Benchmarking Example

Example

Company ‘A’ has used performance benchmarking to compare its product ‘X’ with the competitor’s product ‘Y’ and found out that the product ‘X’ is priced slightly lower, but it also has fewer features than product ‘Y’. The company recognized that in order to win a larger market share and establish itself in the market, it has to increase the number of features in its product while keeping the price at the same level or even decreasing it.

To achieve this, the company ’A’ has set up a team that investigated product ‘X’ value chain analysis. The team identified that the activities adding the most to the cost are marketing and purchasing parts in an open market. The team also identified that by buying standards parts in the market, the company has little room to introduce new features as this would require customized parts for its product ‘X’. The next step was to assign the proper metrics to marketing and purchasing activities and gather the required data. The company joined the benchmarking network and in a few weeks gathered enough data to compare the performance of its processes.

The results indicated that the marketing activities could be improved significantly. The team recognized that many businesses in the industry were able to attract new customers profitably through heavy advertising online. Yet, further observations of the companies outside the industry showed that the average returns on advertising weren’t so huge compared to the returns when attracting customers through social media. Therefore, the team decided to rely on social media rather than advertising to attract more customers, while reducing its costs by 20%.

The next activity analyzed was the purchase of parts in the open market. While this was a convenient way to conduct the business it was costing more and didn’t allow customizing the product. The team identified that this activity could be improved by manufacturing the parts inside the company or by establishing long term relationships with suppliers. The collected data and the experience of other similar businesses showed that the best option would be to establish long term relationships with suppliers. It would cost less than manufacturing the parts inside the company or buying them in an open market. It would also allow ordering customized parts that were needed for the new features.

By engaging in benchmarking activities, the team has identified the gaps in company’s performance and introduced new ways to improve the current processes to achieve the higher performance.