When it comes to gauging your business’s performance and strategies to improve it, you might be ready to seek a benchmarking analysis for your business in your industry niche.
If you are a small business owner, or new to the competitive landscape, you might be at a loss for what this benchmarking term is referring to. You might assume that it is one of the excess strategies businesses implement, which you can choose or reject based on your current state. We can assure you that, it’s not. Read on down below and we will get into further detail of exactly what you need to know and should expect when it comes to benchmarking best practices for small business.
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What Is It?
The inspiration for benchmarking comes from the Japanese in regards to the strategy they undertook after World War II to improve their economy compared to others. The same principle applies to the corporate world. In the past few decades, the ever-evolving competition in all kinds of markets and economies has made benchmarking necessary. Without having set standards, KPIs, and metrics, businesses nowadays don’t stand a chance against the globalizing competition.
So How Does It Work?
In its very basic essence, benchmarking can be simply a comparison of your company and the best in the industry. The term itself goes down to the core of the word bench. Topographers define it as a mark or center point made by one player in the landscape that is elevated. Simply put, it is a mark that others in the same landscape and can be used as a reference point to adjust their direction.
When it comes to defining benchmarking in the business context, it is the measurement of the corporate landscape to identify what player is outperforming all the other ones. That particular organization’s performance is the said benchmark. It is then up to other players in the market to improve their performance to match it.
But with all that said, benchmarking is not just a simple anecdotal comparison between you and your competition. Combing through a global market with thousands of companies and numerous metrics can be a bit tricky. It takes meticulous detective work, comprehensive self-examination, and analytically savvy skills to execute. While this might sound like a significant amount of hard work, in the end, it is worthwhile.
While competitive or industrial benchmarking is the central focus of this article, here is a very brief look at the four main types of benchmarking popular in the business landscape:
This type of benchmarking is pretty self-explanatory from the name. It refers to the comparison of one business operation with another within an organization. Unsurprisingly, it is one of the easier ones out of the four types in terms of both research and strategy implementation.
Going up the scale of difficulty, functional benchmarking involves comparing your company’s operations with similar companies in the broad range of the industry you are a part of. For instance, if you are in the FMCG industry, you can compare one of your operational areas to any company in the industry. It doesn’t have to be a direct competitor.
Competitive and industrial or functional benchmarking are quite similar. The main difference between the two is that competitive benchmarking considers an operational comparison with your direct competitors. And as expected, this is the hardest type of benchmarking; especially in regards to research as legal technicalities have to be considered. With that said, it is also one of the types that results in major improvements in organizational productivity.
Lastly, generic benchmarking involves comparison with players in unrelated industries. Operations used by most industries such as warehousing are applicable in this type as they are used by a variety of industries. The biggest advantage of conducting generic benchmarking is that it provides an increase in access to information. Since you don’t have to involve your direct competition, fewer legalities have to be considered.
Learning what benchmarking is and all its types along with acclaiming its virtues are not enough. It’s up to the organization’s leaders to develop a well-thought-out, specialized, and organized plan to implement benchmarking. Like you would do to implement and enforce any other program, organizations need to establish it as a business process.
Some steps that can help you during your benchmarking efforts include:
Determining the Processes to be Benchmarked
It makes sense that you start your benchmarking journey by identifying exactly what operations you want to benchmark. You’ll be wasting your time and resources, without associating any direction or goals with the areas you want to benchmark.
So, start with asking yourself questions like have organizational and departmental priorities been established? What level of change is the organization looking for? Does the entire system need to change/improve or just one particular process? What are your capacities and limitations in terms of implementing the benchmarking?
Have a clear objective in mind while going into the project is what makes it that much more efficient. This way, when it comes to taking more critical measures, you will be better prepared and will make actionable decisions.
Determining Meaningful Metrics
While benchmarking, there are endless ways that organizations can use to measure an organization’s performance. Not just that, but different areas of business uses a plethora of metrics to define their performance. These metrics are also referred to as KPIs or Key Performance Indicators.
Depending on your industry and the goals you want to achieve out of the benchmarking process, you need to stick to a few meaningful metrics. For example, you can use revenue, costs of goods sold, sales volume, conversion rate, etc. for a benchmarking earning potential. The main idea behind doing this is to have a clear picture of what exactly you want to research and measure for a competitor.
Finding Organizations to Benchmark
The competitive landscape for almost all industries has changed drastically in the past few years, which means more players in the market. With an increase in competition, it is essential that you identify the organizations that have processes that can adapt to meet your organizational goals.
It is quite obvious that the companies you choose to study should exhibit excellent performance in the very areas you want to target. But along with that, the business model and the size and industry of the organization are relevant to yours. If you want to benchmark against your direct competitors, limit the list to the best ones. But if you are conducting generic benchmarking, you can think outside the box and venture into other industries as well.
The next obvious step after determining organizations to benchmark is to actually do the research and collect relevant data. Keep in mind that whatever data you find and analyze at this stage, you’ll be using it to improve your performance. So pay close attention to what data you come across and how you choose to analyze it.
Questions like – what are your competitors doing differently to distinguish themselves from the others? What kind of technology are they using to increase efficiency in their production? – and others like these will help you get the answers you were looking for.
You need to ensure that you are thorough with your research and cover every aspect you want in maximal detail. This way you’ll have relevant, accurate, and complete data in hand, allowing you to compare and construct actionable plans.
Simply gathering the data is not sufficient for improving your company’s performance. In order to adapt strategies, you need to analyze and organize the data into information that makes sense. This step involves analytical observation of the collected data so you can identify patterns and gaps in the processes.
The results that you achieve from the analysis will help you identify the areas where your organization might be lagging behind and the benchmarked one outperforms. This is the most important step of the entire benchmarking process as it is here where you’ll be able to get a clear picture of where your organization needs to improve compared to the best in the industry.
This is essentially the moment for you to make pivotal changes in your business processes. You’ll know what relevant practices can be adapted and implemented in your organization, considering all limitations and constraints as well.
In this step, you analyze all your findings of your competitor’s performance and your company’s past performance in comparison to it to make forecasts. Including the consideration of possible changes in the industry, you can make predictions as to how your organization’s performance will be impacted with and without the implementation of benchmarked changes.
By correctly implementing this step, you’ll be much clearer on the potential quantitative benefits of adopting the suggested benchmarking practices from the previous step. This step will also give you a clear picture of your performance without implementing the proposed changes.
Any change you’ll be implementing will have an organization-wide impact whether directly or indirectly. Hence, making it important to get the consensus of the target audience i.e. employees and management for the need of implementing changes. This step involves you to do just that and communicate not just the need but also the potential outcome of enforcing the changes.
Having all the employees and management onboard and on the same page will make the implementation much easier. No one will be left confused with the approaching changes being made to processes. Seeking everyone’s consensus will create a sense of accountability in the organization, encouraging everyone to carry out the necessary changes.
Implementing Changes and Monitoring Progress
Once you’ve set an actionable plan, have consensus on the changes, and everyone empowered to carry them out, all that’s left is implementation. The management and the employees now need to execute the changes approved. This includes establishing timelines and making sure that everything is undertaken within the typical planning cycle your company already has.
While the changes might take time to present the anticipated results. There is still the need to ensure that you can chart the implementation and its progress accurately. Besides the timelines, control charts that record the measurements of the control factors should be prepared. They will allow you to track and monitor the changes and results.
If you are able to correctly implement this step, you’ll be able to track the results and based on that, retain or accept elements of the changes that were successful and reject the ones that weren’t.
Revisiting the Benchmarks
As you are well aware that in this fast-moving and rapidly globalizing market, nothing is constant. There are new developments that are constantly being added to the market. In order to always remain cutting-edge and make further improvements, one needs to revisit and recalibrate their benchmarks.
Staying on a continuous path of improvement and advancement is a commitment that requires a habitual reassessment of processes already in place. If an organization seems complacent with the implementation of these changes, it would create an assumption that one-time benchmarking provided permanent solutions. Reality is that this is a false sense of security that can cause serious damage to the company’s performance potential.
In the end, your organization’s commitment to working on making continuous improvements or not depends on the success of benchmarking. To sustain market leadership and have elevated performance, it’s necessary to include benchmarking as a permanent part of the company’s culture. Along with that, the realization that benchmarking will often only be temporary is also important.
Bonus Tip – Start Early On
When it comes to getting the most out of your benchmarking practices, starting early is conducive for improved performance. And no matter how cliché it might sound to say this, but it’s never too early to start benchmarking. By doing so, you’ll have clear directions to spark positive changes in your organization and stay ahead of the competition.
While all kinds of businesses can benefit from benchmarking, e-commerce businesses need to pay closer attention. The industry as a whole along with its sub-categories is subject to changes daily. In order to garner success for your business, you need to stay ahead in the benchmarking game.
Our comprehensive guide on how to use KPIs to benchmark your business for success teaches you how to do that. You can find it here for free. Give it a thorough read to leverage your brand to grow and scale its business.
You can also take this opportunity to speak with one of our Award-Winning eCommerce experts and seize your complimentary benchmarking analysis by scheduling a call now!