Benchmarking
Benchmarking can be simply defined as the process of comparing
your business' effectiveness in terms of production, quality
and processes with those of your competitors or those in similar
industries. Benchmarking is an objective appraisal of how you
compare to others. Benchmarks are usually expressed as data,
percentages or ratios. You can compare many different areas
or compare just one area. For instance, you may be just interested
in gross profit margins for same-sized businesses in your industry.
The following are some guidelines when looking at benchmarking
for your industry:
It is usually appropriate to benchmark companies that are
similar in size and function. For instance, if you are a small
company it would not be very useful to compare yourself to
Microsoft. In many industries different size, volume and sales
can have totally different sets of benchmarks.
- Try to use several standards if possible. By comparing
standards you can get a more realistic view of how you are
doing.
- Try to get the most current standards possible. Benchmarks
several years old have little value -- you are seeing what
everyone used to do.
- Look for standards in trade publications/organizations
and also in publications such as the RMA Annual Statement
Studies.
- Remember benchmark figures are often averages and may not
be representative of the best in your industry.
- Remember that current measures are history. In today's
rapidly changing business environment those figures may be
changing.
- Compare the benchmarks to your financial reports. Make
this a part of your financial report review. Be sure to share
relevant information with managers and staff.
- Before you begin the benchmarking process, determine what
objectives and benefits you would like to obtain. Also determine
what measures you will apply.
- If you are sincere about improvements compare your business
to the top businesses in your industry. Simply knowing there
are minimal businesses in your industry provides little value.
- Look outside your industry to get an idea of how similar
businesses are doing. You may find that other industries
do things differently and get better results.
- Put your benchmarking findings into the context of your
business' development, especially if you are growing quickly.
- Don't forget that the idea of benchmarking is to get improvement.
Simply knowing the figures and ratios will not get results.
Action gets results.
Those businesses that use benchmarking effectively understand
that profitability and growth come from a clear picture of
how the business is doing. This is more than comparing figures
to past company performance. By identifying what the better
companies are doing you can get a sense of what you need to
do.
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