In a complex, dynamic, fast-changing environment, companies must strive for superiority in order to survive. Competitive edge cannot be achieved or maintained by setting goals based on past or even present performance. Benchmarking is a management practice that can be used to pursue excellence. It does this by identifying, comparing and emulating best practice wherever it occurs.
Read More: Benchmarking as a Strategic Business Tool
Benchmarking is defined as a continuous systematic process of evaluating companies recognized as industry leaders, to determine business and work processes that represent best practices and establish rational performance goals. It is a search for industry best practices that lead to superior performance. It illustrates how good a company currently is in comparison to its competitors, that is benchmarking analysis demonstrates what others are doing as well as what others are achieving.
Benchmarking analysis is an integral part of the organizational improvement process and it looks for ideas to borrow from those who are doing better, perhaps in one very specific aspect. In many organizations, benchmarking analysis has become a lifestyle and is applied across all aspects of the organization — from environment, purchasing, human resources through to software design, the audit function and so on.
Traditional competitive analysis focuses on performance indicators, strategic choices and products or services within a given industry sector. This indicates the company’s performance in relation to its peers and how much it deviates from the standards.
Benchmarking analysis is a broad and focuses on an ongoing process of measuring and improving products, services and practices against the best that can be identified worldwide. Performances are evaluated, based on the performance of the best organizations in the world.
The benchmarking analysis technique has now been applied to many world-class companies like AT&T, DuPont, American Express, General Electric (GE), General Motors, Honda Motors, Proctor and Gamble, Apple Computer, IBM and Motorola. Benchmarking is also spreading as a direct result of its inclusion in the assessment criteria for the quality award.
Benchmarking is the cornerstone of total quality management (TQM), business process re-engineering and time-based management. Benchmarking literature identifies numerous advantages. For instance it :
- Provides direction and impetus for continuous improvement.
- Indicates early warning of competitive disadvantage.
- Promotes competitive awareness.
- Becomes the stepping stone to ‘breakthrough’ thinking.
- Identifies the ‘best practice’.
- Provides an objective attainment standard for key areas of business operation.
- Links operational tactics to corporate vision and strategy.
- Exposes performance gaps.
- Triggers major step changes in business performance.
- Helps companies redefine their objectives.
- Challenges the ‘status quo’.
- Allows realistic stretch goals.
Types of Benchmarking
Benchmarking activities may be divided into three major groups: internal benchmarking, external benchmarking and best-practice benchmarking.
- Internal benchmarking is a process of comparing performance within the company or division, that is it looks for internal comparisons (comparing yourself to the best). A comparison is made across internal operations and parameters, such as purchasing, marketing, research and development, administration and so on.
- External benchmarking focuses on external comparisons, that is performance is compared with a spread of ‘look-alike’ businesses in similar positions experiencing similar market growth, fluctuations and circumstances.
- Best-practice benchmarking requires seeking out the undisputed leader in a particular process that is critical to the entire business process — regardless of sector, industry or location — and comparing it with your own.
The Benchmarking Process
The benchmarking process may be divided into the following stages:
Stage 1 : Planning.
- Select the broad function or procedural area to be benchmarked — manufacturing, warehousing, marketing, etc.
- Identify comparative companies or activity centers.
- Determine data collection method and collect data.
Stage 2 : Benchmark partners.
- Identify potential benchmarking partners from three locations, internally, externally and global best practice.
Stage 3 : Data analysis.
- Collect the data and from these confirm the most likely benchmark partner to contact. Determine current performance gap and project future performance levels.
Stage 4 : Action.
- Develop action plans, communicate benchmark objectives and results throughout the organization and other companies; implement specific actions and monitor progress.
Stage 5 : Review and recycle.
- Monitor performance, review and analyze progress and calibrate performance improvements and targets.