People must have targets against which to judge the metrics. If your supervisor gives you a grade of 8, is that good or bad? You can't know until you know whether higher is better or worse, and whether that was 8 out of 10 or out of 100.

Thus, the metrics system includes benchmarks, i.e., target levels for metrics. Benchmarks are the "green range" on the dial, defining what "good" means on a specific metric.

Focus on Outcomes, Not Processes

If benchmarks compare you to other organizations, they should be limited to outcomes, not processes or "best practices." Other companies' solutions to familiar symptoms may work well for them, but may fail to address the root causes of your problems. Indeed, mimicking others can create as many problems as it solves if their solutions don't fit into your environment.

As Good As Others Isn't Good Enough

Benchmarks should define the ideal, not just what others have achieved. Targets phrased in terms like "as good as others" constrain people's vision to other companies' current levels of performance. They certainly won't lead to thinking creatively about what's possible or to leap-frogging the competition.

Cost Benchmarks

The best kind of cost benchmarks are fully burdened rates (unit costs). They answer the question, "Like for like, can we buy it cheaper than it costs us to make it?"

Benchmarking of rates is far more accurate than high-level cost towers, or percentages of revenues. Consider this: What if your costs are higher than your peers in your industry? Is that because you're inefficient? Or is it because your strategy or the nature of your business forces you to pay more (such as higher telecommunications costs because you've chosen to globalize your workforce)? Or could it be because you're making more extensive use of a service to gain strategic advantages (such as those at the leading edge of digital business who spend more than peers on IT)?

With high-level industry comparisons of spending, there's no way to know whether spending more than peers is bad or good.

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