What is a benchmark?
Benchmarking is a competitive strategy that enables organizations to adapt and grow by comparing current performance to predefined parameters. It is the process of evaluating key business metrics and practices while comparing them to competitors, industry peers, or other businesses worldwide that employ best practices. Benchmarking is useful for companies across all industries.
Benchmarking enables you to identify performance gaps and achieve a competitive edge in the market. You can apply it to any business process, product, or function.
Generally, benchmarking focuses on the aspects such as time, quality, effectiveness, cost, and customer satisfaction.
Types of Benchmarking
There are four major types of benchmarking.
- Performance Benchmarking is the first benchmarking process that companies or businesses use to identify performance gaps. The process involves gathering and analyzing quantitative data such as key performance indicators (KPI).
You will need a method of collecting, extracting, and analyzing data to acquire information that you can rely on to make decisions.
- Internal Benchmarking involves using historical data from within the organization to make a decision. For instance, you can compare a process to another similar process within the organization. You should be able to track these metrics from the comparable systems to allow for the assessment and the comparison of the KPIs.
- External Benchmarking is when you compare your internal process against other organizations or competitors.
External benchmarking is more challenging than other types of benchmarking because you have to acquire data from external companies. Getting confidential information from another entity is hard, and publicly available data is not always reliable.
However, external benchmarking is especially effective because it gives you clear insights into how your business competes in the market. Also, it shows you the weaknesses that you should work on.
- Competitive Benchmarking benchmarking involves directly comparing your metrics with those of your competitors. It enables you to understand where, how, and why your competitors succeed.
- Practice Benchmarking involves gathering and comparing qualitative information about how a particular activity is carried out through a process, technology, or people. For example, a business may want to benchmark the effectiveness of procedures carried out using new technology.
The Purpose of Benchmarking
Benchmarking is beneficial for every business. However, it is not a quick tool for success. It should be an integral part of the business to close the performance gap and retain practices that will promote the growth of your business.
- A better understanding of what is working and what is not
- Reducing the costs of production and enhancing efficiency
- Learning and improving upon competitor’s best practices
- It helps businesses to discover new opportunities for growth
- Motivates the company to improve the quality of the products and to make more sales
Benchmarking enables you to learn the opportunities, strategies, threats, and results. Though comparing yourself to competitors and understanding their advantages is not a pleasant process, it is essential.