The Case for Benchmarking

Business leaders are constantly challenged to develop a strong strategic plan. However, over the last several years, this task has become more difficult due to seemingly constant changes in technology, communication, customers, manufacturing, workforces and globalization.

Assessing your company’s unique strategic competitive advantage includes leveraging strengths, maximizing opportunities and minimizing weaknesses. Successful companies have a clearly defined value proposition and leaders who devote their efforts and attention to continuously enhancing the company’s value. Benchmarking — the process of measuring internal metrics and comparing them to industry peers — is critical to measuring the impact of decisions and driving both corporate and personal value.

When thinking about benchmarking, start the process with the end game in mind.

Ask yourself:

  • What are my anticipated results and are they quantifiable?
  • Who will be impacted and will it lead to maximum potential?
  • What financial indicators are relevant to assessing the impact of the decision and change?
  • How are competitors within my industry managing the economic challenges that I face?

In order for benchmarking to be effective, companies must analyze quantitative data from internal and external sources. Internal software packages or standalone benchmarking software can be utilized to process a large amount of complex data in a cost-effective manner, which is useful for measuring the true impact of a company’s strategic decisions. These technology tools also often provide companies with the ability to perform real-time comparisons, making information much more relevant, as well as allowing companies to focus on the road ahead as opposed to looking in the rearview mirror.

To effectively benchmark, it is important to avoid comparing apples to oranges. Make sure your benchmarking efforts involve comparing your performance with that of peers of similar size and geographic reach.

Additionally, benchmarking your business against companies that are in a similar stage of their corporate life cycle can improve the quality of benchmarking activities. For example, start-up companies are likely to have different leverage or cash flow needs than a mature company.

You must also assess the source of your internal data to ensure that it is both complete and accurate. Although benchmarks generated from audited or reviewed financial statements tend to be the most reliable source, the data is largely historical in nature.

Successful companies and reputable service providers utilize data sources that are current, reliable and relevant to monitor the impact of decisions that are quantified through dashboards or benchmark reporting.

Having witnessed both effective and ineffective benchmarking first hand, the best advice is to keep it simple and avoid information overload. Selecting a manageable number of metrics that truly reflect a company’s progress in executing its strategic plan can help management monitor performance in a cost-effective manner, as well as allow companies to course correct in a timely manner, thereby maximizing stakeholder value.

Kevin G. Gloviak can be reached at 215-441-4600, or Email.

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