How Benchmarking Can Serve as a Tool for Improvement in Your Organization

Benchmarking is the process of evaluating or comparing against a standard.

There are two main types of benchmarking:

1. Internal benchmarking. This compares metrics or practices within an organization. It can be an effective way to share best practices from one division to another.
2. External benchmarking. This compares your company’s metrics or practices against a competitor or other organizations.

The goal of benchmarking is to improve current processes to meet higher standards and can be a powerful tool for organizational improvement. However, to get the most benefit from benchmarking, it should be a continuous process within your organization, not a one-time exercise.

For benchmarking to be effective, companies must analyze quantitative data from internal and external sources. Internal software packages or standalone benchmarking software can be utilized to process a large amount of complex data in a cost-effective manner. You will need to assess your internal data for completeness and accuracy to ensure meaningful data comparisons.

When embarking on a benchmarking process, there are five key steps:

1. Determine which key performance indicators are important. Senior management should be involved in deciding which factors are important to measure in order to drive the company’s improvement. Select a manageable number of meaningful metrics that can be evaluated and acted upon to measure and improve performance.
2. Determine which organizations and industry data you want to benchmark against. Industry or trade associations often provide relevant data that can be used for benchmarking purposes. If using specific companies, be sure to select those that are of a similar size and lifecycle stage as your business. For example, comparing a start-up entity against a mature company may not provide meaningful results.
3. Evaluate the relevancy of the chosen benchmarking data. Be sure that the industry or corporate data you are using for comparison purposes is current and consistent with your data. For example, understand how financial formulas are being calculated and determine whether your data is consistent with those calculations.
4. Review your performance against the benchmark data and determine where you’re falling short or exceeding expectations. If you are falling short, identify the changes you want to make to improve performance. Conversely, if you are significantly ahead of expectations, consider whether there are too many resources devoted to a particular area.
5. Implement the changes identified. Once you’ve implemented these changes, it’s vital to continue to monitor performance.

Implementing and utilizing benchmarking can help management monitor performance and drive improvements across an organization.

If you would like to learn more about benchmarking and ways to implement it in your business, please contact us.

Diane Franzoni can be reached at Email or 215.441.4600.

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