Every company strives to improve and move forward. However, it is not always easy to know what constitutes improvement and which direction to take the efforts.
Just like ships in the open sea, firms need a North Star to navigate the competitive business landscape and achieve success. Company benchmarks provide such reference points for finding direction.
Business benchmarking is a widely applicable method that can help firms improve their current procedures, better invest their assets, and create data-based business strategies. Here, we will look into different types of benchmarking and how anyone from big corporations to small businesses can benefit from it.
What is benchmarking in business?
Company benchmarking is the measuring of a company’s performance levels, product quality, procedural efficiency, and other aspects that in one way or another define success.
Benchmarking definition in business involves the identification of benchmarks against which the company or its features are to be measured. This basic model is applicable to different types of external and internal benchmarking.
Process benchmarking
This can be an entirely internal benchmarking approach, comparing the internal processes within a company. Internal benchmarking would allow the setting and implementation of a uniform standard for more efficient processes.
On the other hand, process benchmarking could use the processes in other firms as benchmarks to find the best industry practices. For example, external benchmarking could be used to identify the most efficient ways of digitizing processes within an industry.
Performance benchmarking
Company performance benchmarking compares a firm's performance metrics against industry benchmarks. This type of company benchmarking focuses on key performance indicators (KPIs).
Performance metrics, such as customer retention or net promoter score (NPS), help firms measure their progress toward their goals. However, setting meaningful and reasonable KPIs requires comparison with other businesses. Thus, a company that wants to understand its progress and opportunities looks not only at its own KPIs but at those of similar businesses.
Competitive benchmarking
Generally, companies can benchmark processes, products, customer satisfaction, and anything else of almost any other business as long as they can expect to extract valuable insights.
Competitive benchmarking focuses on the firm’s competitors within their own industry. The goal is to extract actionable insights that allow for improvements that could be immediately effective within the current competitive landscape.
Strategic benchmarking
Rather than focusing on a particular process or product, strategic benchmarking examines long-term strategies and continuous improvement. The aim is to understand masterful business strategies and gain insight into how they can be implemented in one's own company.
As strategic benchmarking is aspirational and aimed at sustainable improvement, companies often analyze top industry performers. This includes not only top local competitors but also world-class organizations.
The key elements of company benchmarking
Companies of all sizes can conduct benchmarking for various purposes. The main elements are common to all benchmarking in business.
- Subject of benchmarking. This is the business aspect you want to benchmark internally or externally. It could be processes, products, performance, or anything else you can gather data on.
- Companies to use for benchmarking. The list of competitors or other firms you want to benchmark. In the case of internal benchmarking, this could be the list of your company’s branches and departments.
- Benchmarking plan. The steps of your benchmarking process. It includes a description of what metrics you are going to track and how you intend to do it.
- Data collection. This is the key element of every strategic research. You need to identify data sources and gather data points relevant to the business metrics you want to track.
- Data analysis. Analyzing data to draw actionable business insights.
- Reporting and planning for improvement. Every successful business benchmarking is concluded with the implementation phase. Thus, it is crucial to present your findings to all key decision-makers in a convincing and understandable manner.
Many of these elements will also apply to investors benchmarking companies for stock value and potential comparison.
Company benchmarking best practices
There is no single recipe for benchmarking in business. Nevertheless, the following practices can increase the chances that you will benefit from company benchmarking.
Having clearly defined goals
You cannot do everything with one benchmarking process. It can also be costly, requiring extensive market research and resource allocation. Thus, be specific about what you want to know, what type of benchmarking you will conduct, and what you expect to gain from it.
Limiting the number of companies
You might want to use a single competitor or a leading company for benchmarking. However, having just one business as your target might make getting all the necessary data challenging.
When using multiple companies, it is crucial to decide on them in advance and set limits to their number. Tracking too many companies at once might make it hard to stick to the same goal.
Thoroughly documenting your own processes
Benchmarking only makes sense if you have data on your own metrics to compare with that of others. Document all key aspects of the company’s product, strategy, and daily procedures. The earlier your firm implements data-driven practices, the more you can expect to gain from business benchmarking.
Having a schedule
Benchmarking can be costly if it is allowed to escalate out of proportion. Creating a schedule for every step will help everyone involved stay on the same page and focus on the goals.
Sticking to the timetable will limit the scope of your research, forcing you to track only the most relevant metrics. It will also allow you to extract actionable insights faster. The sooner you can use your knowledge and iterate on it, the more benefits will accumulate.
Using reliable data sources
Research insights are only as reliable as the sources used. Identify sources that provide data relevant to your goals immediately after setting them. Make sure that they are trustworthy, especially if you choose to buy data from third-party providers.
Enriching your data
Analyze your data to see if it provides the insights you hoped for. Even if it does not, you might still gain some valuable knowledge from the data points you have.
Consider acquiring more data. If there is a reasonable expectation that data enrichment can provide a more robust analysis, it is more cost-effective to see it through.
Continuous process
Company benchmarking should continue in cycles rather than reach a full stop. After implementing the insights of initial benchmarking, new questions and opportunities will arise. You will identify areas for further improvement that can lead to another cycle of benchmarking.
With every new cycle, you need to start from the beginning, reconsidering your goals and which firms you want to use for comparison.
Resources to use for successful company benchmarking
In order to conduct research, business managers need resources. Some of these resources will be internal, including employee time, data already at disposal, and software tools.
Other resources will have to be found elsewhere. In this step, the most important ones are sources of information that can help identify useful benchmarks.
Stock indexes
Investors use various stock indexes to benchmark investment portfolios. These indexes can also be used for business benchmarking, as they list the best-performing companies in various industries. The indexes can also be used as the first stop for historical data that helps uncover industry trends.
News and social media
Benchmarking in businesses needs both qualitative and quantitative data. A lot of both types of data is available publicly online.
News websites and social media are great for qualitative data. These resources will provide information on innovative business decisions and companies that are at the forefront of technological solutions. Social media is also a great place to gather customer sentiment data on a brand or its products.
Company review websites
Another resource for customer satisfaction data is online company review websites. Meanwhile, Glassdoor and similar sites will help see the company from the employee or job seeker’s perspective.
Data providers
A lot of quantitative data on companies, such as their financial information, is also publicly available. When you are unable to collect it effectively, you can purchase it from reliable data providers. A perk of this resource is that professional providers will ensure data quality and can consult you on your data needs.
7 benefits of company benchmarking in business
Company benchmarking has many advantages that lead to its widespread application. Below are the seven main benefits of benchmarking in business.
1. Improved business performance
Benchmarking helps identify performance gaps, whether employee performance or the effectiveness of particular strategies. After benchmarking, you can improve decisions, adjust training, and use other methods to enhance overall business performance.
2. Better investment of resources
Without data-based research, it is easy to make mistakes when choosing investment areas and allocating resources. Company benchmarking helps identify which investment choices can bring the most short-term and long-term value. This includes both large investments, such as a corporation acquiring a small business, and simply investing in new technological solutions.
3. Competitive edge
Measuring yourself against competitors enables you to keep up with them in the areas where they show proficiency. Using top performers to benchmark can uncover insights that will eventually help you gain a competitive advantage.
4. Improved product quality
Using industry benchmarks sets a high but achievable standard for your product. Managers know what features should be installed or improved, while the product development team is certain about what they should prioritize.
5. Boosted procedural efficiency
Procedural and functional benchmarking, whether internal or external, allows using the most effective procedures across the departments. Aside from boosting efficiency, procedural uniformity simplifies internal communications and knowledge sharing.
6. Identifying innovations to implement
Benchmarking allows identifying innovative marketing techniques or procedural solutions that boost revenue, cut costs, or otherwise enhance performance. Additionally, you can gain insight into how to adapt solutions from other industries into your own business model to stay ahead of the competition.
7. Setting realistic objectives
Setting objectives and measuring performance is crucial for any business to grow. However, it is often hard to manage expectations and determine what can realistically be achieved within a time period and with resources at hand. Company benchmarking helps determine a standard for setting objectives for the next quarter or developing long-term strategies.
Wrapping up
Benchmarking in business comes in different shapes and can be made to fit all sizes of firms. Company benchmarking allows managers and investors to make more informed investment choices and get the biggest returns with the resources at their disposal. The key to beneficial benchmarking is using reliable and relevant data sources and sticking to best practices.
