BenchmarkingTypes
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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.
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Financial benchmarking - performing a financial analysis and
comparing the results in an effort to assess your overall competitiveness and
productivity.
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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.
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Performance benchmarking - allows the initiator firm to assess their
competitive position by comparing products and services with those of target
firms.
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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.
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Strategic benchmarking - involves observing how others compete. This
type is usually not industry specific, meaning it is best to look at other
industries.
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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.
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Best-in-class benchmarking - involves studying the leading competitor or
the company that best carries out a specific function.
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Operational benchmarking - embraces everything from staffing and
productivity to office flow and analysis of procedures performed.
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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.
Benchmarking
Benchmarking is the process of comparing one's business
processes and performance metrics to industry bests or best practicesfrom other industries. Dimensions typically
measured are quality, time and cost. In the process of benchmarking, management
identifies the best firms in their industry, or in another industry where
similar processes exist, and compare 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.
The term benchmarking was first used by cobblers to measure people's feet for shoes. They would place
someone's foot on a "bench" and mark it out to make the pattern for
the shoes. 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 particularlystrategic 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.
Benefits and use
In 2008, a comprehensive survey on benchmarking was commissioned by The
Global Benchmarking Network, a network of benchmarking centers representing 22
countries. Over 450 organizations responded from over 40 countries. The results
showed that:
1.
Mission
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.
Collaborative benchmarking
Benchmarking, originally described as a formal process by 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.
Procedure
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:
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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 researchtechniques
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.
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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.
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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.
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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.
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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.
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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.
Costs
The three main types of costs in benchmarking
are:
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Visit Costs - This includes hotel rooms, travel costs, meals, a token
gift, and lost labor time.
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Time Costs - Members of the benchmarking team will be investing time
in researching problems, finding exceptional companies to study, visits, and
implementation. This will take them away from their regular tasks for part of
each day so additional staff might be required.
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Benchmarking Database Costs - Organizations that institutionalize
benchmarking into their daily procedures find it is useful to create and
maintain a database of best practices and the companies associated with each
best practice now.
The cost of benchmarking can substantially be
reduced through utilizing the many internet resources that have sprung up over
the last few years. These aim to capture benchmarks and best practices from
organizations, business sectors and countries to make the benchmarking process
much quicker and cheaper.
Technical/product benchmarking
The technique initially used to compare
existing corporate strategies with a view to achieving the best possible
performance in new situations, 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).
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