What is Benchmarking?
Benchmarking is the process of comparing a business’ metrics to industry standards or the best practices of other companies., that is, comparing your company’s performance and progress against the leaders in your field. The term “metrics” refers to a set of numbers that give us information about a particular process or activity, such as customer satisfaction scores or production costs.
Benchmarking is like using a compass in the wilderness; it helps businesses, organizations, and even governments determine how well or badly they are doing.
Learning from the best
It is an effective method of finding the best possible strategies to perform a task or process, essentially learning from the best.
The American Society for Quality (ASQ) has the following definition of the term:
“Benchmarking is defined as the process of measuring products, services, and processes against those of organizations known to be leaders in one or more aspects of their operations.”
“It provides necessary insights to help you understand how your organization compares with similar organizations, even if they are in a different business or have a different group of customers.”
Benchmark vs. benchmarking
The term “benchmark” refers to a level of quality that is used as a standard when comparing other things. For example, a company may use the customer satisfaction scores of the industry leader as a benchmark to evaluate and improve its own service levels.
Benchmarking is the process of measuring performance against standards, while a benchmark is the actual standard or point of reference used for comparison.
Why is benchmarking important?
Imagine you are competing in a race, but you have no idea what position you are in or how fast your competitors are running. Benchmarking tells you where you stand. In the business world, it tells you how your company compares to others.
By analyzing your metrics, you can identify areas where you can improve.
Different types
There are several types of benchmarking:
-
Internal Benchmarking
This involves comparing practices within the same organization. For example, if your business has several stores, it can compare one against the other.
-
Competitive Benchmarking
Here, the focus is on how well your business is doing compared to other companies in the same field, that is, your competitors or rivals.
-
Functional Benchmarking
This type involves looking into another industry to find the best practices. For example, a hospital may examine a hotel’s customer service process in its quest to improve the patient care experience.
-
Generic Benchmarking
This is where the comparison is made at a broader level, such as the speed of service delivery in various sectors. For example, a restaurant may compare its table turnover rate to a car service center’s appointment turnover to find efficient ways to serve more customers in less time.
Generic benchmarking compares performance across different industries, focusing on overall processes, while functional benchmarking compares specific functions or operations within the same industry.
Benchmarking process
The process usually involves four key steps:
- Understanding in detail existing business processes.
- Gathering and analyzing other business’ processes
- Comparing your own business’ performance with those of other companies.
- Implementing the steps necessary to improve and close the performance gap.
Final thoughts
Benchmarking is an ongoing process of self-improvement; it is not a one-time task. It is about continually looking outwards for new ideas and internally for areas to apply them.
By regularly comparing your performance to those of others, you have a better chance of surviving and even thriving in today’s fiercely competitive marketplace.
Video – What are Metrics?
In this visual guide presented by our affiliate channel, Marketing Business Network on YouTube, we explain what “Metrics” are using straightforward language and easy-to-understand examples.