HR Administration

What is Benchmarking in HR?

21 March 2024

9 min read

Amanda Chua
Amanda Chua

You likely have access to data analytics regarding your business, such as employee absenteeism rates, time to hire, and overtime hours. However, interpreting these figures can be challenging, as you may struggle to determine whether they are objectively positive or negative, and what targets to set for the future.

It’s not surprising that only 5% of small business owners achieved their goals in a Clutch survey, largely due to lack of attention to benchmarking. The situation is similar for mid-sized businesses and enterprises. In this article, we explore the concept of benchmarking and provide guidance on how to implement the benchmarking process effectively in your company.

What is Benchmarking in HR?

To answer the question of “What is benchmarking?,” this technique compares the key HR metrics between or within businesses, industries, teams, roles, sectors, processes, and practices. It can also involve comparing current data with past data.

Using quantitative and qualitative data, you can identify the best business practices, get feedback that helps you improve your people’s practices, and modify current processes by incorporating these practices.

If you’re still unclear about the meaning of benchmarking, it involves comparing your company’s policies and practices to those of another similar company. This comparison helps you to determine the benchmark, or the target you aim for.

Conducting the benchmarking process regularly is essential for continuous improvement in your business practices. 

Types of HR Benchmarking

To fully understand the question “What is benchmarking?” we must consider the nuance in the meaning of benchmarking, which encompasses two types. Understanding these types will help you interpret the data you generate. 

Internal Benchmarking

You can conduct internal benchmarking, meaning that you compare metrics across teams, groups, and departments within an organization. For example, you might compare two departments in terms of profitability or employee engagement. By continuously monitoring these metrics, you can track changes.

Shareholders, managers, and analysts often take an interest in these comparisons, as they reveal trends in business performance and enable them to anticipate future results.

The benchmarking process also allows you to calculate the average engagement rate across teams, providing insight into the average performance for a specific metric. This data helps you classify each team as either below or above average, aiding in the development of a suitable employee engagement plan.

External Benchmarking

In an external benchmarking process, what is benchmarking? It involves comparing your business with a similar one in a particular regard, enabling you to calculate an average or industry norm. 

This perspective helps you determine whether your business falls above or below the average and provides insight into its competitiveness.

Goal of Benchmarking

benchmarking process

Now that we’ve clarified the question of “What is benchmarking?,” let’s explore what you can achieve with it to ensure your efforts are focused on your goals.

Identify Areas of Improvement

What is benchmarking if not a method to uncover organizational issues? By comparing against industry benchmarks or a competitor’s averages, you can readily determine whether your company’s performance falls below or exceeds those standards.

Whether the issue is disengagement or turnover, the benchmarking process detects areas for potential improvement. This enables you to prioritize these areas in your strategy or even initiative specific initiatives to address them.

Set Realistic Goals

You’re likely familiar with SMART goals, where the A stands for Achievable. The data-driven insights from the benchmarking process can assist you in setting realistic goals. 

These goals will be grounded in your current performance levels and can be compared against industry benchmarks, competitor rates, or your company’s historical data (depending on your focus). 

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Develop Best Practices

You can design the best industry practices via the benchmarking process, meaning that you can compare HR metrics to see what works and what doesn’t. This appraisal helps you find the best methods, adjust them to your organization, and refine existing practices.

Let’s say a competitor has much higher employee engagement levels. Taking inspiration from their company-wide employee appreciation campaign can inspire you to develop the best recognition techniques for your company.

Make Informed Decisions

The benchmarking process enhances the value of data and centralizes its interpretation, enabling you to make informed decisions. By comparing certain metrics with those of your competitors, industry averages, or your company’s past data, you can determine the right direction for your company.

What is benchmarking? It’s a way of spotting effective policies and those that require modification. Periodic external benchmarking, which is ongoing, allows you to monitor industry trends and the evolving nature of customer demands. 

Advantages & Disadvantages of Benchmarking

When considering the question ”What is benchmarking?” we aim to provide a comprehensive overview by examining its pros and cons. This approach helps you implement the strategy effectively. On one hand, the benchmarking process offers the following advantages:

  • Enhanced business impacts: Benchmarking involves examining your workforce practices and linking them to business results, providing insights into how these practices affect overall performance.
  • Improved HR practices: Benchmarking allows for objective evaluation of HR processes, highlighting weaknesses and facilitating improvements.
  • Industry trends tracking: Regular benchmarking enables the identification of industry trends and shifts, helping in strategic planning to maintain competitiveness. 
  • Better employee experience: Utilizing benchmarking insights to enhance HR practices increases employee engagement and overall work experience.
  • Talent attraction: A positive work experience, achieved through the benchmarking process, attracts high quality candidates and retains current employees, supported by competitive compensation and benefit programs.
  • Effective training: The benchmarking process reveals the skills employees in similar businesses possess and their training durations, enabling you to offer sufficient training programs.

However, the benchmarking process also has its drawbacks that you need to take note of:

  • Inaccurate comparisons: Comparing data between different teams within your company or with other organizations can be challenging due to varying factors and circumstances. Therefore, it’s important to consider HR benchmarking along with other indicators for more precise assessments.
  • Terminology standardization issues: In benchmarking, clarity in meaning can be elusive, as HR metrics may not have consistent names or measurement systems across organizations.

Process of HR Benchmarking

benchmarking process

In this section, we’ll guide you through HR benchmarking, enabling you to follow these steps to attain the advantages outlined above.

1. Define your goals and objectives

“What is benchmarking, and where do I start?” Before anything, what is your purpose from the HR benchmarking process? Maybe you want to enhance your budget distribution or the composition of your workforce. The benchmarking process works for all HR processes, but focusing your efforts on specific areas makes them more impactful.

2. Identify relevant benchmarks

You’ve identified specific areas of benchmarking, focusing on relevant benchmarks or metrics for comparison across or within companies. For example, you might address employee engagement by benchmarking the attrition rate and retention rate. Other benchmarks include:

  • Quality of hire
  • Quality of work
  • Average compensation per employee
  • Market index

3. Collect and analyze date

What is benchmarking if not detailed data collection and analysis? If you’ve decided to track certain metrics, such as turnover and retention rates, you’ll need to collect this data internally.

Many HR software tools offer reporting features for workforce data, including the ability to create custom reports with selected metrics for benchmarking, streamlining the process. These tools also provide access to historical data through their employee database software system.

After collecting internal data, you’ll need to collect the data for comparison, which is either internal data (from other departments or past year) or external (from other companies).

For external data, target mid-sized businesses in your industry and region, preferably those open to benchmarking. However, accessing such data can be challenging due to confidentiality practices. 

Even if you visit other organizations, obtaining authentic information can be difficult, which undermines the credibility of benchmarking. Therefore, purchasing benchmarking reports from reputable research institutions can be a helpful workaround to ensure accuracy.

Finally, analyze your internal data against the selected benchmarks to determine if it falls within, above, or below average.

4. Interpret the results

During this phase of the benchmarking process, you compare metrics by examining a spreadsheet or report containing two sets of metrics. You identify similarities and significant gaps between the numbers. 

Benchmarking aims to help you understand these deviations. You should determine whether the deviations are positive or negative and analyze the processes, factors, and practices influencing them.

5. Develop an action plan to implement changes 

What is benchmarking revealing to you? Insights from the benchmarking process may highlight performance gaps that require attention. Establish a project timeline, specific Key Performance Indicators (KPIs), and assign responsibility for implementation.

Develop a tailored benchmarking plan that aligns with your company culture for seamless implementation. Seek support from your company’s executive leaders. 

6. Analyze long-term results

You have the specified metrics for benchmarking, enabling you to monitor progress over time and evaluate the effectiveness of your HR plan. To do this, you’ll recreate the spreadsheet or report used earlier and repeat the benchmarking process.

Review the changes and adjust your plan as needed for your HR benchmarking process. What is benchmarking lacking as a strategy? 

Benchmarking and Company Culture

What is benchmarking in relation to company culture?

Benchmarking and company culture are closely related, as the success of the benchmarking process often depends on the organization’s company values and norms. 

A strong company culture that values innovation, collaboration and continuous improvement is more likely to embrace benchmarking as a tool to drive positive change. Employees in such cultures are more open to sharing information and best practices, which is pivotal for successful benchmarking. 

Conversely, a weak company culture can hinder benchmarking efforts, as employees may be reluctant to collaborate or share information. Therefore, creating a culture that supports benchmarking can lead to more effective use of benchmarking data and improve business performance. 

Curious about creating a vibrant company culture?

Transforming Data into Actionable Strategies

The benchmarking process plays a crucial role in modern businesses by providing valuable insights for decision-making and driving continuous improvement. 

By comparing performance metrics against industry standards or competitors, businesses can identify areas of growth and implement strategies to stay competitive – which is highly pivotal in this ever changing landscape. 

With all-in-one HR software like Omni, you can leverage automation and streamline your processes while gaining actionable insights for continuous improvement and team effectiveness.Through leveraging the power of automation, Omni allows HR teams and managers access to custom reports on specific metrics in the benchmarking process and swiftly address potential issues and drive company performance. 

To join the 83% of Omni customers who have unlocked new, actionable insights after using our solution, book a free demo with our team today.

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