What is HR benchmarking?

Benchmarking is the process of comparing similar characteristics between or within businesses, identifying the most successful practices, and integrating them into the company procedure. After collecting data for comparison purposes, HR professionals can better determine the benchmark—the target they want to shoot for.  

Companies usually benchmark against similar competitors of the same size or industry to understand how to incorporate better practices into their routines.

What are different types of benchmarking?

There are two main types of benchmarking in HR: internal and external.

Internal benchmarking is a comparison within an organization, such as comparing the productivity of two teams or the profitability of two departments. External benchmarking is a comparison between competing organizations, often seeking to determine where a business ranks in relation to others. 

There are also other types of benchmarking that can be done both internally and externally. These include:

  • Process benchmarking: This type of benchmarking looks at processes like onboarding, recruitment, or performance management
  • Competitive benchmarking: Unlike process benchmarking, which focuses on a single specific process, competitive benchmarking takes a holistic view of the overall performance of organizations
  • Functional benchmarking: This type of benchmarking looks at how successful organizations are at achieving their goals, whether that be measured in terms of revenue, market share, brand recognition, or something else

Why should HR leaders care about benchmarking?

Benchmarking helps HR professionals identify successful practices in other companies and areas for improvement in their own. Benchmarking data enables HR leaders to analyze the causes behind identified gaps and make more informed decisions about effective practices and policies that need adjustment. 

Studying competing company practices can keep HR leaders informed regarding the constantly changing landscape of customer demands. HR leaders can use benchmarking to improve:

What are the advantages and disadvantages of HR benchmarking?

Benchmarking has several important advantages, including:

  • Offering data-based insights about business performance and contributing factors
  • Identifying industry trends and developments
  • Improving existing HR practices
  • Helping improve employee experience and engagement

It’s also worth noting that there are some disadvantages to benchmarking. First, it can be challenging to compare organizations that have fundamental differences. Because so many factors are at play in how an organization performs, raw numbers don’t always give a complete picture of what’s going on. 

This is why HR professionals must analyze benchmarking data in tandem with larger issues. For example, the fact that an organization takes longer to fill open positions than another may not necessarily mean it is doing a poorer job at recruitment. Instead, it might indicate that they have higher standards for who they hire, and their retention rates are better as a result.

Another challenge of benchmarking is that not all terminology is used identically from organization to organization, meaning people can’t always compare metrics one-to-one. For example, what one company calls turnover, another may call attrition.

What is the process of HR benchmarking?

To implement impactful benchmarking, HR can:

  • Define the focus area. HR leaders can collaborate with colleagues to pinpoint the issue that needs improvement and formulate a question that the benchmarking process will address. For example, a company looking to hire in-house brand marketing designers could ask: What compensation can we offer that fits the company budget and needs and attracts and retains talent? 
  • Identify the measurements. Different metrics allow HR leaders to compare specific aspects of their company with those of other companies. For instance, HR leaders can measure:
    • Quality of hire
    • Turnover rate
    • Quality of work
    • Market index 
    • Average compensation per employee
  • Collect data. Professional HR leaders engage in extensive, in-depth research to find external information that accurately corresponds to their measurements. They often purchase benchmarking reports that save them from sifting through irrelevant information and provide accurate, pertinent data.
  • Study the gaps. Comparing internal and external metrics, HR leaders should ask what their organization can do to reach the levels of success of other companies in their industry. HR leaders can implement changes that align with company strategy based on the data they collect. Perhaps, for instance, a company prides itself on high base salaries. So, they decide to decrease funding for employee wellness programs and increase base pay. This way, the employer can offer a more competitive edge for compensation plans while maintaining alignment with the high base salary strategy.
  • Design a plan to implement the changes. HR leaders and colleagues can collaborate to implement an executive-backed plan that achieves the designated goals. Creating a detailed plan that meshes with the company culture can increase the chances that people will readily accept the new changes. 
  • Analyze the long-term results. After a specified period, HR professionals should follow up to ensure that the new changes bring positive results and then provide a detailed report to distribute to collaborators.

What are some best practices in HR benchmarking?

Some best practices for benchmarking in human resources include:

  • Choose your competitors wisely. Because benchmarking is a rather involved process, you’ll have to limit the number of competitors you choose to compare your business to. When you pick the organizations you want to benchmark against, choose only the relevant ones, such as those similar to you in size or location.
  • Find data sources. Your benchmarking results are only as good as the data you analyze, so choose your sources carefully. Think about what data is available to you and where you’ll find it. Competitors’ job postings and industry benchmark reports are high-value, publicly available sources to consider. 
  • Be realistic with your goals. Benchmarking can help you identify large, structural improvements to make. When setting your goals at the end of your benchmarking process, think macro and long-term rather than trying to implement all of the changes at once.
  • Continue the process. Benchmarking isn’t a one-and-done. It’s a continual process that requires regularly revisiting your benchmarks to see what has changed and what needs further work.

HR benchmarking examples

As an example of how benchmarking can be planned and executed, let’s look at the fictional company Ficta. Ficta is a book publisher that wants to benchmark in order to see what their more successful competitor Nocta might be doing well. Because Ficta has had a hard time filling open positions and retaining people, they decide to focus on how Nocta’s hiring practices help them succeed. 

Ficta chooses to look at the data they have access to:

  • A market research report from Ibis World
  • Nocta’s Glassdoor data
  • Professional networking events and online groups

These sources provide Ficta with information about Nocta’s revenue, employee satisfaction, and salaries. Comparing this data to their own, Ficta ascertains that people consider Nocta to be a highly desirable employer for book editors because of its brand reputation, generous benefits, and flexible hours. 

As a result, Ficta sets a goal for improving their newly-determined human resources benchmarks: stronger brand recognition and a more attractive benefits package and working hours policy.

How does benchmarking improve company culture?

Benchmarking is an ongoing process of company growth and advancement. Using benchmarking to enhance the employee experience and increase compensation, retention, and job satisfaction can lead to greater employee wellbeing and, in turn, a healthier company culture.