Benchmarking

Benchmarking: Definition

The term "benchmark" refers to a performance test, a criterion, a way to evaluate something and a way to determine a standard and point of reference, particularly for comparison.

All these aspects and shades of meaning are fully and deeply reflected in the benchmarking concept, which is permanently featured in the dictionaries of marketing and management terms.

The companies using benchmarking make comparisons.

The comparisons with market rivals may concern the following aspects:

• Production and provision of services
• Processes, teams, capitals, technologies, methods, and cost management
• Communication with customers using advertising and promotions, but also models and standards of business partner service (external communication), and models of communication between departments and employees (internal communication)
• Competing
• Development and strategic planning
• Creating structures of dependence (e.g., logistics/distribution/production)
• Responding to crises, adapting to changing market situations
• Creating brands and images
• Distribution and methods of reaching customers

In fact, any aspect of company operations can be compared, analyzed, copied, adapted, or optimized in any industry and at any point in time. However, the choice of elements can't be random and arbitrary.

It's also important to point out that benchmarking focuses more on processes than on static characteristics, features, and qualities.

Benchmarking: A way to obtain key information

Valuable information is a resource that can help win wars (in a military sense) and gain tremendous competitive advantage.

The dynamics of market changes make information even more important and prone to becoming outdated. Therefore, benchmarking should be used regularly and periodically.

It enables you to obtain vital information that forms a pattern of actions, decisions, plans, goals, and methods field-tested by the organization recognized as a role model.

Thus, it is a method that saves time and (not only financial) resources, reduces risk, and allows you to achieve similar results and goals faster, easier, and in a less labor-intensive and energy-consuming way.

Due to its strategic character, it is especially valued as a method of acquisition, categorization, aggregation, and interpretation of key information.

It's valuable because it provides information on a company's external and internal functioning. It's also recognized as a reference standard, i.e., worth following and developing.

Benchmarking goals and application methods

Remember that its goal is not to copy and blindly imitate but to learn and creatively utilize the best models available in the market at a given moment. "Model" is the keyword here. According to the dictionary definition, a model is a pattern constituting a standard for other items and processes. It's a rule considered appropriate and desirable.

The primary goal of benchmarking as a method is:

• Organization's self-improvement
• Self-awareness of strengths and weaknesses
• Awareness of the distance between a company and the leader and of what is required to achieve the leading position
• Mobilization and inspiration for action (psychological effect resulting in consolidating group efforts around a problem)
• Continuous learning from the competitors' successes and mistakes
• Setting reference points and creating self-assessment criteria
• Gaining competitive advantage
• Increasing efficiency, satisfaction, and rationality of actions
• Supporting strategic decisions and planning future activities
• Identification of issues, imperfections, and shortcomings
• Getting a big picture, a system approach to the functioning of a company
• Multidimensional and multifaceted quality improvement
• Preparation for changes and readiness for changes
• Reputation and image enhancement by participating in various types of benchmarking competitions.

Moreover, benchmarking data enables you to:

• Gain a new perspective inspiring to search for your own solutions
• Avoid the complacency trap and being limited by your patterns of thinking, acting, and attitudes
• Establish continuous learning as one of the constant characteristics, values, and goals at the individual and company-wide level
• Better understanding of the dynamics, specificity, and diversity of customer needs and problems
• Deepen the understanding of your own processes and the relationships between them.

You can use the following benchmark metrics:

• Customer engagement
• Customer retention
• Sales revenue
• Productivity
• Market share
• Customer satisfaction

Types of benchmarking: Management methods description

Benchmarking can be understood and applied in several variants, including:

• Internal
• Horizontal/generic
• Functional
• External/competitive
• Process
• Product
• Strategic
• Performance
• Technical

The above is the list of the most common types of benchmarking, and it is by no means exhaustive.

"Benchmarking examples" is an entry under which you can find further, less popular, more customized comparison methods resulting from very specific, contextual needs. The methods mentioned above are recommended as universal.

Internal Benchmarking

It's most commonly used and recommended to large companies (corporations, holdings) where many facilities, suppliers, distributors, resellers, etc., make perceiving all relationships, influences, and necessities complicated.

Internal benchmarking compares productivity, functionality, functions, roles, positions, adopted methods and solutions, technologies, procedures, etc., within an organization. It also identifies problems and finds solutions to them.

Its most significant advantage is the full availability of data and information and the ability to control its aggregation methods fully.

Internal benchmarking doesn't have to account for legal issues, which are the most problematic aspect of this method.

Legal issues related to trade secrets don't prevent you from obtaining reliable benchmarking results, which is often a serious obstacle for other types of benchmarking.

Horizontal Benchmarking

It's the most general comparison of the practices, processes, solutions, technologies, methods, means, etc., commonly used by companies in a particular industry or non-related industries.

Especially for cross-comparison (between industries), the exchange of experience and information is not fraught with the risk of disclosure of sensitive information directly affecting a company's competitive edge.

Functional Benchmarking

Similarly to horizontal benchmarking, functional benchmarking also focuses on inter-industry comparisons but in a much narrower range. By typing "functional benchmarking example" in a search engine, you can find many cases and descriptions of best practices.

Using functional benchmarking, you can compare selected company functions (hence the name), e.g., the way to organize a supply chain, logistics, b2b and b2c customer service, corporate culture, internal communication, and CSR (Corporate Social Responsibility) activities.

Competitive Benchmarking

It's conducted by two competing companies in the same industry on the principle of mutual consent and based on mutually applicable rules.

It's rarely used, as it generates much resistance resulting from the risk of obtaining sensitive data or being accused of illegal actions (e.g., price fixing).

The more similar the two organizations being compared, the higher the cognitive value and usefulness of this method.

Process Benchmarking

It's focused on improving company processes and making them more effective.

It consists of following, modeling, and adapting the operational management solutions.

Which is one of the more important components of competing strategies for businesses with similar potential.

Product Benchmarking

As the name suggests, it's used solely for the purpose of product comparison but across a broad spectrum of their functioning. From functional and usability features to price, packaging, distribution, advertising, brand, etc.

It allows you to improve existing products and create new innovative ones, which are much better at solving problems and better suited to the structure of needs.

Strategic Benchmarking

For many companies, it's essential, especially when the strategy provides a competitive advantage over manufacturers and service providers offering products and services with similar quality characteristics, at a similar price, and of comparable usability.

It enables you to set long-term plans for market presence, set goals in different time perspectives, and compare their potential to model solutions.

Performance Benchmarking

This type of benchmarking helps you asses the overall business performance by using performance metrics such as key performance indicators. It's usually done by comparing the current results with historic ones.

You can measure performance, evaluate which processes and products fulfill your organization's goals, and identify performance gaps thanks to KPIs.

In short, this benchmarking type enables you to improve performance.

Technical benchmarking

The technical benchmarking process involves examining a product's capabilities and making necessary improvements. You can use the benchmark data to compare, for example, how fast your website loads compared to the competition and market standards.

This type of benchmarking enables you to continuously improve your products regardless of the development stage.

Benchmarking: Step by step

As with any method supporting business management, benchmarking also requires a methodical approach (in any industry), following a procedure and a plan, and consistent data aggregation and analysis.

As a standard, benchmarking should consist of:

• The phase of preparations. During this stage, you determine the scope, form, methods, and subject of comparison, i.e., you specify what, how, and with whom you want to compare. In this phase, it's also necessary to describe in detail the functioning of the component to be compared in your company (e.g., process documentation).
• The phase of selecting a benchmarking partner. This phase is about choosing a company with which you will be able to exchange information following a strictly defined scenario and clear and specific rules (e.g., for meetings or personnel).
• The phase of operationalization and benchmark creation. This stage consists of finding and defining KPIs (Key Performance Indicators). It's a crucial phase because the correct definition of "what" you study, what you consider a "success," how you measure it, and to what extent the measurement is precise influences the validity and reliability of the entire comparison as well as the effectiveness of the activities taken based on it.
• The phase of conclusions, data analyses, and reporting. During this phase, you gather the collected data and analyze it with the team to create comprehensive and easy-to-understand reports. They will provide you with a clear overview of what needs to be improved.
• The phase of the implementation of the changes based on the information acquired. In this stage, you use the created reports and analyses to develop an actionable plan for introducing changes and improvements to your products and services.

A properly designed and conducted benchmark allows you to determine the differences (qualitative and quantitative deviations) between the model component and the component compared to it.

A good example of qualitative deviations is differences in labor productivity, costs, technology productivity, the number of errors in the process, shortcomings, downtimes, faults, etc.

The qualitative deviations can be observed in the division of labor, required qualifications and competencies, powers, and tools.

Naturally, as with any other method, benchmarking has advantages and disadvantages. For example, competitive benchmarking can be challenging to conduct in practice.

Implementation of solutions or benchmarking application

The plan to implement the changes resulting from benchmarking includes the following types of actions:

• Ad hoc, enabling you to initiate the process of change, performance improvement, and competitiveness enhancement.
• Strategic, requiring more structural, profound, and long-term transformation and investments, which can't be realized in the short term for various reasons. From financial to organizational to legal (e.g., obtaining permits).

Benchmarking implementation should be properly planned, controlled, managed, and secured in terms of:

• Finances (budget)
• Organization (tasks, teams)
• Time (precise work schedule divided into phases)