From ArticleWorld

Benchmarking is a process used by companies, usually within their own business sector, to determine the effectiveness of their practices as compared to other organizations. The data accumulated throughout the benchmarking process provides valuable guidance to the company as it plans appropriate initiatives to increase effectiveness, efficiency and profitability.


Benefits vs. cost

Benchmarking is a money-consuming process, but worth the costs. Most organizations conclude that the benefits of benchmarking outweigh the costs incurred. The most commonly encountered expenses include:

  • Compilation of accumulated data – Most organizations set up a database to keep the results of their process easily accessible for use in planning and executing new initiatives. They can then track the progress of companies and practices they might wish to emulate.
  • Labor expenses – The increase and time spent by current employees involved in the benchmarking process, plus any new hires that may be necessary, adds to the cost of the process.
  • Travel expenses – As employees research potential benchmark companies and practices, they must travel. The associated costs add up, but are critical to a successful initiative.

Mechanics of benchmarking

Key steps involved in benchmarking are as follows:

1) Information gathering – the first step in the benchmarking process is to thoroughly evaluate each area of concern and determine the exact issues that should be addressed. Helpful tools at this stage include financial analysis documentation, completed quantitative studies, employee satisfaction and marketing survey results, as well as customer preference evaluations.

2) Find and emulate top organizations – once the problem areas are determined, the focus turns to finding organizations that are currently using practices that have corrected or eliminated the problems. Companies comb through information supplied by financial and trade organizations, as well as through business media outlets.

Competitive benchmarking

Competitive benchmarking is learning from the best performing company in the industry. When companies engage in process benchmarking, they may take advantage of the time and money already invested by conducting competitive benchmarking as well. This means that they evaluate the most successful company in their industry whether or not they are in direct competition for market share. More importantly, competitive benchmarking analyzes the relationship of this top company with its direct competitors, and uses the information gained to build a model for its own best practice initiatives.

Collaborative benchmarking

This type of benchmarking lowers costs for all companies involved. Sometimes companies with similar operations pool their resources and engage in collaborative benchmarking. The advantages of this type of process include lower costs and the use of a larger database of information.