Benchmarking and information sources in industrial relations decision making

"Benchmarking" is seen by the UK Government as a vital tool for improving employment relations and business performance. Little is known about the extent and nature of benchmarking, however. The 1997 Warwick pay and working time survey sheds some light on these issues, providing mixed news for government and the wider business community.

The 1997 Warwick pay and working time survey shows, on the one hand, that formal "benchmarking", or even measurement, of employee performance is not as common in the UK as might be expected. Benchmarking against the international competition is particularly infrequent, even where firms are experiencing an internationalisation of market boundaries or in the nature of their competition. On the other hand, the survey finds that employers do have access to a wide range of other formal and informal networks through which they can share and compare their experiences. The evidence shows that managers do use these opportunities for information-sharing when making changes to pay and working time systems. In practice, therefore, a looser form of benchmarking might already be widespread, and this might be a useful consideration to take into account when the Government - which regards benchmarking as a vital tool for improving employment relations and business performance - seeks to develop policy proposals in a White Paper in 1998.

A benchmark for business

After just over six months in office, the new Labour Government which came to power in May 1997 (UK9704125F) has begun to clarify its approach to employment regulation. One important theme which has emerged is the need to develop a partnership approach in employment relations in order to improve the competitiveness of British industry. The "benchmarking" of business performance - essentially the measurement and sharing of information on processes to improve productivity - is seen as a crucial first step in this process.

The Department of Trade and Industry (DTI) recently published A benchmark for business (November 1997), which argues that "benchmarking underpins successful strategic developments and is at the heart of strong modern competitive firms." In this important paper, the process of benchmarking is defined as recognising "the importance of understanding how the best of the competition is performing and of a commitment to implement changes to match or exceed them". Implicit in the analysis is the idea that the benchmarking process should incorporate "human resourcing" policies, practices and procedures, as these can have a significant impact on productivity outcomes.

Given the ever increasing pace of technological and labour market change, and faced with the intensification of competitive pressures within an increasingly internationalised marketplace, benchmarking has obvious attractions in helping to develop and implement best employment practice in a rapidly changing business environment. Developments in European and UK legal regulation, such as the EU Directive on working time and the forthcoming UK National Minimum Wage (UK9711177F), also mean that organisations are increasingly likely to benefit from comparing their internal processes with other employers. Yet little is known on the extent of benchmarking and the sources of information which employers use when making changes to industrial relations policy and practice.

Benchmarking benchmarking

The Warwick pay and working time survey, conducted by the the Industrial Relations Research Unit (IRRU) examines each year at workplace level, current and emerging practice on a range of pay and working time issues in four key sectors. Three of these - retail, printing and engineering - are amongst the seven chosen for review in the DTI benchmarking document. The other is the largest public sector employer, the National Health Service (NHS), representing an important sector neglected in the DTI study. The 1997 sample covers 137 engineering and 80 printing workplaces, 65 NHS Trusts, and 22 retail organisations covering a total workforce of almost half a million employees.

Engineering

Two in three engineering workplaces apply business measures of overall employee performance, such as a measure of unit labour costs or of output, sales or value added per employee. This may be more common in multi-establishment firms, both UK-owned (72%) and foreign-owned (63%), and slightly less likely (58%) in the single-establishment workplaces. However, of the 78 workplaces which do use such measures, only 28 compare or benchmark this with the performance of UK competitors and even fewer (20) with the international competition.

It might be the case that those arguably least in need of active benchmarking - the better performing firms - are actually more likely to benchmark their performance. This might especially apply in terms of the UK competition, against which only two respondents report their benchmarked standard to be generally worse (12 believe it to be better and 14 the same). Of those benchmarking against the international competition, six report their performance measure to be worse, five about the same and 12 better than the international competition.

Printing

Over half of the printing workplaces surveyed (36 to 33 respondents) applied business measures of overall employee performance, such as a measure of unit labour costs or of output, sales or value added per employee. This is much more common in the multi-establishment firms, both foreign-owned (78%) and UK-owned (60%), than in the single-establishment workplaces (36%). Of the workplaces which do use such measures, most (27) do compare or benchmark this with the performance of UK competitors, although only eight do the same with regard to the international competition.

As with the engineering sector, it might also be the case that the better performing firms are more likely to benchmark their performance. This might especially apply in terms of the foreign competition, against which no respondents report their benchmarked standard to be generally worse (four believe it to be better and two the same). Of those benchmarking against the UK competition, seven report their performance measure to be worse, 10 about the same and 12 better than the competition.

Health

In the NHS, the use of performance measures is most evident in ambulance Trusts, a factor no doubt closely associated with the need to address national targets for response times. Three of these seven Trusts additionally apply quality audits to their service. For the 58 Trusts with nurses as the largest occupational group, the situation is more complex. Most (36) do use some form of performance measure, although a significant minority (16) state that they do not. The measures used are also more diverse, being either one or more of: meeting Trust targets (25); measuring labour costs (20); implementing quality audits (27); or meeting some national target (21). The more unambiguous nature of the quantitative measure used by the ambulance Trusts might also account for the finding that all but one compare their performance to other Trusts. In contrast only 26 of the nursing (largest occupational group) Trusts benchmark their performance in some way - 21 say that they do not.

Retail

The decision-making process on working time and pay might is also likely to be informed by information on overall employee performance in the retail sector. Twelve respondents used some overall business measure of employee performance. Half of these firms benchmark these measures against UK competitors. Only one retailer benchmarks this measure of performance against comparable organisations in other countries.

The measures used are mainly of: labour costs as a proportion of sales, utilised by eight companies (with six giving it as the most important measure); the value of sales per employee, also used by eight (four as the most important measure); and the volume of sales per employee, used by seven (three as most important). Profit per employee is also used by four firms. Other types of business productivity measure used include square footage per full-time employee and net margin per unit of pay.

Other information sources

Apart from their own measures of employee performance and the benchmarking of these measures against similar organisations, employers were also asked what other sources of information they use when making decisions about pay and working time. The question of benchmarking exercises more generally was also raised. The table below shows the different information sources used in decision making.

Information sources for decision-making on pay and working time (No. of employers using each)
. Retail Health Printing Engineering
Source Pay Time Pay Time Pay Time Pay Time
Employer association 9 6 21 17 78 74 128 120
Confederation of British Industry 7 6 1 0 8 6 23 20
Higher level in organisation - - - - 14 13 33 29
Management networks 13 13 39 33 20 1 38 36
Consultancies (eg Hay) 11 7 15 7 1 1 10 4
Independent surveys 13 9 24 16 4 5 44 36
Benchmarking exercises 8 6 14 12 11 9 11 10
Specialist media 13 11 39 30 2 3 16 18
Other 2 1 9 7 6 4 4 2
No external sources used 1 2 0 0 3 4 6 14

The use of formal benchmarking is confirmed as a minority practice amongst employers in each of the sectors. However, the results show a wide range of other formal and informal means for information sharing. Very few employers, for example, use no external sources when deciding upon pay and working time issues. Employer and professional associations are widely used, and are commonly supplemented by independent surveys and specialist consultancies or media services. Accordingly, it appears that employers are trying to capture many of the benefits of benchmarking through a variety of other means. It is open to debate however whether such a diverse approach is as effective in systematically comparing approaches between different organisations with a view to establishing and adapting best practice to the individual concern.

Commentary

At first sight, the use of benchmarking is limited. Of over 300 workplaces surveyed, just over half use a business measure of employee performance. Only a third benchmark such a measure against the UK competition and even fewer - around one in 10 - compare themselves internationally. However, the findings also reveal an underlying potential for the more active use of benchmarking of human resourcing processes, practices and outcomes. The widespread use of a range of external information sources for pay and working time decision-making suggests that employers may be interested in, or even already moving towards, clearer forms of benchmarking in order to standardise and systematise the information gathering process. One role for government may be to take the process further by providing the necessary external framework to promote awareness and facilitate coordination in the benchmarking and dissemination of best practice. (J Arrowsmith, IRRU)

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