Benchmarking Explained: What is Benchmark Data?

Introduction

In this blog we will look at all of things related to benchmark data, including:

• What is Benchmark Data?
• What is the Benchmarking Process?
• What is Benchmarking Analysis?
• Understanding Results from Benchmarking Data
• Benchmarking Tools
• Conclusion

What is Benchmark Data?

Benchmark data, often referred to simply as "benchmarks," is a collection of key performance indicators (KPIs), metrics, or data points that represent the typical or average performance within a specific sector or field.

These data points are compared to other organizations so a company can assess their own performance and determine how they stack up against competitors. Benchmark data can cover a wide range of areas, including financial performance, operational efficiency, and customer satisfaction.

For example, financial metrics such as revenue growth rates, profit margins and specific costs as a % of revenue are commonly used in the financial benchmarking process. Now that you have a good understanding of what benchmark data is, let's learn about how we can use it.

What is the Benchmarking Process?

The benchmarking process is a systematic approach used by organizations to compare their own practices, processes, or performance metrics with those of other similar organizations, industry standards, or best-in-class companies.

The goal of the benchmarking process is to identify areas for improvement, learn from best practices, and enhance an organization's competitiveness and efficiency. We have broken the benchmarking process in to 10 key steps below:

1. Identify What to Benchmark: Determine the specific area, process, or performance metric that you want to benchmark. This could be a particular aspect of your organization's operations, such as customer service, product quality, cost efficiency, or any other relevant area.
2. Select Benchmarking Comparators: Identify organizations, competitors, or leaders in your sector to benchmark against. The key thing here is to ensure that they are relevant to the area you are benchmarking. If the comparators are not relevant, then stakeholders won't trust or use the results.
3. Data Collection: Gather data and information related to the area of interest from both your organization and your benchmarking comparators. This data can include performance metrics, processes, policies, and best practices.
   
   Tip: Use benchmarking platforms like CompanySights for functional headcount benchmark data, which can save users significant time when trying to source comparator data points.
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4. Data Analysis: Analyze the collected data to identify performance gaps, differences and opportunities for improvement. Common analytical methods include statistical analysis, data visualization, and trend analysis.
   
   Note: In the next section we do a deep dive on benchmarking analysis and look at the tools that you can use to gain the best insights.
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5. Identify Best Practices: Study the practices, processes, or strategies employed by benchmarking comparators that contribute to their superior performance. Understand what makes them successful in the area you are benchmarking and then set your own performance targets.‍
6. Develop an Action Plan: Create action plans to bridge the performance gaps identified during the benchmarking analysis. This may involve process redesign, technology adoption, training, or other initiatives.‍
7. Implement Improvements: Put your action plans into action. Implement the necessary changes or improvements in your organization based on the best practices and insights learned throughout the benchmarking process.‍
8. Monitor Progress: Continuously track and monitor your organization's performance against the established benchmarks and targets. Regularly update your benchmarking analysis to measure progress and make further improvements as needed.‍
9. Communicate and Share Findings: Share the benchmarking findings and improvement plans with relevant stakeholders within your organization to ensure alignment and commitment to the improvement process.‍
10. Repeat the Process: Benchmarking is an ongoing and iterative process. Regularly revisit and update your benchmarking efforts to stay competitive and adapt to changing dynamics in the world.

There are different types of benchmarking, including internal benchmarking (comparing different departments within your organization), competitive benchmarking (comparing with direct competitors), functional benchmarking (a type of competitive benchmarking specifically for business functions), and strategic benchmarking (focusing on high-level strategies).

Overall, the benchmarking process outlined above is a valuable tool for organizations seeking to enhance their performance, reduce costs, increase efficiency, and drive continuous improvement. It provides a structured approach to assessing and improving organizational practices and processes.

What is Benchmarking Analysis?

Benchmarking analysis is a systematic process of comparing an organization's performance, practices, processes, or outcomes against those of other similar organizations, industry standards, best-in-class companies, or predefined benchmarks.

For example, if we think that the Finance function in our business is overstaffed then we can perform functional benchmarking analysis to evaluate this hypothesis. The first thing that we should do is calculate a few key metrics to measure performance and compare our Finance function to industry peers, such as:

• Finance employees as % of Total Employees: 34 Finance employees / 400 Total Employees, resulting in 8.5% for our company.
• Revenue per Finance Employee ($M): $82M revenue / 34 Finance employees, which totals $2.4M for our company.

Once we have these from our own organization then we need to source comparative data points. As this is a functional benchmarking exercise, let's use CompanySights which is a specialist functional headcount benchmarking platform for professionals to quickly source external benchmarking data. The platform has the same metrics available, with the results as follows for our industry and company size:

• Finance employees as % of Total Employees: Lower Quartile = 2.1%, Median = 3.0%, and Upper Quartile = 4.9%.
• Revenue per Finance Employee ($M): Lower Quartile = $6.7M, Median = $4.5M, and Upper Quartile = $3.1M.  

So what does this actually mean? Let's move on to the section below to understand what this analysis is actually telling us.

Understanding Results from Benchmarking Data

Benchmarking analyses can be hard to interpret. To gain insight from the company's performance metrics that you have measured requires skill and experience. One key thing required when you compare performance with industry peers or a direct competitor is to have a general understanding of statistical expressions. Most benchmarking analysis will be presented as the Lower Quartile (a.k.a. 25th Percentile), Second Quartile (a.k.a. Median), and Upper Quartile (a.k.a. 75th Percentile).

If the benchmarking metric/s from your own company are in the Lower Quartile, then this is typically understood to be a top performer. However, if following performance benchmarking you are in the Upper Quartile for specific business processes, then this is typically understood to be a poor performer. Between the two is defined as being in the mid-range and generally understood to be in line with the peer average.

Continuing with our Finance function example from the Benchmarking Analysis section above, let's evaluate the results:

• Finance employees as % of Total Employees: The company has 8.5% of staff in the Finance function, which is above the benchmark Upper Quartile of 4.9%, suggesting that there are a lot of Finance employees in the business.
• Revenue per Finance Employee ($M): The company generates $2.4M revenue per Finance employee, which is less than the Upper Quartile of $3.1M per Finance employee, suggesting that the Finance employees in the company are not very efficient at generating revenue.

In this example both metrics are in the Upper Quartile. This correlation can give us a high degree of confidence that the business does have an overstaffed Finance function. The next step is to review the Finance function processes and investigate ways to streamline and automate processes, resulting in fewer employees required to achieve the same level of output.

Benchmarking Tools

There are five broad categories of benchmarking tools available, as follows:

Benchmarking Platforms

Platforms like Gartner, APQC, and CompanySights aggregate and validate all types of business data to be used for benchmarking purposes. Users can subscribe or pay for specific data points on an ad hoc basis. These platforms are a key source of data for professionals to perform fast benchmark analysis.

Looking for industry-leading functional benchmarks? Search here

Online Databases and Research Reports

Access to online databases and research reports can be valuable for benchmarking analysis. Companies can subscribe to services like Bloomberg, Statista, or industry-specific databases to access relevant benchmarking data and reports.

Business Intelligence (BI) Software

BI tools like Tableau, Power BI, and Alteryx allow users to create interactive dashboards and reports, making it easier to analyze and visualize benchmarking data. They can connect to various data sources, including internal and external data, and enable users to identify performance gaps.

Data Analytics Software

Tools such as R, Python, and SAS provide robust statistical and data analysis capabilities. Data analysts and data scientists can use these tools to perform in-depth benchmarking analysis, including advanced statistical tests and predictive modeling.

Survey and Feedback Tools

Tools like SurveyMonkey, Qualtrics, and Google Forms allow organizations to gather feedback from customers, employees, or other stakeholders. This feedback can be compared to sector benchmarks to assess customer satisfaction and employee engagement.

Conclusion

Benchmark data is typically referred to as "benchmarks". We have learned about the key steps involved in the benchmarking process, the analysis to be performed and what the results typically mean for businesses.

Benchmarking can be a time consuming exercise because of the new processes required by companies to measure and compare performance to the competition. However, it's critical to gain continuous insight in to your organization, identify trends occurring and even achieve cost savings if you want to survive in this highly competitive and changing world.