The benchmarking advantage: A benefit management tool

In any business you have to know where you are, before you know where you are going.

Competitive benefit plans can be attraction and retention tools. So, given today’s highly competitive environment, organizations are constantly faced with having to review their benefits program. Invariably questions arise: “where do I begin?” and “how can I be sure of the validity of the data reviewed or that it is truly representative?”

Human resource professionals want to be confident that any benefit design change arising out of analysis conforms to standard practices, or that any benefit changes that deviate from the standards will be perceived as leading edge in the marketplace.

While several methods exist for determining which benefit practices exist in other organizations, including relying on personal knowledge and experiences or reviews of current journals, these tend to be more anecdotal than objective. The best practice in undertaking benefit reviews is to benchmark — it is the most preferred and effective means for comparing the plans of one organization with those of other organizations.

Benchmarking is a continuous, systematic means for assessing and improving the products, services or processes of an organization through comparisons with other organizations. The results can give information upon which strategic and tactical planning can be formed.

By appreciating what others are doing to meet new competitive conditions, organizational options increase and become clearer. New ideas can emerge from a benchmarking project to enhance creativity and innovation.

Finally, benchmarking provides comparative information on products, services and processes to improve organizational competitiveness.

Several obvious reasons exist for performing an employee benefits benchmarking project, including the:

•ability to measure the external competitiveness of your benefits program in your industry, or against a peer group;

•recognition of emerging trends in the benefit environment;

•provision of information for implementing benefit plan changes;

•communication of ranking and value of benefit programs;

•assistance of determining the comparability of benefits in a merger or acquisition;

•evaluation of current benefits in order to implement cost saving measures; and

•understanding of various reward elements in a compensation program.

Benchmarking is a complex process usually undertaken on an employer’s behalf by a third party, although an HR department can choose to conduct one itself. Here’s what it looks like.

In Figure 1 (see CHRR page G15), a model of a generic benchmarking process is presented.

Decide the benchmark target: While most aspects of an organization can be the subjects of benchmarking, usually products, services or processes are chosen. For example, perhaps a company wants to know how other supplementary medical plans are set up as a prelude to a plan redesign. It is important to note that the scope of the project cannot be so large that it becomes unmanageable, or so small that it is meaningless.

Prepare a plan: Many times in benchmarking, the planning aspects are not adequately managed. Sufficient time, resources and money have to be allocated to make the project viable. Knowing who is doing what and when is a critical requirement before launching the project. A benchmark project team helps to manage the project, generate diverse ideas and distribute the workload. A communication strategy is an important part of the planning process to ensure understanding and acceptance by managers, employees and other stakeholders.

Identify comparitors: Considerable thought must be devoted to identifying organizations as comparisons or comparitors. Ideally, a comparitor should be recognized as a leader in the area being benchmarked or in the industry. (This notion is adjusted if a broad understanding of an issue is desired rather than best practices.)

Although internal sources of the company may know many potential comparitors, external sources should also be considered, such as trade associations. In addition, depending on the benchmarking subject, searches for comparitors need not be limited to a single industry or geographic region.

Information collection: Once the comparitors have been identified, data are collected. The selection of data collection method is contingent upon the purpose of the benchmarking effort, the complexity of the issue, and the number of comparitors being included. Some of the more common approaches are:

•Record and data reviews involve gleaning information from existing documents and databases. A lot of detailed information may be available but tend to be a labour intensive and expensive process with the additional hazard of the information possibly not being current.

•Interviews are held with a key person or a few people of a comparitor either in person or by telephone. A considerable amount of information may be found on a focused topic in a reasonable amount of time and at a moderate cost, but usually involves only few information sources and requires highly skilled interviewers.

•Focus groups entail organizing batches of comparitor executives or their employees in a semi-structured, dynamic format. A substantial amount of information can be gathered on a particular topic in a reasonable time and at a moderate cost, but usually involves a small number of information sources and requires highly skilled facilitators.

•Surveys are conducted using structured questionnaire in paper, telephone or Web formats. A reasonable amount of information is collected on a narrow topic in a short time at a comparatively inexpensive cost with a large number of sources, but usually requires skilled researchers to design the survey and analyze the data.

Analysis and reporting: After the data are gathered, meaning and potential applications are obtained through statistical and practical analyses. A common pitfall in benefits benchmarking is the lack of a valuation methodology to properly measure and compare the value of employee benefits.

Use of a company’s demographic workforce in a benchmark study can provide a more complete and relevant comparison. All of the information and any implications or recommendations should be clear, concise and summarized in a report to the organization’s executives for assessment, discussion and decision-making.

Take action: The last, but possibly most critical, step requires that some action be taken because of the benchmarking effort. If nothing is done, the money, time and resources will have been wasted. More importantly, however, an important opportunity to improve the organization would have been missed.

Although some organizations possess the resources, most companies lack the people, time, systems, and expertise necessary to undertake a complete benchmarking project. Hence, many firms opt to use external vendors or consultants for their benchmarking needs.

Several consulting firms have established specialized benchmarking services for their clients, which reduce the time and effort required for a customized project by eliminating the planning, comparitor selection, data collection and analysis phases.

To remain highly competitive, organizations require significant amounts of current, relevant and accurate information. Benchmarking provides a good starting point for gaining the information and insights for effective decision-making.

Nevertheless, a benchmarking project should not be entered into without understanding the complexity involved and the resources required. Although significant savings in time and money can be achieved through standardized surveys, customized benchmarking may be needed to answer specific benefits-related issues or to match against a specific set of comparitors.

HR and benefits professionals must be familiar with the process if they hope to understand benchmarking results and apply the lessons for organizational and benefit plan improvement.

Owen Parker and Nick Kovacs are managers with Watson Wyatt Worldwide’s Canadian Research & Information Centre. They can be reached at 1-800-206-5723.

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