Definition: In performance benchmarking, businesses examine their competitors’ performance measurements and procedures and make improvements to their own operations at the ground level to increase efficiency and obtain competitive advantages.
Businesses can evaluate industry leaders’ functional performance parameters and apply best practices to improve their processes.
They can compare functional units such as human resources, production, marketing, and sales and review their data, performance, and efficiency.
They can adjust their procedures and processes to improve efficiency based on the results of the analysis.
Performance benchmarking is the most difficult of all benchmarking (other benchmarking includes process benchmarking and strategic benchmarking) because it is difficult to learn competitor performance metrics, key performance indicators, and procedures, and data reliability is not always guaranteed.
Changing an established process or introducing a new procedure is challenging. However, results sometimes can be rewarding. Performance benchmarking is the most effective if correctly implemented.
Benchmarking Vs. KPI
Benchmarking and KPI are different. Some differences are as follows:
- In benchmarking, businesses compare their processes, operations, and procedures with the industry leader and find gaps and improve their processes to gain competitive advantages.
- Key Performance Indicators are monitoring and decision-making tools. They help businesses track their performance and relate it to their strategic goal.
- Benchmarking is used to compare the performance against the competitor, and the KPI shows the internal performance or progress of the organization.
Summary
Businesses can use performance benchmarking to compare their performance metrics to those of competitors, learn from them, and make adjustments on the ground to enhance performance and obtain competitive advantages.