More on benchmarking
Benchmarking is a central exercise for organisations to compare themselves with their competition and create plans for improvement. But what exactly is benchmarking?
Benchmarking: a definition
Within the business environment, different industries have specific standards of success, for example client expectations, level of service or product satisfaction, which companies strive to meet. A benchmark is an analysis that compares business performance, function or its products and services. The exercise aims to evaluate if the business meets those standards or where they are positioned compared to their peers. To put it simply, benchmarking compares the business using performance criteria against its peers, mostly in the same industry but not necessarily.
Often, a group of competitors are benchmarked and this group includes high performers. The benchmark can be granular and look into multiple business metrics. The overall objective is to understand the strengths and weaknesses of your business. Understanding how others do it and getting inspired from it should lead to efficiency gains, revenue growth and customer satisfaction.
Why is benchmarking so important?
For businesses to thrive, they need to constantly look at their industry and challenge the way they are doing things. Analysing the direction of the industry, how leading competitors evolve and their performance gives key insights that influence business decisions. Below are some key reasons why benchmarking exercises are essential and should be conducted on a regular basis:
- Organisations should benchmark their operating systems and measure their performance against internal and external standards to improve them.
- Benchmarking gives valuable insights on the quality standards of the market they are in.
- Conducting a benchmarking exercise boosts performance by challenging the status quo and seeking continuous improvement.
- Benchmarks may be used to measure internal changes as well as market positioning.
- Comparing with a benchmark forms the base of action plans as it defines the strengths of the business as well as areas that need improvement.
- A thorough benchmark should allow for goal setting.
- The analysis may lead to cost efficiencies by identifying opportunities to streamline processes, implement new technologies or develop the business environment.
- Benchmarking sheds light on the business’ strengths and how they compare to the competition.
- The exercise is key to setting priorities for improvement.
Industry benchmarking is at the centre of business improvement. The analysis should be conducted on a regular basis and should evaluate a wide range of metrics.
What types of benchmarking are available?
Almost all areas of the business can be analysed and compared. There are three main types of benchmarking, outlined in the section below:
Internal benchmarking
Internal benchmarking focusses on improving the business by comparing its state of play at a moment in time with its own historical figures. It may look into the performance at a set point in time compared to the same performance at a previous point.
It may also compare departments within the business in order to understand what the best practices are and identify the most effective setups. As a result of internal benchmarking, there might be a change of internal tools, the implementation of targeted change management activities or an update of operating processes.
Competitive or external benchmarking
Competitive benchmarking looks at the outside landscape. A company compares itself to its key competitors based on a set of predefined metrics. The results allow for goal setting based on what the competition is doing or how they are performing. Competitive benchmarking can look at several areas from products developed, services provided, customer satisfaction to employee salaries, incentives and internal structure. For an example, take a look at the article What Is Competitive Pay?
The goal is to gain visibility on what the competition is doing, how they are doing it and how they are performing in order to gain a competitive edge and get ahead of the curve.
Strategic benchmarking
Strategic benchmarking is a type of external benchmarking exercise. However, rather than looking solely at what the competition is doing, strategic benchmarking may look into how organisations in other industries behave and perform. Strategic benchmarking aims at inspiring businesses by widening the group they are compared against.
When wanting to enhance operations or implement strategic initiatives, benchmarking is always present. It sets the scene and pinpoints areas that need improvement for the business to thrive.
How do you benchmark? Key steps to the benchmarking process
When asked to create a benchmark, you may wonder where to start and what steps to take. The section below lays out the different steps to take in order to deliver best-in-class benchmarking.
Step 1: Identify what you want to benchmark and the goal of benchmarking
The first step when conducting a benchmarking exercise is to clearly identify what you wish to benchmark. Doing so will ensure that the analysis is focussed, granular and relevant. When identifying what will be compared, pinpoint the metrics that you want to assess and analyse. Whether it is revenue growth, salary, sales performances or customer satisfaction, there should be a set of metrics that defines best in class for your company.
Step 2: Collect data by conducting thorough research
Do not be shy with the amount of information collected during this step. The data, qualitative or quantitative, will bring weight to the analysis. This part of the process might involve qualitative interviews of key stakeholders, quantitative surveys, data crunching, online research and much more. The type of data collected should be defined depending on what is being benchmarked. It should allow to create correlation between the subject being benchmarked and its chosen peers.
Step 3: Analyse the data collected and understand the state of play versus the desired performance
This is when analytics comes in. The data collected in the previous step needs to be assessed and compared to extract valuable insight, identify gaps and areas of improvements but also to identify strengths. The output of the analysis should be easy to understand and focus on the “So what?”. By laying out information that is easy to digest but backed by data, the analysis provides holistic visibility on performance and what needs to take place to reach the desired outcome.
Step 4: Create the roadmap that will form the base of the action plan for improvement
The insight given needs to be followed by actions. In order to see true improvement, the benchmarking analysis should incorporate a roadmap. This implementation phase should lay out the activities that need to take place, together with the timelines, the dependencies, the owner of each task, stakeholders involved and any potential risks. The objective is to have a path that will lead the business to its goal. When creating this plan, make sure everyone’s role is clear and that those in charge of delivering the actions have accountability for the results. Doing so leads to internal buy-in and thus stronger results.
Step 5: Set KPIs and milestones to monitor your progress
Like with any business action, measuring the outcomes of the efforts implemented is critical to understanding if they have been effective or if there are still adjustments needed. Set some KPIs around your objectives and measure them on a regular basis to understand the speed of your progress and assess the effectiveness of the actions implemented. This might lead to readjustments or further analysis.
Conducted thoroughly, the steps above will make for a well-rounded benchmarking process and provide your business with valuable insight.
Create a benchmark that works for you
Everything and anything can be benchmarked. However, the benchmarking activity needs to be relevant and work for your business and what you are trying to achieve.
There are also some best practices when it comes to benchmarking. For example, if the benchmark aims to change internal processes or ways of functioning, involving the workforce in the benchmarking process means their opinion will be taken into account. This has a domino effect as it will lead to easier adoption of the change that will result from the benchmarking process. You can involve employees at various levels by conducting interviews or surveys. This will give you valuable data while ensuring that employees have a voice.
A benchmark needs to be impartial to reveal true results. For this reason, some businesses employ third-party organisations to conduct the benchmarking activity. This removes any potential bias in the analysis.
Whatever way chosen or type of benchmark, make sure to keep the end goal in mind, be thorough and make the data talk by extracting valuable insight from it.
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