Benchmarking 101: Why all the fuss?
Understand the three broad categories of benchmarking: internal, competitive, strategic
Many companies are beginning to understand the value of benchmarking. After all, if you are looking to gain insights into either how other companies outsource particular functions in key markets that you collectively operate in or what performance baseline you should incorporate when preparing contract tenders, benchmarking is one way to get answers.
Once considered a theoretical ideal, benchmarking has become essential for learning best practices and spurring continuous improvements. It aims to identify weaknesses in an organization, apply improvements, and enhance performance by comparing and measuring companies against each other.
When you are able to identify the gap between expected performance and its actual state, you will be forced to address the uncomfortable issues standing in the way of business success and learn how flexible your organization is to accommodate changes needed to achieve its goals.
Types of benchmarking
While there are various forms of benchmarking, it can be classified into three broad categories: internal, competitive, and strategic.
Also known as “best practice benchmarking,” this type makes a great starting point for future benchmarking studies, as it uses established and proven best practices to leverage across a company. For example, a retail chain might conduct a thorough study on its most profitable store to uncover practices that other stores should emulate. By setting performance levels across certain aspects of its business, the company defines a standard it aspires to; if any part of the business falls below that standard, it will strive to resolve the gap in performance.
Through internal benchmarking, managers are able to keep a critical eye on their business and gain a deeper understanding of processes in a relatively easy and low-cost manner. The pitfall of taking such a narrow view is that it lacks external focus and may foster mediocrity by missing out on better methods used by other companies and competitors.
Otherwise known as “performance benchmarking,” this is used when a company wants to evaluate its position within its industry and often involves a direct competitor-to-competitor comparison of a product, service, process, or method. An example of competitive benchmarking in the banking industry is evaluating the frequency of customer contact and transactions across digital channels of rival banks.
Comparing similar processes is crucial, as this measures your firm’s ability to remain competitive and identify performance targets set by industry leaders. However, note that competitive benchmarking being able to reveal the best practices of a rival firm is unlikely due to the limitation of trade secrets.
Competitive benchmarking should not be confused with competitor research. The main objective of competitor research is to analyze competitor strategies and performance while benchmarking analysis focuses on what leaders do, why they do it, and its results. Benchmarking is a logical evolution from competitor research since it is more proactive and makes dynamic use of information and data.
Lastly, strategic benchmarking is used to identify and analyze the winning strategies behind world-class performance of companies outside your industry, and apply them to your own strategic process. Cross-industry inspirations and adoptions are widespread, such as real estate firms’ use of virtual technology, first popularized by the video game industry, to bring spaces to life and create an immersive experience.
Strategic benchmarking takes into account the long-term view of the company’s direction and the excellent work processes that fit well within the business. However, such a process can also take up significant time and resources to ensure credibility of findings and development of sound recommendations.
The case for benchmarking in real estate
Real estate, like any component of the corporate bottom line, needs to stay relevant to the industry as well as to the overall market standards. It is just as essential to benchmark your company assets as part of larger company performance to better manage and improve upon it. The C-suite is also pushing the agenda for comparative and specific metrics to measure real estate’s value to the business.
While companies are able to generate ever-increasing amounts of data about their properties and facilities, they may lack knowledge in maximizing the potential of this information. Moreover, regions and countries record performance metrics differently, making standard of measure inconsistent across the company.
So how can your company compare your efficiency to peers on ratios such as space per desk, energy consumption and emissions per employee, and cost per person?
A specialist in real estate performance benchmarks will prove to be valuable, as he or she will be able to provide a holistic view of the company’s built asset performance by segment (building, city, region, country) and make sense of data by creating a framework of how to measure buildings consistently for standard reporting.
Making it work for you
Before you embark on any benchmarking exercise, note that benchmarking should not be considered a one-off exercise. For it to be effective, benchmarking must become an integral part of an ongoing improvement process where, in simple terms, a company keeps learning from others.
Companies who have persevered with benchmarking recognize that its real potential lies in comparing processes – not copying best practices. The aim of benchmarking is to achieve superior performance by trying to adopt best practices to suit the conditions of the organization.
Is your company ready to turn data and analytics into business intelligence that serves as a foundation of knowledge to guide future decision-making?