Understanding internal benchmarking
Internal benchmarking is when a firm uses internal performance – potentially from other parts of the business – to benchmark performance. Performance is measured relative to other areas of the business, examining the relative performance between the different areas.
Some possible sources of internal benchmarking include other divisions of the business, different employees performance levels, as well as past performance across these areas.
How internal benchmarking can imporve performance
Internal benchmarking can improve performance – both by raising expectations regarding what is possible, while also helping illustrate sources of possible improvements. The benchmarks prove what is possible, and by analyzing why the performance of the better performing areas are doing better, it illustrates how it may be possible for other firms to increase the performance of a particular area.
Advantages of internal benchmarking
Some of the key advantages of internal benchmarking include:
Ability to understanding reasons for performacne
With internal benchmarking, you can delve into why the performance of an alternative line is better. You may be able to analyze the specific parts of the operation that are causing increased performance, and gain greater visibility of the performance difference than external benchmarking.
Greater access to other performance data
With internal benchmarking, you have greater access to performance data than can be obtained with external benchmarking. It can be difficult to piece together the levels of performance of competitors, potentially with substantial time required to estimate their performance. Such external estimates may also suffer from inaccuracies associated with the assumptions needed to estimate the performance of another firm. In comparison, gathering information for internal benchmarks is a lot easier and more accurate.
More direct comparions
Internal benchmarking may also offer more direct comparisons than comparisons made across firms. There may be specific reasons why your performance differed from other firms, or the tasks themselves may be slightly different. Comparisons made against an identical line, or prior time periods may provide a more realistic target to be aiming towards.
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