Benchmarking and the power of facts, data and numbers

My mantra in decision making is: «Numbers aren’t everything, true. But without numbers, everything is nothing.» Let me try to explain why.

Numbers have always fascinated me. That’s because numbers don’t lie (and this next point is important) ifwe agree on their definition and their relevance (otherwise, we shouldn’t measure it). As an example: If we agree that the KPI “cash flow” (the difference between income and expenses) is an important metric for business, then an outcome of a 10% increase or a 10% decline in cash flow compared to the previous year is a true and relevant fact, no discussion necessary.

  • The first crux of the matter lies in the interpretation, the conclusion, and the measures taken as a result. If the factual number leads to the right discussion and supports decision making, then we reach fact- or evidence-based decisions, which is the strongest and best possible way to inspire trust in them.
  • The second crux is the context. Does a decline or an increase of 10% in cash flow signify good or bad performance? In an industry that dwindled by 20%, a 10% dip in cash flow might indicate better management performance than an increase of 10% in an industry that grew by 20%. What other factors need to be considered? Maybe there was a significant change in marketing spend or a disruption in the supply chain during one of the periods. Here too, these are healthy discussions that yield valuable learning points.
  • Which leads us to the third crux: human interaction and the game of shame and blame which, for someone from the back office who’s addressing the front-end business operations, is a veritable minefield. Unless you’ve built good relations and trust over time, it is difficult to put the «why» question on the table without drifting into this game. Avoiding it demands impeccable communication skills and understanding from both sides.

Rather than trying to turn the entire finance and controlling staff into brilliantly emphatic communicators, why not achieve this with number sharing? Benchmarking is a process that provides the business with the data it needs to compare relevant metrics to the previous year, to peers (such as other stores in the same retail network, with the industry average, and with competitors (in industries where data is available),and – contrary to the shame and blame game – finance and controlling can support with interpretation, where needed. This leads to much more fruitful discussions and learnings.

In my experience, benchmarking is one of the most exciting and powerful management tools. Finance shows trust in its businesses by sharing data, it helps people interpret it, and fosters good dialogue. But the main reason benchmarking is so powerful I believe has to do with human nature. Nobody likes to be at the bottom of a ranking, everybody naturally wants to climb the ladder, most people are proud and eager to share best practices when asked by a peer, and no analysis and conclusion is as strong as the one you made yourself!

A friend of mine who is a money market analyst and macro-economist told me that his dream was to make data speak in order to improve decision making throughout the world, not just in business. Until this vision becomes reality, the onus of listening to the data is on us, and benchmarking relevant data is, in my opinion, the best way to make data heard.