Benchmarking brings a key competitive advantage for organizations in today’s rapidly evolving business landscape. Many companies we engage with often struggle with gauging their standing against competitors and defining their performance targets.
These companies often raise questions such as: what constitutes top-notch efficiency in our sector? Is a 60% automation rate sufficient, or does it mean we are trailing behind? How do we compare to industry leaders? And if gaps exist, how do we bridge them?
Without concrete evidence of what success signifies, creating an effective business strategy can be an uphill task. In today's turbulent and disruptive environment, companies are leaning towards data-driven and fact-based reasoning to make crucial business decisions.
The need for benchmarking
Without defining what is "good" for your industry, you may miss important improvement opportunities.
Organizations measure a variety of performance metrics, but these KPIs and metrics can become meaningless without a comparative context. It can lead to ambiguous goals, below-par decisions, stagnant growth, inefficient operations, and ultimately a dip in customer satisfaction. Here are some likely scenarios:
- Without a clear definition of success, planning the next steps becomes challenging.
- Organizations might miss bigger shifts and fail to adapt in the absence of comparison against competitors.
- Making isolated decisions can lead to sub-optimal choices.
- Ignorance towards necessary improvement areas can result in inefficient processes and a possible decline in customer satisfaction.
In order to perform consistently and stay competitive, organizations need a clear definition of "success," and the world of benchmarking holds the key to this mystery.
What is benchmarking?
Benchmarking offers valuable insights into the operation of industry peers and competitors, outlining what it means to be the best in class. It illuminates an organization's strengths that are relevant to the competition and highlights areas of improvement that need immediate attention. Benchmarking is a critical part of a holistic strategy for businesses aiming to grow. It helps organizations overcome challenges and boost market share. Benchmarking fundamentally involves:
- Providing access to larger, meaningful contexts to data.
- Identifying opportunities for improvement.
- Structuring the business case to support action.
- Prioritizing key areas.
- Comparing your performance against established benchmarks over time.
In essence, benchmarking lays the foundation for an effective transformation strategy. It is a data-driven, streamlined approach designed to support growth and inform improvements. As a fact-checking agent in your decision-making process, benchmarking redirects organizations to stay on the path of data-driven insights and optimal decision-making. Benchmarking is not an option but a necessity in today's hyper-competitive business environment and can steer your organization towards clearly defined objectives.
The history
The full integration of a benchmarking process entails market analysis, business intelligence, capturing and managing business data, and utilizing acquired knowledge to propose improved management and operational efficiency. Benchmarking was pioneered in the 1970s in the US by Xerox to enhance its performance. It then gained ground in the 1980s in the Japanese automobile industry, denoted by the term "dantotsu," meaning "best of the best". Today, benchmarking strategies form part and parcel of modern companies' daily practices for reviewing and revising processes.
An array of benchmarking types exists, catering to companies' distinct growth ambitions. They range from competitive, collaborative, internal, external, and functional to generic benchmarking. Each boasting unique features that enable companies to gain a competitive edge, foster collaborations, improve operations internally, focus on specific functions, or analyze a series of processes.
Challenges with benchmarking
Identifying the relevant internal and external benchmarks amid complex data landscapes and diverse operational standards can pose severe challenges. Amongst these challenges, the most recurrent ones hinder the traditional benchmarking process and can compromise its outcomes. Here's a snapshot of the common issues:
- Scarce or hard-to-reach data, coupled with small sample sizes, can skew benchmark results.
- Instances compared might differ substantially: Comparing data of firms from disparate sectors and sizes can offer inaccurate or unhelpful insights.
- Discrepancies in data assembly and measurement methods can vary. For instance, one firm might consider on-time delivery when the truck departs from their facility, while another might judge it when the product is delivered to the customer's doorstep.
- Outmoded data can render benchmarking irrelevant if not timely. Often, by the time benchmarks are established, the data is already stale.
- Many benchmarks offer comparisons against singular reference points, typically the median. While this might provide some comfort, it can often lead to mediocre results rather than aiming for peak performance.
Due to these challenges and complexities, many organizations treat benchmarking as a periodic project mode exercise, even though it should ideally be a continuous integration into processes of organizational learning and improvement. The sporadic nature of benchmarking projects can result in a lack of integration and visibility into progress, and whether transformation efforts truly deliver as expected.
But does benchmarking inevitably spell complexity?
The new way forward
In fact, we believe benchmarking doesn't have to consume excessive time or resources. So, let's innovate together.
Envision a new paradigm to benchmarking, where...
- You have the luxury to benchmark effortlessly and at any given time.
- You can tap into relevant and timely data consistently.
- You can repose unwavering confidence in your benchmarks to make well-informed decisions.
- You have the flexibility to continuously review benchmarks, tracking your progress dynamically.
The vision is on the horizon. Stay tuned for our SAP Sapphire 2024 event, where we will unveil how SAP Signavio is transforming benchmarking, making it more efficient, effective, and seamless.
A future with a simplified benchmarking process is within reach, and we are thrilled to lead the journey!
