Purpose of benchmarking
The roots of the technique are in the drive to seek competitive advantage from comparative cost, time and quality viewpoints. Benchmarking is one of the analytical tools in identifying performance improvement targets. It is a route to searching for more effective ways of doing business.
Benchmarking is a continuous, systematic process for evaluating the products, services, and work processes of organisations that are recognised as representing best practices for the purposes of organisational improvement.
The most common approach is process benchmarking, where the standard of comparison is a ‘best practice’ firm which may be entirely unconnected with the benchmarking organisation. It may not even operate within the same industry. The objective is to improve performance. This is best achieved through the sharing of information which should be of mutual benefit to both parties taking part in the benchmarking programme. As a result of receiving new information, each party will be able to review their policies and procedures. The process of comparing respective past successes and failures can serve as a stimulus for greater innovation within each organisation.
Approaches to Benchmarking
There are a number of complimentary approaches to benchmarking. These include:
- Relative cost analysis
- Reverse engineering
- Continuous improvement programmes
- Statistical process control
- Total quality management
- Change management
- Competitor analysis
Whatever the starting point, these issues must be considered
- What approach is to be taken
- Is the process used effective
- How will the insights be used to improve the overall business performance?
Selection of Benchmarking
Most agree that there are four types of benchmarking:
Internal benchmarking is done within an organisation arid generally between closely related divisions, plants or operations. This is an easy way to start benchmarking, but is limited to internal criteria only.
Functional benchmarking is a comparison of performance and procedures between similar functions, but in different organisations and industries. It is more likely than internal benchmarking to generate benefits to the specific function, but it is unlikely to give wide benefits throughout the organisation.
Competitive benchmarking focuses on direct competitors within the same industry and with specific comparable business operations, or on indirect competitors in related industries with complementary business operations. There can be practical difficulties in achieving this.
Generic benchmarking is undertaken with external companies in different industries that represent the “best-in-class” for particular aspects of the selected business operations.
Benchmarking can be done in almost all areas of business. The basic requirement is that key performance variables can be identified, measured, analysed and compared to provide a basis for planned performance improvement.