Benchmarking is arguably one of the most powerful modern business solutions powered by data analytics.
Because it applies to every business practice, from sales or customer analytics, investment research, and manufacturing, to customer satisfaction, quality control, and sustainability performance.
Ultimately, the value of benchmarking boils down to how devoted a business is to measuring performance. Here are its four foundational pillars —
- Learnings & Insights
- Taking Action
What do they mean?
Let’s take a look.
The first and perhaps the most important step is to measure your current performance.
To measure performance, it must be quantified. But only a few aspects of a business practice generate quantitative data. The obvious example is the number of accounts closed or views on an uploaded video.
What is more difficult to measure is qualitative performance. Say, client and employee satisfaction or the value of a product.
To measure qualitative performance, businesses must identify factors critical to the quality of their practice or product. Then, measure their performance by assigning well-defined metrics or KPIs to each of those factors.
Take customer satisfaction surveys, for example, where the level or ‘score’ of total satisfaction is determined by averaging sub-scores.
The quality of satisfaction is determined by breaking it down into multiple aspects that a business identifies as critical to satisfaction: ease of transaction, clear communication, timely support, and so forth.
The greater and more nuanced the metrics, the more granular and accurate the measure of performance.
The first step is perhaps the most important step because it demands deep and creative thinking. It demands answers to questions like “what factor is critical?” And “how much weight should be assigned to it?”
Once businesses achieve identification, the rest becomes relatively simple.
Once factors and metrics are identified, businesses can proceed to measure their current performance and contrast it with their expected performance.
Identification lays the foundation of gap analysis because without it the two performances cannot be measured, let alone contrasted. In fact, why just measure your current performance against your expected performance; why not measure it against your competition?
The factors and metrics you have identified also help you determine the gap between you and your competition. This is called gaining competitive intelligence.
Gaining CI involves the legal and ethical collection of historical and current data about your competitor and analyzing it with respect to the same metrics to benchmark its success against yours.
Learnings & Insights
Next is analysis, which explains why the gap exists. Analyzing performance is perhaps the second-most important step — to some, indeed the most — of gap analysis.
Like identification, analysis, too, demands deep and creative thinking. To analyze data is to look at it and explain why things happen. The problem is, novice analysts tend to confuse correlations with causations.
The data generated by businesses is full of correlations and causations. And only one explains why your sales are low, why your reviews are bad, or why your business strategy has not been performing well. We call the learnings insights.
The final step of benchmarking is to use the insights to make better, more accurate decisions.
Although actions, too — whether it is identifying changes in strategy or innovations — should be well-defined, measured in metrics or KPIs so that measuring their effect is easy and systematic.
In other words, every single step is measured and documented. Every decision is data-driven.