A benchmark is a point of reference for a measurement. Benchmarking is process of comparing one’s business processes and performance metrics to industry bests or best practices from other industries. It does this by capturing performance metrics and comparing their values with a comparable set of previously recorded measures. This comparison set can be taken from a variety of from within the same organization at a different times, from competitors, from similar processes within the industry. Typical dimensions measured are quality, time, and cost.
Benchmarking models are useful to determining how well an activity, process, business unit, division, or corporation is performing compared with other similar organizations. Benchmarking aims to achieve maximum effectiveness of learning from the best and helps to move the organization from its current state to desired best practice future state.
Business benchmarking is related to Kaizen and competitive advantage thinking.
- Improving communication
- Professionalizing the organization / processes, or for
- Budgetary reasons
- In outsourcing projects
Traditionally, performance measures are compared with previous measures from the same organization at different times. Although this can be a good indication of the speed of improvement within the organization, it could be that although the organization is improving, the competition is improving faster…
Five types of Benchmarking
- Internal benchmarking (benchmark within a corporation, for example between business units)
- Competitive benchmarking (benchmark performance or processes with competitors)
- Functional benchmarking (benchmark similar processes within an industry)
- Generic benchmarking (comparing operations between unrelated industries)
- Collaborative benchmarking (carried out collaboratively by groups of companies (e.g. subsidiaries of a multinational in different countries or an industry organization).
Typical steps in a benchmarking process
- Scope definition
- Choose benchmark partner(s)
- Determine measurement methods, units, indicators and data collection method
- Data collection
- Analysis of the discrepancies
- Present the results and discuss implications / improvement areas and goals
- Make improvement plans or new procedures
- Monitor progress and plan ongoing benchmark.
Cost Related to Benchmarking
There are costs to benchmarking, although many companies find that it pays for itself. The three main types of costs are:
- Visit costs – This includes hotel rooms, travel costs, meals, a token gift, and lost labour time.
- 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.
- 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.
Limitations of Benchmarking
- Benchmarking is a tough process that needs a lot of commitment to succeed.
- Time-consuming and expensive.
- More than once benchmarking projects end with the ‘they are different from us’ syndrome or competitive sensitivity prevents the free flow of information that is necessary.
- Comparing performances and processes with ‘best in class’ is important and should ideally be done on a continuous basis (the competition is improving its processes also…).
- Is the success of the target company really attributable to the practice that is benchmarked? Are the companies comparable in strategy, size, model, culture?
- What are the downsides of adopting a practice?
Source: Christopher E. Bogan, Michael J. English – Benchmarking for Best Practices
Source: Peter Bolstorff, Robert Rosenbaum – Supply Chain Excellence
Source: Joe Zhu – Quantitative Models for Performance Evaluation and BenchmarkingBusiness frameworks like Benchmarking are invaluable to evaluating and analyzing various business problems. You can download business frameworks developed by management consultants and other business professionals at Flevy here.