What is benchmarking and how to use it?

Today’s companies operate in demanding market conditions that force the need to constantly improve their processes or management strategies. A way to keep up with the competition is benchmarking, which involves looking for best practices among other organizations. Want to learn how to apply it? Take a look at our article!

Benchmarking – table of contents:

1. Benchmarking – what is it?
2. Benchmarking procedure
3. Types of benchmarking
4. Examples of benchmarking applications
5. Summary

Benchmarking – what is it?

Benchmarking is the concept of comparing processes, services or products to one’s business rivals and taking their solutions into one’s own company. That’s how we can find out:

• What are the key success factors in our industry?
• Are the quality of our offerings, services, price range and efficiency competitive?
• Are operational processes at a level high enough relative to the market environment?
• At what stage of development is the company compared to its competitors?
• Which companies are pioneering and taking advantage of their strategic solutions?
• What short-term and long-term goals are reasonable and feasible?

Benchmarking procedure

Implementing any change in a company is a complex process for which preparation must be made. Depending on the goals set, the process can become time-consuming and costly. A mission that is too excessive can overstep the mark, condemning the project to failure. Focusing on issues that will not yield the expected results in practice is not cost-effective. Also, important is the attitude of management and employees, who must demonstrate a willingness and readiness to act.

1. Choose a benchmarking topic

Decide what area you want to look at and improve. Gather data on your company’s processes, irregularities, etc. Identify the indicators that will be most relevant to you.

2. Obtain information about your external environment

Find companies to serve as a benchmark and establish a relationship with them. If possible, find out how they solve problems, what their strategy is, their market share, growth rate, etc.

3. Analysis of the collected information

Compare the obtained data with each other. Try to identify the strategic gap between you and your competitors and find the reasons for it.

4. Set goals and strategy for action

Specify goals according to the SMART principle that will contribute to the success of the company. These may include, for example, new work standards, pricing methods, and technological tools.

5. Make changes and monitor progress

Adapt the developed tactics to your company and observe whether they bring the expected benefits, or whether any area needs to be refined.

Types of benchmarking

Benchmarking can be classified into:

Benchmarking performance

It refers to quantitative data e.g., performance indicators to collect and compare with each other. Performed regularly, it captures deterioration in a company’s performance, which may become the starting point for implementing improvements in the organization.

Strategic Benchmarking

It involves juxtaposing the management approaches of successful companies with their own strategies. Noting the differences between the two can point the way toward gaining a competitive advantage.

Process benchmarking

It is about understanding the company’s processes and developing optimization solutions. Learning about them and implementing them improves the work of the team, which has a positive impact on the company’s operations.

Product/service benchmarking

It involves analyzing the features of competitors’ products or services to capture the differences between our offerings and others. You can use this information to make changes to your own offerings, which will result in better meeting customer expectations.

Competitive benchmarking

It has a much broader scope, based on comparing not only products or services but processes, activities, and ways of management by market rivals. However, it is worth bearing in mind that it is very difficult or impossible to obtain some commercial information (often confidential).

Internal benchmarking

It takes place inside a given company, where, for example, efficiency or differences in profits between departments are compared. It is most frequently practiced in the case of large, expansive companies, where process monitoring is particularly important.

Examples of benchmarking applications

Below we will present how other companies have used the benchmarking procedure in their sector. Perhaps they will inspire you to improve certain processes in your company.

GTE Telephone Operations

Before choosing a strategy, gather as much information as possible about your company that will help you determine your competitive position. Consider factors such as market share, costs incurred, profits, growth rate, productivity, product life cycle, customer satisfaction, etc. Then compare your performance with your market rivals based on which, you will be able to identify your strengths and the elements that need improvement. You can use strategic gap analysis for this.

An example of the use of competitive benchmarking is the case of GTE Telephone Operations. By doing so, it established the differences between other companies, which were a consequence of outdated, inefficient processes. Identifying this weakness made it possible to quickly implement corrective actions and improve the telecommunications company.

WordPerfect

In the 1990s, word processing software developer WordPerfect was in a fierce competitive battle with the booming Microsoft. WordPerfect decided to focus its efforts on improving customer service, thinking that this would allow it to gain market dominance. A challenge at the time was managing a hotline that could only accept a limited number of calls per day, which prevented many customers from contacting the company and getting help.

To implement improvements in this area, WordPerfect used benchmarking by following the practices of radio presenters who took calls from drivers. It decided to hire more employees to deal with customers waiting for the right call – they were to answer their questions, present offers, etc. until the maintenance line was free. In this way, the company gained recognition in the eyes of customers and surpassed other rivals in customer service quality rankings.

Motorola

Motorola was keen to reduce the failure rate of its products. The company’s manufacturing process was at a very high level, so they decided to pay attention to working with their suppliers. They assumed that the problem might lie on their side by supplying materials of inferior quality. Inspired by Xerox’s approach, they decided to change the nature of their relationship with suppliers to a more collaborative one.

Motorola imposed requirements on suppliers to raise their production standards and win the Baldrige Award, which was proof of the high quality of the services offered. If any contractor was unwilling to agree to such conditions, Motorola ended its cooperation with him. Thanks to this strategy, the company significantly improved its performance and was able to achieve its strategic goals.

Summary

Making key decisions in a company is not an easy task, which certainly should come hastily. It’s worth comparing your results with the current trends in the economy and competing companies. Such analysis can provide a lot of valuable information to increase your competitive advantage.

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