What is Benchmarking & How Can You Use it to Your Advantage?

Benchmarking - what was that again? You may or may not have heard of the expression. However, you have very likely come across the process in your day-to-day business. Today, we're going to tell you a little bit about this widespread method of competitive analysis and how it can help your company.

What is benchmarking?

Even if you don't know the term yet, the method will certainly look familiar to you. The process of benchmarking does not always go under this term, but it is frequently used in day-to-day businesses.

Benchmarking refers to a management tool that compares products, processes, techniques and values with standard values (or the values of the competition).

Typically, the criteria analysed are quality, time, and cost. Thanks to the analysis, the company can be classified and campaigns can be optimised.

So, benchmarking allows you to get nearer to the top-performers in your industry. Additionally, you can also use it to create a competitive advantage.

It is also about learning from the best. That is why benchmarking can be used by any company and why it is also interesting for e-commerce.

However, benchmarking does not only have to be a comparison of industries. Benchmarks can also be analysed within a company.

The difference between benchmarking and a competitive analysis

The process is about finding examples or “best practices”, which are then used as a benchmark to improve performance.

It’s not about copying the competition, but about identifying the potential for improvement.

Therefore, benchmarking does not create specific solutions, but rather analyses the current situation in order to draw conclusions about best practices.

What is a benchmark?

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The word benchmark, which is originally a term from surveying, describes a standard against which something is measured and evaluated.

From a company’s point of view, the reference value is typically given in the form of the best performance of the competition. The company can then adapt and identify its own internal opportunities for improvement.

The benchmark defines comparative values, which are then used to measure one’s own goals.

The different types of benchmarking

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Depending on the definition, there are different types of benchmarking in the economic sector.

Many merely divide it into two areas:

Internal benchmarking (within the company)
External benchmarking (in the industry)

However, Jim Riley distinguishes benchmarking into more sub categories:

Strategic Benchmarking examines the general strategies and procedures of successful competitors.
Competitive benchmarking: categorisation of your own company in relation to the performance of the products and services.
Process benchmarking: comparison with the best-practice companies that offers similar products
Functional benchmarking: comparison with partners from other industries to find ways to improve work processes.

These different ways of benchmarking make clear how versatile this concept can be. With the results of a good analysis, you'll know which processes can be optimised.

The benchmarking method

So how does the benchmarking process actually work? Gablers economics dictionary defines the steps of benchmarking as follows:

Selection of the object (product, method, process) to be analysed and compared.
Selection of the benchmark company. It is important to determine which similarities are present to ensure the comparison.
Data collection (analysis of secondary information; collection of primary information, e.g. from company visits).
Identification of performance gaps and their causes.
Definition and implementation of the steps towards achieving improvement.

So, in order to successfully practice benchmarking, the comparative objects, partners and target values need to be defined.

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How is benchmarking used?

Benchmarking can be implemented in different ways. As already mentioned, it can be used to identify the methods to achieve better performance. This applies, for example, to operational efficiency or product design.

However, benchmarking can also be used to compare upcoming costs. This can help classify and optimise the expenses of your company.

In addition, benchmarking allows you to focus on the resources that can generate strategic benefits.

Finally, benchmarking can be used to promote idea-finding and the exchange of experiences within the company.

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There are also internal advantages of benchmarking:

Employees can better understand how internal processes work. Furthermore, team spirit can be strengthened due to competition with others. It also becomes clearer to employees that metrics and their optimisation can contribute to the success of the entire company.

However, the main goal is to maintain the company’s competitiveness.