The old adage, ‘you can only improve what you can measure’ has led to undesirable side effects when it comes to employee engagement. One of the biggest problems is the continued use of external benchmarks. These shouldn’t be confused with internal benchmarks, where you track progress against your own results – over time and against internal best practices.
Perceived as an effective guide for highlighting what companies are doing well, as well as where they can improve, external benchmarking does present real disadvantages, especially when it comes to accurately measuring employee engagement. In this blog, we take a look at what external benchmarking entails before delving into the concerns that companies should consider.
Why do companies use external benchmarking?
There are five reasons companies use external benchmarks, in a process that is normally managed by an external HR consultancy. The reasons are:
- Management doesn’t know what good or bad looks like
- They are easy to understand and comprehend
- They are supposed to provide direct comparators with your competition
- They allow companies to align their efforts so they don’t over-spend on follow-up actions
- They enable companies to track and see what improvements they are making over time
What benefits does external benchmarking offer?
Let’s delve into the benefits of external benchmarking, especially for consultancies:
- Once external benchmarks have been adopted, a consultancy can lock clients in for years to come
- This benchmarking greatly reduces the consultancy’s work – but they only work if a constant set of questions is used
- Vendors can fine-tune their marketing materials and messaging about their best practice approach – this entails guarding their benchmarking data closely, which means it’s rarely open to external scrutiny!
External benchmarking makes it easy to analyse survey results. Any variations to benchmarks will inevitably become focus areas for follow-up actions.
How are external benchmarks created?
So, how are these benchmarks compiled in the first place? The three main approaches to external benchmarking are outlined below:
1. Multi-company comparison
Larger consultancies have a lot of data available from the work they do with other customers. From there, they take the key comparable questions from across all their client data, segment, and anonymise it. Et voila – you have your benchmarks.
In reality, good-quality external benchmarks are a bit more complex as they need to be segmented by sector and region, and the data used should be as fresh as possible.
2. Representative sample surveys of competitors
A second approach to external benchmarking is to do a representative sample survey with a company’s competitors, using the same questions as the client. This typically targets 1,000-2,500 respondents from competitors to create the benchmarks. Some vendors may argue that they have higher sample sizes, the largest benchmark database, or the freshest data. However, the principle behind the benchmarks remains the same.
3. External benchmarking against ‘best in class’
Many vendors tell you which companies are ‘best in class’ and explain that you should aspire to achieve similar results. Some will even give out prizes to those companies who have achieved or exceeded targets, or have improved their results most. However, it’s a fact that 100% accurate benchmark data does not exist. Though vendors will argue that it doesn’t need to be 100% accurate, because external benchmarks are meant to serve as a guide – highlighting where you are doing well or need to improve.
The disadvantages of external benchmarking
Let’s look at the price you pay for this level of apparent comfort. Here are three main issues with external benchmarking:
1. General, not individual questions
WIth external benchmarking, you have to largely adopt a ‘one-size-fits-all’ approach, rather than tailoring and fine-tuning a questionnaire to your company’s specific situation and need. For example, questions about whether your employees understand, and are aligned with, your strategic objectives can only be asked in general terms, rather than relating directly to your business.
2. Implied assumptions
External benchmarking makes a number of suppositions:
- It assumes comparability between jobs and companies. The external benchmarking process originally grew out of salary comparisons of jobs that were essentially interchangeable between companies. Cultures were similar and benchmarks were divided by job type (such as manual or clerical). It assumes the ability to “match” companies with each other. However, once you take into account factors such as historical, recent or current events that impact an individual company and its market position and regional differences, accurate external benchmarking is pretty much impossible.
- It assumes the availability of robust and consistent data – which is a problem in many parts of the world.
- It’s well known that a majority of organisations benchmark above the 50th percentile, which inevitably encourages a score spiral. After a couple of years of external benchmarking, companies tend to all gather around a specific percentile with no real pointers on how to move forward from it.
- External ‘noise’ factors such as global or regional events, legislation or crises influence the results considerably. Therefore, to be accurate, external benchmark data needs to be as fresh as the information it’s being used with.
- It supposes that all organisations are pursuing the same strategy with similar resources.
- Achieving results just below or above the benchmark tends to lead to a morphine effect. There is an initial feeling of warmth and comfort, which quickly turns into an oblivious lethargy, as there seems to be no need for further action or improvement.
You can only operate and grow within your own internal boundaries – so focusing on what someone else is doing may not be right for you.
3. Gaming the system
The biggest problem with using external benchmarks is that they condense the results to a comparable/benchmark-able score. If reaching or exceeding this score is also subject to monetary incentives, you have the perfect recipe for driving the wrong sort of behaviour amongst managers! It’s not hard to manipulate your team to give better scores. As managers know when the survey is coming, they learn very quickly which behaviours are needed over the short term to persuade staff to give better ratings.
Essentially you see Goodhart’s law in operation. Named after economist Charles Goodhart, this states: “When a measure becomes a target, it ceases to be a good measure.”
That’s exactly what seems to be happening with external employee engagement benchmarking. The focus on targets means that many companies have lost sight of what employee engagement actually is and why it’s important to them.
Employee engagement isn’t just a numbers game. You need to ask yourself the question, “how many business improvements have we achieved as a result of decisions that were driven by our external benchmarking?” There may have been lots in the first couple of years when you identified some black spots and fixed them, but after three years of benchmark focus – what value are you really getting?
Summary: The way forward for benchmarking
You don’t need to throw the baby out with the bath water and abandon all external comparators. There is nothing wrong with tracking key driver questions, such as Employer NPS, Intention to Stay or similar. The key is to ensure that you get real insight from your data and ask questions which are both relevant to your employees and to your business’ current situation, strategy and objectives. Ultimately, it’s behaviour which makes the difference and not scores on a page.
External benchmarking has nothing to do with creating real engagement or sustainable improvements or changing organisational culture for the better. You cannot get the insights you need to carry out meaningful actions that will improve the workplace, increase productivity, or entice your workforce to go the extra mile. Essentially, it’s deliberately dumbed-down to ensure compatibility and largely follows a one-size-fits-all approach. What incentives are there for managers who achieve their score targets to do anything different, embrace innovation, or make changes to meet the generational demands of their workforce?
This approach breeds mediocrity. If you’re happy to train your managers to adopt short-term measures and avoid challenging management tasks, rather than giving your employees a real voice in driving your business forward, external benchmarking is your option. But if you want to increase engagement and make feedback central to business change at all levels, look beyond external benchmarking to internal metrics that focus on your company and its specific challenges, objectives and needs.
Tivian has a suite of software solutions for HR teams to help employers to gain meaningful data from their people. Explore our employee experience tools to see how our technology can support your efforts to measure and improve your employee experience initiatives.
This blog was first published on HR Zone on 17th June, 2015, and was updated on 25th June, 2022.