- No, benchmarking is not a waste of time. Successful businesses do it continually and are creative about it too.
- A benchmark is NOT a KPI. It sets the bar and a KPI measures your proximity to that bar.
- Types: Internal, competitive, functional, and strategic.
- Areas: Financial, process, customer satisfaction, quality, others.
- Goals: Grow top-line revenue, greater efficiency/effectiveness, increase profitability, peace of mind, WIN.
- Action: Start with just 1. Make it a part of your routine and workflow. See what happens and add more.
“What a business needs most for its decisions — especially its strategic ones — are data about what goes on outside it. Only outside a business are there results, opportunities, and threats.”— Peter Drucker.
“All Good to Great companies began the process of finding a path to greatness by confronting the brutal facts about the reality of their business. When you start with an honest and diligent effort to determine the truth of your situation, the right decisions often become self-evident.”— Jim Collins.
“If you’re not benchmarking your performance against your competitors, you’re just playing with yourself.”— Al Paison.
Wikipedia defines benchmarking as:
- Evaluate or check (something) by comparison with a standard.
- “We are benchmarking our performance against external criteria.”
I’ve met many business owners that gauge their success by how much cash they have in the bank. Or they focus primarily on profit. Certainly, cash is king, and profit is a good measure of success. But many other measures are better.
Lagging and Leading Indicators
“Indicators” alert us about what might be going on in our businesses. These are lagging and leading indicators. Cash and profit are lagging indicators; in other words, they reflect past accomplishments. But what about predicting the future? Isn’t that what we’re all trying to do? Figuring out your leading indicators result in more significant FUTURE accomplishments. Examples of leading indicators are:
- product and service quality (from feedback)
- customer satisfaction (as indicated by surveys and reviews)
- employee satisfaction (through inquiry)
- internal processes (deep dives)
- marketing activity ROI (gauging marketing impact)
- new customers within a specific time frame (indicating future revenue increases)
Concentrate on both leading indicators AND lagging indicators. You will have a better chance of moving the needle. Moreover, you’ll be more likely to set and reach the right goals. Don’t be blindsided by competitors or future technology/economic changes.
Benchmarking is the process of comparing your organization to other organizations in your industry or the broader marketplace.
Benchmarks can be measures of time, quality, cost and effectiveness, and customer satisfaction.
Benchmarking sets a standard by which processes can be improved. When we compare ourselves to competitors, we can identify and eliminate gaps in service or product delivery or gain a competitive edge.
Also, benchmarking is an excellent way to challenge your firm to rethink longstanding assumptions and practices.
There are four types of benchmarks:
Internal = processes within your organization that you know you can improve. Where are the bottlenecks? You can set a benchmark based on time or quantity and monitor your progress. Be careful, however. A firm that is preoccupied with itself quickly loses track of competitors, broader-world innovations, and customers’ changing demands.
- Pick a process that has a bottleneck and do a deep dive into how to get rid of it.
- Send out customer surveys and find out how satisfied they are.
- Review employees’ performance, how satisfied they are with their jobs, how they could be more fulfilled. Create an employee development plan.
Competitive = this is where you compare your business with the competition. Perhaps the comparison is in the products and services offered, marketing methods, perceived quality, customer reviews. Even financial comparisons if you can get them.
- Find out who your competitors are.
- Get as much information on them as you can.
- See where you match up and where you don’t.
- Improve the areas you perceive as falling behind; beat them.
Functional = comparing your processes to a standard in or outside of your industry. For instance, you might learn how to improve your vendor management system by benchmarking to another business in an entirely unrelated industry. You can learn a lot from other industries and how they do things.
- Pick a process you’d like to improve.
- Seek out outside vendors that specialize in that process and find out what they do.
- Find out the software and workflows they use that might be helpful to your organization.
Strategic = determine the best-in-class in a particular area and strive to reach it—Benchmark with industry leaders. Have a goal to be just as good or better in that area. Your business will certainly improve.
- Determine the industry leaders
- Get their financials (if they are a public company)
- What type of marketing do they do?
- Compare what you are doing with the best-in-class.
- Focus on 1 or 2 areas and do it just as good.
- For example, Southwest Airlines famously analyzed the processes, approaches, and the speed of automobile racing pit crews to gain ideas for improving their airplane turn-around time at the gate. The outcome of this benchmarking study is reported to have helped Southwest reconfigure its gate maintenance, cleaning, and customer loading operations, and to have saved the company millions of dollars per year.
Many industries and industry- or consumer-related organizations publish comparative data. Companies such as BizMiner.com provide financial information to which you can compare.
What Is the Difference Between a Benchmark and a KPI?
- A benchmark is a reference point that allows you to compare your performance levels with others’ performance levels.
- A key performance indicator (KPI) measures how well an individual, business unit, project, and company performs against that reference point.
Bernard Marr & Co. put it this way,
“I regularly hear a common question in my workshops, and when working with clients, aren’t benchmarks and KPIs the same thing? The answer is simple: They are not. Benchmarks are reference points to compare your performance with that of others. KPIs help you chart your progress against your company’s strategic goals.”
In conclusion, in The Game of Work, Charles A. Coonradt says three management methods; management by observation, judgment, and measurement. The first two can be misleading and incomplete. Only through management by measurement are we able to see what happened and what might happen tomorrow. There is no way to win without a score.
Coonradt points out that there are three kinds of players:
- Those who know they are winning
- Those who know they are losing
- Those who don’t know the score
“I have never met a winner who didn’t know the score.”
“Winners keep track of results. Losers keep track of reasons.”
And finally, like I always say, ‘losers make excuses, winners make history.