What is HR benchmarking?


HR benchmarking uses both quantitative and qualitative data to make comparisons between and within organizations, sectors, industries, roles, practices, and processes. It is used to provide feedback to organizations for continuous improvement to their people practices and challenge existing processes

HR benchmarking is effective when you not only compare it to one organization but to multiple.

There are two types of HR benchmarks:

  1. internal
  2. external benchmarking.

Internal benchmarking – This type of benchmarking makes use of existing or provided data to understand how departments, teams, and groups within an organization compare to each other. This is an easy way to understand which teams are the most engaged, which departments perform the best, which locations have a higher engagement score, etc. The average of all data collected would result in the norm for the organization. As an example, if your organization measured engagement across all departments and teams, and the net promoter score was +50, that would be the average engagement across the organization. 

  • External benchmarking – This benchmark measures how your organization stacks up against other organizations. It provides good context for the industry norm and whether your organization is performing above or below that. These benchmarks are very useful when determining your HR strategy for the year. They help you position yourself favorably in whichever market you are operating in.
 
Benefits of HR benchmarking
  • Increasing business impact – Benchmarking ensures HR leaders are connecting people’s practices to business outcomes. For instance, if your employee engagement score is below the industry average, you need to look into how much this affects overall business performance. It thus ensures you’re making data-backed decisions instead of following just pure gut or instinct.
  • Identifying trends – Understanding your benchmarks allows you to stay on top of developments in your industry. It provides information needed to make decisions to remain competitive as an employer and helps you design effective HR programs. For example, if benchmarks indicate that similar organizations with a wellness program have greater productivity, it would be a good idea to develop a wellness program.
  • Improve existing practices – You’re able to honestly assess your recruitment, retention, compensation, talent and leadership development processes, and identify areas of improvement. Leaders and HR leaders are also held accountable in this way.
  • Assessing and enhancing employee experience and employee engagement – It also has an overall effect on your employer brand, as employees spread word of mouth about how their employee experience is. Improving your HR processes and being the best-in-class employer help you elevate your employee experience and engagement.

All of these HR metrics are not just for the sake of it or to have the best HR program in the industry or the country. It is to move the business in the right direction and improve the impact of people on the business bottom line.

Drawbacks to HR benchmarking
  • Comparing apples with apples – One of the problems you may encounter is that it is not always possible to directly compare your data with other organizations or even internally. As a result, you need to take HR benchmarking as one of the data points in improving your processes and not as the only indicator. For example, an organization focusing on hiring high-quality employees may spend considerably more time and money on finding them than an external benchmark. If you spend less money on getting the same number of employees, does that mean that you are better? Or does it mean that you may be hiring lower-quality employees? Similarly, for an internal benchmark, some departments may have a higher employee turnover rate than others. However, this might be due to the focus of the specific department or the type of positions.
  • Lack of agreed taxonomy – Not every organization calls all the HR metrics by the same name or even measures them in the same way. Employee engagement and employee satisfaction or often used interchangeably, for example. Some organizations measure cost per hire from the date a position becomes vacant, whereas others measure it from the date of resignation of the employee.