Performance Benchmarking

by Phillip Tarrant

In search of best practice: performance benchmarking and your organisation

Performance benchmarking can increase your organisation's competitive edge and streamline your strategic business focus by looking at how effectively your employees perform their operations. But performance benchmarking isn't that clear cut for many Australian organisations and for some, best practice may be just out of reach. . .

According to research conducted by Human Resources magazine, HR professionals chose benchmarking from 30 possible related skills, including interviewing techniques, e-mail regulation, OHS and outsourcing, as the number one function they wish to develop in their organisation.

Many HR units, however, are finding themselves lost when attempting to develop a performance benchmarking program.

I don't know where to turn! How do I develop a performance benchmarking process?
Organisations are developing employee performance benchmarking as part of the growing trend for ensuring best practice implementation and the achievement and maintenance of competitiveness in the market place, said Bill Manning, Global Human Resource Solutions partner at PricewaterhouseCoopers (PwC).

"The old performance measures of profit and revenue have been replaced with the more sophisticated models of Economic Value Added (EVA) and Return on Investment (RoI)," he said. "Both of these models look at the overall performance of an organisation or a business unit."

Companies are applying these models to their employees, thereby creating the process of performance benchmarking. "With organisations placing increasing emphasis on knowledge and recognising human capital as their most important asset, the measurement of employee performance and the facilitation of its improvement are at the forefront of this benchmarking exercise," Manning said.

Ian Heycox, project leader for performance and capability at BHP, said performance benchmarking is used throughout the company based mainly on its individual businesses - minerals, steel and petroleum - while maintaining a strategic overall perspective. Safety, productivity or cost and sales are among the areas studied. "We also address the concerns and satisfactions of our workers through surveys, as we want to understand what is important to our workers," he said.

However, different organisations will have different benchmarking needs and "the HR function can profit from undertaking some benchmarking of [its] own performance," according to Nicci Whitehouse, principal policy officer at the Western Australia Ministry of the Premier and Cabinet. "I have been coordinating a HR benchmarking group within the Western Australian public sector for two years and the learning that has gone on during this time - not only about performance, but also about the benchmarking process and its intricacies - has been considerable," she said.

"Only when the HR function has a good understanding of benchmarking can it provide a role model for the rest of the organisation," said Whitehouse. "Having said that, benchmarking as an improvement tool does sit quite conformably with quality improvement and organisational development functions - both of which are often situated within the HR area."

According to Heycox, performance benchmarking effectiveness rests with individual businesses - including with the employees themselves. "The development and implementation of performance benchmarking is frequently carried out with the active involvement of employees and recently we have been working with employees to understand the key issues facing BHP using a learning map.

"This addresses. . . the need to raise capital, overseas markets, competing for acquisitions against other companies or reducing the prices of commodities. Learning maps work as a step beyond process maps to create a working solution to analyse the issues facing BHP and where the employees fit within that," he said.

What are the benefits of benchmarking?
At BHP, "set indicators are cascaded down and measured through performance management systems. This is based on specific job goals derived from specific business direction," Heycox said. "The principle focus is to improve the alignment between the business and the employee. It's really about reducing wasted effort. Performance benchmarking is making sure that every person knows where their job fits and how it is relevant to the overall direction."

Does this suggest that employees are monitored?
"Not in the sense that I understand it," says Whitehouse. "First, it's about achievement of outcomes and generally these are contributed to by a large number of employees and [are] not the sole responsibility of one."

"In addition, those who undertake benchmarking and use the information for corporate decision making must be prepared to spend time understanding what the data means. What might be seen as a poor performance 'score', can be the result of incorrect data collection, unusual circumstances or may be a 'score' that is appropriate to the context of the organisation at that time," she said.

Whitehouse added, however, that organisations must be prepared for information that might be less than palatable. "This is why you do it - to improve," she said. "These sort of results should be welcomed as they point the way forward."

Manning suggested there are numerous benefits from benchmarking for both the organisation and the individual. These include:

· objective clarity about employee performance (organisation and individual benefit);
· maintaining competitiveness (organisation benefit);
· identifying areas to invest in human productive potential (organisation benefit);
· enabling employees to track personal improvement (individual benefit); and
· focusing employee issues on defined, achievable, profitable medium/long term outcomes (organisation and individual benefit)

But Manning also urged the importance of balancing "soft" skills (the people skills and elements of an organisation) with "hard" skills (the core focus). "This equilibrium is assisted by the development of the 'balanced scorecard' approach to performance measurement," he said.

Manning said that as organisations move away from the financial measurement of business, they have embraced customer measurement, internal business measurement and innovation and learning measurement. "The use of all these together ensures a fuller understanding of the measurement and effectiveness of employer performance," he says.

"[Benchmarking] can also be used to evaluate service, quality and productivity changes and assist in predicting future performance."

The federal government-based Public Service and Merit Protection Commission said in its 1998 Building on Good Practice report that as "performance needs to be monitored, measured and improved, the use of benchmarking has become more extensive. It is clear that good performance today may not be good enough tomorrow; that expectations of service are continuously rising; and that assessment are always comparative."

"Benchmarking can drive cultural change," the report said. "It leads to questions about whether process can be streamlined, whether activities are still effective or necessary and why organisations with similar goals are able to achieve better results."

Don't fall into the benchmarking trap!
Companies must be warned: there are many traps associated with benchmarking, including organisations which conduct half-hearted attempts to implement benchmarking programs. These may have negative repercussions on the companies that engage them. Anne Evans, director of Benchmarking Plus, a management consultancy firm which specialises in benchmarking and performance measurement, outlines below some of the biggest mistakes to avoid when embarking on a benchmarking program:

Confusing benchmarking with participating in a survey
A survey of organisations in a similar industry is not really benchmarking. These surveys may give you some interesting numbers, but benchmarking is the process of finding out what is behind the numbers. In other words, a benchmarking survey may tell you where you rank, but it won't help you improve your position.

The process is too large and complex to be manageable
A process is a group of tasks. A system is a group of processes. Avoid trying to benchmark a total system - it will be extremely costly, take ages, and be difficult to remain focused. Better to select one or several processes that form a part of the total system, work with it initially and then move on to the next part of the system. Slow down, break it up and work methodologically through what your company wants.

Confusing benchmarking with research
Benchmarking presupposes you are working on a process that has been in operation long enough to have data on its effectiveness and resource costs. Commencing a new process, such as developing a new employee handbook by collecting other companies' handbooks and taking ideas from them is research, not benchmarking.

Misalignment
Choosing a benchmarking topic that is not aligned with the overall strategy and goals of the business, or worse, that cuts across some other initiative already underway, is to be avoided. A lead team needs to ensure the effort is in line with what is happening in the business as a whole.

Picking a topic that is too intangible and difficult to measure
"Employee communication" is one of the most difficult areas to address in an organisation, especially when trying to benchmark performance. Consequently many organisations try to benchmark it. Organisations should try to encourage their benchmarking team to select a part of the topic that can be observed and measured instead of addressing the whole area at once.

Not establishing the baseline
It is unwise to initiate benchmarking before you have analysed your own process thoroughly. After all, that information is what you have to offer to your benchmarking partners in exchange for the information you are seeking from them. Make sure your benchmarking team is very clear about what it wants to learn before you approach potential benchmarking partners.

Not researching benchmarking partners thoroughly
This is essential, so you don't waste their time or yours. You should avoid asking a benchmarking partner a question that you should have been able to answer for yourself by researching literature in the public domain.

Not having a code of ethics and an agreed contract with partners.
Your partners should be clear about what you are seeking to learn from them, how that information will be treated, who will have access to it and for what purposes it will be used. Ideally, this should be formally agreed. The benchmarking code of practice offered by the American Productivity and Quality Centre provides a useful model.

Benchmark your employees performance - but work out what you want first
Benchmarking requires you to ask how you can improve your employees' performance. Clearly, this is a difficult question for many organisations to address.

One of the commonest mistakes organisations make when attempting to implement a performance benchmarking program is they only compare their organisation to the industry in which they belong. This is obviously a good place to start because you probably know your own industry quite well, but performance can be measured across industry boundaries.

Nevertheless, organisations differ and what works for one may not work for another. Company culture and workplace environment will, in part, determine your requirements - break down your organisation and decide strategically what you are attempting to achieve and which aspects of employee performance you want to benchmark.

Bill Manning, Global Human Resource Solutions partner at PricewaterhouseCoopers (PwC) said there are many aspects of employee performance from which to choose:

Manning outlined the general aspects of performance as:
· Employee turnover
· Revenue per employee
· Profit per employee

He suggested, however, that there are more specific measures that should also be addressed. These vary with the nature of the business, but may include:
· Sales achievement (or other specific performance measurement)
· Productivity per hour
· Defects per 1000 units of output
· Timeliness of project delivery

There are also "softer" issues that benchmarkers must address, usually measured though employee attitude surveys, but which are increasingly considered to play an important role in performance:
· Contentment with current role
· Attitude to level of communication within the company
· Impact of management style on individual company.

Improving your business process rests largely on the ability of your staff to react to change and bind that change into an effective output. Look at your business process and benchmark this against an organisation whose process may be adaptable to your organisation.

Build a benchmarking mindset and establish a methodology
Quality improvement, particularly in relation to performance benchmarking, is an approach to management that emphasises the importance of gathering and interpreting data. You must, therefore, arm yourself with an effective benchmarking tool which identifies what functions, products and outputs are expected from your employees. Only then can you benchmark employee performance against your competition or other industries whose organisations are renowned as "best practice" organisations.

Ideally, develop a hybrid benchmarking process based on your organisation's experiences and those of organisations highlighted as best practice. Create a methodology and develop a map for your organisation to follow when measuring your employee performance. Nicci Whitehouse, principal policy officer at the Western Australia Ministry of the Premier and Cabinet, views performance benchmarking as a tool based on a specific model. The model she suggests includes:
· identifying desired outcomes;
· determining how to measure (generally quantitatively) those outcomes;
· collecting the "data" and calculating the "scores";
· comparing your scores with others who have undertaken the same process and particularly those that might be considered best practice;
· making a judgement about your performance in the light of this information;
· taking action to improve; and
· measuring again.

She does note, however, that this model of benchmarking will provide only part of the picture. It may point to a potential performance problem, but does not tell you what the problem is or how to address it. This information has to be sought by more qualitative research.

Don't approach the benchmarking process haphazardly. Pitfalls that become apparent during the process may reverse the benefits of performance benchmarking. Anne Evans, director of Benchmarking Plus, said performance benchmarking offers advantages because it:
· allows a wide range of performance indicators to be studied;
· protects the confidentiality of all partners;
· allows comparisons with competitors to be made;
· assists in identifying priorities for improvement;
· allows performance shortfalls to be clearly seen;
· can use performance indicators at a variety of levels; and
· provides a cheap way of making comparisons internationally

The disadvantages of the process, according to Evans, are:
· difficulties in getting agreement on what indicators are to be used;
· difficulties in defining the data; and
· the fact that performance benchmarking only gives limited information about how to correct performance shortfalls

Pitfalls to avoid include:
· not spending enough time up front to get the right framework of performance indicators;
· not defining the data items correctly and consistently; and
· not collecting data accurately

Equipped with a sound performance benchmarking mindset, organisations should be able to compare their staff with other organisations and industries. Preparation and knowing exactly what you want to achieve are essential. With this in mind, you should be better equipped to avoid the major performance benchmarking shortfalls.

This article first appeared in Human Resources, Issue, 1.8

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