Connect with us


What Is Benchmarking and How Does It Work?



To keep stay in a business (any businesses), benchmarking is critical. But to be honest, many of us have not realy understand yet; what benchmarking really is and how it works. Through this post we are going to answer essential questions about benchmarking, such as: what is benchmarking?, how many types of benchmarking commonly applied to a business?, and I am happy to say; through this post, I am going to cover one important question: “how should one conduct benchmarking?



What Is Benchmarking? 

Benchmarking is the process of obtaining and productively using information about how to improve one’s processes, products, and strategies. It is a systematic process, rather than one that is only occasionally engaged in; this requires the ongoing use of project teams that are continually renewed with well-trained employees from all parts of an organization, and who are adequately supported at the uppermost levels of the company.


Types Of Benchmarking

There are three types of benchmarking that one can perform, each of which is targeted at a different part of a company’s operations:

[1]. Benchmarking for internal processes. Comparisons can be made with companies from markedly different industries, since processes are readily adaptable across many industries. When one hears about how a company has conducted a benchmarking review with another company that is far outside of its normal field of competitors, it is most likely that the study addressed process changes. When processes are the subject of benchmarking, the usual justification is that there will be immediate financial results, typically through the elimination of employee positions. It can also achieve shorter processing intervals, which is readily measured. For these reasons, process benchmarking is very popular.

[2]. Products Or Services Based Benchmarking. It uses comparisons between a company’s own products or services and those of other organizations. The focus of such a study tends to be on the quality, reliability, and features of comparable products. This does not mean that benchmarking comparisons are confined to products created by companies in the same industry, since products may be broken down into their component parts, which may individually be more readily comparable with products from other industries. Product benchmarking can be performed without the approval of any other company, since one can simply buy their products and directly review them, either through reverse engineering or feature comparisons. Nonetheless, it is most useful to obtain the cooperation of the maker of each product, since the review team could glean much additional information regarding the manner in which each product was manufactured, information that is not readily apparent from a direct review of the product itself.

[3[. Strategic Based Benchmarking. The review team wishes to discern whether there are other ways to position the company within its industry that it has not considered, but which other organizations are implementing with success. This usually requires a close look at other industries, since the industry within which a company competes may be chock-full of organizations that all have the same strategic mindset, and which therefore are not good sources of information. This type of review tends not to yield much in the way of short-term improvements, since strategic changes typically require several years of effort to implement. Thus, only the most forward-looking management teams tend to engage in this type of benchmarking, however useful it may prove to be in the long run.


How Does One Conduct a Benchmarking Study?

The initial step is to decide exactly what to benchmark. Though there should already be some general idea of what is to be done, the topic initially presented may have been a broad one, within which several more specific projects could be fitted. For example: the initial proposal may have been to shorten the cycle time of the disbursements business process. However, there are a number of steps within this process, such as ordering and receiving goods, forwarding the paperwork to accounting, matching accounts payable documentation, and issuing payment. The project team may select only one of these sub-processes for a more detailed review.

Once the specific sub-process has been selected, the project team can collect information about the performance level of whatever is targeted. This information is needed in order to compare it with the results gained from a review of outside entities or other departments or divisions of the same company. For example, a review of a process might require a workflow diagram that details exactly how information flows through it, as well as the various control points and time requirements at each step in the process.

Alternatively, a review of an existing product would require an analysis of its cost, as well as a complete description of its various features and level of quality.


The next step is to determine what companies to benchmark. There are a variety of ways to make a list of benchmarking targets:

  1. One is to review professional publications to see which ones are improving themselves in specific areas.
  2. Another is to review general or industry-specific publications for the same information.
  3. Another source is speeches at industry symposiums. Yet another source may be networking connections between companies.

If there are many company divisions, then yet another source is to call one’s counterparts in those divisions.

Once a set of benchmarking targets have been selected, the project team must create a set of questions to ask the representatives of the companies with whom they will meet. This is a very important step, since the target companies are setting aside valuable time to meet with the team, and should not have their time wasted. To this end, the team should first create the largest possible list of questions, and then whittle it down to the most critical questions that can be definitely handled during the assigned meeting time with the target company. There should also be a secondary list of follow-up questions that can be used if there is still time available after the primary questions have been answered.

The completed review should give rise to a number of action items that can be used to either modify or (more rarely) replace the internal process, product, or strategy. However, before implementing any changes, this is a good time to interact with the personnel who will be impacted by them. The reason for doing so is that the person who will use the modification may be aware of internal problems that the project team is not aware of, and which will make the change inoperable.

With these preparations completed, the team should create a thorough implementation plan that describes the precise changes, when they will take place, what they will impact, and who will be responsible for them, not to mention any required training, capital purchases, or personnel changes. This plan should be carefully reviewed to ensure that nothing is missing, and that the timelines are reasonable.

A final step is to schedule a review of all changes after some time has passed during which the changes have had a chance to settle in and either succeed or fail. If they have failed, then the team must review the situation and recommend changes to the management team in regard to what further steps must now be taken. If the changes have been a success, then the benefits should be quantified and forwarded to the financial analyst who is reviewing the project, so that the management team can be informed of the return on investment of its benchmarking initiative.

Are you looking for easy accounting tutorial? Established since 2007, hosts more than 1300 articles (still growing), and has helped millions accounting student, teacher, junior accountants and small business owners, worldwide.