With a recovery in the offing, a company's executives want to make sure they can fill open positions in a timely manner. They discover that for a given occupation in a company their size in their industry, it takes an average of two weeks to fill a job opening, but they are taking three weeks. What does that mean?

"The knee-jerk reaction is that we're not being very efficient. It is taking us way too long to bring in these people," says Jay Jamrog, senior vice president of research for the Institute for Corporate Productivity. "But you have to do some more research. Are we bringing in a better-quality person by taking more time? Does this person come up the learning curve faster? Are they productive faster? Do they stay with the organization longer? Do they exhibit high potential?"

Jamrog's example illustrates just one of the major pitfalls of benchmarking -- failing to clearly understand why you are conducting the study. "Companies measure too much," says Jamrog. "They are overloaded with numbers and so they don't do the 'so-what' test. It is not about the numbers; it is about the story they tell. The story is the impact on the organization."

Of course, there are plenty of stories where benchmarking has had a profound impact on a company. Perhaps the most celebrated is Xerox's Leadership Through Quality effort in the 1980s after the company's leaders discovered that Japanese manufacturers could sell copiers for the same price as Xerox spent just manufacturing its machines. With the help of benchmarking and other initiatives, Xerox cut its manufacturing costs by 50% while slashing inventory costs and greatly improving parts quality.

What are the main reasons for undertaking benchmarking projects? To improve the performance of processes   To address major strategic issues   To learn what other organizations are doing To improve financial performance   To develop new products/servicesnecessary for business excellence assessments   To encourage a cultural shift to a learning culture   Source: "Global Survey on Business Improvement and Benchmarking," Global Benchmarking Network. Conducted by Centre for Organisational Excellence Research.

Last year, the Global Benchmarking Network (GBN) commissioned a study of benchmarking practices. More than 450 organizations participated. While the study showed the primary benefit of benchmarking is improved process performance and that 20% of the organizations reported an average financial benefit of $250,000 from a benchmarking project, it also found some major concerns.

"Worryingly, there are a sizeable proportion of organizations (approximately 30%) that are using Best Practice Benchmarking and not obtaining the full benefits. This appears to be because many organizations have not been trained in benchmarking, do not follow a proven benchmarking methodology or use a benchmarking code of conduct, and are not using standard project management practices to manage their benchmarking projects," GBN noted. "In these circumstances it is not surprising they are not obtaining the full benefits."

Best in Class

Benchmarking studies can be formal or informal, large or small, but the gold standard for these studies compares performance to best in class. Cindy Jutras, a senior vice president and research fellow at Aberdeen Group, said her firm always determines best in class for its studies. "We use a competitive framework that divides all survey respondents into best in class, industry average and laggard. We define best in class as the top 20% of aggregate performance. You have to set the bar to compare things against. Without that, it may be good research but it probably isn't a benchmark."

Jutras said it is critical to define the terms of best in class correctly. She noted that new analysts sometimes fall into the trap of making a best-in-class determination entirely on degree of improvement. "My analogy is, it is very easy to lose 20 pounds if you weigh 300 pounds. It is very difficult to lose 20 pounds if you weigh 100 pounds," she explains. "If all you do is make best-in-class metrics based on improvement, then people who are very good and shooting for the last few points of improvement will automatically be laggards."

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