Benchmarking refers to the process used by a company to measure its product and services performance against those of another company considered to be the best. The aim of benchmarking is to increase performance and efficiency in business through improving in the necessary areas and incorporating strategies used by the best organization (Hamilton, 2008). However, benchmarking against competitors is usually difficult as organizations are usually not willing to share information to help their competitors. Also, borrowing strategies used by competitors and applying them to your company expecting the same results does not always happen. This is because some techniques are only applicable to a particular company and do not necessarily yield the same result and the same achievements in another company. To overcome such problems, it is important to evaluate the worth and significance of an idea to determine its value and effectiveness to your business. Moreover, you should not directly copy an idea from a competitor; rather, one should modify the strategies to fit their requirement better. Additionally, extensive research should be conducted to understand the competitor's strategies and ideas completely; for instance, buying a competitor’s product and dismantling it to understand its components.
To benchmark by industry means assessing the performance of a business against other companies in the same industry. This is achieved by using financial statements and tax returns information provided by companies in their financial data. It allows a company to compare with other businesses of the same size and using the most comparable indicators (Basak, Pavlova, & Shapiro, 2008). Benchmarking is important when conducting financial analysis as it establishes a standard for comparison. This enables a business to gather more context to the information provided in financial statements in order to acquire meaning to such valuable data. Also, it helps to analyze the company's financial performance better by applying comparison to financial information and interpreting the average level of performance accordingly for a given ratio in a particular industry
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References
Basak, S., Pavlova, A., & Shapiro, A. (September 01, 2008). Offsetting the implicit incentives: Benefits of benchmarking in money management. Journal of Banking and Finance, 32, 9, 1883-1893.
Hamilton, B. (2008, March 17). Understanding and using benchmark data. Retrieved from http://www.accountingweb.com/topic/technology/understanding-and-using-benchmark- data
