It is the process of continuously measuring and comparing the business processes against comparable process of the leading organization to obtain the information that will help the organization to identify and implement improvement programs. The essence of benchmarking is to contrast the firm’s performance against some challenging yardsticks. It is a multistage process in which the firm doing the benchmarking seeks to learn and incorporate process refinements, even if the model firm is different from its own. The steps in benchmarking (compared to industry) are as follows:
Step1: The firm identifies those processes within its own organization that need improvement or attention.
Step 2: Managers try to locate other firms that are particularly distinctive or excellent in performing or managing those processes.
Step 3: The benchmarking firm contacts the managers of the model firm to learn from their experiences, problems and solutions.
Step 4: The bench marking firm tries to duplicate the successful practices or processes that seem to performance and better quality.
Benefits of Benchmarking:
The benefits of benchmarking are as follows:
- It sparks the creativity of internal people.
- The firm can be the front runner of implementing practices which was never conceived of in the industry. For example: The “BARCODE” invented by the American Agricultural Food Products Association.
- Targeting the best, so the firm keeps itself ahead of the other competitors.
Types of Bench marking:
The major types of benchmarking are;
1. Historical benchmarking: It refers to evaluating the firm’s current performance with the firm’s past performance. The problem here is that the past performance may not be impressive. Secondly, There can be an illusion of big performance. Thirdly, It may encourage more of a bad thing. For example, if rejection rate is high, SQC is put in place and as a result rejection goes down, But this is not a progress. The question is why should rejection happen at all? Fourthly, Competitor performance is not considered in this way.
2. Industry Bench marking: It refers to evaluating one own performance with industry data. The major problem here is—getting stuck in the middle. Second, unequal bases of comparison, like comparing apple with orange.
3. Functional benchmarking: It refers to finding one activity and finding out the best practice in that in any strategic group or in any industry and upgrade the process to that.