What is Business Benchmarking?
Business benchmarking is the process where organizations compare their performance against competitors, other companies, or industry standards. Benchmarking can be used to examine many different key performance indicators (KPIs), including products and services, sales and revenue totals, internal practices, and more.
As a practice, understanding business benchmarking is a crucial initiative for any successful organization in a competitive marketplace, as it helps a company:
Gauge its industry standing Identify areas of improvement Implement strategies to drive productivity and growth Establish clear and measurable goals for success
The main types of business benchmarking
Business benchmarking provides key business performance and financial health. There are many different types of benchmarking a company can pursue, but generally, there are four main kinds:
Competitive benchmarking directly compares a business against its direct competitors to help evaluate and determine industry standing.
Internal benchmarking focuses on comparing performance within the enterprise, so it can identify high- and low-performing teams and address performance gaps and areas for improvement.
Strategic benchmarking looks at industry-leading companies and the strategy (or strategies) that enable them to become successful, from HR policies to digital transformation.
Performance benchmarking pinpoints a specific set of KPIs, such as speed or customer satisfaction, and sets a standard for continuous improvement that’s measured against competitor and industry standards.
The benefits of business benchmarking
Benchmarking is a transformative, continuous process for any organization. When effective, business benchmarking can pave the way for measurable improvements in efficiency, quality, agility, revenues, and all-around performance—helping to provide a necessary competitive edge.
These benefits include:
Better internal and external knowledge
Businesses that benchmark successfully know more about themselves and the competition—and how to get ahead of them. Robust internal and external benchmarking shows not only where the competition is, but where a business’s shortcoming may lie, so they can use those detailed comparisons to close any performance gaps and meet or exceed competitive targets.
A forward-looking mentality
Benchmarking can help promote a culture of continuous improvement, so there is less risk of complacency—the business can continually identify areas to improve collectively and work together to achieve better performance metrics. This can provide an advantage in an ever-changing business landscape, where innovation and resilience are key.
A more customer-centric approach
Business benchmarking helps keep customer needs front and center. When organizations are focused on identifying what best practices businesses are doing to keep their customers happy and loyal, they are more likely to adopt the same tactics, or make sure that their own measures up.
Data and business benchmarking
Business benchmarking carries clear and profitable advantages, but the effectiveness of any benchmarking initiatives and goals for success depends on the accuracy, timeliness, quality, and completeness of the data used. This is especially true in a time where information drives decision-making, and companies prioritize data-first approaches to stay at the forefront.
The ability to gather, analyze, manage, and enrich competitor and industry data is at the center of any successful business benchmarking program, and businesses need to carefully use tools to understand, choose, conduct research and analysis, and monitor their data sources or data providers to ensure that they are working with the full scope of information they need.