What Is Benchmarking in Business?

What is benchmarking?

Benchmarking in business means measuring your company’s quality, performance and growth by analyzing the processes and procedures of others. If you believe there’s something that can be improved within your organization, you can see how your business stacks up against the standard and plan out a path for betterment, whether that means cutting costs, boosting efficiency and productivity, or growing revenue.

“It’s highly important for leaders … to know what the industry is offering, what’s changing and the new systems and technologies they need to adopt to stay on top of the game,” said Sahin Boydas, founder and CEO of RemoteTeam.com. “Leaders who operate without monitoring benchmarks end up being left behind — there’s always a price to pay for ignoring what’s happening in your business environment.”

The ultimate goal of benchmarking is continuous improvement, something all businesses should aim for. Comparing your business to others can help you generate ideas that you can adopt to get ahead.

Types of business benchmarking

A business can use benchmarking to measure numerous areas of their operations against internal and external standards. The three primary types of benchmarking are explained below.

Internal benchmarking

Internal benchmarking is all about improving your business by comparing it to historical data. Whether you’re comparing organizational departments or different branch locations, you can use internal benchmarking to uncover the best, most efficient practices and share them across the company.

According to Boydas, internal benchmarking can help eliminate waste of both time and money in a business. Internal benchmarks that businesses should focus on may include things like employee performance and effectiveness, as well as how employees make use of the tools provided by the business.

“Monitoring internal benchmarks is one of the most effective ways to build resilient teams,” said Boydas. “Benchmarking data helps businesses identify the most effective ways to make use of employee talent, how to organize tasks to make it easy for both employees and management, and what part of the organizational processes should be discarded.”

Competitive benchmarking

As the name suggests, competitive benchmarking is about setting certain goals based on what your competitors are doing. If you study the practices and standards of similar businesses to match — or ideally exceed — the industry status quo, your business can gain a competitive edge.

Competitor benchmarks can impact parts of your business like employee salaries, services provided to customers and even employee morale, said Maida Zheng, senior advisor at The Logos Consulting Group.

“If you want to stay ahead of the competition and create the most desirable work environment for your employees, understanding what your competitors are doing is not only common sense, but imperative,” Zheng said. “Employees will know they should stay with a company if they have an opportunity for growth — monetary and skill — and they know their employer is keeping up or staying ahead of competition.”

Strategic benchmarking

One step beyond competitive benchmarking is strategic benchmarking, in which a business seeks to emulate specific performance standards of world-class organizations. This may involve cross-industry inspiration, like when Southwest Airlines modeled its maintenance, cleaning and boarding processes after the time-bound, defined tasks of a well-oiled NASCAR pit crew.

Benefits of benchmarking in business

Benchmarking is not a one-and-done exercise; to truly benefit from this practice, a company must engage in consistent, ongoing measurement of their key activities to ensure they’re moving toward their goals.

Businesses that make benchmarking a regular practice can accomplish the following:

• Keep improving internal operations. Benchmarking your processes and procedures, especially against internal standards, can help your team become more efficient and productive year over year.
• Understand what’s working and what isn’t. A deep, thorough analysis of your business’s past performance will allow you to identify trends and patterns that you may not have noticed as they were happening. Looking at this data will give you a clear picture of what behaviors and practices improve overall business results and which ones don’t.
• Adopt or improve upon competitors’ practices. When you study your competition, you begin to understand what they’re doing that makes them successful, as well as areas where they falter. If you adapt competitors’ best practices to your organization’s needs and deviate from the things customers or clients don’t like, you can optimize your position in the market and better appeal to your target audience.
• Reduce costs by increasing efficiency. Benchmarking is most often used to improve performance through efficiency. Cutting out waste in your processes, be it monetary costs or time and effort spent, will help you streamline your operations and ultimately help you retain more of your revenue.
• Focus on practices and offerings that promote customer satisfaction and loyalty. Gathering feedback and data from customers (either your own or your competitors) will give you greater insight into what they like and don’t like, and what you can do to keep earning their business in the future.

What is a typical benchmarking process?

In its simplest form, benchmarking involves determining where you are, where you want to be and how you plan to get there. Here is a brief overview of the stages of the benchmarking process most businesses follow.

1. Plan out what you want to benchmark.

Benchmarking begins with identifying what you want to measure. Whether that’s salary, sales, team development or another area of growth, you should define the activities you’re benchmarking and the key metrics you’ll use to track progress.

2. Conduct research to collect relevant data.

Once you know what you want to measure, begin speaking with employees, competitors, customers and other business stakeholders who may be involved or impacted. Initiate one-on-one or group conversations or collect survey responses from these parties to gain valuable feedback that will inform your benchmarking process.

You should also conduct research on where other companies or departments currently stand. For instance, if you’re benchmarking salaries, you’ll want to look at sites like Glassdoor and Payscale to see what other companies pay for the same roles and titles in your organization. Understanding the industry or departmental average can help you better set your own benchmark for measuring your company’s performance.

3. Analyze the data to assess where you are and where you want to be.

Use your research and gathered data to figure out where your current performance sits compared to other companies or departments and determine an appropriate and realistic goal for improvement. Lay out your data in an easy-to-digest format (e.g. graphs or charts) to give yourself a holistic picture of any gaps in your performance and how far you’ll need to go to meet your desired benchmark.

4. Develop an action plan.

This is the phase of the benchmarking process in which you’ll develop actionable steps you and your stakeholders can take to reach your goals. Defining success and an action plan upfront gives you a clear path to hitting your benchmarks.

A good place to begin is to leverage common goal-setting approaches like SMART (specific, measurable, actionable, relevant and time-bound) and HEART (habit-forming, emotional, actionable, realistic and time-bound). You can use either of these approaches to break down your big-picture benchmarking goals (“increase sales”) into smaller steps with concrete deadlines (“reach out to five new prospects per week over the next quarter”).

5. Monitor your progress.

At regular intervals, check the progress your team is making against the defined goals in your action plan. This may be weekly, monthly, quarterly or annually, but it’s important to track your metrics consistently. If you’re meeting your benchmarks, it means your plan has been successful and you should continue. If you’re not, you may need to revisit your plan and course correct.

While these steps can be adapted to many different business operations, your company may want to develop its own unique benchmarking process based on the specific goals you want to reach. Depending on your current state and where you want to go, some steps may be more involved or require external partners to help.

Example of benchmarking

Not sure where to begin with your benchmarking process? Here is a hypothetical example of how it can work for your organization.

Say a company uses the same ticketing system for its customer service department and its IT department. When the chief operating officer (COO) looks at the dashboard statistics, she notices that the IT team closes 80 percent of its tickets within three days, which is significantly faster than the customer service team.

She initiates a benchmarking process for closed tickets and studies what the IT team is doing to achieve its results. The COO learns that whenever a ticket comes in for IT, the department head assigns the ticket to the team member with the most expertise in that area, while customer service tickets are assigned to whichever employee is currently available.

The customer service team adopts the IT team’s practice of ticket assignment by expertise and sets a goal of cutting their average ticket close time in half by the end of the following month. After a few weeks of following this practice, the customer service reps works through more issues each week and successfully hits the IT team’s close time benchmark.

How to make benchmarking work for your business

If your business is looking to begin the benchmarking process, the most important thing you can do is get your employees involved in the process. Change is a difficult but necessary part of reaching your benchmarking goals, and it’s important that everyone on your team is on board with what they need to do, when they need to do it and how.

“Don’t get stuck in a rut thinking that only the senior managers can offer innovative ideas,” said Zheng. “Create a mechanism where any employee can make the company better and accordingly reward them for bringing ideas to life.”

Giving everyone a seat at the table and letting their voices be heard will help you encourage and foster creativity, Zheng said. Great ideas can come from anywhere in the organization, and you may find that a lower-level employee comes up with the best plan for improving a particular process.

Jacob Bierer-Nielsen contributed to this article. Source interviews were conducted for a previous version of this article.