On the meaningless of benchmarks in the digital age...

Via Detecon Consulting

Nov 6, 2016


Do you work in a large company? Then you have beyond any doubt had experience with a restructuring project, perhaps even a number of them (often disguised under such names as “Next Level”, “Transformation”, or similarly lofty terms) – whether because you were directly affected or because the cup of restructuring passed you by.

I would like to share with you in the following my personal experience and observations from innumerable projects in the most widely diversified industries while at the same time discussing the role of consultants in these projects – a daring undertaking admittedly, because I have myself been a member of this profession for more than 20 years.

“Houston, we have a problem”

Restructuring projects are frequently a response to acute crises or situations in which management suddenly realizes one thing: “Something has got to change!” Nor is it at all unusual to find yourself being “driven” – the capital market in particular can crack a merciless whip, from a collapse in sales to a profit warning. These are all possible triggers for restructuring, and they often kick in at the eleventh hour. The knee-jerk response: We need a benchmark! “Where do we stand in comparison with the competition?” This is just as true for in-depth company transformations as for “functional subjects” (such as the reshaping of finance, sales, or marketing divisions).

… what is needed is a “benchmark” ... 25% is always possible ...

That is when the familiar consultant contacts are called in – and they always have, for any subject, a “use case” or, even better, a “benchmark”. The presentation to top management promises as a rule savings potential of 25% to 30% (in what area is really irrelevant) … fantastic! Sign the consulting agreement. And start the project with a flourish.

The conceptualization phase is then a true delight, especially for “top-heavy headquarter functions”; meetings, steering committees, various templates, traffic light reports (that, as a rule, tend to show up as “green” – plenty has been written about the so-called watermelon projects”): these are only some of the elements that make up a “good project”. And, of course, the more partial projects there are, the better, as they diligently send Excel lists and PowerPoint presentations back and forth to one another.

… the potential melts away … or: do not implement, whatever else ...

As the time for the “realization” approaches, however (which means that the promised potential must also be turned into concrete results), the light begins to dawn on everyone: “Somehow, the benchmark didn’t really fit” or “We are somehow different after all.” And the potential melts away … but never mind! The next project is waiting just around the corner.

Side effect: shock-induced paralysis … and just one winner ...

Another side effect – especially from restructuring projects – is that the entire company falls into a state of “shock-induced paralysis”. “How can I secure the best position for myself in the new organization? Am I a political winner or loser?” In extreme cases, genuine fears for survival take over: “Do they mean me with the 25%, or will the cup pass me by because the project is going to fizzle out, anyway?” This is also one of the reasons for the low level of engagement values in companies regularly determined by Gallup. Many employees have been conditioned to “duck your head and let the wave roll over you – the next restructuring will come along in 2 years, anyway, and then everything will make an about-face.” I have been “privileged” to take part in projects in which a decision was made, based on a benchmark from Institute X, to decentralize a division completely – only to see everything centralized again a year and a half later (driven by a change in management and a new benchmark from one and the same institute). The good thing here, however, was that the decision to decentralize one and a half years earlier had never really been implemented – a mad, mad world that is profitable to only one side: namely, the “benchmarking institute” and the consultancy that was part of the driving force behind the comprehensive conceptualization of the decentralization.

Meaninglessness is on the rise ...

This effect is being reinforced. Although many industries were still operating in a fairly stable environment only 15 years ago, we observe rising levels of insecurity and unpredictability about the future. The dominance of digital business models, exponential growth curves, and the simultaneous loss of market entry barriers are completely upsetting the balance of power on markets or even creating completely new markets overnight. The number of so-called black swan events (cf. Nassim Nicholas Taleb) is rising dramatically as the interconnection and interdependency of markets accelerate (not to mention massive political instability) – “Disruption” is the new mantra of successful companies. Paradigms of the “2nd Machine Age” include, for instance, “The winner takes it all,” and continuous change on the markets. And you want to rely on benchmarks as your orientation in this kind of environment? Ultimately, they are nothing more than distillations of past experience (although frequently the recent past) or, at best, the present.

Learning from the past for the future?

This experience, however, simply does not offer any answers to the challenges of the future; indeed, it frequently means repeating the mistakes of the others or (implementation doesn’t happen overnight, after all) taking over a model that functions today for competitors or peers, but that is already obsolete or no longer a good fit at the end of the two-year implementation period.

One frequently observed example of this, in my opinion, is the concept of a “Business Center”. Based on benchmarking (and the desire to lower costs), a decision is made to outsource certain processes to a different (presumably less expensive) location; the potential for cutting costs is enormous (on paper, at any rate). The catch here is frequently this: the original structures cannot be done away with immediately (e.g., headcount reductions in Germany are not possible without enormous expenditures of time and/or money), new systems must be implemented, and there are quality issues at the new location (a lack of language skills, for instance). Moreover, you have put your faith in a benchmark (i.e., others are already doing it like this) and are caught off guard when, after the implementation, the advantage of lower personnel expenses suddenly evaporates because wages in the target country rise. Then, one year later, you discover as well that many of the activities could easily be replaced by automated processes or robots – and headquarters are better suited for managing this situation after all. If worse comes to worst, you have redundant mirroring of the activities, and more than just once – an insatiable black hole consuming efficiency and productivity at a ferocious rate. The beneficiaries of all the action – see above.

Appeal to assume more responsibility on your own and to have the courage to blaze new paths ...

Just imagine for a moment that you decide to go without benchmarking and “tap” a different source, one that is much less expensive (yet more competent): your employees! And just run through some new models in your head. What would happen, for instance, if you cut out headcount reduction programs completely in the coming years (here in Germany, they frequently achieve little besides costing a lot of money and reducing productivity – just think about severance packages, a toxic atmosphere in the company, support from consultants, and all the rest)? Or how about involving your customers in this process (cue: customer centricity)?

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