As this noble businessman Bill Gates, Co-founder of Microsoft stated “Your most unhappy customers are your greatest source of learning”, markets have become unstable and customers need more carefulness. One day business is born in a market. As a newborn, it grows to have an eye on the existing sister companies. As a business manager if you aren’t aware of what is happening around 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. To know the power needed in order to acquire a market niche or conquer a number of customers, it will conduct a study or survey by which it will weigh itself compared to competitors in the industry. That is Benchmarking, which is the process of comparing your business processes and performance metrics to competitor bests or best practices from other industries. Usually, the quality, cost, and time are the main dimensions measured while conducting benchmarking. Some Organizations also choose to look at best-in-class scores for specific measures to identify which businesses are flourishing in an effort to mirror and mimic their results. Most often, metrics used for comparison include sales figures, quality of products or services produced and delivered, brand awareness, or customer experience.
The result or fruit of benchmarking is guiding the business company to beat competitors at their own game. The competition is high in the business world, the fight for acquiring a market share is crucial. It’s getting more complex especially in the current period of COVID-19.
On the cost side, benchmarking takes financial figures and converts them into ratios, it allows a comparison of your results to those of your competitors.
In essence, benchmarking also helps you understanding who else sells in your market and therefore you commit for improvement. While carrying out the benchmarking, it is important to measure all your performance against the best performers, the bigger organizations that are considered to be the leaders in the respective industry.
In very simple words, there are three important questions an effective competitive benchmarking must answer:
- Who should I follow for the best practice?
- How is my brand (product/service) performing against my competitors?
- Where are the gaps I need to focus on?
An effective benchmarking helps to determine the competitors’ strengths and weaknesses and eases the work of viewing others’ offerings in direct comparison to your own. In other words, it provides oversight on gaps within your operations and marketing and subsequently identify areas for new business offerings to consider and expand on.
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.
How and what is the process to benchmark?
In order to benchmark any business against another in the industry, one must identify first which metrics and measures he will be interested in measuring. In the case of high competitors’ performance, benchmarking will be extremely helpful, as it will allow the organization to better understand not only how its competitors are performing, but also what procedures or strategies are being used to achieve higher results. To perform it, what is the process for setting up the metrics, methodologies, milestones, and comparisons which might be used to measure the success of a benchmarking function?
Seven Steps in the Benchmarking Process
1. Conduct an internal self-assessment in order to determine which functional areas within your operation are to be benchmarked; with high focus on those that will benefit most from the benchmarking process, based upon the cost, importance, and potential of changes following the study. 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.
2. Identify the key factors and variables with which to measure those functions; usually in the general form of financial resources and product strategy.
3. Select the best-in-class companies for each area to be benchmarked; with an open-eye on those companies that perform each function at the lowest cost, with the highest degree of customer satisfaction. Best-in-class companies can be your direct competitors i.e foreign or domestic; even companies from a different industry i.e parallel competitors with replacement or substitute products or services.
4. Measure the performance of the best-in-class companies for each benchmark being considered, consider the companies themselves, articles in the press or trade journals, analysts in the market, credit reports, clients and vendors, trade associations, the government or from interviews with other organizations willing to share their prior research.
5. Measure your own performance for each variable and begin comparing the results in an “apples-to-apples” format to determine the gap between your firm and the best-in-class examples. The SWOT analysis may be of great importance, and hence feel free to estimate results, as exact measures are usually disproportionately difficult to obtain and often do not significantly add value to the study.
6. Specify those programs and actions to meet and surpass the competition based on a plan developed to enhance those areas that show potential for the compliment. Once well determined, the a business entity can choose from a few different approaches to apply: from simply trying harder, to emulating the best-in-class, changing the rules of the industry or leapfrogging the competition with innovation or technology from outside the industry.
7. Implement the above programs by setting up specific improvement targets and deadlines, and by developing a monitoring process to review and update the analysis over time. That will also form the basis for monitoring, revision, and recalibration of measurements in future benchmarking studies.
The end-result of the benchmarking process should obviously be making a positive impact aiming at higher customers’ satisfaction, better deliverables, products, and services increased sales, sustainability, and therefore higher profitability. One will only succeed in product or service development once he knows the power of the existing products/services compared to those of the competitors. The image of the business company and the market share will definitely be positively improved at the level of being also feared by the competitors. As technology and innovation keep growing, that brings us to the conclusion that the benchmarking process is never ended. Losing the focus may lead to the high risk of being left behind by your competitors, even worse, running a firm disrupted by the next innovation that comes in the industry and on the competitive market.
As said Tony Robbin “Identify your problems but give your power and energy to solutions”,
once the gap identified, the obvious next step should be concentrating all powers and resources to solutions.