Benchmarking

Comparing Your Performance With the Best

Benchmarking - Comparing Your Performance With the Best

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Weighing up one approach against another.

How would you describe your company's or your department's performance? Great? Good enough? Average? Bad?

These terms are all relative, so what do they really mean?

Whether you're doing well or not so well depends on what you use as a basis for comparison. Do you compare current performance with previous years? Do you compare yourself with other companies your size? Or do you compare with other companies in your industry that serve the same niche market?

How Do You Measure?

To find out whether your performance measures up, you need to use the right kind of measuring stick. If your performance last year was really poor, then a 10 percent improvement this year doesn't necessarily mean that you're doing well. If your sales increase by 20 percent, you might be happy – but if your competitor's sales increase by 50 percent, suddenly your 20 percent looks very different.

Likewise, if you compare your performance with other organizations based on random criteria – like market placement or size – there's no way of knowing whether the standard set by those companies is something you should try to match. Being better than the bottom five companies in your industry may sound good, but are there a total of 10 companies or 100 companies? That makes a big difference.

The "Best Practices" Standard

For a more meaningful measure, you need to compare your performance with industry best practices. This is called benchmarking. A benchmark is a reference or standard against which you can determine how well you're doing.

The benchmarking process can help you answer questions like these:

  • How do your communication practices compare with other world-class companies?
  • Are your recruitment policies as good as they could be?
  • Does your IT department use the most appropriate technology?
  • Is your management philosophy up to date and relevant?
  • Do you compensate your workers competitively?
  • How do your distribution systems compare with high-performing companies?

By systematically comparing your performance in specific areas with a well-defined and researched standard of excellence, you can make objective judgments about your performance, and you can plan the necessary improvements.

By definition, benchmarking is the term used for comparing one organization's performance with another. So you can theoretically benchmark the performance of any company. Of course, it seems logical to only benchmark against world-class performance. Otherwise, why bother?

How to Benchmark

To benchmark effectively, make sure you compare the same issue or process across organizations. This way, your benchmarking can be as objective and precise as possible. To make a good comparison, you need a specific and accurate definition of the comparison factors.

Here are the steps to follow for effective benchmarking.

Step One: Define the scope

Determine exactly what you want to compare. Is there a particular process, practice, or policy you want to improve? What area of performance improvement is likely to give you the best results?

Benchmarking is closely tied to the concept of kaizen, where you're constantly trying to improve. Don't do it only occasionally and then put it aside. Used properly, benchmarking is a strategic process that you can use on a regular basis to keep a close watch on your organization.

Step Two: Choose your benchmarking partners

Decide which organizations, or benchmarking "partners", you'll use to establish benchmarks. There are four main categories of these:

  • Internal partners – Other departments or business units within your company. These can help you determine whether you're making good use of your organizational resources. However, your company may not be large enough to make useful comparisons, or the other departments may struggle with the same issues that you face. Be cautious when using an internal benchmarking partner, and ensure that they're genuinely using best practice.
  • Competitive "partners" – Companies that are your direct competitors. These can be very useful, but getting detailed information about competitors' systems and processes may be difficult! Competitive information is often quite general, and there's a good chance you won't be able to learn exactly how your performance differs from theirs.
  • Functional partners – Companies in the SAME industry that are considered "best in class." Functional and generic (see below) benchmarks tend to provide the best results. Other companies in your industry that don't see you as a competitor may be much more willing to share their best practices.

    Here's an example: If you work in a food processing plant, you could choose to benchmark specific practices of beverage manufacturers or meat packing plants. The "big picture" issues may be similar, and you should be able to duplicate their performance practices quite effectively.

  • Generic partners – Companies in ANY industry that are known for their excellence. Benchmarking the performance of generic partners is commonplace. How many times have you read about Southwest Airline's human resources policies or 3M's innovation practices? Companies like Apple, Intel, Microsoft, and Toyota are constantly examined, and their best practices are frequently identified and discussed in books and industry publications. Generic companies you choose to benchmark don't necessarily have to be world famous. Your goal is to find companies that are successful and set standards in their industries.

Step Three: Determine how to conduct the benchmarking process

What data will you collect, and how will you collect it? What indicators will you use?

You can use surveys, direct contact, websites, third-party research, and fee-based benchmarking services. There are also benchmarking clubs that you can join, where you agree to share your data and, in turn, you get access to data from other member companies.

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A common practice is to develop a questionnaire that you send to pre-identified benchmarking partners. Often the benchmarking partner will ask for the same information from you, so be prepared to provide the answers for your own company.

Follow these guidelines for questionnaires:

  • Review each question carefully to ensure that the answer will be useful.
  • Use open-ended questions that are highly focused, so that you'll get the specific detail you want.
  • Ask only those questions that are relevant. You want your partner to answer openly and honestly, so limit your questions to those that are reasonable and justifiable.
  • Treat the information you receive with strict confidentiality.

The more narrowly you focus your benchmarking questions and activities, the more likely you are to receive useful information. Remember, you want to be able to implement the best practice in your organization, so dig deeply to get operational details. If your scope is too wide, you probably won't get the specifics you need.

Step Four: Analyze the results, and plan for improvement

Once you collect the results, determine what you have in common with the benchmarking partner and where you have differences.

Where your benchmarking identifies areas where you may be able to improve, conduct the research needed to find out what you need to do.

Then decide what you can do to bring the best practice to your organization, and make a plan to implement it.

Step Five: Monitor your progress

Set up an evaluation process as well as a system for ongoing benchmarking. Remember, the goal is organizational improvement.

Key Points

Benchmarking is an effective way of learning what others are doing particularly well, and then using this knowledge to determine how and where you can improve your own operations.

By learning from others, you can expand your perspective and identify new ways and better ways of working.

Benchmarking is very much a two-way street, so be prepared to give as much as you take. Identify great benchmarking partners that you want your company to be like, and then nurture the relationship – you may find an endless source of best practice material. It's a wonderful way to improve your business and stay on top of your game.

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Comments (2)
  • Over a month ago Midgie wrote
    Hi Innovationsfacilitation,
    Welcome to the Club and thanks for asking the question about an example. Performance Metrics might vary between companies and between what exactly you are measuring, so, I think it may be quite challenging to find specifically the perfect example.

    You might get more input and ideas from other members if you post your question in the Career Cafe area - https://www.mindtools.com/forums/viewforum.php?f=2 - of the Forums. Plus, when you post, could you provide more details about what sort of performance you want the metrics for? That way, members can provide more specific examples or ideas.

    We are always happy to help and offer ideas, advice and support, so just let us know how we can help.

    Midgie
    Mind Tools Team
  • Over a month ago Innovationsfacilitation wrote
    Does anyone have an example of a Performance Metrics please?