Benchmarking / benchmark explained
Benchmarking: this article explains a benchmark and benchmarking in a practical way. You will read about the meaning of this concept in the context of business, various types of benchmarking, how it can be used to create opportunities and a step-by-step plan to get started with benchmarking. Enjoy reading!
What is benchmarking?
Benchmarking is the measurement of an organization’s internal processes and performance data and a comparison with those of related and comparable organizations.
Preferably, these comparisons are made with businesses from the same sector, but it is possible to use benchmarking between businesses from other sectors as well. In these comparisons it mainly concerns the dimensions quality, time and costs of organizations that are about the same size and that more or less have the same outlet.
In addition, it is about how certain features can be realized better, faster and cheaper.
Benchmarking can stimulate organisational progress in terms of internal growth. It allows businesses to determine how to improve customer loyalty, how to streamline their processes and keep expenditure to a minimum. Careful study of other benchmarking reports can also be useful when searching for new ways to maximise profits, or to discover how to deal with a crisis.
Smart entrepreneurs are able to see beyond the benchmarking between various businesses in the same industry. New ideas and methods, which can be applied in your own organisation, can also be discovered through a closer look at other industries.
Application of benchmarking
Benchmarking is used and applied within the (strategic) management of organizations. Several aspects of processes are evaluated against the best performance of other companies. It is however necessary that this comparison is made between companies with common features (peer group).
Through this approach, organizations will acquire a better understanding of how they can tackle developments and improvements in the best possible way. This approach can be a non-recurring event, but it is increasingly used as a continuous process to improve the performance of the organization.
Types of benchmarking
There are different types of benchmarking that are oriented towards a speciality. Some examples are:
Process benchmarking
An organization researches its organizational processes to find out what the strengths of other organizations are. Analyses are made of the activities with respect to successful processes for reasons of cost reduction and efficiency.
Benchmarking from an investor perspective
Investors compare corporate performance, and look at opportunities and alternatives.
Product benchmarking
New products or upgrades for current products are designed based on comparative research. By comparing the competitors’ products, the organization will discover the strengths and weaknesses of the current product.
Strategic benchmarking
This comparison involves observing the strategic policies of other organizations.
Performance benchmarking
Performance benchmarking is the collection of information of an organisation’s performance in terms of goals and results. This can apply to various sections of operations, from turnover to customer satisfaction. These results will be compared to each other, both internally and externally.
Benchmarking is especially popular in the areas of human resource management, finance and marketing.
This type of benchmarking is especially suited to competitive benchmarking, and is used when companies wish to assess their position in relation to the competition.
Opportunities for improvement
Organisational leaders do what they can to maximise the performance of their business. At the same time, there is often a gap between the target performance and the actual performance of a business. This gap is called the performance gap.
A performance gap can appear at any level of the organisation. It can, for instance, arise when a salesperson does not achieve their target, or when an entire team does not meet the set goals.
A performance gap can create a significant issue which have to be solved for an organisation to remain profitable. A Gallup study shows that many employees are left entirely in the dark about what exactly is expected of them. Only fifty percent of surveyed American employees knew what was expected of them in their jobs.
Employees, but really generally anyone, cannot meet performance standards if they do not know what these standards are. Many performance gaps can be prevented by simply setting clearer goals for staff.
The roadmap below can be used to unearth such performance gaps.
Procedure
There is not one single benchmark process that has been adopted. Various methodologies have been developed including this 6-step plan:
Identify the problem areas
Benchmarking can be applied to any operational process or to any function. Many investigation techniques are used such as having conversations with clients, staff and suppliers, marketing research, quantitative research, surveys, quality control and financial ratio analyses.
Identify other suppliers
By knowing in advance what the organization wants to compare specifically, it is possible to look more closely at comparable organizations. For example, when a company wants to improve their complaint handling, it is interesting to identify the test fields that comparable organizations use for complaint handling.
Identify the leading organizations
Comparison is only successful when it is based on an organization that excels in the specific test field. Customers, suppliers, financial analysts, professional associations could lead to such organizations.
Approach investigation agencies
Investigation agencies have specific business processes at their disposal which they have acquired from qualitative and quantitative research.
Knowledge sharing
Organizations are often receptive to sharing knowledge and experience. Networking meetings are excellent opportunities to make contacts with other companies that have qualities in common. (peer group).
Implement new and improved processes
Development plans and execution plans will improve by putting into practice the most progressive and best practical experiences from the benchmarking study.
Costs
When a company chooses to benchmark its organization, it will incur costs. The three main types of costs are:
Visit costs
This includes all travel costs, hotel costs, meals, gifts and lost working hours.
Time costs
Employees involved in benchmarking will be investing time in researching problems and finding exceptional companies to study and compare.
Database costs
The costs for setting up and maintaining a database in which data are collected of the companies that are to be compared. The costs can be significantly reduced through using Internet resources. There is a wealth of information to be found on the Internet about various companies and organizations. This information will speed up the process and is therefore a much cheaper option.
Benchmarking examples
Benchmarking adds great value to organisations in various ways. There are a number of examples of types of businesses using a variety of ways to achieve particular results below.
Benchmarking example: a taxi service call centre
A taxi service call centre can assess customer satisfaction by asking customers to rate their service based on their experiences with the company. The company can also gather information about waiting times, staffing of the phone lines, duration of calls, etcetera. This information can serve as a basis for an investigation into ways of improving performance.
Benchmarking example: hospitals
Hospitals and other medical organisations often collect benchmark data, including waiting times, quality of care, recovery times and general patient satisfaction. These statistics can be collected internally and compared to determine performance in every area of the hospital. Results can also be used as a benchmark basis for other, comparable organisations to assess where they sit within the healthcare landscape.
Benefits of benchmarking in business
The popular benchmarking tool has many benefits. Most of the benefits relate to the improvement of the organisation’s productivity. The benefits can also provide better insight into the most important factors of benchmarking in a business. We will look at the benefits of benchmarking in more detail below.
Increased competitiveness
Successful businesses face heavy competition from other businesses. In fact, this competition can help successful businesses to maintain their position, provided they use benchmarking effectively.
Continuous improvement
Benchmarking deals with findings of other businesses, which can lead to improvement of the business position within the industry. Any opportunity or window for improvement of operations should be built on by the business in order to stimulate business growth.
Identifies critical activities
One of the most significant benefits of benchmarking, is that benchmarking can help all businesses identify the activities that have the biggest impact on increasing the business’ profitability.
Improves quality
Benchmarking enables a business to identify strong and weak points. The weak points must be improved, and strong points must be capitalised on.
Stimulation of creativity
Benchmarking helps a business to determine the key characteristics of a business. These are then compared to other businesses. Any performance gaps must be subsequently closed using creative ideas.
Drawbacks of benchmarking in business
Organisations will reap the fruits of benchmarking success if the benchmarking is performed correctly but, logically, the use of benchmarking can come with drawbacks, too. Some of these drawbacks are detailed below.
Not enough information
At times, there may be information missing when comparing certain important aspects of various companies. This can have severe consequences for an organisation’s positioning, with financial losses in a worst-case scenario. For this reason, it is paramount that businesses always have sufficient information about other businesses.
Bad results
If a business has reached a certain standard and wishes to improve this standard through use of creative ideas, the organisation must, at that moment, look at businesses who are performing reasonably well. Analyse these organisations’ issues, and see how the organisation which is to be managed can derive opportunities from these issues.
Inferior understanding of the situation
While it is prudent to keep an eye on the competition, it is even more important to continue to focus on your own organisation. Monitoring competitors is useful up to a certain extent, and obsessing over the performance of others will lead the business nowhere. This is why it is important that everyone has a clear understanding of the necessity of benchmarking, before it starts spying on another business.
It’s Your Turn
What do you think? Is Benchmarking applicable in today’s modern economy? Do you recognize the practical explanation or do you have more suggestions? What are your success factors for a good Benchmark?
Share your experience and knowledge in the comments box below.
More information
- Bogan, C. E., & English, M. J. (1994). Benchmarking for best practices: winning through innovative adaptation. McGraw-Hill.
- Camp, R. C. (1989). Benchmarking: the search for industry best practices that lead to superior performance.
- Griffin, A. (1997). PDMA research on new product development practices: updating trends and benchmarking best practices. Journal of product innovation management, 14(6), 429-458.
- Povey, B. (1997). Benchmarking: A tool for continuous improvement. John Wiley and Sons.
How to cite this article:
Janse, B. (2020). Benchmarking / benchmark. Retrieved [insert date] from Toolshero: https://www.toolshero.com/marketing/benchmarking/
Original publication date: 08/16/2020 | Last update: 06/08/2023
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Ben Janse
Ben Janse is a young professional working at ToolsHero as Content Manager. He is also an International Business student at Rotterdam Business School where he focusses on analyzing and developing management models. Thanks to his theoretical and practical knowledge, he knows how to distinguish main- and side issues and to make the essence of each article clearly visible.
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