What is benchmarking, and what tools and templates can businesses use to benchmark more effectively?
What you don’t know can hurt you. This is especially true in business. If you aren’t aware of what’s going on around you as a business leader, you may risk being left behind by your competitors. Even worse, your business may end up being disrupted by the next big innovation that comes on the market.
So what do you do when you want to find out how your business is doing?
Some business leaders may look internally. They measure what is working within the organization, and more importantly what isn’t, in order to gauge what needs to change. They see sales stagnating, so they hire more sales staff and fire inefficient ones. They see operations being mismanaged, so they bring on better managers.
But unless businesses look outside of their own organization to measure themselves against their competitors, they are missing a major opportunity. Leaders often struggle to effectively measure how they compare against their competitors, but the more time they dedicate to understanding how they measure up, the more able they will be to make the changes necessary to drive growth. By benchmarking their key performance metrics (KPIs) against those of other businesses, business leaders can develop processes which allow them to keep ahead and stay ahead of similar organizations within the same industry.
At a high level, benchmarking is the process of measuring and comparing an organization’s standard measures to the average scores of similar businesses in a related industry or region. Organizations can also choose to look at best-in-class scores for specific measures to identify which companies are doing best in an effort to mirror and mimic their results. Most often, metrics used for comparison include sales figures, quality of products or services, brand awareness or customer experience.
So how do you benchmark?
In order to benchmark your business against others in your industry (or a tangential industry), you must first identify which metrics and measures you are interested in measuring. This typically means identifying the KPIs which will drive the biggest change within your organization. Benchmarking can be extremely helpful, as it allows the organization to better understand not only how their competitors are performing, but also what procedures or strategies are being used to accomplish such high performance.
While benchmarking can take many different forms, most benchmarking exercises follow a similar set of steps:
Conduct an internal self-assessment to determine what parts of your business are not functioning at the top level possible and could possibly be improved. This step will require conducting internal and external research gathered in several different ways. This may mean informally speaking with customers, suppliers, internal stakeholders, or managers in order to create an overview of what your business is doing well but also what it could be doing better. Importantly, this step enables you to develop deep knowledge into what the organization needs to improve upon and where it stands on the metrics the team is trying to improve.
Look at your competitive set and determine which companies you want to compare yourself with. Consider both which companies you aspire to be like, as well as companies you are most similar to. You want to look at benchmarking yourself against leaders in your market but also market disruptors and laggards.
Segment your competition into different groups of companies depending on how you want to compare yourself. For instance, you may want to only compare yourself to top performers in your industry or sector, but you may also want to compare yourself to businesses in another industry or in another region of the world. In order to make sure you are benchmarking against the best set of competitors, consider bringing in an external consultant, financial analyst, or business magazine.
Conduct primary quantitative research to gain deeper insights into target organizations. Work with a market research or data professional to administer a survey to targeted organizations to gather insights into their processes and practices, as well as the measures that they use to gauge success. We will go back to this information later in order to build out the benchmark scores.
Conduct primary qualitative research. If possible, conduct a site visit to the companies identified in step 2 and take notes on everything, with a special emphasis on best practices. It is important to follow rules related to competitive intelligence gathering during this phase. In order to ensure openness, be sure to work with those you are speaking to and arrange some sort of exchange of information that is mutually beneficial.
Finally, build out your benchmark assessment. Once you have gathered all the information you want from the competitors and organizations you have previously identified, conduct your analysis. Look at how your business scores on the same questions and in the same areas when compared to these other organizations. Once you have conducted this assessment, look honestly at your own organization and consider ways to modify the practices that your organization currently uses or adopt new practices completely.
The research phase of the best practices benchmarking process can be supported through the use of process mapping and other project management tools. It is with this in mind that we created the Benchmarking Collaboration Tool.
Unlike most traditional best practices Benchmarking techniques, Praxie’s online Benchmarking collaboration tools allow any team or organization to instantly begin working with our web templates and input forms. If you’d like to find out more about this tool and download a sample template, you can find it here.