Updated: Jun 4, 2023
Benchmarking is the process of evaluating company performance, either internally or externally. Business professionals, and those starting a business, use benchmarking to identify opportunities for change or growth across all sorts of areas, including products, processes, and strategy.
An example of using benchmarking for internal purposes is a large retail chain comparing the sales figures from two of its landmark locations, whereas an external use might be a baseball team measuring its own recruitment practices against the ones used by the league champions.
The four most common types of benchmarking are the following:
Internal benchmarking: Comparing two elements of your company. For instance, that could mean the feedback systems of two different departments or the social media campaigns of two different product teams.
Competitive benchmarking: Measuring one aspect of your company to its parallel result in a top competitor. If you run a cell phone company, that might look like holding your second quarter sales up against the numbers produced by the industry’s highest performer.
Functional benchmarking: Evaluating similar processes, but across different, non-competitor industries. If you’ve launched a large media company, you might be interested in understanding how other large corporations from other sectors approach formalized feedback structures. This benchmarking method is often used to develop a set of ‘best practices.’
Generic benchmarking: Comparing practices across industries that are different on face value, yet share similar conceptual goals. You might want to take a look at how your restaurant’s delivery service measures up to a national postage delivery system.
There are several primary reasons why companies benchmark:
Set goals: Once a benchmarking report illustrates areas for growth, a company can set KPIs (key performance indicators) to close those gaps in their performance.
Increase transparency: Company executives, department heads and small business owners can use benchmarking reports to give context to their choices to pursue a new strategy or process.
Build team spirit: Competitive benchmarking, in particular, can be used to unite a company in pursuit of a shared performance goal. Even within a company, internal benchmarking can be used to foster a healthy sense of competition between store locations or teams.