Definition: Financial benchmarking involves running a financial analysis and making a comparison of the results in order to assess a firm's overall competitiveness, efficiency and productivity.
The term benchmarking refers to the process of comparing one's business practices and performance standards to other firms within one’s industry. Quality, time, and
cost are the most common divisions to be measured.
Improvements from learning by benchmarking can result in running a business more efficiently and much more cost effectively.
How benchmarking works
Benchmarking is most often used in order to evaluate performance by focusing on one or more particular indicators. This could be cost per unit, productivity, defects per unit, or otherwise. This measurement of performance is then compared to other firms within their industry.
Benchmarking is a process that is often utilized by strategic management. Organizations evaluate the various aspects of their processes and compare them to the processes of “best practice” companies. Most often these “best practice” companies are from within the same field or industry.
Conclusions
The information gained from such a comparison allows firms to determine how well they perform in comparison with the “best” and, in turn, develop new and better plans on how to make improvements or adopt certain best practices.
Benchmarking is most commonly an on-going process in which firms continuously seek the improvement of their practices.
The twelve stages of benchmarking
Robert Camp (author of one of the first books on benchmarking) developed a twelve-stage approach to benchmarking, as follows:
1. Select subject ahead
2. Define the process
3. Identify potential partners
4. Identify data sources
5. Collect data and select partners
6. Determine the gap | 7. Establish process differences
8. Target future performance
9. Communicate
10. Adjust goal
11. Implement
12. Review/recalibrate |