Benchmarking. Best practices. Competitive analysis. All these terms are used in business today. But are they just buzzwords, or do the words have real meaning? Are they useful tools that can be used to improve business practices today? Let’s begin with some definitions.

The Language of Benchmarking

Benchmarking and Best Practices

Xerox Corporation defines benchmarking as follows:

The search for industry best practices which lead to superior performance.

To understand this definition completely, we must first be clear what is meant by best practices . They are practices that enable a company to become a leader in its respective marketplace. However, Best Practices are not the same for all companies. For example, if a company is in a declining market, in which the pressures are to maximize profits with a fixed sales volume, one set of best practices might allow market leadership. However, if the company is in a growth mode with profits dictated by gaining rapid market share, a different set of best practices would be appropriate. Therefore, best is determined by business conditions, not by a fixed set of business practices.

The second key term in the Xerox definition is superior performance. Many companies use benchmarking to be as good as their competitors. However, a company can gain very little if its goal for benchmarking is merely to achieve status quo. Benchmarking is a continuous improvement tool that is to be used by companies that are striving to achieve superior performance in their respective marketplace.

An alternative definition for benchmarking is as follows:

An ongoing process of measuring and improving business practices against the companies that can be identified as the best worldwide.

This definition emphasizes the importance of improving, rather than maintaining the status quo. It addresses searching worldwide for the best companies. Most marketplaces have international competitors. It would be naive to think that best practices are limited to one country or one geographical location. Information that allows companies to improve their competitive positions must be gathered from best companies, no matter where they are located.

Companies striving to improve must not accept past constraints, especially the “not invented here” paradigm. Companies that fail to develop a global perspective will soon be replaced by competitors that had the insight to become global in their perspective. In order to make rapid continuous improvement, companies must be able to think outside the box that is, to examine their business from external perspectives. The more innovative the ideas that are discovered, the greater the potential rewards that can be gained from the adaptation of the ideas.

A third perspective on benchmarking states:

Benchmarking sources “Best Practices” to feed continuous improvement.

This statement adds another dimension to benchmarking, that of having an external perspective. Research shows that major innovations in any business sector come from an external sector and are adapted to improve the practices of the company. In today’s competitive business environment, the need to develop this external perspective is critical to survival.

Still one other perspective defines benchmarking as the process of continuously comparing and measuring an organization with business leaders anywhere in the world to gain information that will help the organization take action to improve its performance. The common thread of studying other companies to gain information that allows the company to become more competitive is clear. Unless a company clearly understands the processes and procedures that allow a company to become the best, little value is derived from benchmarking.