It should be every business owner’s objective to know where they stand in the market compared to their competitors. They should also have a mind-set they can learn things from their competitors, even if it’s to say “We’re not doing it that way”.
Benchmarking is when you compare your business activities and processes to those of your competitors.
It’s often seen as being too complicated and time consuming to undertake on a regular basis and as a result is often snubbed. But it shouldn’t be disregarded without serious thought because there is often a lot to be learned from your competitors and this process provides an opportunity for you to do that. Even if you think you are at the top of your game, you still want to know how close the rest of the pact is.
Comparisons with competing businesses can be wide ranging and if used wisely it can complement your strategic planning process by having the benchmarking focus on those areas that matter most to your business. The comparisons can range from gross margins on products and services, key costs and cost drivers and certain overheads including staff, through to the level of customer satisfaction from existing clients. Some are easier to measure than others, some are easier to gather than others, and some are more sensitive than others. So it’s important to treat the benchmarking process as a project, get the right people involved including external help where needed, and plan properly.
Set objectives on what you want to achieve, set timeframes for achieving it. Focus on what really matters to the business. Identify which companies you are going to compare yourself with, then look at how you expect to gather information on these companies. It could be that you use common business partners who agree to share information, it could be you approach business associations or external benchmarking research organisations. Whatever the approach, be clear on what you want to gather, and why.
Once you have gathered the information then it’s time to analyse and assess what that means to your business. Depending on what it is you are comparing, it could mean that your market competitors have fundamental differences to the way you operate. The question is – does that give them a competitive advantage, or you?
Coming out of all of this is the need to consider the following:
- Do you need to change the way you operate?
- Do you need to change the strategic direction of your business?
- Or are your findings confirmation that you don’t need to change anything?
Benchmarking, if used properly, is a very effective way of comparing your business to your direct competitors, and staying abreast of changes in the market. It shouldn’t be seen as a one off, instead once mastered, it should become a regular feature of your strategic planning and review process, and by the way, that should be undertaken annually.
If benchmarking is something you think would be useful to your business, give us a call on 09 309 3222 and lets chat about how it could work for you. Also, If you need an accountant in Auckland – feel free to reach out.