What Are the Advantages and Disadvantages of Benchmarking?

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Benchmarking may contribute to company growth and foster better relations among employees by encouraging new ideas and concepts, but it can also spark competition among employees and be used to judge the work of individual employees. Benchmarking, depending on the size and collaborative spirit of the undertaking organization, may increase sales, productivity and ROI.

Benchmarking raises a company's awareness about the areas of business which should be given special attention. It forces the business to be receptive to and adopt change. This process gives a broader perspective by exposing new ideas and different ways of working. Benchmarking sets standards for a business to evaluate its performance and create strategies aimed at enhancing competitiveness. This process identifies best practices in business processes and bridges the gap between the expected performance and the present state. This provides the organization with both the motivation to be better than others and a clear path to achieve the results.

By comparing a company with competitors, business decision makers get a true measure of their successes and failures. Benchmarking reduces research costs and expensive trials.

Benchmarking has limitations. A narrowed concentration on competitors leads a business away from developing based on its vision. By assuming that circumstances under which the competitors attained their successes are the same, benchmarking leads a business away from focusing on other issues in the market. Benchmarking exposes a business to stagnation once competitors' standards are surpassed.

Benchmarking, when used effectively, can make organizations more competitive and lead to their continual improvement. However, although it is designed to benefit entire organizations, it may create the opportunity for managers to focus on the performance of individuals instead. In turn, this reduces worker productivity and may cause internal tensions.