By Leonard Fuld, ACI Faculty

A few weeks ago, Elon Musk, founder of electric car manufacturer, Tesla Motors, chastised the auto industry for pursuing hydrogen-fed fuel cell cars, stating they are impractical. If you are a traditional auto manufacturer, do you take up Musk’s challenge and do a benchmark study to compare yourself against Tesla?   Perhaps, but first make sure you are doing it right.

Think Carefully About Whom to Benchmark Against

There’s lots of stupid (or maybe just lazy) benchmarking being done by some very smart companies. Even though there is a critical need for benchmarking, I believe that many of these exercises are a waste.

It makes sense to run a side-by side analysis against a rival firm if that firm  is virtually identical and has the same approach to the market; that is, structurally the other firm is nearly a twin operationally and even down to strategic objectives.  But what if the rival operates differently than you?   What if this firm has managed to get to customers in a wholly different way?  In such a case, does a side-by-side comparison even make sense?

Understand the Value of Your Benchmark

The next obvious question becomes, how do you know when it’s worth running a benchmark analysis? To answer that question, let’s peel back all the layers of benchmark discussions over the last 30 years and revisit the definition of benchmarking itself.  Starting in 1979, Xerox was one of the first Western industrial firms to adopt benchmarking as a means to understand how Japanese manufacturers, such as Cannon, could produce a copier that sold at below what it cost Xerox to manufacture a similar machine at the time (I know. I visited Xerox at the time in Rochester, NY to see how they reverse engineered competitors’ copiers).  According to Robert Camp the founder of Xerox’s benchmarking initiative he states that benchmarking is “the search for those best practices that will lead to the superior performance of a company.”

Xerox had the right idea at the time.  Management very much needed to compare manufacturing processes, Cannon vs. Xerox, and so on.  Somehow, though, over the last 30 years we have lost some of guidelines for why and how to do this type of assessment.

“Let’s benchmark our competition,” the conversation often begins.

“I want to compare our operations, our processes with Rival A,” states the decision maker.

Following the request, the competitive intelligence analyst usually whips out the laptop and jots down the list.  Number of staff, steps in the process, plant capacity.  Or, if it’s a service business, the questions may compare technology platforms, staffing levels, or how many steps in handling a customer service call, etc.

What’s often missing is the “why”!  Why are we doing this comparison? Are we even comparing ourselves to the right company? Are we asking the correct questions? What is our objective? In other words, once we complete this exercise what do you hope to achieve? What will change?

Use Tools for Smarter Benchmarking

To do a benchmark analysis right, to learn a potentially profound lesson from this exercise, you need to find a way to identify true differentiators.  Differentiators do not always align.  A differentiator could be a particular technology in an industry that does not use much new technology; it could be the way you deliver the product or service, and so on.  That is, the processes that your company has in place to produce its product or service may not at all match that of your rival’s.   The benchmarking tool that uncovers these differentiators and develops highly productive and enlightening intelligence is the Strategy Map.

A Strategy Map is a one-page visual representation of a company’s strategy.  Created by Harvard Business School professors Robert Kaplan and David Norton it became a tool to align company strategy with the jobs people do in a company.  Strategy maps display what internal functions you need to have in place to achieve the sales and market success you have set for yourself.  The functions in place for one company may be very different than for its rival.

Okay, Let’s Make this Real

If I am an entrepreneurial doctor/owner of a group of medical offices, I might benchmark my business against rivals by identifying the square footage of a competitor’s offices, bill collections, staff inefficiencies, and coding compliance.

This week I received a flyer for a newly opened medical clinic that is part of a chain.  Called One Medical Group, its value proposition is that it’s convenient.  Its doctors will give you more time than a traditional medical practice – for an additional fee.  When I explored One Medical’s expansion plans, news articles reported about their telehealth offerings, including user-friendly electronic medical records, video chat options with your doctor, on-site lab services with reports available on a smart phone app, mobile scheduling and more.

If I were benchmarking my traditional medical practice against this new rival I would examine its technology performs, a series of patient loyalty or usage measures, patient satisfaction scores, number of referrals per week or per month that walk in the door. In short, I would use a very different set of benchmarks than I might apply to my own practice.  Both are called medical practices but they are in many ways two different businesses.  They are as different as Apple and Dell or Ryan Air and Singapore Airlines.

It’s clear that One Medical is trying to be a very different kind of medical practice, one that may see itself more high-touch, akin to a luxury hotel or an Apple store in its desire to connect with the customer.

Your Strategy Map Leads to Your Benchmarks

A Strategy Map exercise does make finding the appropriate effective benchmarks easy.  Using a strategy map model, here then is my list of three criteria you should use to benchmark your competition:

  1. Identify categories that fit the company’s personality: One Medical is about technology, informing the patient before, during and after the office visit, along with good customer service; a typical medical practice is about diagnosis, making the co-pay, and walking away with little information.  Different personalities, different strategies and different measurements to benchmark.
  2. Look for distinct categories that tell the whole story: Sometimes analysts will only focus on manufacturing and ignore the service component.  Benchmarking should cover aspects of performance throughout the company.
  3. Make sure whatever benchmark category you select has performance measurement, or Key Performance Indicator (KPI). The measures may not necessarily be those you find in financial reports, such as a Current Ratio.  Instead you may need to look for how many return customers the company serves.  Not just number of product recalls but rather how customer service handles the recalls, how many steps service staff need to undergo until the problem is resolved.   True, this information may not exist in previously published documents but you can get much of this through traditional market research.

Benchmarking may be a good use of your time, as long as you think it through and don’t go into “robot mode.”  Use tools, such as Strategy Maps, to identify and dig into exactly the kind of business your rival operates and what makes it tick.  Knowing what makes it tick will help you know how to compare your company to another firm. Don’t waste your time with lazy benchmarking.