How to Use Benchmarking and Stay Ahead of the Competition

Benchmarking is an excellent and efficient way to discover your business’s highest performance standards by examining other companies’ success.

As a leader or business owner, you must constantly seek ways to grow the company and improve performance. While how you define growth and performance varies in every company, the effects of low productivity and inefficiency are often the same.

Understanding how to improve these two aspects allows you to create an effective growth strategy. Benchmarking can help you along this process by comparing your company against the standards of successful competitors. This guide discusses benchmarking in depth while exploring its importance and how to create a successful process.

What is Benchmarking and Why It Matters

The benchmarking definition refers to a business strategy that enables you to determine your company’s success based on other competitors in your industry. Knowing how industry giants achieve outstanding results and what sets them apart can help you re-strategize to attain similar or better outcomes.

Benchmarking outlines the right standards, which is an effective way to recognize growth opportunities and areas of improvement. Evaluating particular metrics and KPIs makes setting benchmarks for different teams or business areas easier. You can compare your data with industry statistics to see how you’re performing and determine how to gain and maintain a competitive edge.

Types of Benchmarking

Benchmarking often involves assessing your business inside and outside, depending on the areas you want to focus on. There are several types of benchmarking, including:

• Strategic Benchmarking
  Strategic benchmarking involves assessing your business performance against a top-performing competitor. It doesn’t have to be a direct competitor if the company has a refined business operation or process that interests you.

  Figuring out what makes similar companies thrive encourages you to gain a different perspective on your current processes and implement new ones. Instead of swift short-term changes, you can ensure long-term and continuous improvement by reconsidering core procedures.

• Technical Benchmarking
  Technical benchmarking involves comparing your services or products with those of top competitors to see their individual capabilities. It allows you to determine exactly how your company or product compares to others in your field.
• Performance Benchmarking
  Performance benchmarking aims to help you recognize improvement areas and gaps you can leverage. This process involves comparing how your business processes, operations, services, and product lines perform in the market against industry giants or competing businesses.

  Performance benchmarking requires collecting quantitative data and comparing KPIs to assess key metrics. It focuses on business operations, helping you achieve swift or more short-term results. Guided by the results of your KPIs, you can easily optimize your reporting and analytic skills.

• Competitive Benchmarking
  This type of benchmarking helps you understand industry performance standards. Assessing your competition’s methods, procedures, services, or products gives you a better understanding of their position in the current market. Analyzing the differences allows you to identify where to improve and create an effective strategy for doing so.
• Internal Benchmarking
  You can learn a lot by evaluating your company’s or business’s own performance. Internal benchmarking involves comparing the practices, metrics, or KPIs in different business areas. For instance, you may compare locations, teams, departments, or products with similar metrics to figure out the best approach to boost performance in each.

Since you’ll use internal data, you’ll have an easy time setting company-wide standards while creating a more streamlined and consistent framework.

How to Start Benchmarking: Step-by-Step Guide

During the process of benchmarking, you must evaluate your company’s current state and outline the specific metrics you wish to track. Doing so allows you to develop a successful action plan and continuously monitor your progress.

Although every company is different, benchmarking in business will be simpler if you take the following steps:

1. Strategize With Stakeholders

Key leaders and decision-makers should participate in determining the benchmarks to apply and what matters most to your company. You can prioritize activities depending on the metrics that carry the most weight to the stakeholders.

2. Identify What or Who to Benchmark

This step requires you to decide what processes, products, or competitors you want to look at. When comparing competitors, consider how easily you can access the necessary data and reliable sources.

3. Determine your Current Processes

Having a baseline is necessary for analysis and benchmarking. You may start by documenting the current business processes and metrics, which allows you to compare them with the outlined benchmarks.

4. Gather and Analyze Data

What you do in this step depends on the type of benchmarking you’re conducting. It may involve tasks like getting in touch with business contacts, evaluating employee data, issuing questionnaires, or conducting thorough research.

5. Compare Current Performance with the Collected Data

This step involves looking at your business processes and metrics against the collected data. Such a comparison helps you identify areas where the business, team, or company lags and any gaps affecting performance.

6. Share the Next Steps to Implement Necessary Changes

With a clearer understanding of existing gaps, the next step is suggesting possible ways to implement change for better results. Create a detailed action plan highlighting the involved team members, KPIs to track, timelines, and overall goals.

A written plan helps your team understand the next course of action better.

7. Evaluate Progress, Adjust, Repeat

It’s advisable to assess your current position over time. If the process is successful, you can consider the other areas that will benefit from the benchmarking. Identify the specific hurdles and discuss how to improve if you encounter any challenges.

Benefits of Benchmarking for Your Business

Making benchmarking a regular activity can benefit your business in profound ways, such as:

• Lowering costs by enhancing efficiency
  Benchmarking is an excellent way to boost performance by improving efficiency. In addition to streamlining business processes, it helps you cut costs and gain more revenue.
• Better internal operations
  Benchmarking your procedures and processes and comparing results with internal standards can empower your team to be more productive and efficient over time.
• Recognizing performance gaps
  Monitoring particular metrics and KPIs is the most effective way to realize performance gaps. For instance, you can compare how different departments work to determine how to uplift lagging teams.
• Understanding competition
  Knowing what makes competitors more successful gives you a deep and clear perspective of your business, allowing you to emulate similar or better results.

Challenges of Benchmarking and How to Overcome Them

Benchmarking can be a robust tool that elevates your business to thrive among competition. Understanding the potential challenges you may encounter and how to overcome them will allow you to reap more benefits from the strategy.

1. Accessing Reliable Data

Benchmarking is often challenging due to limited access to data or unreliable sources. Some companies need more resources to collect and evaluate benchmarking data. Sometimes, it’s also difficult to access competitor or industry data due to limited availability or privacy issues.

Cultivating partnerships, outsourcing data collection, and acquiring advanced data collection tools are the best ways to overcome this challenge.

2. Resisting Change

Your workplace culture and resisting change can cripple your ability to implement the necessary changes after benchmarking analysis. Team members who are comfortable with the current processes may resist the new strategies.

Fostering a culture of continuous change and improvement will help overcome this challenge. Encourage your team to participate in decision-making, offer support and training, and ensure open communication.

3. Lacking the Commitment to Follow Through

Benchmarking requires consistency and commitment from management to get tangible results. With this dedication, the initiatives you need to implement will succeed.

The best move is to make benchmarking a part of your strategic plan, create a culture of regular benchmarking, and allocate clear responsibilities for the process.

4. Over-depending on external benchmarks

External benchmarks are great sources of valuable insights that can be used to improve. However, they sometimes result in ineffective implementation processes and unrealistic goals.

Avoid neglecting internal benchmarks. They give you a unique and practical context and will also help you implement more effectively.

Key Metrics to Measure in Benchmarking

Benchmarking is not a one-day event, as it requires implementing continuous changes. The only sure way to measure and track your progress is through metrics. The particular metrics to prioritize depend on your company and business processes. Consider monitoring key metrics such as:

Financial Metrics

These metrics give you valuable data about your company’s financial health and status. They are such as:

• Debt-to-Equity Ratio
• Return on Investment (ROI)
• Gross Profit Margin
• Profit
• Revenue
• Expenses

Operational Metrics

These metrics give you more clarity on how effective and efficient your business processes are. Some examples are:

• Employee productivity
• Customer satisfaction score (CSAT)
• Cycle time
• Social media reach
• Market share

Examples for Benchmarking

Strategic Benchmarking

Strategic benchmarking ensures your goals align with best practices in your sector. For instance, you can compare your company’s growth strategies and marketing KPIs with industry giants like Google to identify areas for refinement.

This process also involves:

Comparing your budget and headcount against industry benchmarks to allocate resources effectively.

• Optimizing costs by aligning spending with strategic priorities for maximum ROI.
• Establishing a baseline for your function’s contribution to business strategy.
• Developing a clear roadmap to improvement by addressing gaps in organizational structure, talent, technology, and processes.

Performance Benchmarking

Performance benchmarking helps clarify your market position and identify areas for improvement. By comparing metrics and KPIs with top competitors, you can pinpoint focus areas to enhance efficiency and performance. Additionally:

• Competitive Benchmarking: Compare your business processes against competitors to address performance gaps and grow your market share.

Marketers can leverage digital benchmarking tools, such as those offered by Gartner, to gain actionable insights and elevate their performance. These tools provide access to hundreds of data points, summarizing your brand’s digital efforts across four dimensions and six distinct industry groups, enabling you to:

• Measure brand health and evaluate investments.
• Optimize digital spending for strategic impact.
• Enhance your digital mindset and strategy execution.

FAQs on Benchmarking

1. What are some categories of benchmarks?

Benchmarks fall under different categories, such as strategic benchmarks that align your goals, performance benchmarks, and process benchmarks that enhance your productivity and efficiency.

2. What is an example of benchmark data?

You can use benchmark data such as the average customer satisfaction rates in your industry. Measuring your customer satisfaction rate against such a benchmark helps you understand how far your team needs to go to fulfill customer expectations.

3. How is benchmarking related to metrics?

Benchmarking involves recognizing industry best practices and setting performance standards based on them. Metrics provide specific measurements that help you monitor different business areas against the overall objectives and goals. Benchmarks set the standards, while metrics track your progress towards these standards.

4. What is the difference between benchmarks and KPIs?

Key Performance Indicators and metrics go hand in hand and align with particular business objectives. They highlight your current performance based on your goals.
Benchmarks are the targets by which you measure your KPIs. Comparing your current standing with KPIs clarifies your weaknesses and strengths, helping you make smart decisions that drive business expansion.

Conclusion

Benchmarks are robust tools that businesses and companies can leverage to improve and boost performance. Knowing how to use them effectively allows you access to invaluable insights that inform key decisions and ensure long-term success. Maintaining a stride ahead of the competition becomes easy when you habitually compare internal metrics and KPIs against industry standards.

Since all benchmarking activities require data and specific formulas, handling the processes manually leaves room for errors and inaccuracies. You need an advanced, comprehensive, customizable, and easy-to-use benchmarking tool.

Invest in a platform with simple dashboards and useful templates to help you monitor your progress and automate the benchmarking process.