Risks of Benchmarking

Businesses of all types and sizes recognize the value of comparing themselves to other organizations. This process of benchmarking yields valuable information about the processes and services within an organization that may need improvement. There are, however, some dangers inherent in the benchmarking process.

All benchmarking must begin with the organization looking inward. It must analyze its own processes and operations before it can compare itself to another organization. Knowing that your competitor is selling more candy bars than you doesn't help your candy shop improve its sales plan unless your shop first understands the mechanics behind it own strategy. While managers may think they know their own processes, this self-check can reveal some surprising and useful information.

While looking inward is a key first step in the benchmarking process, an organization eventually must start to look outside its own boundaries. This is called external benchmarking because it's about looking at the way the organization as a whole does business. In addition to comparing your organization to other businesses in the same industry, it's a good idea to look at companies in other industries. This shows you new strategies and techniques for managing operations and services. The trick is to balance the inward-looking benchmarking with the external, market-focused benchmarking.

If not managed properly, benchmarking can be a very time-consuming process. Ron Adner and Daniel Levinthal of the Wharton School of Business note the many benefits benchmarking can bring an organization, but they warn that there is a danger in spending too much time trying to be just like another organization -- your competition, for example. Ideally, a small and dedicated team should be appointed to work on the benchmarking process, led by a reliable and responsible project manager who can keep the team on task and who has laid out clear goals and deadlines.

Benchmarking should enable an organization to identify service gaps and areas for improvement. Perhaps one of the most evasive risks of benchmarking is that employees, customers and other stakeholders of the organization may not readily accept the change that should result from the benchmarking process. Change can be frightening when it is seen as a threat to the way business has always been done or to standard policies and procedures. While your organization's leadership plays a large role in initiating this change, getting everyone on board is important to the long-term success of any change resulting from the benchmarking process.