How HR can gain more from benchmarking

Ray Wilkinson, director of the Best Practice Club, looks at the possibilities that benchmarking offers to HR.

HR managers could gain more from benchmarking with other organisations if they moved from a “good enough” approach to one which focused on best practice. A more mature approach can show what is behind employee engagement or absence data and improve performance.

There was a time when organisations would set themselves objectives about staff reward and remuneration that were worded something like “we will pay our people upper-quartile rewards” or “our pension arrangements will be in line with the best in the industry”. This type of commitment required them to take a regular, probably annual, view of what their peers were paying.

The benefits of this approach were very rarely exploited fully as they were only used to check that arrangements were in line. Even today that can be the case as some cash-strapped organisations seek merely to be “good enough” rather than “fit for purpose”. The latter indicates a desire for continuous improvement and market resilience, whereas the former is about doing only what is necessary (and no more) to remain among the peer group.

From a benchmarking perspective, the “good enough” approach is an immature one as the peer-group identification and the improvement targets set are more “catch up” in nature than “best practice”.

Learning from the benchmarking exercise

Another issue is that employers are unable to learn from the benchmarking exercise (because of the way it has been structured) or link improvement interventions with performance. Staff-satisfaction benchmarking is a case in point. Most people are familiar with the large, multi-location, multi-population style of research intended to measure (and compare) levels of satisfaction among a diverse group of employees. How often have you seen these exercises conducted every two years, in the vain hope that a random, unrelated collection of improvement actions taken in the intervening period will improve the performance ratings achieved on an ongoing basis?

In the context of benchmarking, managers will often talk about the vital need for “apples with apples” or “like for like” comparisons. Although entirely understandable, this attitude can be dangerous because it can hide a resistance to change that prevents managers adopting best practice identified from a benchmarking exercise. It can also lead to a narrow interpretation of what kind of organisations are suitable to be benchmarking partners, leading to a limited amount of best practice learning.

I came across this some years ago with a large global engineering organisation with a ratio of HR staff to employees of 1:44. The best practice ratio from benchmarking data was around 1:1,200 but the organisation dismissed this because it was achieved by organisations not considered to be peers. Instead, a peer-group performance of 1:125 was taken as best practice. The downside of this decision is clear: it may not have been possible to have achieved a ratio of 1:1,200, but if the organisation had got only a quarter of the way towards that target it would have outperformed its so called peer group by well over 100%.

What are the benefits of performance benchmarking?

This bald comparison of metrics, known as performance benchmarking, when used as a driver for change, can be powerful. It can show up, in stark clarity, performance gaps that need to be closed and, if learning is available to help understand how those gaps can be closed (such as with best practice benchmarking, described later in this article), it can be a very effective improvement device. On its own, unfortunately, its benefits can be limited both in terms of the scope of the exercise and its output.

Performance benchmarking is often used as a proxy for competition and its use can be seen in long-term outsourcing contracts and utilities (as an aid to ensuring value for money), as well as in schools and other public-sector bodies where the need to show how the institution stacks up in terms of league tables is paramount. It is in these two contexts that this type of benchmarking is reduced to little more than a comparative analysis thermometer quantifying the “business temperature”.

Best practice benchmarking

Over time, the objectives set for benchmarking in the HR arena have moved into areas such as staff retention and staff sickness levels. HR managers in organisations where performance levels are adrift of those achieved by their peers can find themselves being asked questions about “why” performance is at a certain level, and “how” the organization could improve.

In the absence of being able to draw definitive causal links between interventions and outputs, it is difficult for HR managers to state definitively “how” the organisation could improve. The best they can do is to recommend generic solutions to challenges that are often highly specific to the organisation in question. The limitations to this approach are clear and this is where best-practice benchmarking comes in.

This approach involves defining rigorously the process that you want to improve and then identifying best practice that you can adapt for implementation within your organisation. The key is to look for best practice wherever it is, irrespective of the industry or sector involved, delve into the detail of the process to ensure that you understand the root causes of that performance, and then adapt that learning to your own organisation.

Informal and formal benchmarking

The difference between informal and formal benchmarking is, in essence, the amount of formality that goes into the collection and analysis of the benchmarking partner’s process and the deployment of best practice found. Informal benchmarking activities include the exchange of performance information that goes on at networking events and relatively simple benchmarking visits to partner sites. On the other hand, formal benchmarking requires the rigorous application of a project management process. Neither is necessarily any more or less effective than the other although the robustness of the latter ensures that benefits are quantified and captured in a formal fashion.

In the current economic climate, where resources are in short supply and time is of the essence, we are seeing much more emphasis given to rapid, quick-fire benchmarking exercises nearer the informal than the formal end of the spectrum. It is possible to carry out both performance and best-practice benchmarking as either informal or formal activities but in each case you are trading rigour of output for savings in time and resources.

Benchmarking employee engagement

Improving the depth and strength of people’s commitment to the success of their organisations, known as employee engagement, has been at the top of most senior executives’ agendas for many years now. It has long been accepted that engaged employees are critical to the resilience of an organisation’s performance. It has proved difficult to benchmark this, however, as the so-called “hard” (such as numerical or financial) measures are often “soft” (such as employee perceptions or mood) and require a great deal of effort to quantify.

As a result, measures like “staff satisfaction” and “suggestion scheme” activity have become accepted as indicators of the level of employee engagement but they are indicative only and can sometimes be influenced by things other than people’s commitment. Because of this, it would be better if the root causes could be understood and measured, and consequently managed, better.

Numerous different approaches have been attempted to try to resolve this issue; an informal benchmarking one was carried out recently by a group of the members of the Best Practice Club, a group of employers sharing practice on benchmarking. A specialist manufacturer was aware that it probably had high levels of employee engagement but wanted to understand exactly why, on the basis that if it understood how it had achieved what it had then it was likely that its performance could be maintained, improved and even, should it be required, replicated.

After discussion with the club, an informal workshop was held at the organisation’s main site and a group of like-minded organisations, or benchmarking partners, were facilitated through an exercise during which they agreed a potential set of root causes of employee engagement and then toured the premises collecting data on those root causes. The data was then discussed and comparative information exchanged so that all benchmarking partners gained an informal view of how they compared with each other across a raft of measures. From that exercise, the specialist manufacturer was able to confirm which factors were critically important to the success of its employee engagement and how it performed relative to its benchmarking partners.

Next steps

Benchmarking is a great facilitator, encouraging people and organisations to have wider horizons and getting them to think differently about the challenges they are facing. This is so important in today’s time- and resource-limited environment. Another organisation has probably faced and overcome the challenges you are facing now – why not try to learn from them?

Ray Wilkinson is the director of the Best Practice Club, which provides benchmarking and learning opportunities for large organisations through personalised service support and a self-administered knowledge-management portal.

This article is the fourth in a series on using data and statistics more effectively in HR:


Comments are closed.