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Important facts
- What is benchmarking and how does it benefit companies?
- Benchmarking is the systematic comparison with best-in-class companies in order to identify performance gaps and initiate improvements.
- What are the goals of benchmarking - operational and strategic?
- The aim is to increase competitiveness, make processes more efficient and make more informed strategic decisions.
- What types of benchmarking are there and how do they differ?
- The main types are internal, external, competitive, functional and generic benchmarking, which differ according to the comparison partners and objectives.
- How does a successful benchmarking process work?
- A successful benchmarking process comprises target definition, data collection, analysis, implementation of measures and continuous review.
- Which current trends characterize modern benchmarking?
- Modern trends such as digitalization, big data and artificial intelligence make benchmarking faster, more data-driven and strategically even more effective.
Abstract
Benchmarking is a key management tool for objectively assessing and specifically improving the performance, innovative strength and competitive position of companies. It is based on the systematic comparison of products, processes, services or strategies with best-in-class companies or direct competitors - with the aim of identifying performance gaps, adopting best practices and deriving specific measures to increase efficiency.
The process follows five phases: Objective setting, data collection, analysis, derivation of measures and continuous review. Traditional methods such as SWOT analysis and balanced scorecards are used, as are modern digital tools, big data analyses and AI-supported forecasts. The main challenges lie in the availability of data, the comparability of key figures and the resources required - which can be made manageable through clear standards, systematic data management and an open learning culture. Companies that consistently practice benchmarking not only increase their process efficiency, but also position themselves as agile, innovative competitors in dynamic markets in the long term.
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What is benchmarking?
Definition of
Benchmarking refers to the ongoing, systematic comparison of a company's products, services, processes or strategies with those of leading market players - so-called best-in-class companies - or direct competitors. The aim is to recognize performance gaps, identify best practices and derive improvement measures. In contrast to one-off analyses, benchmarking is designed as an ongoing optimization process and combines quantitative key figures with qualitative findings.
The term "benchmark" originally comes from the construction and surveying industry and refers to a fixed yardstick against which other measurements are aligned - in management this is transferred to the standard set by best performers.
Three practical examples
Automotive: A manufacturer compares the throughput times of its assembly line with the industry leader and discovers that the competitor produces 15% faster thanks to just-in-time delivery and robotics. Reaction: targeted investments in automation and material flow optimization.
Telecommunications: One provider determined that its own hotline waiting time of 5 minutes on average is five times as long as that of the benchmark company (1 minute). Reaction: Introduction of chatbots and self-service portals.
Healthcare: A hospital transfers the airline checklist system to patient management - with a measurable reduction in treatment errors.
Development of the benchmarking concept
The concept originated in the USA, specifically at Xerox in the 1970s and 1980s. When Xerox discovered that Japanese competitors were manufacturing their copiers at lower cost and with higher quality, the company began systematically analyzing the production processes and services of its competitors - with the aim of learning from their methods. This initially purely operational cost and quality comparison has now become a strategic management tool that covers all areas of the company: from production and logistics to personnel and sales.
Why benchmarking is more important than ever for companies
For companies, carrying out benchmarks provides a transparent information basis for objectively identifying potential for improvement and creating a sound basis for decision-making. In markets characterized by increasing pressure to innovate, digitalization and global competition, it enables companies to monitor and measure their own performance and close gaps with leading market players or partners in a targeted manner. Benchmarking is equally relevant for small and medium-sized companies as well as for corporations, as growth and efficiency improvements are not only evaluated internally, but above all in comparison to the market leaders.
An analysis by McKinsey shows that companies that systematically carry out benchmarking achieve efficiency gains of up to 25% in core processes and achieve measurably higher customer satisfaction levels.
Three further advantages that are often underestimated:
- Knowledge transfer: Benchmarking promotes the internal transfer of knowledge by transferring best practice from one area to another.
- Learning culture: It establishes a learning culture that makes companies more agile in the face of market changes.
- Fact-based: In strategic management, it provides the factual basis for aligning targets with the competition rather than estimating them internally.
Objectives of benchmarking
Increasing competitiveness is at the heart of every benchmarking project. By comparing itself with the best, a company gains clarity about where it stands in the industry and which factors lead to superior success. In the automotive industry, for example, benchmarking is essential in order to adopt new production methods and service concepts at an early stage and assert oneself in global competition.
Benchmarking also serves as an early warning system: technological or strategic gaps compared to the competition become visible before they are reflected in the results. On this basis, long-term strategies can be developed that are geared towards demonstrably successful practices - instead of internal assumptions.
Benchmarking is designed to identify particularly successful working methods, processes and management methods and use them as a template. These recipes for success can be transferred to your own organization and adapted to your individual circumstances.
A practical example: Deutsche Telekom analyzed innovation and development processes from Silicon Valley as part of its "T-Labs" initiative and later via its subsidiary "hubraum" - through cooperation with start-ups, research centers and local tech companies. These insights were incorporated into the internal innovation culture, for example in the form of agile development processes, open innovation platforms and accelerated product cycles. These cross-company benchmarking initiatives not only enabled Deutsche Telekom to increase its innovative capacity, but also to position itself internationally as an attractive partner for technological collaborations.
The targeted analysis and continuous improvement of business processes often lead to greater process efficiency and increased productivity. The logistics industry, for example, uses benchmarking in process management to optimize transport, storage and loading flows. A case study by DHL in the textile and fashion industry shows: Process benchmarking enabled the average delivery lead time to be reduced by up to 15% - resulting in lower costs, optimized use of resources and a faster response to customer requirements.
Benchmarking not only provides operational recommendations for action, but also makes a significant contribution to strategic planning. The data obtained enables realistic targets to be set, growth areas to be developed and disruptive technologies to be identified at an early stage.
In concrete terms, this means
- Enables well-founded, realistic objectives to be set at a strategic level
- Identifies potential growth areas and new market opportunities for the same industries
- Supports the early detection of disruptive technologies or trends
- Serves as a basis for well-founded decisions in strategy workshops
- Sharpens your own competitive position compared to the rest of the industry
- Promotes the development of long-term targets and strategic measures
The types of benchmarking
Internal benchmarking
In internal benchmarking, a company compares different business units, departments or locations with each other. The aim is to identify internal differences in performance and disseminate optimal standards throughout the company. For example, a retail chain can compare customer satisfaction in different stores and implement the most efficient practices across locations. This form often saves resources, as the relevant data is usually already available within the company.
External benchmarking
External benchmarking draws comparisons with companies outside the organization - both with direct competitors and with companies from outside the industry that are considered to be particularly strong in certain areas. Public administrations, for example, adopt innovative digital citizen services from pioneers in other countries in order to modernize their own offerings.
External benchmarking makes it possible to "think outside the box" and unlock innovation potential that remains hidden in purely internal comparisons. At the same time, it brings with it specific challenges:
Advantages:
- Access to innovation impulses outside your own organization
- Unlocking potential for improvement that would not be visible internally
- Basis for the development of long-term, competition-oriented strategies
Challenges:
- External data is often difficult to access because companies treat their key figures confidentially
- Meaningful comparisons often require collaborative partnerships or benchmarking clubs
- Recourse to specialized consulting companies may be necessary
Those who overcome these hurdles gain one of the most valuable perspectives in the entire benchmarking process.
Competitive benchmarking
Competitive benchmarking focuses on direct competitors. Companies analyze competitors' products, offer structures and services in order to balance out strengths and weaknesses in their own portfolio. In e-commerce, for example, competitors' price structures, delivery times and customer satisfaction ratings are continuously monitored in order to react flexibly to market developments. This form requires particular sensitivity when dealing with sensitive market data.
Functional and generic benchmarking
Functional benchmarking refers to specific functions or processes, regardless of the industry. For example, a production company can analyze the maintenance processes of a leading energy supplier in order to benefit from its efficiency.
Generic benchmarking, on the other hand, is based on very general processes or standards that are considered exemplary across all sectors. Customer-centric thinking, such as that found in retail or tech companies, is often transferred across sectors.
The benchmarking process in 5 steps
Planning and objectives
Benchmarking stands and falls with a precise objective. First of all, those responsible clearly define which areas, processes or products are to be analyzed - and which specific improvement goal is being pursued. For example, a software company can compare the development times of new products with those of the industry leader in order to optimize time-to-market.
The definition of objectives follows the SMART principle: specific, measurable, accepted, realistic and time-bound. This is the only way to objectively evaluate the success of the project afterwards.
Data and information collection
Systematic data collection comprises two levels: quantitative key figures such as cost data, throughput times or error rates - and qualitative information on working methods, degree of innovation or customer experience. In many cases, data is obtained from internal ERP systems, external studies, public databases or through direct surveys of employees and customers.
In some cases, especially with external benchmarking, direct exchange with other companies or participation in benchmarking networks is required.
Analysis and comparison
The collected data is then subjected to a thorough analysis. The comparison is usually carried out using key figure ratios, statistical evaluations or graphical representations such as dashboards, diagrams or tables. The aim is to make performance differences, success factors but also weaknesses in your own company transparent and to be able to compare the benchmarking. Cooperation between IT, controlling and specialist departments is essential, especially for cross-departmental processes, and often results in a high learning potential.
The analysis should be interpretable and actionable so that concrete measures can be derived in the next phase.
Derive and implement measures
Based on the results of the analysis, potential improvements are identified and prioritized in the next phase. Specific measures are then developed to help achieve the defined goals. Responsibilities as well as time and resource plans are defined for each area. If, for example, quality deficiencies become apparent in comparison to a competitor, a package of measures could be developed consisting of additional training, process automation and the introduction of new quality management methods.
It is crucial that the measures are not only developed, but also consistently implemented in accordance with the template.
Review of measures and continuous improvement
Implementation is followed by regular performance reviews - and the start of the next cycle. Benchmarking is not a one-off project, but an iterative process.
Key figures and methods
The most important key figures
Key financial figures
The hard financial indicators form the backbone of any benchmarking:
- Turnover
- Profit
- Return on invested capital (ROI)
Cost structures per product or process can be compared across industries and provide objective business information on performance differences. For example, an industrial company can compare its material cost ratio (MCR) with that of its competitors and leverage optimization potential through targeted negotiations with suppliers.
Financial benchmarks are particularly suitable for annual comparisons and performance trends.
Process key figures
Process indicators are key when it comes to operational excellence and efficiency. Typical process indicators are:
- The average delivery time
- Machine running times
- scrap rates or
- the time span from customer inquiry to delivery.
In the pharmaceutical industry, for example, low error rates in the manufacturing process are not only cost-relevant, but also a clear competitive factor.
Today, automation and digitalization make it possible to record process data in real time - and therefore react to deviations much more quickly.
Customer satisfaction and quality indicators
In customer-oriented sectors such as retail, services and IT, soft factors are gaining in strategic importance:
- Customer satisfaction
- the Net Promoter Score (NPS)
- Quality indicators.
Customer surveys, review portals and social media monitoring provide valuable comparative data. Companies such as Amazon and Apple set standards here - their customer experience is considered the benchmark standard in many industries.
Methods and tools for benchmarking
SWOT analysis
The SWOT analysis is a proven tool for evaluating a company's internal strengths and weaknesses as well as external opportunities and risks. As part of benchmarking, the SWOT can help to identify the most important success factors of competitors and partners and derive specific development goals from them.
Many companies use the SWOT analysis to identify strategic fields of action and relevant benchmarks at an early stage.
Balanced scorecard
The balanced scorecard helps companies to clearly present and link measured values from different areas of the company. Financial indicators, process indicators, employee and customer satisfaction values are considered together in the selection process to ensure a balanced analysis. In the benchmarking process, the balanced scorecard serves as a central dashboard for comparing your own key figures with those of the competition and initiating targeted control measures.
Benchmarking software and digital platforms
Today, powerful tools make data collection, evaluation and visualization largely automatic. Proven solutions at a glance: Tableau and Power BI for internal data aggregation and visualization; Similarweb and Semrush for digital competitive benchmarking; QPR Benchmarking and APQC Open Standards Benchmarking for process-related industry comparisons. For SMEs without their own BI department, industry associations such as VDMA or IHK key figure systems offer cost-effective entry-level data.
Cloud-based platforms are indispensable, especially for international companies, as they manage data standards, methods and reporting structures centrally.
Interviews and questionnaires
Interviews and standardized questionnaires are proven qualitative methods for gathering specific process details, employee experiences or customer opinions. Particularly in internal benchmarking or in sensitive areas such as innovation culture or management styles, open discussions often provide deeper insights than pure key figure surveys.
Companies are increasingly using feedback rounds and employee surveys as an integral part of their benchmarking processes.
Challenges and risks
Missing or incorrect data is the biggest single risk in benchmarking. External competitive data is often difficult to access as companies treat their key figures confidentially - and publicly available information is often strategically prepared or outdated. Problems also arise internally when different departments use different definitions or measurement methods: inconsistent data leads directly to incorrect conclusions. Clear responsibility for data is therefore essential. If you do not specify who collects which data, how and when, you run the risk of analyses that come to nothing or cannot be verified. There is also the issue of time: data that is up to date when it is collected may already be out of date when it is analyzed - a defined update cycle is therefore not a nice-to-have, but a prerequisite. After all, not all relevant success factors can be summarized in key figures: Corporate culture, management style or innovative ability require qualitative survey methods such as interviews or structured observation.
Benchmarking requires that the key figures under consideration are actually comparable. A production plant in Hamburg and a plant in Southeast Asia operate under fundamentally different cost structures, labor market conditions and regulatory frameworks - a direct comparison of key figures would be misleading. The same applies to international comparisons with different accounting standards (HGB, IFRS, US GAAP).
The recommendation: first carry out benchmarks within the same economic area and only gradually expand internationally. You can find out which specific regulatory requirements play a role here in our detailed article on the Compliance basics for companies.
The exchange of performance data, process descriptions or innovation concepts is often tricky, as trade secrets or data protection regulations are affected. Particularly when it comes to competitive benchmarking, companies find themselves caught between gaining knowledge and maintaining confidentiality. The establishment of trust networks, anonymized data collection or the use of open benchmarking initiatives can help to defuse this problem. In addition, clear non-disclosure agreements (NDAs) and templates of legal frameworks should be defined to avoid misunderstandings. The use of external benchmarking service providers can also help to ensure neutrality and data security. It is also important that only aggregated or structured data is passed on without drawing conclusions about sensitive details. Internal training on data protection and information security promotes a uniform understanding of how to handle critical data.
Ultimately, transparency about the origin, use and limits of the data strengthens the credibility and acceptance of the benchmarking process.
Benchmarking involves a considerable amount of resources. Data collection, analyses and the implementation of improvements require capacities in specialist departments, IT and management. This can lead to bottlenecks, especially in small companies. Efficient benchmarking therefore requires a realistic assessment of the effort involved from the outset, clear project plans and, if necessary, support from external consultants or tools.
The solution is not to do without, but to prioritize: start with a single process, select three to five key figures and realistically assess the effort involved from the outset.
Best practices and trends
Integration into the corporate strategy
Benchmarking only unfolds its full benefits if it is not seen as an individual project, but as a permanent component of the corporate strategy. One-off data surveys provide a snapshot of the current situation - strategic value is created by regular cycles that provide new impetus for organizational and operational improvements.
Leading companies are establishing dedicated benchmarking offices and anchoring the results directly in the strategy process.
Feedback loops and regular reviews
Continuous feedback loops are essential for the sustainable success of benchmarking initiatives. Successful companies regularly review the status of their improvement projects, adjust measures where necessary and learn from setbacks.
Modern dashboards, templates and automated reports help to identify developments at an early stage and evaluate long-term trends.
Success factors for sustainable improvement
Key success factors for successful benchmarking are an open learning culture, partners and managers who actively support the process and the willingness to see best practices from other companies as an opportunity rather than a threat.
Transparent communication, training and systematic change management ensure that the knowledge gained is integrated into the company's day-to-day operations and used for sustainable improvement.
Digital benchmarking and big data
Digitalization has fundamentally changed benchmarking. Big data analyses now provide companies with huge amounts of data from which benchmarks can be generated automatically. Online retail, for example, uses real-time data on market prices, sales movements and customer preferences to adapt to changes in the competitive environment in a matter of seconds.
Digital tools enable cross-sector comparisons and open up new perspectives for increasing efficiency, market development and innovation.
AI-supported data analysis and forecasts
Artificial intelligence takes benchmarking to a new level. Algorithms identify patterns in large data sets, forecast trends and enable personalized benchmarks for individual business areas. Financial institutions use AI to compare risk profiles and key earnings figures with the market in real time. In the production environment, machine learning models enable predictive maintenance and efficiency comparisons across multiple locations.
A particular advantage: AI improves with every new data point - forecasts become more precise, recommendations for action more context-specific. Natural language processing (NLP) also opens up unstructured data such as customer ratings or market reports.
What remains important is that ethical standards and transparency in the use of AI are not a restriction, but a prerequisite for reliable results.
Global benchmarking networks and cooperations
International benchmarking networks such as the Global Benchmarking Network enable companies to exchange data across countries, share best practices and set benchmarks beyond regional differences. For multinational corporations, these platforms enable consistent performance assessment across national borders. At the same time, they contribute to the standardization of methods and benchmarks - which significantly increases the informative value of the results.
Conclusion
Once you understand what benchmarking does, you quickly ask yourself: why didn't we start earlier? The answer is usually the same - lack of time, an unclear starting point or concerns about not being able to compare data. All three hurdles can be overcome.
Benchmarking is not an end in itself and not a project format that disappears into a drawer after the final report. It is a management tool that makes performance gaps visible, reveals recipes for success and systematically builds up competitive advantages. Challenges such as data quality, comparability and data protection can be made manageable through clear standards, governance and partnership-based networks. Digital tools, big data and AI speed up the process and increase precision.
The crucial first step is simple: choose a process, define three key figures, identify a comparison partner - and measure. What comes next is determined by the data.
Frequently asked questions
Benchmarking goes beyond the mere comparison of performance by specifically searching for the causes of performance differences and identifying best practices. While a conventional comparison records the current status, benchmarking is geared towards continuous improvement and the adaptation of successful methods from other companies.
This depends on the industry, company size and objectives. The basic rule is an annual cycle for strategic benchmarks. In dynamic markets such as e-commerce or software, a quarterly or ongoing comparison can be useful.
Benchmarking offers advantages for all companies, regardless of size or sector. Organizations that are open to change, have a strong learning culture and are specifically looking for growth and optimization potential benefit in particular.
The most common pitfalls are incorrect data collection, a lack of comparability of key figures and inadequate handling of confidential information. A professionally set up process with clear rules, uniform standards and high data quality makes these risks manageable.
The corporate culture is crucial for the acceptance and implementation of benchmarking results. An open, learning culture promotes the exchange of knowledge, the adoption of best practices and the motivation to continuously improve. Managers should actively support benchmarking and involve all employees in the improvement process.
Matthias Klein
LinkedInESG compliance expert - lawcode GmbH
Matthias Klein advises companies on the implementation of supply chain laws such as the CSDDD and supports the implementation of digital solutions for legally compliant supply chains. His specialist articles on the lawcode blog combine regulatory depth with practical recommendations for action.
