How to Use Benchmarking with Performance Metrics
The question is ‘compared to what?’. It is important and we must measure our progress and compare our results today with our progress in the past, however is this enough? Do we need a better benchmark – an external benchmarking for our business performance.
While we can still improve compared to previous months, quarters and years without external benchmarks we are not really aware of how good we are. What if our revenue grew by 5% in the last 3 years but we don’t know that other companies in the industry had a two-digit growth. While we still show growth in revenue we operate in a vacuum with probably missing something very important out there.
This is especially true nowadays because changes in the external environment occur more frequently than ever before. Technology changes daily, social trends shift daily, globalization occurs rapidly… all of these changes open up new opportunities as well as new threats.
By using external benchmarking as an incorporated part of our performance management and reporting we are able to spot the changes, opportunities and risks and analyze our situation to better use the new opportunities and avoid the new potential risks.
Measuring against ourselves is simply not enough because we are not able to see and understand the big picture and the risks and costs of ignoring external benchmarks are very high that no organization can afford.
There are useful benchmarks inside your organization such as comparing performance of one location to another or sales of one product to another but again the external benchmarks give an entirely different perspectives.
The issue with external benchmarking and the reason why is it so ignored by many companies is because simply they are not used to do it and information is simply not readily available. However the truth is that with a little creativity and planning and most importantly by understanding the benefits every company can develop a decent external benchmarking reporting system.
For example the financial data of your public competitors is readily available for free and you can find all the financial performance ratios and numbers online in a few minutes.
From these numbers you can learn about their trends in sales, costs, margins, efficiencies and all relevant results in order to compare them with your company’s numbers.
In addition you can purchase specific reports for private companies or extra information on public companies, you can follow competitors in social media, you can talk to their current and ex customers, you can track and analyze their job openings…
All you need is a good reporting and analysis strategy and plan of action and you’ll be able to improve your current benchmarking substantially. The benefits are very high so every company should develop an initiative for creating an external benchmarking system and manage it as a process on an ongoing basis.
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