Comparative Performance: How to benchmark
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Benchmarking is an increasingly important tool in business. Chris Reynolds shows how environmentalists can use it.
Benchmarking is the process of comparing performance, and environmental practitioners increasingly have to demonstrate their knowledge and understanding of what it entails.
It is easy to overlook just how simple the concept is. The important thing is to understand how benchmarking fits within the bigger picture and adds value for an environmental professional.
Most of us start our benchmarking as children, in simple activities such as assessing how our pocket money and our Christmas presents compare with those of our friends and siblings. Having benchmarked our own situation, we can make personal decisions such as campaigning for more pocket money.
Taking this simple concept into the workplace, the key factor in benchmarking is what does our employer want to know?
For those of us in environmental occupations this typically involves assessing how our company’s performance compares with its peers or other organisations – whether on a macro scale or for very detailed issues.
However, all organisations are different and there may be as many variations of benchmarking as there are organisations.
To keep things simple we will concentrate on the benchmarking of organisations, although it is worth remembering that the benchmarking of products or processes is often undertaken within organisations or by independent third parties.
Asking the right questions The important points to be aware of when conducting benchmarking are:
- What do you want to compare and want to know?
- Which organisations are you seeking to benchmark with (same industry, size, locality, for example)?
- What do you intend to do with the comparative information when you have it?
- What level of detail are you really seeking?
Typically, benchmarking will be used to assess performance against immediate peers.
This provides a form of lagging indicator of performance – all other things being equal (an important point that we will come to later) – and gives senior management a feel for whether priorities, policies or efforts need to be altered in any way.
Companies comparing directly with their peer group are likely to be looking at very focused information to assess their performance on specific issues.
Different organisations will not all react to the results of benchmarking in the same way; their response will be influenced by company culture – whether the company sees itself as a leader in its sector and takes action to maintain that position, or simply wishes to be “in the pack”, in which case it might only take corrective action if benchmarking shows it to be lagging behind the average.
This, of course, might be issue-specific. For instance, a company that has built a reputation on product safety might wish to demonstrate a leadership position in all aspects of safety to avoid undermining that image.
But the same company might be less concerned to be leading in other benchmarked areas, even related ones such as environmental performance.
At the other end of the spectrum, a much broader benchmarking of activities, taking place between sectors, can lead to improvements in the way a company manufactures or delivers a product or service.
This can generate a competitive advantage by transferring new best practice from one sector to another, and indeed innovation itself can be driven in this way.
This type of benchmarking requires careful interpretation and intelligent investigation into change management possibilities.
Not all things are equal
I said we’d come back to the issue of “all other things being equal”. Care does need to be taken when interpreting benchmarking results because rarely are “all other things equal”. Worse still, it is possible to completely misinterpret the situation.
Take, for instance, the situation where it is required to report a certain type of incident to a regulator. Benchmarking of similar organisations might reveal that company C is the best performer, with fewest incidents.
However, if company C has poor reporting procedures, this benchmarking exercise may not only have identified the wrong high performer, but masked another important issue altogether, namely that company C has inadequate reporting procedures. Company C may remain blissfully unaware of this problem until something goes badly wrong.
Just as important in benchmarking is the need to ensure the differences in performance identified are not explained simply by different operating conditions or product mixes that distort the benchmarking results.
In benchmarking energy efficiency, for example, which might be done on the basis of energy use per product unit, it is unlikely that one company’s product will be identical to another company’s. It is therefore important to understand fully the unit of comparison, to avoid drawing misleading conclusions.
Most of this article has focused on external benchmarking, but internal benchmarking can be very useful in driving performance improvements. Companies manufacturing on multiple sites can benchmark site performance in a range of topics including emissions and resource efficiency.
Some companies compete internally for new manufacturing projects using information that can be benchmarked in the final decision. With product carbon footprinting becoming more common, a manufacturing unit may have to compete for a new product based on the cost of production as well as lowest energy inputs.
Environmental professionals need a reasonable understanding of the issues involved in benchmarking. The best way to fill gaps in knowledge is to consider how you benchmark, or would benchmark, your own organisation. Then ask questions of colleagues in order to fill any gaps in your own knowledge.
In this way you will add the experience of others to your own, and you never know, by asking the questions you might trigger the activities that lead to performance improvements and even greater knowledge.
Typical benchmarking methods
Taking part in a large formal benchmarking exercise, often across all sectors but with subsector results, is a good way of benchmarking performance.
The Environment Index, which forms part of Business in the Community’s programme, provides detailed comparisons both within sectors and with the whole business community.
While league tables are now less transparent in this index – which used to be called the BiE Index of Corporate Environmental Engagement – it remains a high-level corporate responsibility benchmarking tool aimed at the most senior levels of business organisations.
Another example is the league table that will form part of the mandatory Carbon Reduction Commitment Energy Efficiency scheme, which will be published for the first time later this year. This will provide useful benchmarking information on participants’ energy use, and such benchmarking is seen by the government as an important driver for energy efficiency.
Topic-related benchmarking exercises are conducted in cooperation with competitors and other organisations. These will often be informal affairs but may be organised through a common body, such as a trade association or mutual initiative.
Such comparison is likely to be used by professionals in specific areas, such as environmental management, as a means of assessing benchmarked-company performance in areas that are important, but not critical to the competition between companies. In the public sector, for instance, London local authorities benchmark their energy performance in this collaborative way.
Informal benchmarking is conducted by gathering data on competitors. For very informal benchmarking it is possible to do a desk-based assessment from published information gathered about other organisations, or by asking questions informally, to judge how you think your systems and performance compare with others.
In some ways consultants, employed in an advisory capacity, also provide useful informal benchmarking information. By bringing their experience of other organisations they will often have a more rounded feel for what is standard performance and what would be sector-leading performance.
There are also times when consultants provide an ongoing benchmarking structure for specific issues, usually providing feedback to contributors indicating where they are in relation to a range of competitors, but keeping the exact positions of the competitors confidential. These are usually based on annual surveys with an annual subscription.
There is also benchmarking for specific purposes. For example, the benchmarking that takes place within the EU emissions trading scheme (ETS). This sets benchmarks for energy efficiency within different industry sectors to establish a measure of best practice from which ETS allowances can be determined.
Once the exercise is complete and implemented for its principal purpose, it then provides a position that companies can measure themselves against, in this case demonstrating the gap between company performance and best practice.
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