Benchmarking has a long history going back to early days of evolution, since then it has evolved a lot and has been an integral part of our daily lives.
Benchmarking is the process of identifying “best practice” in relation to both products (including) and the processes by which those products are created and delivered. The search for “best practice” can take place both inside a particular industry, and also in other industries (for example – are there lessons to be learned from other industries?).
Benchmarking is an activity that tells you your position or status by comparing yourself to others. The reason for comparison is to understand where you are today and what might be the some areas that you need to improve
Think about it in basic terms – you measure a piece of wood along your bench. You keep one end of the wood level/flush with the end of the bench and cut a notch in the bench itself with your chisel at the other end. Then you place other pieces of wood in the same location – the shorter ones you reject and the longer ones you cut down. A benchmark is a measurement tool.
In today’s global business environment it is essential that we compare ourselves to others, to
– Understand are we making more money than competitors
– How does my business compare with the rest in the same industry
– Are there others out there that have similar problem
– If yes, have they solved them and how
– Where do I stand in comparison to them
Types of Benchmarking
How does benchmarking work?
There are some steps which you should take in order to have a successful benchmarking
- Define what you want to benchmark i.e. reputation, brand, and staff motivation
- Define appropriate comparators or Key Performance Indicators (KPIs) like sales, margins, productivity, costs, etc…
- Ensure comparisons are comparable; we should not be comparing apples to oranges. This can be done by defining segments within the organization
- Gather data in an independent manner and make sure it is consistent by collecting data and mapping into standard charts
- Produce customized and meaningful reports which not only are simple to understand but also show your performance over a period of time
Benefits of benchmarking (Gift 1996)
- It is an effective approach for achieving operational change. Benchmarks are the catalyst that moves an organization to higher levels of performance.
- Since customer requirements are so rigorously defined, benchmarking improves customer orientation.
- It focuses upon the processes that improve results – not simply results.
- Performance measures are often improved as a result of benchmarking.
- Decision making improves because the organization has enhanced customer knowledge, process focus, and performance measures.
- Benchmarking improves innovation and creativity since self-imposed barriers to success are removed.
- One can gain better understanding of all aspects of business like sales, margins
Pitfalls with benchmarking.
- Benchmarking needs to be supported and driven by senior leaders.
- Prerequisites (such as organizational structure, processes) need to be in place.
- Conducting benchmarking for the wrong reasons can be problematic e.g. to produce data – ignoring processes and insights gained into practices that produce benchmarks.
- Selecting the wrong benchmarks.
- Selecting the wrong benchmark partner.
- Not gaining management support for plans resulting from benchmarks.
When applying benchmarking techniques to an organization’s marketing activities you are essentially comparing one or a number of your company’s marketing activities to those of another part of the business, a competitor or a business that operates in another industry. Vorhies and Morgan (2005) used the following marketing benchmarks in their research:
- Product Development
- Channel Management
- Marketing Communications
- Market Information Systems
- Marketing Planning
- Marketing Implementation
Essentially they focus upon the marketing mix, marketing information, planning and operations. Each of these could be sub-divided and new factors introduced e.g. Customer Relationship Management (CRM) – to suit your own organization’s marketing strategy.
Comparisons are great, however there is a catch, only things that are comparable can be compared. When these comparisons are done it is called benchmarking