Competitive Benchmarking: Navigating the Benefits and Challenges of a Multi-Step Approach

Competitive Benchmarking: Navigating the Benefits and Challenges of a Multi-Step Approach

Competitive benchmarking is a research-based method to track the performance and growth of industry peers and ensure business sustainability. This article explains this process, its steps, benefits, and challenges. Rather than avoiding competition, companies can harness this challenge through competitive benchmarking to drive growth and development.

What is Competitive Benchmarking?

Competitive benchmarking has been in use since 1900s. Xerox, for instance, conducted a benchmarking exercise to determine whether the costs of its Japanese counterparts were as low as its relative [U91] prices. Competitive benchmarking provides a framework for evaluating performance, through two types:

• Comparing your business against competitors: Businesses use this strategy to evaluate themselves against competitors or leading firms using specific parameters and KPIs. This helps them evaluate their performance, identify areas for improvement, stay aware of best practices and standards in their fields, and retain an edge over their competitors.
• Comparing your KPIs against a prior business period: Companies can also assess their current performance metrics by comparing them to previous periods, such as their most successful sales quarter, to track progress and identify trends.

Companies that frequently conduct competitive benchmarking remain ahead of the curve with research-driven decisions. A benchmarking exercise should highlight a business’s strengths, weaknesses, opportunities, and trends, enabling them to adjust their strategies accordingly.

Steps for an Effective Benchmarking Exercise

While companies can understand competitive benchmarking and its potential benefits, conducting this detailed exercise requires experience, critical thinking, and diligence. A well-designed developed benchmark typically involves the following steps:

Identifying the Research Scope

Companies must first decide which aspects of their competitors to analyze, based on their goals, industries of operation, and geographic coverage. Defining the research scope guides their research focus to determine the types of companies they need to benchmark.

Identifying and Setting the Benchmarking Criteria

Benchmarking criteria refer to the parameters used to pick and filter the list of companies to benchmark. These could be either identified by the company or by their research partners, and they differ based on the benchmarking objective. Examples of such criteria include the following:

• Geographical indicators: Headquarters and global presence
• Products and Services: Industry classification and business activities
• Financial Metrics: Total Revenue, Net Income, Profit Margin, and EBITDA
• General Information: Number of Employees

Like most research processes, competitive benchmarking requires fine-tuning to achieve optimal results, as criteria can shift based on rising challenges such as data limitations or inconclusive results.

Conducting a Screening Exercise

Once the criteria are selected, researchers rely on sophisticated screening tools to identify a pool of comparable competitors along with key information about them. Companies that do not fit the pre-determined parameters or lack data to verify their relevance are excluded from the list.

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Collecting the Data

After extracting the list of companies and their key information from the leveraged databases, additional sources should be checked to gain a comprehensive view of the companies and fill in data gaps. Information can be acquired from various sources, including official company websites, LinkedIn profiles, market reports, news, and other online sources.

Analysing the Data

After collecting and cleaning the extracted data, researchers conduct an in-depth analysis to identify top performers across each metric and generate insights that guide business strategies and decisions. Analyses can only be accurate and trustworthy if they are based on relevant criteria and reliable sources of information.

Common Benchmarking Challenges

Organizations across various industries can use competitive benchmarking for different activities but might encounter some common challenges. Examples include the following:

Lack of Context and Understanding

To ensure the validity and reliability of their findings, researchers must thoroughly grasp their research objectives and carefully consider these goals when establishing criteria, methodologies, and screening tools. This deliberate approach enables them to conduct a targeted analysis, achieve accurate results, and develop contingency plans to overcome any limitations during the research process.

Overcoming Data Limitations

Data limitations are an inherent challenge in research, and competitive benchmarking is no exception. Outdated, inconsistent, or unavailable data, particularly in emerging markets or untapped regions, can hinder the accuracy of findings. Private companies, not being legally obligated to disclose financial information, can further increase this issue. If not addressed, data limitations can lead to flawed results, undermining the entire benchmarking exercise. To mitigate this, an agile approach is crucial, where research criteria are continuously refined in response to emerging challenges and needs, ensuring the research objectives are met despite these limitations.

Eliminating Irrelevant Players

Despite employing robust methodologies, irrelevant companies may still surface in the screening and research results due to estimates and assumptions made by data sources. To safeguard the integrity and precision of the findings, it is essential to conduct rigorous quality assurance checks. This process involves verifying the relevance of the benchmarked companies, as well as evaluating any outliers and estimates that may have been incorporated.

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Benchmarking Benefits for Strategic Decision Making

Companies in consumer goods, energy, healthcare, financial services, and other sectors frequently engage in benchmarking practices to maintain their competitiveness. Below are some other examples of how competitive benchmarking can help companies improve their strategic decision-making process:

Identifying Market Opportunities

Competitive benchmarking can help businesses understand their market position, strengths, and weaknesses vis-à-vis their competitors and develop strategies accordingly. It can uncover untapped markets, geographies, and customer segments, highlighting potentially profitable opportunities that would help them increase their customer reach and competitive advantage.

Anticipating Industry Trends

The market is never stagnant. As consumer needs continue to evolve, companies must remain vigilant and agile in recognizing and promptly adapting to these shifts to maintain their competitive edge. Examples of trends could be technological advancements market players adopt to optimize their processes or enhance their products, and government regulations hindering market penetration opportunities. Other trends could be related to customer preferences such as the demand for environmentally friendly products and services that reduce carbon footprint or increasing consumer interest in health and wellness products. Competitive benchmarking helps companies stay aware and up to date with key trends that shape their industries.

Enhancing Decision-Making

Effective decisions are always backed up by accurate data. By conducting competitive benchmarking analyses, companies can enhance their decision-making processes by leveraging the insights gained from their research outcomes. These include identifying market opportunities, recognizing threats, understanding consumer preferences, and staying informed about relevant industry trends. This, in turn, enhances their ability to adapt, innovate, and maintain a competitive advantage in an ever-evolving business environment.

How Infomineo Empowers Businesses with Tailored Competitive Benchmarking Solutions

Competitive benchmarking is an essential element of Infomineo’s research methodology, particularly in the context of landscape assessments.

By offering localized market intelligence services, we provide companies with a comprehensive understanding of market dynamics and key players, enabling them to identify opportunities and growth prospects, mitigate risks, and outperform competitors.

Our skilled research team acts as a thought partner to our clients throughout the project lifecycle, prioritizing open communication, flexibility, and complete process customization to meet their specific needs.

FAQs (Frequently Asked Questions)

Do companies outsource their competitive benchmarking needs?

Companies have the option to either handle this process internally or delegate it to research professionals. The decision typically depends on the proficiency of internal teams, their resources like databases and data tools, and the financial capabilities of the company. Businesses often outsource research tasks to specialized firms with significant expertise to enhance efficiency and outcomes.

How often should a company conduct benchmarking?

When and how often a competitive benchmarking exercise is conducted depends on its purpose and the company’s objectives. It can be scheduled periodically or on a need-basis to gain a deeper understanding of their market position, identify strengths and areas for improvement, evaluate their growth potential, inform their immediate sales and marketing strategies, and set a long-term plan. This would help them make informed decisions and set realistic goals to enhance their performance and stay ahead of the competition.

What should be considered when choosing a competitor to benchmark?

The selection of benchmarking criteria depends on the research objectives and the company’s strategic goals. These criteria may cover various aspects such as business activities, geographical markets, financial performance metrics, or other relevant factors. By aligning the criteria with their specific aims, companies can conduct a targeted comparison of their performance against competitors, enabling them to make informed decisions and develop effective strategies.

What are the key steps of a competitive benchmark?

A competitive benchmarking exercise involves multiple steps. Below are the key ones to ensure the efficiency of your research:

• Identifying the Research Scope
• Identifying and Setting the Benchmarking Criteria
• Conducting a Screening Exercise
• Collecting the data
• Analyzing the data

Conclusion and Future Outlook

Competitive benchmarking is a strategic process that allows companies to compare their performance against competitors and industry leaders. By measuring key metrics like market share, product and service offerings, geographic coverage, and financial performance, businesses can gain valuable insights into their strengths, weaknesses, and areas for improvement. Benchmarking also enables companies to track trends, identify opportunities, and make informed decisions to stay ahead of the competition. Accordingly, businesses can effectively measure their competitiveness, drive continuous improvement, and maintain a leading position in the market.