Identifying Benchmarking Risks and Overcoming it

Benchmarking can be one of the best ways for businesses to measure and then improve performance. Benchmarking exists and is used in just about every industry to a significant degree of success. However, there are risks associated with benchmarking which should be identified if the association is to mitigate them. Perhaps the most significant risk is that the results may not be apparent or provide businesses with a decisive strategy which means it is open to interpretation.

Another risk is errors. Even if associations are benchmarking carefully collected data, there is still a possibility of mistakes. Errors can cause benchmarking results to be skewed. Many times, businesses would make the right decision based on bad benchmarking results. So, it is up to the association to check and then double check every data point.

Fishing Out Unreliable Data

It can be quite challenging for an association to find and remove errors with the data they gather. We can say from personal experience that auditing the data collected can be expensive, time-consuming, not to mention the fact that it can also be pointless at times. However, when it adds to the cost of benchmarking, it can no longer be offered for free. But then again how many members will be willing to pay depends on the industry and how much they stand to benefit from the final benchmarking results.

Benchmarking is susceptible to being manipulated which in turn leads to further manipulation by means of providing false data. We have seen that if participants believe that the benchmarks are wrong, inconsistent or unreliable, they will be more inclined to offer incorrect figures deliberately. Their goal is to appear perhaps to be better than other businesses, but in doing so, they are muddying the waters.

On the flip side, if participants trust the data yielded by benchmarking, and are interested in learning from the results, they will be more inclined to ensure that the data provided is of excellent quality. Good data means that benchmarks will be reliable which further motivates member businesses to provide solid data.

Data Entry Errors aka Clerical Errors

One of the most fundamental issues with gathering data via surveys is data entry errors. The errors can be the fault of businesses who were entrusted to share their data or clerks assigned data entry tasks. So, the errors can either be deliberate or by mistake.

However, one of the most common causes of errors is the in the interpretation of what is being asked. Take for instance a survey question that asks “How Much Did Your Business Earn in 2018?”. A business that answers that question can either state $20,000 or $26,000. Both would be correct since one is the company’s net profit while the other isn’t. So, if the question does not state net profit and define a duration for the earnings report, it will invite errors as each company will interpret it differently.

Associations also need to consider that some businesses may not be able to provide the required data the way it is needed. One reason for that is that the company is structured in a certain way where reports for that particular metric aren’t generated. However, if that change in the way the business is reporting those figures is not considered, it will ruin the final benchmarking results.

Deliberate Errors Entered into the Benchmark

One of the reasons to benchmark is to get a solid direction in which way the business should head to progress. However, deliberate errors entered into the benchmark aka data manipulation can cause serious issues. Most times it is the industry’s underperforming organisations that tend to manipulate the data in their favour. In doing so, they may appear to be successful when in fact they are not only hindering their progress but those of others with incorrect industry statics.

Identifying these businesses and holding them accountable can take time and till then the benchmarks are incorrect. The industry finds it difficult to progress as a result. That said all is not lost!

Overcoming Incorrect Benchmarking Survey Data

If the benchmark is designed with a precise goal in mind, minor data entry and other unintentional errors will not make a significant difference. Reliability of the benchmarking results improves greatly if everyone knows that the results will be used to learn and in turn grow. Associations can use benchmarks as a way to show how other businesses have used the results to improve. Creating awareness of why it is essential to share correct data, and how it is useful to everyone also works well.

Another way to overcome incorrect data in benchmarking is to use verified information. Sources like annual statements can help to double check and confirm if the data provided by a business is accurate.

Associations should also make sure that each question asked is clearly defined. If required explain why that particular question is being asked as part of the survey so that businesses don’t feel apprehensive sharing the right data. If anything, avoid creating rankings which make smaller or start-up organisations look bad or underperforming in the industry.

Dealing with Uncommitted Members

When members are not sufficiently committed to benchmarking programs, you’ll hear objections against things like data surveys, benchmarking surveys, analysis, etc. If anything, there will be a lack of will when it comes to accepting the results.

One way to deal with such resistance is to hold the stance of the many reasons to benchmark. You can reduce resistance by making it clear that benchmarking is a tool and as such can be used to help a business grow. It isn’t a way for the association or the people related to it to make money or find faults.

Associations can also help members read the report and draw valuable conclusions. If you want members to improve then get a team of consultants who can help members. They can also help members fine-tune their performance. All of this will help to eliminate friction caused by members who are not complying but instead creating hurdles.

Changing Participants

Regardless of your industry, evolution is guaranteed. New players enter, older ones may exist, and there may be acquisitions. However, all of this means that each year the participants may change. The majority of participants may remain the same, but some may even stop participating. You may also have many new participants.

Varying participants make it pointless to compare the benchmarking results from one year to the next. However, a benchmark can also be run for participants that have participated each year without fail. Perhaps set the bar at the past five years mark. Now the data can be compared to see how far the industry has progressed, as well as individual businesses.

Conclusion

Mitigating risks associated with benchmarking requires understanding them. Above are by no means the only risks and their consequential solutions. However, they do offer a good starting point for associations who are getting into benchmarking. It can also help fix issues with associations dealing with incorrect benchmarking results.