## **Learning Outcomes**

After reading this article, you will be able to explain the benchmark process and its stages, distinguish types of benchmarking, describe how benchmarking reveals performance gaps, and outline steps for closing those gaps. You will understand why firms use benchmarks, how to select appropriate comparisons, and how to act on findings to boost value creation and business improvement.

## **ACCA Business and Technology (BT) Syllabus**

For ACCA Business and Technology (BT), you are required to understand how organisations measure and improve performance by comparing themselves to others. Focus your revision on:

- The concept and practical uses of benchmarking
- Types of benchmarking: internal, competitive, and best practice
- Stages in the benchmarking process
- How to identify and analyse performance gaps using benchmarking data
- The role of benchmarking in continuous improvement and value creation
- Challenges and limitations of benchmarking

## **Test Your Knowledge**

_Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision._

1. Define benchmarking in business performance management and state its main purpose.
2. List two major types of benchmarking and briefly explain each.
3. What is a performance gap? How can benchmarking help identify it?
4. Outline the key stages in a typical benchmarking process.
5. Name one limitation or risk of benchmarking as a business improvement tool.

## **Introduction**

Organisations must create value to stay competitive. To measure how well they do this, firms compare their own results to others using benchmarking. Benchmarking systematically compares activities, processes, or outcomes with other organisations or internal standards to learn where improvements can be made. By finding performance gaps—areas where competitors or leading firms achieve better results—a business can plan targeted changes to close those gaps and increase overall value.

> **Key Term: benchmarking**
> A structured process for comparing an organisation’s activities, processes, or outcomes with those of other organisations or with established best practices to identify areas for improvement.

### The Purpose of Benchmarking

Benchmarking is used to identify areas where a business underperforms compared to others. By learning from organisations that are more efficient or deliver higher quality, managers can introduce changes which lead to better performance and increased value for stakeholders.

> **Key Term: performance gap**
> The difference in performance outcomes or process efficiency between one organisation and another, or between current outcomes and desired or best practice levels.

### Types of Benchmarking

Organisations can conduct benchmarking comparisons in different ways, depending on their goals.

- **Internal benchmarking**: Compares units, teams, or shifts within the same organisation.
- **Competitive benchmarking**: Compares performance against direct competitors.
- **Best practice (strategic) benchmarking**: Compares with industry leaders or businesses from other sectors known for outstanding performance in a specific area.

### **Worked Example 1.1**

**A national retail chain compares its distribution centre delivery times with its best-performing branch. What type of benchmarking is being used, and how might this lead to improvement?**

> **Answer:** This is internal benchmarking. By identifying why one distribution centre is faster, management can spread effective practices across all locations and improve overall performance.

### Key Stages in Benchmarking

Benchmarking follows a sequence of steps to ensure consistent and useful results:

1. **Identify what to benchmark**: Choose key activities, processes, or outputs critical for business success.
2. **Select benchmarking partners**: Decide where or whom to compare against—another internal team, a competitor, or leading organisation.
3. **Collect and analyse data**: Gather quantitative and qualitative information about both your own performance and the benchmark standard.
4. **Identify performance gaps**: Assess differences between current performance and the benchmark.
5. **Develop and implement action plans**: Set objectives and activities to close the gaps.
6. **Monitor results and repeat**: Review progress regularly and re-benchmark to ensure improvement and learning continue.

### **Worked Example 1.2**

**A finance department benchmarks its invoice processing time against a leading competitor and discovers it takes 25% longer to complete routine payments. What steps should the department take next?**

> **Answer:** The department should analyse its current process in detail, identify specific differences from the competitor’s approach, implement changes to address delays, and measure results after making improvements.

### Using Benchmarking Data to Close Performance Gaps

Once gaps are identified, managers use benchmarking information to target improvements. Actions might include adopting new technology, revising workflows, or retraining staff. Success comes from not simply copying others but understanding how and why the benchmarked process works and tailoring it to fit the organisation’s circumstances.

> **Key Term: best practice**
> An approach, process, or activity recognised as delivering superior results and used as a standard for comparison.

### Benefits of Benchmarking

- Reveals strengths and weaknesses compared to best-in-class performers
- Accelerates organisational learning
- Drives continuous improvement and innovation
- Supports value creation for customers, employees, and shareholders

### Limitations and Risks

Benchmarking helps highlight opportunities for improvement, but it has limits:

- External data may not be fully comparable due to context or scale.
- Focusing only on competitors can limit innovation.
- Overreliance on copying may ignore unique strengths or local needs.
- Gathering data about competitors’ exact methods may be ethically or practically difficult.

### **Worked Example 1.3**

**A manufacturing company benchmarks its productivity against a world leader, but differences in scale and resources make direct imitation impossible. What should the company consider when using the benchmarking results?**

> **Answer:** The company must adjust its improvement goals to fit its resources, modify chosen methods thoughtfully, and focus on fundamental principles rather than direct replication.

### **Exam Warning**

> Don’t confuse benchmarking with simply setting targets or key performance indicators (KPIs). Benchmarking always involves comparison with external or internal reference points to identify gaps—not just measuring performance against previous internal targets.

### **Revision Tip**

> When preparing for the exam, practice identifying which type of benchmarking is being described in a scenario. Focus on understanding the process steps and how benchmarking leads to value creation through targeted improvements.

## **Summary**

Benchmarking is a methodical process businesses use to compare their performance with others. It identifies gaps in activities, processes, or results. By acting on these findings, organisations can drive targeted improvements that increase value for customers and stakeholders. However, it is important to choose the right benchmarking partners, understand context when reviewing comparative data, and ensure action plans are realistic and tailored to organisational needs.

## **Key Point Checklist**

_This article has covered the following key knowledge points:_

- The definition and role of benchmarking in business performance management
- Types of benchmarking: internal, competitive, best practice
- The steps of a typical benchmarking process
- The concept of performance gaps and how to identify them
- The use of benchmarking to guide improvements and value creation
- Recognising the limitations and risks of benchmarking

## **Key Terms and Concepts**

- benchmarking
- performance gap
- best practice

Value creation and performance - Benchmarking and performance gaps