Competitive Advantages of Benchmarking

If you have ever been astounded at how athletes/sports teams continue to break seemingly impossible records then a quick reminder of the strategic benefits of benchmarking and how it can help your business succeed is in order.

Benchmarking is a strategic tool that all business owners should be utilising to increase the chances of making their organisation prosper. Just as with sports teams and athletes, business is a competitive field with a great deal of participants that brings out the competitive nature in many. By creating a scorecard and measuring your progress toward your goals you are more likely to stay focused, be inspired and remain on a track to success.

So what is benchmarking? Benchmarking is a strategic approach to reaching a certain level of performance. From a business perspective it is ideal to develop a balance scorecard that would look at Financial, Customer, Development and Internal Processes aspects of your business.

Ideally your benchmark should also look at the following:

  • current performance
  • a target
  • compare your current performance with your target

Also ensure that the metrics you have chosen to benchmark are easily understood, are readily available, are relevant to you and give you a good overview of the various functions within your business.

For instance when a bank reviews your performance they would put a high value on the following metrics as they are primarily interested in your financial performance:

Debt ratios: Debt ratio, Debt to income ratio, Interest cover

Profitability ratios: Net profit margin, Gross profit margin, Return on assets, Operating expenses to sales, Sales per employee

Liquidity ratios: Working capital, Quick asset ratio, Stock turnover, Debtor ageing ratio, Creditor ageing ratio

Once you have decided what are the key metrics for your business put a system into place for the accurate recording of the necessary data and the timely delivery of it to whoever is going to be responsible for the scorecard.

The most crucial step in your benchmarking process is the reviewing of the scorecard and making the appropriate changes to ensure you are hitting your targets. Only through constant review and refinement will your business succeed where others fail.

To get started on benchmarking your performance contact one of the business consultants at Watts Price Accountants today!

Richard Kemp – Watts Price Accountants
E: richardk@wattsprice.com.au

The advice provided on this Article is general advice only. It has been prepared without taking into account your objectives, financial situation or needs.