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What is meant by benchmarking?

Benchmarking refers to the regular and systematic measurement of a business's or an organization's products, services, or processes and comparing them with the products, services, or processes of those organizations and businesses which are recognized as the best practitioners in the world or in a specific region, domain, or niche.

When companies compare the information that they collected about their own processes, products, and services against the best practices and the standards that the best practitioners follow, it offers them insights into the actions they should take, the improvements that they should make, and the activities that they need to get started on. It also helps them identify gaps within their own organizational processes.

Benchmarking can even help your company identify the metrics by which it can measure its success in terms of adding value into its products and processes.

Benchmarking is essentially a management tool that is used for the purpose of process improvement and takes an organization's performance measurement into consideration. It can also be used to change company culture based on the idea that the company can stand among the best in the world.

Source: Management Techniques

What is the purpose and importance of benchmarking?

The whole purpose of benchmarking is to set a minimum standard and then identify new ways and initiatives that would help your company achieve those standards pm a consistent basis.

What are the steps of benchmarking?

Here are the steps involved in the benchmarking process:


Planning Phase

This is the most important phase, any errors here would affect the entire activity. You need to figure out what to benchmark and whom to benchmark against.


Analysis phase

This involves analyzing the data collected, studying the superior processes, figuring out why the other processes are performing better, and understanding how you can adapt them to your organization. You'd also have to set goals for the improved processes.


Integration phase

In this phase, you need to present your findings from the previous steps to management and get them to accept them. You might even need to revise your functional goals.


Action phase

This is where you craft out an action plan, implement certain actions, monitor your progress, and even go back to revise your activities and initiatives if they did not play out as you expected them to.

How many types of benchmarks are there?

Types of Benchmarks

There are 9 common types of benchmarking that your company can follow. These include:


Product benchmarking

In product benchmarking, the organization buys its competitors' products and breaks them down to understand their features and performance. Product benchmarking is also known as reverse engineering. After carrying out product benchmarking, the company might choose to completely revamp their products or could simply decide to incorporate and improve upon certain features to make sure that their customers get more value from it. If companies manage to benchmark their products in the right way, they would be able to win themselves a competitive advantage in the long run.


Process benchmarking

The ultimate goal in process benchmarking is to emulate the processes that the best organizations follow so that these organizations can improve their own results. When you engage in process benchmarking, you need to make sure that all the factors that affect the business and the conditions in which the processes are carried out should be similar to those of the company that the processes are being benchmarked against. If they don't match, the changes that you implement might not work and make any difference, they might even have a negative impact on your processes and results.

Process benchmarking is very widely followed in the service industry. While following these best practices can improve the quality of the services offered by organizations, these new processes might just be too hard to follow and might not be sustainable.


Competitive benchmarking

This form of benchmarking is one of the best ways for companies to benchmark their products, services, and processes. It differs from product benchmarking in the sense that product benchmarking only focuses on an individual product, while competitive benchmarking would include the entire product line and all the services offered by a competitor (especially a direct competitor) as well as all the processes that the competitor follows.

When you engage in competitive benchmarking, you would also undertake a study of your competitors' internal departments like their finance, marketing, HR, product research and development departments, etc. Such data collection would give you a better idea of how your competitors and industry peers function and would help you understand what changes you need to make.


Functional benchmarking

This benchmarking activity is about comparing your results and processes with organizations outside your industry with which your company does not compete. The goal behind this approach to benchmarking is to evaluate your results against the best practices across a range of industries.

An example of functional benchmarking would be an airline comparing its customer experience to that of a hotel chain. The point of functional benchmarking is to compare a particular function against that of the organization across all industries that is the benchmark for that function.


Performance benchmarking

This is about analyzing metrics for the purpose of setting performance benchmarks. This is one of the first steps that a company would follow to identify performance gaps. It helps you get access to data that would help you make well-informed decisions, leading to improvements in your performance.


Generic benchmarking

This involves determining metrics like cost per employee, profit per employee, revenue per employee, or return on investment that offer you a common basis of comparison regardless of the industry for which the benchmark is set or created. Almost every industry makes use of this benchmarking technique and when these metrics fall below a certain level, management may need to take drastic measures to correct them.


Internal benchmarking

This technique is very widely used to analyze internal processes and identify gaps in these processes. Internal benchmarking may include comparing between two employees in the same team or even comparing different teams or departments. This technique may involve benchmarking across different product lines as well.

Internal benchmarking may be easier for larger companies, but harder for smaller companies and startups.


Strategic benchmarking

Strategic benchmarking is used to enhance the vision of a company and develop core competencies to give the company a competitive advantage in the long run.


Global benchmarking

This is done to compare the organization with global companies in the same or even different industries. It allows the company to improve its offerings and processes according to global standards and offer more value to its customers.

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