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What Is Benchmarking?

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  • Written By: Malcolm Tatum
  • Edited By: Bronwyn Harris
  • Last Modified Date: 13 October 2014
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Benchmarking is a strategy that is often employed to assess the level of overall performance of a company operating within a specific industry. Benchmarks themselves are those standards of excellence for productivity, quality, service delivery, and cost that are recognized as being the ideal within that particular field. The process of benchmarking helps a business to have an idea of its overall standing within the community, and make it possible to identify areas where there is room for improvement.

The establishment of a benchmark within an industry or profession does not appear overnight. Often, the benchmark is created over a number of years. From that point on, any new business entering the same field will judge their overall performance against the standards already in place within the industry. Those standards remain the norm until a competitor exhibits qualities that exceed the standard, and thus raise the benchmark for all other companies within the industry.

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A prime example of benchmarking can be seen in the field of telecommunications during the second half of the 20th century. Prior to the deregulation of the telephone industry in the United States during 1984, one company had established itself in terms of products, service delivery, and customer care. In order for emerging companies to compete, it was necessary to at least match those same standards with a lower rate, or to surpass those standards while still maintaining a rate that consumers would find attractive. The end result is that the overall benchmark for telecommunications within the United States began to change, as companies vied for the honor of setting the new industry standard.

Internally, benchmarking is one of the most effective strategies a company can use to position itself for growth. Because the proper assessment of how the company measures up to the industry standard relies on being brutally honest about policies, procedures, pricing, and service delivery, companies can get a better idea of exactly where they need to improve in order to increase market share, or even to maintain the share of the market they current command. When used effectively, benchmarking can lead a company to become more innovative, think about their business model in new ways, and even identify new consumer markets that could be targeted, thus increasing the overall sales generated by the company.

It is important to note that benchmarking is not a process that is conducted once in a great while, then set aside for a few years. Companies that want to remain competitive are constantly in the process of evaluating their practices and procedures against the standards for their industries, and looking for ways to meet or exceed those standards. In a time when technology is constantly changing the way consumers make decisions on what to buy and who to buy it from, benchmarking has taken on even more importance for companies that want to be in business for many years to come.

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