HR benchmarking helps companies understand how they compare to others regarding their HR processes. As employees are usually a company’s most important resource, this understanding is key to ensuring the company is using best practices and staying ahead within its sector.
Here, we examine what HR benchmarking is and why it is beneficial and provide some tips for getting started.
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What is HR Benchmarking?
HR benchmarking is the process of assessing a company’s performance in terms of how it supports, rewards, and manages its employees. The assessment involves comparing similar metrics and characteristics internally and externally.
By conducting HR benchmarking, an organisation can learn how it compares to its peers, identify best practices, and integrate them into its procedures.
Benchmarking is usually based on comparative data on competitors of a similar size in the same industry.
Types of HR Benchmarking
There are several ways of benchmarking HR practices. Most organisations combine different types of benchmarking, and which HR metrics they want to benchmark will depend on what they want to achieve from the process.
Internal Benchmarking
Internal benchmarking involves examining the processes used by different departments, teams, or groups within the same organisation. It is an excellent way to share information and best practices and build collaboration between departments. When used thoughtfully, internal benchmarking can encourage healthy competition within a business by encouraging teams to use best HR practices.
External Benchmarking
As you might expect, external benchmarking involves looking at the practices of other companies. These companies are usually in the same industry, although some organisations will also look beyond their sector if there are valuable linkages and parallels between the two industries.
External benchmarking provides insights into the industry’s best practices, standards and trends. Crucially, it allows a company to understand how it ranks within the sector. With this knowledge, a company can identify its strengths and weaknesses and establish targets to address gaps.
Process Benchmarking
Process benchmarking focuses on specific HR processes to determine how well a company manages them and what could be improved. Recruitment, onboarding, performance management, training and development, and employee satisfaction initiatives can all be evaluated in terms of their efficiency and effectiveness when they are compared to similar processes in other organisations.
Functional Benchmarking
With functional benchmarking, the company uses data on a specific process from a successful organisation that may not be in the same sector. An example of functional benchmarking would be an accountancy firm comparing its bonus scheme to an online retailer known for having a successful scheme. While the incentives and rewards involved will differ, the accountancy firm can learn why the other scheme is so successful and use this thinking for its scheme.
Strategic Benchmarking
Strategic benchmarking allows a company to compare their overall HR strategy with other organisations within its industry. By looking at metrics such as how well the HR department adapts to changing business needs, technology and emergency HR trends, strategic benchmarking provides a bigger-picture view of how well the HR function is performing and identifies areas for innovation.
Why is HR Benchmarking Important?
There are several reasons why HR benchmarking is an essential element of measuring company performance. At the highest level, being aware of how your company’s HR practices compare to others allows you to celebrate the positives and make improvements where necessary, ensuring that you offer employees the best possible HR experience. When employees have a positive experience in the support they need to do their jobs, they are more likely be engaged and productive.
- Provides data for HR strategies
HR departments can use benchmarking to provide various data points to drive decision-making. An example of this is salaries. Awareness of the salaries paid by competing organisations enables HR departments to demonstrate what a fair and competitive reward scheme looks like, which feeds into successful recruitment and retention strategies.
- Identifies emerging trends
Regular benchmarking allows companies to maintain a competitive advantage and stay ahead of developing trends within the organisation (internal benchmarking) and the sector (external and benchmarking reports). Identifying trends helps HR teams know if issues need to be addressed or if there are changes coming that need planning to support them. With this information, companies can lead the way within their industry.
- Establishes a culture of continuous improvement, accountability and transparency
A commitment to ongoing benchmarking sets the tone for an HR department that openly prioritises feedback, shares learnings, and improves processes. As HR departments play an essential role in developing and maintaining a company’s culture, they need to be role models in seeking information about how they can do things better, being honest about what they learn, and implementing new strategies.
How to Incorporate Benchmarking into HR Strategy
Incorporating benchmarking into your HR strategy is a relatively straightforward process: decide what you want to benchmark and why, get the relevant data, use it to make informed decisions, and get feedback on the process.
Prioritising those factors that directly impact HR effectiveness and employee engagement is an obvious place to start. However, before you do, it is helpful to spend some time as a team thinking through two key elements of this process:
- The Objectives
Benchmarking can take time and money, so it’s important to be clear on what you want to benchmark and why and that there is an opportunity to drive change with the results. Knowing the company’s business goals is an excellent place to start, as these can guide your research. It can also be helpful to do a pre-survey of employees to get a sense of what might be helpful to benchmark.
- The Data
The type and quality of data received for benchmarking significantly impact its usefulness. Companies need to ensure that the data collection methods are standardised and consistent and protect confidentiality and data privacy. There are many ways of getting benchmarking data, including:
- internal surveys
- specialised HR benchmarking services
- participating in external surveys
- working with peers within your organisation and externally
- published academic studies and reports within the industry
- using industry contacts, conferences and forums
