Lancashire Times
A Voice of the Free Press
Ian Garner
Business Writer
2:01 AM 15th January 2022

Best Businesses Benchmark

Business writer Ian Garner asks what is benchmarking?

Image: Wallusy / Pixabay
Image: Wallusy / Pixabay

The most successful businesses have benchmarking in their strategy toolbox, so what is benchmarking?

Wikipedia describes benchmarking as 'the practice of comparing business processes and performance metrics to industry bests and best practices from other companies. Dimensions typically measured are quality, time and cost.'

Benchmarking empowers you to identify the strengths and weaknesses in your own business, allows to refine your practices and thus increase your overall performance.

Benchmarking can be divided into ‘process,’ ‘performance,’ and ‘strategic’ benchmarking.

If this feels daunting you may be surprised to find out how simple it can be and how many other businesses are prepared to share data on a reciprocal basis.

So, how do you go about it?

Most benchmarking compares key performance indicators (KPIs). This tends to focus on productivity and efficiency. Some indicators are expressed as simple statistics. For example, sales per employee, gross profit margins or wastage levels. Others may require qualitative, as well as quantitative, analysis. For example, to assess the effectiveness of training activities or levels of customer satisfaction.

The easiest form of benchmarking is to compare cost like utility bills, salary levels etc., to identify if you are higher than industry or local business norms. This may provide the chance to effect savings.

Image: mwitt1337 Pixabay
Image: mwitt1337 Pixabay
How do you get started?

Set up a small project team from the business. Choose influential people who will have the power to drive the necessary changes through. Provide any training necessary for the team to understand the benchmarking process (and project management skills) and link the benchmarking activity to your business objectives.

Most benchmarking involves external comparisons. Aim to compare yourself against businesses of a comparable size and structure, with similar objectives. These should include businesses who operate in your local business environment as well as your strongest competitors in your market segment.

Image: Pixabay
Image: Pixabay
Talk to colleagues, customers and suppliers, and research your industry, to establish who leads the field in the area you are benchmarking. Business publications, blogs, podcasts and online video content can also provide ideas. Your local business support organisation and trade association can suggest partners.

Use any existing contacts to make the initial approaches or contact your opposite number. Explain the objectives of the study and emphasise its mutual benefits.

Draw up a benchmarking agreement. Your agreement should include:

What information you want to exchange - never ask for information that you are not prepared to share in return
How you will use the information
Who will use the information?
How and when you will collect the information

Simple operational data can be exchanged by using a questionnaire - either by post or through a phone survey. A site visit will give you a much better feel for how your partner operates. Use a checklist and visit in pairs. Summarise where you differ from your benchmarking partners.

You may identify:

Differences in performance indicators. For example, higher staff turnover or lower gross margins
Differences in individual processes. For example, how you recruit or how your production processes work
Differences in strategy. For example, what your human resource policies are, or what quality standards you have for your products

Investigate why you differ, typical reasons include:

Poor cost control
Outdated or inefficient processes
Different trade-offs. For example, you chose to invest more in employee development and recognition to keep your turnover levels low
You have a different focus to your benchmarking partners. For example, if you have a different target market
You have different organisational constraints. For example, if you do not have the financial resources to invest in new technology

Benchmarking is not a one-off activity. Even if you have achieved best practice today, regular benchmarking is essential to keep you up to date and ahead of the competition.

Ian Garner
Ian Garner
Ian Garner is a retired Fellow of the Chartered Management Institute (FCMI) and a Fellow of the Institute of Directors (FIoD). He is Vice Chair of the Institute of Directors, North Yorkshire Branch. He is founder and director at Practical Solutions Management, a strategic consultancy practice and skilled in developing strategy and providing strategic direction, specialising in business growth and leadership. Ian is a Board Member of Maggie’s Leeds. Maggie’s provides emotional and practical cancer support and information in centres across the UK and online, with their centre in Leeds based at St James’s Hospital.