Benchmarking Business
Definition
Benchmarking Business
Benchmarking business is the standing programme through which an organisation compares its own performance against chosen peers and acts on the gap. The comparison is the easy half — the whole point of the programme is to make something change afterwards.
This entry covers the organisational programme. Our separate benchmarking entry covers the technique itself, and the outsourcing entries cover the contract clause that forces a comparison during a supply arrangement.
Three types are in general use. Internal benchmarking compares sites or teams inside one group. Competitive benchmarking compares against direct rivals. Functional benchmarking compares a process against whoever performs it best, in any industry.
The third type produces the largest gains and the most resistance — because it invites a claim that the comparison is unfair. That objection is usually correct in detail and irrelevant in direction.
Cost is the usual limiting factor. Bought benchmark data is expensive per measure, so most programmes buy comparison on a handful of measures and cover the rest internally.
Key takeaways
- The programme is a repeating cycle with owners, not a one-off comparison exercise.
- Internal, competitive and functional benchmarking answer progressively broader questions.
- Comparability of definitions matters more than the precision of the numbers.
- A benchmark with no assigned owner and no target date changes nothing.
How it works
The cycle has five stages: choose what to compare, agree the measurement definition, gather peer data, analyse the gap, then assign actions with owners and dates. Most programmes run it annually.
Definition work is the stage that decides whether the exercise is worth anything. Two organisations reporting cost per transaction will include different overheads — and reconciling those definitions usually takes longer than collecting the figures.
Peer selection deserves as much attention as the measures do. A comparison set chosen for availability rather than relevance produces a gap nobody in the organisation believes, and disbelieved gaps generate no action at all.
| Type | Compared against | Gain available | Resistance |
|---|---|---|---|
| Internal | Own sites or units | Modest | Low |
| Competitive | Direct rivals | Moderate | Moderate |
| Functional | Best performer anywhere | Largest | High |
| Generic | Any comparable process | Variable | High |
National quality frameworks build comparison into their design. One is the Baldrige Performance Excellence Program, run by the National Institute of Standards and Technology.
Its own description sets the scope. The programme is dedicated to “improving the performance, resilience, and long-term success of U.S. businesses and other organizations”.
Publication inside the organisation is what converts analysis into pressure. Sites ranked against each other on a shared measure tend to close the gap without any central instruction being issued.
Restraint matters on the measurement side. The UK Sourcing Playbook warns that going beyond 10 to 15 key performance indicators per service produces overcomplicated arrangements and ambiguity with suppliers.
Examples
Programmes differ mainly in who supplies the comparison data and how far outside the industry they are willing to look. The three below show that range.
A hospital group compares theatre utilisation across its own sites. Internal comparison is cheap and definitions already match, so process mapping can start on the gap immediately.
A manufacturer compares profit margin against published rival accounts. The figures are comparable at a high level only, which is enough to set direction but not enough to set targets.
A shared service centre compares revenue per full time employee against firms in unrelated sectors. The functional comparison found a document workflow four times faster than its own.
Related terms
Several entries use the word benchmarking for quite different things, from a general technique to a specific contract term. The boundaries below are the ones that matter in practice.
- Benchmarking: the technique on its own, without the standing programme around it.
- Benchmark clause: the contract term that compels a price comparison mid-term.
- Benchmarking clause outsourcing: that clause as drafted in outsourcing agreements specifically.
- Six sigma: an improvement method often used to close a gap the benchmark found.
FAQ
How is this different from plain benchmarking?
Benchmarking is the technique. The business programme is the standing structure around it: a cycle, named owners, a data source and an action list that gets reviewed.
Where does peer data come from?
Published accounts, industry associations, paid benchmarking services and reciprocal exchanges with non-competing firms. Each carries a different accuracy and cost.
Is competitive benchmarking legal?
Comparing published information is. Exchanging current pricing or cost data directly with competitors raises serious competition law issues and needs advice first.
How many measures should a cycle cover?
Enough to cover the core of the operation and few enough to act on. Programmes that track dozens of measures rarely close any of the gaps they find.
What makes a programme fail?
Reporting without ownership. A gap analysis circulated to no named owner produces a document, and the next cycle produces the same document again.
Should benchmarking be outsourced?
Data collection and normalisation often are, because specialists hold comparable definitions. The decision about what to change stays inside the organisation.
Compare providers who publish comparable performance data in the Outsource Accelerator directory.
Independent
