This post will provide a functional understanding of benchmarking as a performance management technique and show how to use benchmark management to make the most of your business partnership.
While the concept of benchmarking as a management tool has only been around for the past two decades, it has been widely adopted by businesses looking to get a leg up on competitors. Unfortunately, while benchmark management holds great potential to help enterprises identify and implement best practices, benchmarking itself has been too broadly defined and all too often misunderstood entirely. This disconnect between theory and practice ultimately results in benchmarking projects that lack focus and fail to yield usable results.
What Is Benchmarking?
Benchmarking can generally be defined as the process of identifying and using concrete examples of principles and practices within the industry to set tangible standards and goals for your own company. While this technique typically involves comparison across companies (external benchmarking), the practice can also be applied between distinct departments within a company looking to improve and learn from one another (internal benchmarking). This procedure can further be categorized into three types:
- Process benchmarking entails analyzing the way top performers accomplish different tasks
- Performance benchmarking focuses on certain performance metrics, such as sales, revenue or even customer service. Performance benchmarking allows businesses to identify areas for improvement and prioritize resources for those areas
- Strategic benchmark management addresses high level planning and winning strategies to that have allowed certain teams to stand out in their organization or industry. Incorporating specific and relevant indicators is equally important
Irrespective of the type of benchmarking an organization undertakes, a well-structured and systematic process is critical for success.
Indicators for Benchmark Management
Companies must keep in mind that using different benchmarks will yield different insights. While some indicators will be standard, such as structure, staffing or business economics, others may not be so obvious. Below are Forbes’ nine business performance metrics to consider including in the process:
- Cash flow from operations
- Inventory turns
- Receivables growth vs. sales growth
- On-time deliveries
- Employee retention
- Interest rate coverage
- Gross profit margin by product line/type
Source Benchmarks from Your Partners
While benchmarking is an excellent method of sourcing best practices for your business, it can further serve as a form of resource sharing with your business partners. Not only is this mutually beneficial to both entities, but the accuracy and level of detail of the information you and your partners will exchange will be much higher than what you could source from competitors.
Featured image by McBeth