Wondering if the competition is outperforming you? Looking for some best practices? Want to set realistic goals and targets for your team?
These are all good reasons to consider benchmarking your company’s performance against others in your industry.
Benchmarking Is Knowledge
Benchmarking compares your performance against other similar companies. Any metric is ripe for benchmarking – financial, quality standards, service levels, time to market, you name it. If it can be quantified and measured across comparable companies – it can be benchmarked.
The trick is getting the data. With the exception of financial data, most of this information isn’t public. And, you can bet, the best in class performers are going to keep it that way! The good news is that financial benchmarking can be incredibly helpful and the data is easily available.
But, you say, “my business is an anomaly – no one does it exactly like us”. You would be surprised how many times I have heard this!
Did you know that there are over 1,000 industry codes representing over 7 million businesses, not including the government? That’s really a lot! Surely your business closely approximates one of them!
Benchmarking Is Not a Perfect Science
However, it’s true. No two companies are exactly the same. There are differences in product line(s), categorization of revenue and expenses, and the specific marketplace in which companies do business.
But, there is power in the law of averages. If there are enough companies reporting, then trends begin to emerge. And those trends – or significant variances from the average – are what you need to pay attention to.
For instance, if your operating expenses are 10 percentage points above the average or you inventory turns are 3 times your peer group, that is probably a good place to look for opportunities.
Benefits of Benchmarking
Benchmarking can help you identify areas for operational improvement, develop operating, and financial targets as well as provide input for strategic planning.
My guess is there will be no big surprises. You know where you excel and where you don’t. But seeing and quantifying the gap can be very powerful. And, sometimes that “gap” is wider than you ever imagined.
In some areas, you might be doing well. Perhaps your collection efforts are really strong. In that case, take a moment to pat yourself on the back.
In those areas where you could use some improvement, embrace the knowledge and develop strategies and initiatives for resolution.
Benchmarking Is a Powerful Tool
No matter what kind of business you are in, there is most likely meaningful data available to quantify the “gap” in key financial and operational areas between you and your competition. Armed with this knowledge you can focus on improving those areas with the most opportunity.