Strategic Cost Management · Benchmarking

Types of Benchmarking with Examples for CMA Final

Updated 11 October 2026 · Fact-checked

Benchmarking compares your processes, performance or strategies with a standard of best practice. The types differ by who you compare with (internal, competitive, functional, generic) or what you compare (strategic, process, performance). To answer, identify the comparison partner and the object compared, then name the type.

Understand Types of Benchmarking

Benchmarking is the continuous process of measuring your products, services or practices against the best in the field, and using the gap to improve. The type you use depends on two questions: who do you compare with, and what do you compare?

By partner, there are four common types. Internal benchmarking compares units, plants or departments of the same organisation. Competitive benchmarking compares with direct competitors in the same industry. Functional benchmarking compares a function with the best performers in the same industry or related organisations, not necessarily direct rivals. Generic benchmarking compares a basic business process with the best in any industry, even an unrelated one.

By subject, three types are common. Strategic benchmarking compares long-term strategies, such as market choice, product mix and core competencies. Process benchmarking compares how work is done, such as the steps in order processing. Performance benchmarking compares results, such as cost per unit, delivery time or defect rate, to see where you stand.

The two lists overlap. A comparison can be both competitive and performance: for example, comparing your cost per unit with a rival's. Textbooks group and name the types a little differently, so always define the type you use in your answer.

Each type has a trade-off. Internal is easy to do but may only find internal best practice. Competitive is most relevant but data is hard to get. Generic gives the most original ideas but needs adaptation.

Key rules to remember

Performance gap: Gap = Benchmark value − Own value (for measures where higher is better); Gap = Own value − Benchmark value (where lower is better); Use this to show the improvement needed. State the direction clearly.
Gap as a percentage: Gap % = (Gap ÷ Benchmark value) × 100; Useful in numerical comparisons of cost, time or defects.
Classification rule: Who compared with → internal / competitive / functional / generic; What compared → strategic / process / performance; Use this to classify any scenario in the objective section.

How to solve Types of Benchmarking questions

Use this method for classification questions, explanation questions and short cases on types of benchmarking.

1Read the scenario and underline who is being compared with: same company, rival, same function elsewhere, or any industry.
2Underline what is being compared: strategy, method of working, or results in numbers.
3Name the type by partner and, if relevant, by subject. Say both when both fit.
4Define the type in one line in your own words.
5Link to the facts of the case: name the unit, the partner and the measure.
6State one advantage and one limitation of the type used.
7If asked, compute the gap and recommend an action to close it.
8Close with a one-line recommendation.

Quickest way: Partner-and-subject check

When to use it: Use for 2-mark MCQs and for classifying short scenarios in seconds.

Same organisation compared: internal.
Direct rival compared: competitive.
Same function at a best performer, not necessarily a rival: functional.
Process compared with any industry, unrelated: generic.
Long-term direction compared: strategic.
Method or steps compared: process.
Numbers or results compared: performance.

Common mistakes in Types of Benchmarking

Treating functional and generic benchmarking as the same.
Both compare a function or process with outside organisations.
Fix: Functional stays within the same or related industry. Generic crosses into unrelated industries because the process is similar.
Calling every comparison with a rival competitive and ignoring the subject.
Students stop after finding the partner.
Fix: Also say what is compared. Rival cost per unit is competitive and performance benchmarking.
Mixing up process and performance benchmarking.
Both aim at improvement.
Fix: Process asks how work is done. Performance asks what results are achieved. Numbers point to performance; steps and methods point to process.
Saying internal benchmarking gives the best possible standard.
It is easy and quick, so it looks complete.
Fix: State its limitation: it may only reveal best practice within the organisation, not best in industry.
Giving only definitions without linking to the case.
Students rely on memorised notes.
Fix: Name the unit, partner and measure from the question in every answer.

Worked examples

Example 1

Sundaram Auto Ltd has three plants. The management compares the rework rate of the Pune plant with that of its Chennai plant, which is the lowest in the company. Next, it studies how a global courier firm sorts parcels to redesign its own spare-parts dispatch. Identify the types of benchmarking used.

Show the solution

First comparison: partner is another plant of the same company, so it is internal benchmarking.
The subject is the rework rate, a result, so it is also performance benchmarking.
Second comparison: partner is a courier firm in an unrelated industry, so it is generic benchmarking.
The subject is how parcels are sorted, a method of working, so it is process benchmarking.
Advantage of the first: data is easy to get. Limitation: it finds only in-house best practice.
Advantage of the second: it can bring new ideas. Limitation: ideas must be adapted to spare parts.

Answer: The rework comparison is internal and performance benchmarking. The courier study is generic and process benchmarking.

Example 2

Kaveri Textiles has a cost of ₹80 per metre. The best competitor's cost is ₹68 per metre. Name the type of benchmarking and compute the gap in rupees and as a percentage of the benchmark.

Show the solution

Partner is a competitor and the measure is cost per metre, so it is competitive and performance benchmarking.
Lower cost is better, so Gap = Own − Benchmark.
Gap = ₹80 − ₹68 = ₹12 per metre.
Gap % = (12 ÷ 68) × 100 = 17.65% approximately.
Recommend a process study of the competitor's methods, or functional benchmarking of its purchasing and production, to find how to close the gap.

Answer: Competitive performance benchmarking. The gap is ₹12 per metre, about 17.65% of the benchmark cost.

Exam tips

Expect 2-mark MCQs that give a short scenario and ask you to pick the type. Check partner first, then subject.
In descriptive answers, define each type in one line and add an example from an Indian company setting.
If a question asks for differences, use a clear contrast on partner, data availability and ideas gained.
Attempt gap calculations carefully: state whether lower or higher is better before subtracting.
Finish case answers with a recommendation, since the paper rewards decisions, not definitions.

Practice questions from Benchmarking

Types of Benchmarking: frequently asked questions

What is the difference between internal and competitive benchmarking?

Internal benchmarking compares units or departments within the same organisation. Competitive benchmarking compares with direct competitors. Internal data is easy to get; competitor data is harder but more relevant to market position.

What is the difference between functional and generic benchmarking?

Functional benchmarking compares a function with the best performers in the same or related industry. Generic benchmarking compares a basic process with the best in any industry, even an unrelated one.

How is process benchmarking different from performance benchmarking?

Process benchmarking studies how work is done, such as steps and methods. Performance benchmarking compares results, such as cost, time or quality measures. Process explains why a gap exists; performance shows that it exists.

Do textbooks classify benchmarking types the same way?

Not always. Names and groupings vary slightly between sources. Define the type in your answer and link it to the case, so the examiner can see your reasoning.