Benchmarking

It is often stated that those who benchmark do not have to reinvent the wheel (Parker, 1996).

By following others one can make improvements and not focus on stale ideas. Benchmarking at first glance may be mistaken for a copycat form of developing strategic plans and for making improvements within an organization. This is not true. Benchmarking is a process that allows

Organizations to improve upon existing ideas. In order to eliminate myths and misconceptions about benchmarking it is important to know exactly what benchmarking is, the different types of benchmarking, the criticisms of benchmarking, and the ethical practices concerning benchmarking.

 

WHAT IS BENCHMARKING?

“Benchmarking is simply the process of measuring the performance of one's company against the best in the same or another industry. Benchmarking is not a complex concept but it should not be taken too lightly. Benchmarking is basically learning from others. It is using the knowledge and the experience of others to improve the organization. It is analyzing the performance and noting the strengths and weaknesses of the organization and assessing what must be done to improve.

        REASONS FOR BENCHMARKING

        There are several reasons that benchmarking is becoming more commonly used in industry;

·         Benchmarking is a more efficient way to make improvements. Managers can eliminate

trial and error process improvements. Practicing benchmarking focuses on tailori

tailoring existing processes to fit within the organization.

·         Benchmarking speeds up organization’s ability to make improvements.

·         Compare business practices with those of world class organizations

·         Challenge current practices and processes

·         Create improved goals and practices for the organization

·         Change the perspective of executives and managers.

       OBJECTIVES OF BENCHMARKING

v  Becoming competitive

v  Improving industry best practices

v  Defining customer requirement

v  Establishing effective goals and objectives

v  Developing the measures of productivity

ADVANTAGES OF BENCHMARKING

·         It helps improve process effectiveness

·         Helps in cost reduction

·         It provides focus in planning operations

·         The sharing of information may create opportunities for innovations

·         It assesses the firms existing position and provides a basis for establishing standards of performance

·         Cross comparison are more likely to expose different ways of doing things

·         It provides evidence for additional resources

·         Is practitioner led, so gives a sense of ownership

·         Facilitates multi-disciplinary team building and networking

·         Provides an avenue for change in clinical practices.

DISADVANTAGES OF BENCHMARKING

·         Benchmarking is the danger of complacency and arrogance. Many organizations tend to relax after excelling beyond competitors' standards. The realization of having become the industry leader soon leads to arrogance, when considerable scope for further improvements remains.        

·         It implies there is only one best way of doing business

·         The benchmark may be yesterday’s solution to tomorrow’s problems. If the operating environment is highly dynamic the solution will be dynamic.

·         It depends on the accuracy of the information about the comparator company

·         It may be difficult to decide which activities to benchmark

·         It encourages the mentality of catching up rather than being innovative

·         Lack of strategic relevancy

 PROCESS OF BENCHMARKING

Organizations that benchmark, adapt the process to best fit their own needs and culture. Although number of steps in the process may vary from organization to organization, the following six steps contain the core techniques:

 1. Decide what to benchmark.
2. Understand the current performance of your organization.
3. Do proper planning of what, how and when of benchmarking endeavor.
4. Study others well (the practices or system you wish to benchmark)
5. Gather data and learn from it.
6. Use the findings.

It involves the following;

Plan:  Critical success factors, select a process for benchmarking, document the process, and develop performance measures

Search:  Find bench-marking partners

Observe:  Understand and document the partners’ process, both performance and practice

Analyze: Identify gaps in performance and find the root causes for the performance gaps

Adapt: Choose “best practice”, adapt to the company’s conditions, and implement changes.

TYPES OF BENCHMARKING

• Process benchmarking –It’s where we go beyond performance measures and also compare how business processes are performed. 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.
• 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 - comparison of strategic decisions and dispositions at a higher level. It involves observing how others compete. This type is usually not industry specific meaning it is best to look at other industries.

·         Functional benchmarking - comparison against organizations that are not necessarily competitors, but that performs related tasks within the same technological area. In the school analogy, this will be benchmarking against someone from another school, but of the same type. A company will focus its benchmarking on a single function in order 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.

·         Internal benchmarking, comparison against the best within the same organization or corporation, often called benchmarking within your own class.

·         Competitive benchmarking, comparison against the best direct competitors, which then can be termed benchmarking against someone in the parallel class.

·         External benchmarking, it involves seeking outside organizations that are known to be best in class. It provides opportunities of learning from those who are at the leading edge, although it must be remembered that not very best practice solution can be transferred to others.

·         International benchmarking.  Is used where partners are sought from other countries because best practitioners are located elsewhere in the world and/or there are too few benchmarking partners within the same country to produce valid results.

DIFFICULTIES ENCOUNTERED WHEN BENCHMARKING DIRECT COMPETITORS AND WAYS TO OVERCOME THEM.

1.      Competitors may refuse to share their information

Competitive benchmarking is the most difficult type of benchmarking to practice. For obvious reasons, organizations are not interested in helping a competitor by sharing information. It looks at all aspects of the competition's strategy. This does not just include the disassembly and examination of the product but it analyzes the entire customers’ path of the organization’s competitor. This is a difficult thing to do because this information is not easily obtained.

       SOLUTION:

Ø  The company should conduct an extensive research. It is also important to remember when using competitive benchmarking that the goal is to focus on your direct competitors and not the industry as a whole.

Ø  Reverse engineering. This is a process if buying a competitors product, dismantling it to understand its components and its configurations.

2.      Difficulties in deciding what activities to benchmark

This is where a company finds it difficult to make a choice on which activity to benchmark as opposed to others. Therefore the company finds itself concentrating on irrelevant activities and leaving the most important activities. At times the company will be forced to carry out so many activities which make it expensive for the company.

    SOLUTION:

Ø  The company should sub divide its processes so as to identify the most important activities to prioritize.

Ø  They should involve experts in the relevant areas of concern so as to ensure quality decision making.

3.      Successful practices in one organization may not be successful in another organization

This where a company borrows ideas applied by other companies and apply them on their strategy expecting them to have the same results. In return, they end up being frustrated due to the failure of the whole process. This is because techniques applied by one company may not be applicable to another company.

        SOLUTION:

Ø  Appraisal – This is to evaluate the worth, significance, status of or give expert judgment on value or merit of the practice that is used constantly to check its effectiveness and change where necessary.

Ø  Ideas borrowed should not be copied directly, but rather modified to suit the situation

4.      It can be expensive to a firm

Benchmarking will involve an extensive research and experts’ knowledge in order to be successful. Therefore the company has to spend more on resources required, thus increasing the operating costs of the company.

SOLUTION:

Ø  The company should identify the key areas to benchmark and state the desired objective.

5. The benchmark may be yesterday’s solution to tomorrow’s problem.

Since the operating environment is highly dynamic, the information obtained from the competitor becomes obsolete before implementation thus the solution will be ineffective. Due to changes in technology, current processes may be ineffective tomorrow.

SOLUTION:

Ø  Be up to date with the technology.

6. It encourages the mentality of catching up rather than being innovative

The company using their competitor to benchmark, will rather be centralized to competition and trying to reach the levels of performance of the company in question, instead of being creative and innovative to come up with better means and ways of doing things, were it not for consideration of the competitor. The competitor company being used as benchmark may even have more advanced resources, making it difficult to directly use it as basis for evaluating your company.

        SOLUTION:

Ø  Emphasize on innovation rather than invention.

Ø  While using your competitor as basis for benchmarking, avoid the idea of trying to catch up, rather, use it as a level of comparison to come up with better standards and ways for organizational improvement and meeting or surpassing the industries best practices.

            ETHICAL PRACTICES CONCERNING BENCHMARKING

Since the concept of benchmarking can lead to unscrupulous and sometimes unethical behavior, the SPI Council on Benchmarking and the International Benchmarking Clearinghouse have established a general code of conduct (Thompson). The code is as follows:

·         When benchmarking with competitors, set up certain rules that state that things will not be discussed that give either company a competitive advantage. Establish the purpose for both parties to improve or gain benefit. Costs should not be discussed.

·         Do not ask competitors for sensitive information. Do not make them feel that if the data is not shared the benchmarking process will end. If you ask the company for sensitive and valuable information, be prepared to give the same in return.

·         Use an ethical and unbiased third party such as a legal advisor for direct competitor advice.

·         Consult with a legal advisor if any information gathering procedure is in doubt.

·         Treat any information obtained from a benchmarking partner as privileged or “top secret” information. Don't give away any information or potential trade secrets without permission.

·         Do not misrepresent yourself or your organization as being someone or something that you are not.

·         Show that you are committed to the effectiveness of the process. And in doing so maintain a professional and honest relationship with your benchmarking partners.

   CASE STUDY ON BENCHMARKING (XEROX CORPORATION)

Benchmarking can be called the management tool that revived Xerox. Xerox defines benchmarking as the “continuous process of measuring our products, services, and practices against our toughest competitors or those companies recognized as leaders (Parker, 1996). The Xerox of today is not the Xerox of the sixties and seventies. During that time period the organization experienced market erosion from competitors, primarily Japanese. These competitors were marketing higher quality products in the United States at the same price or lower as Xerox. Xerox found that the Japanese were able to assemble quality products at a low price. This was hard for Xerox to grasp because they were the first to develop the photocopy and their name had come to be synonymous with photocopies. How could the Japanese be beating them at their own game? Xerox found that they had to regroup. In doing this they used reverse engineering and made competitive benchmarking a fundamental part of their operations by the early eighties. Xerox began to study other organizations within and out of their industry. By 1983, Xerox had bench marked more than 230 process performance areas in their operation. They looked at all aspects of their business. Identifying the best processes used by others, Xerox adapted them for their own use. This is how they regained their core competency and strategic advantage in the photocopying industry (Brogan, 1994).

CONCLUSION

Benchmarking can be as complex as re-engineering or as simple as thumbing through the quarterly reports of organizations and making comparisons. Although organizations must use benchmarking with some caution, it can be informative and foster a spirit of openness and cooperation from indirect competitors. It is not enough to benchmark the costs of activities and identify best practices. When an organization looks at benchmarking they must look at all aspects of the business, its products, and its processes. It is crucial for organizations to focus on anything that will impact its performance and quality.