What is benchmarking? Definition, Types, Process, Advantages, Disadvantages, Scope - The Investors Book (2023)

Definition: Benchmarking is the process of continuous improvement of theapprovalor the organization evaluates the level of improvement, comparing the current position with the previous position or with the business practices of relevant competitors, and thus establishes the standards to be achieved.

For example,A chain of grocery delivery services had a late delivery issue due to customer complaints and dissatisfaction with the service.

For this purpose, the company has prepared a team for benchmarking processes. The team observed and researched the strategy of one of their competitors that was entering the market. He discovered that the competitor brand had installed GPS trackers on their cargo bikes.

So you can easily track your trader's position and monitor their time and efficiency.

The company followed the same strategy and managed to regain customers' trust in the brand and increase satisfaction with the service.

Inhalt: Benchmarking

1. The type
   • intern
   • Extern
2. procedure
3. advantage
4. Disadvantages
5. Reach

types of benchmarking

Benchmarking is a strategic activity. It requires a lot of research and analysis. To do it effectively, the organization needs to be clear about what kind of related strategy needs to be adapted to address a specific problem area.

It branches out into the following two categories, each containing a few strategies:

To understand each of its types in detail, read below.

Benchmarking Intern

Internal benchmarking refers to the internal comparison of company performance. Either with its previous performance or with that of its competitors, i.e. companies that belong to the same industry. Here, information is usually collected and disseminated within the organization itself.

Below are the different strategies that fall into this category:

• Nerd: In this benchmarking strategy, management lists and analyzes the company's strengths, weaknesses, opportunities and threats.
• Benchmarking von Best Practices: Management itself studies and identifies the strategies and practices of other leading companies in the market to plan the desired course of action.
• performance metrics: This strategy is based on statistical metrics derived from analyzing customer preference and comparing it to the competition. The company can discover performance gaps and work on them.
• Financial Benchmarking: Management conducts a comparative study of financial forecast against actual results or financial reports to identify weaknesses and take corrective actions.
• Benchmarking Functional: The company compares its performance and products with those of other related industries to improve their functionality in innovative ways.

external scale

With external benchmarking, companies compare their performance with that of their competitors in the industry or worldwide. Usually through data collected by associations or third parties.

To know the different external strategies in detail, read below:

• Kollaboratives Benchmarking: To improve performance standards, companies in a given industry work with industry associations. These associations provide benchmarking data on best practices and comparative analysis across all companies to facilitate improvements for underperforming companies.
• Process benchmarking: In the benchmarking process, the company analyzes the methods, tasks, production techniques, distribution channels, etc. of the competition. It also examines the standard mechanisms for performing a given function, modifying its forms accordingly.
• Produkt-Benchmarking: This strategy focuses on a thorough analysis of the competitor's product to determine its characteristics and composition. The company uses this strategy to improve and redesign its products.
• Benchmarking Corporativo: The company compares its different departments such as finance, production, sales,Marketing, personnel, etc. with those of its competitors to improve the efficiency of each division.
• Strategic benchmarking: This strategy is typically used when the company plans to implement a new policy or idea, or change the existing one. The team compares the company's approach to other successful companies in the industry before putting it into practice.
• Benchmark worldwide: It is similar to strategic benchmarking, except that the company compares its strategies with those of its other industry or with those of various competitors worldwide in order to take corrective action.

benchmarking process

Benchmarking is not an instant solution to a problem. Rather, it is a step-by-step treatment of the problem area. These steps are explained in detail below:

1. planning: The planning phase determines the need for benchmarking and the area that requires it. In this phase, the competitors and the means of collecting the relevant data are also determined.
2. Analyze: The company then analyzes the collected data to discover competitors' strengths, list their weaknesses and opportunities for improvement.
3. Integration: At this stage, the analysis is reported to senior management and once approved, the desired action plan is developed with a clearly defined strategy.
4. Plot: Now management has a workable plan; In this step, the employees carry out the benchmarking plan.
5. maturity: The final stage is maturity; At this stage, the outcome of using benchmarking to improve business operations is observed. A successful application of benchmarking leads to the achievement of market leadership.

Benefits of benchmarking

Benchmarking is essential for businesses to maintain high levels of competition and keep up with customer demands and needs.

Let's look at the various benefits of benchmarking your organization:

• Improve learning methodology: Benchmarking paves the way for the generation of ideas and the exchange of good business practices, which can be seen as a learning experience for companies.
• Start technology update: This strategy allows companies to learn about new technologies and techniques that have been adopted by market leaders. Consequently, companies may plan to upgrade their technology to keep up with the competition.
• improve corporate standards: The company analyzes and examines the standards of competitors. This makes it easier for the company to increase its production level and products accordingly.
• Improve the quality of work: Leads to organizational growth as it improves overall production quality and reduces the likelihood of errors due to the standardization of business processes.
• dealing with the competition: Knowing the competitors' business and their strategy helps the company to outline its strategies efficiently. It also makes it easy for the company to update itself with the latest developments and technologies, thereby outperforming the competition in the market.
• increase efficiency: The overall efficiency of employees increases with this practice as the standardization of work motivates them to perform better without making too many mistakes.
• Increase customer satisfaction: Through benchmarking, the company collects enough data about the needs and desires of the customers through customer feedback. This information helps the company improve the experience and customer satisfaction.
• Helps to overcome weaknesses: These strategies help the organization discover its shortcomings and work on them to achieve desired results.

Disadvantages of benchmarking

As we already know, benchmarking requires a lot of experience and a large collection of data. Therefore, it becomes difficult for any organization to implement their strategies in the desired way.

Here are some of its limitations in this regard:

• Informationsmangel: Sometimes the company fails to collect adequate information for benchmarking. This leads to an inappropriate or insufficient comparison of the company's performance with that of its competitors.
• Increases dependency: Companies tend to rely on other companies' strategies for success. In this process of following the market leaders, they sacrifice their individuality and uniqueness and begin to follow the path mapped out by others.
• lack of understanding: Sometimes companies introduce benchmarking just for the sake of it, rather than realizing the need for it. You fail to understand your weaknesses while monitoring your competitors' performance.
• copy others: Some organizations do not understand the true purpose of this strategy and start to copy their competitors in all aspects. It can even lead to lost business.
• wrong comparison: Requires a comparison between two or more companies that belong to the same industry and compete with each other. But sometimes companies make irrelevant comparisons that lead to poor benchmarks.
• expensive case: Requires a team of experienced staff with excellent analytical skills and field knowledge. This increases the administrative burden of the company. Even the implementation of the changes is sometimes associated with capital expenditure.

Benchmarking Scope

Benchmarking is essential to improve the overall functioning of an organization. It is necessary for all departments.

Offers an adequatesupply chain managementFacilitate the organization in choosing a strictly defined distribution channel, which will make the flow of goods and services convenient for both consumers and suppliers.

As Amazon.in continues to view customer feedback as part of this strategy, it has evolved over the years into a standout brand known for its customer service.

Tata Consultancy Services is one of the well-established companies that sets the standard for their employees. He continuously works to increase his efficiency and skills as an effective employee.human resources managementexercise

It is best practice when it comes to operations management. Managers decide on the process strategy to improve the performance of a task or business operation such as production, sales, promotion, etc.

To implement a new plan that can have a tremendous impact on the business, companies known as strategic management create benchmarks by comparing it to the successful strategy of other companies.

It is for the proper use of company resources, including optimal use of factory capacity. Product benchmarking continually focuses on improving product quality and adding new features to existing products.