How to benchmark competitors effectively (without losing context)
Competitor benchmarking can feel like a corporate version of keeping up with the Joneses but how much attention should you pay to what other players in your sector are doing? This article will explore how headcount benchmarking specifically can be of use and what contextual factors you need to consider to use it effectively.
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An analogy – the wrong way
Picture this – you and your neighbour have a funny relationship. It’s not hostile, but it’s not friendly. There’s an unspoken level of competitiveness. Their children are patiently waiting outside, instruments in hand at 8 am on the dot, whilst you shout at yours to get their shoes on. What’s even more annoying is that they’ve got an incredibly well-kept garden, and to top it all off, they’ve just bought a brand-new Honda HT Premium HF2417 ride-on lawnmower.
As summer gets underway, you get bored sitting in your garden, trying to enjoy the warmer weather, whilst next door, Ned zooms around on his Honda. You decide you need to immediately go out and buy a John Deere X350R. As you watch, Ned watching your big green tractor being delivered the next day with a smug grin your spouse points out that most of your garden is paved, as you have a swimming pool and you have a gardener who brings all their own equipment anyway. That’s competitor benchmarking done badly. Comparing without context leads to misguided decisions that look good on paper but make little strategic sense.
The right way
Learning from each other’s successes and mistakes is important. It’s how humans survive. It’s why someone’s recommendation of a good plumber is gold dust. But we must always remember that no two situations are ever the same. “You cannot step into the same river twice,” to quote your man, Heraclitus.
So, what does all this mean for headcount benchmarking within corporate functions?
Often, executives want to know if a certain function (e.g., Finance, HR, IT) within their organisation is too big. This immediately begs the question of why they’re asking this question. Generally, it’s because the Return on Investment (ROI) of non-revenue-producing functions is harder to demonstrate. If they then have a feeling that they are not getting the ROI they expect from that particular function, they will look for data to back this up.
The number of people a competitor has doing that function can be a good starting point. If they are of a similar size and do similar things but have a quarter of the people working in Finance, then the question should immediately be “why?” The gold dust (sometimes) is in answering the question and not in the number itself.
It could be that they have developed a more efficient operating model through a combination of the right people, systems, and processes. It could also be that they outsource a lot of their finance activity. It could also be that they fail to invoice their customers on time and so are suffering from serious cash flow issues. Benchmarks provide an excellent lens to explore your own performance, but they are only ever a conversation starter, not the answer.
It is also important to note that the best benchmark is usually yourself. If I know I ran slightly faster than I did yesterday, then I know I am improving. On both days, I am much slower than Eliud Kipchoge, and comparing me to him is confusing and disheartening. Likewise, in an organisation, it can be helpful to compare different teams that do the same thing or even just the same team over time.
Conclusion
They say comparison is the thief of joy, and whilst joy may not be the objective of organisational performance, the reasoning that underpins it applies to both. Everyone’s situation is different and so whilst we should learn from others, we should be using these lessons to focus on improving our own performance.
At Q5 we are experts in organisational performance and draw on a huge amount of qualitative and quantitative data to support our clients in understanding where they can improve. To find out our more, please get in touch.
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