Benchmarking (from the English benchmark — “reference point,” “standard”) is a systematic process of comparing products, services, methods of work, and an organization’s key performance indicators with the best practices recognized as leaders in a particular industry or segment. The primary goal of benchmarking is to identify areas for improvement, set realistic and ambitious goals, and implement changes that lead to increased competitiveness and efficiency. It is not simple copying but a deep analysis of excellence for the creative adaptation of best practices.
As a management tool, benchmarking has moved beyond simple competitive analysis and has become a continuous process of searching for and applying advanced technologies and business methods. It is used in a wide variety of fields: from manufacturing and IT to healthcare and public administration. Benchmarking helps organizations understand their place in the market, define strategic priorities, and stimulate innovation.
What Benchmarking Means
At a fundamental level, benchmarking means the process of measuring and comparing. An organization selects a specific metric (e.g., order fulfillment time, customer satisfaction level, product cost) and compares its results with the results of another organization that demonstrates the best performance in that area. The benchmark for comparison can be a direct competitor or a company from a completely different industry but with similar business processes.
The key idea of benchmarking is the realization that “you can’t improve what you can’t measure.” It provides objective data that helps overcome internal inertia and the confidence that “we’re already doing well enough.” Benchmarking shatters myths and establishes new, higher performance standards based on real-world achievements.
This approach also implies a willingness to learn. Successful benchmarking is not industrial espionage but a legal and ethical desire to understand the fundamental reasons for others’ success. It requires openness, both for analyzing others and for critical self-assessment.
Benchmarking is Based on the Following Principles
The successful application of benchmarking is based on several fundamental principles. First, it is the principle of reciprocity and ethics. The research must be conducted legally, with respect for partners’ confidentiality and in a spirit of mutual benefit. Second, it is the principle of analogy — the compared processes must be sufficiently similar for the comparison to make sense.
The third key principle is measurability. All compared parameters must be quantitatively or qualitatively measurable for objective analysis. The fourth principle is systematicity. Benchmarking is not a one-time event but part of a continuous improvement process. It requires planning, data collection, analysis, and implementation of changes.
Finally, the principle of adaptation, not adoption (copying). The goal is not to blindly copy others’ solutions but to creatively reinterpret and adapt best practices to the unique conditions and culture of one’s own organization.
Benchmarking Methodology
The benchmarking methodology is a structured approach consisting of sequential steps. Although several models exist, most are variations of the classic Deming Cycle “Plan-Do-Check-Act” (PDCA). The methodology ensures the completeness and consistency of the study, minimizing the risk of missing important details.
The foundation of the methodology is thorough planning, which includes identifying benchmarking subjects, selecting partners for comparison, and determining data collection methods. At this stage, it is crucial to secure management support and allocate necessary resources. Without a clear plan and responsible persons, the project may remain just an initiative.
The subsequent stages of the methodology focus on collecting and analyzing information, developing recommendations, and, most importantly, implementing changes and monitoring results. An effective methodology turns benchmarking from an academic exercise into a real performance management tool.
Stages of Benchmarking
The benchmarking process is usually broken down into several key stages. The first stage is determining what to compare. The organization must select specific processes, products, or metrics that are critical to its success and require improvement. The second stage is identifying leading organizations that are benchmarks in the selected area.
The third stage is information gathering. This can be done through open sources (reports, publications), industry conferences, or by establishing official partnership relationships for experience exchange. The fourth stage is data analysis. This stage identifies the performance gap and determines the root causes — the fundamental reasons why the leading company achieved superior results.
The fifth stage is developing and implementing an action plan. Based on the analysis, specific, measurable, and achievable goals are formulated, improvement projects are developed, and responsible persons are assigned. The final stage is monitoring results and repeating the cycle. Benchmarking is a continuous process, as the standards of best practices are constantly rising.
Business Process Benchmarking
This type of benchmarking focuses on comparing individual operations and functions, such as logistics, customer service, supply chain management, or production cycles. Its goal is to find and implement the most effective methods for performing specific tasks, regardless of the industry. For example, a company might study how an airline manages bookings to improve its own order processing system.
Business process benchmarking often requires deeper immersion than financial or product analysis, as it is necessary to understand not only “what” is being done but also “how” and “why” it is done that way. This involves process mapping, interviewing employees, and analyzing the technologies used. This approach helps identify hidden reserves for optimization and cost reduction.
The result is the redesign of business processes (business process reengineering) or their gradual improvement (kaizen). Success directly depends on how accurately the organization was able to adapt someone else’s successful process to its organizational structure and corporate culture.
Functional Benchmarking
Functional benchmarking is a type of process benchmarking but focuses on comparing specific functions or departments (e.g., marketing, HR, finance) with similar functions in other companies that are not necessarily direct competitors. This expands the pool of potential partners for comparison, as it reduces concerns about confidentiality.
For example, a bank might study best practices in talent management at an IT company known for its innovative HR approaches. Since the companies do not compete in the same market, they are more likely to agree to an open exchange of experience. This makes functional benchmarking one of the most popular and accessible types.
The main advantage of this approach is the ability to quickly and radically improve the performance of a single function by implementing proven and refined practices from outside. However, the risk is that the imported methods may conflict with the company’s overall strategy or its other departments.
Internal Benchmarking
Internal benchmarking is conducted within a single organization. It involves comparing similar processes, departments, branches, or subsidiaries with each other. This type is the easiest to implement, as data is easier to collect, and the corporate culture is unified.
A classic example of internal benchmarking is comparing the performance indicators of different retail stores in the same chain. Management can identify the best practices of the most successful store (e.g., in merchandising, inventory management, or personnel work) and spread them to all other locations.
This approach is low-cost and has low risks associated with confidentiality. It is excellent for large, geographically dispersed companies. However, its main drawback is the limited horizon: the organization may become the best within itself but still fall short of the market leaders’ level.
External Benchmarking
External benchmarking aims to study the experience of other companies outside the organization. This can be competitive benchmarking (comparison with direct competitors) or generic (comparison with leaders from other industries). This type is considered more complex and resource-intensive, but also potentially more rewarding.
The primary value of external benchmarking is the opportunity to gain completely new, breakthrough insight. Within its own industry, a company may be limited by established paradigms, while companies from other sectors may be using innovative approaches not yet considered in that industry.
The challenges lie in accessing relevant and reliable data about competitor companies. Often, information has to be gathered piecemeal from public reports, industry analyses, or through participation in benchmarking consortia, where several companies anonymously exchange data.
Example of External Benchmarking
A striking historical example of external benchmarking is the study of L.L.Bean‘s logistical processes by the Xerox corporation. In the 1970s, Xerox faced rising costs in its warehouse operations. Instead of studying their direct competitors in the copier industry, they turned their attention to L.L.Bean, whose order-picking system was considered one of the most efficient in the world.
Xerox discovered that L.L.Bean used innovative methods for sorting and placing goods in the warehouse, which significantly reduced the time to pick a single order. By analyzing and adapting these practices, Xerox was able to radically increase the productivity of its own warehouse operations and significantly reduce costs. This case became a classic and demonstrated the power of the cross-industry approach.
Example of Internal Benchmarking
A large banking network with hundreds of branches across the country decides to improve customer service quality and increase cross-product sales. Management launches an internal benchmarking program: data on key performance indicators (KPIs) for each branch is collected — service time, number of sales per employee, customer satisfaction level.
The analysis reveals that Branch No. 15 in a small town consistently shows the best sales results. A team of specialists from the head office is sent to this branch to study its working methods. It turns out that the local manager implemented a unique motivation system and daily 15-minute meetings to share successful cases.
These best practices were formalized, adapted, and implemented in all other bank branches as a new work standard. As a result, the network’s average performance increased, and underperforming branches received a clear plan for improvement.
Benchmarking of Companies
At the overall company level, benchmarking focuses on strategic indicators: market share, profitability, financial stability, innovativeness, brand management. Such analysis helps answer the question: “Why are some companies leaders while others are outsiders?” It often involves using a Balanced Scorecard.
Industry leaders such as Toyota (with its Toyota Production System TPS), Apple (in design and ecosystem creation), or Amazon (in logistics and customer-centricity) have themselves become subjects of global benchmarking. They are studied to understand the fundamental principles underlying their long-term success, not just to copy their products.
Such high-level benchmarking requires a comprehensive approach and a deep understanding of not only the business model but also the corporate culture, value system, and leadership. This is no longer just a tactical tool but a strategic one, influencing the company’s vision and mission.
Municipal Benchmarking
Benchmarking is actively used not only in business but also in public and municipal administration. Municipal benchmarking is the comparison of the efficiency of providing public services (e.g., garbage collection, road maintenance, public transport operation, quality of education) between different cities or regions.
For example, one city might compare the cost and quality of road repairs with another city that has a similar budget and climatic conditions. This helps identify more efficient technologies, contract management methods, or quality control systems. The goal is to improve the quality of life for citizens and optimize the use of tax funds.
This type of benchmarking is often coordinated at the level of national city associations or specialized agencies that collect and standardize data to ensure comparability. The complexities here are related to differences in legislative frameworks and accounting for local specifics.
Corporate Benchmarking
Corporate benchmarking is the systematic activity within a large corporation aimed at continuously searching for and implementing best practices both within the company (between branches and subsidiaries) and externally. It becomes part of the corporate culture and the quality management system.
In successful corporations, benchmarking is institutionalized: special departments or working groups are created, methodological guides are developed, and employee training is conducted. This approach turns a one-time initiative into a routine process of continuous improvement. Corporate benchmarking is often integrated with employee performance management systems and strategic planning.
Its main value is creating an environment where employees constantly ask themselves: “Who does this better than us?” and “What can we learn from them?” This fosters a growth and innovation mindset, preventing organizational stagnation and complacency.
Effectiveness of Benchmarking
The effectiveness of benchmarking is measured by the achievement of set goals for improving key indicators. A successful benchmarking project leads to measurable results: cost reduction, productivity increase, growth in customer satisfaction, reduction in cycle time. However, its effectiveness depends not only on the technical side but also on the human factor.
The involvement of top management and employees who will implement the changes is critically important. If benchmarking is perceived as “just another top-down initiative,” its results will be minimal. Effectiveness also depends on the correct choice of the benchmark and the depth of the analysis of the causes of the performance gap.
Benchmarking brings the greatest return when it focuses on business-critical processes, and its results are directly linked to the company’s strategy. In this case, it becomes a powerful driver of strategic change, not just a tactical tool.
Disadvantages of Benchmarking
Despite its advantages, benchmarking has several significant drawbacks. First, it is resource-intensive. A quality study requires significant investments of time, money, and human resources. Second, there is a risk of obtaining irrelevant data or its incorrect interpretation, which can lead to erroneous decisions.
The third drawback is orientation towards the past and present. Benchmarking studies what already works well for others but does not create fundamentally new, breakthrough solutions that will define the market tomorrow. Excessive enthusiasm for “catch-up” benchmarking can suppress internal innovation and creativity.
Finally, there is a risk of incorrect adaptation. Blindly copying practices without considering national, industry, and corporate specifics can lead to failure. What works in one culture may be counterproductive in another.
Benchmarking: Pros and Cons
Summarizing, the key pros and cons of benchmarking can be highlighted.
Pros:
- Objective understanding of one’s competitiveness.
- Stimulation of continuous improvements and innovations.
- Establishment of ambitious but realistic goals.
- Risk reduction through the implementation of already proven solutions.
- Increased employee motivation through understanding the best standards.
Cons:
- High costs of time and resources.
- Limited horizon (orientation towards existing leaders).
- Potential incompatibility of best practices with one’s own culture.
- Risk of breaching confidentiality or ethical norms.
- Possibility of suppressing radical innovations in favor of gradual improvements.
Benchmarking in Scientific Articles
Benchmarking is a popular topic for academic research in management, economics, and engineering. Scientific articles discuss its methodological foundations, analyze cases of successful and unsuccessful application, and develop new models and classifications. Scholars explore the connection between benchmarking and other concepts, such as knowledge management, organizational learning, and strategic management.
Special attention is paid to comparative studies of the effectiveness of different types of benchmarking in various industries and cultural environments. Works dedicated to benchmarking in the public sector, healthcare, and education are published. The scientific community also debates ethical aspects and the development of international standards for this activity.
The presence of peer-reviewed scientific articles provides benchmarking with a theoretical basis, legitimizes it as a management tool, and contributes to its further development and improvement. Research provides practitioners with evidence of effectiveness and specific recommendations.
Conclusion: Benchmarking in Simple Terms
In simple terms, benchmarking is “smart imitation.” It is a process where you, wanting to improve your business, don’t reinvent the wheel but look for someone who is already doing something better than anyone else and learn from them. You look not only at competitors but also at the best companies from any other fields to adopt their successful experience and creatively apply it to your own situation.
It is not espionage or one-to-one copying. It is an honest and open desire to become better, based on comparison and analysis. To draw an analogy, benchmarking is when a football team, to practice tactics and improve skills, studies the game of the world champions to understand the principles of their victories, not just to copy a single combination.
In the end, benchmarking is a philosophy of continuous improvement based on the idea that you don’t have to be the smartest person in the room if you can find those who are smarter and learn from them. It is a tool for those who are not afraid to admit that there is room to grow and are ready to act to achieve new heightsarman.
