Benchmarking

© iStockphoto
styf22

Weighing up one approach against another.

How would you describe your company's or your department's performance? Great? Good enough? Average? Bad?

These terms are all relative, so what do they really mean?

Whether you're doing well or not so well depends on what you use as a basis for comparison. Do you compare current performance with previous years? Do you compare yourself with other companies your size? Or do you compare with other companies in your industry that serve the same niche market?

How Do You Measure?

To find out whether your performance measures up, you need to use the right kind of measuring stick. If your performance last year was really poor, then a 10 percent improvement this year doesn't necessarily mean that you're doing well. If your sales increase by 20 percent, you might be happy – but if your competitor's sales increase by 50 percent, suddenly your 20 percent looks very different.

Likewise, if you compare your performance with other organizations based on random criteria – like market placement or size – there's no way of knowing whether the standard set by those companies is something you should try to match. Being better than the bottom five companies in your industry may sound good, but are there a total of 10 companies or 100 companies? That makes a big difference.

The "Best Practices" Standard

For a more meaningful measure, you need to compare your performance with industry best practices. This is called benchmarking. A benchmark is a reference or standard against which you can determine how well you're doing.

The benchmarking process can help you answer questions like these:...