Benchmarking is a technique used by businesses to measure the performance of various functions, such as operating a division's desktops, and the cost of supporting those functions. E-commerce benchmarking is used to help companies compare the costs and performance of their online operations with those of other companies.
We've all used benchmarks - those handy points of reference from which we measure or judge our personal and professional successes. And in the business world, benchmarking has long been a useful evaluation tool. After all, you simply can't know how well your company is doing unless you have something you can compare it with.
But the advent of the Internet age has produced a whole new way of doing business. When companies first began to make their transitions to the Web, their main concern was getting operations up and running.
Once that's accomplished, e-commerce operations need a system to measure whether they're meeting their goals and to see how their performance compares with that of competitors. Traditional business benchmarks won't work because they're based on entirely different core processes.
Know your goal
"It's useful to understand where you want to go," says Steve Johnson, codirector of the e-commerce program at Andersen Consulting. Organisations need to "find target audiences that they're trying to communicate with and then, with regard to each of those target audiences, what are your specific objectives in terms of the outcomes you're trying to achieve? And then that should lead you to a system of relevant benchmarks."
But because there isn't much of an historical record regarding e-commerce performance, that's no simple task.
"All the concepts and principles of e-commerce are still not set," explains Mark Czarnecki, president of The Benchmarking Network, an organisation that runs and monitors benchmarks among companies.
Normally, there's a set of "anchors" that companies can rely on when they do benchmarking - a defined measure of performance, such as transactions per second or monthly sales, Czarnecki says.
"Defining it means there's some kind of stable business process. With e-commerce, there's not a stable business process," he adds.
The top priority for electronic businesses is turning a profit, says Jim Sample, a consultant at Compass America. "The drive towards profitability then trickles back to having to put in some traditional measurement system," he says.
Johnson agrees. "The most urgent priorities with most of the dotcom businesses [had been] to just get out there and launch," he says. "But it's quite clear that there's much more attention now on performance. So I think benchmarking is going to become a fairly useful and important tool in helping companies that are going to survive this [dotcom] shakeout to really focus on the things that make a difference to their business."
That includes going beyond measuring just Web site traffic and revenue to profit-centred benchmarking, Johnson says.
Profitability is certainly crucial, but it's not the only important benchmark for companies to set for their e-commerce operations. Web site activity is another key benchmark that businesses would be wise to monitor.
"One of the big challenges that companies face today is trying to determine how much time a customer or a viewer is spending at the Web site, associated with how much revenue they're generating," Sample said.
United Parcel Service is one bricks-and-mortar company that's been particularly successful at developing its electronic business. It's been benchmarking its online tracking service every December since the site was launched in 1994.
In December 1995, UPS, in the US, received 100,000 online tracking requests. By last December, that figure had mushroomed to 3.3 million online tracking requests a day, according to a UPS spokesman.
Having a benchmark in place to measure those requests has helped keep UPS at the forefront of its e-commerce race with rivals such as Federal Express and DHL Worldwide Express.
"Online tracking requests are certainly a very important benchmark that we look at, because it's probably the most widely used information that our customers access," says Steve Holmes, a spokesman for UPS.
John Sommerfield, director of corporate communications at Charles Schwab & Co, says his organisation also sees Web traffic as an important benchmark for its e-commerce group.
"For instance, several years ago, we went through a Web page redesign because people were less interested in visual richness of content versus availability and the speed at which a screen pops up. So we responded to that. And the number of page views has doubled in six months, but the number of hits has gone down by half, because it takes fewer hits on the server to bring up a piece of graphic."
But before a company can even begin to devise its benchmarks, it must first examine its core business processes, says Czarnecki. Those include developing and selling products and services to Web customers and running an organisation's online operations as efficiently as possible.
Once those core processes have been determined, companies need to figure out how much those processes are costing them. Then, based on that information, businesses can compare their cost structures to those of other companies and evaluate their own performance over time.