What Are Benchmarks? Benefits, Types, and Strategies

For those of you who are new to the world of management, projects or business, benchmark is one of the important terms that is often used when communicating with colleagues.

In simple terms, benchmark is a term to compare something through predetermined metrics or benchmarks. Benchmarking then becomes important in the business world, especially to identify competitors.

Definition of Benchmarks

Benchmarks is an absorption word from English which means benchmark or benchmark. While the meaning of benchmarking is the process or activity of benchmarking.

In simple terms, a benchmark can mean comparing something similar through predetermined benchmarks, with the aim of getting comparison results so that improvements can be made.

While in management science or the business realm, benchmarks are an attempt to measure company policies consisting of products, programs, business practices, and many other components.

Benchmarks are carried out by comparing with the company’s competitors which are considered better. The way to compare them is also not arbitrary, but through appropriate and predetermined metrics or benchmarks.

From the results of this comparison, it will be known what things need to be improved in terms of performance, quality, or service so that it becomes even better in the future.

Benchmarking Benefits

If the benchmark is done right for your business, it can bring many benefits. The following are the benefits as well as reasons why benchmarking is important:

1. Knowing the strengths of competitors

In doing benchmarking, you will find out what the company’s position is like in the industry. From this identification, you can learn how competitors can be superior and successful.

One of them is knowing the strengths of competitors. If you already know, then you can review what things are in your business but not in competitors.

2. Improving company performance

After knowing the advantages of competitors, the next step is to improve company performance. Find out what things should be stopped, continued, or developed.

That way, the company will be able to compete with competitors, even far superior. In addition, companies can also plan these components so that the company’s performance becomes better.

3. Make regular repairs

When doing benchmarks, the company will know what things need to be improved. From there the company will develop a plan so that it can be further improved. After that, do benchmarks from time to time to see how the improvement is progressing.

4. Increase the sense of belonging to the company

In doing benchmarks, employees must be involved in obtaining all the answers needed. You do this by asking employees for their opinion regarding the role of each individual.

If the company accepts this opinion well, there will be a sense of pride in the employees because they feel that the performance done to the company can have a better impact in the future.

Benchmark Types

Benchmarks are divided into two types, namely based on the object and the subject. The two types of benchmarks are further divided into several types.

The first type is benchmark based on the subject which is further divided into two, namely as follows:

1. Internal benchmarking

Internal benchmarks are activities to compare processes and other components that are still carried out within the same corporation. Internal benchmarking is usually done in companies that already have branches or subsidiaries. This activity is carried out so that all branches have the same standardization as the parent company.

2. External benchmarking

In contrast to internal ones, external benchmarking is an activity to compare something between your company and other companies engaged in similar industries. External benchmarking is divided into two types of which are.

The process of comparing his own company with competing companies or companies that are considered to be his main competitors.

• Non-competitive benchmarking

Non-competitive benchmarking is different from before. Because these comparisons were made with companies in different industries. Non-competitive benchmarking is divided into two, namely functional non-competitive benchmarking (comparing the same function with different companies in various industries) and generic non-competitive benchmarking (comparing the fundamental business processes that are considered the same in each company).

Those are the two types of benchmarks based on the subject, then we will discuss it from the object side. When viewed based on the object, the benchmark is divided into six types, namely as follows:

1. Strategic benchmarking

Strategic benchmark is an effort to observe how the company can be superior to other competitors. This activity is still carried out in the same industrial sector.

2. Process benchmarking

Process benchmarking is an effort to observe by comparing various operational activities related to processes or systems in the company. For example, how is the payment system, employee recruitment, customer service, and many other processes.

3. Functional benchmarking

Functional benchmarking is an effort to compare the work functionality of a company with competitors who are still in the same industry. This is done to increase work functionality in your company.

4. Performance benchmarking

The next type of benchmark is performance benchmarking, which is an activity to compare the performance of competitors’ products and services. The components observed include product prices, features, quality, or others.

5. Product benchmarking

If previously we only saw how the performance of competitors. In product benchmarking, we will compare products from our own company with competitors’ products. From these observations we can find out what are the advantages and disadvantages, both of your company and competitors.

6. Financial benchmarking

As the name suggests, financial benchmarking is an activity of comparing a company’s financial strength or financial condition to obtain information regarding competitors’ competitiveness.

Benchmarking Stages

Benchmarking is a process that you need to do if you want to outperform your competitors. The way to do it is not difficult. The benchmarking process is divided into seven stages. The benchmarking stages are as follows:

• Define benchmark metrics such as product, strategy, department or other aspects.

Here, you have to determine what parameters or metrics you want your company to compare with your competitors. For example, you want to compare the performance of your product or marketing strategy with competitors. It is important to determine the right metrics so that the benchmarking process can run effectively.

• Choose the best company that can be used as a benchmark for comparison and your company’s performance targets.

Find a competitor that has outperformed your company in the aspects you want to compare. The company chosen must have a good reputation and can be a source of inspiration to improve your company’s performance.

• Do research to collect data and information regarding the performance of competing companies.

This research process is important to understand how your competitors are performing in the aspects you want to compare. You can do research by conducting surveys, observations, or data analysis.

• Compare the performance data of your company and competitors.

Identify the distance between the two companies. This will help you understand your company’s weaknesses and strengths compared to competitors.

• Make points that become competitors’ advantages as performance targets.

This will help you find out how your competitors can perform better in the aspects you want to compare. For example, if a competitor has a better marketing strategy, then your performance goal is to improve the marketing strategy.

• Make plans to increase achieving performance targets.

You can apply competitors’ strategies, processes, or policies that you feel can improve company performance. Make sure the plans are realistic and can be implemented properly.

• Monitor the process and results of the plan that has been set.

You need to carry out regular evaluations to ensure that the plans that have been set are going well and delivering the expected results. If there are problems or changes in market or industry conditions, the plans and strategies that have been made must be updated and adjusted.

Benchmarking Strategy

After knowing what are the benefits of benchmarking, the next step is to find out how to do the appropriate benchmarking strategy. Here’s the explanation:

1. Define metrics benchmarks

Before benchmarking, you should first determine the metrics or benchmarks. Usually used metrics such as revenue, cost of goods or services. However, apart from that you can also select metrics such as product, service, or process to benchmark.

To determine metrics, you can do a SWOT analysis first to find out what business metrics you want to improve.

2. Identify competitors

After determining the metrics, the next step is to identify your business competitors. You can determine business competitors depending on the metrics you want to measure, besides that competitors can come from external or internal parties such as between departments you want to compare.

3. Competitor research

If you have determined the right competitors, then do research on these competing companies by gathering relevant information.

Information research depends on the metrics that you have previously determined. You can get information from the annual report, if it is a public company.

If it’s a private company, you can search through their website, reports that have been shared to conduct interviews or contact customer contacts.

4. Compare with company data

Furthermore, the benchmark strategy is to compare with company data. After all the information has been collected, centralize the data and compare it with the KPIs in your company. Then ask a few questions such as what components should be improved, why the results could be different, and many other questions.

5. Plan company upgrades

If you have compared with competitors and found components that need to be improved, the next step is to plan activities that can help improve these components. So that the company can achieve maximum results.

6. Monitor the plans that have been implemented

When the plans made have been applied to the business, then all you have to do is monitor how the results are. Because the plan must continue to be improvised and developed so that the goal is achieved.

Commonly Encountered Challenges

Even though it has been carried out according to the steps listed, there are several possible challenges that may occur during benchmark testing.

Some of the challenges that may be faced, namely:

• Unable to determine the main risk factors associated with the existence of performance problems. When the main risks are not clearly defined, it will lead to a lower level of benchmark testing.
• Inaccurate risk estimates will cause the budget to swell in carrying out benchmark testing, requiring the involvement of many parties. If this happens, there will be a possibility of increasing problems due to the lack of proper risk mitigation.
• In the benchmark testing preparation stage, the budget and time allocated are usually less. However, this stage is the most crucial.
• It is difficult to choose the right tool for benchmark testing. This involves finding experts who can use certain tools, licensing limitations, to corporate standards.