A topic for discussion
April 21, 2008 by John Morelli , Mason Baziw , LAUREN KERWAWYCZ and jsarkis | Filed under: What Should Be Measured and Why? [1,3]
Anju Mathew, Brian Butler and I have been reading your interesting posts and discussing your topic. One thought comes to mind: should there be two scales of measurements, one that focuses on how a company performs within its particular industry and another on how it performs on an absolute scale. This might be an interesting approach that serves both current needs for measures and future trends because it will allow a company to be rated good or bad with respect to the others involved in similar activities, but also provide a way to compare the absolute performance compared to others across all industries and activities.
What are your thoughts about this?
I feel that such scales would be extremely beneficial. When we try and measure environmental performance of a company it is important to consider the industry that it is and the available technologies, research, etc. A scale that focuses on the performance in a particular industry will help companies understand where they are in regards to rest of the industry and whether or not they are creating a competitive advantage with their environmental performance. This will only spur them to further their efforts to improve and be the best in the industry most likely. However, I tend to agree that an absolute scale is needed as well. It is one thing to measure within a specific industry but to gain an understanding to where you are as a whole can also be beneficial. This would be beneficial for governing agencies to understand which industries to target and try a help gain better environmental performance.
I too see the benefits of having both an industry as well as an absolute scale for performance measurement. When one is evaluated and gauged against another, they tend to sharpen their pencils and take on the competition with a more focused approach. When one is not being compared to another, there is no ‘benchmark’ to size up to, often allowing companies to believe their percieved ‘goodness.’ That being said, companies must also be compared not only in terms of the envinronmental performance, but other factors such as available technology in the industry. That is precisely why an industry scale is required in addition to an absolute scale. There may be many further advancements in one industry comparatively to others so an evaluator would need to know all the facts. These measurement scales would not only benefit the end users, and investors, but also provide an important feedback loop to regulators as to what is not being controlled by organizations.
In the socially responsible investment literature there is an issue of a ‘green’ company in a dirty industry being included in some funds, and maybe not in other funds. This issue gets into whether dirty industries should even be included in these funds since their products and services really determine whether they are clean or dirty. On another note, benchmarking has different categories that are used by organizations. There is competitive benchmarking (comparing against your industry) and strategic benchmarking, which compares against everyone. If a company truly wants to get long term gains, it should benchmark against the best, no matter what industry. If a company wants to be competitive in its own industry, then benchmark against the industry. I think larger innovations and leaps can occur when organizations think strategically (outside the industry) and not just use industry status to determine its performance.