01 Mar 11 Points of reference

Benchmarking“I got 85% in the mid-term test”, my daughter pipes as she bursts into the house. “So, is that good, or bad?” I ask. I know it is not cool to compare your child with other children, but I want to know the highest, lowest, median and average scores in the class, to know if I should worry, or celebrate!

And that is what I imagine the managements in companies would be asking their business heads. They need to know how the best among their peers are doing, to know where they stand.

Companies may want to undertake global benchmarking for some specific functions. For example, the training department in a financial services company could benchmark its own programs vis-à-vis the best-in-class financial training programs offered across organisations in different industries.

Competitive benchmarking is typically done in relation to  direct competitors of a particular organisation. Commonly benchmarked parameters include growth strategies, operational metrics, R&D expenditure & activities, selling and distribution expenses, customer profiling, customer concentration, customer service metrics, pricing, etc.

In rare cases, benchmarking is done jointly by a group of competitors. The crucial thing here is to have an intermediary, who all the participating companies trust, and who will undertake the job of collating the (confidential) data, analysing it, and sharing the aggregate findings with the group. This kind of benchmarking is very hard to do, as most companies are wary of sharing their data with their competitors. Some established HR consulting companies have undertaken such exercises for benchmarking salary data in various industries and geographies.

Further, in most countries, competition legislation does not generally permit sharing of data among competitors, particularly if they are the dominant firms in the market and if the “collusion” is likely to lead to anticompetitive outcomes.

What parameters should companies benchmark? Organisations need to benchmark parameters that are critical to their business; and these depend on the organisation’s goals, circumstances and market pressures. For example, companies that seek cost leadership will want to benchmark costs of factors of production. Those that are setting up new offices may want to know about the facilities and infrastructure of its competitors. In a tight job market, benchmarking compensation and benefits may be critical.

It is important to link benchmarking to the decisions that an organisation needs to make. In other words, the benchmarking must be actionable. All information about competition is “nice to know”. While commencing a benchmarking exercise, it is easy to keep adding to the list of parameters – the “while we are at it, we may as well find out a few more things” syndrome. Whether it is worth spending money on getting the information depends on what we plan to do with the information.

Going back to my daughter’s results, it will be interesting for me to know how many of the toppers in her class attend coaching classes, how many hours they study on average and what study techniques they use. But these inputs are actionable, only if I can influence my daughter’s study habits. If not, there is no “value” in the benchmarking!

What aspects of business does your organisation benchmark?

Varsha Chitale

Varsha led the competitive intelligence practice at ValueNotes. As part of her drive to educate India Inc. on the merits of competitive intelligence, she often conducted webinars and seminars on CI for senior executives of Indian companies.

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