For any business to grow and compete well, it must always look for ways to improve and measure up to the best. This could sometimes mean adopting industry standards and best practices for their operations -- a process known as benchmarking.
In this article, we discuss the role of benchmarking in the life of every business's quest for growth and advancement.
What is it?
Benchmarking is the process of setting goals and targets in line with the standards set by those in far better positions. It defines the measures, processes, and strategies your business can take to improve and measure up to the best. This provides you with learning opportunities to grow, close gaps, and make key improvements in line with what is considered to be the standard.
This standard could be found within your operating environment, among your peers, and nearest competition. It could also have been used by industry figures worldwide as long as it has proven to be effective. This brings us to the types of benchmarking discussed below.
Internal benchmarking
This is the benchmarking of practices and performances of separate business units, groups, or operations within the same organization. The source is Internal data.
External benchmarking
This compares your business to its most successful and superior peers industry-wide. The source is External data.
Process Benchmarking
This compares your business's processes and operating system against similar high-performing ones from other companies. The method compares processes.
Performance benchmarking
Performance benchmarking defines critical areas of a company's operations that need improvement. It measures performance in crucial sectors to find gaps and identify solutions. The method compares KPIs performances.
Strategic benchmarking
This type of benchmarking identifies long-term plans, approaches, and tactics needed to improve your company's overall performance and competitive position. The method compares business models.
Functional benchmarking
Functional benchmarking looks for ways to improve your work processes and functions as found in other business sectors or activity areas. The method compares organization structure.
When do we use it?
We use the benchmarking model to:
Standardize operations
Benchmarking allows you to conform to industry standards and other best practices in your local and wider business influence spheres.
Improve Performance
Benchmarking is always done against higher standards. It is done with the expectation that you can make improvements in certain areas and measure up to those higher standards.
Make strategic changes
You can make institutional changes that reflect on your daily operations by benchmarking against another successful company's strategy.
Create healthy internal competition
Internal benchmarking allows you to examine how much in-house work is done in pursuit of your company's collective goals and aspirations. It can push your operating units to innovate and adapt to meet industry benchmarks.
What business questions is it helping us to answer?
Below is a list of questions that an efficient benchmarking campaign can provide answers to.
What is the industry standard?
The industry standard is the ideal benchmark that every company strives to measure up to. It is the hallmark of a well-run enterprise that is on track to achieve its goals.
What is the best practice?
Best practices are the sum of the procedures, processes, and strategies that produce the most favorable results. Benchmarking against your industry's best practices allows you to replicate the successes that they produce.
How can I become more competitive?
One surefire way to become and remain competitive in your industry is to learn from your high-performing counterparts. If you're lucky, you can discover the key ingredients that set them apart from the rest.
How do I compare against my competition?
Using your biggest rival companies as benchmarks, you can find out how you compare to them. This is both a performance appraisal technique and a comparative analysis method.
What are my goals and objectives? And how do I achieve them?
Benchmarking allows you to work towards achieving measurable and well-defined targets. It uses working templates and implementation metrics to guide you through the processes and events that define the benchmarks.
How do we use it?
Below is a brief outline of the steps you can take to implement a benchmarking strategy in your business.
Step 1: Carry out Internal Analysis
Run rigorous checks on your organizational structure/processes, and collect the relevant performance appraisal data. This will help you discover what problems or gaps exist in your business to necessitate benchmarking.
Step 2: Define the benchmarking objectives
Once you've identified the various places where benchmarking is needed, you can outline what you aim to achieve with it. This involves setting well-defined objectives and tangible results as expected.
Step 3: Identify best/standard practices
These best practices provide the benchmark that you use to measure your performance and compare against. Find out what is class-leading and optimal-performing in the areas you've identified.
Step 4: Compare and contrast
Find out how your operations compare against the best practices. This action helps you further identify the gaps in your operation and how best to plug them.
Step 5: Set Benchmark and communicate as required
Now that you've identified the best practices and the critical areas that need benchmarking, you can use them to set a benchmark. Ensure communication of the benchmarks to the relevant persons. Also, define them in clear terms as recommendations and action plans.
Step 6: Monitor progress
Set milestones or intervals for checking how much progress has been made in meeting the benchmarks. Compare your progress against the benchmarks and ensure to make the necessary adjustments.
Practical Example
A steel products manufacturer sets certain benchmarks related to its productivity goals. It compares its performances against its industry's leading competitors using KPIs like lead times and order cycle times.
After careful analysis, it finds certain process and performance gaps that can be addressed using information obtained by understudying its contemporaries. In no time, it should be able to measure up to the standards set by the benchmarks.
Advantages
It promotes the adoption of best practices
Benchmarking against your industry's leading players allows you to observe their most effective and standard practices. Adopting these practices allows you to measure up to or even surpass the best of them.
It promotes healthy competition
The quest to become the industry's leading benchmark/standard encourages healthy competition. The competing companies will get creative and deploy critical resources to create a competitive advantage.
It promotes standardization
In every industry, the most common benchmarks are generally accepted standards and best practices. When these benchmarks are adopted across the board, they become the norm.
It promotes efficient and purposeful operations
Benchmarking allows you to set measurable targets and goals en route to replicating the success of other companies. You now know what to do and can commit the necessary resources to achieve your goals.
Disadvantages
It does not address the peculiarity of challenges
The challenges your business face may be unique and, as such, require specialized input to tackle. And in some cases, your industry benchmarks may not provide the solution you need.
It creates gatekeeping bias
Some companies may refuse to share their knowledge and experience with others for fear of their competitors measuring up to them.
The danger of increased dependency
Some companies fail to innovate or look inwards for solutions to their problems.
The implementation problem
You could face a problem implementing changes that your company's operating system is not designed to accommodate. If this is the case, you may need a system redesign or an overhaul to effect the necessary changes.
Continue to explore strategy tools here.
Comments