Keeping an eye on how your business is doing in various areas is a crucial step for any company committed to doing well. Imagine mixing this with smart tactics to do better than your competition.
There are clearly many different things you can watch and measure to see how your business is doing. Let’s explore how using this comparison approach can boost your marketing and overall business game and why it’s so important for staying profitable and ahead in the long run.
What Is Benchmarking?
Benchmarking is a term that refers to the process of identifying areas for improvement within a company by comparing those areas to the performance of the highest-achieving competitors.
This approach isn’t about copying what others do; it’s about understanding the strategies behind their success and adapting them to fit your unique context and goals.
Think of it as setting a high mark based on others’ success to aim for in your growth journey. This high mark acts as a guide and target for what your company wants to achieve. It shines a light on what’s not working as well as it could be.
Striving to be the “best in class” is a significant challenge. It entails aiming for excellence, a status that ensures financial success and enhances your company’s standing in the market.
Key Takeaways
Benchmarking is a series of steps taken to create reference points for the performance of a product, service, or process when compared to other businesses;
Benchmarking helps to streamline and optimize processes, which translates into lower operational costs;
Market research and data collection are important parts of benchmarking since accessing data that may be of interest to a company is rarely straightforward.
How to Define Benchmarking?
Benchmarking is a series of actions that gather and organize data on specific metrics. Companies use those data to improve their own products, services, or processes.
A benchmark comparison may be drawn between your brand and a direct competitor or a completely unrelated business. It all depends on the goals of the benchmarking in the first place.
There are a few standardized steps in the process of benchmarking to keep in mind when developing your strategy.
Planning: During the planning stage, businesses identify areas for improvement and compile a list of competitors. For instance, a retail store may identify customer satisfaction as an area for improvement and compile a list of rival stores in the area.
Data Collection and Analysis: Data collection begins after identifying competitors and industries. Different metrics are targeted based on the company’s goals. For example, if the goal is to improve sales efficiency, metrics such as average transaction time and conversion rates may be collected and analyzed.
Utilizing Information: After gathering relevant data, the organization assesses how these metrics can enhance its own processes or products.
Implementation of Changes: Once all relevant data is collected and a plan for implementing changes is established, the company can make adjustments and monitor future performance. For example, if the benchmarking process reveals inefficiencies in customer service, the company may implement new training programs for employees and monitor customer satisfaction metrics over time.
Why Is Benchmarking Important?
Benchmarking speaks for itself when it comes to its importance for businesses. Without clear information on the processes and performance, a company may struggle to identify areas for improvement and fall behind the market trends.
1. Benchmarking helps save money
Thanks to its positive influence on the overall performance and efficiency of specific processes, benchmarking can impact the bottom line by helping to cut down on unnecessary expenses.
Benchmarking enhances operational efficiency, which aids companies in streamlining their processes and, ultimately, helps to reduce business expenses.
A company may unknowingly be pouring funds into poorly optimized processes or products. By clearly identifying these areas, businesses can bring them up to industry standards.
2. Drives innovation
Benchmarking fosters a culture of innovation within organizations by encouraging them to continually seek better ways of doing things. Companies are motivated to innovate and develop new strategies, technologies, or products to stay competitive by comparing their practices and performance with industry leaders.
3. Guides strategic decision-making
Benchmarking provides valuable data and insights that inform strategic decision-making processes. By comparing their performance metrics with industry benchmarks, companies can make more informed decisions about resource allocation, market positioning, and long-term strategic plans, ensuring they stay ahead of market trends and competitors.
Types of Benchmarking Strategies
The best benchmarking strategies for a specific company will be closely related to the data it has access to. In addition, the company’s goals will matter since different strategies may have different effects on the performance of products, services, or procedures.
Depending on the available data and the company’s goals, one of the following benchmarking strategies may be applied.
1. Strategic comparisons
As its name suggests, strategic benchmarking compares your business’s techniques and strategies to those that have propelled competitors to success. This kind of comparison can be particularly useful for new companies that are still developing their unique strategies.
2. Operational efficiencies
Operational efficiencies or process benchmarking involves analyzing specific processes within your organization and comparing them to those of industry leaders or competitors.
By identifying best practices and areas for improvement, companies can streamline their operations and enhance efficiency.
3. Departmental (functional) excellence
Functional benchmarking focuses on comparing similar functions or departments across different organizations. For example, a marketing department may benchmark its performance against other companies in the same industry to identify opportunities for improvement and innovation.
4. Internal performance insights
Internal benchmarking involves comparing performance metrics or processes within different departments or divisions of the same organization. By identifying top performers and sharing best practices internally, companies can drive continuous organizational improvement and standardization.
5. Client experience metrics
Client benchmarking involves comparing your company’s performance metrics related to customer satisfaction, loyalty, and retention with those of competitors or industry leaders.
By understanding how your customer satisfaction levels stack up against others in the market, you can identify areas for improvement and prioritize strategies to enhance the overall customer experience.
Additional Tips & Tricks
- The benchmarking process relies heavily on market research, which is why you may wish to invest more into improving this area of business before committing to changes in a specific process;
- Performance benchmarking is one of the most common types of benchmarking. It helps to identify the performance gap between a competitor and your own business regarding the successful execution of a process;
- Different metrics are tracked for different purposes. The key performance indicator that you will need to focus on in the data collection stage will also depend on the purpose of your benchmarking efforts.
The Bottom Line
Benchmarking is the comparison of products, services, and processes between companies to create a benchmark or target metric. The process involves market research, data collection, data analysis, and the implementation of relevant changes to improve business performance.
Now you know what benchmarking is, why it is important, and strategies for benchmarking. You’ve got a few tips and tricks in your pocket. With all this knowledge, you are ready to implement the benchmarking strategy into your business.
Benchmarking FAQs
The benchmarking process may be categorized into many different types depending on the company that defines it. Common types of benchmarking include internal, external, and strategic benchmarking. Performance benchmarking and process benchmarking are also sometimes added to this list.
The term “benchmark,” or “survey benchmark” refers to the parallel lines that were chiseled into stone buildings so that an angle iron could be inserted to create a “bench” for a leveling rod. This allowed leveling rods to be precisely readjusted in the same location afterward. With time, the term benchmark began to indicate a future reference point.
A benchmarking plan may cover a variety of metrics that need to be tracked and compared. For example, it may denote specific KPIs to pay attention to, how these will be used, and examples of the successful application of changes after collecting certain data.
Digital benchmarking is a type of performance benchmarking that is conducted online. A business may compare its engagement rate, bounce rate, or the number of unique visitors on its website to competitors’ websites, and seek to make improvements.
