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Benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practices from other industries. Dimensions
typically measured are quality, time and cost or productivity. In the process
of best practice benchmarking, management identifies the best firms in their
industry, or in another industry where similar processes exist, and compares
the results and processes of those studied (the "targets") to one's
own results and processes. In this way, they learn how well the targets perform
and, more importantly, the business processes that explain why these firms are
successful.
Benchmarking is used to measure performance
using a specific indicator (cost
per unit of measure, productivity per unit of measure, cycle time of x per unit
of measure or defects per unit of measure) resulting in a metric of performance
that is then compared to others.
Also referred to as "best practice
benchmarking" or "process benchmarking", this process is used in
management and particularly strategic management, in which organizations
evaluate various aspects of their processes in relation to best practice
companies' processes, usually within a peer group defined for the purposes of
comparison. This then allows organizations to develop plans on how to make
improvements or adapt specific best practices, usually with the aim of
increasing some aspect of performance. Benchmarking may be a one-off event, but
is often treated as a continuous process in which organizations continually
seek to improve their practices.
In 2008, a comprehensive survey on
benchmarking was commissioned by The Global Benchmarking Network, a network of
benchmarking centres representing 22 countries. Over 450 organizations
responded from over 40 countries. The results showed that:
1.
Mission and Vision Statements and Customer (Client) Surveys are
the most used (by 77% of organizations) of 20 improvement tools, followed by SWOT analysis (72%), and Informal Benchmarking
(68%). Performance
Benchmarking was used
by 49% and Best Practice Benchmarking by 39%.
2.
The tools that are likely to increase in popularity the most over
the next three years are Performance Benchmarking, Informal Benchmarking, SWOT,
and Best Practice Benchmarking. Over 60% of organizations that are not
currently using these tools indicated they are likely to use them in the next
three years.
Benchmarking, originally described Rank
Xerox, is usually carried out by individual companies. Sometimes
it may be carried out collaboratively by groups of companies (e.g.subsidiaries of a multinational in different
countries). One example is that of the Dutch municipally-owned water
supply companies,
which have carried out a voluntary collaborative benchmarking process since
1997 through their industry association. Another example is the UK construction industry which has carried out
benchmarking since the late 1990s again through its industry association and
with financial support from the UK
Government.
There is no single benchmarking process that has
been universally adopted. The wide appeal and acceptance of benchmarking has
led to the emergence of benchmarking methodologies. One seminal book is
Boxwell's Benchmarking for
Competitive Advantage (1994). The first book on benchmarking,
written and published by Kaiser
Associates, is a practical guide and offers a seven-step approach.
Robert Camp (who wrote one of the earliest books on benchmarking in 1989) developed a 12-stage approach to
benchmarking.
The 12 stage methodology consists of:
1.
Select subject
2.
Define the process
3.
Identify potential partners
4.
Identify data sources
5.
Collect data and select partners
6.
Determine the gap
7.
Establish process differences
8.
Target future performance
9.
Communicate
10. Adjust goal
11. Implement
12. Review and recalibrate
The following is an example of a typical
benchmarking methodology:
�
Identify problem areas: Because benchmarking can be applied to any business process or
function, a range of research techniques may be required. They include informal
conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups;
or in-depth marketing research, quantitative research, surveys,questionnaires, re-engineering analysis,
process mapping, quality control variance reports, financial ratio analysis, or
simply reviewing cycle times or other performance indicators. Before embarking
on comparison with other organizations it is essential to know the
organization's function and processes; base lining performance provides a point
against which improvement effort can be measured.
�
Identify other industries that have similar processes: For instance, if one were interested in improving hand-offs in
addiction treatment one would identify other fields that also have hand-off
challenges. These could include air traffic control, cell phone switching
between towers, transfer of patients from surgery to recovery rooms.
�
Identify organizations that are leaders in these areas: Look for the very best in any industry and in any country. Consult
customers, suppliers, financial analysts, trade associations, and magazines to
determine which companies are worthy of study.
�
Survey companies for measures and practices: Companies target specific business processes using detailed
surveys of measures and practices used to identify business process
alternatives and leading companies. Surveys are typically masked to protect
confidential data by neutral associations and consultants.
�
Visit the "best practice" companies to identify leading
edge practices: Companies typically agree
to mutually exchange information beneficial to all parties in a benchmarking
group and share the results within the group.
�
Implement new and improved business practices: Take the leading edge practices and develop implementation plans
which include identification of specific opportunities, funding the project and
selling the ideas to the organization for the purpose of gaining demonstrated
value from the process.
The technique initially used to compare existing corporate
strategies with a view to achieving the best possible performance in new
situations (see above), has recently been extended to the comparison of
technical products. This process is usually referred to as "technical
benchmarking" or "product benchmarking". Its use is
well-developed within the automotive industry ("automotive
benchmarking"), where it is vital to design products that match precise
user expectations, at minimal cost, by applying the best technologies available
worldwide. Data is obtained by fully disassembling existing cars and their
systems. Such analyses were initially carried out in-house by car makers and
their suppliers. However, as these analyses are expensive, they are
increasingly being outsourced to companies who specialize in this area.
Outsourcing has enabled a drastic decrease in costs for each company (by cost
sharing) and the development of efficient tools (standards, software).-
Benchmarking can be internal (comparing
performance between different groups or teams within an organization) or
external (comparing performance with companies in a specific industry or across
industries). Within these broader categories, there are three specific types of
benchmarking: 1) Process benchmarking, 2) Performance benchmarking and 3) strategic
benchmarking. These can be
further detailed as follows:
�
Process benchmarking - the initiating firm
focuses its observation and investigation of business processes with a goal of
identifying and observing the best practices from one or more benchmark firms.
Activity analysis will be required where the objective is to benchmark cost and
efficiency; increasingly applied to back-office processes where outsourcing may
be a consideration.
�
Financial benchmarking - performing a financial analysis and comparing the results in an
effort to assess your overall competitiveness and productivity.
�
Benchmarking from an investor perspective- extending the
benchmarking universe to also compare to peer companies that can be considered
alternative investment opportunities from the perspective of an investor.
�
Benchmarking in the public sector - functions as a tool for improvement and innovation in public
administration, where state organizations invest efforts and resources to
achieve quality, efficiency and effectiveness of the services they provide.
�
Performance benchmarking - allows the initiator firm to assess their competitive position
by comparing products and services with those of target firms.
�
Product benchmarking - the process of
designing new products or upgrades to current ones. This process can sometimes
involve reverse engineering which is taking apart competitors products to find
strengths and weaknesses.
�
Strategic benchmarking - involves observing how others compete. This type is usually not
industry specific, meaning it is best to look at other industries.
�
Functional benchmarking - a company will focus its benchmarking on a single function to
improve the operation of that particular function. Complex functions such as
Human Resources, Finance and Accounting and Information and Communication
Technology are unlikely to be directly comparable in cost and efficiency terms
and may need to be disaggregated into processes to make valid comparison.
�
Best-in-class benchmarking - involves studying the leading competitor or the company that
best carries out a specific function.
�
Operational benchmarking - embraces everything from staffing and productivity to office
flow and analysis of procedures performed.
�
Energy benchmarking - process of collecting,
analysing and relating energy performance data of comparable activities with
the purpose of evaluating and comparing performance between or within entities. Entities can include processes,
buildings or companies. Benchmarking may be internal between entities within a
single organization, or - subject to confidentiality restrictions - external
between competing entities.