Benchmarking, it's probably a word, a phrase, a tool that you've heard a lot. Very common in consulting, and it's exactly what it says here in the title. There's many different types of benchmarking. You can see everything from financial, marketing, sales, operations. The idea is to compare it against something to see how you're doing, the relative performance. Financial metrics, profitability, efficiency, anything that you can find on income statement or balance sheet can be turned into a formula and a fraction and a ratio to measure. Then also operationally, companies vary, so the operational metrics for a telecom company in Brazil are going to be very different from a dairy farmer from Kansas. Big takeaway here is benchmarking has many shapes and sizes. Also, what I'd emphasize is that when you look at benchmarks, think about what is a leading indicator that tells you something about potentially the future, even though it's not 100 percent precise. Then what is a lagging indicator showing you something that happened in the past. Benchmarks come in all shapes and sizes. Some are more future oriented, some are more reflective of what happened in the past already. The objective, simple enough, is to find ways to improve. Now, what are the hardest parts about benchmarking? Because benchmarking is a bit subjective, and we're trying to make it as objective as possible, so it's a bit of a challenge. One of the hardest parts is to find smart benchmarks, who to compare against. Now sometimes, and typically the most common is you'll benchmark against an industry average. We are at 65 percent and the industries at 68 percent. When I say industry, typically that's your rivals, it's your competitors. It's the people who do exactly what you're doing. If you're British Petroleum, it is ExxonMobil who's right across the street from you. It's your direct rival. To other ways to benchmark. Maybe sometimes even a little bit more thoughtful is looking at best in class companies. These could be people who aren't in your specific industry, but they're really good at what they do. For instance, Nordstrom's, the retailer, is very famous for their customer service. You might not be selling clothes in a retail department store, but you want your customer service to be at the level of Nordstrom's. They will call that a best-in-class company, even though they're not in your industry. Then here at the very bottom is one of my favorites, which is comparing against yourself. There are a lot of reasons why that makes sense and we'll get into it a little bit later. When you talk about benchmarks as a simple examples, how do doctors use benchmarks? Well, in the diagnosis part, when you go for your annual checkup, the doctor will check your heart rate, your blood pressure. They'll look at your tongue, look into your ear, they'll ask you to cough. All these things so they can see how you're doing. In terms of benchmarks, how are you doing versus other 50-year-old males, in my case? Or they'll compare you to the results that you had last time you came and visited. When it gets to the actual treatment part, your blood pressure is a little high, so we'd like for you to take this one pill a day. They are also going to be using benchmarks. They're going to see how does this affect your blood pressure before you took it and after you took it. Or they may compare, hey, I'd like for you to try a new pill, pill B because pill A, wasn't working. All of these different ways, on the problem side at diagnosis, identifying the problem benchmarks. In the solving side, the treatment side, benchmarks. Let's take a look at the exact same type of problem and solution for a consulting project. On the left-hand side, during the proposal stage, when you're first getting the project, you're first talking to the client, you're finding out what the problem could be, benchmarks. What might the source of the problem be, how serious is this? Is this a challenge just for them or across the industry entirely? Later in the project after you've identified the problem, now we're looking at the solution, the solving part of it. It helps to identify the gap. We want to be at 80 and right now you're at 75, and that gap is five. We use benchmarks. Number 4, what's the gap between the current performance and the goal, and then what is the potential? We want it to be at 80. We're currently at 75, can we get to 80? How long would it take, how expensive and how difficult would it be, and then what's best in class? Can we get to 90? What would that look like? One question that you might have is, okay John, I got it. Benchmark? Comparing against something. Got it. What are some examples that you would see in management consulting? There are a lot. On the left-hand side, you can see I spent a little bit of time digging up some benchmarking, as well as some consulting projects that used benchmarking. Everything from the revenue side. Sales force effectiveness, like we hire all these sales force people. How effective are they? What's the return on our sales dollar or customer loyalty? We don't want to spend all this effort getting a new customer and then having them leave. Then later as you go down the list, you see some cost process quality, working capital, managing your balance sheet in a smart way, innovating or even gauging what do executives think the next year will look like? That's also benchmarking. If you did a survey of 1,500 executives, what percentage of them are going to increase their research and development next year? That's benchmarking. All that stuff on the left would use benchmarking. As a quick tip on the right-hand side, you see all these levels here. As a quick tip, you can Google the word benchmark and then add, let's say the name of a consulting firm, let's say Deloitte. Then add, here's the trick, add the letters PDF. For those of you, you know a PDF is just a type of file format like DOC, XLS, it's the format of the file. But by googling the name of the consulting firm, let's say Deloitte, benchmarks and PDF, you're going to find documents that are online. You're not going to find websites, you're going to find actually physical documents, and some of them are really good. You might find a 60 page analyst report of all these different benchmarks. For this specialization and a lot of the examples that we do around data collection, survey creation, customer interviews, anything that I might have mentioned if you type in to Google, PDF that topic and one of these consulting firms names, you're going to find a wealth of information and examples for you to look at. Key takeaways. When it comes to benchmarks, reverse engineer, always think backwards from what you're trying to do, so you can not waste your time. Remember, consulting is about being smart and lazy. You don't want to do all this benchmarking activity and then not use those benchmarks later on. Also, what's included in those benchmarks, if you don't actually define it well, you will be in huge trouble later. We'll go through an example in more detail, but the very worst thing you want to happen is you do all this work and in the final presentation with the client, with this big board room, with all these very expensive executives for them to ask you a question and say, that calculation of 65 percent utilization, how was that measured? Is that the exact same measurement as the other comparison that you have? As a healthcare consultant sitting in front of a room full of physicians, if you don't define the thing well, you're going to be in trouble. For the internal consultants, the folks that work inside a company stretch get external benchmarks and change the discussion. More than likely working internally there hasn't been enough change. More than likely you've been looking at the same data, the same reports, having the same conversation month after month like Groundhog Day and for you to make a change to get stuff to happen, you need to bring in external benchmarks and shake things up. For the red airplanes, for the solo entrepreneurs, for those of you who've done this for quite awhile, benchmarks might be a smart way for you to work faster, and better, and easier. My challenge to you is, what are the benchmarks that you can put on your website or you can put in your proposal materials or put into your statements of work that help prospects. These are people who are not your customers yet. How can you use benchmarks to help potential customers identify their problem. How nice would it be for you to have benchmarks on your website so that when somebody comes to your website and they say, oh, I didn't even realize I had that problem, but I need to fix that. I'm in trouble, I need help. Let me call and email that person right now. In summary, benchmarks, super-useful, very diverse, need to be just a little bit more cautious on using them in a smart way. One thing we're going to talk about in the next session is making sure that you do this in a very credible way that actually it doesn't get you in trouble.
