You compare your company with the competition and that's it. What can go wrong? In fact, benchmarking has a lot more to offer. We will give you a short guide for better benchmarking!
0. Ask a question!
Who doesn't know it: aimless and endless loops of benchmarks. Turnover, expenses, growth, financing, etc. etc. etc. etc. Certainly not bad. But first ask a question and try to develop a benchmark that answers exactly this question.
1. Forget Par Pari at least a bit!
The simplest way of benchmarking is to compare with known and directly comparable competitors. The direct comparability results, for example, from the size, the sales market including product portfolio, the chosen distribution channels, and all other essential characteristics of your company.
And here lies the nub of the problem. Only very rarely do you find companies that are almost the same as yours. Therefore, it is usually worthwhile to extend the comparability a bit.
You should understand benchmarking more like a ranking and relativize the relevant metrics (e.g. sales per employee). This allows you to compare your company from different perspectives - e.g. with bigger, more international, or younger companies. This broadens the horizon and thus the value of your analysis.
Be careful with databases and industrial filters!
If you can't think of several companies to compare, you can search in the common databases. But beware!
If you filter these databases for industries, you will often get strange results. Industry affiliation is usually determined with the first entry in the commercial register. According to this, Nokia, for example, would be an automotive supplier and tyre manufacturer...
Check the filter result carefully and check whether the industry affiliation is still given.
2. Bring the key figure and the question directly into context!
The next step is to find the correct measured variables. Think of step 0 - Now it's time to find the right KPIs to your question.
Comparisons of the asset, financial and earnings situation are common. Of course, sales, S&A and Co are of little help if you want to compare product quality or process efficiency, for example.
And here we are with the next problem: often the necessary key figures are not publicly available.
3. Build what you don't have!
Let's say you are interested in the production process efficiency of your competitors. Grab the turnover and divide it by the average price of the products or services sold. Then you'll get a feel for the number of units sold. Now divide the cost of materials by the number of units found and you have a key figure that at least has to do with process efficiency.
That's not really exactly brilliant and every controller will get mad when they hear about the idea... but it's better than nothing!
And exactly this way of thinking can be applied to any missing key figure: build yourself what is missing as best you can. Our credo is quite simple: Ignorance is still worse than error.
4. Develop foresight!
Especially if you benchmark with financial data, the timeliness of the data is usually not the best.
It is therefore particularly important that you develop a time series of key figures. Try to update the time series and compare it with your own forecast. Simple growth rates are often enough to get a feel for the development.
5. Update, update, update...!
Your benchmark is only as good as the next update. In the best case your benchmark is one of your constant companions and bases for decision-making. Therefore, make sure that the analysis is as easy as possible to reproduce.
Don't forget to check again whether the comparison group has changed. Because perhaps you have new competitors or completely different ones, which did not exist before?
6. For your eyes only? No, James…!
Your benchmarking analysis needs to be shared. Discuss the pros and cons with your colleagues. Which statements can be derived from the benchmark for company XYZ? What knowledge did you gain? Only in the discussion, you can do what the benchmark is intended for... determine implications for action.
7. Derive actions!
In fact, benchmarking is often the beginning of an idea for a new project. Do you remember the EBITDA example at the beginning?
Suppose your company had an EBITDA margin of 8% and your competitors an average of 10%. You might now be thinking about what you could do to catch up.
The project is born - and Falcon is ready to help you with development, planning and implementation. Are you interested or have any questions? Then you can arrange a personal call with us.
