"Benchmarking", "best practice" and "do like others" are not enough.

Summer Reading Series

1 Jan

Written By James Clampett

Futures Idea Download

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In a competitive world**, an organisation's success is determined by its ability to stay ahead of others and adapt to the needs of its stakeholders and the fast-changing world it operates in. The use of benchmarking and best practice can help a business understand what is happening elsewhere, and identify relative strengths compared to others, but it falls short of providing sufficient information for forward-thinking, high-performing organisations to deliver impact and future growth.

Companies aspiring to high performance need to do more than follow others, they need to be proactive about understanding how the world is changing and be able to plan and make decisions with a forward view. The past is a "used future"(1). A used future is "unconsciously borrowed from someone else." (1). To deliver impact and future growth organisations must develop the skills, and allocate time, to building views of what might happen over the next 5 to 10 years for their business, industry, and stakeholders across social, technological, economical, environmental, and political domains (2). Then use these views to plan and make decisions that support robust, sustainable, growth-focused organisations to deliver impact across a range of futures.

**A note on the idea of not-for-profit competition.

Yes, not-for-profit organisations compete - for funding, for resources, for talent. In some cases against other organisations doing the same work. Embracing a competitive mindset is crucial to delivering impact and future growth.

A quick review of benchmarking and best practice.

Benchmarking is a process of comparing the performance of your organisation to that of others to get a good idea about how well you are doing. The word “benchmark” comes from the practice in carpentry where craftsmen work off an existing piece, or “benchmark,” to create something new. Benchmarks are used by carpenters because there are no set measurements for every project; they need to use what has been done before as a guide when making decisions on their projects. In business, benchmarking is a way to compare and better understand how to improve practices based on what other organisations have done in the past.

There are different types of benchmarking:

Competitive benchmarking; which focuses on how your business compares with the competition;
Product benchmarking: which focuses on how to improve products by comparing them to others in the industry;
Operational benchmarking; which looks at performance, efficiency and cost-effectiveness, among other things.

Best practice is a process of studying an organisation or undertaking that has shown itself to be successful in the past and adopting its ideas or methods. Although best practice is widely recognised as useful when it comes to gaining an understanding of what works well elsewhere—and therefore where to start thinking —it can limit organisations in their potential for innovation and creativity. The challenge is that best practice identifies ideas that have been used successfully in past operating contexts. They are a good place to start however not sufficient to drive the level of performance required for sustainable growth in a fast-changing world.

Although benchmarking and best practice provide a good starting point when thinking about delivering impact and future growth, it is important to remember that they don’t always lead to the best results. If companies only look at what other organisations are doing and try to copy them, then it will be difficult to create a competitive advantage, stand out from the crowd and differentiate performance, products, services, and results. Instead, forward-thinking organisations need to do more than just follow others—they need to become more proactive about understanding what they need to do in their world to deliver results over the next 5 to 10 years.

Understanding the difference between luck and performance.

Every organisation, every manager, every situation, is unique. Each organisation operates in a context that is it's own. Its objectives are determined by its mission, its stakeholders, its team, and its products and services. These may be similar to other organisations, but they are never the same.

Benchmarking assumes there is a high correlation between the outputs of one organisation compared to another. As a result, if an organisation sees a result or benchmark it wants to replicate, it believes that it can, with a high degree of accuracy, replicate the result. This is simply not realistic.

Regression to the mean is a statistical term that refers to the natural tendency of extreme outcomes, in a series with complicated variables dependent on several factors, to be followed by more moderate ones. In short, if you measure the average and try and do better than the average, you may get the occasional above-average result, but more often than not, you will get the average result.

Regression in real-world scenarios in which the sole point of comparison is past performance and no control group exists may be challenging, if not impossible, to avoid. Organisations may compare against industry averages, competitors and peers, or historical rates of improvement, but none of these options provide a very accurate picture of what levels of performance might happen next. They are part of the picture, but should not be used as the whole picture.

Typically, benchmarking is used to defend proposed plans and decisions; to persuade the Board and other stakeholders that the strategic intent and operational plans made sense, were effective, were a best practice, and could succeed. The concept of regression to the mean demonstrates that benchmarking can't distinguish between whether the outputs achieved will be a result of luck or skill, and over time, results will trend towards the average.

For forward-looking organisations benchmarking and best practices cannot deliver the planning and decision-making certainty they desire.

The natural desire for certainty.

Leaders want certainty in their decision-making, but it's something that they will never be able to achieve. Using past data to forecast future results is driven by the natural desire for certainty. The executive leader dreams of the ability to extend previous results into future predictions and give certainty and high reliability to planning and decision making. This is a dream that will never be realised, especially in a world full of disruption and change. Generating more and more data and trend information from the past will not secure the ability to accurately predict the future.

In an uncertain world, leaders want to be able to signal their competency by delivering results with more accuracy and greater reliability. The ability to do this does not rest in attempting to use past data to become better at prediction. It more likely rests in improving the ability to be comfortable with working in the space of not knowing.

Working in the space of not knowing.

Research by the World Economic Forum and McKinsey Global Institute (3) posed the question;

"To future-proof citizens’ ability to work, they will require new skills—but which ones?"

They surveyed 18,000 people in 15 countries and found that found the top two self-leadership skills required for future employment were proficiency with “adaptability" and “coping with uncertainty". "Coping with uncertainty" appeared again as the second most required leadership skill for future job satisfaction.

Working in the space of not knowing is not a "head in the sand" approach, rather it is an acceptance that in a constantly changing world there will always be gaps in knowledge. Building a set of tools and capabilities that can respond to a range of scenarios is a more adaptive way to plan and make decisions. Being able to project how your decisions today may play out in 5 to 10 years will strengthen your ability to deliver results.

Organisational resilience is the ability of an organisation to anticipate, withstand and quickly recover from disruptions. Its a way an organisation can maintain or restore its essential functions and deliver reliably in the face of change and adversity. Being comfortable with working in the space of not knowing and having a set of tools and capabilities to deal with a range of futures will support resilience in your organisation.

There are many ways to build organisational resilience including:

Anticipating disruptions and having a plan to deal with them;
Building a culture that supports risk-taking and experimentation;
Having the ability to quickly adapt to change.

Benchmarking and best practice are not entirely supportive of organisational resilience because they don't encourage new thinking or innovation. Instead, they promote the idea that just doing what others are doing is enough to succeed. Some leaders think that using benchmarking and best practice is necessary for being competitive but the reality is that replicating others will most likely result in average performance and not create and sustain a competitive advantage.

Organisational resilience is needed to ensure organisational performance. If leaders want to be successful at leading organisations through a range of futures, then it's important they're prepared for change and can handle disruptions. Forward-thinking leaders need to move away from just doing what others are doing and instead build a set of tools and capabilities that help their organisation embrace uncertainty and not knowing what will happen next head-on.

Getting comfortable with foresight.

The OECD defines foresight as:

"Foresight is a structured and systematic way of using ideas about the future(s) to anticipate and better prepare for change. It is about exploring different plausible futures that could arise, and the opportunities and challenges they could present. We then use those ideas to make better decisions and act now." (4)

Foresight can support planning and decision making for impact and future growth by supporting not-for-profit CEOs and Boards:

To better anticipate possible, probable, and preferred futures;
To offer a greater range of options;
To stress-test current or proposed plans.

Foresight is not about predicting the future. Practitioners avoid the use of the term "the future" as it emphasises a singular possibility. Rather the plural "futures" is preferred as a better description of the multiplicity of scenarios in what might happen next.

The data for foresight is always incomplete and leaders need to become comfortable with planning and decision making that accepts, and even embraces, uncertainty, ambiguity, and change. Planning and decision-making using foresight tools allow for adaptability and resilience across a range of scenarios. It also allows for the fact that by making decisions now we do in fact influence what futures might appear.

To better anticipate possible, probable and preferred futures, not-for-profit CEOs and Boards need to be able to use foresight. This can help them act now by improving their ability to think and plan about what might happen next. Foresight tools and techniques help leaders use ideas and knowledge about what futures could appear. It helps organisations "be ready for what's next" in a methodical way that embraces uncertainty, ambiguity, change and supports adaptability. Foresight supports the delivery of impact and future growth in 5 to 10 years, and beyond.

What tools and techniques will your organisation be using to plan and make decisions for impact and future growth?