Benchmarking types by comparison partner: internal, competitive, functional, generic, collaborative and international. By what is compared: performance, process, strategic and financial. Xerox’s 1982 study of L.L.Bean’s warehouse is the classic example of functional benchmarking.
In 1982, Xerox wanted to speed up order picking in its warehouses. Instead of studying other copier makers, it went to L.L.Bean, an outdoor clothing retailer known for fast, accurate order fulfilment. The products were nothing alike, but the warehouse process was the same, and Xerox learned more from Bean than it could have from any rival. That story explains why there is more than one type of benchmarking.
Here are the main types, grouped by who you compare with and what you compare. For the pros and cons, see the advantages and disadvantages of benchmarking.
By Who You Compare With
1. Internal Benchmarking
Comparing units within the same organisation, such as two plants or branches. Data is easy to get, but ideas are limited to what the company already does.
2. Competitive Benchmarking
Comparing directly with rivals on products, prices, service or results. Highly relevant, but competitors rarely share detailed data.
3. Functional Benchmarking
Comparing a function, such as logistics or billing, with leaders in other industries that perform it well. Xerox and L.L.Bean is the classic case.
4. Generic Benchmarking
Comparing broad processes, like customer onboarding or invoicing, with any organisation regardless of industry. It often produces breakthrough ideas.
5. Collaborative Benchmarking
A group of organisations agree to share data and practices, often through an industry body.
6. International Benchmarking
Comparing with leaders in other countries, useful when domestic best practice lags global standards.
By What You Compare
7. Performance Benchmarking
Comparing numbers: costs, defect rates, delivery times, margins. It shows the size of the gap but not how to close it.
8. Process Benchmarking
Studying how top performers do the work, step by step, to learn methods you can adopt.
9. Strategic Benchmarking
Comparing long-term strategies, business models and capabilities of successful organisations.
10. Financial Benchmarking
Comparing ratios such as return on capital, working capital days and cost structure with peers.
Choosing the Right Type
| Goal | Best type |
|---|---|
| Quick wins inside the company | Internal |
| Know where you stand against rivals | Competitive, performance |
| Breakthrough ideas for a process | Functional, generic, process |
| Rethink direction | Strategic |
| Shared learning at low cost | Collaborative |
Benchmarking is part of a wider quality effort. See the elements of Total Quality Management.
