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Benchmarking means comparing a business’s processes, profits, and practices to other businesses in the same industry. The point of comparison is called a benchmark, and is also referred to as the industry standard. Sometimes, business leaders use benchmarks as goals or as a means to evaluate the company’s progress. Types of benchmarking data include financial, operational, product, and strategic data.
Financial benchmarking data comes from comparing financial information, such as sales, profits, investment capital, and retained earnings. This type of benchmarking informs a business leader of the overall financial health of the industry. If the industry struggles with sales, then the business leader wouldn’t be overly concerned about a dip in revenue. Conversely, lowered company sales in a high-growth industry would be a cause for increased concern.
Operational benchmarking data involves manufacturing processes and employee productivity. The data may report how fast other businesses produce products. Industry standard formation sheets may list employee efficiency as units produced per employee per hour, or some similar form of comparable data.
Information collected for product data may include lists of product features and descriptions of product performance. This type of benchmarking data is very specific to the company’s industry. For example, a car company may gather benchmark data for speed and endurance of similar cars, while a laundry soap manufacturer can compile benchmarks for competing products' ability to remove stains.
Strategic benchmarking data stems from long-term organizational goals and marketing advancement. Compared to other types of data, strategic data may be harder to measure and analyze because it deals with plans and potentialities. Business leaders attempting benchmarking based on strategic data may compare similarities between strategic goals and marketing plans.
Some companies use a strategic management system known as Management by Objectives (MBO). This involves turning benchmarking data into reachable organizational goals, and then breaking those goals down into departmental and individual employee objectives. Not only does MBO creation involve benchmarking data, the management style also provides a basis for additional comparison and analysis, both within the company and with other businesses in the industry.
Datum for benchmark comparisons is derived from a number of elements of business, and the necessary information varies depending on the industry. For instance, companies that offer stock to investors are obligated to post certain financial information, which includes sales and earnings reports. Some business websites list best practices for operations and strategic planning. Product websites, packages, and trade magazines often list product data, which can be used for product benchmarking purposes.