The Power Of Benchmarking - Corporate Citizenship
The Power of BenchmarkingHarnessing data for performance in corporateresponsibility and sustainabilityThe Power of Benchmarking 2014 Corporate CitizenshipPage 1
Page 2 Corporate Citizenship 2014 The Power of Benchmarking
ContentsIntroduction.2Benchmarking defined.2The value for business.3Five aims of benchmarking.5Benchmarking best practice .6Conclusion.12The Power of Benchmarking 2014 Corporate CitizenshipPage 1
IntroductionThe business world is driven by data. In the economyand society we use numbers to understand what hashappened in the past, and forecast what might occur inthe future. Investment decisions are guided by financialdata. Consumer purchasing choices are informed byinformation on price and quality. Even the drugs thatdoctors can prescribe have been the subject of detailednumber crunching to set the price of the medicine andassess drug efficacy.In the world of corporate responsibility (CR) andsustainability, data is crucial to understanding andimproving company performance. It is also vital toexplain to stakeholders how the company compares interms of best in class performance and other measures.Issues range from understanding how your companycontributes to employment across the value chainto measuring the impact of community investmentprogrammes. The modern CR practitioner simplycouldn’t do their job without high quality, reliable data.But data in isolation is meaningless. We need to comparethat data to something. Past performance in yourown organisation sets a base line which is essentialfor monitoring progress. But real value stems fromcomparisons with the wider world. Is your performanceworld-class? Are you lagging behind the pack of peersand best practice companies on a particular issue?Comparing CR and sustainability metrics with a widerset of companies is fundamental to understanding notjust your current performance in context, but also yourfuture potential. In addition, a company’s economic,social and environmental performance needs to beevaluated against norms, laws and standards set bysociety. They act as the external benchmark by which acompany’s behaviour is judged.Benchmarking definedBenchmarking is an objective evaluation, based on cleardefinitions and metrics, that compares performanceagainst a specific norm, standard or group of companies.It is most popular as a means of assessment to reviewa company’s performance in the context of peersand best practice companies. Internally, this can driveimprovements, create a sense of competition and inspirefresh ideas. For example, if a competitor has madesignificant progress to eliminate conflict minerals from itssupply chain, they might be using a novel approach fromwhich you could learn. Externally, it can show stakeholdershow the company compares with others and what progressit is making to address an issue. If your own corporateresponsibility strategy is world class, then your externalrecognition through ratings, standards, and awards shouldcompare favourably with direct competitors as well as awider set of best practice companies.There are countless different types of benchmarking:financial benchmarking compares the financialcompetiveness of companies; process benchmarking1reviews how business procedures are carried out;benchmarking against a standard sets a minimumperformance level to be met. This paper looks atperformance benchmarking in a corporate responsibilityand sustainability context. Performance benchmarkingassesses how a company manages or addresses aparticular issue in comparison to a set of companies orstandards. This can be quantitative, such as comparingthe amount of water used to create a unit of product, orqualitative, such as comparing supplier sourcing schemes.The ability to benchmark in the field of CR hasbeen greatly helped by the increasing number,and standardisation of, sustainability reporting.Approximately 95% of the Global 250 issue sustainabilityreports and organisations like Global Reporting Initiativeand Sustainability Accounting Standards Board havebeen working to standardise reported information.1This trend not only tells external stakeholders what ishappening within the company’s sustainability strategy,but also allows companies to compare performance justas they do in other aspects of the business.Value of Sustainability Reporting, Ernst & Young (2013)Page 2 Corporate Citizenship 2014 The Power of Benchmarking
CASE STUDYCORPORATE CITIZENSHIPBENCHMARKINGSERVICEGender equality at the management levellargest banks with the lowest percentage of women on theboard have headquarters in China. In contrast, companies withheadquarters in France accounted for three of the four banks withthe highest percentage. This trend can be partially attributed tolegislation in France that requires large companies to reserve at least40% of boardroom positions for women by 2017.*There has been growing pressure from stakeholders in recent yearsfor companies to increase diversity on the board of directors. Whilethe largest 15 global banks are all multinational corporations, thepercentage of women on the board of directors varies significantlyby country. Many of the company boards are comprised of between20% and 30% women. Four of the fivePERCENTAGE OF WOMEN ON BOARD OF DIRECTORS AT GLOBAL BANKS%Percentage of JPChMaConstructBa ionnCh nkase&CoBaInnkduofstChriainl&aBa Comnk mof erCh ciain laBa Agnk ricuof ltCh urain rgolsibWelParSoCrciBNétéPGénéralas0Methodology Note: The sample size includes the largest 15 banks listedon the Fortune Global 500 list ranked by revenues for 2014.China*Reuters (2011) France sets quota for women on big companies’ boards.The value for businessFirst and foremost, benchmarking allows businesses tolearn from one another and make smarter decisions.By evaluating performance against peers or a standard,companies are able to drive incremental improvementsacross the business and increase productivity.Pioneered by quality management expert W. EdwardsDeming, recent research has shown that qualitybenchmarking improves performance in fields as diverseas manufacturing processes, corporate governance,health and safety, diversity and supply chain integrity.2Critical analysis of data gathered can also point to futuretrends and help companies stay abreast of and even getahead of peers.2Benchmarking can be used publically to defend fromattack by critics or underpin claims that companieswant to make. For example, companies with large supplychains in developing countries increasingly need todemonstrate that their raw materials and manufacturedproducts are produced with integrity. These businesseshave found it critical to benchmark supplier labourpractices, such as the right to trade union membershipand the elimination of child and forced labour, againstinternational standards as well as local laws and norms.The UN Universal Declaration of Human Rights hasprovided a standard against which business behaviourcan be judged.Out of the Crisis: Quality, Productivity and Competitive Position, William Edward Deming (1986)The Power of Benchmarking 2014 Corporate CitizenshipPage 3
Benchmarking assessments can be of particular value toCR and sustainability executives working in companies.Understanding how you compare on a particularissue can inform decision making and strengthencommunication channels with internal and externalstakeholders.There are two main advantages for the CR practitioner togain from a robust benchmark:1The case can be made that the company needs to domore to achieve best practice standards in a certainarea. For example, if it can be shown that your suppliercode of conduct is missing several elements viewedas best practice by supply chain experts, the case canneatly be constructed that it may be time to updateyour code of conduct to align with best practice.2Secondly, accurate benchmarked data can backup claims of leadership. This is particularly useful incases we have seen where the company either wantsto make a claim of superiority, or when performancein under attack from external stakeholders. Forexample, if the proportion of union membership inyour business is significantly higher than the nationalaverage in every country of operation, the data mightsupport the case against accusations of being antiorganised labor.Bad benchmarkingBenchmarking has its limitations. Whilst goodbenchmarking is about performance andbest practice, bad benchmarking can lead tomediocrity. Bad benchmarking is using datato justify average performance, rather thanchallenging and driving improvements. This usuallystems from selecting the wrong comparisongroup. Simply because others are performingat a particular level, does not mean this is thelevel at which you should perform. If your entireindustry does not address the issue of a livingwage, this does not mean that your compensationphilosophy is necessarily a good one.In addition to justifying mediocre performance,bad benchmarking can stifle innovation. While youmay have a set peer comparison group within yoursector, individual companies and industries excel indifferent areas. Companies that gain the most valuefrom a benchmark often think outside the box andlook to borrow ideas from others sectors by askingwho is the best at a particular issue and what are theydoing differently? For example, Southwest Airlinessought to improve its on time performance. Instead ofbenchmarking against other airlines, the company lookedto NASCAR where pit crews quickly and efficiently gettheir race cars back on the track as source of innovation.CASE STUDYCORPORATE CITIZENSHIPBENCHMARKINGSERVICEWorkers’ rights in the supply chainAGRICULTURAL WORKERS’ RIGHTS SCORE98Company arMMneDano-ColaBr Asiti sosh ciFo ateod dsstcaCoNeSource: The scores are taken from the Oxfam’s February 2014 Behind the Brands survey.GoodPage 4lé0UnileverCompanies often feature in external surveys thatevaluate performance against peers. One suchsurvey, Oxfam’s Behind the Brands, assess theagricultural sourcing policies of the 10 largestfood companies across seven dimensions. In theagricultural workers dimension, the highest scoreawarded was 7 out of 10. Oxfam suggests that all thecompanies assessed can do more to support workerrights. At this stage, most companies have recognisedinternational labour standards and committed toending child labour. Leaders have taken an additionalstep to draft commitments to support workers rights.For example, Unilever has committed to developinga framework for fair compensation. However, Oxfamhighlights that progress still needs to be made inimproving pay conditionsFairSome progressPoorVery poor Corporate Citizenship 2014 The Power of Benchmarking
CASE STUDYCORPORATE CITIZENSHIPBENCHMARKINGSERVICEAffordability of products in developing countriesIt is often difficult to find publically verified benchmarksto indicate companies are selling products at a fair andaffordable price to local consumers. In this example, Unileverhas overcome this hurdle by creating its own benchmark thatcompares the price of toothpaste in four countries to the costof six eggs. The chart demonstrates that in India and Indonesiaa tube of toothpaste costs, at most, half the price of six eggs. InNigeria and the Philippines, the cost drops even further. Whilenot a scientific analysis, this comparison helps develop a generalunderstanding of the company in society in the absence of aproper Consumer Price Index.COST OF TOOTHPASTE IN FOUR COUNTRIES(% OF PRICE OF 6 urce: 2006 Unilever Sustainable Development ReportFive aims of benchmarkingBenchmarking can offer a fresh take on an issue and yield critical insights to enhanceperformance. But before diving into detailed data analysis, it is important to set out what youwant to achieve. Here are five potential aims:1.Identify a position in the peer group: To understand overall performance, take stock of how you compare.How does my performance compare on my priority areas? Is my recent drop in performance still within typicalindustry practices?2.Inform strategy development: To recognise areas of strength, opportunities to differentiate, keyvulnerabilities and potential performance gaps. In which areas do I lag behind my peers? Where can Idistinguish myself as a leader?3.Determine best practice elements and set targets: To set sustainability targets and inspire action, examinethe actions of best in class companies, the performance of innovative leaders, and the highest standardswithin an industry and across industries. How does my performance compare to world-class standards? To whatdegree have leading companies outside of my sector improved their performance?4.Understand trends over time: To track how the market is moving on a key issue, review available data overthe past years and analyse for trends. Has the variation among companies decreased? Has overall sectorperformance improved? Has an improvement programme been successful?5.Communicate performance to external stakeholders: To build a constructive dialogue with allies, partnersand even critics, make the findings from a benchmark public. A narrative should accompany any benchmarkthat sets performance in context.The Power of Benchmarking 2014 Corporate CitizenshipPage 5
Benchmarking best practiceA clear process is needed to identify the right metrics and to transform the availabledata into valuable insights. We recommend using a five step process:1Identify objectives:Pinpoint exactly whatyou aim to achieve. Prioritisegaps in current knowledgeand issues of high concern tostakeholders. See “Five Aimsof Benchmarking”.2Select the comparisongroup: Identify a peergroup that aligns with yourobjectives. Comparisons canbe made to peer companiesor best in class performers.Consider factors such asindustry and geography. Awide range of companies inthe comparison group canhelp to evaluate your placein the industry landscape.Leaders, often outside ofyour industry, provide thenecessary challenge andinspiration for improvement.3Define specified keyquestions: Selectquestions that supportthe objectives. Ensure thequestions are specific,available and comparable.Consider any relevantlaws, standards, or normsto qualitatively evaluateperformance among thecomparison group. Useclear metrics to understandhow companies compareon quantitative criteria. Forexample, under workplacediversity, are you interested inthe percentage of women inleadership or the percentageof the workforce comprisedof the local population?These small differences canyield major divergences indatasets.4Collect and analyseinformation: Collectthe data for the comparisongroup. If the data isquantitative, normalisethis for comparison andadjust the variables to seewhat different results arise.Analyse the information tomake comparisons acrossthe group.CASE STUDY5Take action: Shareyour findings to therelevant parties. Reviewyour objectives and identifyhow to engage others tofurther these objectives. Toimprove internal processes,approach the relevantdepartment with yourconclusions. To respondto stakeholder concerns,release a statement on theissue. Above all, don’t let thebenchmark just sit on a shelfor in your inbox: take actionto improve performance.CORPORATE CITIZENSHIPBENCHMARKINGSERVICEWater intensity at beverage companiesWhile most of the group requires around 4 litres ofwater to produce one litre of product, Coca-Colauses approximately half as much water. Some of thedifferences in water use can be attributable to the typesof beverages produced which range from soft drinks andteas to beer and spirits.The largest beverage companies across the globe all have strongcommitments to reduce the water used per litre of productproduced. Evidence suggests that they are acting on thesecommitments. Between 2010 and 2012, the group reducedwater use per litre of product produced by an average of 8%,with Anheuser-Busch achieving a 12% reduction over this period.Litres of water used per litre of product producedWATER CONSUMPTION AT GLOBAL BEVERAGE o2012201020112012HeinekenMethodology Note: The sample size includes five of the six largest beverage companies listed on the ForbesGlobal 250 list. PepsiCo was included in the sample group but does not publish this information.Page 6 Corporate Citizenship 2014 The Power of Benchmarking
CASE STUDYCORPORATE CITIZENSHIPBENCHMARKINGSERVICEResource allocation in community investmentcompanies made significant in-kind contributions, through probono services and product donations respectively. Employee timewas highest among professional services, travel and hospitality, andproperty and construction industries. These differences reflect thevariety of resources available to each sector. There is no set bestpractice breakdown of type of contribution. Rather, companiesshould leverage the resources available that enable them to meettheir community objectives.Managed by Corporate Citizenship, LBG is the internationallyrecognised standard for measuring corporate communityinvestment. Member companies use the network to learn fromand benchmark performance against peers. In 2013, the typeof contribution varied significantly by sector. Industrial sectors,including natural resources, engineering and manufacturing,invested in their community almost exclusively through cashcontributions. In contrast, legal and pharmaceuticalBREAKDOWN OF COMMUNITY INVESTMENT BY TYPE OF CONTRIBUTIONConsumer GoodsCash – monetarysupportEngineering and ManufacturingTime – cost to thecompany of paidworking hourscontributed byemployeesFinancial ServicesFood and DrinkLegalIn-kind – other noncash resources ofproduct , property orservicesMediaNatural ResourcesPharmaceuticalManagement costs– programme staffsalaries , overheadand research andcommunicationsProfessional ServicesProperty, Constr’n, Housing & FacilitiesRetailTravel and HospitalityTechnology and TelecomsUtilities and ServicesAll LBG member e of total contributionConclusionThe end goal of benchmarking is not a benchmark.The real benefit stems from understanding the marketand identifying how to improve performance anddevelop new ideas.benchmarking is best thought of as a first step. Afterinterpreting the data, it’s the action that follows thatreally differentiates companies.Benchmarking can have its limitations. It cannotprovide all the answers. There is often the temptationto look for a single right answer – the underlyingexplanation for performance differences cansometimes be complex. Most data only makessense when understood in context, for example,where aggressive target-setting has driven superiorperformance for an organisation. For this reason,“The real benefit stems fromunderstanding the marketand identifying how toimprove performanceand develop new ideas.”The Power of Benchmarking 2014 Corporate CitizenshipPage 7
Illustrative Quantitative Benchmarking CriteriaThe table outlines common quantitative indicatorsthat can be benchmarked in the field of corporateresponsibility and sustainability. This list is just thebeginning.ECONOMICEach benchmark assessment should be customisedto include the qualitative information that is criticalto better understand performance in context andidentify actions going forward.ETHICS Number of ethics breaches reported to ethics Spend on local procurementhotline Tax contribution by country Direct economic value generated and distributed: Number of incidents of non-compliancewith regulations and voluntary codes around– Employee wages and benefitsmarketing– Tax contributions to local governments Value and breakdown of political contributions Ratio of annual total compensation for the highestpaid individual in each country of significantoperations to the median employee salary in thatcountryENVIRONMENT Weight or volume of materials used Percentage of recycled inputs materials used tomanufacture products Total energy consumption Total fuel consumption from renewable and nonrenewable resources Total energy consumed Energy requirements of sold products or services Total volume of water withdrawn by source Total volume of water recycled or reused Tonnes of greenhouse gas emissions, includedScopes 1, 2, and 3 Tonnes of NOx, SOx, ozone depleting substanceemissions Volume of water discharged by quality anddestination Breakdown of total weight of waste generated bydisposal method Total volume of significant spills Number of grievances reported related to theenvironmental impactsPage 8SOCIAL Gender breakdown of employees byemployment type, management level and region Employee turnover by age group, gender, andregion Percentage of managers local to the country ofoperations Value of investment in communities brokendown by cash, time, and in-kind contributions Percentage of pre-tax profits donated Percentage of employees that participate involunteering or matching gift programmes Lost time injury frequency rate Average hours of training per employee bygender and employee category Percentage of diverse employees by employeecategory Average salary at each employee level by gender Percentage of employees that are members oflabour unions or covered by collective bargainingagreements Percentage of suppliers screened for labourissues Hours of human rights training per employee Number of reported incidents of discrimination Corporate Citizenship 2014 The Power of Benchmarking
CORPORATE CITIZENSHIPBENCHMARKINGSERVICEThe Corporate Citizenship Benchmarking Serviceprovides customized benchmarking reports onthe full range of corporate responsibility andsustainability issues. How does your performanceon social, environmental and economic metricscompare to peers? What are the key themes,standards and KPIs used by your competitors?How do your policies and processes compare tointernational standards and norms?Corporate Citizenship has over 20 years ofexperience helping companies to understand howthey are positioned. Back in 1994, we foundedLBG, now the international standard for measuringcorporate community investment used by over 300companies worldwide. We continue to run an annualbenchmarking service for the members.The Power of Benchmarking 2014 Corporate CitizenshipDrawing on published information fromacross the world, and by contacting peers andcompetitors directly, our research team appliesbespoke measurement and analysis tools to helporganisations understand their place in the market,identify best practice and harness powerful insightsthat drive performance.A lot of the benchmarking we do is also qualitative,such as understanding how a draft policy (e.ga Code of Ethics) or proposed process (e.g.stakeholder engagement), compared to thatof peers. Comparisons can be made againstinternational standards, such as those set bythe United Nations (UN) or International LaborOrganization (ILO).Page 9
About Corporate CitizenshipCorporate Citizenship is a global corporate responsibilityconsultancy that uses clear insight and a simplifiedapproach to sustainability to deliver growth and long-termvalue for business and society. We work globally acrossindustry sectors. Our work spans Europe, United States,Asia, Africa and Latin America. We help our clients makethe smart choices that will enable them to survive andthrive in an increasingly challenging business environment.UK office:5th Floor, Holborn Gate26 Southampton BuildingsLondon WC2A 1PQT: 44(0)20 7861 1616E: mail@corporate-citizenship.comW: www.corporate-citizenship.comCorporate Citizenship promotes the idea that companiescan be a force for good. We advise global client list ona number of areas: strategy, reporting, supply chain,socio-economic impacts, inclusive business models andassurance. Our long standing clients include Unilever, Shell,Abbott and Vodafone.For further information about the report and our services,please contact: mail@corporate-citizenship.comUS office:241 Centre Street4th FloorNew York, NY 10013T: 1-212-226-3702Singapore office:10 Anson Road #39-07International PlazaSingapore 079903T: 65 6836 9098DISCLAIMER: Every possible effort has been made to ensure that the information contained in this publication is accurate at the time of going to press, andthe publishers and author cannot accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to anyperson acting, or refraining from action, as a result of the material in this publication can be accepted by the editor, the publisher or author.The Power of Benchmarking 2014 Corporate CitizenshipPage 1080%
Bad benchmarking Benchmarking has its limitations. Whilst good benchmarking is about performance and best practice, bad benchmarking can lead to mediocrity. Bad benchmarking is using data to justify average performance, rather than challenging and driving improvements. This
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