Benchmarking



"Benchmarking is the process of continuously comparing and measuring your processes against other organizations worldwide to gain information on their practices, processes, or methodologies that will help your organization take action to improve its performance"

Benchmarking is a tool that provides goals for realistic process improvement and helps you understand the changes required to improve performance. You may use benchmarking to identify and rectify problem areas, implement strategic change initiatives, or for continuous process improvement. Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to be as good as or even better than them.

Of all the benchmarking methodologies, the two most widely used are: Competitive benchmarking and Process benchmarking. Competitive benchmarking measures the performance of your organization against that of your competitors, which is useful for positioning your place within the industry. On the other hand, process benchmarking measures business processes or practices that are important to the performance of the organization. Process benchmarking involves the identification of the best practices used regardless of the industry, a study of them, and the implementation of these practices into another organization.

Companies benefit from benchmarking through improved performance and productivity levels. Benchmarking helps organizations understand their industry better, which leads to innovative thinking. Innovative thinking helps you to achieve the desired performance level more rapidly. Other benefits include the identification of the best practice to use in a particular process. Savings are generated through the use of benchmarking because it allows you to continuously improve performance and productivity, therefore eliminating costly errors. Benchmarking also enables competitors to talk to each other through structured studies and shared findings, which can raise the standard of excellence industry-wide. Since global competition is increasing, the need for a competitive advantage is necessary. Benchmarking can help your business gain that competitive edge through improved performance and productivity.

What is Benchmarking


Definitions:

Benchmark:

A Measured "best-in-class achievement. This performance level is recognized as the standard of excellence for that business process.

Benchmarking:

The process of continuously comparing and measuring against other organizations anywhere in the world to gain information on philosophies, policies, practices, and measures which will help your organization take action to improve its performance.

Benchmarking is not:

  • only competitive analysis
  • number crunching
  • site briefings and industrial tourism
  • just copying or catch-up
  • spying or espionage
  • quick and easy

Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match and even surpass them at it.

For some companies, benchmarking is synonymous with survival. It provides you with an opportunity to assess your business performance. By looking outward for improvement, you'll gain a better understanding of your relative position in the industry. Benchmarking works because it helps you to understand your own processes and enables you to learn from others.

Benchmarking equals innovation. Real innovation comes from looking for best practices outside your industry. This enables you to learn from others and achieve quantum leaps in performance that otherwise might take years to achieve.

Why do Companies Benchmark?

  1. To develop and implement strategic goals
  2. To establish realistic actionable objectives
  3. To provide a sense of urgency
  4. To Encourage striving for perfection and innovative thinking
  5. Create a better understanding of the industry, and
  6. To emphasize sensitivity to changing customer needs.

Benchmarking vs. Competitive/Comparative Analysis

While competitive analysis looks at performance measures. Benchmarking looks at performance measures as well as practices and enablers. The American Productivity and Quality Center (www.apqc.org) defines enablers as those processes, practices, or methods that facilitate the I implementation of a best practice and help to meet a critical success factor. Enablers help to explain the reasons behind the performance indicated by a benchmark.

People often mistake benchmarking for competitive analysis. Competitive analysis typically looks at intelligence data: facts and figures, product breakdown (reverse engineering) strategic goals. It's a guessing game as to how to achieve the competitive advantage.

Benchmarking eliminates the guess work by looking at processes and enablers that lead to best practices. Benchmarking doesn't limit itself to competitive information; it seeks innovation by looking outside the industry paradigm.

Benchmarking is even enabling competitors to talk to each other. Through structured studies and shared findings, competing companies can raise the standard of excellence industry-wide. Third party sources can serve as a neutral base for common interest group studies; for example, customer satisfaction measurement, new product development and accounting and finance.

Adapted from the APQC's International Benchmarking Clearinghouse, (www.apqc.org) Benchmarking Skills

Types of Benchmarking


There are four types of benchmarking, process, performance, strategic and internal. Each one has it benefits and its short comings and one may be more useful in some situations that in others. A brief description of each follows type follows:

Process benchmarking focuses on discrete work processes and operating systems. It can look at customer service, billing, the way orders are filled, recruitment or the strategic planning process. Process benchmarking tries to identify the most effective operating practices from many other companies who perform similar work or deliver similar services. These practices become independent industry standards and this type of benchmarking has the ability to produce results that are seen immediately in performance improvements. These are evident in increased productivity, lower costs or improved sales with an end result of improved financial performance.

Performance benchmarking is "competitive" benchmarking and allows managers to assess their competitive positions through product and service comparisons. Also known as direct competitors benchmarking, this application focuses on elements of price, technical quality, labour product or service features, speed, reliability and other performance characteristics. This application uses direct product or service comparisons and the analysis of statistics as primary techniques. Many industries use performance benchmarking as a standard competitive tool. To protect confidentiality, of proprietary information, a third party is usually used.

Strategic benchmarking examines how companies compete. It is seldom industry focused and moves across industries looking for winning strategies (best practices) that have enabled high-performers to be successful in their markets. Also called outside-of-industry, this method is used widely by Japanese corporations as it influences the long-term competitive patterns of a company. As a result, benefits are slow to accrue compared to the immediate benefits which can be had from process benchmarking.

In addition to the three primary types, there is also "internal benchmarking". This effort looks for internal best practices and tries to establish them uniformly throughout the company. This method is achieved by comparing all the functions in the various operations in a business organization. The main advantages of internal benchmarking is its ease of implementation and low requirement of time and resources. However, being internally focused, it targets only internal standards. For competitiveness, the internal standard should be measured against the best in class to determine if there is a gap and how wide it is. Most firms start benchmarking with an internal benchmarking exercise.

Ten Steps of Benchmarking


Benchmarking is a method of comparison against some standard of excellence. It was pioneered by Xerox Corporation in the 1979s, as part of their response to international competition in the photocopier market, and originated from reverse engineering of competitors' products. Its scope was then enlarged to include business services and processes. Xerox now benchmarks nearly 240 performance elements although, when they started benchmarking several years ago, considerably fewer elements were benchmarked. Benchmarking of business processes is usually done with top performing companies in other industry sectors. This is feasible because many business processes are essentially the same from sector to sector.

A benchmarking team usually consists of 6 people but may include more. A leader is assigned and takes "ownership" of the project. Investigations take from one to 12 months and can involve one company or a consortia of many companies. Comparing performance levels is only the preliminary phase of benchmarking. The bulk of the effort involves an analysis of how and why these performance levels are achieved.

The Ten Steps are:

  1. Identify what is to be benchmarked; it can be a service, process, or practice.
  2. Identify the organization(s) you want to benchmark against. It can be other operating units within the company, competitors or unrelated companies. However, they should be a leader or "best in class" in the area being benchmarked.
  3. Determine the data collection method and collect data; measurements must be chosen to provide a meaningful comparison; collection usually involves in-person meetings and site visits of areas being benchmarked.
  4. Determine current performance levels; this includes identifying gaps between your organization and your benchmarking partners.
  5. Determine future performance levels; forecast the expected improvements of benchmarking partners so that goals set for the improvement program will not become quickly outdated.
  6. Communicate the benchmark findings and gain acceptance from senior management and employees who will be asked to make improvements; present the methodology, findings and strategy for improvements.
  7. Establish objectives; after concurrence on findings and strategy, the team presents final recommendations on goals and how the organization must change to attain them.
  8. Develop action plans for each objective; they should be designed to gain the required support within the organization.
  9. Implement specific actions and monitor process; this includes collecting data on new levels of performance; using problem-solving teams to investigate problems; and adjusting the improvement process if goals are not being met.
  10. Recalibrate benchmarks; benchmarks are re-evaluated and updated, based on the most recent performance data.

This ten-step process closely parallels the PDCA Cycle and other methods discussed in Process Improvement Methods. However, companies who undertake benchmarking find that it is a very complex process. We recommend that before undertaking benchmarking, those involved should read literature such as Robert Camp's book, Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance (Quality Press, 1989), and talk with companies who have benchmarking experience.

 


How to Benchmark

The following describes the phases of a benchmarking process:

Phase I: Plan

Phase II: Analyze

Phase III: Integrate

Phase IV: Action


References: Xerox : Competitive Benchmarking

Benchmarking Link1

SPECIAL FOCUS AREA: Benchmarking