One of the most important questions you need to ask yourself is which type of benchmarking structure will work best for your business...
General vs individual benchmarking
Many associations often overlook the benefits of member benchmarking. Associations that don’t currently run member benchmarks need to identify why do organisations benchmark in their industry? Benchmarking is imperative as it allows for the association to gather member data and return the results to each member in the form of a benchmark report.
While there are several types of benchmarks, they can be essentially broken into two categories, i.e., individual benchmarking and general benchmarking. General benchmarking entails gathering business data from members, analysing that data and creating a sort of picture of their market performance. That report is then published so that all stakeholders or members have access to it (we discuss general benchmarking in more detail below).
Individual benchmarking entails sourcing data from members, analysing the data and creating a picture of the market from that data in addition to a total market report. The significant difference with individual benchmarking is that the benchmarks are for each participating business. Each business receives its report tailored to them. That particular business’s data is compared either against the market or a related reference group.
Understanding Benchmarking Study
We have seen the term ‘Business Benchmarking’ tossed around a lot by associations without regard for defining what members can expect from it. One of the reasons to benchmark businesses is to measure performance in comparison to competitors and the industry as a whole. However, associations conduct what is called a ‘benchmark study.’ The study often concludes with a generalized overview type report. The report isn’t a benchmarking report, and so it isn’t as useful.
Benchmarking reports will always have comparisons of the business with either a pool of data or individual competitors. The general survey conducted by these associations aren’t useful when it comes to helping members achieve goals. Goals can be defined as anything revenue, funding, sales, etc.
Benchmarking studies and general surveys by associations share many standard features. Both require communication to source data from members. The difference though is how the data is reported and following up. Though accurate benchmarking mainly focuses on analysing the business and how that data affects decision making.
Individual Benchmarking Businesses
What to benchmark for each business? What metrics are of the most important to most companies in the industry? That’s something that associations for the most part already know. That’s why it makes sense that associations engage in building a database to run at least annual individual benchmarks for member businesses. The benchmarks allow each business to compare their performance with that of the competition. All of this is bundled in with possible advice and miscellaneous analysis.
Each business’s performance is compared to a set of values associated with the sector and the cross sections within those values. So, trends which have been monitored over several years can be used to get insight into how their organisation has evolved as compared to others in the industry.
It is also possible to compare against a specific benchmark but its challenging to do. Since their own business data isn’t included each participating business needs to contribute to the general report. So, they need to know which information was provided to make a proper comparison.
When it comes to how to use benchmarking for performance improvement, the accuracy of the data provided is essential. Comparisons allow it to see where a business performs better or maybe even worse within the benchmark if there is room for improvement then how much can they improve? So, understanding a business’s potential is all about running the right individual benchmarking.
Understanding the Role of General Benchmarking
If one of the reasons to benchmark is to gain a general understanding of where a particular industry is headed then general benchmarking is a good enough tool. Also regarded as surveys, general benchmarking delivers static results. Researchers will select certain data points from tables, surveys, and graphs to draw their conclusions. The reports are general and equivalent to the kind of financial-industrial overview presented in newspaper reports. Since there is no individual data, businesses have no way of knowing where they stand in terms of progress in the industry. Also, having their own data included muddies the results and renders it pointless.
General benchmarking cannot be used by businesses to measure success or the lack thereof the way individual benchmarking can. However, some associations may offer members the option to ask for comparison reports or data points which can allow them to run their own benchmarks. That said if businesses have to engage in benchmarking themselves it reduces the utility of associations. If anything, it can turn businesses away from joining associations which further complicates the matter of gathering industry relevant data.
Reliability Analysis of Benchmarks
Like everything else in the business world reliability is a big deal. It matters if the results can be relied upon to make critical business decisions. The problem as mentioned above with general benchmarking is that the results are often a market average. Though to get a decent market average the data sourced should be relevant, fresh and of importance to the industry.
Benchmarking samples are further reduced as reference groups are created. When using a reference group higher reliability is needed to get a clearer picture of the averages. So, general benchmarking isn’t as effective when it comes to drilling down to find out how well a business is doing.
Individual benchmarks are a lot more effective and are powered by a much smaller sample. With individual benchmarks, averages aren’t as crucial as median values. So, a benchmarking comparing three organisations, for instance, can be important for all three which are measured against each other. However, with the addition of more organisations to the list brings with it more data. A larger sample pool gives a much better idea of where the industry is headed as a whole. Plus, individual businesses can base their decisions on a much larger pool of data.
One of the reasons to benchmark is to measure performance, but there are several other reasons as we’ve discussed above. However, the type of benchmark that’s run by an association matters a great deal to the businesses that are members of the association.
If businesses want to improve individual benchmarks are the best indicators of how well they (the company) is doing. So, associations that don’t perform individual benchmarks should consider offering it to members which will benefit all businesses. It will also ensure that the industry as a whole move in the right direction which is beneficial for everyone.
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