Businesses are always striving for high performance, from creating more efficient processes to selling more of their products and services. But how does a company determine whether it is successful?
Through the benchmarking process, any business can compare itself against a standard and develop a consistent way of measuring performance. Below we’ll cover what benchmarking is, how the benchmarking process can help your business, and how to create benchmarks for a successful improvement plan.
What is benchmarking?
In business, benchmarking is a process used to measure the quality and performance of your company’s products, services, and processes. These measurements don’t have much value on their own—that data needs to be compared against some sort of standard. A benchmark.
For example, suppose it takes 30 minutes to produce your product. Is the 30-minute measurement good or bad? The only way for you to know is to compare against other data, such as the time it takes another organization to produce a similar product. If another organization can produce the same type of product in less than 30 minutes, you can use their time as a benchmark for measuring your own processes and procedures.
The objective of benchmarking is to use the data gathered in your benchmarking process to identify areas where improvements can be made by:
- Determining how and where other companies are achieving higher performance levels than your company has been able to achieve.
- Comparing the competition’s processes and strategies against your own.
- Using the information you gather from your analyses and comparisons to implement changes that will improve your company’s performance, products, and services.
Common areas that you may want to target for benchmarking analysis include cost per unit, time to produce each unit, quality of each unit, and customer satisfaction. The performance metrics you get from these targets can be compared against others to help you determine best practices for improving your operations.
Benchmarks vs. KPIs
While both benchmarks and KPIs (key performance indicators) help you measure performance, they are distinct. Where benchmarks act as a reference point to compare performance levels, KPIs measure performance against stated objectives.
Why is benchmarking important?
The goal of your business should be to grow, improve processes, increase quality, decrease costs, and earn more money. Benchmarking is one of many tools you can use as part of any continuous improvement model used within your organization.
Consistent benchmarking can help you:
- Improve processes and procedures.
- Gauge the effectiveness of past performance.
- Give you a better idea of how the competition operates, which will help you to identify best practices to increase performance.
- Increase efficiency and lower costs, making your business more profitable.
- Improve quality and customer satisfaction.
Types of benchmarking
There are many different types of benchmarking that fall into three primary categories: internal, competitive, and strategic.
Internal benchmarking
If other teams or organizations within your company have established best practices in processes similar to yours, internal benchmarking involves analyzing what they are doing so you can find areas where you can improve and be more efficient.
For example, you could compare the performance of one warehousing and shipping site against another warehousing and shipping site. The site with superior performance simply needs to share their processes and procedures so that the entire company benefits from increased performance.
Competitive benchmarking
This type of benchmarking is a comparison of products, services, processes, and methods of your direct competitors. This type gives you insight into your position within your industry and what you may need to do to increase productivity.
For example, you can compare the customer satisfaction of a competitor’s product to yours. If your competitor is getting better customer reviews, you need to analyze what the difference is and figure out how to improve the quality of your product.
Strategic benchmarking
Use this type of benchmarking when you need to look beyond your own industry to identify world-class performance and best practices so you can look for ways to adapt their methods to your procedures and processes.
For example, Kellog began using multi-industry benchmarks in 2019 to reduce cost, boost revenue, and see how they compare with peers. The benchmarks date back to 2004 when a group of corporations, government organizations and consultants partnered with the American Productivity & Quality Center to develop thousands of standards for business processes—from purchasing inventory to managing supply chains. Today, Kellog’s global business services unit generates cost savings that represent about 6% to 7% of its annual run rate thanks to their benchmarking process.
8 steps in the benchmarking process
1. Select a subject to benchmark
What to benchmark is just as important as how to benchmark it. Executives and other senior management should be involved in deciding which processes are critical to the company’s success. Prioritize the processes based on which metrics are most important to all stakeholders, with an emphasis on processes or functions that are easily quantifiable. After prioritizing, select and define the measures you want to collect.
2. Decide which organizations or companies you want to benchmark
Determine if you are going to benchmark processes within your own company, a competitor, or a company outside of your industry.
It may be hard to collect all the data you want if you benchmark a direct competitor. So you should select several different organizations to study in order to get the data you need. Gather information from several sources to get the most detailed information about the organization you select to study.
3. Document your current processes
Map out your current processes so you can identify areas that need improvement and more easily compare against the chosen organization.
