Benchmarking - Explained
What is Business Benchmarking?
Written by J. Mance Gordon
Updated at April 21st, 2024
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What is Benchmarking?
Benchmarking is the comparison of one's business and performance measurement to the best industry and other companies' best practices. The information gained from this method can then be utilized in the identification of gaps in the workings of an organization to achieve a competitive advantage. The practitioners of benchmarking are required to:
- Understand the objectives of benchmarking and its use.
- Differentiate between competitor research and benchmarking.
- Ensure that benchmarking is aligned with the management objectives of the company.
How to Benchmark Business Performance?
There are numerous forms of benchmarking, but they can all be classified into three categories which are:
- Internal benchmarking. This is used when a company needs to share the best practices it has already established and proved. A big company may present a wide range of performance. Internal benchmarking is also used by a company when there is a lack of comparable industries.
- Competitive benchmarking. This benchmarking is usually used when a company is attempting to evaluate its position in the industry it belongs to. A company may also use it in identifying the performance targets of the industry's leadership.
- Strategic benchmarking. This is used to identify and analyze world-class performance when a company decides to go out of its industry. The company then sets goals which are relative to the benchmarks set by the world-class organizations.
The Benchmarking process is comprehensive and involves more than touring other companies' facilities or just making inquiries. The benchmarking process should not be limited to the scope of one industry nor should it be limited to a one-time event.
Benchmarking Versus Competitor Research
Both competitor research and benchmarking serve the same purpose although there is a difference between the two. Determining which of the two adds most value depends on the availability of time and resources.
Differences between Benchmarking and Competitor Research
| Benchmarking | Competitor Research |
| Focuses on the best practices | Focuses on the performance measures |
| Continuously strives for improvement | Looks for a quick fix |
| It involves partnering and sharing of information | Sometimes it is considered as corporate spying |
| It is essential for a company to maintain a competitive edge | It is a tool that is considered nice to have |
| After examining the best, it adapts based on the needs of customers | It tries to mirror the processes of another company |
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