The term benchmarking means different things to different groups of people. In the performance management world, it is used to describe evaluating your company's financial performance in specific areas to that of your peers. The reason we say external benchmarking is “back” is that several vendors have tried to generate excitement around this topic in the past, with limited success.
The Missing Piece
For many years, companies created plans and budgets that were filed away once complete. They were rarely, if ever, compared to the actual results that came in every month. There were many reasons for this, not the least of which were related to data and systems. This information often came from disparate systems with different business structures (charts of accounts, organizational hierarchies) and formats. In some instances, the budget was in a spreadsheet while the actual monthly data was sitting in a mainframe ledger.
Well, we've come a long way in the past 10 years (at least in some companies). With the rollout of comprehensive performance management systems, companies can have their budget and actual data in the same place. The budget is usually created in this system while the actual data is usually summarized, mapped, and loaded in from the underlying transactional systems. This now makes it fairly simple to produce analysis reports that compare actual performance against planned targets.
What's still missing though is comparison to external benchmarks. It's one thing to achieve your own targets, but you should at least know where you stand relative to other companies in your industry. Suppose you are aiming too low and all your competitors have better growth rates than you. What if you think your margins look good but they are actually far below industry norms? As we've seen too many times in the past, a business can pat itself on the back all they want; but if they are industry laggards, they will not be able to continue to provide the returns their shareholders want and may eventually go out of business. It should be obvious by now that external performance benchmarking is crucial.
Why aren't more companies comparing their performance to others in their industry? Benchmarking is difficult for two main reasons: data and systems – not too coincidentally the same reasons internal performance tracking used to be hard. On the data side, it is very hard to get comparative information from your friendly neighborhood competitor. Even if you could, you really need it to be aggregated with others to represent the industry as a whole. It also needs to follow some standard definitions so you can be sure you are comparing apples to apples.
Once you find this data, there needs to be an easy way to bring it into your system that is not labor intensive and error prone. These obstacles have kept most companies from moving forward.
Vendors have tried to address these challenges. Several years ago, Cartesis partnered with EDGAR Online for the data and built an easy way to bring that data into their own performance management system. They never really had time to market it though before they were acquired by Business Objects and SAP
in quick succession. This capability was one of many that got lost in the shuffle. More recently, Adaptive Planning took a creative approach to the problem. Since they have a large client base, they came up with the idea of leveraging their own user community for this data. The premise was that if you put some data in, you could take some data out – all anonymously of course. Most of the information was provided in the form of reports, not direct feeds into your own system. While it was launched with great fanfare in 2009, we have not heard much about it since.
The latest, and we believe greatest, attempt at addressing the benchmarking challenges comes from Host Analytics and the recent addition of Decision Hub to their SaaS-based performance management suite. Through their data-as-a-service (DaaS) model, they provide on-demand access to information on 12,000 public companies so you can compare yourself to one, or a group, or an industry. They don't stop at just historical benchmarking either. Decision Hub also includes 1,300 leading indicators such as Consumer Price Index, Producers Price Index, etc. to help with your forecasting. They get this data from working with EDGAR Online and Xignite. All of this wouldn't be that useful if it presented yet another data integration challenge, which most companies have limited resource availability to address. However, the reality is that it doesn't. Host Analytics has focused on ease of use throughout their entire product set, and this release is no different. In fact, this data is fully integrated into their performance management suite to the point where there are even buttons for specific benchmarks. They seem to have done everything right, but the question still remains: Will users adopt performance benchmarking?
Benchmarking is key. You could argue that if comparing your results to your own internal targets is all you do, you are only looking at 50% of the picture. Let's not talk about people who aren't even doing that yet. Now that the major benchmarking challenges appear to have been addressed, we will find out if those were the real issues or if they were just excuses for managers who were not interested in having their performance measured against external benchmarks.
While we hope Host Analytics is successful with this release, we also hope that they inspire other vendors to offer similar capabilities. Then it shouldn't be too long before most companies are utilizing external benchmarking regardless of which performance management system they selected.
SOURCE: Performance Management: Benchmarking is Back
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