In this article we discuss the very practical challenges of applying benchmarking and the need to stress-test each recommendation in a “live” setting. This was Terance’s first benchmarking study.
Benchmarking is a powerful tool used by Bain. An effective set of benchmarks can quickly tell us how far away a company is from reaching parity with its competitors.
Benchmarking provides a rough magnitude of the scope of change possible and is critical to developing a top-down business-case. The problem with benchmarks is that unless you apply common sense you can arrive at some fairly ridiculous conclusions. I have seen this all too often in my career.
Benchmarking results may lead to ridiculous conclusions
The low-cost carrier project provides some especially illuminating examples. On this project the client had invited a specialist aviation benchmarking firm to benchmark a few processes within the operations and provide a blueprint for improvement on some of the core processes. Bain would use these as input into their analyses.
Very quickly into the process, and much to our dismay given the tight timelines, we realized the benchmarking exercise resulted in benchmarks which were of little value.
The low cost airline had a major hub in South-East Asia and regional hubs in 12 other cities across Asia, Australia and one in the USA. If you have flown a low cost airline you know they cut out every single frill: onboard snacks, extra luggage, seat assignment, seating space and so on.
Basically the customer is paying a really low price in return for no extras. Another thing low cost airlines cut out are delays. Low-cost operators are brutal at cutting out any possible delays. The planes leave and arrive on time. Always.
A low cost airline whose planes do not move like clockwork is a bankrupt low cost airline.
The specialist aviation benchmarking firm was adamant that the client could reduce the turnaround time for all aircraft from 12 minutes to 5 minutes. The turnaround time is the time from when a plane lands to the time when it is ready to leave. The turnaround time includes unloading baggage, cleaning the plane and, if needed, reloading baggage.
The Asian hubs had an average turnaround time of 8 minutes while the US and Australian hubs were pushing 12 minutes and in some cases 14 minutes. The business case for more than halving turnaround time was compelling. It could mean effectively adding 15% more flights to the day.
It was a significant business case. If we could do that, the airline would no longer need to apply for additional landing rights, would not need to seek a new terminal and likely could serve more routes. It was too good to be true.
The one thing about Bain is that the firm is very practical. Just because Bain produces top-notch analyses does not mean they do not have a feeling for how things work in the field. In fact, that gut feel for operational impact is exactly why the firm is so good. The firm has a rule of providing advice which can be implemented on Monday morning at 8 am. If advice cannot be implemented this way then what is the point of the client paying for it?
Therefore, it’s not surprising that the Bain senior partner said that since so much of the revenue improvement came from this idea, and we did not do the benchmarking analyses, we needed to test it. We were all given stop-watches and told to find the best crew in each hub and conduct a DILO (day-in-the-life-of) study to see if this was even possible. So we did it and the findings surprised us quite a bit and taught me the importance of applying common-sense:
• The Asian hubs hired younger, slimmer and nimbler women. They were quick and able to dart between the seats and clean up everything in no time. Even so they barely managed a 6 minute turnaround.
• US and Australian hubs hired older and not as slim women to work the turnaround teams. They just could not move as fast. They were also suffering to maintain the momentum throughout the day. It was the equivalent of repeatedly running a 100m sprint with too short intervals to rest.
When we brought this to the attention of the specialist aviation benchmarking firm, they mentioned that the solution was to hire younger and more nimble women. That’s pretty bad advice since it did not take into consideration the extra costs of hiring them. Younger women with more options just would not do such work for the same salary. This does not even begin to solve the problem of issuing employment adverts in the US which categorically discriminated against male hires or older employees.
Since the client was unable to lower costs by achieving economies of scale in the smaller hubs, the specialist aviation benchmarking firm decided to import the idea of cross-utilization. In this concept, an employee is trained to do more than one task. This eliminates the need to hire more people, increases utilization via their usage across multiple tasks and, the ultimate prize, lowered costs. Japanese auto manufacturers made this concept famous when they used it to fix defects and improve quality on their production lines.
After exposing flaws in the turnaround time recommendations, the senior partner wanted to test this important cost reduction opportunity as well. Armed with a few stop-watches and clipboards, we again marched off to do our DILO studies. Although this was not anywhere within my work scope, I still decided to assist since it was very interesting to do. The fact that the client flew us first-class to each hub did not hurt as well.
This is what we found. Arriving at a smaller hub, there was only one person manning the check-in counter. This employee would manage all check-ins and close the counter. Thereafter, she would go to the runway and guide the aircraft as it docked in. She would then unpack the luggage, pack in the new luggage and go back upstairs to manage check-ins for the next flight. She did this anywhere from 5 to 10 times a day, depending on the hub and day, and needed to complete each cycle in 45 minutes. This is tough work!
The distance between the check-in counter, which is upstairs, and the docking airline, which is downstairs, is about 1,300m on average. Every hub, except US hub, will have average summer temperatures of 39 degrees and average winter temperatures of 28 degrees. Imagine running around, hauling heavy bags and keeping up the company’s image in this heat. This was not an easy task.
Again the specialist aviation benchmarking firm had no solution. Their view was that given the limitations of not hiring more staff, only cross-utilization would work. So we flipped the idea around.
Rather than increasing the number of staff, what if we reduced the amount of work done by the staff. The major bother for us was the difference between above-ground and ground-level activities. They were very different and doing one well (managing heavy baggage) automatically meant employees suffered when it came to engaging with customers. Who wants to work with sweaty and smelly employees?
Eventually we recommended this client form alliances with other low-cost carriers. This was at the time an unusual move but is now common. Therefore, the client would manage the above-ground activity for an alliance member and that member would manage the ground level work. In different hubs there were variations but in all, there was a splitting of work. This allowed the employees to focus on one activity and do it well. It also allowed the airlines to do everything as usual without adding more staff.
On an aside note, this idea off outsourcing selected functions worked so well that the client was able to reduce a sizable chunk of its workforce without impacting performance at all. In fact, delays decreased and customer satisfaction improved.
This goes to show the importance of critically evaluating constraints in a business problem.
Benchmarking study’s idea that could cause significant damage
The external benchmarking firm also provided one piece of analyses which would have a profound effect on the client if it were implemented. The analyses showed that the client was unlikely to receive berths at the major airports if it went ahead and bought the largest Airbuses available. The provider was recommending that the client bought smaller planes since they stood a greater chance of getting berths at the older terminals at the major hubs.
Doing this would have a profound impact on the client’s economics. Larger planes have much greater fuel economy. Giving this up would dramatically impact the clients financial strategy. Not to mention wreak havoc with all the planning for the larger planes. There were also no guarantees that the client would be granted the berths in the older terminals.
The higher taxes and landing fees in the larger airport would lead to higher final ticket prices. In other words, why would anyone choose a low-cost airline which was not very low-cost, flew smaller planes, charged more for fuel and forced them to check-in at major cramped airports?
Bain’s solution was not all that original, but it did save the client. We recommended that the client stick to the larger planes, plough the savings into lower ticket prices and fly in and out via less congested airports in the suburbs. We reasoned that customers really wanted the lower fares and would not mind the inconvenience of using a smaller airport. The upsides were lower taxes, less delays and less congestion. Ryanair had done this successfully in Europe so it was conceivable the same model would work here. It did.
Things to remember when benchmarking
This experience crystallized some important lessons worth remembering when benchmarking:
• Does the benchmark work given the practical issues facing the company? Some benchmarks look wonderful on paper but can never be applied without paralyzing operations.
• Has anyone actually seen this solution work?
• Does achieving the benchmarks leads to financial and quantifiable savings or financial and non-quantifiable losses?
• Are there constraints which need to be examined in greater detail?
• Have the regional differences been identified in the global benchmarks?
• For this solution to work, do the employees have to be robots?
• Have you asked the employees who will be affected by the change for their advice?
• Do you know how your employees will feel after you have implemented this “solution”?
That’s one of the reasons why I always feel good inside when I complete a project. Bain is so different in the way they operate. Solutions must be analytically sound. However, that’s not enough. They need to work in practical terms. Someone from Bain is always thinking about how much value there is in implementing the idea.
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How benchmarking best practice can hurt you
In this article and related podcast, we discuss the problem of benchmarking best practice, which is also sometimes referred to as benchmarking analysis or benchmarking best practices.
We previously discussed case studies, value chain analysis and industry analysis on a consulting study. And for most consultants and executives looking at case studies, the inherent idea is that they want to look at best practices within the case studies. You do all those things above to extract best practices.
And you will notice in the Corporate Strategy & Transformation study there is no stream, there is no piece of work, there is nowhere on the huge 887-step map for this study where we talk about best practices.
And there is a reason for that. It is deliberate.
What do we mean by benchmarking best practice?
If you really think about best practices, they are by their very nature, by their very definition, methods, techniques, ideas, tools and/or processes that are used by other companies.
That is what it means. It is really taking the best from someone else.
A company learning best practices is taking what is the best or what they think is the best of other companies and when they do that they are automatically assuming that they are not so good and that just getting to be as good as their competitors is a significant step forward.
That is what it means. You can spin it whichever way you want but that is what you are saying.
The point of competitive strategy
But it does not even matter what is the definition of best practice. The mere fact that you are using techniques used somewhere else implies that your company is the follower and not a leader. You are simply trying to become like other people.
There is no competitive advantage here. You are simply trying to enter the game.
You are not even trying to win in the game. You are just trying to play in the game.
There are companies that benchmark themselves to death. They will go out and measure everything, test everything, rank everything, score everything. And the idea is that if they implement what competitors are doing they will be successful.
But the reality is, if you implement what competitors are doing, assuming you implement it correctly and it works, you are really becoming like a competitor. You are indistinguishable.
And the point of competitive strategy is you have to be different. You have to take actions that are successful but differentiate you.
Because if you take actions that make you just as good as company B you become a commodity, because there is no distinction between what you are offering from someone else.
So, by all means benchmark and implement best practices, but understand its limitations. Understand that it cannot be a strategy to lead a sector. Maybe follow and follow closely, but never lead.
Benchmarking “best practice” is the fastest way to mediocrity
I remember reading this report from the audit and inspection of local authorities of the British government. I cannot recall why I was reading an audit report, but I did read it. And it had this great commentary on best practices:
“Best practice” is a static idea. It leads us to think we should copy others. Father of the Japanese post-war revival W. Edwards Deming taught that copying without knowledge is dangerous.
The genius behind the development of the Toyota Production System Taiichi Ohno taught that visiting others was looking in the wrong place. He showed how everything you need to know to improve your organisation is within it; you simply need to learn how to look at it differently.
Benchmarking “best practice”—comparing to and visiting others—is the fastest way to mediocrity.
Anything can be improved, even the best. “Better” is a dynamic idea and is therefore a better lodestar for local authorities’ performance management.
That is quite profound to me. And this is coming from an audit and inspection general report for Great Britain’s local government committee. Pretty impressive, right?
Staying away from best practice for the power sector study
The power sector study has very little focus on best practices. It takes learning from other companies but nowhere does it present them as best practices. All we say is: what happened, why it happened and what is the lesson for us.
The way we did the case studies and the industry analysis was deliberately not focused on best practices but to understand what happened and why it happened.
We wanted to start a discussion with the executives by saying, “Ok, this is what happened to ABB. Why did it happen? What are the lessons for you?” And then we would come back to Empire International and ask, “What is happening now? Why is this happening? What are the lessons for you?”
First, if you simply list best practices they mean very little.
If you benchmark any two companies, because companies are different, what may look like good results for another company may be a bad result for you.
For example, if you have two power utilities and one has a much higher variable cost its possible that one company had to have a higher variable cost because the technology they use is different and it is located in regions where labor is just more expensive. This does not mean it is performing poorly. More expensive labor and technology may lead to improvements in other areas that compensate for the higher costs.
Second, companies in a crisis always like latching onto best practices.
When you are in a crisis the media is constantly attacking you for the things you have done. For example, the media may be harassing you for the fact that your power plants don’t work well and so on. This happened extensively in the power study. The client came under a withering media barrage.
In this situation its very easy to say, “We followed best practices. And look, we tried our best. We tried best practices. If we tried best practices and failed, how can you blame us?”
So if you go down the best practices path there is going to be no escape from it because you are giving executives a cop-out. They want to latch on to the best practices idea because it gives them an excuse when they will have to defend their actions.
Third, if you get caught into this trap of just copying best practices you are not really going to create any major competitive advantage, as stated above a few times.
Best practice is a fancy way to mimic credibility
It is human nature to focus on best practices. Let me give you an example of this.
Lets assume you want to learn about big data. Let’s further assume you read an article written by someone in the press about big data. Before deciding if you should learn from this person, the most likely thing you will do is to look at the person’s bio.
Do they have experience in big data?
Have they worked for a big data company?
And if the answer to the above two questions is “yes”, you will likely think, “Ok, this person has experience in big data and worked at big data company. I can learn from them.”
Think about what you have just done there.
You are willing to learn from this person because they have got some experience from other, seemingly credible, places. So what you are hoping for is that they are going to take best practices from all these places that they worked at and they are going to teach it to you, which implies that what you want to learn is not to be the most cutting edge big data person but to only know the best that this person learned at other places. You do not want to be ahead of the field, you just want to play in the field.
You have got to think about that because this is very profound.
That is the way we approach all learning situations. We rarely look at a person and think, “Hey, what this person is telling me is really intelligent and really exciting. Lets go with it. Even though they don’t seem to have the background that shows they are an expert in this area.”
So in a sense what happens is that because you are unable to determine whether a person’s statement is logical you just look at their resume and say, “Well, they worked at a big data company. I am going to go with them.”
And that is the same kind of thinking that is taking place in consulting firms and discussions on best practices. When you have a consultant in there who is putting forward an idea which is pretty unusual, the executives are not always equipped to say, “Hmm, this makes sense. Even though the person does not have the experience.” They would rather say, “Hey, this person may not have the experience but they are basing it on things that other companies have done. So I am going to go with them.”
So benchmarking “best practices” is a fancy way for mimicking credibility. When someone does not have credibility they always go for the best practices route, “Hmm, a very famous company X did this. That is why you, the client, should do it. I may not have credibility, but because Google told all its employees to spend 10% of their time playing Angry Birds at the office, you should too. Google cannot be wrong. I mean, its Google.”
If you lack confidence, lack credibility and are generally lacking in self-esteem, you will likely use best practice ideas to sell your concept.
And you can do this test. Think of how many times you have listened to someone who said something that makes sense, but their background would not have indicated that they would be an expert in that area?
I would say, of all the advice you have taken less than 3% or even 2% will be in this category. And this is how we fall for the best practices trap at a personal level. We always listen to someone who seems to know best practices because it gives them credibility and this credibility is imported into the advice that we take.
Here is something you see often, and I also receive these comments. Someone will say, “That sounds interesting but can you please reference your sources?”
Well, no I cannot because these are my original ideas. The mere fact that I can reference a source implies I am merely regurgitating someone else’s ideas and I do not have an original thought in my head.
There are many who cannot operate in this space of original ideas. They can merely reference and cite, and are incredibly proud of this, all the while not knowing they are not doing anything new.
Filling the credibility void
So when people tend to focus on best practices, they usually focus on best practices because they don’t have the authority and the credibility to put forward innovative, controversial ideas. And because they are afraid that their innovative and controversial ideas will be thrown out they default to relying on a brand of a famous company to say, “Famous company X did it, therefore, you should do it.”
And we have deliberately moved away from this for the power sector study. I am not saying it was easy. It has been pretty difficult. But one of the things we have done is, we focused heavily on logic in this study. Like the LAB study.
We constantly move through logic arguments to explain why even though everyone else is doing x does not imply Empire International should do it as well.
Companies that like to do benchmarking or consultants that like to do benchmarking are in many ways trying to fill the credibility void. And the credibility void stems from the fact that they don’t have the credibility that they supposedly claim to have.
Because they don’t have it they have to make recommendations which will be accepted and they are basically latching onto the credibility of another organization.
And by default they can only latch onto a famous company because a famous company is well known.
That is why famous companies become so heavily case studied. Because they need no introduction.
If Pedro’s Chicken Farm in lower Lima, Peru had the world’s most innovative inventory management system, no one is going to case study this business because it is not well known.
They will only use it if Harvard wrote a case study on it, because then they can say it is a Harvard case study.
So that is the problem on the consultants’ side. But it is also a problem on the clients’ side. And it applies to everyone.
We need to move away from just looking at resumes or the backgrounds of consultants where we think if someone did it 50 times we should listen to them. You have got to be able to judge the message being delivered. And say, “The message makes sense even though your background does not seem to have indicated that you would be an expert in this area.”
So when you are in a client situation and you are considering to analyse best practices, you have got to ask yourself a couple of things.
First, why is there such pressure to present best practices? Is it because you are struggling to get the client to agree to something that you think is right? And because you lack that credibility are you doing all that possibly unnecessary work to try to find best practices that support your view?
And here is the question. What if you cannot find the best practices that support your view?
Does it mean you are not going to make the recommendation the client needs to hear? Are you just going to provide best practices so the client agrees with you and you get paid? Does it make you a good consultant?
If your idea is truly original, how can it be directly benchmarked, and what does it say about the idea if it can be benchmarked?
Second, and linked to this, even if a client follows the best practices recommended, how is trying to be like someone else a competitive advantage?
The case for benchmarking “best practices”
Now I agree, there is a case for doing best practices analysis, but best practices analysis is like an accessory to a summer outfit. If we assume that summer outfit is not a teeny weenie two piece bikini, than the outfit should make up the bulk of the ensemble.
The best practice is never the centerpiece. It is never the star of the strategy. It is just a little tiny piece that you add there to balance your dress, like a purse or may be a nice Hermes scarf. But that is about as far as it goes.
Or maybe a better analogy is salt to food. If you made salt the star of the dish you will have a seriously horrible dish.
Long-term view vs. short-term view
I can understand there is a lot of pressure in a consulting firm to bring in revenue and so on but the point is that if you do the wrong work for a client you may bring revenue in the short-term but you will not be successful in the long-term. And it is ok to go for the short-term view if you want to start a consulting firm that lasts just 2 years or 3 years and makes some money so you can retire in a little village somewhere and sip margaritas the whole week.
But if you want something for a longer period or if you work at a major firm and you want to be an outstanding partner some day, these are the things you have to think about. Moreover, once you get to a senior level people don’t question you as much. You need to question yourself.
So as you can see, the way we approached this is to say that when you look at benchmarking “best practices” there is a credibility issue on the side of the consultants that are driving it and there is a problem on the side of the client who needs to take something to their stakeholders to say, “Hey, we followed best practices and we failed, so it is not our fault.”
It is almost a cop-out. It is an escape clause. It is a safety mechanism that they are building in. And you need to be aware of these things.
So think about this as you are benchmarking “best practices”. Think about the credibility angle and think about the competitive advantage angle.
Think before you do things and understand why.
As always, we will be more than happy to talk in the comments below about any questions you have or any views you have about this subject or this study.