Predicting Business Success: Avoiding Benchmark Myopia

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This article is the second in a three-part series of excerpts from Predicting Business Success (SHRM, 2018) by Scott Mondore, Hannah Spell, Matt Betts, and Shane Douthitt.

Part 1: 6 Steps to Becoming a Business Partner

Part 2: Avoiding Benchmark Myopia

Part 3: Using Assessments to Improve Business Impact

It is a typical practice in many industries to be curious about and focus on benchmarks to get an idea of where you stand on a particular score or metric. To be clear, benchmarks are good information to know when examining your performance. But when leaders—particularly in HR—live and die by benchmarks (i.e., base their self-esteem or "assess" organizational performance upon them) and make key decisions based heavily on benchmark performance, this is benchmark myopia. It is time to take a step back and reveal some hard truths about this practice. 

When you stop and think about it, chasing a benchmark is just a pursuit to achieve a somewhat-better-than-average result against a number that may not even reflect a true reality. A benchmark simply reflects your particular vendor's database. Being in the 75th percentile against a weak benchmark databased doesn't exactly inspire much confidence. But for that matter, how do we know that being in the 75th percentile against a strong benchmark database means anything of value? A lot of firms talk about the size of their benchmark databased, but you should ask them the tough questions: "Exactly how big does that database need to be for it to be effective? Exactly how many other data points will help your organization make more money?" No one knows the answer to these questions. So, why chase that number? 

Do you ever think about what the benchmarks actually mean? We do—all the time. On an employee engagement survey, if your engagement score is 4.00 and the benchmark is 4.10—what exactly does that mean? Are you doomed to fail? Is it worth it to invest a lot of time and money to get up to 4.10? What is the business impact of getting to 4.10? If you do, will the clouds open up and money start falling out of the sky? Guess what—no one knows the answer to these questions. So, why chase that number? 

Using the same example from the employee engagement survey, exactly how much higher than the benchmark do you need to be to have a clear competitive advantage? How much lower until you have a competitive disadvantage? No one knows the answer to these questions. So, why chase that number? 

Some of the organizations that we talk to want to be at the 75^th percentile, some want to be at the 90^th, and some want to be at the 99^th. When we ask, "Why is that your target?" their answer is not usually based on any analysis. The response is generally, "That's what the CEO wants." HR leaders need to have a clear business case for creating a benchmark target. One organization told us that they were in the 99^th percentile on their engagement survey, so they were a best-in-class HR function. We asked, "How is the business doing this year?" Their answer was, "Not great." Do you see the disconnect between chasing a number and truly working on business drivers? 

If HR wants to be a real business partner and have meaningful impact in the organization (you've heard us say this in other chapters), then the path should be toward driving business outcomes and not obtaining higher surveys scores. Contrary to what thought leaders say, employee engagement is not a silver bullet that drives actual business results (SMD research shows that it is impactful about 30 percent of the time), and survey scores do not appear on profit-and-loss reports. The answer lies in a few key areas:

• Connect the survey to business outcomes. Yes, you should do employee surveys, but rather than just chase a benchmark, bring in actual business outcome data and uncover which elements of the work environment drive those business outcomes (e.g., sales, productivity, or turnover).
• Improve the outcomes, not benchmarks. Share this analysis with your senior team and every leader in the organization. All focus should be on the question 'What can we work on to drive outcomes?" versus "How can we score higher against the benchmark next year?"
• Be actionable. Provide easily understood reports that are linked to action-planning tools so that leaders can take action without having to be professional statisticians or sift through lengthy reports. Provide simple insights to leaders at all levels based on advanced analytics, which then feed an automated action-planning tool.
• Get a guarantee. Get a survey vendor that guarantees results and not just a bunch of reports. Assessment companies make tons of wild claims about the magical connection between surveys and business outcomes. Those companies should prove those connections and stand behind the claims that their tools impact your results. 

Please visit the SHRMStore to order a copy of Predicting Business Success by Scott Mondore, Hannah Spell, Matt Betts, and Shane Douthitt.