What Is Benchmarking in Business? (With Types and Benefits)

By Indeed Editorial Team

Published October 18, 2021

The Indeed Editorial Team comprises a diverse and talented team of writers, researchers and subject matter experts equipped with Indeed's data and insights to deliver useful tips to help guide your career journey.

Benchmarking is a business strategy that helps a business better understand how competitive they are and identify areas for improvement. It involves measuring key processes and comparing the results to competitors or to the average of their given industry. Learning more about benchmarking can help you successfully compete in the marketplace. In this article, we explore the question "what is benchmarking in business," review its benefits, learn about the process of benchmarking, discover the different types, and analyze examples of benchmarking.

What is benchmarking in business?

If you have found yourself wondering, "what is benchmarking in business," it involves a business comparing its operations, processes, and products to its competitors and industry. When a company wants to grow or is losing market share, benchmarking is a useful growth strategy to adopt. You can also consider doing internal benchmarking to compare various aspects of the business internally. Benchmarking can help improve the quality of a business's services, products, policies, and strategies. Some examples of what businesses can benchmark include analyzing employee turnover, comparing marketing budgets, or even evaluating product life cycles.

Benefits of benchmarking

Here are several benefits of benchmarking for a business:

Active monitoring

By benchmarking, you are taking an active role in monitoring and measuring a company's performance, helping it become better able to adapt and compete in the marketplace. It also helps you to pay more attention to market trends and ensures you are adapting business practices accordingly. Because market trends frequently change, analyzing company performance is a continuous process that helps you quickly adapt to changes in the market.

Competitive advantages

By actively comparing a business to others, you can identify areas for improvement and areas where you may even have an advantage. Competitive advantages assist a business to surpass competitors in areas where they do not have the same advantage. They can include strategies like having better customer service, offering superior pricing, and creating superior product quality.

Related: What Is Market Positioning? How To Develop a Strategy

Planning and strategizing

Benchmarking helps you understand the position of the business in the marketplace. It also helps you plan and strategize more effectively. You can create a plan to improve the weaknesses of the business or learn to better leverage your competitive advantages. Planning and strategizing can help with the creation of goals for the business, helping to create both a direction and measurable targets.

Creates accountability

All employees in a company have accountability for their individual roles. Since benchmarking leads to goal-setting, it can help hold each employee accountable for reaching their individual goals. Once employees understand their clearly defined roles and goals within this process, it can encourage them to become more active and productive in their roles.

Encourages continuous improvement

Benchmarking creates a continuous process of trying to improve a business and stay competitive. Maintaining this mindset can shift company culture into one that seeks both short- and long-term growth. Each time you benchmark, you may only focus on one aspect of the company, but as you work to develop each aspect over time, the result is often that there is an improvement for the entire organization.

Growth and sales

Benchmarking can help create better products and services, and helps a company grow. When you benchmark effectively, you may see a significant improvement in sales by determining how to be a more effective competitor in the market. By continuing to leverage benchmarking, you may increase your likelihood of sustained growth.

Benchmarking process

Here are the key processes that you can take to adapt benchmarking to almost any type of business:

  • Planning stage: Start by focusing on some key areas critical for business success and choose the metrics you plan to use. You can help do this by identifying specific questions you want to answer.

  • Internal analysis: Document and measure the data from the aspect of the business you wish to benchmark and attempt to analyze it objectively. You can then use this to compare data with internal and external sources.

  • Data collection: Collect data from outside sources, including from competitors and from general market trends. Collecting data from external sources can come in many forms, including online research, interviewing industry leaders, calling other businesses, and even visiting their workplaces.

  • Data analysis: Gather your team to analyze and compare data you have collected from external sources and the data you have gathered internally. Once you identify your weaknesses, include them in an actionable report that you can share with all relevant stakeholders, including instructions for next steps, documentation, and measurable goals.

  • Take action: Involve key stakeholders in the process to help get their acceptance and to make changes quickly and effectively. Have training and meetings as needed to ensure that all relevant departments and staff members are aware of their expectations.

  • Monitor and repeat: Monitor the results with key performance indicators (KPIs) so that everyone can track their progress in reaching the goals. Once the successful implementation of a new process takes place, it's important to continue to repeat these steps to identify new areas for improvement.

Related: How To Define and Measure a Key Performance Indicator

Types of benchmarking

Here are some common types of benchmarking for you to consider:

Performance benchmarking

Measuring your overall performance to that of others is one of the most common types of benchmarking. You can choose to compare the price, quality, speed, and reliability of your products or services with your competitors. Comparing your performance in these areas to the average of your competitors or industry can help you learn how to improve.

Strategic benchmarking

Strategic benchmarking involves comparing a company to the industry leaders. This means finding out what processes enabled them to become successful as industry leaders, and identifying best practices and transferable processes that you can adapt. This may also help you identity gaps in their processes you can use to better compete with them.

Digital benchmarking

Benchmarking your online presence with that of your competitors is becoming increasingly relevant. Digital benchmarking includes measuring and comparing website traffic, digital marketing spend, organic search rankings, and social media rankings. Since online initiatives are easily measurable, comparing and tracking this information may be more accessible that other methods of benchmarking.

Internal benchmarking

Internal analysis is extremely important for benchmarking in a business. This involves comparing different departments, product lines, territories served, or service offerings. For example, you can compare the processes used for warehousing and shipping products from one warehouse to that of another warehouse to help identify the processes that are working the most effectively.

Process benchmarking

If you are looking to benchmark only a specific area of a business, process benchmarking is the most suitable type to use. You can compare your specific process by getting feedback from employees or customers. It is also beneficial to do an assessment of emerging technologies to determine if any new processes can replace your current one to help it be more efficient.

Related: 5 Types of Benchmarking Examples (Plus How to Use Benchmarking)

Examples of benchmarking

Here are two examples of benchmarking for businesses:

Benchmarking example for retail store website

Here is an example of benchmarking as used by a retail store to assess their eCommerce website:

An omnichannel clothing retailer has found that online sales were lower than what they were expecting with the launch of their new eCommerce site. They went online to research any unique features of their competitors' websites and began surveying customers for further insight. The retailer discovers they are missing a live chat box on their eCommerce site, which allows customers to do online consultations to help them better decide which products to consider. After implementing the live chat box, the retailer continues to benchmark to stay current with online trends.

Benchmarking example for airline marketing

Here is an example of benchmarking as used by an airline to monitor their marketing efforts:

An airline wants to investigate if there are any gaps in their marketing. They hire a consulting firm to research their overall marketing and compare it to that of their competitors. The firm starts by comparing the size of the airline and then determines if the marketing budget is relatively sufficient. They also investigate how much is being spent on each marketing channel. The firm discovers that almost every competitor was shifting more of their resources online, whereas this airline was focusing more on offline channels. After this discovery, the airline shifts their focus to online activities and hires an online marketing team.

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