Final answer:
Benchmarking is the process of using external comparisons to determine a company's performance by examining industry standards or best practices. It helps in identifying areas of improvement and setting goals for enhanced competitiveness and efficiency. The practice includes various types such as internal, competitive, functional, and generic benchmarking.
Step-by-step explanation:
The process of using external comparisons as a means of determining how your company is doing is called benchmarking. This involves looking at industry standards or best practices of leading companies within the same or a similar industry to evaluate your company's performance, processes, and products. By doing this, organizations can identify areas where they can improve and set goals to enhance their competitiveness and efficiency.
Benchmarking can be broken down into several types, including internal, competitive, functional, and generic. Internal benchmarking involves comparing practices and performances within different areas of the same organization. Competitive benchmarking compares an organization's practices and performance against their direct competitors. Functional benchmarking looks across similar functions within different industries to find best practices, while generic benchmarking compares operations or methods between unrelated industries to find innovative practices.