Benchmarking Analysis
Benchmarking, or comparison to a standard, can be an effective tool for improvements in business performance. In this way an organization can continuously measure performance with that of its best competitor or its own historical performance, in order to identify and make improvements. More efficiently, Benchmarking can be used to compare across industries to find new ideas that can be adopted and transferred to the original organization with little or no changes (that is, best practices).
What is Benchmarking
In benchmarking analysis, the “benchmark” is generally recognized as a set goal or standard that sets a challenging, yet achievable targeted performance. Identifying and obtaining reliable information regarding the performance criteria of the organization being benchmarked is the first step in this process. Business units, processes, and functions are identified and compared against similar models. This process produces concrete figures about the performance criteria that can then be objectively compared and contrasted.
Benchmarking Objectives
The objectives of a benchmarking analysis vary depending on the goals of the organization. In the business context the objectives often involve measuring and evaluating the performance of a particular business practice, product, or service against the best in class, or an established industry standard. The risk analysis component of benchmarking aims to measure the risk of implementing a particular solution and identify strategies to reduce that risk.
Types of Benchmarking
There are many different types of benchmarking and each is used to address a different set of objectives. Performance benchmarking focuses on the performance criteria of a specific practice or process and compares it against similar models. Financial benchmarking uses financial metrics such as profitability, sales, or financial management in order to compare performance. Strategic benchmarking examines the strategic processes, such as those related to customers, competitors, and pricing, in order to identify key areas to improve. Service benchmarking looks at the customer service processes and evaluations of the organization being benchmarked in order to identify areas that can be improved.
Benchmarking Analysis Process
A benchmarking analysis process typically involves five steps: identify, measure, analyze, implement and measure action. The steps involve identifying what needs to be benchmarked, collecting and measuring the performance criteria, analyzing the data and then applying the relevant changes and measuring results again.
Identify–Identify inputs, processes, and outputs to be benchmarked. Determine initial goals for the benchmarking process and the criteria for success.
Measure– Collect and measure data relevant to the performance criteria identified. Measure performance criteria and performance benchmarks.
Analyze– Compare and contrast the performance criteria with the performance benchmarks. Identify key areas that need improvement.
Implement– Develop action plans to address the identified areas. Implement the identified changes.
Measure Action– Monitor and measure the actions taken to address the identified areas. Evaluate the effectiveness of the changes made.
Benefits of Benchmarking
Benchmarking can be a powerful tool for improving business performance. It can provide an organization with a precise way to measure and evaluate performance criteria in order to identify weaknesses and potential improvements. By setting goals and objectives, benchmarking can help an organization reach its desired target performance. Additionally, benchmarking analyses can help organizations gain better insight into their own performance as well as that of their competitors. Finally, by analyzing the data from benchmarking, organizations can identify best practices and apply them to their own operations in order to further improve performance.
