Benchmarking Definition – Types And Purpose

Benchmarking is the method to measure a company’s performance based on services, products, and processes against the companies that are best in the industry. It provides valuable understandings that would help a company to understand where they stand with similar organizations. It also helps a company to identify systems, sales, or processes for enhancing. It could be either incremental or dramatic improvements.

When a study is performed against companies who perform better, breaking down the parameters that had caused them to be popular and then comparing those to your business would help you to improve your processes. For example, it could be to update a product’s features by comparing it with competitors, updating services that you provide, etc.

Improvements can take place in the following two ways:

  • Continuous
  • Dramatic

Continuous improvement takes place in an increment fashion. It involves only some small updates to fit into the requirement.

Dramatic improvement takes place by reengineering the entire work process internally.

Steps in Benchmarking

Benchmarking is a simple process that involves the following steps:

  • Select what must be benchmarked. It could be a product, an internal department, or a service.
    1. Before your company goes for a benchmark, you should understand and control your processes.
    2. You should expertise the process as benchmarking is an elaborate process that includes more time and resources.
    3. When the parameter is chosenBenchmarking Steps is too many, then the project is bound to fail. If a subject does not have much benefit, then it not worth considering.
  • Plan – Find out the top companies that you should benchmark against, i.e., the company that you would compare to.
    1. Have a proper subject for benchmarking study. Ideally, choose a sensitive issue that supports organizational success.
    2. Have a cross-function team in place.
    3. Analyze the process in your company
    4. Identify other organizations that include best practices
  • Find out information on the chosen company’s metrics or internal performance – Collect information of the company that you want to benchmark with. Collect enough details like process descriptions, questionnaires, data, site visits, etc.
  • Analyze – Once you get the data, perform the following:
    1. Compare the data collected for both description and numeric.
    2. Find out the gaps by analyzing the data from the chosen company and your company’s performance.
    3. Find out the dissimilarities in the practices
  • Adapt the results analyzed
    1. Implement the policies and processes of the top performers.
    2. Create action plans to get to the goals of the organizations.
    3. Put the practices in place and monitor the impact.

Benchmarking finds out the changes that make the most difference and you need to put it in the right place. To benchmark anything, study on qualitative data. It would involve calculating metrics by breaking down the internal processes.

Main Benefits of Benchmarking

Benchmarking has the following benefits:

  • It helps companies to become more profitable and effective.
  • Refine cost structure and process.
  • Appreciate team building to become more competitive.
  • Increase knowledge with key performance metrics and ways to improve.
  • Helps employees to understand a small process affects the business.

Features of Benchmarking

Features of Benchmarking

Few features of benchmarking are listed below:

  • Good effect on customer’s requirements – When benchmarking is used, the organization gets good feedback from their customer. It helps to improve customer requirements and meet their expectations.
  • Helps to raise company standards – As benchmarking compares the process of the organization with top performers, it helps to raise its standards to meet the trends.
  • Learning involved – Benchmarking helps the organization to improve their learning. Organizations can learn new strategies, make use of new ideas, work with new processes, and so on.
  • Get inspired by top performers – Through benchmarking, you can find the process and challenges from the top performers in the industry. You would get inspired by their methodologies and implement it in yours.
  • Toughen the weakness – When some process is not up to the mark, benchmarking help to find out the mistake and come out of it. It helps to identify the areas that must be modified and improved.
  • Help to work with new technology – Benchmarking process helps the organization to work with new technologies and that is successfully used by other organizations.

Types of Benchmarking

Benchmarking Types

There are four main types of benchmarking.

  • Internal Benchmarking
  • Competitive Benchmarking
  • Functional Benchmarking
  • Generic Benchmarking

Let us discuss each one.

1. Internal Benchmarking

This benchmarking type is used to compare the business process to a similar process within the organization for getting best practices internally. For example, an apparel store chain can choose the store that provides more profit as a benchmark for other stores. The benefits of internal benchmarking are the following:

  • Recognize strengths and weaknesses
  • Shared learning across numerous divisions
  • Results in restructuring
  • Get ready for external benchmarking
  • Cost-efficient
  • Easy and fast
  • Understand your process better

The following lists the four steps for internal benchmarking:

  1. Identify the process to be benchmarked – Once you have decided to benchmark, you need to find which process to be benchmarked.
  2. Organize the benchmark – Once you decide on the process to be benchmarked, you need to keep people in place, have site visits and have a goal to discover new strategies.
  3. Analyze the outcomes and prioritize them – Find out the new ideas that the team has found and implemented it in projects with deadlines.
  4. Set it in place and find out the benefits.

2. Competitive Benchmarking

This benchmarking type compares direct comparison to a competitor. It could be in a product, method, service, or process. This would provide a chance to be aware of your competitors better. For example, more than one car company would benchmark against an international competitor. The benefits of competitive benchmarking are:

  • To understand their stand in the industry by comparing with peers
  • Get an organized overview of your company
  • Your company’s performance at a different level
  • Possible partnership
  • Used for planning and goal setting

The common types of competitive marketing are

  1. The figure of Metric – This is a product metric that customers think of at the time of purchase. This is a common benchmark to improve. For example, cost per watt is a figure of metric for electric gadgets.
  2. Financial Results – Make use of financial reports of competitors to get financial metrics like revenue for one employee.
  3. Operational Metrics – This can be taken from the company’s marketing channels.
  4. Marketing Metrics – This includes brand recognition that is easily available.
  5. Sales – Salespeople would benchmark like cost for customer acquisition, gross margins, etc.
  6. Customer Service – Many services industries benchmark against customer satisfaction where data is collected from the market search company.
  7. Customer Experience – A company can benchmark against customer experience, like the taste of food, like for a product, etc.

3. Functional Benchmarking

This benchmarking compares similar practices in the same functions outside the industry. It compares results across varied industries including processes. It compares using similar functionalities. For example, maintenance of inventory controls, assemble of customer orders, etc. It finds out the practices that are more in your functional areas concerning any industry. Few examples of this benchmarking for each parameter are:

    1. Process – An apparel company can compare its human error rates to a telecom company.
    2. Service Quality – An airline company can compare its customer service to five-star hotels.
    3. Customer Service – An electronic company can benchmark against IT companies for customer service.
    4. Reliability – A car manufacturing company can benchmark its car against aircraft.

The benefits of functional benchmarking are the following:

  • Gives the latest industry trend information
  • Compares quantitative wise
  • Improvement rate is more

4. Generic Benchmarking

This benchmarking compares the process and performance of organizations in dissimilar industries. This helps to improve processes and performance and to create new standards. Generic means general with mentioning a brand. The focus is to be innovative and understand the good work process of other domains. Few benefits of generic benchmarking are:

    1. Compare the business process of any unrelated industry.
    2. Implement the best practice of another industry to your industry to gain a competitive advantage.
    3. With unrelated industries, it is easier to get data

Conclusion

Benchmarking is a huge process that involves many days that must be tracked regularly. There is no fixed benchmark and keeps changing. It must follow intensely to get good results. It contributes very well for organization benefits, but its success depends on each member of the company.