Thursday, March 30, 2006

Guide to Benchmarking

Stanford professors Jeffrey Pfeffer and Robert I. Sutton talk about some of the common perils of benchmarking as a management practice. They feel that benchmarking as a practice is quite useful but they way it is practiced makes all the difference.Some key learning’s are:

The logic behind what works at top performers, why it works, and what will work elsewhere is barely unraveled, resulting in mindless imitation.This may lead to some strategic flaws in policy makings. A pair of fundamental problems renders casual benchmarking ineffective. The first is that people copy the most visible, obvious, and frequently least important practices.

We have been benchmarking the wrong things. Instead of copying what others do, we ought to copy how they think."

The second problem is that companies often have different strategies, different competitive environments, and different business models—all of which make what they need to do to be successful different from what others are doing. Something that helps one organization can damage another. This is true particularly for companies that borrow practices from other industries, but often is true for organizations even within the same industry.

The fundamental problem is that few companies, in their urge to copy—an urge often stimulated by consultants who, much as bees spread pollen across flowers, take ideas from one place to the next—ever ask the basic question of why something might enhance performance

As in benchmarking, asking some simple questions and acting on their answers can help avoid the bad results that come from mindlessly repeating the past:

Are you sure that the practice that you are about to repeat is associated with the past success? Be careful to not confuse success that has occurred in spite of some policy or action with success that has occurred because of that action.

Is the new situation—the business, the technology, the customers, the business model, the competitive environment—so similar to past situations that what worked in the past will work in the new setting?

Why do you think the past practice you intend to use again has been effective? If you cannot unpack the logic of why things have worked, it is unlikely you will be able to determine whether or not they will work this time.

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