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External benchmark: a key to objective analysis

Updated: Jan 10, 2020

At simply-bi, our objective is to provide access to business intelligence to as many companies as possible. We believe that external benchmarking should play an important role in decision making. In this post, we are highlighting how we leverage external benchmarking to improve our clients reporting.

Why is benchmarking important?

Imagine that a colleague of yours comes to you and says: “I have collected 40 this year!”

Not likely right? Most certainly, this colleague would tell you something that is more like this: “I have collected 40 new coins this year. My collection now includes 345 coins!”. This first layer of additional information is what I would consider basic context. You know now that your colleague is collecting coins and know how many he collected.

How about some more information? “I have collected 40 new coins this year when last year I only collected 20. My collection now includes 345 coins and my objective is to get to 400 by the end of next year!”. This second layer is considered basic analytics. And when you look back at this sentence, it seems to be already a very good set of information. We know that he collected more (twice more) than what he usually does and he seems to get closer to his objective.

80% of the times, the analysis stops at its most basic level.

Now, benchmarking would be adding the following additional information: “I have collected 40 new coins this year when last year I only collected 20. My collection is now 345 coins and my objective is to get to 400 by the end of next year! Among the coins collectors, the average number of coins owned by a serious collector is 370 coins, you are considered a serious collector when you own at least 250 coins and the top collectors have more than 2,000”.

Impressive, no? We can now understand what his objectives are against tangible comparison points. This is what benchmarking is. It is taking a step back and looking at your performance from the market view.

How to get benchmarking information?

There are plenty of sources that can be used. Some are open-source, free or inexpensive and can be used easily. Others are expensive and can be complicated to leverage. In any case, it takes time to be able to build a meaningful benchmark and time cannot be bought!

Use case

At simply-bi, we have built a benchmark for financial KPIs that uses the financial elements of thousands of companies from different industries. We created a tool that gathers, cleans and transform publicly available information. Below is an example of one of the outcome and how it improves the quality of the analysis:

Graph 1

We can see (Graph 1) that the company's current and quick ratios are in line with the overall trend. Nonetheless, it is well below the market average.

This comparison would not have been available without sound benchmarking.

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