Quick Summary
In today’s fast-paced world, corporations and their human resource departments are constantly seeking strategies to improve their business operations. They want to maximise profits while using the most efficient processes possible. To accomplish this goal, they opt for benchmarking. So, what is benchmarking?
Benchmarking reflects the what and the how of top-tier performance. Benchmark analysis offers concrete data and practices against which a company can measure its business operations. The concept of benchmarking demonstrates how to exceed the bar of performance. It guides strategic planning and ensures that your business is setting an excellent level of performance growth and development. Benchmarking gives the competitive edge for businesses to adapt, grow, and thrive through change.
There are two major types of benchmarking – internal and external benchmarking. These are then further categorised into several types, each with specific purposes and providing valuable insights for a business. In this blog, we will explore what is benchmarking, its types, benefits, and techniques in brief. Let’s dive in!
Benchmarking is a process of measuring your company’s quality, performance, and growth by analysing the processes and procedures of others. It can be applied to any product, function, or approach in business. The ultimate goal of learning what is benchmarking is to seek continuous improvements by adopting ideas that will get you ahead. Benchmarking your business operations with defined metrics will help you track progress and reach your goals faster.
Benchmarking evolved over the years into today’s modern practices. Gregory H. Watson, former vice president of quality at Xerox corporation considered an authority on benchmarking. He describes the evolution of benchmarking in five primary phases –
Business benchmarking is a widely applicable strategy that helps companies improve their current procedures, better invest their assets, and create data-based business strategies. It is a flexible process to analyse and improve almost any element of your business. Here are the core elements of how benchmarking aids modern businesses:
A business can use benchmarking to measure numerous areas of its operations. There are two main types of benchmarking – internal and external. They are further categorised into several types, each with a specific goal and providing valuable insights to improve one’s business. Here are the primary types of benchmarking.
Parameters | Internal Benchmarking | External benchmarking | Functional benchmarking | Competitive benchmarking |
Overview | Internal benchmarking involves comparing different departments or units within the same firm. | External benchmarking involves comparing an organisation’s processes, performance, and practices with similar organisations to identify trends. | Functional benchmarking compares specific functions or processes within an organisation to those of another aspect of the organisation. | Competitive benchmarking is a subset of external benchmarking. It involves comparing a business’s performance, products, or services directly with its competitors. |
Purpose | This type of benchmarking helps in finding best practices within the company and fosters cross-functional learning and improvement. | The goal of this benchmarking is to make process improvements to become a more ambitious and successful brand in the industry. | This benchmarking aims to identify opportunities for improving particular areas, like customer service, human resources, or supply chain management. | The purpose of this benchmarking is to specifically assess the strengths and weaknesses of the company relative to others in the market. |
Business applications | Ideal for large businesses operating across multiple locations, where management can research and compare internal processes between various geographies. | This benchmark analysis can lead to competitive analysis. It helps redesign business strategies, identify performance gaps, and improve business operations. | With this benchmarking analysis, businesses can find a quick way to improve their performance. | Competitive benchmarking is an integral element of a company’s success because it provides a competitive edge that can drive better performance and increase sales. |
Example | Evaluating changes in the organisation’s health insurance plans’ price-quality ratio over time. Common internal benchmarking includes employee surveys on the perceived value of health insurance benefits being offered. | A company can benchmark product prices, ratings, or employee ratings from competitor websites to gain a multi-dimensional view of the market. | A medium-sized law firm can compare the addition of incentive rewards for their employee benefits to those of nearby healthcare centres. | A manufacturing business can compare its employee benefits or health plans to its peers in the industry. |
Competitive benchmarking is a strategic process that involves thorough research and analysis of competitors, industry leaders, and similar players in the market. It helps in comparing your company’s performance and practices against your competitors. This provides valuable insights into your market position and identifies opportunities for growth and improvement.
The practice of competitive benchmarking includes studying a range of metrics, including sales, customer satisfaction, operational efficiency, and marketing.
Steps | Process |
Develop your benchmarking project plan | Define the goals and objectives of the projectOutline the scope and create a timelineFind the necessary resources and choose appropriate methodsSelect relevant metrics to align with business goals. |
Align key stakeholders | Engage with relevant parties, including team members, management, and executivesSecure buy-in from stakeholders to ensure cooperation and support |
Identify Key Performance Indicators (KPIs) | Choose meaningful KPIs that are directly related to your business performanceEnsure KPIs are suitable for comparison with competitors. |
Collect benchmarking data | Utilise various methods like surveys to collect relevant dataEnsure the data collected covers all identified KPIs and aspects of comparison |
Analyse benchmarking data | Employ statistical tools and techniques to analyse the collected dataIdentify trends, patterns, and notable differences between performance and competitors. |
Develop a benchmarking report | Summarise the findings from the analysis in a comprehensive reportPresent the data, trends, and insights in a clear and actionable formatInclude recommendations where improvements can be made |
Build a plan to improve or optimise | Outline the detailed improvement plan based on the benchmarking reports Define specific actions and strategies to boost your business performance |
Implement Benchmarking Insights | Act on the devised plan by making necessary changesInvolve relevant teams and departments to monitor the progressAdjust the strategies as required based on real-time feedback and results. |
Here are some of the competitive benchmarking examples in the real business landscape.
Financial benchmarks involve a complete evaluation of your company’s assets, liabilities, equity, expenses, revenue, and profitability. This in-depth evaluation gives you an overview of how well your business is making use of its assets or resources to generate income. Overall financial benchmarks in business will give you insights into the overall financial health of the organisation within a specified timeline.
Understanding the financial performance of your business will help you spot opportunities to become more profitable. The analysis of financial benchmarks will help you in the following ways.
Benchmark mutual funds serve as a standard for measuring the performance of a mutual fund. It is an index composed of financial assets that reflects your sectors, tenes, or industries the mutual fund investing. As a result, it will give you a frame of reference for the evaluation of the fund’s returns.
When a mutual fund’s returns are graduated relative to its benchmark, investors gain insight into the effectiveness of the fund strategy. For an equity fund with the Sensex, benchmarking will indicate the skilled manager and sound investment choices.
Here are some common benchmark mutual funds used in different fund types.
Fund type | Common benchmark example |
Large-cap equity fund | Nifty 50 |
Mid-cap equity fund | Nifty Midcap 50 |
Bond fund | NSE Bond Index |
With so many benchmarking techniques, finding the right one to solve unique business challenges can be challenging. Here are some common techniques:
Performance benchmarking tracks metrics and KPIs within the business. It helps the team compare past results to current standards, updating these standards for better performance. This type of benchmarking analysis focuses on improving key business functions over time.
Strategic benchmarking typically involves an external analysis of how other companies succeed. It examines specific strategies, such as marketing campaigns. This helps you learn from proven methods used in your industry. This benchmarking technique is particularly beneficial for startups and small businesses.
Process benchmarking aims to evaluate how tasks are performed in your business and pinpoint areas for improvement. It involves benchmarking against publicly available statistics and data. You can compare and monitor processes over time, implementing changes to boost motivation and efficiency.
Now, how will you conduct a benchmarking analysis? Let’s break down the process.
The first step is to identify specific areas or processes in your business that you want to benchmark against industry standards. This involves carefully assessing your business operations and determining the key performance indicators (KPIs).
Look for organisations in your market that excel in the areas you are benchmarking. They should be of a similar size, have a similar market presence, and have a similar customer base to ensure relevance. You can also consider partnering with companies outside your industry to gain fresh perspectives and innovative ideas.
Begin by identifying relevant KPIs that align with your objectives. Collect quantitative and qualitative data from sources such as customer surveys, financial reports, and publications. Analyse the data to find performance gaps and areas for improvement. You can also use statistical techniques to compare your metrics against industry benchmarks and top names in the market.
After analysing the benchmarking data, look for gaps, similarities, and areas for improvement. This will help you identify the best practices that can lead to superior performance.
Devise an action plan and implement the improvement strategies. Changes should be made gradually and monitored to ensure their effectiveness.
Several benchmarking software and tools are available in the market, including:
Once you understand ‘what is benchmarking’, it’s time to explore its benefits in business. It is crucial to know how it helps businesses improve their performance, competitiveness, and decision-making processes. Here are some of the key advantages of benchmarking:
Here are some of the key advantages of benchmarking.
Now that you know the advantages of benchmarking, here’s how it influences your performance improvement and gets you a competitive edge.
After understanding what is benchmarking, the types, and the benefits, let’s take a look at some real-life businesses with successful benchmarking in action.
Toyota’s production system is one of the premium benchmarking examples in the real world. In the 1950s, Toyota struggled to compete with dominant American car manufacturers. They adopted benchmarking to improve their production process, resulting in the creation of the Toyota Production System. This system revolutionised the automotive industry by focusing on continuous improvement, waste reduction, and quality control. Today, Toyota is one of the most successful car manufacturers in the world.
Amazon is another excellent example of benchmarking in the real business world. Known for its exceptional customer service, Amazon achieves this by incorporating benchmarking analysis strategies. They analyse the best practices of competitors and implement them in their business model. By meticulously studying various customer service practices, Amazon creates a seamless and satisfying customer experience.
Starbucks has also employed benchmarking techniques to achieve its goals. They benchmark their employee training practices against those of luxury hotel chains and implement similar training programs for their team. As a result, they have highly trained and motivated staff who provide exceptional service to customers. This effort has helped Starbucks become one of the most successful and recognisable coffee brands.
Benchmarking is not merely a comparison tool but a strategic roadmap for businesses seeking to thrive in their field. Understanding what is benchmarking will help you meticulously assess your operations, processes, and productivity. The concept of benchmarking drives you to embark on a journey of self-discovery, identifying areas for improvement and charting a course toward growth.
Benchmarking techniques in business come in different forms and can fit all sizes of firms. They allow you to make more informed investment choices and achieve significant returns. The key to successful benchmarking practices is using reliable and relevant data sources.
In the benchmarking analysis, businesses don’t just compare; they adapt and innovate by carving out a distinct path for improvement. It helps incorporate best practices and drive continuous growth. By embracing benchmarking as a cornerstone of strategic analysis and advancement, your business can pave the way for success in today’s dynamic market.
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Business professionals use different benchmarking techniques to evaluate a company’s processes and performance. You can conduct benchmarking within your industry or expand it to a wider market. It also informs both short- and long-term goals. Here are some major types of benchmarking in business:
Internal benchmarking
External benchmarking
Strategic benchmarking
Performance benchmarking
Process benchmarking
Generic benchmarking
Functional benchmarking
International benchmarking
Competitive benchmarking employs various metrics to compare the success of your brand with its competitors and the overall market. It allows you to determine where you stand in the industry. This comparison method helps evaluate overall performance, identify best practices, and maintain a competitive edge.
Financial benchmarking involves performing financial analysis to compare your business practices and standards to other firms within the same industry. A benchmark serves as a baseline for comparative purposes when assessing a financial portfolio or mutual fund.
The goal of any business should be to grow, improve, process, rescue costs, increase quality, and earn more revenue. Following benchmarking analysis will help them maintain continuous improvement. The steps in the process are,
Determine processes to be benchmarked
Determine organisations to be benchmarked
Gather and evaluate data
Locate any inefficiencies
Determine future trends
Reveal results and sell the process
Achieve consensus on revised goals
Establish procedures
Benchmarking is a strategic process that allows you to measure your success against competitors in the industry. Here are some advantages of benchmarking for your business.
Identify opportunities within your business and your industry
Find performance gaps in your business by tracking KPIs
Lower expenses by removing any overhead costs or redundancies
Understand the competition to figure out their strategies.
Set specific smart goals for your business.
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Chegg India does not ask for money to offer any opportunity with the company. We request you to be vigilant before sharing your personal and financial information with any third party. Beware of fraudulent activities claiming affiliation with our company and promising monetary rewards or benefits. Chegg India shall not be responsible for any losses resulting from such activities.
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