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What are the Four Types of Benchmarking?

Understanding What Benchmarks Do What

Benchmarking is the competitive edge that allows organizations to adapt, grow, and thrive through change. Benchmarking is the process of measuring key business metrics and practices and comparing them—within business areas or against a competitor, industry peers, or other companies around the world—to understand how and where the organization needs to change in order to improve performance. There are four main types of benchmarking: internal, external, performance, and practice.

1. Performance benchmarking involves gathering and comparing quantitative data (i.e., measures or key performance indicators). Performance benchmarking is usually the first step organizations take to identify performance gaps.

What you need: Standard measures and/or KPIs and a means of extracting, collecting, and analyzing that data. 

What you get: Data that informs decision making. This form of benchmarking is usually the first step organizations take to identify performance gaps. 

2. Practice benchmarking involves gathering and comparing qualitative information about how an activity is conducted through people, processes, and technology. 

What you need: A standard approach to gather and compare qualitative information such as process mapping.

What you get: Insight into where and how performance gaps occur and best practices that the organization can apply to other areas.

3. Internal benchmarking compares metrics (performance benchmarking) and/or practices (practice benchmarking) from different units, product lines, departments, programs, geographies, etc., within the organization. 

What you need: At least two areas within the organization that have shared metrics and/or practices. 

What you get: Internal benchmarking is a good starting point to understand the current standard of business performance. Sustained internal benchmarking applies mainly to large organizations where certain areas of the business are more efficient than others.

4. External benchmarking compares metrics and/or practices of one organization to one or many others. 

What you need: For custom benchmarking, you need one or more organizations to agree to participate. You may also need a third party to facilitate data collection. This approach can be highly valuable but often requires significant time and effort. That’s why organizations engage with groups like APQC, which offers more than 3,300 measures you can use to compare performance to organizations worldwide and in nearly every industry.

What you get: An objective understanding of your organization’s current state, which allows you to set baselines and goals for improvement. 

Internal performance benchmarking is often a good place to start, but the biggest benefit comes from external benchmarking that examines both performance and practice. You get maximum impact when you look at the world beyond your own desk, department, and company. APQC members can use Benchmarks on Demand tool and find best practices in our Resource Library

Ultimately, benchmarking is about being humble enough to admit that others are better at something and being wise enough to learn how match—or even surpass—them at it. You’ll never gain that knowledge if you don’t look at the world beyond your own office, department, or company. In the words of Peter Drucker, “What a business needs most for its decisions—especially its strategic ones—are data about what goes on outside it. Only outside a business are there results, opportunities, and threats.”  

Get started today with APQC’s Benchmarking Basics Collection. This collection contains the main items you will need to start a benchmarking initiative including templates, tools, a glossary, APQC's Process Classification Framework and Benchmarking Code of Conduct, and articles that explain the steps required for successful benchmarking.