A mutual fund could set a benchmark as a target for the performance. For such a fund, one that is 100% focused on the stock-market, the benchmark could be a stock-market index, like the Dow Jones. For individual portfolios that carry more than stocks only but include currencies and bonds, it is more difficult to define an appropriate benchmark.

And that is exactly the problem with benchmarking as a performance management instrument in organisations. How are you to measure a performance if every company is unique and wants to deviate from the standard?

And that is exactly the problem with organisations. How are you to measure a performance if every company is unique? Benchmarking is done to compare activities with the objective to improve these. So how do we translate the financial adagio, “If we beat the index, we have done well,” into an organizational counterpart?

Benchmarking you company against peers is sheer impossible; a small difference in focus, product offering will make an overall comparison useless.

So you should step down to get more focus and therefore a reliable or credible benchmark. For instance you could visit three sales teams and use the one with the best results as a benchmark. The other two will try to improve their sales using the benchmark as the best practice. Yet the three sales organisations differ slightly. One sales team is focused on active clients, the other on clients that you offer additional services. A benchmark would do more harm in this area, because it will flatten the differences your company introduced to increase overall sales. Instead of having three teams you just as well may go back to having only one.

The problem of a benchmark is also present for mutual funds managers because they can deviate less from the market that they might want to. But an organization could do this. If you have set a strategy they only way to implement this is by setting the benchmark according to the strategic rules. That is not by observing others, but by benchmarking against your own profile.

For the market sake you could add some market condition indicators that level the (benchmark) outcome with the market situation; these should be in line: a positive market outlook should increase the level of the benchmark.

(As for the Hollywood divorces, I haven’t check the level being more or less than average, but I assume that the quality of live in Hollywood is neither better not worse, but just “different”.)

© 2006 Hans Bool

Hans Bool is the founder of Astor White a traditional management consulting company that offers online management advice. Astor Online solves issues in hours what normally would take days. You can apply for a free demo account

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