Benchmarking is a business term that involves comparing your company’s operations and processes to others in your industry or market. Business products, processes, functions, and approaches can be benchmarked.
Key Takeaways:
Benchmarking helps companies improve their business practices by watching others.
Benchmarking can reduce costs, boost profits, and improve customer satisfaction.
Internal teams, industry competitors, and unrelated companies can teach businesses.
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Benchmarking Works
Benchmarking compares your operations to those of competitors to generate ideas for improving processes, approaches, and technologies to reduce costs, increase profits, and improve customer loyalty and satisfaction. Continuous improvement and Six Sigma require benchmarking.
Benchmarking measures time, quality, cost, effectiveness, and customer satisfaction.
A company looking to improve customer service may compare its processes and metrics to its most successful competitor. If it finds negative discrepancies or measures, it may improve its processes to improve performance. The firm will observe and measure the competitor’s operations and send employees as customers in some industries to gain direct experience.
Fast-food chains are an example and a business idea. It will study key competitors’ drive-thrus because it needs fast and accurate service to maximize efficiency, cut costs, and increase profits. Profits increase with every second gained without compromising customer quality. Competitors have constantly changed their drive-thru operations, including the number of windows, menus, speaker boards, and ordering methods, to improve performance. They’re always comparing.
Business Benchmarks
Xerox pioneered business benchmarking. The company learned from unrelated companies like L.L.Bean, Hershey Foods, and Mary Kay Cosmetics.1 Benchmarking earned Xerox the 1989 Malcolm Baldrige National Quality Award from the U.S. Department of Commerce.
Pal’s Sudden Service, a small hamburger, hot dog chain, and Baldrige Quality Award winner has opened an educational institute to train other organizations on drive-thru and restaurant operations. Many fast-food chains use Pals as a model.
Why Benchmark is Good?
Benchmarking suggests improving a company’s process. Some companies benchmark to improve specific areas and track competitors’ strategies. In a changing world, having an outside perspective on your industry and competitors is essential to good management.
Companies benchmark for several reasons:
Benchmarking is usually driven by the belief that a process or approach can be improved. Organizations will assess their performance at different times and under different conditions and identify gaps or areas for improvement.
Many companies compare themselves to competitors to find and fix service or product delivery issues or gain an edge. Competitive benchmarking data reveal competitors’ processes and thinking.
“Strategic benchmarking” is when a company compares its performance to the best-in-class or world-class. This process often involves looking outside the firm’s core industry to successful firms in a function or process.
Internal Benchmarking Limitations
While measuring and monitoring performance for all critical business processes is important, organizations should act on something other than an internal or insular view of their operations. Preoccupied firms lose track of competitors, broader innovations, and customer demands.
Benchmarking uses past performance, which may not predict the future.
Strategic benchmarking
Looking outside your industry for best-in-class processes or functions is a great way to challenge your firm to rethink longstanding assumptions and practices. Southwest Airlines famously studied NASCAR pit crews to improve gate turn-around time.6 Southwest reorganized its gate maintenance, cleaning, and customer loading operations after this benchmarking study, saving millions of dollars annually.
Benchmarking Data Is Often Sold.
Many industries and consumer-related organizations publish comparative data useful for benchmarking. Consumer Reports, for instance, tests and reports on new and used cars.
Setting Benchmarks
Benchmarking any business process, product, or function requires different methods. Benchmarking usually involves:
selecting and defining the benchmarking study’s subject, process, and measures
selecting the comparison set, collecting benchmarking and comparison set data
comparing and finding discrepancies
determining the differences’ origins
setting improvement goals
communicating goals, implementing the improvement initiative, measuring results, reporting results, improving, and repeating the process
Benchmarking can help organizations improve. However, internal-only measures create myopia. High-performing companies identify critical processes, functions, or offerings and compare their efficiency and effectiveness to leading competitors or innovators. Benchmarking initiatives should be defined scientifically to avoid misleading results.
Questions (FAQs)
Why is benchmarking good for my business?
Benchmarking helps companies improve their processes and operations by comparing them to those of competitors. Benchmarking generates ideas for improving processes, approaches, and technologies to cut costs, boost profits, and improve customer satisfaction.
What is healthcare benchmarking?
Hospitals can improve patient care and reduce costs by benchmarking.
