Actual Peer to Peer Benchmarks: How Does a Company Create Them

Great question, Ernie. Recognizing that the space and time I have here is reasonably minimal, I'll attempt to make a concise response that may be somewhat helpful. Although I have seen some benefits of benchmarking I certainly would not consider it as potentially "the only way to be a market leader". Being a market leader is often more about recognizing what makes your company unique and different and focusing on these attributes in order to provide the customer an end-to-end experience they cannot obtain elsewhere. If we simply all try to be like a 'benchmark' then we risk minimalizing these differences. As simply one example, perhaps you offer exceptional customer service and this is your key advantage relative to other competitors. Financial benchmarking may uncover that your working capital requirements appear considerably higher than the 'best in class'. Obviously it would not be logical to make cuts in working capital if it is at the expense of jeapordizing customer service.

Having said that, there can be some benefits in benchmarking. If you cannot do this within your own company as a starting point (ex. US KPIs compared to European KPIs to start, then driving down to understand gaps), then there are a few good places to start. The best place likely depends on your company, industry and place of work (location can matter a great deal so as a starting point it is often easiest to remove this as one set of major factors at first). I suggest starting with the voluminous information found on the Internet. Again, depending on your industry, company size and other factors you might be able to find a great deal from company websites (whether they are direct competitors or not - if you compare a sales function or a finance function as an example, the specific industry becomes less of a factor). Once you identify which company or companies you would like to benchmark with, check to make sure you are familiar with anti-trust and competition laws and regulations. Generally, its best if the company doesn't compete in the same space as yourself, but of course there are lots of other factors to consider. Then, identify specific questions you have for these companies and give them a call. Companies are often willing to talk about themselves and the experience should be mutually beneficial, not one-sided. There is more to it than this, but this approach can work well.

In brief, I believe benchmarking can be beneficial but it is a journey, not a single act. Also, a lot of thought has to be given to each gap from a benchmark in terms of understanding what drives the gap and whether or not your KPI or other indicator makes sense for your business model and core competencies.

I think it's important to understand the competition, for example we know our biggest competitor is killing the tablet market where we are lagging. This allows us to seek understanding to what things we can change to impact future growth. However that is because we are dealing with public companies. In the private sector it can be more difficult to obtain the information you need. Owners of private sector's aren't obligated to share their business results. What is important is understanding for your industry and appropriate margins to follow. Your local CPA should be able to give you some stats to benchmark.

Mark has some great points. Establish a good set of KPI's and make decisions to drive them.

I work for a KPO and Consulting company. At times I need to work on assignments involving multiple consutants. It is said that a firm is as good as its people. Hence, I take this as an opportunity to understand how they work, what is the level of client commitment, what resources are deployed and from where they work, level of competence and subject matter expertise etc. This helps in comparing their services with ours. While this helps realise the gap between the services and certainly gives a perspective on where we stand and get a sense of direction, this may not be the best way to be a market leader.

We find benchmarking helpful for merchants to compare their costs with others of similar size (transaction size and sales volume) in the same industry using myrealrate.com. I've also seen the “Padgett Reality Check Report” which provides data and comparison services.

A number of companies I have worked for have used trade associations for this purpose. There are some very tight restrictions on how the data is gathered and presented.