The Advantages of External Benchmarking vs Internal Benchmarking in the Oil, Gas, and Energy Industry

The energy industry is constantly evolving, and the struggle to remain competitive and profitable in the open market is intensifying. It is imperative for companies to understand how effective one’s operations are compared to industry competitors to know where there are areas to improve and guide strategic decision-making.

Most oil, gas, and energy industry operators conduct their own internal benchmarking and measure performance within their vast aggregations of facilities. However, there is a disadvantage in only internal benchmarking. Internal benchmarking does not use non-public data. Instead, it uses internal or public data to measure performance improvement efforts.

While internal benchmarking is valuable alone, without external comparison to other organizations, it creates a tunnel-like vision. In other words, when you self-analyze your own performance (internal benchmarking), you base that analysis on what you already know, and what you have pre-determined to be important based on your limited perspective. From your internal perspective, you are working on the right things, but there may be more important issues you are not aware or areas of performance that are more critical. As a result, you may fall behind top industry performers in some key performance areas.

How are you to clearly understand your operations’ effectiveness and remain competitive if you are comparing your performance with a limited perspective against a limited dataset and small range of performance metrics? Failing to benchmark against a wider set of industry peers and not comparing performance against top industry performers can lead to missed areas of under-performance and opportunities to improve. These missed opportunities can range from minor changes to closing larger gaps resulting in millions of savings over time.

To avoid missed opportunities, you must compare your operations against real industry competitors. External benchmarking utilizes non-public, proprietary data to compare operational performance with industry peers across a wide range of detailed metrics and key performance indicators (KPIs). Engaging in external benchmarking expands your “limited” perspective, allowing you to truly see how you compare to some of the top performers in the oil and gas industry. This approach removes the tunnel-like vision that hinders internal performance evaluation, resulting in a different perspective on what is achievable to improve results, become more competitive, increase profitability, and enable sustainable success.

Not all top performing organizations started at the top. Many have been on an improvement journey, often with the help of external benchmarking to measure achievement and find areas where they can improve. Top-performing organizations derive several key benefits from external benchmarking:

• Proactive Approach: Not reactive, across all performance areas, using external insights to prevent future failures.
• Strategic Prioritization: Focus is in prioritized, key areas that drive operational excellence in other areas of poor performance. One problem could be a root cause of many.
• Reliability Focus: Informs spending decisions and drives performance improvements.
• Action-Oriented: Take decisive actions to improve performance and close gaps based on their external benchmarking data. They do not try to develop excuses for shortcomings.

Consider the following: Would your company be a top performer? Are you focusing on the right key areas for improvement? What steps are you taking to improve performance and close gaps?

If you only focused on the crisis of the moment, with short-term importance overriding all long-term considerations, you will struggle to maintain sustainable growth. External benchmarking can help improve your organization’s level of proactivity by comparing it to that of your top competitors and industry peers.

First, you don’t know what you don’t know. If you are competing in an open market, you should know how you rank among your peers. But how do you know the answer to this question if you are not benchmarking externally, and instead self-analyzing your own performance with a biased and limited perspective. Being the best within your company is not nearly as significant as being the best in your industry or market.

Second, the large database of external benchmarking enables accurate normalized comparisons across a wide range of diverse operating complexities and physical design characteristics. Internal benchmarking typically offers only a small dataset with a limited range of performance, which can result in an inaccurate normalization model. Further, normalization models are empirical; they cannot be used to extrapolate beyond the data range, which is limited in the case of internal benchmarking.

Third, external benchmarking provides an expert un-biased perspective crucial for identifying the root causes of failures and thereby fosters a proactive culture. Sometimes it is difficult to see the obvious when we are deeply involved and starring at it for too long. External benchmarking involves a thorough root cause analysis (RCA) to determine the underlying cause(s) of a failure so steps can be taken to manage those causes and be proactive in future occurrences.

Lastly, external benchmarking drives real improvement. Benchmarking allows you to discover and prioritize areas where you can make significant sustainable long-term improvements in your organization’s bottom-line performance, profitability, and carbon emissions, while increasing reliability and efficiency. It allows for sustainable long-term, continuous improvement.

Every company has strengths and weaknesses, and these can be identified reliably by benchmarking against regional and global competitors. Proper external benchmarking studies provide more in-depth comparisons than internal benchmarking, resulting in drill-down capabilities to verify outcomes and justify improvement initiatives.

Solomon brings an unbiased and third-party external view of your company and shows leadership the significant limitations of internal benchmarking. For over 40 years, we have been a global benchmarking and performance improvement company for upstream, midstream, and downstream, trusted by the global energy industry. Our experts have over 25 years of operational experience in the energy industry. Over the years Solomon has built the world’s largest historical, proprietary performance databases in the energy industry for our analyses to draw upon over 4,000 industry recognized best practices, over 5,000 oil and gas fields and 700 midstream assets in more than 40 countries (including over 90 FPSOs), and representing over 80% of the global olefin capacity and over 85% of the global refining capacity. Our combination of databases, methodology, and expert knowledge is your competitive edge.

In a dynamic industry landscape, remaining competitive requires continuous improvement and informed decision-making. Having Solomon as your external benchmarking partner can equip you with the tools and insights needed to achieve operational excellence and navigate industry challenges effectively.

Start your journey to performance excellence and uncover data-driven opportunities to improve operations and increase profits. Get on the path of continuous performance improvement. Contact us to learn more about how external benchmarking can benefit your organization.

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