Using Benchmark Analysis To Compete In Your Industry
In order to not only succeed as a business, but to also maintain and build on that success, you have to continuously evaluate your business processes, strategies, and methods. This is why you collect and analyze massive amounts of data — in order to identify areas that need improvement. However, you can’t always measure success using just your company data. Even if your business is improving from month to month based on your company’s data, it doesn’t provide you with much information as to how you are doing against your competition. This is where benchmarking comes in.
What Is Benchmark Analysis?
At some point, your standard of success can’t be limited to how much better your company is doing in the present compared to how it was doing in the past. This is why you will need to perform a benchmark analysis. A benchmark is a standard for something that you can compare against. A benchmark analysis involves performing a type of market research in order to evaluate and improve your business processes, strategies, and methods by comparing them to the best practices within your industry.
Essentially, it allows you to see where you stand compared to companies inside and outside of your industry, while also providing you with the information you need to improve your performance so that you can gain a competitive advantage.
What Are The Benefits of Benchmark Analysis?
Performing a benchmark analysis can be incredibly beneficial in a number of different ways. The following are some of the main benefits that a benchmark analysis can provide:
- Identify performance gaps – A thorough benchmark analysis will provide you with an objective perspective of the performance of your business processes. This, in turn, will let you identify and address your weaknesses and strengths to help close performance gaps using the best proven practices.
- Discover new opportunities – You may have an established way of doing business, but a benchmark analysis could reveal new methods and practices that could help improve your processes and strategies.
- Reduce resistance to change – There is often a resistance to change within organizational hierarchies — especially if your own data shows that your company has been steadily improving over the years. However, by being able to point out performance gaps between your company and your competitors, that resistance to change will likely weaken.
- Improve product quality – Using benchmark analysis, you can compare the quality of two similar products to see how your product holds up to the competition. This, in turn, allows you to identify areas in which your product could be improved.
- Improve sales and profits – By improving the quality of your product, you’ll improve the reputation of your company, which can help to lead to more sales and better profits. Not to mention that improving product quality may allow you to increase its price. Additionally, a thorough benchmark analysis could help you improve your marketing and sales efforts, which will lead to better sales and profits as well.
- Reduce business expenses – Benchmark analysis can help you identify ways to improve your business operations and processes, thereby reducing the resources that are required, which, in turn, will result in the reduction of business expenses.
- Attract better talent – Benchmark analysis can help you find out what your competitors are offering to employees in terms of salary, benefits, and more. By making sure there isn’t a big gap between what you offer and what your competition offers, you’ll put yourself in a better position to attract better talent to your staff.
- Improve employee performance – A benchmark analysis can allow you to obtain the information needed to establish a minimum standard of excellence within your workplace and to enforce that standard. As a result, you can expect employee performance to improve.
What Are The Types Of Benchmark Analysis?
There are several different types of benchmark analyses that you can perform. These include the following:
Process benchmarking involves identifying companies that engage in similar activities and identifying what practices they use that are effective that you can then apply and improve for your own processes. Usually, companies will figure out what the weak points of their products or services are and then focus on the processes that result in those weak points in order to improve them. For example, if you offer a superior product than a competitor but their price is lower, you would identify what processes result in the cost of your product being higher and then look for ways to improve those processes in a way that will reduce their costs.
When it comes to financial benchmarking, you’ll want to perform a thorough internal financial analysis and then compare your findings to that of another company’s in order to evaluate your competitiveness, efficiency, and productivity. Some of the metrics you may look at when performing a financial benchmarking analysis may include profits (gross, operating, and net profits), account receivables and payables, revenue, cost per employee, compensation data, and more. The ultimate goal is to improve your organization’s efficiency and reduce costs.
Performance benchmarking focuses on comparing the design, quality, reliability, features, price, and customer satisfaction of your products or services (as well as any other product or service-related metrics that can be measured, such as processes) with that of the competition in order to identify how strong your products or services actually are.
Product benchmarking requires you to compare your products or services to those that are considered the best in the industry in order to identify where your products or services lie within the market along with areas where you can improve your products or services. Product benchmarking does often require you to look into the products and practices of direct competitors within your industry.
Strategic benchmarking focuses on identifying successful strategies in or outside of their industry and applying those strategies and methods to your own process. Strategic benchmarking often involves comparing your own strategic goals with those of other businesses to identify new strategic options.
Functional benchmarking is the process in which you identify companies with the best marketing, HR, finance, or operations departments and apply the practices that they use in those functional areas. Because all businesses have these departments, you are not limited to looking at the competition when performing a functional benchmarking analysis.
Operational benchmarking focuses on benchmarking staffing, productivity, and office flow processes. Benchmarking the uptime of your IT department against that of a competing business would be an example operational benchmarking.The goal of operational benchmarking is to identify process gaps along with process improvements that you can make.
Controlling energy consumption throughout your organization can help to greatly reduce overhead costs as well as help improve your reputation as a more environmentally-friendly business. As such, energy benchmarking can allow you to make more effective, long-term energy management decisions. However, there are a lot of factors to take into account when it comes to energy benchmarking, such as your business processes, manufacturing processes, staff size, building size, and more. Fortunately, energy benchmarking can be done using any business, inside or outside of your industry, in order to find new ways to cut down on energy use.
What Is The Difference Between Quantitative and Qualitative Measures?
Although there are many types of benchmarking, there are two main approaches. These approaches consist of quantitative methods and qualitative methods. Quantitative methods compare performance results using KPIs (key performance indicators). This is done for benchmarking in areas like sales, marketing, financials, and market share. Qualitative benchmarking is more concerned with identifying the best operating practices, such as the quality of your product or service (which includes features), production techniques, and training methods.
What Is The Difference Between Benchmark Analysis and Competitor Research?
At first glance, performing a benchmark analysis may seem like the same thing as competitor research; however, they are two different things. Competitor research shows you how you can copy a competitor’s approach, whereas benchmark analysis focuses on surpassing their results. Competitor research can sometimes be classified as corporate espionage as well. When you perform a benchmark analysis, you’re looking for businesses who have achieved the results you want your business to achieve. It’s not a way to make quick fixes, it’s a way to develop and improve long-term strategies. The businesses you benchmark against may not even be competitors, in which case you can partner with them and share information.
What Are The Steps In Benchmark Analysis?
Now that you know what a benchmark analysis is and the different types of benchmark analyses you can perform, you’ll want to know how you can actually go about performing a benchmark analysis. The following are the basic steps you’ll need to take in order to perform a benchmark analysis:
1. Create A Plan
The first thing you’ll need to do is to identify what processes, products, or services you want to benchmark. Once you know what it is you want to benchmark, you’ll need to identify the key activity performance measures or indicators that will help provide you with the information you need.
2. Identify Your Competitors
Once you’ve analyzed your internal data, you need to find other businesses to benchmark your data against. You’ll need to identify what companies are leaders within their industry (depending on the process you’re trying to benchmark, this can be either competitors within your industry or non-competitors outside of your industry).
3. Collect Information
After identifying the company (or companies) that you want to benchmark against, you will have to collect the information that you need. There are many ways to go about this — you can interview executives from the company you want to benchmark against if they are willing partners, you can gather data using a variety of analytics tools (there are many tools out there that allow you to analyze data on other company websites), you can read through relevant case studies, and more.
4. Analyze The Data Gathered
Once you’ve gathered the data that you need, you will need to determine if it will help you to benchmark your own processes against theirs using that data. Analyze the data to reveal whether there are practices, strategies, methods, or more that could help you improve your process, product, or service as desired over the long-term.
5. Improvise Your Processes
Following your analysis, you will want to develop a plan to improve your processes, using the data you’ve collected externally to benchmark your progress. As you execute these changes, you’ll want to monitor your progress and schedule future benchmarking activities in order to foster further improvement.
Benchmark Your Way To Success
It doesn’t matter how successful your business currently is, your goal should be to continue to find new ways to improve your organization so that you can not only maintain that success, but build on it. With that in mind, you need to have a good understanding of how competitive your company is in all aspects of business. This is why you should regularly analyze your processes, products, and services across your organization and why you should identify competitors and other businesses against which you can benchmark your findings. Doing so will help you identify weaknesses in your processes, strategies, methods, or products that you can address and continuously improve.