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What is Benchmarking? - Definition, Types, Process & Examples

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  • 0:01 Benchmarking Defined
  • 2:00 Types of Benchmarking
  • 3:10 Benchmarking Process
  • 4:30 A Real World Example
  • 5:41 Lesson Summary
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Lesson Transcript
Instructor: Wren Hawthorne
Companies use benchmarking as a way to compare key metrics to other businesses in the industry. This allows companies to see how well they are performing and identify ways they can become more competitive in the industry. In this lesson, we will look at the different types of benchmarking, the stages of benchmarking, and a real world example.

Benchmarking Defined

Before more recent technology was invented, surveyors would chisel a horizontal mark in a permanent structure, where a tool could be placed in the indention to help create a benchmark with a level rod, helping them and future craftsmen to have a point of reference for building.

In the business world, companies use benchmarking as a point of reference as well. But instead of having physical benchmarks carved in stone, they use benchmark reports as a way to compare themselves to others in the industry. Benchmarking is the practice of a business comparing key metrics of their operations to other similar companies.

You can also think of a benchmark report as a dashboard on a car. It is a way you can quickly determine the health of the business. Much like a dashboard, where you can check your speed, gas level, and temperature, a benchmark report can examine things like revenue, expenses, production amounts, employee productivity, etc.

Benchmarking occurs across all types of companies, including private, public, nonprofit, and for-profit, as well as industries e.g., technology, education, and manufacturing. Many companies have positions or offices in the company that are in charge of benchmarking. Some of the positions include:

  • Institutional researcher
  • Information officer
  • Data analyst
  • Consultant
  • Business analyst
  • Market researcher

Companies use benchmarking as a way to help become more competitive. By looking at how other companies are doing, they can identify areas where they are underperforming. Companies are also able to identify ways they can improve their own operations without having to recreate the wheel. They are able to accelerate the process of change because they have models from other companies in their industry to help guide their changes.

What Are Some Different Types of Benchmarking?

Best practices - This is a benchmark report where companies choose to look at a company or companies that they aspire to be like. By choosing companies that are on the leading edge of the industry, they can identify best practices that help improve their own company.

Peer benchmarking - This is a benchmark report where companies choose to look at other businesses very similar to themselves. This allows companies to make sure they are staying competitive with similar businesses.

SWOT - This is a type of benchmarking report where companies gather data by looking at strengths, weaknesses, opportunities, and threats to help understand their climate.

Collaborative benchmarking - This is benchmarking as a part of a group. Many industries have associations they can join e.g., The Association of Information Technology Professionals, and The National Education Association. These collaborative associations allow for members to provide information to the association. The association can then provide benchmarking and best practice reports for the membership.

Benchmarking Process

Step one: Determining benchmark focus - During this phase, the company determines the specifics of the research project. (e.g., which companies will they include in the research and what types of metrics they will compare).

Step two: Planning and research - During this phase, the company puts the resources together to implement the project (e.g., develop surveys, seek cooperation from other companies, and find databases already available).

Step three: Gathering data - During this phase, the data is collected through the methodology determined in the planning and research phase.

Step four: Analysis - After gathering the data, the company uses statistical techniques to examine and create the findings.

Step five: Recommendations - After analyzing the data and areas where the company can improve, recommendations are developed.

Step six: Implementation - After reviewing recommendations, the company implements those that are feasible.

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