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Types of Benchmarking

There are many definitions of benchmarking, but in its very essence, it means using a structured framework to learn from the experience of others (Kozak & Nield, 2001). As such, it displays three basic characteristics: it measures through comparison, it leads to continuous improvement, and it’s carried out in a systematic way. However, there is no unequivocal benchmarking process, but rather, a collection of different types of benchmarking endeavors that you can choose from depending on your specific objectives.

Benchmarking: Types and Examples

The broadest classification of benchmarking processes is by comparison target. That is to say: who are you going to compare yourself to? In answering this question, two types arise: internal and external benchmarking. Let’s define each one:

Internal benchmarking measures and compares different areas of the same organization. For example, the Human Resources manager in a hotel may want to benchmark the employee retention rate of each department to find internal best practices that can then be implemented across the entire operation.

On the other hand, external benchmarking deals with standards outside the organization. The different sources of external comparison present us with further sub-divisions of the benchmarking process, namely competitive, industry and generic benchmarking. Competitive benchmarking refers to comparisons with direct competitors. For example, you would want to know how the GOPPAR achieved by your property compares to that of your competitive set to have an in-depth understanding of your overall performance and profitability. Industry benchmarking looks beyond competitors to include other key players such as distributors and suppliers. For instance, you could compare your customer satisfaction scores to that of OTAs and airlines to identify areas of improvement. Finally, generic benchmarking deals with general comparisons with a diversity of unrelated industries, in the search for excellence beyond specific services or products. To illustrate, Southwest airlines studied NASCAR teams to find the key elements in their time management process in order to improve their own on-time operation.

Another way to classify benchmarking processes is by the content of comparison. In other words: what are you going to compare? Three different types of benchmarking can be defined in this way: process, performance and strategic.

Process benchmarking is about comparing the steps in your operation versus the ones that others have mapped out. For example, comparing the processes used to record financial information in your hotel to those described in the USALI is a way of incorporating accounting best practices into your operation.

Performance benchmarking uses KPIs (Key Performance Indicators) as the base of comparison. As an example, you could compare the food cost in the restaurant to that of the in-room dining operation to have a measure of efficiency in each of these areas of your F&B department.

Lastly, strategic benchmarking deals with core competencies and best practices towards the fulfilment of organizational goals. For instance, hoteliers can study peer-to-peer accommodation offerings, such as Airbnb, to understand what kind of consumer wants they are addressing and how hotels could adapt their strategies to cater to those wants too.

Benchmarking Pitfalls

At this point, it is important to distinguish the process of benchmarking from that of replication. For benchmarking purposes, comparisons are meant to provide learning opportunities so as to gain a deeper understanding of why certain processes, actions and strategies are successful. This is completely different from the “copy-paste” approach advocated by certain definitions of the term. It is not about doing exactly the same thing as everybody else and diluting whatever diversity exists within industries, but identifying the underlying principles and efficiencies that drive positive outcomes and then creating action plans that fit your organization and its specific goals. Consequently, benchmarking is not a one-size-fits-all endeavor.

Another significant pitfall of benchmarking is the widespread belief that numbers reign over the process. Of course, measures and KPIs are very important, but they mean nothing without a meaningful analysis of the whole operation. For example, a company displaying lower cost of food sales is not necessarily more efficient. Instead, this measure could reflect the use of low quality ingredients that end up impoverishing the guests’ experience and, ultimately, endangering future profitability. Again, benchmarking is not an automated process: it requires analysis - and in a way, corporate soul-searching - to unleash its full potential.

Finally, benchmarking is not a one-hit wonder. Continuous improvement requires continuous commitment, and you will find along the process that reassessment and adjustments are necessary to accommodate the changes bound to take place in any dynamic business environment. The important thing is that you don’t get frustrated if you don’t see immediate results. Take a step back, evaluate what you should do differently (maybe change your competitive set, or select a set of KPIs that better reflects your strategy), implement the necessary changes, and keep going. This process will streamline your operation, making it easier to both cope with unexpected turns of the tide and identify growth opportunities.

 

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