Human Captial

Be careful of only using benchmarking to size an organisation

Be careful of only using benchmarking to size an organisation
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Optimising a business so that it is correctly sized, its people are fully occupied and able to meet its commitments and outputs can be achieved by a combination of methods being applied to cross-validate results. One of the most common methods in use is benchmarking, says Deloitte.

So says Stefan Schmikal, Human Capital Lead at Deloitte, who stresses that benchmarking, in conjunction with other methods (such as capacity modelling or strategic workforce planning) can be used to get business sizing right, especially when the business environment is challenging due to economic and other factors.

“Benchmarking is the most common method used for organisational sizing and is also widely used to measure other aspects of organisational performance. The logic behind benchmarking is straightforward. If two or more organisations are comparable by size, industry or performance, then the number of employees they have, should indicate to a benchmarking company how many people it needs.”

Within this commonly accepted business truth, however, are other things that have to be considered, says Schmikal, These include:

  • Selecting a peer group of other organisations that is based on relevant dimensions. This should be linked back to the intent of the organisation sizing exercise;
  • Sourcing the information on similar organisations;
  • If benchmarking reports obtained have marked variables, normalising results so that they ‘speak to each other’.

Selecting a peer group effectively means that there should be a match in what the focus of the exercise is. If the intent is to increase efficiency, then the peer group should be companies that are seen to be more efficient.

Benchmarks are widely available from the internet or from consultants who specialise in organisation sizing. Popular sources are research organisations that publish sizing benchmarks specific to areas of expertise - Garter and Hackett, is a good example. Another source of research is professional services firms, including Deloitte, who conduct comprehensive benchmarking exercises for clients.

Once benchmark reports have been sourced, the variables emerging have to be interpreted to provide meaningful insights around how many people you may need. Factors such as organisational structure, the extent of outsourcing and local factors may need to be taken into account, resulting in certain benchmarks being adjusted or having a different weighting.

The benefits of benchmarking are that, because of its popularity as a business tool, there is a great deal of data available and it is relatively easy and inexpensive to manage if only a high-level and indicative sizing is required.

“The inherent weakness of using benchmarking for sizing arises from the assumption that people can be quantitatively compared to each other. This, however, is not necessarily true. There are simply too many factors that have to be taken into account, such as culture, processes maturity and levels of systems enablement, amongst others, that have to be taken into account. It is easy to find benchmarks which support, or refute, a view.

"Benchmarks are therefore most successful if they are applied in support of more rigorous methods, or if the expectation of the organisation sizing exercise is merely to provide a ‘ballpark’ level of accuracy. If the answer needed has to be more precise, it may be wiser to use another sizing approach as the primary methodology,” says Schmikal.

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