Benchmarking is an evaluating term. It is a process of comparing something with a defined or definite standard. It can be defined as the process of comparing the performance of the companies to that of other similar companies in order to see if there is a performance gap that can be bridged.
Benchmarking also includes improving performance by continuously recognizing, comprehending, and adapting outstanding practices and processes available inside and outside the organization. The modern practice of benchmarking was pioneered by Xerox Corporation in 1979s, as a response to international competition in the photocopier market. Benchmarking originated from reverse engineering of competitors’ products.
This process talks about the improvement in a given process or system by adapting the “best practices”. It is a tool for Total Quality Management. Understanding other businesses can show you what it requires to boost your organization’s productivity and establish a stronger position in your sector. Think of it as competitor analysis, but this process is a bit different.
Even if they are in a different industry or serve a different clientele, it can give you the crucial insights you need to know how your company stacks up against others in a similar situation. Organizations can find areas, systems, or processes that can be improved through incremental (continuous) or significant (business process re-engineering) changes by using benchmarking.
Features of Benchmarking
Basically, this concept has a different approach in different disciplines, environments and sectors. In any situation, there are three main features of benchmarking:
- It is a continuous method of measuring and comparing a firm’s business processes against those of another firm.
- It focuses on discovering performance gaps between one’s own processes and that of the pioneering firms.
- Benchmarking incorporates a leading firm’s process into one’s own strategy to fill the gaps and improve performance.
|Company||Famous Benchmarking Standard|
|Honda||Rapid Product Development|
Benefits of Benchmarking in Business Operations
Tracking progress and achieving objectives more quickly can be accomplished by benchmarking your company’s operations using clear measurements. The advantages of this are as follows:
- It is essential to highlight all the areas that require attention, improvement and direction.
- Benchmarking also highlights the weaknesses, gaps and strengths of the organization.
- It streamline business operations and eventually help keep more of the resources by eliminating waste in their procedures, whether it be financial costs or time and effort wasted.
- It improves the performance of the business through efficiency. Efficiency is achieved through performance improvement and waste elimination.
- Benchmarking inspires creativity and innovation by enabling a strong culture of continuous improvement.
- This can help in improving market position and effectively fulfilling the objectives by adopting the best practices that fits the needs of the firm and situation.
- The most important benefit of benchmarking is that it sets the performance expectations which motivates the organization to perform.
- Benchmarking also assists in comparing performance between product lines and business units inside the same company. This is also known as internal benchmarking.
Types of Benchmarking
Benchmarks can be broadly divided into two groups:
- Internal Benchmarking
- External Benchmarking
Internal benchmarking contrasts a company’s operations, procedures, and practices with those of other divisions; such as different teams, business units, groups or even individuals. Benchmarks, for instance, could be employed to compare the operations of one retail location with those of another location within the same chain.
Example: This includes comparing the performance of one unit against another unit. The unit with better performance shares their process and procedure to benefit another unit and whole business.
External benchmarking, also known as competitive benchmarking, evaluates a company’s performance in relation to that of other businesses. However, this is not always the case; for instance, benchmarking can be used to compare performance, procedures, and practices across different industries. These external organizations are frequently rivals or competitors.
Example: There is regular benchmarking in hotel and restaurant business where external reviewers rank the products and services based on some pre-set benchmarks.
Major Application of Benchmarking
There are three main applications for benchmarking, regardless of whether internal or external. They are listed below.
Process benchmarking is all about understanding your processes, assessing performance across internal and external benchmarks, and identifying ways to optimize and improve your processes. The premise is that by learning how top performers execute a process, you can uncover ways to improve the effectiveness, efficiency, and speed of your own operations.
Strategic benchmarking examines strategies, business techniques, and business models to help you improve your strategic planning and identify your strategic priorities. Understanding the tactics that successful businesses (or teams, or business divisions) rely on will help you compare them to your own plans and find areas where you can improve your competitiveness.
Performance benchmarking is gathering data on your performance in terms of results and comparing these results either internally or externally. This can also refer to comparing the performance of several departments, such as the HR department (using indicators like the employee rating score or staff engagement surveys) or the marketing department (measuring customer response or brand awareness, for instance).
Each of these various approaches to benchmarking has one primary objective in mind: to discover performance gaps and unearth chances for improvement, whether that means streamlining operations, cutting expenses, improving profits, satisfying customers, or whatever else. In the end, companies benchmark because they need (or want) to improve.
Therefore, benchmarking can be a very helpful tool whether you just want to evaluate your organization ’s performance, catch up to a rival, understand and follow your peers better, or become a market leader in your field.