Benchmarking is a process of comparing your business periodically with other competitors to enhance performance indicators. It is used in management accounting to evaluate a business or find areas for improvement.
Organizations set goals regarding quality, productivity, and human resource standards. The validity of the criteria is evaluated based on these standards so that best practices can be discovered to enhance the overall performance of an organization.
The four types of benchmarking are:
Internal benchmarking: This consists of comparing the performance and activities within different departments or divisions of the same organization.
External benchmarking: It consists of comparing the performance or activities of an organization against direct competitors of the same industry.
Functional benchmarking: It compares the performance or activities of different industries but with the same functional processes.
Strategic benchmarking: This compares the strategic goals or practices for organizational performances with different industries.
The four steps involved in 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) and measure how well you have met your benchmarks.
Integration: Determine how the findings from the analysis will be used to improve your processes that meet your objectives.
Action: Follow through with an action plan that allows you to move toward a more effective process.
If a company carries out benchmarking, it identifies areas of improvement and enhances competitiveness. Learning from the industry leaders gives valuable insights into industry trends and helps to stay ahead in the business market. It encourages continuous improvement and supports data-driven decisions for sustainable growth.
Benchmarking should be conducted regularly as the industry standards keep fluctuating. The frequency of conduction may vary depending upon the specific industry metrics that need to be benchmarked.
No, benchmarking is favourable to companies of all sizes. Whether you are a startup or an established company, benchmarking allows you to gain efficiency and accomplish better outcomes within the competitive industry market.
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