Have you heard of benchmarking in business? If you haven’t, you need not worry, as this discussion will focus on “what is benchmarking in business”.
You will need to keep reading on to know more.
What Is Benchmarking? – What Is Benchmarking in Business
Benchmarking in business is the process of measuring your company’s performance, growth, processes, and quality against other businesses in your industry.
Most often, the businesses you compare your business with have to be “the best”.
The main objective of this practice is to discover your business’s strengths and weaknesses and make the needed improvements.
There is always room for improvement.
Hence, utilising benchmarking in your business will ensure continuous improvement that puts your business ahead.
Benefits of Benchmarking – What Is Benchmarking in Business
Benchmarking in business brings about improvement in businesses.
Some of the improvements and benefits that businesses using benchmarking tend to enjoy include the following:
Regular practice of benchmarking enables a company to identify those areas in need of internal improvement.
This helps contribute to a company’s overall efficiency and effectiveness.
When this happens, such a company will enjoy reduced costs as waste will be cut out in their operation process.
Those reduced costs, such as effort, time, and monetary costs, will streamline operations and help retain more revenue.
Provide New Discovery and Opportunities – What Is Benchmarking in Business
Doing something the same way over a period is sometimes the cause of slow progress or growth.
Practising benchmarking will help you to see how other businesses are doing things.
This can provide you with discovery and ideas to move your business from where it is to a better state.
In other words, by assessing successful companies, you can develop plans to boost your business performance and utilise different opportunities.
Improve Your Business Goals
Your business goals are unique to your company.
However, when you set goals and struggle to attain them, it is most likely that you didn’t set SMART goals.
Assessing successful businesses can help you understand how to create better goals.
Increased Sale Performance – What Is Benchmarking in Business
High sales greatly improve a business’s overall success.
However, it can be a barrier when you don’t have the proper insight to comprehend your business sale performance.
Practising benchmarking helps you review your sales performance and figure and then compare them with the successful companies in your industry.
This will help you to understand your sales better and help you to improve its performance.
Regular benchmarking in your business can serve as a great way to increase your employees’ motivation and contributions to the company.
You can improve your employees’ motivation by using benchmark assessments that evaluate specific departments in your competitor’s business.
Then, you compare the results to the appropriate departments in your company.
Let your employees know about this and help them outperform the competition by setting SMART goals for them.
Implementing reward and recognition programs will also help them stay motivated as they work towards these goals.
Improve Your Customer Loyalty and Satisfaction – What Is Benchmarking in Business
Benchmarking can work to improve your customer loyalty and satisfaction.
This is because you will also gather data and feedback from the competition customers when you benchmark.
You will gain insight into what makes their customers loyal and happy.
As a result, you will discover ways to improve your offers for your customers and promote their loyalty and satisfaction.
Understand Your Company Advantages
Benchmarking doesn’t only work to identify your business’s shortcomings but also its strengths.
Identifying your business strengths can serve as a motivation for you to do better in your business.
Regular benchmarking will help you know how well you have improved and provide momentum to keep working towards excellence.
Types of Benchmarking – What Is Benchmarking in Business
Benchmarking is of different types, which are:
This involves gathering, comparing, and assessing quantitative data with key performance indicators (KPIs).
Performance benchmarking serves as the first action toward identifying performance gaps in businesses.
To do a performance benchmark, you will use standard measures or key performance indicators, also known as metrics.
Additionally, you will need a method of collecting, extracting, and analysing the data required.
The data you get is what you will use to identify your performance gaps.
Practice Benchmarking – What Is Benchmarking in Business
This involves gathering, comparing, and assessing qualitative information about how an operation is done through people, technology, and processes.
What is needed for this is a standard method for gathering and comparing the needed qualitative information.
An example of a standard method is process mapping.
The result of performing this type of benchmarking will provide insight into how and where a performance gap occurred.
Also, it will give insight into the best practices you can adopt to apply to those gap areas.
This involves comparing your business’s current performance, operation, or practices to previous ones in different programs, practices, and departments within the company.
To do this, you need to have up to two or more areas within your company that have mutual practices or metrics.
For example, the sales and marketing departments sometimes share mutual practices.
Internal benchmarking will provide an understanding of your business’s current performance standard.
It will also help you to identify effective ways of utilising your employees’ talents and easy methods of organising tasks for your management and employees.
Finally, you will also be able to identify any aspect of your organisational process that should be cut off.
Downsides of Internal Benchmarking – What Is Benchmarking in Business
As important as internal benchmarking is, you need to be careful of basing your decisions and actions mainly on an in-house view of your business operation.
You should not only be occupied with your business performance as it will make you easily lose track of customers changing demands, the competition, and world innovations.
Also, because internal benchmarking is slowly based on previous performance, it might not correctly tell the future.
So, try not to base all your actions solely on the results of internal benchmarking.
External Benchmarking – What Is Benchmarking in Business
This is the practice of comparing the practices or metrics of a company to others.
It serves as a realistic perspective for businesses in their race to success.
Also, it serves as a way of knowing how well your business is doing among the different businesses in your industry.
The major benefit of external benchmarking is that it helps you to identify areas that need improvement.
To effectively benchmark, you will need standard key performance indicators between your company and the other companies you want to run the comparison with.
This is because there must be specified similarities to conduct external benchmarking.
Below are some examples of this type of benchmarking:
HR/ Salary Benchmarking – What Is Benchmarking in Business
You might only know if you are overpaying or underpaying your employees once you find out from other companies employees.
You can discover this by comparing the salaries you pay to your employees with that of employees working in business in the same industry.
Salary benchmarking will help you maintain reasonable labour budgets while keeping your employees engaged.
It is often not possible to get access to your competitors’ data.
However, you can purchase their product.
When you take their product and yours, you can measure different things such as efficiency, price, weight, design, runtime, etc.
The process of doing this is referred to as product benchmarking.
Financial Performance – What Is Benchmarking in Business
Another example of external benchmarking is comparing your financial performance and practices with your competitors.
Your competitors will not freely hand over their financial records and data to you.
However, you can access publicly available ones, such as annual financial reports.
Competitive Benchmarking – What Is Benchmarking in Business
Competitive benchmarking, as the name implies, is all about making specific goals due to the actions of your competitors.
All you need to do is study the practices and operations of standard or successful businesses in your industry and use what you have to exceed or match them.
Effective use of competitive benchmarking can enable you to gain an advantage over your competitors.
If you desire to be at the top of your industry and create a pleasing work environment in your company, then understanding your competitors’ actions is imperative.
No employee will voluntarily leave a company that provides them with growth opportunities in their skill and finance.
Strategic benchmarking is one step ahead of competitive benchmarking.
Just as with competitive benchmarking, strategic benchmarking main objective is to seek ways to match or beat competitors.
However, strategic benchmarking goes beyond comparing the performance rate of companies in your industry.
Instead, it goes as far as seeking the best business performance from different industries and challenging your business to review longstanding practices and assumptions.
An example of strategic benchmarking in action is when Southwest Airlines analysed the speed, approaches, and processes of the NASCAR automobile racing pit crew.
With that, they were able to reconfigure their gate maintenance, custom loading process, and cleaning.
This helped them to save a large amount of money every year.
Process of Benchmarking – What Is Benchmarking in Business
Benchmarking helps you determine where your business is, where you desire to get to, and how you intend to reach there.
Therefore, there are processes for benchmarking.
Below is an effective benchmarking process you can adopt:
Identify the Area to Benchmark
It is great to benchmark different areas or departments of your business.
However, you can only effectively do that in stages.
So, the first step to benchmarking is identifying the area you would like to benchmark.
It could be sales, salary, production, etc.
When you figure this out, you will not waste time going wrong in circles or getting confused.
Rather, focus all your resources on getting what you need for the benchmarking process.
Furthermore, you will need to define those activities you will be benchmarking and the essential metrics you will need to track your progress.
For example, your area of concentration can be sales, and the activity to benchmark can be sales representation performance.
Seek the Best-performing Companies – What Is Benchmarking in Business
The idea behind benchmarking is comparing one’s business to a successful or the best-performing business in a specified industry.
And in the case of strategic benchmarking, seeking the best-performing companies in different industries.
This is because you want to make improvements, and the best way to do that is by checking out what effective and successful businesses are doing.
You cannot expect to make progress or improvement while comparing your business to a struggling business.
So, when you want to benchmark, ensure that you are meticulous about finding the business that will serve as a benchmark for you.
Also, since you already have an objective in mind (area of concentration), you should focus your search on the best-performing business that is doing well in that area of concentration.
For example, your area of concentration is sales representative performance.
So, you should mostly look for businesses with the best sales representative performance.
Once you have levelled down the benchmarking field, your next step is conducting research.
This implies speaking with competitors, their employees, customers, and even shareholders involved in the area you are concerned about.
You can initiate group conversations or private conversations or do a survey and get back responses from the people involved.
This will provide you with valuable information for your benchmarking.
Analyse Data – What Is Benchmarking in Business
The next thing to do is analyse your gathered and researched data to find out the level where your business’s current performance is compared to the other companies.
Remember that benchmarking is not only about understanding your performance level but also about improving it.
So, after identifying where you stand, you need to determine the level you want to get to.
This will serve as the bedrock of the goal that will help you achieve improvement.
Having your data laid out in a format that is easy to understand and digest, such as charts or graphs, will provide you with a clear picture of your current and intended position.
In other words, it will show you the gaps and the length you have to go before you can achieve your desired standard.
Develop An Action Plan
You know where you are and where you want to get to.
So, the next thing is to develop a plan that will enable you to get what you want.
In other words, you need to create actionable steps that you, your stakeholders, and your employees can do to achieve your goal.
You create a clear and smooth path for yourself and others to hit your benchmark when you define success and a good action plan.
To develop an effective plan, you need to set your goals with achievable approaches such as SMART or HEART.
In other words, your goals should be specific, measurable, actionable, relevant, and time-bound.
Or you can use the approach HEART; habit-forming, emotional, actionable, realistic, and time-bound.
When you use one of those approaches in setting your goals, you will easily break down the goals into objectives and take daily steps toward achieving them.
Track Your Progress – What Is Benchmarking in Business
As you have started working towards your goal, you need to regularly track your progress and see if it is moving along with the plan and goal.
You can do this annually, quarterly, monthly, or weekly.
What is more important is that you consistently track and measure your metrics.
If your plan is going smoothly and you are meeting the benchmark, then you are on the right track and should keep going on.
However, if you are not, you might need to check the plan and make corrections.
Any business can adopt this procedure, regardless of its type or operation.
However, you can develop your unique benchmarking process based on your goals.
Depending on your business’s current state and where you desire to reach, you might be more concerned about some steps than others.
Or, you may need external assistance.
Getting Benchmarking To Work For You – What Is Benchmarking in Business
To benchmark your business, you will need to carry your employees along.
This is because you need help to do it effectively.
One thing that will occur during a benchmarking process is change.
Change is often scary and difficult for some people to handle, but it is important for improvement.
So, you need to let your employees be aware ahead of what will be taking place in your company.
This way, they will be involved and know their part to play and when and how to perform their tasks or duties.
Furthermore, listen to any contribution and suggestion they make concerning the process.
When you do, they will be encouraged to do their best, and creativity will foster.
Apart from listening to them, check out their suggestion; they might be capable of coming up with an idea or a plan you did not think of.
Conclusion on What Is Benchmarking In Business
Benchmarking is a great way to discover your company’s weaknesses and strengths.
An effective benchmarking process can help you to improve your business performance in different areas.
So, don’t shy away from benchmarking.
Just because your company’s performance is not up to standard yet doesn’t mean it will never get there.
So, try out the different benchmarking in your business and enjoy the benefits.
Finally, ensure that you carry your employees along when you start any benchmarking process.