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Benchmarking success hinges on internal data.

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EXECUTIVE SUMMARY

The mania to collect comparative data has eclipsed the rationale behind benchmarking in many cases. There are too many companies chasing data from external sources that have not done the homework necessary to make that data meaningful: Without a base of knowledge of one's own organization, comparative data is meaningless.

The need to collect comparative data has become an obsession among large companies, particularly those pursuing process improvements or cost effectiveness. The fascination with benchmarking has ignited debate over what information to collect, how to collect it, and ultimately, what to do with it.

A lot of benchmarking data is never used productively because companies spend more time denigrating the available or collected data than applying it. Managements argue that data is not relevant because it's from companies in different industries from unrelated markets with conflicting demographics ... or for other reasons.

Why invest the resources to gather benchmarking data to measure company performance against any external standard if it becomes little more than ammunition for debating management factions or is discounted as irrelevant? Why spend the time if the ever-present apples-to-apples argument looms in the background?

Accumulating benchmarking data that people can agree is relevant and comparable is vital, and there are numerous benchmarking resources. Companies have discovered, however, that it's easy to spend a lot of money and still wind up with little to show for it.

Recently, a consulting organization was engaged by a major corporation to conduct a benchmarking study. The results were to be used to demonstrate to senior management that the company had problems with internal service delivery. The firm paid approximately $50,000 for comparative data on a single function--a high price but one that might have been rationalized had the data been focused at the service level (such as payroll check processing or curriculum design), where it could be translated into actionable improvements. However, the data was centered on subfunctions (such as payroll or training), a level too high to support effective service-based costing and too vague for external benchmarking comparisons.

The study embraced a widely held benchmark that the function in question should represent no more than 1 percent of gross corporate revenues, but the results showed the firm's function was more than 2 percent. Presumably, that knowledge provided an opportunity for capturing the difference. What the data did not tell the firm was where to go to find the differential, where to focus at the service level, or which services were out of line. So while the information...

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