Why benchmarking is critical?
Survival of small businesses in the United Sates may depend on their competitiveness on a global basis

Small businesses, more often than not, have a difficult time appreciating that they are operating in a highly globalized economy and face competition today not just from the folks that they traditionally have known but also from others that they have no clue about. Most of them have a small customer base and growth is a relatively lower priority for them. If they can keep their core customer base happy, they are generally protected from competitive threats. This has been particularly true for service providers who were typically immune from overseas competition. The manufacturing sector has known this for decade but now the service sector is being hit. And as is becoming well known to all, it is not just low-end tech support and call center businesses that are under threat. (Related link:  Impact of offshoring on American economy)

There are two reasons why I am emphasizing the importance of moving out of the cocoons that small companies have lived in for decades.  

1. Lack of benchmarking data makes it difficult for small businesses to compare themselves against their peers, particularly those that are based outside the United States

2. The increasingly fragile nature of relationships in today’s ever-changing business environment.  

Several executives have indicated to me that their customers who had done business with them for years, and even decades, suddenly decided to try sophisticated sourcing solutions as part of their electronic procurement initiatives (Related link:  e-Procurement strategies for small businesses). The message is clear: the relationship lasts as long as it has a positive impact on the customer’s profits. The moment customers figure out ways and means to improve their profitability using an alternate source, there is no incentive for them to continue their relationship with you even if you have memorized the names of all the kids of the purchasing vice president. The reason that these executives were caught totally off-guard is that they never had benchmarks to compare against, particularly against Chinese companies.  Not only is such data published, it is highly expensive and difficult to generate.  

Your customers are under as much pressure to improve their profits as you are; and they’ll do virtually anything to achieve it. Accordingly, you have to make sure that you’re able to provide your customers with what they want before they find someone else to do it, probably cheaper and better than you.  (Related link:  How to create high-value companies by creating value for your customers?)

• Invest in competitive intelligence. Find out who else is able to provide similar offerings and at what price. And if the suppliers are not in the United States, find out about them wherever they are.

• Study your cost structure and benchmark it against not only those in your town/region/state but also in China or India. If you are not competitive, you have a serious problem on your hands. Take a hard look at your business model to see if you can achieve a competitive cost structure (e.g. by employing superior technology); if not, get out of that business in a planned manner before you are driven out.

• Talk to your customers regularly. Do not be in denial. Work proactively with your customers to understand their challenges. If your customer wants a cheaper alternative from China, you must be the one who gets the order. Or in other words, when you realize that you cannot compete with a Chinese manufacturer, make sure that you either setup your own plant in China or enter into a strategic alliance with a Chinese company. You would be better off with that approach.  (Related link: Customer service and care )

• Understand your customer's hidden and emerging needs. And then analyze how you can leverage your knowledge and relationship to offer new products and services. If the business model for your original products and services is not viable, dump it on your own rather than being forced to do so by market forces.

• Embrace technology, particularly information technology.  It is not always apparent if you look casually how technology can improve competitiveness, but a thorough cost-benefit study will often demonstrate which technology will create a competitive advantage.  (Related link:  Ecommerce for small and medium sized businesses)

• Do not marry your products and services.  Just because you have always been in this business or because you know it so well does not mean that you can do it till the end of time.  Follow the GE mantra formulated by Jack Welch:  "Destroy your business".  Or in other words, stay ahead of the competition by being the one leading the change, rather than being forced to change due to competitive pressure.

Related articles:  Innovation and globalization are linked     How to destroy your competitors?    Partnerships between enterprises

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