How benchmarking can help you stay ahead of the competition

Benchmarking is the process of measuring the success of a business entity by comparing it to one that is similar. It allows you to make more informed business decisions by shedding light on areas where you may be leading or falling short when lined up against a peer.

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What is benchmarking? Why is it important?

Benchmarking allows you to identify the strengths and weaknesses of your business model by holding it in a direct comparison with your competition. Benchmarking is important because it helps you determine the right strategic ambitions from the perspective of the entire market. To put it simply, benchmarking reveals areas in which your company is doing well, and where you need to focus for improvement. It provides an objective framework to identify reasonable goals while allowing you to maintain (or obtain) a competitive advantage.

6 steps to guarantee the best benchmarking practices for your business

Benchmarking can sound intimidating, but it’s the easiest way to take control of your company’s big-picture goals.

Steps

Explanation

1: Define strategic ambitions

The first thing to do is identify the areas in which you want your company to excel. When compared to competitors and peers, do you want to be best in class in efficiency? Growth? Sustainability? Higher margins? Identify the area you want to focus on.

2: Define the ratios you need to look at

Once you’ve defined your strategic ambition (Step 1) you can identify the metrics to track it. Consider the KPIs used regularly within your company, and those that speak directly to what you want to improve. For example, if you are a retail company and want to improve margins, you look at the margins of a competitor. You must also define depth: OPEX as a whole, or individual components that contribute to it?

3: Select your peer group

You can choose to look at companies that operate similarly to yours or compare your company with those that have made different choices. A retail company gets the cleanest look when choosing another retailer that operates similarly as a peer for comparison. However, choosing a company that has a logistics partner or some other attribute you lack can offer a fresh perspective on your own process.

4: Collect data

The easiest way to collect data is to look at your chosen peer’s financial statements, usually found in their annual report. Then structure the data so it can be compared to your own using a program like Excel. When filling in data, be sure to note reporting differences between your companies, so that the data is as similar as possible. This is called cleaning the data. You want it to be as uniform as possible.

5: Analyze the data for insights

Look at both qualitative and quantitative data. Where are you outperforming the competition? Where can you improve? Note different time periods and look at metrics from three or more angles. Note individual points but also look at trends.

6: Draw actionable conclusions

Look back at the strategic ambition you named in Step 1. What do you know now? How can these new insights inform future decisions? This is when you integrate the insights you’ve gained into an action plan.

3 types of benchmarking

Once you know how to do financial benchmarking, you should decide which type that is best for your company. Benchmarking can be internal, comparing practices and performance between individuals or teams in your company, or external, comparing your organization to peers in or across industries.

This seeks insight into your processes, comparing performance against internal and external benchmarks, so they can be optimized and improved. By understanding how your industry’s top performers complete a process, you can find ways to make your own processes more efficient, faster, and more effective.

Looking for insights into strategies, business approaches, and business models? When you understand the strategies that underpin successful companies (or teams, or business units), you can compare them to your own and identify areas for improvement.

Performance benchmarking allows you to compare outcomes, whether it’s revenue growth or customer satisfaction. External performance marketing can include financial benchmarking or competitive benchmarking. Internal performance benchmarking could be looking at the performance of a particular team within your company, like HR or marketing, using metrics specific to those branches.

Discover how financial benchmarking saves you costs

Considering leveraging financial benchmarking to evaluate your organization's performance against industry peers? Follow the steps below to get started with the best practices.

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Discover how financial benchmarking saves you costs

Learn how competitive benchmarking ups your market share

Interested in evaluating your organization's performance against your competitors? Competitive benchmarking can help you gain insight into your strengths and weaknesses relative to other businesses in your industry.

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Want to learn everything about Benchmarking?

There’s so much to say about the world of benchmarking. Be sure to read our blog posts for the most up-to-date insights.

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Frequently Asked Questions

How does benchmarking use historical data to stay competitive?

Benchmarking uses historical data to stay competitive by comparing past performance to industry standards, competitors, and future goals. This helps organizations identify trends and patters in order to set realistic performance goals, track progress, and make informed decisions for improvement by evaluating how performance has evolved over time.

What is performance benchmarking?

Performance benchmarking refers to the practice of evaluating the performance of a company against its peers or against industry standards overall. Common areas of performance benchmarking include financial performance, operational efficiency, return on investments, and sustainability. The results of the benchmarking analysis can be used to inform decision making, set performance goals, and measure progress over time.

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