Business is ticking along nicely for you. Key performance indicators have been decided. Your markers are being met. Growth is steady. Employees are content. But did you know you could be doing even better? How? Benchmarking.
Benchmarking is the process of measuring the performance of your products, your services or your processes against those of other businesses. The concept reflects the idea that performance measurements (including those useful KPIs) mean very little in and of themselves. To become meaningful, they need a basis of comparison. You can't just look at numbers in isolation; rather, they need to be compared to - that is, benchmarked against - an objective standard or reference point.
What is benchmarking?
Benchmarking has a long history of use in the manufacturing industry, where measurements are easily generated from physical products. These days, it is being used by businesses in practically all sectors. Across the economy, enterprises are comparing KPIs and performance measurements to industry standards. The comparisons can be made in a variety of areas:
- turnaround time
- customer satisfaction
- customer retention
- employee retention.
As the practice developed quite a bit from its earlier manufacturing days, you now have quite a lot of latitude in choosing what your business wants, and maybe needs, to benchmark to make your business better.
The top 6 reasons why you should benchmark
Some businesses choose not to benchmark, believing that they should not be copying any other business. In answer to that, we say that they should be aware that benchmarking does not mean blindly 'copying' what competitors do. It means understanding what is the acceptable standard in the industry, and where you stand in relation to it.
Simply put, benchmarking provides insight, leading to discovery and onwards to improvement. Through it, you can:
- identify opportunities, strengths and weaknesses
- understand customers' needs
- monitor performance and manage change.
With all this in mind, the top 6 specific areas of your business that benchmarking will help you improve are:
- Staff effectiveness: Improve understanding of your cost structures and internal processes; encourage team-building and cooperation; and enhance familiarity with key performance metrics and opportunities.
- Improved quality: Benchmarking helps you continually improve the quality of products and services. You can discover the current standard, and then try to surpass it.
- Better performance: Overcome complacency. Always striving to improve performance standards will help you stay relevant in the market.
- Cost efficiency: Gain valuable data on the latest technologies and processes in your industry, which can increase productivity while reducing cost.
- Prioritising areas of improvement: If you're unsure about where to start raising the game, then benchmarking will help you identify the largest gaps between your standard and the best in the industry.
- Leveraging strengths: Throw light on - and get validation through - the areas where you're clearly doing better than 'the rest'. This is useful in planning your marketing.
Examples of the questions you can ask in a benchmarking exercise include:
- How does your gross profit margin compare with industry leaders?
- Are your productivity levels and overheads higher or lower than your main competitors?
- Is your turnaround time slower or faster than the industry average, and by how much?
- Is your employee staffing level optimum and how does it compare with other businesses in your industry?
- How does your quality compare to your competitors in terms of number of rejected/defective items, or on return clients?
How do you find the data you need?
It sounds easy: find the data and compare. But how do you go about collecting that data? There are several ways. These are the best:
- Ask your business or industry association: Many associations collect this detailed information and members can use it for measuring their performance.
- The Australian Tax Office: The body's small business benchmarks are a useful guide for comparing your business's performance against similar businesses in the same industry.
- Use a commercial benchmarking business: This will cost you, so make sure you do your research and find a company that provides what you need. Your accountant, business networks or industry association may have recommendations for a suitable firm. Also ensure that:
- Do your own benchmarking: If you have the expertise, you could do your own benchmarking. You will also need to set aside quite a bit of time: first to find and access the data you need, and then to research and record your results. To make this process easier, you could also use a combination of data from a commercial benchmarking company and your own research.
6 steps to successful benchmarking
So let's say you've decided to tackle benchmarking in your business, and are now ready to take the plunge. Use these steps to work your way through the benchmarking process:
- Identify what you're going to benchmark: Choose a product, service or department to benchmark and start with targeted and specific questions. These questions should be able to be explored using qualitative or quantitative research, and be in line with your business strategy.
- Identify your competitors: Write down a list of who your competitors are. Most businesses benchmark within the same industry. Identify effective tactics used by your competitors and the areas in which their business is performing better than yours.
- Look at trends and collect data: Look at recent statistics to analyse any current trends for insights into how fast your industry is moving and how you can plan ahead to keep your business in tune with customers' needs. Collate the data you need.
- Outline your objectives: After the results of the analysis have been interpreted and communicated to the right people, goals should be established - these should be concrete, attainable and in line with your business strategy. Make sure you list all your goals in your marketing plan.
- Develop an action plan for your objectives: Define specific, concrete actions to be taken. Your actions should detail the tasks involved and include specific names and dates associated with each task.
- Monitor your results and implement the action plan: Continually monitor the results of the actions you undertook following the benchmarking, and ensure the plans are applied consistently.
Setting a new standard
Comparing your business with others can be daunting, but it's worth it to take your business to a new level - to set that new standard. While measuring performance by monitoring KPIs has become regular practice for many businesses, taking the next step of benchmarking can really elevate your performance.
Without benchmarking, those KPIs can simply be numbers in isolation. Without context or reference point they have little meaning.
If you're convinced that benchmarking is worth a look but feel these action steps are overwhelming or that the idea of benchmarking too complicated, please talk to us. Remember, insight leads to discovery and business improvement. Contact us to find out more.