Benchmarking

The modern business world is highly dynamic and competitive. It is highly essential to stay on top of the game even to survive in the industry. This is where benchmarking becomes helpful to all organizations.

Benchmarking is the process of comparing our performance with the industry best performance and developing strategies to reach that level. In this process we can identify our weaknesses and limitations and the strengths of the best performer and try to develop our own strengths.

Benchmarking is threefold,

1. Internal Benchmarking
2.  External benchmarking
3. Strategic Benchmarking

Internal Benchmarking

This is where certain departments or sections of an organization benchmark each other. The significance is that performance comparison is done within the organization itself. For an example the production department may have an optimum output of 5 million units, and the marketing department can benchmark this and try to sell all of the units.

External Benchmarking

This is also known as competitor benchmarking. Yes, this is where an organization compares its performance with the best in the ‘industry’, usually the market leader. This will allow the company to really realize the weaknesses of the organization as a whole.

Eg: Lexus benchmarking BMW and Benz.

Strategic Benchmarking

This is a more ‘ambitious’ approach where a company benchmarks itself with one of the best in the whole market, despite the industries. This could be quite overachieving since there maybe companies that have unlimited potential than the industry our company operates in. However this form of benchmarking will really give a boost to our company performance.

Despite these benefits benchmarking does have some disadvantages. The main one being, losing focus on the customer needs. The company maybe striving to achieve the best performance and amidst all this commotion we may forget what our customers really want. Also a ‘best practice’ may not remain for a long time. The best performer will always try to achieve more, so there will be an endless tailing behind the market leader. Also there is no way to be sure that industry best performers’ strategies will suit our organizational culture and structure and this may lead to resistance to change.

Game Theory (Economics)

What is Game Theory? It is the study of the interactions between a few or more elements occurring in a specific environment. That is my version of the definition of course, the way I understand it. However Game Theory appears in many fields of studies, for an example more commonly in mathematics and economics.  John Forbes Nash was the Nobel Prize winning mathematician who is honoured with the formulation of the Game Theory.

In economics Game Theory refers to;

“the study of mathematical models of conflict and cooperation between intelligent rational decision-makers” – Wikipedia

Simply it is a form of strategic decision making relevant to the competition within a market.

Game Theory consists of four core areas.

1.  Deterrence
2. Cooperation
3. Changing the rules of the game
4. Repeat games

Deterrence

This means that the players within the industry/market compete so heavily that it actually results in negative outcomes for all the players and the sustainability of the industry. Basically it leads to ‘unhealthy competition’.

Features of Deterrence

•           Reduction of prices
•           Heavy expenditure on advertising simply to fight competition
•           Unethical competition
•           Liquidation of businesses unable to face heavy competition

In such instances the government or any other regulating body will have to intervene the market and implement some rules, regulations and restrictions to save the industry.

Cooperation

This is quite the opposite of Deterrence discussed above. Here the players in the market will understand the market and the existence of other players and work in cooperation. The players will understand and respect the values and long term vision of the industry and will not act to destroy it for personal gain.

Changing the rules of the game

This is where some player in the market decides to do something different or swim against the current. The player will try to change the structure and the form of the game in order to achieve a competitive advantage over the other players. It could work both ways, for his advantage or for the downfall if not implemented properly.

Repeat Games

This is simply the cycles of games being played over and over again throughout a period of time. This is quite similar to Cooperation. The players will acknowledge the presence of other players in the market and adjust themselves based on the strengths and weaknesses of each player.