The Problem with Benchmarks

Most of us are familiar with benchmarks. You know, when we compare our performance metrics with those of the industry or with those of “top performers,” whatever that means.

Printing Industries of America (PIA) conducts an annual ratio study that allows respondents to compare their own performance with “profit leaders” on metrics such as paper costs as a percentage of sales, or sales per employee. In-plant pundits advise us to benchmark as well.

In-plant managers from time to time gather pricing data on different types of printing in an attempt to benchmark their prices against other in-plants. Typically, respondents are asked to price an array of different types of jobs. I guess the idea is that one can somehow draw a conclusion about his/her pricing strategy by comparing the prices charged by his/her in-plant to those charged by others.

This can be a slippery slope.

Most metrics developed to measure performance in the private sector are of limited value in evaluating the performance of an in-plant, especially one located in the public sector—state and local government, including public education—and non-profit organizations. Remember that the revenue stream for an in-plant is generated internally, meaning when a support service “sells” printing to another unit of the organization, it is moving funds from one budget line to another. If the seller (in-plant) sets prices to generate “profit,” the result is an unapproved budget adjustment from the buyer to the seller.

To put it another way, the seller can affect the buyer’s budget by altering the amount charged for printing, and the seller can build a cash reserve by “overcharging” the customer. In essence, the seller is earning revenue that was not approved in a budgeting process, and a lot of organizations frown on that practice. Budgets are critical management tools, and the ability to effectively change management decisions by altering pricing can lead to major heartburn.