What is Benchmarking?
A benchmark is a metric that serves as a standard or basis for comparison or evaluation. Benchmarking, then, is the process of comparing an organization’s processes, practices, and overall performance against its previous results or the performance of companies in the same industry or sector. The objective is to identify what worked in the current strategies and what needs improvement.
With benchmarking, organizations get to see which path leads to success, allowing them to plan their steps accordingly. For example, suppose a competitor has achieved greater results and enhanced productivity by implementing a new technology or process. In that case, the organization can evaluate whether adopting a similar approach would boost its own operations. Similarly, if an existing strategy yielded the expected or even better returns, then the organization can refine and expand on that strategy to maximize results.
Types of Benchmarking
There are three significant types of benchmarking: internal, competitive, and strategic. All these provide businesses with valuable insights they can leverage to improve their operations.
- Internal Benchmarking: Internal benchmarking is the simplest of the three because all relevant data are readily available and easily accessible. As the word implies, this type refers to comparing processes, practices, or performance within the organization to determine best practices and growth areas. It may be done across teams and departments or against previous performance metrics, but it never extends outside the organization’s four walls.
- Competitive Benchmarking: Competitive benchmarking compares an organization’s performance against its direct competitors to understand where they stand in the market and identify opportunities to outperform rivals. As opposed to internal benchmarking, this type focuses on outside factors and may be harder to gather and analyze.
- Strategic Benchmarking: Strategic benchmarking means evaluating the best companies across all industries, irrespective of their business nature. It is a more extensive tactic that uses top business leaders’ strategic approaches as examples for gaining ideas to improve an organization’s overall direction. Such analysis of benchmarks is helpful for companies in their industry to go further and discover best-in-class performance not only in different sectors but also in various cultures as well.
What is the process of benchmarking?
Benchmarking acts as a compass that lets organizations assess if they are on the right track. To successfully do one, follow these key steps:
- Identify Focus Areas: Determine which processes, metrics, or functions to benchmark. Choose areas that will have the most significant impact on performance. From there, decide what type of benchmarking (internal, competitive, or strategic) is the most applicable.
- Collect Data: Gather relevant data from both internal performance and external sources (industry reports, competitor analysis, etc.), depending on the benchmarking type. Make sure to fact-check secondary information or data from third-party sources to avoid relying on inaccurate or outdated information.
- Analyze Comparisons: Compare internal performance with external benchmarks to identify gaps, strengths, and opportunities for improvement. More importantly, look for best practices that can be adopted.
- Set Goals and Implement Changes: Based on insights, set clear, measurable goals. Adjust processes, policies, or strategies to close performance gaps and improve results.
- Monitor Progress and Adjust: Continuously track progress against goals and benchmarks. Make adjustments as needed to ensure improvements are sustained and goals are achieved.
Bonus step: Ensure that all related processes and workflows are recorded and documented thoroughly. This will provide a clear baseline for comparison and help track any changes or improvements over time.