What Is Competitive Benchmarking? (Definition And Types)
Updated 25 October 2022
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Making wise business decisions requires monitoring company performance periodically. Competitive benchmarking is a technique that several firms use to compare their internal performance metrics against data from other companies. Learning more about how benchmarking functions in business can help you maximise the value of your data analysis processes. In this article, we examine what competitive benchmarking is, review the different types, explore its importance, discover the benefits, see how to select metrics for benchmarking and share tips for developing an effective benchmarking strategy.
What Is Competitive Benchmarking?
Competitive benchmarking is a technique for evaluating a company's performance by comparing its performance and productivity metrics with those of its competitors. Business development professionals acquire information pertaining to top competitors, compare it with internal data and analyse insights to identify differences or gaps. The insights you gain through benchmarking can assist you in deciding which business strategies and procedures can further support organisational objectives.
Types Of Benchmarking
While developing a benchmarking analysis strategy, there are various possible areas to focus on. You can focus on one form of benchmarking or choose several benchmarking categories to develop a thorough understanding of an industry, depending on an organisation's goals. These are some useful benchmarking frameworks for business developers:
Financial benchmarking examines indicators related to earnings and financial success. Financial benchmarking can help determine the financial performance of a firm in comparison to other companies in the same sector. A few examples of financial benchmarking metrics are:
Debt to equity ratio
Return on assets
Strategic benchmarking examines how an organisation's key strategies compare to other enterprises in the same sector. It employs measurements for strategic initiatives and marketing success. Strategic benchmarking uses metrics like:
Related: What Is Market Share And How To Increase It In Business
Business developers can utilise product benchmarking to discover how products and services of a company rank against competing products and services. Product benchmarking evaluates a company's pricing and quality assurance mechanisms using the following metrics:
Profit per unit
Process benchmarking or operational benchmarking helps assess business operations in comparison to those of other firms. They address the operational strategies of an organisation, the protocols it utilises and the productivity of its staff members. Metrics for process benchmarking include:
Average call time
Average hours worked
Tickets per agent
Employee turnover rate
Cost per hire
Customer acquisition cost
Related: What Are Key HR Metrics? (With 14 Useful Examples)
Another practical method for assessing a business' success in comparison to other enterprises is by quantifying its reputation. Data pertaining to how the general public perceives a company is the primary focus of reputation benchmarking. The following metrics can help in assessing a company's reputation:
Customer satisfaction rate
Net promoter score
Social media engagement
Share of voice
Why Is Benchmarking Important?
Business benchmarking is crucial because it indicates where an organisation requires improvement along with the strategies it can implement to obtain a competitive advantage. Benchmarking can help you gain insights for enhancing revenue, reducing spending and improving client loyalty metrics. Business benchmarking is a dynamic process that fosters more successful and productive organisational initiatives.
Benefits Of Benchmarking
Using benchmarking has several strategic benefits for a business, including:
Contextualising achievements: Comparing and analysing different benchmarks with various companies provides a crucial framework for understanding a business's performance. Benchmarking assists in learning about the various industry standards and evaluating if the company is fulfilling requirements for its field.
Providing motivation: The success of other businesses might inspire you and other employees to perform better. Benchmarking sets realistic goals that professionals can work towards.
Identifying opportunities: Data from benchmarking is helpful for identifying unexplored markets and areas for development. You can start researching ways to replicate a competitor's success if they perform exceedingly well in a market where your client or employer has poor outcomes.
Increasing efficiency: Periodic benchmarking helps a company find possible areas for development, which improves its overall performance and efficiency. Benchmarking can aid in the improvement of business elements like marketing, sales and advertising.
Understanding competition: Benchmarking is crucial in business as it helps you better understand the performance and offerings of competitors in the same sector. You can expand ongoing operations and increase performance and efficiency by comprehending competitors' methods of operation and the factors that influence their success.
Improving quality: Benchmarking is a tool you can use to evaluate and enhance the quality of current products. This involves examining a competitor's product durability or assessing how satisfied their target clientele is with their offerings.
Related: Top Business Analyst Tools For Improving Efficiency
How To Select Benchmarking Metrics?
Follow these steps to choose the best benchmarking metrics to meet business goals:
1. Research competitors
You can begin by conducting research about the general competition in an industry. You can also select specific competitors after choosing your metrics, but developing industry awareness is an important first step for selecting the right metrics. Identify aspects of competitor performance that you want to emulate, then brainstorm to identify metrics that may connect to those characteristics.
Related: What Is Competitor Analysis? (Plus How To Perform One)
2. Identify an area for improvement
By comparing data with that of other companies, decide which aspect of a company's performance you want to expand or improve upon. By specialising in a specific aspect, you can choose precise, in-depth measures and gain insights into the competition in that sector. Determine what you can learn from each type of benchmarking mechanism and which metrics can benefit your approach the most.
Related: Areas Of Improvement For Managers (Examples And How-To Guide)
3. Review key performance indicators
As a starting point for benchmarking, begin with key performance indicators (KPIs) that you are presently monitoring. Internal benchmarking, which involves comparing a company's present data with data from previous financial quarters, is a common practice amongst businesses. You can determine which KPIs are most valuable and employ them for benchmarking by evaluating the KPIs a company uses to monitor internal performance.
Related: What Is A Key Performance Indicator? Importance And Types
4. Consider data accessibility
Consider your access to other companies' data when selecting specific KPIs for benchmarking. While some types of data are private and challenging to obtain, some business information is accessible to the general public. Review the financial resources of the company and determine how much you can spend on data collection. Choose metrics that are inexpensive or free to gather information for, if you have limited resources. With enough resources for analysis, you can hire experts to work on more intricate and comprehensive metrics.
5. Choose groups of metrics
To develop a thorough understanding of how a company compares against other businesses, choose a range of benchmarks that are relevant to the same domain. Metrics frequently relate to one another and analysing their correlations might help identify competitive trends. Utilise the facts you have analysed to establish new systems and approaches that can help you increase overall profitability.
Related: 15 Types Of Operations Metrics And Their Use In Business
Tips For Developing An Effective Competitive Benchmarking Strategy
Once you know what benchmarks you want to focus on, decide which competitors to include in your benchmarking strategy. Comparing your benchmarks to those of different companies may produce unique insights. These are some tips for developing an effective benchmarking strategy:
Observe key competitors. Start by making a list of primary and direct competitors. Tracking information pertaining to key competition is a good way to identify a company's position in a market and explore strategies for improving performance.
Track industry leaders. You can also benchmark against the top companies in an industry, even if the company you work for is small. Benchmarking with the most successful companies provides you with aspirations to strive for as the business grows.
Monitor potential threats. Growing businesses benchmark with small, emerging companies to understand potential threats to their success. Consider what you can learn from benchmarking with smaller companies in similar fields.
Compare by size. Another method for selecting benchmarking competitors is by exploring similarly sized companies in other industries. Although they address the needs of different customer groups, these businesses may employ successful operating procedures and strategic initiatives.
Edit your list. Review your options across all competitor categories and compare the benefits of benchmarking with each one. Refine your strategy by choosing businesses that add unique perspectives to a benchmarking analysis.
Establish a performance improvement strategy. You can develop and execute a performance improvement strategy within a business enterprise to increase the overall performance of an enterprise after researching the competition. Standardising operations and monitoring tasks during implementation allows you to evaluate performance and make appropriate adjustments.
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