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 then comparing those processes to how your business operates, you can implement changes that will yield significant improvements.
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.
A benchmark must be repeatable. For instance, with every iteration of load a test, if the response times varies too much, system performance be benchmarked. Response time needs to be stable amongst different load conditions.
A benchmark must be quantifiable. For example, the user experience cannot be quantified in numbers, but time a user spends on a webpage due to good UI can be quantified.
What’s the difference between benchmarks and KPIs?
People often ask me this, and there seems to be a general assumption that benchmarks and KPIs are the same thing. But they are different.
- Benchmarks are reference points that you use to compare your performance against the performance of others. These benchmarks can be comparing processes, products or operations, and the comparisons can be against other parts of the business, external companies (such as competitors) or industry best practises. Benchmarking is commonly used to compare customer satisfaction, costs and quality.
- KPIs, on the other hand, are decision-making and monitoring tools, used to track performance in relation to strategic goals. In other words, KPIs chart whether an individual, project, team, business unit or entire company is on track to achieve its objectives. KPIs are a bit like an early warning system, flagging up where things might be heading off-course and where action might be needed.
Three ways to use benchmarking
Benchmarking, whether internal or external, is used in three key ways. They are:
- Process benchmarking. This is all about better understanding your processes, comparing performance against internal and external benchmarks, and finding ways to optimise and improve your processes. The idea is that, by understanding how top performers complete a process, you can find ways to make your own processes more efficient, faster and more effective.
- Strategic benchmarking. This compares strategies, business approaches and business models in order to strengthen your own strategic planning and determine your strategic priorities. The idea is to understand what strategies underpin successful companies (or teams or business units) and then compare these strategies with your own to identify ways you can be more competitive.
- Performance benchmarking. This involves collecting information on how well you’re doing in terms of outcomes (which could mean anything from revenue growth to customer satisfaction) and comparing these outcomes internally or externally. This can also refer to functional performance benchmarking, such as benchmarking the performance of the HR team (using metrics like employee net promoter score or staff engagement surveys) or the marketing team (measuring net promoter score or brand awareness, for instance).