What Is Benchmarking And Why It Matters In Business

Benchmarking is a tool that businesses use to compare the performance of their processes and products against businesses considered to be the best in their industries. Benchmarking allows a business to refine their practices and thus increase its overall performance. Generally, benchmarking can be broken down in the process, performance, and strategic benchmarking.

Understanding benchmarking

The process of benchmarking is the search for a measure – or a benchmark. In simple terms, the benchmark is the “what” and benchmarking describes the “how”.

However, it’s important to understand that benchmarking is not a simple process. For example, it is not as straightforward as visiting the manufacturing facilities of another company and taking notes on their processes. Many organizations – particularly those with patented technologies or other competitive advantages – enforce strict limitations on the information that can be gathered by outsiders.

In any case, a company that utilizes benchmarking should not limit their research to their own industry. Benchmarking should also be a continuous process that yields similarly continuous performance metric improvements.

The three types of benchmarking

Benchmarking can be broadly divided into three categories – process, performance, and strategic.

Process benchmarking

Process benchmarking allows a business to better understand how their processes compare to competitors in their industry. With this knowledge, businesses can refine their processes according to the industry benchmark. A subset of process benchmarking is internal benchmarking. In this case, the business in question is in effect setting its own benchmark because viable competitors have not yet been established.

Performance benchmarking

In performance benchmarking, a company assesses its performance against industry standards. Internally, a HR department may set outcomes relating to employee net promoter score or staff engagement. Externally, a customer care team may hire a consultant to benchmark customer service metrics against those of a main competitor.

Strategic benchmarking

Strategic benchmarking takes what a business has learnt in process and performance benchmarks and applies these insights to a strategy. Here, the goal is to create the sort of strategies that underpin benchmark metrics in a given industry.

The benefits of benchmarking

The benefits of benchmarking are numerous, but the primary benefit is enhanced business and operational performance.

In terms of business performance, this means:

  • Improved customer service and satisfaction. City planners can benchmark quality of life metrics against those found in other cities to increase the health and well-being of citizens.
  • Increased market share and positive cash flow. For example, a shoe retailer may compare its sales per square meter with industry standards and adjust their strategies to suit.

As far as operational performance is concerned, benchmarking means:

  • Increased manufacturing efficiency, with lower rates of defects and product failures. Higher productivity in manufacturing also leads to fewer resources being diverted to warranty claims and protracted customer service enquiries.
  • Rapid and versatile equipment changeover with streamlined order-processing procedures. For example, an eCommerce company benchmarks its average order fulfilment and delivery time against industry standards.

Key takeaways:

  • By studying companies with superior performance, a business can use benchmarking to identify opportunities for internal improvement.
  • Benchmarking can be divided into three main categories – process, performance, and strategic.
  • Effective benchmarking has a vast array of benefits for both business and operational performance.

Read alsoBusiness Strategy, Examples, Case Studies, And Tools

Read more:

Connected Analysis Frameworks

Cynefin Framework

The Cynefin Framework gives context to decision making and problem-solving by providing context and guiding an appropriate response. The five domains of the Cynefin Framework comprise obvious, complicated, complex, chaotic domains and disorder if a domain has not been determined at all.

SWOT Analysis

A SWOT Analysis is a framework used for evaluating the business’s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

Personal SWOT Analysis

The SWOT analysis is commonly used as a strategic planning tool in business. However, it is also well suited for personal use in addressing a specific goal or problem. A personal SWOT analysis helps individuals identify their strengths, weaknesses, opportunities, and threats.

Pareto Analysis

The Pareto Analysis is a statistical analysis used in business decision making that identifies a certain number of input factors that have the greatest impact on income. It is based on the similarly named Pareto Principle, which states that 80% of the effect of something can be attributed to just 20% of the drivers.

Failure Mode And Effects Analysis

A failure mode and effects analysis (FMEA) is a structured approach to identifying design failures in a product or process. Developed in the 1950s, the failure mode and effects analysis is one the earliest methodologies of its kind. It enables organizations to anticipate a range of potential failures during the design stage.

Blindspot Analysis

A Blindspot Analysis is a means of unearthing incorrect or outdated assumptions that can harm decision making in an organization. The term “blindspot analysis” was first coined by American economist Michael Porter. Porter argued that in business, outdated ideas or strategies had the potential to stifle modern ideas and prevent them from succeeding. Furthermore, decisions a business thought were made with care caused projects to fail because major factors had not been duly considered.

Comparable Company Analysis

A comparable company analysis is a process that enables the identification of similar organizations to be used as a comparison to understand the business and financial performance of the target company. To find comparables you can look at two key profiles: the business and financial profile. From the comparable company analysis it is possible to understand the competitive landscape of the target organization.

Cost-Benefit Analysis

A cost-benefit analysis is a process a business can use to analyze decisions according to the costs associated with making that decision. For a cost analysis to be effective it’s important to articulate the project in the simplest terms possible, identify the costs, determine the benefits of project implementation, assess the alternatives.

Agile Business Analysis

Agile Business Analysis (AgileBA) is certification in the form of guidance and training for business analysts seeking to work in agile environments. To support this shift, AgileBA also helps the business analyst relate Agile projects to a wider organizational mission or strategy. To ensure that analysts have the necessary skills and expertise, AgileBA certification was developed.

SOAR Analysis

A SOAR analysis is a technique that helps businesses at a strategic planning level to: Focus on what they are doing right. Determine which skills could be enhanced. Understand the desires and motivations of their stakeholders.

STEEPLE Analysis

The STEEPLE analysis is a variation of the STEEP analysis. Where the step analysis comprises socio-cultural, technological, economic, environmental/ecological, and political factors as the base of the analysis. The STEEPLE analysis adds other two factors such as Legal and Ethical.

Pestel Analysis

The PESTEL analysis is a framework that can help marketers assess whether macro-economic factors are affecting an organization. This is a critical step that helps organizations identify potential threats and weaknesses that can be used in other frameworks such as SWOT or to gain a broader and better understanding of the overall marketing environment.

DESTEP Analysis

A DESTEP analysis is a framework used by businesses to understand their external environment and the issues which may impact them. The DESTEP analysis is an extension of the popular PEST analysis created by Harvard Business School professor Francis J. Aguilar. The DESTEP analysis groups external factors into six categories: demographic, economic, socio-cultural, technological, ecological, and political.

Paired Comparison Analysis

A paired comparison analysis is used to rate or rank options where evaluation criteria are subjective by nature. The analysis is particularly useful when there is a lack of clear priorities or objective data to base decisions on. A paired comparison analysis evaluates a range of options by comparing them against each other.

Related Strategy Concepts: Go-To-Market StrategyMarketing StrategyBusiness ModelsTech Business ModelsJobs-To-Be DoneDesign ThinkingLean Startup CanvasValue ChainValue Proposition CanvasBalanced ScorecardBusiness Model CanvasSWOT AnalysisGrowth HackingBundlingUnbundlingBootstrappingVenture CapitalPorter’s Five ForcesPorter’s Generic StrategiesPorter’s Five ForcesPESTEL AnalysisSWOTPorter’s Diamond ModelAnsoffTechnology Adoption CurveTOWSSOARBalanced ScorecardOKRAgile MethodologyValue PropositionVTDF

Scroll to Top