Benchmarking: What is it and how to get the most out of it?
Have you ever wondered: How do you stack up against your competitors or in the market? “Benchmarking” is a great way to find out. But what is it exactly and how can you apply it to your business? Well, in this blog post we’ll cover everything you need to know about this structured analysis tool for performance on both marketing and sales
Let’s cover the basics
Benchmarking is a process focused on measuring your company’s performance against leading businesses considered to be the best in their area. You might think, “but I am a small business, how will I ever compete against an international company?” In marketing we call this aspirational competition and believe us, thanks to the democratization of digital marketing and advertising, you’re closer than ever to compete with the big guys in their field (but that’s a topic for another time).
Good benchmarking can improve your business processes to increase productivity and implement changes that yield significant results.
Where do you start?
There are many ways you can leverage a competitor to your advantage. Traditionally, Benchmarking can be used to improve digital marketing numbers. Nonetheless, in today’s ultra-competitive world, an analysis of your market and/or industry can help your business improve its online presence and services or its capabilities and performance when it comes to customer acquisition, conversion, and retention.
There are five key elements that will guarantee good Benchmarking:
- Choose: Identify a product, service, or department that you want to compare against.
- Scout: Look on the internet at the absolute best companies you will compare your business to.
- Gather: Most of these companies’ information is confidential and not displayed to the public. You’ll need to do extensive research on public information such as Social Media engagement, prices, shipping days, etc. Bottom line: every number works, when you know how to use it.
- Compare: Crosscheck the information you gathered with your own. How do you stack up? Is it a close race or is the leading company of your industry-beating you by a landslide?
- Take action: Once you see how your aspirational competition is doing is time to make decisions that’ll impact your business.
Note: Benchmarking’s role is to point out the deficiencies in your business. But further efforts need to be made to correct them.
So how does it work?
We can’t shy away from giving you scenarios where a Benchmark can be useful (after all, we are storytellers by heart). Here are some real-life examples of how comparing yourself against big companies can be beneficial:
When foreign competitors started to devour the copier market in the late ’70s, Xerox executives in the US were fearful about them losing their share of the market. That’s when they decided to identify (implementing a benchmark) what fundamental changes were required to stand their ground and beat the competition.
Xerox evaluated its competitors, this is what they found:
Japanese companies were selling machines for a fraction of Xerox’s price, but the quality was the same. How could that be? The company had many problems:
- Xerox had nine times as many suppliers as their Japanese counterparts which were leaving them without money.
- Their production lines were rejecting many machines.
- They were taking twice as long to get the products out onto the market.
- If Xerox wanted to catch up with its competitors, it would need to grow productivity by 18% per year for five years.
This insight provided by benchmarking was extremely useful for the company. With the knowledge, Xerox focused on creating best practices for the organization and incorporated them into their work process.
The main takeaways:
Xerox’s main problem was that they were losing the market to the competition. Their equipment was more expensive than their competitors but of the same quality. Xerox was confident in their products, so instead of developing new ones or implementing a marketing strategy, they decided to analyze the factors that had a direct impact on their machines.
- Production Line
Why does this make sense?
As we said, Xerox didn’t just decide to launch a multi-channel advertising campaign to promote their products because they knew it wouldn’t solve their problem. First, they needed to identify what they were doing wrong and what the Japanese brands were doing right.
A benchmark study focused on a strategic analysis provided them with enough insight to uncover the deficiencies of their process and take action right away. Yes, their product was lacking against the competition but it was due to internal factors and not by their product itself. Imagine they had invested in launching new lines of products without knowledge. The result would have been catastrophic.
Making your own benchmark
We already mentioned the five key elements of good benchmarking. Now, we’ll dive deep into explaining each and every single one of them.
- Choose: Studying your business
Taking a look at the inner workings of your own company is crucial to understand what internal processes or business practices need to be improved and how external elements (that are out of your control) have direct repercussions on your business.
These are, but are not limited to:
- Business practices
- Heavy employee rotation
- Increased waste on production lines
- Decrease in sales
- Losing against a fierce competition
- Low brand awareness
The purpose of the benchmarking will dictate how it is carried out and who should be involved. For example, let’s say you want to compare your business’ social media effectiveness with the leading company of your industry. It doesn’t make sense to look at final sales, instead of talking to the marketing team and seeing engagement levels is a better way to get to the answer you are looking for.
- Scout: Choosing the companies to analyze
Depending on the processes and practices you want to improve, you will have to analyze other companies. Ideally, you should choose one to three companies. Always seek to opt for those that are market leaders and have successful actions in their history.
- Gather: Defining the data to be collected
This is the time to determine the information to be collected. The main objective is to gather data related to the comparative aspects of the companies you have chosen. For example, if what you want is a benchmarking analysis of digital presence, you will have to collect online information from companies. Research their social media, blog, or site, their position in search engines, if there are many complaints, the speed of their response, their investment in paid traffic, etc.
- Comparing: Analyzing the collected data
Once you have all the data collected, the next step is to analyze it. Make comparisons, see the magnitude of the differences, discover the relationships you can create with your own business, and check the factors that you can use and those that are not relevant to you. This way, you will use what has worked as a reference and take into account the failures so as not to repeat them yourself.
- Take Action: Implementing new tactics
Now it is time to optimize your processes and practices. Prepare a document with all the relevant information, the opportunities you found, the important points of improvement in your strategies, any threats, and suggestions on how to avoid them.
That document will become the cornerstone any time you want to create an action plan to implement any improvement within your company. But bear in mind that the market is a live being in constant evolution. What works now might not be right in the future. There lies the importance of keeping tabs on your competitors. This isn’t a one-time-only type of deal, yes a well-founded and researched benchmark can go a long way but always remember to be in constant improvement.
Benchmarking is a great way to find out how your business is doing against the biggest companies in the market. But most importantly, is to discover what makes them so successful so you can replicate some of that sweet success.