2 out of 100 instances as compared to missing 1 out of 100 instances in case of 99 on-time performance. Since we are conditioned to believe that both 98 per cent and 99 per cent 'scores' are very good, most customers won't discern the difference. In some cases what is meant by '100 per cent' is not defined. Marketing campaigns of consumer products such as toothpastes and deodorant products use 'benchmarking' in quite innovative ways.

Obscure or reveal

Benchmarks for comparing performance of mobiles or PCs are designed to approximate some real life use scenarios. These have to be subjective. Most consumers are not in a position to determine what the benchmark information means for them.

Benchmarking is more likely to obscure more than to reveal.

Benchmarking is meant to be used as a tool to improve quality, cut costs, or avoid reinventing what is known. You gather industry data on a particular product or service parameter or a process. You find the best in class case (the benchmark) and performance of other industry players. You compare it with your data. You then draw up action plans to match the industry benchmarks or better them. This is the place where copying 'best practices' in industry might help you. You are in for some serious work.

Extensive and ongoing benchmarking can help you to you understand your position in the market. It can help you optimise costs. It can help you to learn something from outside.

Prototype it

You need to keep in mind that meeting or bettering some industry benchmarks will still leave your company at around industry average (mediocre in other words). In order to grow and succeed, your company will have to meet or beat most industry benchmarks and create entirely new benchmarks of your own. Depending on your organisation's strengths, you can aim to create benchmarks in one or more areas like customer care, cost of ownership, ease of switching to your offering, or product features. Your new benchmarks must make sense to your target customers. For example, consider how Motorola created a range of mobile phones - Moto E, G, and X -which offered sensible products at different price points. It avoided competing on only product specifications or features like speed or mega pixels. It also avoided competing purely on price.

Coming back to your boss, you may have to tell her that you need to 'prototype' your solution in order to 'benchmark' it and hope that this somehow makes her more willing to think and make some decisions.