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What Is Benchmarking? A Guide for Employers

Benchmarking is the process of comparing a certain aspect of your business to corresponding aspects of competitors considered to be among the best in their field. It can involve products, processes, employee salaries, business practices or any other components of a company’s operations, and it can measure quality, effectiveness, cost and customer satisfaction as well as other key performance indicators (KPIs).

The main purpose of benchmarking is to get an accurate view of how your organization compares to leading competitors and what can be done to reduce this gap. Below, you’ll find out how to use benchmarking to grow and improve your business, including a few benchmarking examples.

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What is benchmarking in business?

Benchmarking in business is the process of comparing specific characteristics of your company’s performance to similar competing companies (usually industry leaders). By analyzing important aspects of their management, production, sales and marketing techniques, as well as other relevant factors, you can get insight into what makes these companies successful and what you can change within your own organization to improve business outcomes.

For example, let’s say your company sold 100 shirts in two days. Is this good or bad? One way to decide is to compare your shirt sales against your competitors. If another company sold 200 shirts in two days, for example, there may be room for improvement and you can use this data as a benchmark to improve your own processes and procedures. This type of benchmarking is also known as external benchmarking or peer benchmarking.

However, benchmarking in business can also be used internally, meaning you can compare performance and processes in one department or team against other departments and teams instead of just looking externally. Employees in different departments can often learn a lot from one another.

Benefits of benchmarking

When applied correctly, benchmarking in business can be a powerful tool for measuring and improving your company’s performance, customer and employee satisfaction rates, and other business practices. It can potentially reveal valuable information that you can use to improve your business’s current practices and and help you plan for the future.

Beyond making your business more profitable and successful, benchmarking can also bring the following benefits to your company:

  • Improves business processes: Whether it’s making processes faster, improving product quality, reducing costs, boosting profits, setting the right employee salaries or improving employee satisfaction, benchmarking can help you improve your business in key areas that are critical to success.
  • Helps you gain a competitive advantage: By examining what other businesses in your field are doing right (and wrong) you can gain a strategic advantage and grow your company faster.
  • Makes goal setting and planning easier: Creating goals for your business can be tough, but by figuring out what the competition’s objectives are, you can set your own SMART goals that will keep you competitive.
  • Creates a culture of continuous improvement: Continuously improving is often essential to the long-term success of a company. By implementing benchmarking strategies, you empower your employees to adopt a mindset of growth and innovation.

Benchmarking examples

Benchmarking can be divided into three main areas: process, performance metrics and strategic. Here’s a breakdown of each type of benchmarking, with a few benchmark examples:

Process benchmarking

This compares various operational processes used by your company against the competition to make your own processes more efficient. For example, a retail business could look at how a top-performing retail business handles purchasing activities or inventory to improve their own processes.

Performance metrics benchmarking

This determines some of the competition’s numerical standards and compares them to your company’s figures to help you identify ways to gain a competitive advantage. An example of this type of benchmarking would be comparing your customer satisfaction rates, revenue growth statistics or net promoter score (NPS) against your competitors.

Strategic benchmarking

More of a long-term benchmarking strategy, strategic benchmarking aims to identify the actions and strategies that enabled the competition to grow their business and compares them to your own. For example, you could look at how a top company in your industry approaches long-term planning or compare revenue per employee at top companies to help you with headcount planning.

When to implement a benchmarking strategy

While the overall purpose of benchmarking is to measure your organization against its competitors, determining the right time and place for completing this process is also a factor. Some of the most widely chosen times for benchmarking are:

  • When you want to measure your company’s efficiency: This is typically the most important goal of benchmarking, regardless of what a company is selling. If you want to measure your company’s efficiency and effectiveness against the leading names in your industry, benchmarking is a good place to start. It can help you determine what your competitors do differently and what you can change to improve the efficiency of your operations.
  • When you want to improve your future performance: Another major reason for benchmarking is to determine ways in which you can improve your company’s future performance by using insights on how other similar businesses complete certain tasks and objectives.
  • When you’re looking for ways to expand your business: Benchmarking can be an effective tool for when you want to expand your business, but aren’t sure which direction is best. By analyzing bigger competitors and seeing what they’re doing to expand, you can discover new ways to grow your operations.
  • When you want to provide your staff with extra motivation: When benchmarking certain departments of your company against their direct counterparts, the results can be used as motivational tools to push your employees to be more productive. If the benchmark shows that a certain department isn’t performing as well as the competition, it may drive them to improve.

6 steps in the benchmarking process

Here are six steps that can help you establish a benchmark for your business:

1. Determine benchmark metrics

The most relevant and essential aspects that need to be benchmarked vary from business to business. In general, key metrics often include revenue, cost of goods or services sold and the number of orders received. You might also choose a product, service or process to benchmark.

One way to get started is to conduct a SWOT analysis of your business, which measures your strengths, weaknesses, opportunities and threats. This can help you identify the business metrics you want to improve.

2. Identify your competitors

Knowing what organizations you need to compare yours against is a crucial step in the benchmarking process. Depending on what metrics you want to measure, you’ll need to either identify the leading competitors in your field, businesses that are not direct competitors or current teams and departments at your company that you want to compare against.

3. Research the competition

After identifying competitors, the next step is to conduct research and collect relevant data. Depending on your chosen metrics, you can research how your competitors set themselves apart from the rest of the field, what sales techniques they employ, what technology they use, how they set up their website and other similar aspects of their businesses.

If a company is public, you can often find useful information in their annual reports. For private companies, it may be harder to gather data as some information may be confidential. However, you can try conducting interviews, reaching out to contacts or having casual conversations with customers. You can also look at their website, reports, press releases or other marketing materials to gather information.

4. Centralize the data and compare it to your own

After gathering the necessary data, centralize it and compare the results to the KPIs at your own company. Ask questions like:

  • How do we stack up?
  • Why are our numbers different (or the same)?
  • Where can we improve?

5. Develop a plan based on your findings

Comparing your business practices and those of your competitors is likely to reveal different ways you can improve your business. After determining what competitors are doing differently and how that gives them a competitive edge, develop a list of objectives as well as a plan for achieving them.

6. Monitor your results

After implementing your changes, continuously track progress toward your new goals. Keep in mind that it’s okay to tweak objectives as you go to fit the needs of your business.

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Benchmarking FAQs

Why is benchmarking important for performance measurement?

Any business competing in the free market is in direct competition with other organizations. Companies looking for short- and long-term success need to constantly improve their performance in all aspects if they want to satisfy their customers. Therefore, a company must know how it stacks up against competitors through benchmarking.

What is benchmarking data?

To compare various aspects of your company against the competition, you must first gather relevant data. Some of the information you may need is public, while other data is usually kept confidential by the competition. However, proper research is likely to reveal enough relevant information regarding the competition’s business practices and results.

What is the difference between benchmarking and KPIs?

Benchmarking involves comparing your performance against the performance of competitors. Key performance indicators (KPIs), on the other hand, are quantifiable measurements that help you track performance against specific business goals. You can use benchmarking to help you set your own KPIs.

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