Is Benchmarking Worth a Company’s Investment and Time?
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Benchmarking, commonly known as learning from best practices, is an effective organizational performance tool that can boost a company’s performance, by enabling a learning experience that relies upon understanding best-in-class practices and implementing them within one’s own organizational structure.
This assessment process is conducted for the sake of improving your firm’s performance to fill the performance gaps between you and your best-in-class competitors or even exceeding their performance level in the long run.
However, as effective as it may seem, benchmarking is a time-consuming and resource-intensive activity that requires a well-defined methodology, an action plan to identify best-in-class competitors, and an implementation strategy. Without these components, the positive effects of a benchmarking study on performance might be reduced.
The What, Why, and Who of Benchmarking
Benchmarking allows companies to focus on their strengths and weaknesses by comparing them to those of their main competitors within their respective industries or even other industries, enabling them to strengthen their position in the market.
When searching for competitors, the focus must be on understanding their best practices. This involves conducting a comparison of performance data, data that is obtained by analyzing our competitors’ similar processes and internal activities and identifying the practices that led to superior performance. Once identified, those practices must be adapted and implemented within the boundaries of your own organization.
Hence, when conducted correctly, the benefits associated with benchmarking can include:
- Measuring and comparing your organizational processes against those of another competitor or industry
- Discovering performance gaps
- Incorporating leading firms’ processes into your own process flow to increase performance and reduce gaps
- Future-oriented goal setting and improved resource prioritization
- Accelerating continuous process improvements (CPI)
- Identifying better opportunities for growth
- Learning from industry standards
To show that benchmarking is more than just comparing numbers, let’s consider the following example: in the electric utility sector, an electricity distributor has an average interruption time for residential customers of 105 minutes. Is this value good, acceptable, or bad? It is not easy to find an appropriate answer unless the duration is compared to an objective standard, such as the industry standard of interruption time for electricity distributors in the area.
However, it also depends on the company’s strategy. An interruption time of 105 minutes may be considered a satisfactory value for the company, but someone else might see it as an alarming call for improvement.
The example above relies on the idea that performance represented through the usage of mere numbers can’t provide any meaning when analyzed without a reference—a benchmark, so to speak—as a comparison point.
Read More >> Standardizing KPIs: A Success Formula in Secondary Benchmarking Studies
Before Starting a Benchmarking Study
When conducting a benchmarking analysis, no matter the industry of interest, there are usually three questions that must be answered before initiating the study:
- What is to be benchmarked? (e.g. processes, strategies)
- Against what or who will your organization be benchmarked? (e.g. KPIs, competitors)
- What will benchmarking do to my organization? (e.g. improve performance, analyze performance)
In general, nowadays, performance measurement has become a standard practice for any organization that uses KPIs.
The next step that needs to be taken to improve performance is the implementation of a benchmarking study, wherein your company can compare its own performance with the sector’s point of reference (a benchmark) or simply assess the company’s compliance with respect to industry standards. Doing so helps you learn from others’ best practices and apply them within your own organization.
The Bottom Line
Is benchmarking worth a company’s investment and time? Simply put, yes. It is a potentially powerful tool to promote continuous performance improvement and performance comparison among industry players.
Nevertheless, you must remember that quite a lot of attention and time must be dedicated to defining the initiatives that must be taken and the methodology that will be used, otherwise, the results may be ambiguous.
Read More >> Why Is Benchmarking Vital to Your Business?
Benchmarking Professional—The More You Know!
Given the complexity of designing a benchmarking study and all the related challenges associated with it, The KPI Institute’s training program, Certified Benchmarking Professional, is designed to fill the gaps you might currently have or provide completely new knowledge about the various aspects of how to conduct a benchmarking study.
For more knowledge, feel free to download any of our webinars focused on benchmarking or take a look at our solutions, which span from audit services to framework optimization.
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Editor’s Note: This article has been updated as of March 21, 2025.
