Benchmarking

Benefits

The benefits of benchmarks are to provide an empirically substantiated target figure that is more realistic and has more credibility and weight than one determined subjectively, such as gut feeling. Targets created in an internal vacuum may result in setting goals that are neither challenging enough nor attainable. Research has shown that these types of goals are de-motivating. Although benchmarks based on internal organizational data can be constructed, external benchmarks, especially when competitors are involved, have gravitas that usually gets the attention of executives who make strategic decisions regarding an organization's future direction and can serve to inspire positive changes. In addition, benchmarking allows best practices to be identified: approaches yielding results surpassing all others.

Caveats

There are a number of caveats regarding external benchmarking. Some benchmark databases are composed of samples of convenience that may contain comparison groups that are neither relevant nor equivalent, thus making differences between an organization's scores and the benchmark of little or no value. Other benchmark databases may be of questionable quality. These types of poorly constructed benchmarks again can result in setting de-motivating goals that are either unrealistic or not challenging enough. Similar to the need for norm groups that are representative of the population of interest in interpreting scores on clinical psychology tests (e.g., matched on salient demographics; excluding those with impairments), comparable organizations, such as same industry and similar size, are best for benchmarking purposes in a business setting. However, it is important to keep in mind that even organizations in quite different industries may be similar on other dimensions such as competition to recruit the same top employee talent. In this case obtaining external benchmarks on such things as workplace climate provides a context for evaluating an organization's position as an employer of choice.

Economic and cultural differences are also important to consider and control for to develop appropriate business benchmarks. For example, comparing business results in countries in emerging economies to results in countries with more established economies is not a useful comparison. An additional example comes from employee opinion research where it is widely known that employees in some countries typically have more positive responses compared with employees in other countries. If these responses are pooled across all countries, an organization with representation in countries with typically less favorable responses will be compared with a database skewed in a more positive direction.

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