Benchmarking and the Europeanisation of industrial relations

The findings of research being carried out under the UK Economic and Social Research Council's "One Europe or several?" programme, published in April 2001, indicate that, rather than legal regulation and collective bargaining being the main engines of "Europeanisation" in industrial relations, developments involving "benchmarking" are to the fore. Furthermore, the research suggests that benchmarking is increasingly acquiring quasi-regulatory status, raising major questions for theory and practice.

The UK's Economic and Social Research Council is currently funding a five-year research programme entitled One Europe or several? It examines "contemporary processes of political, security, economic, social and cultural change across the European continent, as well as issues of convergence and divergence and prospects for integration and fragmentation". One of the projects under the programme examines Emerging boundaries of European collective bargaining at sector and enterprise level. Within this project, Keith Sisson and Paul Marginson of the Industrial Relations Research Unit, University of Warwick, have recently examined the issue of benchmarking in the "Europeanisation" of industrial relations, and their main findings - published in April 2001 - are summarised below.

The concept of benchmarking

"Benchmarking" covers three main activities:

• information provision, enabling comparisons to be made, experiences shared and mutual learning to take place;

• identification of "best practice", which people are encouraged to follow; and

• agreement on and commitment to targets, with some form of peer-group review of performance.

Benchmarking started life as a management tool at company level, where it has evolved through four stages (see "Benchmarking best practice", Management Review No. 9, Industrial Relations Services, London, 1999):

1. "comparative statistical activity", dating from the 1950s, involving the evaluation of alternative approaches to basic functional activities, such as materials handling;

2. "competitive benchmarking", associated with the US-based document company Xerox's attempts to match the performance of Japan ese competitors in the late 1970s/early l980s;

3. "generic benchmarking", also associated with Xerox, which involves going beyond immediate competitors to monitor "best practice" wherever it is to be found; and

4. "strategic benchmarking", which emerged in the 1990s, comparing the driving forces behind successful organisations, including leadership and the management of change.

All benchmarkers now?

"We are all benchmarkers now." This comment by the then president of the European Commission, Jacques Santer, in a speech to the European Round Table of Industrialists (ERT) in 1999, gives a strong indication of the importance that benchmarking has assumed.

At company level, benchmarking is reckoned to have almost 80% coverage of large organisations globally (see "Managing the management tools", Bain & Co/Institute of Management, 1997). In Europe, it is especially prominent in companies with highly integrated operations in the automotive and food sectors. Systems to diffuse "best" working practices across countries include regular meetings, rotation of managerial personnel, compilation of "best practice" manuals and task forces and/or nominated "lead" operations responsible for monitoring latest thinking and practice. The result is to encourage greater convergence of both costs and conditions, such as overtime "corridors" and annual hours agreements.

At the sector level, both national and EU, employers' organisations and trade unions increasingly use cross-national comparisons (TN9907201S). For example, the European Metalworkers' Federation (EMF) has concluded both a "working time charter", stipulating an annual maximum of l,750 hours (BE9912311F) and a "European coordination rule", requiring trade unions to offset the rate of inflation and to ensure that workers' incomes retain a balanced participation in productivity gains (DE9812283F). In finance, UNI-Europa (the European organisation of Union Network International) is putting in place a permanent electronic method of information exchange, discussion and coordination for affiliates and European Works Councils (EU9809128F).

At national and EU levels, benchmarking became a key instrument of policy-making in the 1990s. In the case of the EU, target-setting, open coordination, and peer-group review underpin the European employment strategy and the Economic and Monetary Union (EMU) stability and growth pact itself. Indeed, the former secretary general of ERT has suggested that the three key so-called European "processes" - ie the Luxembourg process dealing with National Action Plans for employment (EU9711168F), the Cardiff process relating to regional and structural funds (EU9806109F); and the Cologne process on macroeconomic policy and consultation (EU9906180N) - are "nothing more than glorified benchmarking exercises" (see "Big business and the European agenda", K Richardson, Working papers in contemporary European studies, University of Sussex: Sussex European Institute, 2000). Not to be forgotten either is that at the March 2000 Lisbon European Council (EU0004241F), EU Member States committed themselves to becoming "the most competitive and dynamic knowledge-based economy in the world" - an ambitious exercise in target-setting if ever there was one.

Considerable EU resources have also been put into information provision. Examples include the observatories of which there are two, soon to be three, in the area. The first is the European Employment Observatory run formerly by the Institute for Applied Socio Economics (IAS), based in Berlin, and now by the UK-based ECOTEC; the second is the European Industrial Relations Observatory (EIRO), operated by the European Foundation for the Improvement of Living and Working Conditions from Dublin; while the third, also to be run by the European Foundation, is to monitor industrial change.

An answer to the policy-maker's prayer?

At company and sector levels, the logic of using benchmarking to pursue "best-practice" solutions is very powerful. The designation "best practice" gives solutions great legitimacy, which can help managers to win over uncertain colleagues as well as employee representatives.

At EU level, benchmarking offers the inestimable advantage of making coordination possible without apparently threatening national sovereignty. The point is that benchmarking, like other firms of "soft" regulation such as framework agreements, helps to resolve both the horizontal and vertical dimensions of the "collective action problem". It not only enables the principals, be they policy-makers or trade union leaders, to set a sense of direction and yet to avoid failures to agree over the details that often bedevil negotiations on the horizontal dimension. By delegating responsibilities for developing tailor-made solutions to representatives at lower levels, it also helps to relieve the collective action problem on the vertical dimension as well.

Issues and problems

Benchmarking is very seductive. It nonetheless raises a number of issues and problems, above all at the macro level, which are increasingly likely to be the focus of critical attention.

• More difficult that it seems? Defining "best practice" is no easy matter, especially when there are several and potentially conflicting policy goals (eg quantity versus quality of employment). Similarly, the issues of comparability and transferability are more complex at the macro than the micro level, because of differences in institutional arrangements. Also, benchmarking does not absolve policy-makers from having to take difficult decisions about follow-up action, including the nature and extent of any "hard" (eg legal) regulation.

• Prioritisation of the quantitative over the qualitative? At its best, benchmarking is about learning and continuous improvement. In practice, however, it can become exclusively concerned with numbers at the expense of process and strategy. At company level, it can mean focusing on the costs and flexibility of labour rather than adaptability in its widest sense. At national and EU levels, it can mean an obsession with placings in "league tables" to the detriment of the quality of outcomes.

• A force for change? There is no doubt that benchmarking can be a powerful tool in the management of change. Equally, however, it can amount to little more that a "lemming-like" copying of (yesterday's) "best practice", which may be wholly unsuited to particular circumstances. Especially dangerous is that the "playing catch-up" that benchmarking encourages can put a stop to serious analysis of problems and/or experimentation with their solutions.

• Compliance. Large companies have a range of controls, formal and informal, to ensure that local managers follow "best practice". This is very different at the macro level, however. It is true that benchmarking involves "new" forms of enforcement such as peer-group review or the more public "naming and shaming" associated with ethical retailing campaigns. In the case of social policy, however, there can be problems in diffusing "best practice" to small and medium-sized enterprises.

• An uneven process? A corollary of benchmarking becoming so important in the EU is that much of the resulting "Europeanisation" will be sector- and company-specific. Greater cross-national convergence within companies and sectors also means greater diversity between companies and sectors within countries, with profound implications for both national and EU industrial relations systems.

Commentary

It is not difficult to understand why benchmarking has become a key instrument of EU policy-making. It has the inestimable value of helping the parties - governments, employers and trade unions - to resolve both the horizontal and vertical dimensions of the collective action problem. The key question is whether benchmarking can be developed to become a more balanced and thoroughgoing instrument of policy coordination. In particular, closer links need to be established with legal regulation and collective bargaining. For example, ways forward suggested by Managing change- the 1998 report of the European Commission's high-level Gyllenhammar group, which looked into the social consequences of industrial change - include annual social audits and the use of contracts to diffuse "best practice" through supply chains. Arguably, however, such arrangements need to be compulsory rather than voluntary. (Keith Sisson, IRRU)