A New Breed of Benchmarking.

* You aren't imagining it. Change really is moving at a faster pace. Analysts at Forrester Research, Cambridge, Massachusetts, estimate that the Internet could achieve 60 percent household penetration by 2003, fewer than 10 years after its commercial introduction. By comparison, the television took 31 years to accomplish the same feat. The electric light took 42 years, and the telephone 53.

* Think of how the telephone changed our concepts of distance, time, competitors, and associates; how it facilitated the building of close business and personal relationships with people we had never met; and how it allowed people to make personal appeals across extraordinary distances. The interactive capabilities made possible by telephone communication allowed distant businesses to conduct negotiations immediately instead of during a period of weeks. At the same time, it undermined local access as a competitive advantage and more than any preceding invention helped to create regional and national markets. Today, we can't imagine how our businesses would be run or our markets organized without telephones.

Now consider these fundamental transformations in business practices and industry organization taking place in one sixth the time. We will witness in just this decade the kind of economic change that once took more than half a century.

Looking beyond basic benchmarks

With such profound and wrenching change happening at so accelerated a pace, how can we evaluate changes within our own industries or markets quickly enough that resulting events do not overwhelm us? One way is by using industry benchmarking. Unlike more commonly known best-in-class benchmarking, which compares the practices of the organization seeking change with those who are recognized as top-performing practitioners of the same given skill or service, industry benchmarking looks for firms, industries, or professions with similar problems. It examines how these problems were handled--both successfully and unsuccessfully--and then tries to determine to what degree the different outcomes were determined by the different courses of action.

When working with organizations that are undertaking strategic planning to respond to lightening-quick changes in their industries, as part of The Forbes Group, Fairfax, Virginia, I encourage clients to examine how other industries coped with the transition demanded by such profound technology- or market-driven structural change and what role their trade associations played in the success or failure of those transitions. The objective of industry benchmarking is to examine what lessons it can glean from both the successes and failures of those who have gone before.

This article, then, discusses the fundamental approach taken by industry benchmarking and how it can help decisionmakers anticipate changes that lead their association and their constituents into what for them is uncharted territory.

Recognizing the instinct for introspection 

Historically, both individuals and organizations have often followed predictable stages of action when facing fundamental change--all of which focus inward.

* Blame the customer. The first reaction is often to direct frustration at the customer or organization member. Why do your members no longer appreciate your good work and services? Why do they suddenly fail to understand the important role you play in the industry or profession you represent? Your staff and volunteers conclude that, clearly, the market needs to be reeducated as to the fine work you do. Soon you launch a public relations campaign to reaffirm the importance of your current product and service offerings.

* Blame yourself. When the public relations campaign fails to rekindle enthusiasm, you begin to consider the possibility that perhaps you don't provide these services as well as you once did. Maybe you need to be more responsive to more specific member needs. Perhaps you can solve your problems by adapting your existing services to meet niche needs of large or small members, specific market segments, or other particularly squeaky wheels. You hire specialists in targeted segments and expand product lines geometrically to serve increasingly specific niches. However, while raising costs, this tactic usually does little more than slow the erosion of revenue.

* Blame the system. After all, you aren't doing anything wrong you just aren't doing it well. By leveraging technologies and new organizational tools, you can reinvent your way out of the malaise, recapture your core competencies, improve efficiency, and respond more quickly to members' concerns. In search of a more responsive association, a series of reorganizations regularly reshuffle the organization, often leading to mergers with formerly competing or allied associations--liaisons that do little more than turn two or more small, ailing organizations into one large ailing organization. I've witnessed these patterns leading to market consolidation in declining industries well beyond the association world, perhaps even among your members.

If you survived the 1980s, you no doubt recognize one or more of these stages. Unfortunately, the pace of change no longer indulges in such a long introspective process. In today's fast-paced environment, many of the more innovative and insightful businesses that respond to new business relationships, new technologies, and new markets make the costly mistake of reinventing themselves right out of the industries their associations were designed to serve before the associations can figure out where they are going or why.

Taking advantage of a more expansive view

While, instinctively, we tend to look inward to better understand the nature of changes affecting our markets, when coping with truly profound change we will not find the answers there. New technologies and innovative business practices do not simply change how we do things. They fundamentally change what we do-which is why industry benchmarking becomes so important.

The penetration of the workplace by computers is a good example. Computers (and other electronic solutions) did not just allow businesses to perform the same tasks at unprecedented speeds. They created new tasks, positions, and occupations while eliminating others.

Local and wide area networks revolutionized office communication, completely changing the flow of information through organizations; created location-independent work; and challenged our perceptions on which functions actually needed to be staffed internally and which really were another company's job.

I liken such a process to the point in the metamorphosis from a caterpillar to a butterfly when the contents of the chrysalis becomes completely liquid, bearing no resemblance to what it once was but offering no clues of what it will become. Similarly, the past performance of industries in transition offers little guidance while the future structure is uncertain. Just as we predict a caterpillar's future, not by dissecting the chrysalis but by examining other butterflies, you can better anticipate the affect of technological and market innovation on the future of your association's constituents by examining the histories of those industries that have undergone similar change, both successfully and not.

Focusing on similarities

Most likely, many of the issues and trends confounding your industry or profession have already been wrestled with and resolved with varying degrees of success by other organizational groups and associations. If you look beyond the immediate challenge and redefine your problem in a more generic way, you will find a number of industries that have faced similar threats from technological, economic, and institutional change in the past. Very often I hear at preliminary meetings with potential clients that never before has any industry faced the kinds of challenges that lie before them. While not suggesting that there is nothing new under the sun, we do suggest that organizations look beyond the traditional best-in-class benchmarking candidates in their industry--to other seemingly unrelated industries--for guidance.

Several years ago, the Retailers' Baker and Deli Association (RBA), Hyattsville, Maryland, asked us to assist its members in preparing a strategic response to the greatest threat in its market: the introduction of parbaked goods. By allowing the baking process to be interrupted without creating a health risk, parbaked products allowed supermarkets to introduce in-store bakeries. Rather than try to guess the impact of this change on the future of food retailers, we recommended that RBA take time to study the stationery and optical markets.

Why those two? While RBA's members were focused on specific products, we redirected their attention to the common threat confronting all three organizations: small independent firms facing category killers. And what is important about these two organizations is not how each group made different choices, but that they chose different paths and RBA could see the divergent results they could expect without having to make the same mistakes themselves.

Both of these markets experienced similar challenges. In both, new technologies--on-demand printing technology in the stationery market and composite lens technologies in optical manufacturing--allowed large superstores with economies of scale and much greater geographic drawing power to enter their markets with a limited line of lower-priced products that focused on convenience rather than on range of selection.

Yet, while stationery stores have all but become distant memories, small independent dispensaries continue to account for approximately 60 percent of total eyewear sales, a larger market share than is held by the chains. As a result, RBA was able to identify the market dynamics that allowed stationery stores to fall victim and optical firms to survive similar technological change.

What did one group do right and the other do wrong? What did their associations do or not do to influence the outcomes? Stationery stores responded with a siege mentality and tried to underprice superstores and to assume that simple customer loyalty might carry the day. Optical shops chose to differentiate rather than compete with the superstores in their market. Suddenly, every small optician became a frame stylist, offering fashion advice and product knowledge that the large stores couldn't match with their narrow and deep inventory. In fact several small optical dispensaries even boasted, "What we offer can't be done in an hour."

Through the critical exercise of benchmarking itself against the optical and stationery industries and comparing the results of their respective actions, RBA was able to help strategically position its members to be more like optical shops and less like stationery stores. One of the association's initiatives was to introduce branded meats and quality specialty products that addressed the needs of more highly educated, health-conscious two-income families--a strategy just the opposite of the one adopted by price-cutting stationery stores.

Getting past the differences

One of the strengths--and weaknesses--of industry benchmarking is that it examines similar problems faced by dissimilar industries. This approach is often helpful, for it allows organizations to examine critical issues such as new technologies or globalized markets without discussions being obscured by personal opinions, past commitments, or vested interests.

Working with a health care association, The Forbes Group examined the business product industry's response to supply chain management. Freed from the peculiarities of the health care industry, the association's staff and its board were able to objectively examine how just-in-time practices--quick-response supply relationships and commerce--changed the needs of the immediate customers of business products, retailers and product dealers, and ultimately the end-users of business products. There was no sacred cow to be saved, no protected turf to defend. Health care products suppliers could compare successful strategies taken by office equipment manufacturers to failed reactions to new market structures by other business products suppliers without fear of anyone reacting defensively. Issues that were considered proprietary or the result of defeatist thinking gained a fair hearing when the analysis was not associated with paychecks or stock options.

But this is also one of industry benchmarking's drawbacks. Some observers question the relevancy of other industries' experiences to their own. Often the value of the similarities seems to be obscured by the differences. Health care markets are dominated by third-party payers with incentives and disincentives that differ from those of the direct payers who make decisions on business product purchases. Health care is also a business-to-consumer market while business products, except for home-office buyers who still account for only 15 percent of the market, are in a business-to-business environment. What can a firm that sells services to a consumer, often through third parties, learn from an industry that sells a product to a business? The strategic planning committee of one health care association will tell you, "Plenty."

Sticking to the rules

Mark Twain once observed, "The human animal is unique for its ability to learn from the mistakes of others and notable for its determined refusal to do so." Some have and others will reject industry benchmarking because of a natural "not invented here" bias that some industry specialists inevitably and understandably adopt. It is often an occupational hazard of those with the necessary detailed expertise required in directing a firm within a technical market. In the end, however, there is only one set of economic laws that works everywhere every time for everyone. There are not separate rules for each industry. Industry benchmarking takes these differences into account without compromising the comparison that the general laws of economics and finance permit.

The American Society of Interior Designers, Washington, D.C., had worked for decades to enhance the professional standing of interior design and convince state legislatures to expand their members' scope of practice. But in recent years their results had been decidedly mixed. To better understand the evolution from occupation to profession, The Forbes Group examined the history of optometry, a profession that had successfully achieved that same transition. Like designers who emerged from the commercial world of decorators and furniture sales, optometry grew out of the optical trade nearly a century ago. Before the turn of the last century--thanks to the creation of the ophthalmoscope, a device that allowed a doctor to look through the pupil and examine the structure of the eye without surgery--a group of opticians began to examine how to create customized lenses that (literally) reflect the structural limits of the eye. Until then there were only a handful of standardized vision-correction lenses (what we no w call readers and can still buy). By focusing on the structure of the eye and designing specialized lenses, there emerged refracting opticians, as opposed to the traditional dispensing opticians, who still made and sold frames and lenses. Refracting opticians, who later became known as optometrists, eventually successfully distinguished themselves from their commercial predecessors.

Like the designers, optometrists faced opposition by an upstart group of interlopers into their market. For optometrists, this group was ophthalmologists, while interior designers faced off against architects. Our task was to understand what optometry did right and what mistakes it made. Why did the journey from commercial trade to health care profession take 40 years?

Many designers questioned what they could possibly learn from century-old medical history. The answers soon became obvious. Optometrists initially followed the same strategy that was being used by interior designers today. But, after nearly 20 years of trying to reassure the public that they were as safe as ophthalmologists--optometrists discovered that few legislators could follow the distinctions between the two professions. In fact one of the defining characteristics of a profession is that it is a distinct body of knowledge. Optometrists discovered that they were able to better make their case by focusing on the differences in optometric and ophthalmological treatments rather than the similarities of outcomes.

Interior designers realized that they too had fallen into the same safely trap that forced designers to explain how they were like architects, which they are not, and met with similar results. In addition, optometrists learned after decades of effort that state legislators were more likely to recognize optometry as a profession when they became aware of the ocular health and economic costs associated with restricting consumer access to vision care. From these and other lessons learned from optometry, interior designers developed a new legislative strategy that emphasizes the differences between the two professions that make the safety concerns moot and focuses on the economic costs to states in terms of lost business expansion and job creation that result from regulatory restrictions that drive up construction costs.

So interior designers learned a lot from turn-of-the-century optometrists. By looking beyond the immediate and industry-specific issues within the commercial and residential construction markets, they were able to examine their legislative issues in a new light.

By examining how the challenges facing your industry, your members, and your association have been confronted by other industries, you need not wait to see how new technologies, channels, or public policies can influence your market. Nor must you depend on guesswork or research based on hypothetical queries of your membership. You can then craft preemptive strategies that anticipate the possible outcomes based on the actual experiences of others who have gone before.

Rick C. O'Sullivan is senior vice president and economist at The Forbes Group, Fairfax, Virginia.

* Think Process, * Not Product

Without question, industry benchmarking can be a difficult concept to convince association members, staff, and board members to embrace. While conducting the actual analysis required for effective industry benchmarking is complicated enough, several other obstacles must be overcome before you can even begin the exercise.

* Getting association leaders and volunteers to look beyond the problems that are immediately plaguing their market or industry. Understandably caught up in the day-to-day fight for survival in increasingly competitive markets, the association constituency might view the time and expense of studying a completely different industry a luxury that they simply cannot afford. As the association leader--convinced of the strategic importance of taking a larger view--consider opening a dialogue on the topic of industry benchmarking. Through networking among staff, outside colleagues. and industry experts, you may be able to identify some success stories in industries other than yours (but whose issues and challenges resemble yours) to build the case for such an exercise.

* Overcoming industry myopia. Shortsightedness is often due to the self-selecting bias of association leadership. Members who become industry leaders usually see their business and themselves in product for which they have become nationally respected experts, whether the product is a physical good, such as bakery items, or a service, such as interior design. These leaders gain credibility for their detailed knowledge of their products and current uses and for their insightful and perhaps intuitive understanding of product delivery within an existing market.

Ironically, that is exactly what often leads the association into trouble. When electronic commerce was still in its infancy, for example, many business forms manufacturers lobbied to dismiss association efforts to focus on electronic commerce and concentrated instead on how to better deliver preprinted forms more cheaply and efficiently. After all, in electronic transactions "ink didn't hit paper"--or so went the thinking of many a forms manufacturer. Forms providers overlooked both the threat and the potential of the new business practices being created by e-commerce, because many forms suppliers chose to wait until (and some argued, "if") the technology would become mainstream.

An examination of how other rival technologies entered respective markets, such as telephones, VCRs, and fax machines, would have shown the forms manufacturers that such a strategy had almost universally failed in the past. Again, reviewing these kinds of examples with those you wish to persuade can be effective in obtaining their support.

* Dispelling the myth that "your industry is facing a situation that is without precedent." True, a certain dramatic shift or change might be unprecedented in your industry. Industry benchmarking, however, requires that members understand that what they make is not what they do. Association executives can help members focus on the process that the members' products support and on understanding the goals and objectives that the association wants to achieve in terms that are not parochially defined using industry terminology. Only by looking beyond the technical issues surrounding architecture and interior design were interior designers able to define the challenge of expanding their scope of practice in a way that raised their position above the self-centered legislative battles that had defined debates between designers and architects in the past.

In the end, effective responses to industry challenges take visionary leaders who understand the greater role that their industry plays in the economy and not simply the role that products play in their particular market.