Benchmarking is a process for comparing the policies, procedures, products, and processes of a business to those of other firms or to standard measurements. The outcome of a benchmarking process includes the following:
The identification of opportunities for improvement
Noting how targeted areas are performed better by peer companies
The development of a performance improvement plan
The review of results and the identification of further improvement areas
The management team of a business may choose to engage in benchmarking when it has no basis of comparison for determining where there are potential improvements within the entity.
Benchmarking can also be used when an organization has a number of similar free-standing operations, such as retail store outlets or bank branches. In this situation, a company can measure the performance of each location and use these results to rank the locations. Those scoring low are expected to benchmark their results against higher-scoring locations to determine how performance can be improved.