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Business Intelligence and Finance
Company Life Cycle
What is benchmarking analysis? Benchmarking is the process of comparing a company’s performance to the performance of other companies. Benchmarking in management can be done by comparing business groups within a company, by comparing companies within an industry, or by comparing companies in different industries. Benchmarking tests can be done in terms of product quality or features, the quality of services provided, the efficiency of operational processes, and financial and operational performance measures.
For example, a company could benchmark its own characteristics against the characteristics of other companies. Characteristics that can be compared in benchmarking include financial performance measures such as net revenues
and net income
, operational performance measures such as cycle-time and percent of on-time product deliveries, organizational features such as compensation rates at certain hierarchical levels, and product features such a quality and manufacturing costs of particular products. Benchmarking Best Practices
The idea behind benchmarking best practices is to identify the company’s strengths and weaknesses, to make comparisons of functional activities and areas between the company and the companies considered to be the best in those activities or areas, and then to determine ways to emphasize the strengths and improve upon the weaknesses of the company based on the findings of the analysis.
A company can improve its efficiency, productivity, and profitability by examining best practices and then trying to improve its own performance by upgrading its processes or by imitating or implementing the best practices or benchmarking standards that were identified in the benchmarking analysis. Benchmarking Techniques
There are two types of benchmarking techniques: results benchmarking and process benchmarking. Results benchmarking includes analyzing products or services offered by competitors or similar companies. For example, a battery maker may perform results benchmarking by comparing the features, performance, and characteristics of its own batteries against the batteries of another battery maker, most likely the battery maker that is considered the best in the industry.
Process benchmarking refers to benchmarking an operational process. For example, a company that distributes computers might analyze the distribution process of a retailer known for efficient logistics and distribution. Process benchmarking aims to improve operational efficiency in a certain process and the comparison does not need to be done within a given industry, it can involve companies that perform similar operational functions in different industries.