Benchmarking is a process by which a company compares its performance with that of high-performing organizations. 71 Professional sports teams do this all the time, but so do other kinds of organizations, including nonprofit ones. Example: Airlines use such benchmarks as average turnaround time, on-time arrivals, cost per seat per passenger mile, fuel cost, numbers of lost bags, and so on. At Xerox Corp., generally thought to be the first American company to use benchmarking, it is defined as, in one description, “the continuous process of measuring products, services, and practices against the toughest competitors or those companies recognized as industry leaders.”72
Porter’s Five Competitive Forces
What determines competitiveness within a particular industry? After studying several kinds of businesses, strategic-management expert Michael Porter suggested in his Porter’s model for industry analysis that business-level strategies originate in five primary competitive forces in the firm’s environment: (1) threats of new entrants, (2) bargaining power of suppliers, (3) bargaining power of buyers, (4) threats of substitute products or services, and (5) rivalry among competitors. 73
1. Threats of New Entrants New competitors can affect an industry almost overnight, taking away customers from existing organizations. Example: Kraft Macaroni & Cheese is a venerable, well-known brand but is threatened from the low end by store brands, such as Walmart’s brand, and from the high end by Annie’s Organic & Natural Mac and Cheese.
Threat of new entrants. McDonald’s is being threatened by new so-called fast-casual restaurants such as Chipotle and Five Guys, which attract customers in their 20s and 30s, who are seeking fresher, healthier food and customizable menu options. What’s your opinion of these new chains compared to the older ones?