Benchmarking is defined as the process of measuring products, services, and processes against those of organizations known to be leaders in one or more aspects of their operations. Benchmarking provides necessary insights to help you understand how your organization compares with similar organizations, even if they are in a different business or have a different group of customers. This information can then be used to identify gaps in an organization’s processes in order to achieve a competitive advantage.
Benchmarking is the competitive edge that allows organizations to adapt, grow, and thrive through change. Benchmarking is the process of measuring key business metrics and practices and comparing them—within business areas or against a competitor, industry peers, or other companies around the world—to understand how and where the organization needs to change in order to improve performance. There are different types of benchmarking: practice, internal, external.
- Practice benchmarking: involves gathering and comparing qualitative information about how an activity is conducted through people, processes, and technology.
- Internal benchmarking: compares metrics (performance benchmarking) and/or practices (practice benchmarking) from different units, product lines, departments, programs, geographies, etc., within the organization.
- External benchmarking: compares metrics and/or practices of one organization to one or many others. What you need: For custom benchmarking, you need one or more organizations to agree to participate. You may also need a third party to facilitate data collection. This approach can be highly valuable but often requires significant time and effort. That’s why organizations engage with groups like APQC, which offers more than 3,300 measures you can use to compare performance to organizations worldwide and in nearly every industry.
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 optimize 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).
To clarify the differences between KPI and Benchmark:
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 practices. 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 the 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.
So, when you use KPIs, you’re comparing progress in relation to a specific goal. And when you use benchmarks, you’re comparing against others. You can use benchmarking to put your own KPIs into context and to set targets for your KPIs.
Both – KPIs and benchmarks – are used to identify opportunities for improving performance, which may be where the confusion arises.