Should You use Industry Benchmarks for internal KPIs?
As an investor, I can see some benefits to corporate benchmarking.
I get to see where a company sits relative to its peers on metrics that I care about like returns on invested capital or inventory turnover. I can then use these as heuristics for where best to invest my money.
But to use industry benchmarks as your own internal KPIs?
Don't do it.
First, every company is different, with different products and services, processes, technologies, cultures and histories—all of which play into company service levels in a particular category.
Second—and more importantly—measuring your progress relative to another company will not lead to long-term strategic gains over your competition.
At the end of the day, you don’t want to just keep up with the competition, nor do you want to instill a “just keep up” mentality with your people. You want to beat the competition by instilling a continuous improvement culture where everyone feels their ideas can become part of the solution.
Instead, set audacious yet attainable goals based on current company performance. Then systematically raise the bar once those goals get met.
While a subtle difference, it is one that pays profound dividends to company culture. And that’s hard to stop and hard to replicate.