How to Gain Competitive Advantage? Koert Breebaart on the Benchmarking Approach
Thomas Friedman wrote in his book, ‘The world is Flat’ that the world as we know it is becoming more connected as the barriers of trade and politics are being lowered. Through technology we are able to do business instantaneously with billions of people. In today’s complex global economic environment, enterprises face unique challenges in value creation and increasing productivity. The focus on costs has become an increasingly important aspect of any business. A competitive edge is created by delivering products or services more efficiently. This indispensible edge will enable enterprises to grow and prosper.
Technology plays a crucial role to reduce costs, however also comes with serious challenges in realizing anticipated value and benefits. Without a clear focus on value, the technology is likely to produce suboptimal results, while tactical delivery challenges become the priority. This blog post describes how enterprises can uncover value potential by benchmarking their productivity against others.
Management by Objectives
So what do leading companies do well to drive optimal value from technology? A recent study by AMR has shown that companies that adopt the discipline of value management, deliver over 1.6x higher business benefits from technology initiatives than companies that don’t. They take conscious effort to define crystal clear goals that drive adoption by the organization. Management guru Peter F. Drucker coined the term ‘management by objectives’ (MBO), which in essence is an approach to enhancing organizational effectiveness that is based on goals. Besides motivating workers, MBO creates an environment in which the performance of all employees can be evaluated on the basis of results rather than on personality or perceived effectiveness.
Over and over again enterprises set themselves the ‘wrong’ targets. Some set them self-up for failure by not being ambitious enough. They mobilize their company to finally realize that they didn’t make a difference in the market, which is both a waste of effort and frustrating for all employees involved. Some other companies set them self-up for failure by being too ambitious either in result or time. The price companies pay in this scenario is a lack of motivation at middle management, those who need to execute the change, and frustration at the top. In short, both scenario’s will reap suboptimal results. Benchmarking is the ultimate way to set relevant targets.
Target Setting Based On Business Performance Benchmarking
Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests or best practices from other industries. The purpose of this exercise is to quickly uncover what things an enterprise needs to do out of many possibilities to improve productivity. And to which level they need to improve. In other words, benchmarking gives executives the answer to the question “What initiatives can I start that will give me the biggest bang for my buck?”. Benchmarking was named by research executed by Bain and Company as one of the most valuable disciplines a company can undertake to improve productivity.
These are considered the key success factors in a benchmarking study:
- Link targets to business goals. Targets on productivity improvement initiatives need to be linked to business goals. Therefore they need to go beyond the role of technology alone. It should cover the process and human aspects as well. Only with a well-orchestrated combination of people, process and technology, real innovation can be realized.
- Clear operational definition of KPIs. The operational definition of performance indicators and their targets needs to be very clearly spelled out. If not, an enterprise may not drive the desired behavior. It may also negatively impact the adoption rate, as employees question the benchmark results.
- Wise choice of peer group. The adoption of revised targets from benchmarking stand or fall by the definition of the peer group and the believe of the organization that they are comparing themselves to a peer group that they want to outperform in the war for customers.
- Tie targets to best practices. Targets set based on benchmarking are only one side of the coin. The other side is having the understanding of best practices that can enable the company to achieve the targets. The combination will drive adoption and likeliness to succeed.
- Close collaboration between the assessor and the assessed enterprise. Only then recommendations will hold enough basis to get appropriate follow-up. To drive better results from the study, the benchmarking should be substantiated by interviews with executives and employees to understand the enterprise strategy and future aspirations.
- An encompassing report. A best in class benchmark reports cover at least the following topics:
- Detailed and confidential comparison of a company’s performance to that of its peers
- Key observations and opportunity areas, based on interviews and best practices
- Recommendations in the form of a roadmap
- Benefits analysis and high level ROI
Armed with hard evidence from such benchmark studies to support decision making, executives can adopt best practices not only to close performance gaps with competitors, but to beat their own business performance objectives.
Benchmark Your Organization Now!
To support your quest to become more competitive, SAP offers complimentary benchmark services. If you decide to participate in the survey you will receive an individual benchmark report in line with the best practice described above and a much better understanding of how well they are performing against peers from the same industry or even across industries. The survey results are kept private and confidential. SAP Benchmarking adheres to the ASUG and SAP Benchmarking Code of Conduct to advance the professionalism and effectiveness of benchmarking.
Please follow this link to register with your company email
Once registered please contact me at firstname.lastname@example.org to start your benchmarking survey.