The Practice of Benchmarking
To survive and thrive in today’s competitive environment, companies must continuously adapt and deliver more, faster, better and less expensively. Today’s emphasis for more and faster growth is the focus for many organization’s strategic planning. Companies use the strategic planning process to identify what the business should become and how to best achieve their vision. Part of this process entails appraising, then improving, the company’s capabilities and processes.
How do you know where to aim and how far? One valuable approach is to use benchmarks. A benchmark, that is a measure, serves as a standard or point of reference against which things may be compared or assessed. If the benchmark is the “what”, benchmarking is the “how.” The American Productivity and Quality Center (AQPC) defines benchmarking as “the process of identifying, understanding, and adapting outstanding practices and process from organizations anywhere in the world to help your organization improve its performance.” Benchmarking is not the same as a metric. A metric is a comparative number, which serves as the norm, whereas a benchmark is a standard for the best.
Benchmarks have become an integral part of strategic planning and operational improvement. According to the AQPC study, Strategic Planning: The Value of Benchmarking, about 68% of companies conduct benchmarking to support the strategic planning process. Benchmarking enables your company to collect quantitative and qualitative information needed to identify gaps and pinpoint ways to improve performance, achieve superior results, and enhance your competitive advantage.
The Birth of Modern Benchmarking
It is generally believed that benchmarking in its modern form has its roots at Xerox in the 1970s. The copier manufacturer faced stiff competition from the Japanese who were manufacturing better copiers that they were selling for less while still making a good profit. To understand what they could improve to increase productivity while reducing costs, Xerox conducted a study to compare itself with its direct and best competitors.
It is from this beginning that the quest for benchmarking was born and spread throughout the industrial sector in the 1980s. Initially these studies focused on comparing production costs. Today benchmarking has expanded beyond production costs and evolved into a method used to discover all types of best practices to support continuous improvement required to maintain a competitive edge and adapt to market and customer needs. Companies use the benchmarking process to identify what is the best performance currently being achieved – whether in a particular company, by a competitor or by an entirely different industry.
The Merits of Benchmarking
Data collected through the benchmarking process shows you WHAT can be achieved and provides insight into HOW to achieve this performance. Frequent and regular benchmarking enables you to measure changes in your own performance relative to best-in-class companies. By using an external reference point you can gain insight into these best practices.
Robert Camp, who authored one of the first books on benchmarking, Benchmarking: The Search for Industry Best Practices that Lead to Superior Performance, posits that benchmarking has evolved from identifying performance benchmarks and process proficiencies to best practice mastery and modeling. When benchmarking was first employed, the majority of the benchmarks were financial and process oriented in nature. Innovation and learning serving as the source of new products and growth, best practice performance measures associated with customer satisfaction and experience, new product adoption and usage, and increased market share and category ownership have moved to the forefront of benchmarking. These best practice performance measures brought benchmarking to the world of Marketing.
Why Benchmark Marketing?
Benchmarking can be done for nearly every business process, including Marketing. Unfortunately, many companies do not benchmark their Marketing and this is a missed opportunity. It’s an odd phenomenon. Companies have all kinds of reasons to scale back on Marketing whether in good times, “we’re doing so well we don’t need Marketing” and in bad times, “we cannot afford Marketing.” The real focus should be on making sure your marketing is firing on all cylinders and operating as effectively and efficiently as possible. Benchmarking your company’s Marketing processes provides guidance on how you can improve performance and to what degree.
There are a number of structured benchmarking studies for Marketing. For example, VisionEdge Marketing, and partners, have conducted the annual marketing performance management (MPM) study since 2001. The Content Marketing Institute has conducted a B2B benchmarking study for the past six years. Silverpop, now part of IBM, has conducted an annual email benchmarking study. Christine Moorman, Director of The CMO Survey, and a senior member of the Marketing Area at The Fuqua School of Business and the T. Austin Finch, Sr. Professor of Business Administration, has conducted an annual benchmarking study since 2008.
Marketing Processes and Capabilities to Benchmark
Which Marketing processes and/or capabilities should your company benchmark? Research by Doug Vorhies, Neil Morgan, VisionEdge Marketing, and others has revealed eight Marketing capabilities that can be benchmarked:
- Product development (the processes by which a company develops and manages product and service offerings)
- Pricing (the ability to extract optimal revenue from your customers)
- Channel management (the organization’s ability to establish and maintain channels of distribution that effectively and efficiently deliver value to the end-customer)
- Marketing communications (the organization’s ability to manage customer value perceptions)
- Market information management (the processes organizations use to learn about their markets and use market information)
- Marketing planning (the organization’s ability to create optimal marketing strategies)
- Marketing implementation (the processes which strategies are deployed)
Various studies have shown that companies who excel at these Marketing capabilities significantly outperform those who are below the benchmark in terms of customer satisfaction, return on assets, profitability, and market effectiveness. If you desire to improve in these areas consider benchmarking your organization’s Marketing capabilities.
How to Benchmark Marketing
To use benchmarking you must have at least one company in the study that serves as the benchmark: the standard to which others compare themselves for both the way the process is run and the results obtained from that process.
This benchmark can be either within or outside your industry. A large company that already has established and proven best practices may conduct internal benchmarking to improve and ensure consistent performance across the organization. Companies that want to evaluate how well they are performing within the industry, and identify best performance targets within their industry, employ competitive benchmarking.
In this instance, performance data is gathered only from companies within their industry. In the pursuit of best practices to create a sustainable competitive advantage, companies need to identify and analyze world-class performance. For these initiatives, benchmarking needs to include world-class organizations both within and outside of a company’s industry. This type of benchmarking is known as strategic benchmarking and the benchmarks are incorporated into the strategic planning process.
There are four basic stages or phases associated with benchmarking: measuring your own performance, planning, deployment, gap analysis, and action.
Phase 1: Performance Measurement.
This phase helps you determine your current performance. To effectively use a benchmark as a way to close a performance gap you will need to know your current performance for the Marketing process and/or capability.
Phase 2: Planning.
In this phase you set expectations, plan the project, organize the team and contact potential partners. During this phase you will want to define the issues or critical success factors that if addressed will have the greatest potential for improvement and impact. It is important during this stage that it is very clear how improving one of the Marketing capabilities will add value to the company. To execute the plan you will need to fill three major roles: the process owner (whoever owns the process for that Marketing capability will need to be a part of the benchmarking study), the people who will be most affected by the process, and the person responsible for managing the project. This team will be responsible for identifying, contacting, qualifying and working with potential benchmarking partners. The team should look for partners who:
- Had a similar problem with one or more of the Marketing capabilities at one time.
- Came up with a specific solution to this problem.
- Have a solution that you can adopt or adapt.
- Saw tangible, value adding results they can share.
- Possess those characteristics that make their practices adaptable to your company.
Phase 3. Study deployment.
This is the phase where you decide specifically what aspect of the marketing capability you want to study and how the data will be collected, organized, and analyzed. For this phase complete a table similar to the one below:
In this phase you will construct the questions for the study. Because the benchmark company may be different for each capability, you may need to either do more than one study or explore bringing in various companies from within and outside of your industry so all of the participants can benefit from having information on all various processes. This may give other companies a reason to initially participate. They gain insight into a benchmark for an area where they want to improve in exchange for serving as the benchmark on another process.
What processes do you want to assess? Each Marketing capability has its own processes which is why the table is so important. Whatever process(es) you decide to benchmark, you want to benchmark the process, the performance drivers, and the cost and time associated with each.
These examples illustrate this idea:
- In regards to pricing you may want to assess how quickly the benchmark company can change pricing to respond to market needs, or their knowledge of competitors pricing tactics and the cost and time associated with these.
- When it comes to product development you may want to benchmark processes associated with testing and/or launching new products/services.
- For channel management it may be worthwhile to benchmark the strength of relationship with distributors or the benchmark company’s ability to attract and retain the best distributor(s).
- For marketing communication possible processes to benchmark are skills, reputation management, sales training, and/or program development and execution along with the cost and time associated with these.
- In the area of Marketing information management, it can be a good idea to benchmark gathering customer and competitive information, tracking customer needs and wants, using market research skills to develop effective marketing programs, and processes for analyzing market information.
- When it comes to Marketing planning, planning skills, the ability to effectively segment and target the market, processes and costs for developing marketing strategies all make good benchmarking targets.
- Benchmarking Marketing implementation may require looking at how marketing resources are allocated and comparing the results produced by various programs.
As you deploy the study, be sure you understand the results the benchmark company has realized by improving the process in terms of customer satisfaction, delivering value to customers, retaining valued customers, market share growth relative to competitors, sales revenue growth, acquiring new customers, increasing sales to existing customers, and reaching financial goals.
Phase 4. Gap Analysis.
Focus this phase on locating, understanding and interpreting the gaps that emerge from the data compared to your performance for that process or capability. This is where you evaluate your performance against the study results and determine the delta.
Phase 5: Actionable recommendations.
Once you understand the gap, WHAT performance could be, and the underlying drivers of how the benchmark is achieved, create a plan of action that will help your organization toward decreasing the gap and achieving the results.
Benchmarking for Best Practices
To conduct your own study is an investment and probably will require anywhere from $50,000 – $60,000 (American Productivity & Quality Center and Saratoga Institute). If you are member of an association or have a service with a market analyst you may be able to participate in a benchmarking study as part of your existing investment or use their data as a beginning benchmark. Participating in ongoing third party studies provide a valuable and affordable opportunity.
If you are looking for an objective way to improve your Marketing processes, practices, systems, and metrics, benchmarking is an ideal approach because it provides a point of reference for WHAT could be, alternative feasible ways to make improvements, and insights into how to close performance gaps.
Benchmarking is an instrumental method for improving competitiveness and increasing value from your customers’ perspective and a powerful vehicle for overturning the inertia that often sets in when companies become inward-looking and insulated. Through benchmarking your Marketing organization can making dramatic improvements to Marketing processes that will contribute to the bottom-line. As best practices within your organization mature, you will be able to build models for what Robert Camp refers to as the “best of the best.” These models are what serve as your company’s path to excellence. Learn how to create a Marketing Center of Excellence to establish best practices that create pathways to improvement and enable the collaboration that facilitates the adoption of change by providing platform for alignment, quality improvement, and reduced costs while improving market differentiation and higher customer satisfaction, and ultimately market leadership, revenue, profits and sustainability. Download the white paper, What You Must Know About Marketing Centers of Excellence: A Why and How Primer.