Benchmarking is a key methodology that can improve business performance. This improved performance results from:
- learning the best practices of different processes, departments, and companies,
- assessing and comparing the results of these best practices, and then
- implementing the appropriate best practices.
The four types of benchmarking discussed below are internal, external, competitive, and generic. All can lead to improved business performance.
Internal benchmarking assesses variability in key performance metrics within an organization’s business units, departments, or divisions. This form of benchmarking also evaluates costs and depreciation to determine the best practices. For example, an international company that sells different products from its different divisions, can learn and compare its various ordering processes. Next, the international company can then implement the most efficient method of processing customer orders at all of its divisions.
External benchmarking includes competitive and generic benchmarks, and External benchmarking enables companies to identify and adopt the best practices for environmental factors like technology, information technology, and marketing trends. This method of benchmarking is aided by dissecting processes and determining the cycle time for each process step.
There are two categories of external benchmarking, and these categories are competitive and generic. Competitive benchmarking looks at direct competitors of the organization and generic benchmarking assesses non-competitors, including non-competitors in different industries. Despite the source of external benchmarking, the potential to identify best practices is substantial and should not be overlooked.
A company can use competitive benchmarking to ascertain its competitors internal processes and strategies, and subsequent implementation of the appropriate best practices can enhance competitiveness. In addition, assessing generic companies’ processes and strategies can lead to disruptive innovations and breakthrough improvements as seen in global companies and companies like Amazon and Netflix.