What Is Benchmarking?
‘Benchmarking’ is a systematic management tool in process improvement that measures and compares an organization’s process, product, or service performance[1,2] with those with better performance or those using world-class strategies – a.k.a. best practices[3,4]. Robert Camp (1989), considered the founder of best practice benchmarking, defined the tool as the “search for industry best practices that will lead to superior performance” (p. 10).
Every industry has certain criteria or standards that an organization needs to meet to survive the competitive business environment and meet employees and customers’ expectations. In order to do that, organizations need to know where they stand in the competition and what in their operations is lacking compared to other organizations, especially those that are considered leaders in the industry. Therefore, benchmarking – as the term implies – helps in implementing that.
Through benchmarking, an organization can analyse its operation’s advantages and disadvantages and identify best practices done by other organizations of similar or different industries. This helps in evaluating the factors that contribute to excellent business performance and the information gathered can provide insight into possible actions that can be done to improve organizational performance[2,3,6,7].
Types Of Benchmarking
Organizations can employ many types of benchmarking categorized by different scholars and practitioners. The following shows the most commonly known types of benchmarking:
Internal benchmarking involves identifying and analysing best practices established within the same organization. When a team of an organization (i.e., branch, sections, departments) with similar processes to another team adopts best in-house practices and has shown better performance, internal benchmarking can be implemented to gain more information on these practices, learn from them, and disseminate them throughout the organization to achieve similar or even better performance.
External benchmarking is quite similar to internal benchmarking; however, external benchmarking focuses more on identifying and analysing best practices established by different organizations within or outside of the industry. Here, it helps in studying the works of organizations with a competitive advantage and gaining effective ways for process improvement within the organization.
Performance benchmarking involves measuring the quantitative data of employee performance and product characteristics/production (i.e., employee surveys, key performance indicator, cost, reliability, durability, etc.). For instance, benchmarking the performance of the customer service team – using metrics from Customer Satisfaction Score (CSAT) – or manufacturing team – through the metrics from Overall Equipment Effectiveness (OEE).
Performance benchmarking assesses competitive positions by comparing the results of the performance metrics with those in other high-performing organizations. From there, one can identify an organization’s performance gaps and set higher performance standards comparable to the standards of industry leaders.
Process benchmarking concentrates on the daily operations/processes conducted within an organization. Specifically, it benchmarks the critical and specific work processes like shipping/delivery or billing process and uses the information gathered to improve all activities within that process. Measuring the flow of a process – including the activities done – in comparison to organizations with better process flow can help determine what and how it can be improved to achieve more efficient processes.
Strategic benchmarking involves benchmarking the strategies implemented by an organization in comparison to the long-term strategies used by best-in-class organizations. This approach is mostly utilized when an organization needs to go beyond its industry to find and employ better alternatives by identifying and analysing best practices used worldwide. That said, strategic benchmarking can help an organization evaluate, understand, and learn from the strategies industry leaders use to become successful. By doing so, one can optimize their own business strategies and improve their operations in the long run.
Competitive benchmarking is implemented to compare with an organization’s direct competitor. Mainly, this approach focuses on evaluating the characteristics of an organization’s business performance (i.e., products, services, processes, procedures, etc.) in comparison to those of its competitors. Compared to the other benchmarking types, competitive benchmarking is considered the most difficult to implement since an organization would not easily provide information for a direct competitor’s benefits.
Despite that, this type of benchmarking is necessary to conduct as it helps in evaluating where an organization stands in the industry and what actions to take to keep/gain the upper hand. Additionally, conducting a successful competitive benchmarking approach requires setting clear objectives and scope to evaluate; hence, having a granular data report on competitors and one’s own business can give the overall standards of the industry, one’s business gaps and strong points, and opportunity to make effective business decisions.
Phases In Benchmarking
It is difficult to determine a standard process of benchmarking since there are numerous process models established by many scholars, experts, and practitioners throughout the years. For instance, one of the first and most well-known benchmarking process frameworks is from Xerox Corporation – the first firm that implemented benchmarking – with a model that involves four phases containing ten steps. They include; ‘Plan’ (1. identify the subject to be benchmarked; 2. identify comparative companies; 3. determine data collection method and collect data), ‘Analysis’ (4. determine current performance gap; 5. project future performance levels), ‘Integration’ (6. communicate benchmark findings and obtain analysis acceptance; 7. establish functional goals), and Action (8. develop action plans; 9. implement action plans and monitor progress; 10. recalibrate the benchmark).
Another one is by Spendolini (1992) who proposed a 5-stage model for benchmarking which involves; 1) determining what to benchmark; 2) forming a benchmarking team; 3) identifying benchmarking partners; 4) collecting and analysing benchmarking information; and 5) taking action.
Similarly, Drew (1997) established a benchmarking process comprising five stages which are; 1) determine the object of study; 2) select benchmarking partners; 3) collect and analyse data; 4) set performance goals for improvement; and 5) implement plans and monitor results.
Additionally, Anand and Kodali (2008) proposed a universal benchmarking framework that was established and benchmarked from Camp’s (1989) and other fundamental benchmarking models. This framework involves 12 stages which include; 1) team formation; 2) subject identification; 3) customer validation; 4) management validation; 5) self-analysis; 6) partner selection; 7) pre-benchmarking activities; 8) benchmarking; 9) gap analysis; 10) action plans; 11) implementation; and 12) continuous improvement.
Despite the multiple numbers of benchmarking models proposed/developed, the basic principles of benchmarking are still the same everywhere. All of the models mentioned above have the same structure which has phases of ‘planning’, ‘data collection’, ‘analysis’, ‘implementation and integration’, and ‘control and estimation’. Subsequently, regardless of the terms or number of steps, all of these models follow a similar set of steps and share the same goal; process improvement. Thus, an organization should conduct a benchmarking project using models that best suit it to achieve its goals.
Here are some of the basic steps taken for each of these benchmarking phases;
- Identify the subject (critical success factors, specific processes, strategic intent, etc.) to be benchmarked
- Establish a benchmarking team
- Determine benchmarking partners (industry leaders or organizations that have best practices)
- Study current processes/operations and define the metrics of their performance
- Identify the methods to be used for data collection (techniques, tools, methodologies, etc.)
- Data Collection
- Gather data on one’s own processes identified for benchmarking
- Collect information (primary and secondary data) on process performance and best practices of benchmarking partners via questionnaires, interviews, site visits, publications, websites, reports, etc.
- Analyse and compare data collected
- Determine the current performance measurement gap within the organization’s processes in comparison to the benchmarking partner
- Identify the factors (root cause) for the gap
- Project future performance levels and functional goals
- Develop action plans that can match the best practices to narrow the gap
- Implementation and Integration
- Implement the action plans to improve the targeted processes and narrow down/eliminate the root cause of the gap
- Integrate best practices into the processes
- Control and Estimation
- Monitor progress by conducting a systematic evaluation on a regular basis after the implementation of the action plans
- Observe the changes and their impact on the process and measure the performance with the determined performance goal
- Identify areas that need further improvement or changes
- Repeat benchmarking process until the expected results are achieved
Benefits Of Benchmarking
When a benchmarking project is conducted correctly and continuously, an organization can gain numerous benefits that can significantly help in its business growth and performance that may rival – or even surpass – direct competitors or industry leaders. These benefits include;
- Help define organizations’ strengths and weaknesses
- Help organizations overcome process inefficiencies and organizational shortcomings
- Give a solid starting point for measuring an organization’s process performance
- Able to keep up and be more aware of industry trends and current demands of modern business market
- Promote culture change within the organization that strives for continuous improvement.
- Increase market share and gain a competitive advantage by learning the strategies and success factors of best-in-class organizations and improving weaknesses
- Optimize costs and increase sales and profits
- Meet customer expectations and enhance customer satisfaction
- Able to set better business standards and goals
- Able to generate innovative ideas that can help in time and cost savings.
Utilization Of Benchmarking In Process Improvement
While the number of publications on the utilization of benchmarking is still quite scarce, there are a few publications that describe the implementation of benchmarking projects with significant results. For instance, one of the first and most well-known systematic benchmarking projects conducted was by Xerox Corporation. In the late 1970s, the firm conducted a benchmarking project to identify and learn the practices of its Japanese competitor; Fuji. Evidently, the firm discovered that Fuji was able to produce high-quality products that matched theirs but at a lower price. Therefore, Xerox decided to further investigate the company and other companies through competitive benchmarking to compare, learn, adapt, and improve their business operations. As such, Xerox was able to reduce costs, increase productivity and efficiency, and regain competency with benchmarking as a part of its business strategy[6,11,12,13].
Then, IBM-Rochester is also one of the many companies that frequently utilize benchmarking as its business strategy. For example, IBM took the benchmarking approach to compare and learn the strategies and success of other organizations in terms of customer satisfaction to develop its own Customer Satisfaction Management. Therefore, the project team proceeded with their procedure and objectives in an effort to be the leader in customer satisfaction. The benchmarking approach was conducted by identifying the issues faced by customers, examining the company’s customer satisfaction management process, selecting the right benchmarking partners, and comparing and analysing their own customer satisfaction management process and others’. Here, the results discovered that IBM had the best customer satisfaction management process among its partners. Despite that, changes were still made in the management based on the process evaluation and it showed that the customer satisfaction level and the number of external customers had continuously increased.
For many years, benchmarking has been one of the most popular business management tools in process improvement and has been utilized by many organizations worldwide. Pioneered by Xerox Corporation, benchmarking has helped countless organizations to understand their operations better, determine where they stand in their industries, what they lack in comparison to industry leaders, and identify ways to improve and optimize their business operations/processes based on best practices and strategies of world-class performance.
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