Our retail industry is changing at a rapid speed, and competition has become more intense. Customers want better, cheaper, and faster products and services – and the only way to meet these demands is to improve business practices continuously.
Most often businesses find it difficult to determine what areas or process need improvement, what is the process and how much it will help.
Benchmarking is a management tool that helps to measure, analyse and compare business process and their performance. It is a combination of a self-assessment and a competitor analysis, which leads to the improvement of development targeted at improving the benchmarked processes.
Though benchmarking is a widely accepted business method for understanding improvement opportunities; however, there are some pitfalls as well.
Benchmarking is not a one time exercise and should be considered as a framework for continuous improvement aimed at delivering ongoing business improvement.
For example, Toyota, coined the Japanese term “Kaizen” This refers to the continuous improvement they aim for in every phase of the company’s activities, through strictly measuring and reviewing processes and performance. Fundamental of benchmarking reiterate this idea.
Other pitfalls of benchmarking include selecting the wrong metrics to assess performance and making inappropriate comparisons.
The metrics that you select should be meaningful to whatever you are benchmarking. Importantly, comparison data must be available to make apple to apple comparison.
Selecting an appropriate internal or external metrics for comparison is also critical. For instance, when benchmarking gross margin performance, an online fashion portal in a local shopping centre should not be comparing itself with a global vertically integrated fashion retailer such as The Gap Inc.
The mostly different sizes and arrangements of both businesses make comparing gross margins a less than significant activity.
The essential points that should be asked when beginning a benchmarking exercise are:
What are we benchmarking?
Who are we benchmarking against?
These two answers will define the benchmarking activity to begin.
The ‘what’ points to whether the focus is on benchmarking an business performance, method or approach. Comparing business results is very different from comparing business method and strategic decisions.
The ‘who’ defines whether we are doing internal comparisons (e.g., comparing sales between stores of a local chain) or external comparisons (e.g., comparing supply chain against your closest competitor).
|Performance – Comparing performance measure||Internal – Comparing internal business units, departments, stores|
|Process – Comparing method and practice for business process||Competitive – Comparing performance/results against closest competitors|
|Strategy – Comparing strategic decision of other companies||Functional – Comparing internal processes against companies in the same industry|
|Generic – Comparing internal processes against best practice, regardless of industry|
Above table shows the comparisons that external benchmarking does not always mean comparing yourself to your closest competitors.
E.g., when measuring best method for an internal process, it may be relevant for bicycle make to compare the effectiveness of its just in time inventory management method against a car maker.
Benchmarking allows businesses to analyze with the help of pre-defined method. In some ways, it provides a fair perspective on how they are delivering against their competitor.
It is a valuable tool for opening business improvements. After all, learning from the best is a sure path towards being the best.
About The Author
Wilbur De Sousa is the Founder of Abstract, a Marketing Consulting Agency and a frontrunner in Marketing Consultancy with over two decades experience.