What Is Benchmarking? Definition and Guide

what is benchmarking

Benchmarking is a process of measuring the performance of a company’s products, services, or processes against those of another business considered to be the best in the industry, aka “best in class.”

The point of benchmarking is to identify internal opportunities for improvement. By studying companies with superior performance, breaking down what makes such superior performance possible, and comparing those processes to how your business operates, you can implement changes that will yield significant improvements.

That might mean tweaking a product’s features to more closely match a competitor’s offering, or changing the scope of services you offer, or installing a new customer relationship management (CRM) system to enable more personalized communications with customers.

There are two basic kinds of improvement opportunities: continuous and dramatic. Continuous improvement is incremental, involving only small adjustments to reap sizeable advances. Dramatic improvement can only come about through reengineering the whole internal work process.

Step-by-step benchmarking

Benchmarking is a simple, but detailed, five-step process:

  1. Choose a product, service, or internal department to benchmark
  2. Determine which best-in-class companies you should benchmark against – which organizations you’ll compare your business to
  3. Gather information on their internal performance, or metrics
  4. Compare the data from both organizations to identify gaps in your company’s performance
  5. Adopt the processes and policies in place within the best-in-class performers

Benchmarking will point out what changes will make the most difference, but it’s up to you to actually put them in place.

First steps

In order to benchmark anything, you need to have quantitative data available to study. That means breaking down internal processes to calculate performance metrics. Quantify everything, because only quantifiable information can be accurately compared.

Key benefits

In addition to helping companies become more efficient and profitable, benchmarking has other benefits, too, such as:

  • Improving employee understanding of cost structures and internal processes
  • Encouraging team-building and cooperation in the interests of becoming more competitive
  • Enhancing familiarity with key performance metrics and opportunities for improvement company-wide

In essence, benchmarking helps employees understand how one small piece of a company’s processes or products can be the key to major success, just as one employee’s contributions can lead to a big win.

How do you set KPI benchmarks? FAQ

How do you set up a benchmark?

  • Identify the goal or objectives of the benchmark: Before setting up a benchmark, it is important to define the objectives of the benchmark. This will help to ensure that the benchmark is focused on providing useful data and insights.
  • Define the scope of the benchmark: Once the goals and objectives of the benchmark are defined, it is important to define the scope of the benchmark. This includes identifying the areas that will be included in the benchmark, such as databases, applications, system performance, and availability.
  • Select the tools and technologies to be used: Once the scope of the benchmark is defined, the next step is to select the tools and technologies that will be used. This includes selecting the software, hardware, and other components, such as databases and platforms, that will be used in the benchmark.
  • Set up the test environment: After the tools and technologies are selected, the next step is to set up the test environment. This includes setting up the test environment, such as the hardware, software, and network infrastructure, that will be used for the benchmark.
  • Run the benchmark: Once the test environment is set up, the benchmark can be run. This includes running the tests and collecting the data, such as the performance metrics, that will be used to analyze and compare the results. 6. Analyze the results: Once the benchmark is completed, the data can be analyzed to determine the results. This includes comparing the results to the objectives that were set for the benchmark and determining if the objectives were met.

Are KPIs the same as benchmarks?

No, KPIs (Key Performance Indicators) and benchmarks are not the same. KPIs measure the performance of a particular process or activity against goals or objectives, while benchmarks are a point of reference used to compare performance levels.

What are the key indicators of benchmark?

  • Efficiency: This measure looks at how much output is produced from a given input of resources.
  • Effectiveness: This measure looks at the success of a given process, program, or system in achieving its desired objectives.
  • Quality: This measure looks at the level of quality in a given product or service.
  • Cost: This measure looks at the total costs associated with a given process, program, or system.
  • Response Time: This measure looks at the amount of time it takes for a response to a given action.
  • Availability: This measure looks at the amount of time a given process, program, or system is available for use.
  • Utilization: This measure looks at how much a given process, program, or system is being used.
  • Performance: This measure looks at how well a given process, program, or system is performing.