It’s a common situation in the modern business world. It’s time for a major decision driven by market trends, and your leadership team is huddled around a conference table. You’ve mapped out all of the available options you can find, and then someone questions how that other company in your space is dealing with the same trends.
“Why should we care about how they’re doing?”
“Wait, do we even know how they’re doing?”
The answers to the second question usually speak for themselves. Most organizations just can’t answer it. Few companies have the time, resources, or the mechanism to get detailed information about their peers, and as a result most companies make critical uninformed decisions in the dark.
What if there was a better way?
When done correctly, peer benchmarking unlocks the answers…
Peer benchmarking is a technique that helps organizations learn and grow by analyzing key performance indicators against other organizations facing similar situations. Controlling organizational similarities and differences, whether as simple as determining co-location in the same geographic area, or as complex as assessing relative location in a multi-market supply chain, is an essential component of proper peer benchmarking. It provides both a real-time situation report on how you compare to other companies, and it also draws attention to areas where you need further internal analysis.
When done correctly, peer benchmarking unlocks the answers to those questions that antagonize leaders across the economy:
- Are our inventory costs higher than the market average?
- How well do we pay our team relative to the industry?
- Are businesses in our market more or less confident now than they were last quarter?
- Did our poor sales performance last quarter reflect our business or the market overall?
- How does our team gauge their satisfaction working here relative to employees throughout the industry?
- Are we more or less solvent than the rest of the market?
What does peer benchmarking look like?
Good peer benchmarking data should be normalized…
When you picture it, you likely picture some sort of dashboard. Probably lots of charts, filters, and a (maybe too) high degree of complexity. The elements that separate benchmarking from a random report, though, all happen before the dashboard meets your eyes.
Good peer benchmarking data should be normalized, meaning that it always compares apples to apples. Where possible, it should rely on categorization and trending techniques to allow for a high degree of anonymity – without reducing the value of the benchmark insights. It should also be compliant with local regulations and codes of conduct.
Most importantly, peer benchmarking should be time-sensitive – meaning it is both a timely and recurring activity. While “snapshots” based on survey data can deliver some intelligence, there’s no good way to know if those insights are momentary or part of a larger trend. Your company may be experiencing a downturn relative to your peers, but who’s to say that they aren’t also? Without a time-based component to your results, the results may be completely worthless the next week.
In practice, peer benchmarking takes a variety of forms. It can be led by contributing members, as when an association or community group agree to a benchmarking solution. In many other cases, peer benchmarking is conducted by another decision-making authority – as is the case with school benchmarking, marketing benchmarks, IT benchmarks, and more.