Benchmarking Process
Benchmarking Process
In the present day competitive environment, an organization having an objective of simply meeting or beating the competition does not result in the level of improvement necessary to remain competitive. The organization is required to achieve continuous improvements in productivity, quality, reliability, and responsiveness to drive down costs and keep customers satisfied. One of the best ways to keep improving the organization is to benchmark. Benchmarking is a systematic way to identify superior products, services, processes, and practices which can be adopted by the organization for improving the performance. It provides the organization practicing it, a big opportunity for gaining a strategic, operational, and financial advantage.
Benchmarking was traditionally used as a problem solving technique. During the past several years, through extensive efforts, leading organizations have come to realize that there is a better way to focus benchmarking activities for higher results. The most effective vehicle to ensure continuous improvement is to focus on the basic processes which run the organization. It is this concentration which delivers the outputs for the achievement of the organizational objectives, priorities, and mission. This process based benchmarking is a new and revolutionary perspective in benchmarking.
Benchmarking helps create the learning organization. It creates a group of dedicated individuals who actively pursue excellence, growth and knowledge. As per experts’ opinion, only those organizations which can quickly learn from and master their environments can survive in the fast changing environment. Objective information can help trigger the transformation to the continuous improvement philosophy, but it can only do so if it is continually reapplied and reinforced. Benchmarking sets the framework for excellence, attaining it depends on the actions which are taken once the results are available.
The original meaning of the word ‘benchmark’ refers to a metric unit on a scale for measurement. Benchmarking has its roots in an English word ‘benchmark’ which comes from a construction terminology, meaning leveling, leveling point, the standard measure of value-benchmark by which other values are measured and compared to. The original word in the English language has been identified as a new word ‘buzzword’ which is used in theory and practice to describe a modern method of comparing the organizational operations to those of the organizations who have excellent performance metrics. Nevertheless, benchmarking is a standard for comparing, measuring and marking a reference point.
The application of similar methods was present with the ancient civilizations and nations in the distant past. A more intense use of this term was applied by Japan after the World War II when the experts studied and compared the operations of the best organizations worldwide, as well as the best practices and results with their own, along with coming up with new solutions to apply in their organizations. The present form of benchmarking process started in the late 1960s by H. James Harrington, and since then this database has expanded rapidly. It got further boost when Xerox Corporation adopted it 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.
Benchmarking is the formal and structured process of searching for those practices which lead to excellent performance, the observation and exchange of information about those practices, the adaptation of those practices to meet the needs of the organization, and their implementation. The American Productivity and Quality Centre define benchmarking as ‘the process of identifying, understanding, and adapting outstanding practices and processes from organization anywhere in the world to help your organization improve its performance’. The simpler definition of benchmarking, which is widely accepted is ‘the search for and implementation of best practices’.
Benchmarking is the process of identifying, understanding and adapting outstanding practices from within the same organization or from other organizations to help improve performance. This involves a process of comparing practices and procedures to those of the best for identifying the ways in which an organization can make improvements. Hence, new standards and goals can be set which, in turn, help to satisfy in a better way the customer’s requirements for quality, cost, product and service. In this way, the organization can add value to its customers and distinguishes itself from the competitors. Fig 1 gives the basic concepts of benchmarking.
Fig 1 Benchmarking process concepts
The philosophy of benchmarking is that the organizational management is to recognize that there are shortcomings in the organization and acknowledge that some other organization is doing a better job, learn how it is being done there and then implement it in the organization. This attitude is required to be inculcated in the organization and only then can the organization take full benefit of the benchmarking. In fact, one of the most important benefits of benchmarking is the discovery of innovative approaches. Benchmarking highlights problem areas and the potential for improvement, providing an incentive to change, and assists in setting targets and formulating plans and strategies.
From managerial perspective, benchmarking is a continuous, systematic process of identifying the highest standards of excellence for products, services, or processes which represents the best in the field, and then making the improvements necessary to reach those standards, normally called ‘best practices’. Benchmarking is seeking actively the best ideas, methods and approaches which are applicable to the organization and can contribute to increase its efficiency. It is a tool for improving performance. It is not just the competitive analysis or idea grinding, nor it is spying, espionage or stealing. It is a process to establish the ground for creative breakthroughs. It is meant for the transformation of the organizational processes. It is the process of measurement, which can significantly contribute to achieve competitive advantage.
Benchmarking is a way to move away from tradition. The systematic discipline of benchmarking is focused on identifying, studying, analyzing, and adapting best practices and implementing the results. To consistently get the most value from the benchmarking process, organizational management can discover that there is a need for a significant culture change. This change, however, unleashes the full potential of benchmarking to generate large paybacks and strategic advantage. In fact, benchmarking carefully dissects the organization into segments, and then removes and inserts pieces to account for changing environments. Changes occur once the process has started, and continues to change and mould the organization for as long as the management and employees are continuously striving to make it better.
Benchmarking gives the organization an external focus and forces the organization to look at what its competitors are doing. Properly conducted, benchmarking study forces the organization to focus on its competitive edge, while bringing the other processes up to mark with those of its competition. In other words, benchmarking raises the standard of competition in the industry. Benchmarking of the organizational processes can also be done with top performing organizations in other industry sectors. This is feasible since many processes are essentially the same from sector to sector.
Benchmarking is normally defined as a continuous and systematic process of comparing products, services, processes and outcomes with other organizations or exemplars, for the purpose of improving outcomes by identifying, adapting and implementing best practice approaches. Comparisons can be made against individual benchmarking partners or groups, other processes within the organization, sets of accepted standards, or data from past performance.
Benchmarking is different than the use of quality assurance models, as these models normally focus on minimum acceptable standards and compliance and they are frequently imposed by management or external inspection regulatory agencies. In contrast, benchmarking sits within a broader framework of quality management and improvement. Further, benchmarking cannot be carried out in isolation and has to match and contribute to the overall objectives of the organization to be of benefit.
Benchmarking contributes to the implementation of best practice solutions, new technologies, and improvement of organizational processes. It results into improvement in the quality of products, cost savings, increase of productivity, creativity, innovation and competitiveness in the market, and leads to satisfying of the needs and desires of the customers, as well as achieving higher efficiency in the organizational processes. The benchmarking results into the creation of new ideas and the rewarding solutions for improvement of the existing organizational practices, and processes.
Benchmarking is an important process for improvement of the organizational performance. Significance of benchmarking include (i) it can be used as a tool to improve quality, (ii) it is one of the basic techniques of detecting and evaluating information about the competitors of the organization, (iii) it allows the organization to identify strategic market opportunities and to develop competitive products, (iv) it helps to understand the market, determine the market position of the organization, based on the comparison with competitors, (v) it strengthens the position of the organization and outlines the possibilities of differentiation from other organizations, and (vi) it is a tool of competitiveness.
Benchmarking is normally done with respect to critical area of strategic and operational significance which influences in a major way the organizational performance. This can be a well-known problem area in the organization which can be clearly defined or an activities/ a process where improvement results in major benefits (according to Pareto 80 / 20 rule). Benchmarking can be carried out with respect to activities and processes such as (i) strategic planning, (ii) process productivity norms, (iii) consumption norms, (iv) quality parameters, (v) decision making processes, (vi) accounting system, (vii) communication system, (viii) incentives and reward system, (ix) strategic human resource management, (x) employee training and development, (xi) logistics, and (xii) customer service etc.
Benchmarking cycle
Benchmarking is the continuous learning process. For effective implementation of benchmarking, it is necessary to follow the benchmarking cycle. For initiating the benchmarking cycle, management support and involvement of the employees who are the owners of the benchmarking process are needed. In order to get satisfactory outcome from the benchmarking process, it is absolutely necessary to keep a systematic approach. Over time, different methodologies have been developed, so there are several different methods of describing the steps of benchmarking. A successful approach to benchmarking process is to establish a process model which has four phases of benchmarking namely (i) planning, (ii) data collection, (iii) data analysis, and (iv) improvement through adaptation and monitoring. By the number of stages this model resembles ‘Deming‘s PDCA (Plan – Do – Check – Act) cycle.
For the benchmarking process, it is essential that the code of ethics defining the basic rules of communication, interaction and information are followed. The fact is that benchmarking works with public data, but the partners exchange openly and with confidence a lot of information in the process which can in certain circumstances can cause damage. Fig 2 shows the benchmarking cycle. It shows the four phases of benchmarking.
The aim of the planning phase is to select the parameter which needs benchmarking. This is done on the basis of systematic analysis of the internal organizational data and understanding of the customer needs and processes which are taking place in the organization. The data for the parameter selection can be from entire organization or from a part of the organization as per the need. It is necessary to decide how deep the benchmarking is to be carried out. The organization, which plans to improve certain processes, is to define the objectives at the beginning of the benchmarking process so as to achieve the clarity of purpose and scope of the benchmarking project. The data analysis is required to be done of the processes whose performance is required to be improved through the benchmarking project. In this phase, the team selected for the benchmarking project is to plan all the activities to be carried out under the project. Successful shaping of the goals is one of the fundamental prerequisites of a successful benchmarking project.
The second phase of benchmarking starts with the collection of the external data available within the organization. Since the benchmarking is based on a comparison with the best organization in the industry, it is therefore necessary to collect data also from the organizations which are in competition. Care is needed for the selecting the competing organization for data comparison, since organizations differ in several respects such as private sector or public sector, size, structure, number of employees, production capacities, technology levels, collaborators, and financial status etc. The primary tool for this identification is through secondary research. Finding the best organization for benchmarking involves the systematic exploration of various sources of information, from written reports and personal experience, to the published reports and mass media.
The identification of suitable organization having best performance for a benchmarking target is probably the most difficult aspect of the benchmark studies. Normally, several competing organizations are first selected as likely benchmarking partners, then by collection of data of these organization systematic process of elimination is carried out for identifying the organization which is considered to have the best performance for the selected parameter. Relations with benchmarking organization are to be open to exchange of information. It is necessary to maintain harmony with the contacts which enable long-term cooperation for the benchmarking. However, it is the most difficult part, since every organization is afraid to provide their own information to anyone else. For this reason, it is necessary to comply with the ethics for the benchmarking process.
In the third phase, data analysis is carried out both for the internal data and the best in class data. This analysis includes comparison of both the data in order to find out how the best performance is being achieved by the benchmarking organization. At this phase data is processed, information is systematically sorted and organized. At the same time, the extent of performance results and thus the potential for improvement are identified. For increasing the comparability of data between the two organizations cooperating in the benchmarking, verification of the input data is to be carried out. Based on this analysis, the organization is to decide what changes it has to make for achieving the improved performance for the parameter. This phase includes documentation of the report for benchmarking. The results of benchmarking are formulated as a new target for the organization, which is to be itemized in detail.
The fourth phase of a benchmark project is the adaptation of the analysis results and monitoring of its effects. The purpose of benchmarking is not copying or emulation, but rather it is the implementation of the changes needed to improve the performance. Once the performance targets are set for the future, the next challenge is to ensure that the organization has committed to actually make the change. This requires continuous involvement of everyone in the organization. Only if there is a genuine commitment to change the things, the organization can achieve the full benefit of benchmarking. Adaptation is an activity aimed at reducing disparities which are identified in the analysis phase and also conversion of possible improvements into tangible results. Measurements are required for knowing the benefits achieved by the project.
Fig 2 Benchmarking cycle
Types of benchmarking
There are several types of benchmarking and many ways of categorizing these types. Each type seems useful for a particular situation. However, the type of benchmarking is not as important as that the aims are clear, achievable and achieved, and that the choice of partner organization is aligned with the aims. In one way of categorization there are three types of benchmarking namely (i) sector benchmarking in which comparisons of ‘whole-of-organization’ or focusing on some function or aspect are made against a benchmarking partner in the same sector, (ii) generic benchmarking involving comparisons of processes and practices regardless of the industry or field of partner, and (iii) best practice benchmarking in which the organization selects a person for benchmarking known to be best in the area to be benchmarked.
Some terms for the types of benchmarking can be used with several meanings. For example, an organization can distinguish sector from whole-of-organization benchmarking. Sector benchmarking is a comparison of performance outcomes of other organizations using publicly available data or of processes and practices within the sector in selected areas with a view to identifying areas for improvement.
Standards-based benchmarking analyses processes, practices and outcomes against a generally agreed set of standards, e.g. those set by professional bodies for accreditation. Two types of standards-based benchmarking are clearly distinguished are given below.
Criterion reference benchmarking – It first defines the attributes of good practice in a functional area, then assesses whether that criteria has been achieved. The definition can be a checklist of essential attributes constituting good practice. If the benchmarking process concludes that the organization is meeting the criterion then the organization is meeting that benchmark. If the benchmarking process concludes that the organization is not meeting the criterion, then there is to be about what needs improvement.
Quantitative benchmarking – It distinguishes normative and competitive levels of achievement, demonstrating where practice is quantifiably different in some organizations. Differences can signal priorities, choice, and policy rather than a need for improvement, e.g. lower proportion of smaller dimension products with lower productivity in total product mix in a rolling mill.
There are four types of benchmarking based on the kind of organization serving as the benchmarking partner as given below.
Internal benchmarking – In internal benchmarking, comparisons are made against another division / department within the organization. During the internal benchmarking, the main advantage is that access to sensitive data and information is easier, standardized data is frequently readily available and normally lesser time and resources are needed. There are lesser barriers to implementation as practices can relatively be easy to transfer across the same organization. However, real innovation is lacking and best in class performance is more likely to be found only through external benchmarking.
Competitive benchmarking – In competitive benchmarking comparisons are made against direct competitors. Competitive benchmarking is also known as external benchmarking. This type of benchmarking is an effective approach (i) in industries which are highly competitive, (ii) in industries whose competitors have very different management philosophies and histories, and (iii) in industries which are driven by emerging technologies and processes. The reverse engineering and competitive shopping approaches which are part of this type of benchmarking are very important to organizations whose output is hard or soft goods. Organizations using competitive methods need to be experienced in benchmarking. In competitive benchmarking, the reverse engineering and competitive shopping requires that the organization performs a detailed analysis of the products, services, and processes of the competitor. The most common approach is to purchase competitive products and services, then analyze them to identify competitive advantages.
Industry benchmarking – In industry benchmarking, the benchmarking partner is not a direct competitor but does share the same process. This type of benchmarking extends the benchmarking process outside the specific industry to which the organization belongs. In dissimilar industries, there can be several processes which are generic in application and extend across several industries, for example warehousing, supplier relations, spare part logistics, advertising, customer relations, and recruitment etc. Application of the benchmarking process to these generic items can provide meaningful insights, particularly when the information comes from unrelated industries. Benchmarking dissimilar industries enables the organization to discover innovative processes, not presently used in the organization and takes the organization to a higher level within the industry to which it belongs.
Functional benchmarking – In this type of benchmarking the organization look to benchmark with benchmarking organizations drawn from different sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements. Normally in this type of benchmarking the organization focuses its benchmarking on a single function to improve the operation of that particular function. Complex functions are unlikely to be directly comparable in cost and efficiency terms and can need to be disaggregated into processes to make valid comparison.
Process related benchmarking is by far the most commonly used model. It consists of four types of benchmarking based on the practices or processes being benchmarked. It includes (i) process benchmarking, (ii) performance benchmarking, (iii) strategic benchmarking, and (iv) product benchmarking.
Process benchmarking – In process benchmarking the organization focuses on discrete work processes and operating practices. The emphasis of the organization is on the observation and investigation of critical processes and operations with a goal of identifying and observing the best practices from one or more benchmark organizations. Process benchmarking invariably involves producing process maps to facilitate comparison and analysis. Activity analysis is done where the objective is to benchmark cost and efficiency. This type of benchmarking is applied to back office processes and results into short term benefits.
Performance benchmarking – In this type of benchmarking, the organization considers its position in relation to the performance characteristics of key products and services of the target organization. Benchmarking partners are drawn from the same sector. This type of analysis is frequently undertaken through trade associations or third parties to protect confidentiality.
Strategic benchmarking – This benchmarking is practiced when the organization need to improve overall performance by examining the long term strategies and general approaches which have enabled high performing organizations to succeed. It involves considering high level aspects such as core competencies and improving capabilities for dealing with changes in the external environment. Changes resulting from this type of benchmarking are difficult to implement and take a long time to materialize.
Product benchmarking – This type of benchmarking involves the process of designing new products or upgrading the present ones. This process can sometimes involve reverse engineering which is taking apart the product of the benchmark organization for finding the strengths and weaknesses.
Benefits of benchmarking
The organizations care about benchmarking because of competition. In the past, it have been possible to identify friendly rivals but in the present environment the competitive landscape is changing quickly and there are new, non-traditional rivals in the market who are competitors or benchmarking partners.
Benchmarking is an effective management tool to identify changed ideas and brings changes to achieve continuous improvements in the way an existing activity, function, or process is performed. It is basic to strategic process improvement and re-engineering. In employing this method, the organization compares its performance with its strong and more successful competitors in the industry. It helps the organization not only to assess its present performance relative to other organizations, but also learn from others to generate new ideas, methods and practices for improving its functioning. Hence, productivity and cost reduction can be improved and new performance targets which are practical and achievable can be set to give the organization a competitive edge.
One of the most important benefits of benchmarking is the discovery of innovative approaches. Benchmarking highlights problem areas and the potential for improvement, providing an incentive to change, and assists in setting targets and formulating plans and strategies. It provides assessments of quality that identify measures which give a valid and balanced, present picture of the parameters which distinguish processes, departments, and divisions of the organization.
As a result of good benchmarking, industry leaders know how their organization rates in certain areas in comparison with others, ascertain their competitive position relative to others, and also know how their organization can be improved. Benchmarking can enable the organization to lay a legitimate claim to being ‘distinguished’ in a particular area.
The findings from benchmarking enable an organization to prioritize resources and use its resources to best effect. Benchmarking can ensure that plans are being carried out and demonstrate areas of merit to stakeholders. Yet benchmarking distinguishes between real innovation and simple reputation as it focuses on demonstrating best practices beyond their initial launch.
For maximizing the benefits of benchmarking, the organization is to undergo a thorough self-analysis and has a clear understanding of its own processes which can be more useful than the comparison with another organization. Beyond the potentially humbling learning experience of benchmarking, the networking creates opportunities for further collaboration.
Further, when the analysis results are adopted sincerely in the organization and the same are regularly being monitored, then after a certain period the performance even become superior even to the best practice organization as shown in Fig 3.
Fig 3 Benchmarking process outcome
Criticism of benchmarking
In order to be successful and to ensure positive outcomes for all partners, benchmarking is to be approached with some insight into the potential pitfalls and problems which can arise. For example, benchmarking can be expensive and the scope is to be narrow to make the study manageable. Potential challenges include the need to ensure agreed outcomes for all partners, participative training, and awareness for all the employees involved. There is a need for benchmarking to sit within a broader framework of quality management and improvement.
By focusing on processes and practices which are already occurring and only on another organization’s best practice, it is sometimes being argued that benchmarking can restrict innovation and ambition. Similarly, by focusing on present processes and practices the need to prepare for a changing future and adapt to new conditions is not satisfied. This is being distinguished as ‘simply sharing knowledge with the peers’ and not ‘true’ benchmarking.
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