Benchmarking is how the organization sets goals regarding quality, productivity, and human resource standards. The validity of the criteria is evaluated based on these standards so that the effectiveness of these performance measures can be controlled and good practices can be discovered to enhance the overall performance of an organization.
Benchmarking is the continual process of continuously comparing your business to others to measure and improve your performance. It is used in management accounting to evaluate a business or find areas for improvement.
Benchmarking can be a handy tool for any business, as it helps them understand how they are performing compared to others. It enables better identify why there are problems and where the bottlenecks are. In the long run, an organization improves its overall strategy after conducting benchmarking.
The four types of benchmarking are:
Internal benchmarking: This consists of studying the processes, practices, and activities within your organization, comparing them with the best performers in your industry, and then learning from that comparison.
External benchmarking: consists of studying the processes, practices, and activities of organizations outside your industry sector and then learning from that comparison.
Performance benchmarking: Consists of comparing a process within your organization with an external best-practice process to evaluate it and identify potential improvements.
Practice benchmarking: Consists of identifying what the best performers in your sector do differently compared with you and then learning from that comparison.
The four steps of benchmarking are:
Planning: Set objectives and metrics for the benchmarking analysis.
Analysis: Compare and contrast data and information about the organization to identify key performance indicators (KPIs) that measure how well you have met your benchmarks.
Integration: Determine how the findings from the analysis will be used to improve your processes and meet your objectives.
Action: Follow through with an action plan that allows you to move toward a more effective process.
Benchmarking is the best practice of comparing your business with others considered industry leaders to achieve better performance on some metrics. While benchmarking can be in any industry, the most common benchmarks are used in the hospitality industry, such as food, labor, and productivity. Benchmarking enables businesses to gain insight into their strengths and weaknesses to adopt best practices from other industries or competitors.