Part of every performance manager’s repertoire involves some degree of benchmarking or outside performance comparisons. Through the years of my career in performance management, I have yet to meet many who actually look forward to this part of their job (save for a handful of you super quant jocks). Nope… for most of us, it’s a necessary evil, laced with the almost certain stream of data denial and defense shields that follows just about any type of benchmark study. So what you’re saying, Bob, is that we should just grin and bear it? Not quite.
Actually, there is a lot that can be done to minimize the kind of negative reactions most of you face. But you need to first understand the root of all data complaints. And that is, acknowledging that your company is, in fact, different. For example, throwing comparisons up on the wall that compares maintenance budgets of two very dissimilar companies would almost beg dissent. How big are they, versus us? What differences exist in customer base? What differences exist in the labor workforce? The list goes on, but you get the idea.
So you, as performance managers are faced with two choices:
a) Compare only against companies that look just like you? (virtually impossible unless we’re cloning companies now), or,
b) come up with some kind of way to level the playing field .
And it’s the latter that will improve your ability to defend your findings.
There are five things that I’ve found to be useful when attempting to level the playing field:
1. Make sure you definitions are clean and clear. When you ask for apples, are you asking for red apples, green apples, or both.? Are you looking for them with the skin on or off.?…you get the idea. Definitions matter A LOT!
2. At a minimum, adjust for scale. This is a fundamental requirement when looking at any performance ratios. Cost per customer, cost per million dollars of revenue, cost per employee are all good proxies for scale. Sounds simple, but you wouldn’t believe how many managers still report comparisons of total budget without any regard to scale differences (A special note about scale- sometimes, there is a secondary adjustment required because scale effect is not always linear- for example, very large companies should have a lower cost per unit, all else being equal, simply because of the transaction efficiency involved. I’ll expand on this in a later column.)
3. Adjust for workload, and its complexity if possible. Ok, so you’ve made adjustments for company size, but what if the maintenance requirements at company x are more than those of company y, because of say, regulatory requirements? Far better to adjust for the actual workload involved. For example, cost per square foot maintained might be a better indicator for a cleaning crew, than cost per customer, which may be more useful when measuring customer service functions.
If you want to add another level of rigor, try making adjustments for the complexity of work. If your company builds in hilly / rocky terrain, ask how much more difficult that is versus more average soil conditions. If you can gauge that, then a simple adjustment vis a vis the mean effort required in that particular task, can be made on the appropriate cost inputs. It may seem like a complicated and unnecessary step, but not adjusting for workload can seriously distort conclusions.
4. Adjust for key inputs, particularly those management cannot control. For example, if you are in the northeast US and you’re comparing yourself against a southeastern company, you’ll need to give some consideration to the embedded wage differential that exists regionally between the two, again, with all other things being equal. Same thing for cost of living, and differences in material costs. You can use things like bureau of labor statistics or CPI to help define the necessary adjustments. Like workload adjustments, this can be the difference between a decent comparison and a meaningless one.
5. Create enough diversity, so that there are a few companies that do look “a bit” like you. So let’s assume you’ve done all your homework and you’ve taken into account all of the above forces and drivers. You still have skeptics, because some people are just hard to please. That’s why I recommend trying (and I emphasize trying because its virtually impossible to match one for one) to find at least some companies that match your company demographics. It’s always good to show comparisons with your attempts to level the playing field, but conclude with a few comparisons from your “like peers”. Trust me, it will neutralize a few of the snipers out there.
So there you have it- a few items that will help you level the playing field. Remember, we’re looking for indicators to help you navigate, not statistical perfection.
Author: Bob Champagne is Managing Partner of onVector Consulting Group, a privately held international management consulting organization specializing in the design and deployment of Performance Management tools, systems, and solutions. Bob has over 25 years of Performance Management experience and has consulted with hundreds of companies across numerous industries and geographies. Bob can be contacted at firstname.lastname@example.org