Benchmarking can be defined in many ways. Two definitions The Cambridge Dictionary uses are highlighted below:
- A level of quality that can be used as a standard against which to compare other things
- To use something as a standard in order to improve one’s own work, products or processe
These two definitions are important, especially when read together. Benchmarking should always be a way of encouraging quality within an organization. To benefit from it, organizations need to understand their own processes when they come to the next step of comparing themselves with industry norms.
Once they know where they stand against industry averages, they can take steps to identify improvements within their organization, ultimately aiming to gain a competitive advantage.
Who should organizations be comparing themselves to — isn’t everyone different?
Regardless of their size, some organizations argued against benchmarking in the past, believing themselves too unique for realistic comparisons to be drawn. While this, in some cases, may be true, others put forward the opinion that every company can learn something from benchmarking and that there isn’t a valid excuse to not do so. For example, if an organization compared its finance functions, such as head count and spend, with those of other organizations of the same size, they might find some interesting data points that can be used for further improvement opportunities.
Why should benchmarking matter to private companies?
Drawing industry comparisons can be even more important for private companies than for their listed counterparts. While listed companies can relatively easily compare their financial performance with that of their public-trading peers, private companies can find it hard to compare their progress with competitors in the same industry, revenue range or geography as such data might not be easily accessible.
Nevertheless, knowing these data points can be essential for private companies as they can help reduce inefficiencies, support the reassessment of strategy and embrace the concept of constant improvement. EY teams have incorporated a benchmarking analysis into the EY Private Client Audit Experience — a connected, responsive and insightful approach specifically designed for private clients. The information gained from this can help provide a better audit, and help organizations better understand themselves and their position in the market related to their industry.