Competitive Benchmarking: Navigating the Benefits and Challenges of a Multi-Step Approach
Competitive Benchmarking: Navigating the Benefits and Challenges of a Multi-Step Approach
Every profitable industry is usually fiercely contested. However, rather than avoid the reality of competition, thriving companies harness this challenge to drive their growth and development and stay relevant. Competitive benchmarking is one strategy for monitoring organizational growth and ensuring business sustainability regardless of a sector’s ebbs and flows.
This article explains this process and the essential steps for an effective competitive benchmarking exercise. It also highlights the benefits of incorporating this practice and the challenges you might encounter at various stages of its implementation.
What is Competitive Benchmarking?
Competitive benchmarking is a practice that dates back to the 1900s. Businesses have used this strategy to evaluate their performance and retain an edge over their competitors. It involves appraising your company against leading firms in your industry or competitors using specific parameters or KPIs.
Competitive benchmarking primarily aims to contrast your operational procedures with those of better-performing companies. Comparing your KPIs against those of an industry trailblazer can often help you identify areas for improvement and stay in touch with the latest best practice standards in your domain.
Rather than assessing your company’s progress using arbitrary metrics, competitive benchmarking provides a better framework and context for interpreting performance.
Apart from using competitors as a benchmark, organisations can also compare KPIs against a prior business period. For example, a consumer goods business can compare performance metrics during its current sales period to its best sales quarter for the previous two years.
Companies that frequently engage in competitive benchmarking manage to remain ahead of the curve with research-driven decision-making. A properly conducted benchmarking exercise should shed light on a business’s strengths and weaknesses, most-loved features, and customer interests. It will also offer insights into current trends, enabling organizations to adjust and pivot.
Steps for an Effective Benchmarking Exercise
Although several businesses are aware of competitive benchmarking and its potential dividends, not many can conduct an effective benchmarking process. Fortunately, there are business research companies with the requisite experience, knowledge, and personnel to undertake this task.
A well-designed competitive benchmarking exercise typically involves the following steps:
Identifying the Research Scope
For evaluation to be effective, organizations must first decide which aspects of their competitors’ businesses they wish to analyze. Usually, benchmarking analysis adopts a birds-eye perspective, observing patterns and strategies and their impact. This method is generally considered more practical and potent for competitive benchmarking than conducting a SWOT analysis on each competitor.
However, the specific scope for benchmarking research is determined by several factors, including your goals, industry, and region of operation. Defining the research scope helps to narrow the focus of your in-house or external business research team to achieve better results.
Identifying and Setting the Benchmarking Criteria
Companies must set their benchmarking criteria once the research scope has been determined. Benchmarking criteria refer to the performance indicators and parameters used as a standard for comparison. Ideally, these yardsticks are set by organisations in partnership with their research partner or in-house team.
Before starting the benchmarking process, stakeholders sit with researchers and brainstorm the best way to proceed. However, criteria can change based on several challenges, including difficulty obtaining data and inconclusive insights after analysis has been carried out.
Like most business processes, competitive benchmarking requires frequent feedback and fine-tuning to achieve optimal results. Other factors that must be considered in setting the standards for competitive evaluation include an organisation’s industry, location, finances, size, and employee strength.
For example, a mid-market enterprise may analyse evaluation metrics differently from those of a small business. Also, the metrics for consideration among consulting businesses will differ from those of energy companies.
Conducting a Screening Exercise
Identifying benchmarking criteria helps streamline the list of competitors to be evaluated. Businesses that do not fit within the research scope or pre-determined parameters and those without readily available and verifiable data should be screened out before kickstarting the process.
Furthermore, companies must select the right tools for competitive benchmarking to be effective. Businesses that outsource their research to third-party agencies, however, may not need to worry about tool selection as this is handled by their agency.
After the tools for the exercise have been identified, the data collection and analysis process can begin.
Collecting the Data
Data collection requires locating the right data sources and retrieving the information needed to conduct an effective competitive benchmarking analysis. Data can be obtained from various sources, including government entities, reputable research companies, industry reports, and competitor websites.
It is common to combine data from a wide range of sources to get all the parameters needed for analysis. Also, when you hire a top-notch research firm to handle data sorting and collection, they can properly merge data from different points to fill any gaps.
Analysing the Data
Ultimately, benchmarking aims to obtain insights that improve an organisation’s competitiveness. Data analysis plays a vital role in achieving this target. After collecting adequate data and sorting and cleaning each entry, researchers can display their findings using visualisation techniques.
These graphical representations enable stakeholders to readily understand an otherwise complex dataset and devise strategies for growth and development. Using visuals, companies can see the top performers across each metric, identify their major competitors, and observe their overall trajectory.
A competitive benchmarking exercise can only be deemed effective if accurate criteria are used, verifiable data is obtained, and subsequent analysis yields valuable insights.
Common Benchmarking Challenges
Competitive benchmarking can be cumbersome and not without its share of difficulties. Organizations across various industries, such as consulting, financial services, industrial goods, and retail, that wish to incorporate this process often encounter similar challenges during implementation.
Here are some of the most common problems faced during competitive benchmarking.
Lack of Context and Understanding
Many companies fail to fully grasp the importance of context when analysing similar businesses when undertaking competitive benchmarking. Excellent researchers understand the need to interpret the findings from their data based on peculiarities such as company size, location, age, and workforce.
Failure to factor in intangible but highly significant quirks created by a competitor’s cultural environment or other unique conditions can hamper the overall effectiveness of a benchmarking exercise. Such analysis, which lacks an in-depth perspective, may be skewed and produce ineffective solutions while missing the key areas of improvement that deserve critical attention.
In addition to a poor understanding of context, organisations tend to have clearly defined objectives for practising competitive benchmarking. Businesses sometimes engage in this exercise as a corporate ritual without recognising the value it could add to their bottom line. Such brands or organisations often do not see the need to carefully streamline their research criteria, methodologies, and screening tools or hire a top-tier business research company to handle their benchmarking process.
Overcoming Data Limitations
Conducting competitive benchmarking involves researching similar companies within your niche. However, this can be arduous, especially if most of the information you need belongs to private companies. This is because private company data can be difficult to find, and private companies are not obligated to report specific details to government entities.
Furthermore, while public organisations may offer sufficient data for competitive benchmarking, this information can sometimes be outdated or inconsistent. Obsolete and inaccurate information harms the benchmarking process because it generates inaccurate analysis and ineffective solutions. The challenge of data limitation is significant, especially in regions where the data architecture is not yet mature.
However, it is possible to address these issues by engaging a research company such as Infomineo that incorporates an agile approach to their benchmarking research and data collection process. With this methodology, businesses can mitigate the impact of data limitation by tweaking their search criteria and parameters while ensuring that the benchmarking exercise yields a profitable outcome.
Eliminating Irrelevant Players
Competitive benchmarking insights are only valuable when brands compare themselves to similar businesses. Regardless of the efficiency of your methodology, tools, and data analysis, using the wrong yardsticks for evaluation can invalidate the entire exercise.
The suitability of the companies you use for benchmarking cannot be understated. Organisations that meet the selection criteria must share relevant verticals and be in the same industry. A frequent mistake businesses make during benchmarking is replacing relevant companies with irrelevant ones due to difficulty obtaining the needed data for their preferred choice.
While it is impossible to ignore the challenge of sourcing up-to-date, accurate competitor information, getting a research company to perform quality assurance checks on every company that will be used as a comparison metric is critical. This will help preserve the accuracy of the exercise and ensure that maximum value is derived for every dime spent.
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Benchmarking Benefits for Strategic Decision Making
Leading businesses in consumer goods, energy, healthcare, financial services, and other sectors regularly benchmark each other to stay competitive. Despite the apparent challenges associated with this activity, most executives and top stakeholders will agree that the benefits far outweigh any encumbrances encountered during the exercise.
Here are some of the positives of benchmarking your business against its competitors.
Identifying Market Opportunities
By carefully analysing competitors’ performance and strategies, businesses can gain a clear, unbiased perspective on the quality of their services. This understanding of their market position in relation to similar organizations within that industry can help identify fresh business opportunities to explore.
For example, competitive benchmarking can help a business discover an untapped demographic that competitors are harnessing. It could also highlight new product ideas to launch and clarify what marketing strategies would be more effective within specific regions.
Market differentiation is a by-product of a thorough understanding of an industry and the major players within that domain. In researching the competition, organisations are likely to discover their unique advantages and find ways to develop their competitive advantage to attract and retain more customers.
Anticipating Industry Trends
The market landscape is never stagnant. As consumer needs continue to evolve, it is essential to notice these changes and adapt quickly to maintain relevance and profitability. Fortunately, competitive benchmarking allows businesses to catch these new waves early, giving them enough time to make the necessary adjustments.
Organisations can observe the impact of new technologies and study the changes in customer preferences in real-time. They can also forecast the implications of new government regulations for their industry.
Competitive benchmarking provides a telescope into the future and enables companies to quickly anticipate incoming trends and pivot.
Unlike before, trends are currently changing at an accelerated rate. However, regular benchmarking exercises can help organisations stay current and utilise these changes to increase revenues.
Enhancing Decision-Making
The actual value of the insights obtained from competitive benchmarking is visible when these insights lead to improved business strategies. Effective decision-making must be backed by accurate data.
Companies with limited resources can profit from tested, trusted strategies that yield pre-determined outcomes. Although there are no certainties in business, competitive benchmarking can help organisations predict outcomes with a higher level of certainty.
Competitive benchmarking eliminates the need for a trial-and-error approach and provides a reliable decision-making framework. Businesses that implement this practice regularly tend to make well-thought-out decisions regarding marketing, product development, innovation, and operations.
The impact of benchmarking transcends one department and extends to every facet of an organization. It presents a new way of looking at problems and identifying practical solutions.
How Infomineo Empowers Businesses with Tailored Competitive Benchmarking Solutions
Competitive benchmarking represents an integral part of Infomineo’s research practices and landscape assessments. By offering localized market intelligence services, we provide businesses with a deep understanding of market dynamics and key players to uncover opportunities and growth prospects.
Serving as trusted advisors to our clients, we prioritize open communication, flexibility, and complete process customization to meet their specific needs. Our approach involves blended methodologies and sources that pinpoint individual research requirements, establish benchmarking criteria for market evaluation, and deliver actionable insights through critical thinking and business acumen.
Our skilled research teams possess extensive experience in this field and operate through a thought partnership model across all stages of project involvement.
FAQs (Frequently Asked Questions)
Can in-house teams do competitive benchmarking?
Yes, it can. However, most companies do not have in-house teams with adequate research skills, a thorough understanding of contextual frameworks, and the best data tools to conduct an effective benchmarking exercise. Hence, most companies partner with third-party research organizations to achieve the best results.
How often should a company carry out benchmarking?
The timing of a benchmarking exercise can vary depending on its purpose. Some companies engage in this activity periodically – monthly, quarterly, annually, or bi-annually. However, in some cases, organisations also use competitive benchmarking shortly after launching a new product or when they suspect a downward trend in their revenues.
What should be considered when choosing a competitor to benchmark?
Ideally, competitors in a benchmarking exercise should be in a similar industry. Companies must also consider the size and location of their selection. Benchmarks must be chosen with respect to a business’s goals and KPIs. They should also provide similar products and have related target markets.
Is competitive benchmarking the same as competitor analysis?
No, it is not. While competitive benchmarking adopts a broader approach, competitive analysis focuses on individual companies. Although competitive benchmarking can include competitor analysis, the overall goal is to discover industry trends and market opportunities and inform strategic decisions.
Conclusion
Competitive benchmarking continues to expand in scope, and with the advent of the artificial intelligence (AI) revolution, this activity will only continue to improve. Thanks to AI, researchers now have access to high-performing predictive models and algorithms that can draw insights from various data types.
Also, as companies continue to awaken to the importance of data for 21st-century businesses, the problem of sourcing data is expected to reduce drastically in the coming years. More than ever, firms are investing in improving their data architecture to achieve more growth with business research solutions.
Hence, competitive benchmarking is guaranteed to differentiate between businesses that thrive in the technology-driven era and those that fail.