Benchmarking is the process of studying in detail and identifying the best practices and processes of the top company in the industry and use it as model/benchmark. It is hoped that the learnings from the process will enable the benchmarker to create effective improvements resulting in increased competitiveness. The process of benchmarking is a snapshot in time of a company’s success, that the benchmarker hopes to imitate.
Benchmarking can be carried out on any part or process of a company that requires improvement in practices. From Human resources to production, sales or marketing, everything can be measured against the best and most successful players in the market and adjustments made to increase competitiveness.
The Global Benchmarking Network (GBN) examined the use of various business improvement tools and benchmarking in a recent worldwide survey. The survey participants indicated the probability of using such tools in the future to improve performance by putting performance benchmarking (68%), informal benchmarking (63%) and SWOT analysis (61%) at the top three, and Quality Function Deployment (25%), Six sigma (27%), and Industrial Housekeeping 5S (29%) at the bottom of the list (http://bit.ly/1KhvlDV). This survey already shows that companies increasingly are concerned with understanding the big picture, and how they fit into their industry perspective, both current and future. Performance Benchmarking, Informal Benchmarking and SWOT analysis are classic tools for assessing the position of the company in question against its peers in the industry and identifying opportunities for improvements and potentially new options for growth.
Today however, the classic use of benchmarking is not enough any more to help a company improve, grow and expand its market share. There are assumptions that make a benchmarking exercise what it is, and today they often do not deliver as intended in the increasingly uncertain environment businesses operate in today.
The assumptions underlying classic benchmarking are:
- Industry structure is mostly stable
- Best practices are to be found in established, incumbent players with a history of steady and stable growth
- There is a specific best way of doing things, which can be copied to good effect
- Market structure is mostly stable
- Strategy making is equal to planning
However, by the time these practices are reverse-engineered, copied, and implemented, they will already be obsolete. Benchmarking against a successful player today does not guarantee success in the future.
Given that the assumptions classic benchmarking is based on are increasingly not valid anymore, a new set of assumptions is required to guide the benchmarking activity:
- Virtually all industries are undergoing rapid structural change due to continuous emergence of disruptive technology platforms as well as changing geopolitical and economic forces
- Best practices currently used were shaped in an era of greater stability
- Any tools and best practices today need to be responsive and adaptable to rapid change
- New business models constantly disrupt established markets
- Classic strategy planning is not working anymore, strategy today is a responsive and fluid discipline, which has to identify risks and opportunities and make difficult choices more frequently
- Success is as much about choosing not to do something, as it is about doing something that was unimaginable before
Attitudes towards investigating the future and openness to the need for considerable change in the way a company conducts its business vary considerably. Companies can be categorised in three distinctive groups:
- Actively connecting to the future: These players engage with the latest changes in the industry and seek to understand shifts in the industry structure. They identify future opportunities through active engagement with forward-looking, informed decision-making and strategy. They don’t just respond to, they shape the future
- Confident in their ability to catch up: This group does not see a need to be concerned about the nature of the future as they are confident in their agility and ability to respond to needs as they arise. They may be correct in their assessment, however, given the pace of technological disruptions leading to structural change in whole industries, members of this group will sooner or later find themselves either in the first or the third group.
- Avoid acknowledging reality: For this group the pain of facing change is bigger than recognising the fundamental forces that are taking away their competitiveness and markets. Only faced with a serious and painful challenge to the status quo, this category may take action. Often it may be too late.
There are no guarantees about the future, and that is why making strategy is so uncomfortable, and often is short-changed for strategic planning. However, making no decisions in the face of uncertainty is not an option, however uncomfortable it may be.
Future Benchmarking generates insights and the required clarity to help decision makers make strategy based on informed assumptions and requirements of the business. The focus is on finding new ways of acquiring and keeping customers, that is, sources of revenue. For this to work, you need to understand how your industry and your customers are evolving. Moreover, how the competition is taking advantage, or coping with technological and social change, and what are your capabilities to put your own stamp on the future development of your industry and market.
In order to benchmark against the future, first possible shapes of the future have to be drafted. From there well-informed assumptions are made with ample consideration for potential risks and rewards. When the future scenario is clear, gap analysis, goal setting and implementation follows. An important aspect of the process is its continuity. This does not mean that the process must continuously be repeated in full, however, the shape of the future can shift rapidly, therefore regular re-checking of the assumptions, and how they hold up against the new shape of the future, is of utmost importance to follow up with adjustments and decisions. Future benchmarking brings strategy to life and makes it a proactive tool for decision-making.