Benchmark to Identify Weak SpotsCharles Dickens' novel "A Tale of Two Cities" begins: "It was the best of times, it was the worst of times. ..." Most catalogers would agree that 2001 has been one of the most challenging, if not one of the worst, years in recent memory. Yet there are signs of more people shopping remotely due to the growth of e-commerce or as a reaction to the tragedy of Sept. 11.
The challenge for every company is how to thrive in these times. Catalogers have an advantage in that they have a gold mine of data that with proper manipulation can be transformed into strategies for continual improvement. To do this, they have to know what parts of their organizations and operations need to be improved. This knowledge can come only from measuring what they are doing versus what their competitors are doing. Too many catalogers measure themselves only against their plan. As to outside measurement, they rely almost entirely on anecdotal information.
To plan strategically, catalogers must measure themselves against the industry standards. Without these benchmarks in such a maturing industry, catalogers never know whether they are beating their rivals or falling behind.
Benchmarking defined. Peter Drucker, consultant and management guru, described benchmarking best when he said, "If you don't measure it, you cannot improve it." Benchmarking is the management science of comparing a company against its competition to identify and use the best methods to achieve that company's goals. And it never stops. Every year, every planning cycle, a firm needs to measure its performance against the industry standard to ensure that it will be more than a survivor and winner.
However, for a benchmarking program to succeed in any company, cataloger, service provider to catalogers or whatever, it has to meet four criteria:
· Management from the top on down has to be committed.
· Everyone has to realize benchmarking is a strategic imperative.
· There has to be accountability and deliverability.
· It must have access to the industry standards and best practices.
Trickle-down theory. If there is no commitment at the top, there is no point in benchmarking. The company's senior management has to understand and commit to using this tool to improve the company, its performance and its profits. The commitment to benchmarking is a commitment to excellence. A company must ensure it is an egoless process when comparing itself to competitors. The better the buy-in from the top, the better the entire organization will work to improve its individual and company performance.
Strategic imperative. The benchmarking must support the company's mission and also have the resources it needs. How will benchmarking make a company grow and profit? Since all companies can tackle a limited number of problems, it is crucial to know which problems are critical. For example, a major factor in determining profit is the gross margin. That which is left of sales after returns, allowances and direct merchandise expenses are deducted. If a company is achieving a gross margin of 52 percent but does not know the industry standard for its category, it has no way to know whether it should work on improving margin or concentrate on more pressing problems.
Accountability and deliverability. Someone has to be responsible for ensuring the benchmarking data are collected, collated and analyzed. Senior management is responsible, but a company must have someone responsible for the benchmarking process, usually someone in finance. Realistic standards must be set for what is collected and how often. This person starts with the dream list and then pares it to what is practical. Finally, there must be a timetable of when the data must be collected and analyzed.
Outside benchmarks. The most difficult part of benchmarking for a company is what other companies it measures itself against. If a company is a mid-priced women's apparel cataloger, it would want to include companies like J. Jill and Coldwater Creek. This company might even consider measuring itself against retailers like Chicos or Banana Republic. However, the more narrow the definition, the harder it is to get industry standards.
The prime source for catalogers is the State of the Catalog/Interactive Industry Report produced annually by the Direct Marketing Association and our company. To get a copy, you can buy it or participate in the study, as all participants receive a free copy. In January, all catalogers will receive an invitation and questionnaire from the DMA to participate in the 2002 study. If you are a cataloger and do not receive a copy from the DMA research department in January, call and ask to have it sent to you.
However, one thing everyone should remember is that most reports of industry standards are generally reported as averages: mean (total data divided by total inputs), median (midpoint of a range) and mode (the value most frequently appearing). Most industry studies use the median due to the mean being too easily skewed by a few firms' responses. Mode is best if you want to know what is the most popular result such as the most popular price point for a given item.
Using the data. While it is nice to know the average performance of your competitors, unless you are striving for mediocrity you have to use the data. Thus, you need to take the data you have collected on your company and compare it with the industry standards and also, if possible, the leaders in their category. At the same time, do not forget these are numbers and you also have to be sensitive to your customers and what they are telling a company through their customer service calls, letters and e-mails.
Sun Tzu, the Chinese general and philosopher, said: "The general who wins a battle makes many calculations in his temple before the battle is fought. The general who loses battle makes but few calculations beforehand. Thus do many calculations lead to victory, and few calculations to defeat." That is what benchmarking is all about, helping a company to be victorious in the battle for the customers' dollars.