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Weekly UpdatesBenchmarking is emerging in leading-edge companies as an information tool to support continuous improvement and to gain competitive advantage. In order to benchmark effectively, a company needs a strong strategic focus and some flexibility in achieving management's goals. To effectively implement benchmarking, adequate planning, training, and open interdepartmental communication are needed. Benchmarking's appeal is its cost savings in executing operations and its support of the organization's budgeting and strategic planning process.
In a 1995 survey of benchmarking exchange members, benchmarking was one of the top five most popular business processes. More than 70 percent of Fortune 500 companies use benchmarking on a regular basis, including AT&T, Eastman Kodak Co., Ford Motor Co., IBM Corp., Weyerhaeuser Co., and Xerox Corp.
Xerox began benchmarking in the late 1970s. During this time, Xerox was losing market share and feeling pressure from its competitors. In an attempt to get back into the game, Xerox compared its operations to its competitors'. After comparing its quality standards to others', Xerox began one of the greatest trends in the business world today.
Benchmarking's popularity has grown during the last five years. It can be used in a variety of industries, including service and manufacturing. The benchmarking process is more than just gathering data on how well a company performs against others - it's a method to identify new ideas and new ways to improve processes and, as a result, to better meet customers' expectations.
Sprint Corp. uses benchmarking as a tool in its strategic business process improvement and reengineering. According to Jeff Amen, Sprint's benchmarking manager, the concept is to understand what the organization does and what are its critical components.
As stated by C.J. McNair and Kathleen Leibfried, "To benchmark is to shrug off history and to embrace the future." The benchmarking process has many defining features. It must be purposeful, externally focused, measurement based, information intensive, objective, and action generating. It shouldn't be done merely for the organization's image. All practices performed should have sincere intentions. Benchmarking is often used to meet or exceed these expectations.
This article overviews the benchmarking process and its implications for continuous improvement and competitive advantage. In addition, the perceived benefits, limitations, costs, and implementation process are explored. Also discussed are ethical and legal implications for introducing and implementing the benchmarking process.
Benchmarking reasons and benefits
Companies benchmark for many reasons. The reasons can be broad (increasing productivity) or specific (improving an individual design). By simply looking outside itself, a company can identify breakthroughs in thinking.
* Performance assessment tool - Benchmarking is defined as the process of identifying and learning from the best practices in the world. By identifying the best practices, organizations know where they stand in relation to other companies. It is an ideal way to learn from more successful companies. The other companies can point out problem areas and provide possible solutions. When companies benchmark, they use partners to share information and learn from each other. Benchmarking allows organizations to better understand their administrative operations, and targets areas for improvement. In addition, benchmarking can eliminate waste and improve a company's market share.
* Continuous improvement tool - Benchmarking is increasing in popularity as a tool for continuous improvement. Organizations that faithfully use benchmarking strategies achieve a cost savings of 30 to 40 percent or more. Benchmarking establishes methods of measuring each area's units of output and costs. In addition, benchmarking supports the process of budgeting, strategic planning, and capital planning.
Due to the suffering automotive market in the early 1980s, Ford needed to change its operations to cut costs. Ford managers believed they could improve processes in the accounts payable department. After gathering, analyzing, and comparing data with Mazda's accounts payable operations, Ford retooled its own accounts payable operations and reduced costs by 5 percent.
* Enhanced performance tool - Benchmarking also allows companies to learn new and innovative approaches to issues facing management, and provides a basis for training. Benchmarking improves performance by setting achievable goals.
* Strategic tool - Leapfrogging competition is another reason to use benchmarking as a strategic tool. A company's competitors may be stuck in the same rut. With benchmarking, it's possible to get a jump on competitors by using new-found strategies.
* Enhanced learning tool - Another reason to benchmark is to overcome disbelief and to enhance learning. For example, hearing about another company's successful processes and how they work helps employees believe there's a better way to compete.
* Growth potential tool - Benchmarking may cause a needed change in the organization's culture. After a period of time in the industry, an organization may become too practiced at searching inside the company for growth. The company would be better off looking outside for growth potential. An outward-looking company tends to be a future-oriented company - usually leading to an enhanced organization with increased profits.
* Job satisfaction tool - Benchmarking is growing and changing so rapidly, benchmarkers have banded together and developed how-to networks to share methods, successes, and failures with each other. The process has successfully produced a high degree of job satisfaction and learning. Benchmarking is a systematic and rigorous examination of a company's product, service, or work processes, measured against organizations recognized as the best.
* Total quality management tool - Benchmarking is an ingredient in any total quality management movement. Firms that want to know why or how another firm does better than theirs follow the benchmarking concept. Its use is accelerating among U.S. firms that have adopted the TQM philosophy.
Some practitioners talk about a micro-usage of benchmarking, where the core processes of several companies are analyzed. Other professionals cite the growth of targeted and effective outsourcing as a result of benchmarking. Strategic planning is also a key application in benchmarking. One must follow a sequential order and strategically plan out the processes to successfully implement them into the firm.
Types of benchmarking
There are four different types of benchmarking: internal benchmarking, competitive benchmarking, functional or industry benchmarking, and process or generic benchmarking. Before deciding to benchmark, a company needs to determine what they want to benchmark.
* Benchmarking against operations is called internal benchmarking. This is one of the simplest forms, since most companies have similar functions inside their business units. Determining an organization's internal performance standards - internal benchmarking's main objective - enables a multitude of information to be shared. The immediate benefit comes from identifying the best internal procedures, then transferring them to other portions of the organization. Unless later used as a baseline for external benchmarking, companies implementing internal benchmarking alone often retain an introverted view.
* Competitive benchmarking is used with direct competitors. Performed externally, competitive benchmarking's goal is to compare companies in the same markets that have competing products, services, or work processes (for example, McDonald's vs. Burger King). With this strategy, it's advantageous to compare a related company's performance. With direct competitors, information isn't easy to obtain - public domain information is the most accessible. Competitors can make it very difficult to obtain their priceless information.
* Functional or industry benchmarking is performed externally against industry leaders or against certain companies' best functional operations. The benchmarking partners usually share some common technological and market characteristics. They also concentrate on specific functions. Because no direct competitors are involved, the benchmarking partners are more willing to contribute and share. Disadvantages can be high costs and scheduling companies that are already overwhelmed by benchmarking.
* Finally, process or generic benchmarking focuses on the best work processes. Instead of focusing on a company's business practices, similar procedures and functions are benchmarked. This type can be used across dissimilar organizations. Although considered extremely effective, it's difficult to implement. Generic benchmarking requires a broad conceptualization of the entire process, and a careful understanding of procedures.
Each company should carefully evaluate its own perspective of what benchmarking is and how to use it. The company needs to determine whether to focus on financial results or meeting customer requirements. This is the only effective way to begin the benchmarking process.
The benchmarking process
Benchmarking is a very structured process consisting of several steps. Although very structured, it shouldn't add complexity to a simple idea: The structure should not get in the way of the process. According to Margaret Matters and Anne Evans, the benchmarking process has five stages.
* Plan the exercise - This step involves identifying the strategic intent of the business or process to be benchmarked. Many times the source of this information is the company's mission statement, which summarizes its main purposes. Next, choose the processes to be benchmarked. This includes identifying various products produced by the benchmarked company, and asking your company if using this process will create positive results. Then identify the customer's expectations. Finally, determine the critical success factors to benchmark; these factors are links to successful business results.
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