August 22, 2012
The Importance of Keeping Up With the Joneses
BY Mary Mahoney
Business is all about competition. Success depends on grabbing a share of the market by offering superior products or services that are priced at or below other providers. Entrepreneurs are mindful of that objective when business plans are written, but some forget about the competition after the company is up and running.
Instead of focusing on the competition, these entrepreneurs measure their performance by comparing their current performance against past results. If revenue and profit are up in any given quarter, they consider the company’s performance to be positive. In any endeavor, this could fairly be characterized as “competing against yourself.”
While it is true that all companies strive to exceed their previous results, it’s just as important to keep an eye on the other guys for any number of reasons. Let’s say your business is up 10 percent in the second quarter over the first quarter. Great! But if you knew that your competitor was up 30 percent, you likely would consider your second quarter to be a failure.
Here’s another example: You discover that your 10 percent gain during the second quarter is due to your competitor shutting down a local branch outlet. But here’s the kicker: The shutdown is just temporary to allow for a major renovation project that will process a better customer experience. When that brand outlet reopens, watch out for your sales!
How does a young company get its arms around this dilemma? In a word, benchmarking. Benchmarking is a process through which a company measures its products, services and practices against its competitors. Benchmarking is one of the best tools available for determining whether costs, quality and service are keeping pace with market expectations.
There are two types: performance benchmarking and best practice benchmarking. The Business Practice Improvement Resource website notes that performance benchmarking can compare financial metrics including expenditures, labor costs, capital costs, cash flow and budget variances, among others. Best practice benchmarking, on the other hand, seeks to identify top performing organizations and their processes, practices and procedures.
In its publication, Achieving High Performance, The Value of Benchmarking, the global consulting company Accenture says benchmarking can help business leaders define the right strategy for their organizations by gauging where their organizations lead, lag or operate at par with competitors. Benchmarking can determine whether operations and other internal activities are being performed efficiently and effectively.
“Equally important, benchmarking provides the baseline by which an organization can articulate key issues and a means by which to measure their ability to achieve specific outcomes,” Accenture says. “In doing so, benchmarking helps to identify and address the areas that most urgently need improvement.”
Accenture says benchmarking will achieve these specific benefits: 1) develop a current-state assessment of the company, 2) enable companies to more easily identify and prioritize opportunities by process, region and cost-drivers, 3) establish a strong base for continuous improvement projects and 4) agree on a common script for the organization’s mission and vision.
In the lodging industry, where I began my career, benchmarking is an essential and accepted practice by even the smallest hotels. Luckily for hotel owners, customized benchmarking reports are available for nearly every market in the county from a respected third-party, Smith Travel Research.
Smith Travel’s STAR Reports enable hoteliers to choose a “competitive set” – hotels that represent direct competition based on location and type, i.e., budget, economy, midscale, upscale, luxury and other segments. STAR Reports show the client hotel’s performance, the aggregated performance of the competitive set, indexes and rankings.
Without STAR Reports, hotel operators would be flying in the dark when it comes to setting rates. STAR Reports also help them decide what amenities are services are expected for their type of hotels including free breakfast, wireless Internet service, exercise facilities, swimming pools and business centers, among others.
Although no single benchmarking process has been universally adopted, Accenture describes the following four steps: 1) Planning, mobilizing and kick-off, 2) gathering, consolidating and validating data, 3) performing a qualitative assessment and 4) analyzing the results and developing recommendations.
To learn more about benchmarking, read Everything You Need to Know About Benchmarking, by Robin Mann, head of the Centre for Organisational Excellence Research in New Zealand and chairman of the Global Benchmarking Network; Global Cases in Benchmarking: Best Practices from Organizations Around the World, by Robert Camp, head of the Best Practice Institute; and Benchmarking by Sylvia Codling, managing director of The Benchmarking Centre Ltd., Buckinghamshire, England.
J. Robinson Group can help you establish performance benchmarks or best practice benchmarks for your business, then develop an improvement plan to make you a leader in your market. Visit our website at www.jrobinsongroup.com or contact us by clicking HERE.