Benchmarking: what it is and what types exist

We all know that in order to learn how to do something, in addition to studying and practicing, it is very useful to observe what more expert or capable people do. It is not about copying, but about having the impulse to learn from others and then propose our own approach. This is also the answer to the question of what benchmarking is.

Benchmarking is a term used in marketing, but also in business management, and it consists of the act of evaluating a parameter by comparing it with a standard or reference point. In business, and especially in the digital world, it translates into comparing performance, results, and other data with specific references called benchmark, such as the industry average, category leaders, or a specific competitor.

There are different types of benchmarking that can be implemented depending on the objective. Each of them has a different purpose and is used to compare different sets of data. Effective benchmarking helps identify growth areas and drives continuous improvement. It is an important part of strategic planning because it helps understand a company’s position in a specific market and compare it with direct competitors.

The main advantages of benchmarking lie in the ability to improve internal processes and business strategy, as well as in providing insights that help management make more informed decisions.

What is benchmarking?

After asking what benchmarking is, it is a good idea to first clarify the meaning of the English term, which can be translated as 'reference parameter' in a comparative evaluation, and defines the standard to compare against. In essence, benchmarking is a quality tool that helps companies continuously improve their processes by learning from the experience of others.

It was Xerox, the world’s largest provider of toner photocopiers, that introduced the concept of benchmarking into the modern industry in 1979. Never before had it been considered to improve business processes by studying and imitating the most brilliant solutions developed by others. Today, however, many companies have departments dedicated to benchmarking, led by managers specialized in this field.

Training for these highly demanded positions in the job market usually involves a university degree in economics, marketing, or a  Bachelor’s Degree in Business Administration and Management (ADE), completed with a Master’s Degree in Business Administration and Management.

Types of benchmarking

There are several types of benchmarking:

• Internal benchmarking: the only type that does not involve comparison with external realities. Therefore, it is based on analyzing the benchmark (performance indicator) within the same company and aims to improve these specific values by identifying critical factors.
• External benchmarking: this is the classic type, also known as competitive benchmarking. It analyzes elements and dynamics of other companies that stand out in the same sector. This type of analysis is very important to understand how competitors operate and how to improve.
• Functional benchmarking: also called ‘process benchmarking’, it is easier to carry out because it does not only focus on direct competitors but also analyzes companies that excel in specific areas (such as production, sales, or human resources management). However, it is very useful for improving aspects that are not directly related to the product or service a company produces.
• Generic benchmarking: also known as best-practice benchmarking, it is very difficult to achieve. It involves a very specific analysis of the industry leader. The most detailed information would be required, but precisely for that reason, it is difficult to obtain.

In any case, all types of benchmarking vary depending on what is being analyzed (internal or external competitors) and the type of analysis being carried out (very general or more specific).

Advantages of benchmarking

The advantages of benchmarking are numerous. In absolute terms, it enables continuous improvement and ongoing evolution of the organization. Thanks to this technique, improvements can be achieved in twelve areas of business activity:

• Meeting customer expectations: winning solutions would not exist if buyers did not choose them.
• Direct involvement of organization members.
• Increased competitiveness: benchmarking studies highlight the gap between expected results and actual competitive performance, encouraging companies to improve in critical areas.
• Setting relevant, realistic, and achievable goals.
• Developing accurate productivity measurement: by comparing internal company processes with successful practices, strengths and weaknesses are identified.
• Creating support and momentum for internal cultural change: benchmarking raises awareness among organization members of the need for continuous improvement.
• Defining and refining strategies: by evaluating other companies’ strategies, strategic plans can be formulated and implemented more quickly and cost-effectively than starting from scratch.
• Predicting failure: benchmarking shows when a company begins to lose competitiveness compared to its competitors.
• Testing the effectiveness of quality programs.
• Implementing reengineering: experts state that reengineering without benchmarking produces very modest improvements.
• Promoting more effective problem-solving methods.
• Encouraging creative drive.

Objectives of benchmarking

When setting benchmarking objectives, operational processes must first be evaluated to identify the company’s strengths and weaknesses. Then, leading organizations that operate with particular efficiency should be identified and compared in order to obtain useful information to improve performance.

The ultimate goal of any benchmarking activity is to measure and possibly analyze a specific parameter (the benchmark), and then evaluate one’s own and improve the company in that aspect. There are two fundamental factors to ensure the validity of the benchmark:

• Representativeness: the analysis must refer to a value that is representative of both the company being analyzed and the results considered.
• Replicability: the analyzed factor must be reproducible, even with variations within the company.

There may be many examples of success, but in industrial and strategic sectors obtaining valid benchmarks requires years of analysis, because finding information is not easy. In web marketing, however, it is much simpler. For this reason, in the digital economy it is an essential tool.