Benchmarking improves performance by identifying and applying best demonstrated practices to operations and sales. Managers compare the performance of their products or processes externally with those of competitors and best-in-class companies, and internally with other operations that perform similar activities in their own firms.
It is all about comparing ones business processes and performance metrics to industry bests and best practices from other companies. In operations management benchmarking can also support the planning, marketing and quality control of a specific business undertaken. Dimensions typically measured are quality, time and cost.
The objective of Benchmarking is to find examples of superior performance and understand the processes and practices driving that performance. Companies then improve their performance by tailoring and incorporating these best practices into their own operations—not by imitating, but by innovating.
How Does Benchmarking Work?
Select a product, service or process to benchmark
Identify the key performance metrics
Choose companies or internal areas to benchmark
Collect data on performance and practices
Analyze the data and identify opportunities for improvement
Adapt and implement the best practices, setting reasonable goals and ensuring companywide acceptance. The benefits are clear.
Not only can you get an organized overview of your company and how it performs on different levels, you can also remain competitive. Benchmarking means you can easily spot when a competitor is doing well or beginning to struggle – both prime times to evaluate your own strategy. Competitive benchmarking can also fit around your business and its departments, being as broad or as granular as you like.
Companies Use Benchmarking To:
Improve Performance: Benchmarking identifies methods of improving operational efficiency and product design.
Understand Relative Cost Position: Benchmarking reveals a company’s relative cost position and identifies opportunities for improvement.
Gain Strategic Advantage: Benchmarking helps companies focus on capabilities that are critical to building strategic advantage.
Increase The Rate Of Organizational Learning: Benchmarking brings new ideas into the company and facilitates experience sharing.
When it comes to competitive benchmarking, it’s often include looking at the practice behind these metrics as well. This means companies can look to define ‘best practice’ for specific metrics and compare this to their own approach. With so much scope on what can be included, how do you even choose your competitive benchmarks?
One option is to benchmark against your closest competitors. Likely the ones that are most similar to yourself in terms of size and success. This gives you a good view of the companies you’re directly competing against and the ones most likely to be coming after you.
Your pre-existing KPIs are a good start of course, but this can be a chance to go a bit broader. Ask yourselves why you want to benchmark in the first place. Have a think about what metrics could be early indicators for bigger outcomes too. For example, if your share of voice on social media drops and a competitor takes the top spot this means it’s time to investigate.
Either something is going wrong on your end or they’re trying something new. You need to find out either way. This shows how only tracking your performance against your past self can miss an important part of the picture. You should also consult with all parts of the business to see what would be useful to include.
This will ensure the benchmarking has value for as many people within the company as possible. Don’t get hung up on sticking to top line metrics alone. This is a great choice for mid-to-near future planning and taking advantage of immediate opportunities. You could spot your main rival’s SEO performance trending downwards over the last few months.
That might mean planning your own SEO work to pick up the traffic they’ve lost, and ensure the same doesn’t happen to you. Of course, you might have bigger ambitions than fighting off your close competitors. You might be looking at the biggest and the best in your industry with plans to become one of them.
In that case, benchmarking against them can offer some insight into how you can achieve their success. The figures might look depressing at first, but with research and investigation you may see common approaches between the larger companies, or areas you’re particularly weak in compared to them.
Obviously it’s not as simple as just doing what the best do, but it can give you some very valuable insight into how they operate and work. It also gives you a look into how they build foundations for future work and projects.
Another approach is to look down the table. There are always smaller companies beneath your. In a time when disruption upends entire industries, it’s a mistake to not pay attention to the little ones. Benchmarking against the smaller players in the game can pay off.
It means you can see who is performing well and how they’re doing it. That way you can be ready as they get more successful and catch you up. This should help stop you getting caught off-guard. Bear in mind checking on everyone, big and small, would mean your reporting loses focus. Don’t let the data get cumbersome and hide important insights from plain site.
Segment your competitors into separate reports to suit your intended outcomes. So how do you measure your competitive benchmark metrics? Obviously, some data is easier to access than others. SEO metrics are pretty easy to get. There’s a huge range of tools out there that can tell you about a website’s performance (use Moz for example).
This kind of data is all public, so there isn’t a problem accessing it. The only downside is the best tools are paid. Keeping with public data, information on share of voice across online channels and social media metrics can be measured as well. That’s where Brandwatch steps in. You can use this platform to track a vast range of metrics that covers yourself, your competitors, and any topics you’re interested in.
Private data is much harder to get a hold of. Companies can be very cagey about the data they release. Obviously you can’t just call up a competitor and ask for all the data you want. That doesn’t mean you can’t get some of it. Do your research. Look out for sales reports, news articles, and press releases to see what info businesses are releasing (you could use Brandwatch for that too).
If you can find some regular releases, you may have something for your benchmarking. There’s also companies like Nielsen who conduct research for benchmarking and research purposes. Meanwhile, Companies House is a good place to look for larger companies.
Another option is to conduct your own research. Carrying out benchmarking surveys mean you can ask the exact questions you want from the exact people you want. This could be done openly or privately depending on which is best and will give you valuable insight. It can be a costly process, but if done right the returns will outweigh the costs.
Ultimately, competitive benchmarking can take some time to set up and track, but the insights you’ll gain will be invaluable. So what about internal benchmarking how can it help your business?
Internal Benchmarking is the simplest type of Benchmarking. Users do not have to pay attention to any external restrictions. In internal Benchmarking, organizations attempt to learn from their own structures. They study and compare similar processes throughout different areas to obtain information on the available efficiency.
Improve Performance: Benchmarking identifies methods of improving operational efficiency and product design.
Understand Relative Cost Position: Benchmarking reveals a company’s relative cost position and identifies opportunities for improvement.
Gain Strategic Advantage: Benchmarking helps companies focus on capabilities that are critical to building strategic advantage.
Increase The Rate Of Organizational Learning: Benchmarking brings new ideas into the company and facilitates experience sharing.
When it comes to competitive benchmarking, it’s often include looking at the practice behind these metrics as well. This means companies can look to define ‘best practice’ for specific metrics and compare this to their own approach. With so much scope on what can be included, how do you even choose your competitive benchmarks?
One option is to benchmark against your closest competitors. Likely the ones that are most similar to yourself in terms of size and success. This gives you a good view of the companies you’re directly competing against and the ones most likely to be coming after you.
Your pre-existing KPIs are a good start of course, but this can be a chance to go a bit broader. Ask yourselves why you want to benchmark in the first place. Have a think about what metrics could be early indicators for bigger outcomes too. For example, if your share of voice on social media drops and a competitor takes the top spot this means it’s time to investigate.
Either something is going wrong on your end or they’re trying something new. You need to find out either way. This shows how only tracking your performance against your past self can miss an important part of the picture. You should also consult with all parts of the business to see what would be useful to include.
This will ensure the benchmarking has value for as many people within the company as possible. Don’t get hung up on sticking to top line metrics alone. This is a great choice for mid-to-near future planning and taking advantage of immediate opportunities. You could spot your main rival’s SEO performance trending downwards over the last few months.
That might mean planning your own SEO work to pick up the traffic they’ve lost, and ensure the same doesn’t happen to you. Of course, you might have bigger ambitions than fighting off your close competitors. You might be looking at the biggest and the best in your industry with plans to become one of them.
In that case, benchmarking against them can offer some insight into how you can achieve their success. The figures might look depressing at first, but with research and investigation you may see common approaches between the larger companies, or areas you’re particularly weak in compared to them.
Obviously it’s not as simple as just doing what the best do, but it can give you some very valuable insight into how they operate and work. It also gives you a look into how they build foundations for future work and projects.
Another approach is to look down the table. There are always smaller companies beneath your. In a time when disruption upends entire industries, it’s a mistake to not pay attention to the little ones. Benchmarking against the smaller players in the game can pay off.
It means you can see who is performing well and how they’re doing it. That way you can be ready as they get more successful and catch you up. This should help stop you getting caught off-guard. Bear in mind checking on everyone, big and small, would mean your reporting loses focus. Don’t let the data get cumbersome and hide important insights from plain site.
Segment your competitors into separate reports to suit your intended outcomes. So how do you measure your competitive benchmark metrics? Obviously, some data is easier to access than others. SEO metrics are pretty easy to get. There’s a huge range of tools out there that can tell you about a website’s performance (use Moz for example).
This kind of data is all public, so there isn’t a problem accessing it. The only downside is the best tools are paid. Keeping with public data, information on share of voice across online channels and social media metrics can be measured as well. That’s where Brandwatch steps in. You can use this platform to track a vast range of metrics that covers yourself, your competitors, and any topics you’re interested in.
Private data is much harder to get a hold of. Companies can be very cagey about the data they release. Obviously you can’t just call up a competitor and ask for all the data you want. That doesn’t mean you can’t get some of it. Do your research. Look out for sales reports, news articles, and press releases to see what info businesses are releasing (you could use Brandwatch for that too).
If you can find some regular releases, you may have something for your benchmarking. There’s also companies like Nielsen who conduct research for benchmarking and research purposes. Meanwhile, Companies House is a good place to look for larger companies.
Another option is to conduct your own research. Carrying out benchmarking surveys mean you can ask the exact questions you want from the exact people you want. This could be done openly or privately depending on which is best and will give you valuable insight. It can be a costly process, but if done right the returns will outweigh the costs.
Ultimately, competitive benchmarking can take some time to set up and track, but the insights you’ll gain will be invaluable. So what about internal benchmarking how can it help your business?
Internal Benchmarking is the simplest type of Benchmarking. Users do not have to pay attention to any external restrictions. In internal Benchmarking, organizations attempt to learn from their own structures. They study and compare similar processes throughout different areas to obtain information on the available efficiency.
In internal Benchmarking, management looks at the inside. It is necessary to record and display the current work processes and practices objectively. This reveals the necessary details to focus the available resources on those aspects that need restructuring. It is therefore important to consider the following:
Company-Specific Benchmarking: It is hardly ever possible to find internal processes that can really be compared with each other. The processes are usually characterized by technological, organizational and personal influences and are targeted on ancillary plants or departments.
Corporation-Specific Benchmarking: This method is used when comparing several plants or parts of a company within a corporation. Users can thus identify weaknesses as well as the best practice within the organization. Compared to company-specific Benchmarking, the comparability is much higher: In principle, the possibility to find potential areas for improvements is, therefore, higher.
Corporation-specific Benchmarking is an objective and sound preparation of external Benchmarking and an assessment of the current position. It also helps to improve the internal communication and motivation. Functional benchmarking is also very common. This is done when data is lacking for direct benchmarking. The following are illustrative examples.
Processes: A telecom company compares its human error rates to aircraft maintenance benchmarks.
Service Quality: An airline compares its first class customer service to luxury hotels and spas as opposed to direct competitors using quantified customer quality perceptions.
Customer Service: A telecom company benchmarks customer satisfaction metrics against the IT services industry as opposed to other telecom companies.
Reliability: A bicycle manufacturer benchmarks its product reliability against aircraft and high speed trains as opposed to other bicycles.
Financial Metrics: An aspirational brand of electronics benchmarks its financial metrics such as gross margin against luxury fashion brands.
Brand Recognition: A local gym benchmarks its brand recognition against local restaurants as that's the only data they can find.
Sales: A home automation firm benchmarks its customer acquisition cost against solar panel installers as robust data is available.
Overhead: A spa benchmarks its administrative overhead costs to the restaurant industry.
Performance: A brand of luxury sports cars benchmarks its acceleration times against Formula One cars.
Strategic benchmarking on the other hand, takes a long-term view of company direction relative to the future strategies of competing companies. The first is to identify the object of your benchmarking project. Large general subjects are less appropriate for a benchmarking study than single procedures or concepts.
Strategic benchmarking looks at what other companies are doing in terms of top management capabilities, strategic initiatives, competitive product development and other long-term qualities and processes that have proved successful. Determining what a company is doing strategically is sometimes easier than trying to learn how they manage individual procedures.
Top management capabilities are often evident in the operations of the company. Leaders that are savvy in terms of technology tend to implement technology-rich processes. Strategic direction can be found in annual reports, if the company is public.
An understanding of how a competing product works will definitely have an effect on how your company designs and manufactures future products. The same is true for business strategy. For a small company or startup, a full strategic benchmarking project may take too much time and tie up too many key people.
A good way to approximate strategic benchmarking is use a management process such as Six Sigma, then apply SWOT analysis to each area of the company you would like to improve. With SWOT analysis, you can identify the strengths, weaknesses, opportunities and threats presented by a strategy, decision or performance.
The key is to implement your findings and not let your time and effort go to waste because you don't follow through with the application of your knowledge. The goal of benchmarking is to identify the weaknesses within an organization and improve upon them, with the idea of becoming the "best of the best."
The benchmarking process helps managers to find gaps in performance and turn them into opportunities for improvement. A company that decides to undertake a bench-marking initiative should consider the following questions: When? Why? Who? What? and How?
WHEN: Benchmarking can be used at any time, but is usually performed in response to needs that arise within a company. According to C.J. McNair and Kathleen H.J. Leibfried in their book Benchmarking: A Tool for Continuous Improvement, some potential "triggers" for the benchmarking process include:
- Quality programs
- Cost reduction/budget process
- Operations improvement efforts
- Management change
- New operations/new ventures
- Rethinking existing strategies
- Competitive assaults/crises
WHY: This is the most important question in management's decision to begin the benchmarking process. McNair and Leibfried suggest several reasons why companies may embark upon benchmarking:
To signal management's willingness to pursue a philosophy that embraces change in a proactive rather than reactive manner;
To establish meaningful goals and performance measures that reflect an external/customer focus, foster "quantum leap" thinking, and focus on high-payoff opportunities;
To create early awareness of competitive disadvantage; and
To promote teamwork that is based on competitive need and is driven by concrete data analysis, not intuition or gut feeling.
WHO: Companies may decide to benchmark internally, against competitors, against industry performance, or against the "best of the best." Internal benchmarking is the analysis of existing practice within various departments or divisions of the organization, looking for best performance as well as identifying baseline activities and drivers.
Competitive benchmarking looks at a company's direct competitors and evaluates how the company is doing in comparison. Knowing the strengths and weaknesses of the competition is not only important in plotting a successful strategy, but it can also help prioritize areas of improvement as specific customer expectations are identified.
Industry benchmarking is more trend-based and has a much broader scope. It can help establish performance baselines. The best-in-class form of benchmarking examines multiple industries in search of new, innovative practices. It not only provides a broad scope, but also it provides the best opportunities over that range.
WHAT: Benchmarking can focus on roles, processes, or strategic issues. It can be used to establish the function or mission of an organization. It can also be used to examine existing practices while looking at the organization as a whole to identify practices that support major processes or critical objectives.
When focusing on specific processes or activities, the depth of the analysis is a key issue. The analysis can take the form of vertical or horizontal benchmarking. Vertical benchmarking is where the focus is placed on specific departments or functions, while horizontal bench-marking is where the focus is placed on a specific process or activity.
Concerning strategic issues, the objective is to identify factors that are of greatest importance to competitive advantage, to define measures of excellence that capture these issues, and to isolate companies that appear to be top performers in these areas.
HOW: Benchmarking uses different sources of information, including published material, trade meetings, and conversations with industry experts, consultants, customers, and marketing representatives. The emergence of Internet technology has facilitated the benchmarking process.
The Internet offers access to a number of databases-like Power-MARQ from the nonprofit American Productivity and Quality Center-containing performance indicators for thousands of different companies. The Internet also enables companies to conduct electronic surveys to collect benchmarking data.
How a company benchmarks may depend on available resources, deadlines, and the number of alternative sources of information.
Best-practice benchmarking focuses on identifying outstanding techniques. For example, Information technology benchmarking includes data processing, systems analysis, programming, end-user support, and networks.
Infrastructure benchmarking includes data centers, networks, data/information, end-user support, and distribution remote centers.
Application benchmarking includes system analysis, development and maintenance programming, and functionality.
Strategy benchmarking includes skills assessment, information technology strategy, business-technology alignment, and delineation of roles and responsibilities. There are many motivators that drive the different types of benchmarking. Application benchmarking and infrastructure benchmarking, for example, use such motivators as cost, quality, competition, and goal setting.
Best-practice benchmarking focuses on identifying outstanding techniques. For example, Information technology benchmarking includes data processing, systems analysis, programming, end-user support, and networks.
Infrastructure benchmarking includes data centers, networks, data/information, end-user support, and distribution remote centers.
Application benchmarking includes system analysis, development and maintenance programming, and functionality.
Strategy benchmarking includes skills assessment, information technology strategy, business-technology alignment, and delineation of roles and responsibilities. There are many motivators that drive the different types of benchmarking. Application benchmarking and infrastructure benchmarking, for example, use such motivators as cost, quality, competition, and goal setting.
An advantage of benchmarking is that it facilitates the process of change, clearly laying out the types of solutions external organizations have used and providing a global perspective on how part of the company affects the whole. It further helps focus improvement in the areas where actual gains can be made.
Since management from top to bottom is responsible for the continued operation and evaluation of the company, it is imperative that management be committed as a team to using and implementing benchmarking strategies. A strong network of personal contacts as well as having an open mind to ideas is other keys.
In order to implement benchmarking at all stages, there must be a well-trained team of people in order for the process to work accurately and efficiently. Based on the information gathered by a well-trained team, there must also be an effort toward continuous improvement.
Other keys include a benchmarking process that has historical success, sufficient time and staff, and complete understanding of the processes to be benchmarked. In almost any type of program that a company researches or intends to implement, there must be goals and objectives set for that specific program. Benchmarking is no different.
Successful companies determine goals and objectives, focus on them, keep them simple, and follow through on them. As in any program, it is always imperative to gather accurate and consistent information which translates into value added to the company as well as its employees. Comparing your own business to a rival is essential when competing.
Without it, you would never know how successful your performance is in a market or whether you perform one or another task better than your competitor does. For example, 85% customer satisfaction might look great for you or even compared to your industry’s average, but what if some other companies (not necessarily rivals) easily achieve 97% rate? In this situation, your 85% satisfaction rate doesn’t look that brilliant.
Other keys include a benchmarking process that has historical success, sufficient time and staff, and complete understanding of the processes to be benchmarked. In almost any type of program that a company researches or intends to implement, there must be goals and objectives set for that specific program. Benchmarking is no different.
Successful companies determine goals and objectives, focus on them, keep them simple, and follow through on them. As in any program, it is always imperative to gather accurate and consistent information which translates into value added to the company as well as its employees. Comparing your own business to a rival is essential when competing.
Without it, you would never know how successful your performance is in a market or whether you perform one or another task better than your competitor does. For example, 85% customer satisfaction might look great for you or even compared to your industry’s average, but what if some other companies (not necessarily rivals) easily achieve 97% rate? In this situation, your 85% satisfaction rate doesn’t look that brilliant.
