Competitive Benchmarking

Sitting in a room with Iain Hassall and Chris Garber, you immediately understand why benchmarking your performance against competitors isn’t just a good idea. It’s existential.

Hassall is vice president and corporate controller at Zuora, whose popular software automates billing, commerce and finance operations for subscription-based businesses. Garber is vice president of FP&A and investor relations at Acxiom, which is transforming marketing through data and technology.

Although their businesses are quite different, they have the same devotion to competitive benchmarking as a strategic tool for managing and optimizing the performance of their businesses. “It helps us understand, as a growing company with 600 employees, how other companies are running their business,” says Hassall. “(We want to) make sure we’re in line with their metrics.”

For companies accustomed to measuring and tracking their own performance using classic key performance indicators (KPI’s) like revenues, cost of sales and EBITDA, competitive benchmarking is really a matter of extending that discipline to your competitors. As Hassall and Garber pointed out in a recent webinar called “The Necessity of Competitive Benchmarking,” it’s crucial to measure all the aspects of your business that might reveal how you are performing against Brands X, Y and Z. This means tracking KPIs that go beyond financial performance to include operational metrics like production, efficiency and market share.

As host of the webinar, I explored the types of basic insights you can learn from studying your competitors’ 10-K filings and other documents. Meanwhile, Hassall and Garber offered some tips that come only from real-world experience.

1.     Engage every stakeholder... Many companies make the mistake of thinking performance management is the exclusive purview of Finance and Operations execs.  Those that do are missing out on a chance to bring in decision-makers from across the business to gain both financial and operational benchmark intelligence.

2.     …But make sure everyone’s on the same page. “Consistency is key,” notes Zuora’s Hassall. “Two years ago, we had benchmarking going on throughout the organization: Customer Success was measuring churn, Sales Operations was benchmarking growth rates. You had inconsistencies from group to group.”  Hassall says Zuora made an effort to ensure that metrics are all measured the same way, leading to more accurate and meaningful intelligence.

3.     Look beyond 10-Ks for competitor info. 10-K filings are a great place to start when looking for performance information on the competition. But they’re just a start. Consider additional sources, such as other filings, news articles, and trade association data banks. “Even filings on acquisitions that big companies make (are helpful),” suggests Garber. “We learn from those filings what our competitors are doing.” Digging further is particularly necessary when competitors are privately held and thus not required to report financial results.

4.     Don’t limit your competitor pool. When lining up your numbers against the competition, the default approach is to choose direct competitors in your market. But what if you have few (or even no) competitors? Ask Hassall, who says Zuora dealt with a dearth of direct competitors by benchmarking against peer companies – those who have similar business models or who target similar companies, even if they don’t compete directly.

5.     Look outward for competitor ideas... Even after adding peers, your list of competitors still may not be complete. “It’s very helpful to have an outside-looking-in perspective,” says Acxiom’s Garber. For this he suggests checking an analyst for any gaps, or even asking customers who they think your competitors are.   

6.     …And for KPIs. Most companies track similar financial KPIs, but that’s not always true of operational metrics. To pinpoint which operational KPIs to track, Zuora commissioned an anonymous survey among SaaS companies. Pulling data from 150 respondents, the survey “really helped us crystallize how our peers think about their operations.”

7.     Choose KPIs that support your strategy. Zuora, says Hassall, went from a mode of “growth at any cost” to “growth at a reasonable,” which meant a sharper focus on KPIs that helped track expenses and improve efficiencies.

8.     Search for hidden weaknesses or strengths. Significant changes in expenses might show where your competitor’s business is headed. A spike in real estate expenses may suggest future expansion into your most successful territory, or reductions in labor costs might signal softening sales among aging product lines.

9.     Correlations could tip you off to potential business opportunities. One metric will often drive or impact another. For instance, if an airline had strong margin performance last quarter, much of those results could have been helped by low fuel costs.  If that correlation holds true, then margins may grow slim as fuel costs rise, which could lead to spending cuts in areas that differentiate your competitor’s service from yours – leaving an opening for you.

10.  Expect your competitors to benchmark against you. If you’re wondering if competitive benchmarking is worth the trouble, consider that 40 percent of the companies attending the benchmarking webinar already are doing it, with several others planning to join them. Assuming your competitors will sit on the sidelines is a risky move.

If you’re thinking it’s time to implement (or improve) your company’s competitive benchmarking efforts, I encourage you to listen to the complimentary webcast. Or better yet, let me know if we can set up a personalized demo of Tidemark Compete™ for you. It is the first benchmarking capability built directly into an FP&A environment, and we’re quite proud to bring it to market.