Benchmarking

Definition

Benchmarking is the process of identifying "best practice" in relation to both products (including) and the processes by which those products are created and delivered. The search for "best practice" can taker place both inside a particular industry, and also in other industries (for example - are there lessons to be learned from other industries?).

The objective of benchmarking is to understand and evaluate the current position of a business or organisation in relation to "best practice" and to identify areas and means of performance improvement.

The Benchmarking Process

Benchmarking involves looking outward (outside a particular business, organisation, industry, region or country) to examine how others achieve their performance levels and to understand the processes they use. In this way benchmarking helps explain the processes behind excellent performance. When the lessons learnt from a benchmarking exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of the business environment.

Application of benchmarking involves four key steps:

(1) Understand in detail existing business processes

(2) Analyse the business processes of others

(3) Compare own business performance with that of others analysed

(4) Implement the steps necessary to close the performance gap

Benchmarking should not be considered a one-off exercise. To be effective, it must become an ongoing, integral part of an ongoing improvement process with the goal of keeping abreast of ever-improving best practice.

Types of Benchmarking

There are four types of benchmarking. They are not mutually exclusive and companies can choose any one or a combination to meet their objectives. It is recommended that strategic benchmarking is conducted first to create a context and rationale that will enhance all other benchmarking efforts.

Strategic Benchmarking

Concerned with comparing different companies' strategies and assessing the success of those strategies in the marketplace.

Analyses the strategies with particular reference to:

• strategic intent
• core competencies
• process capability
• product line
• strategic alliances
• technology portfolio

Should begin with the needs and expectations of the customer. This can be achieved through surveys to measure customer satisfaction and the gaps between a company's performance and its customers' standards.

Ensures a co-ordinated strategic direction regarding benchmarking and reduces the possibility that one improvement project will cancel out the effect of another. Benchmarking candidates are normally direct competition.

The main difficulty is persuading the benchmark partner to discuss their strategy. However, there is a great deal of information which can be obtained from customers, common suppliers and public domain information.

Functional Benchmarking

• Investigates the performance of core business functions.
• Does not need to focus on direct competition but, depending on the function to be benchmarked, the benchmark partner may need to be in a similarly characterised industry for useful comparisons to be made.

Best Practices Benchmarking

• Applies to business processes.
• It breaks the function down into discrete areas that are the targets for benchmarking and is therefore a more focused study than functional benchmarking.
• Some business processes are the same regardless of the type of industry.
• Attempts to benchmark not only work processes, but also the management practices behind them.

Product Benchmarking

• Commonly known as reverse engineering or competitive product analysis.
• Assesses competitor costs, product concepts, strengths and weaknesses of alternative designs and competitor design trade-offs, by obtaining, stripping down and analysing competitors' products.

The four different types of benchmarking are evolutionary beginning with product, through to functional, process and strategic. For the purposes of this document and the corresponding document 'Guide to Benchmarking' best practice benchmarking will be used due to its focus on processes. As benchmarking is becoming more widespread and companies are more proficient in its use, best practice benchmarking is becoming increasingly popular. This is also reinforced by the move away from functionality in organisations towards business processes. For further information on the other types of benchmarking, see the references to Watson, Camp and Miller.

Conclusion

Benchmarking must be a continuous process with the extent and scope of the project being dependent on the resources that the company has available.

The above key steps to benchmarking are detailed further along with a list of factors to be aware of in the companion document 'Guide to Benchmarking'.

Key steps to benchmarking

Based on our research and experience we would recommend the following stages in your Benchmarking projects:

1. Identify what to benchmark
2. Ensure management support and involve all stakeholders
3. Select the benchmarking team
4. Analysis of internal processes
5. Identify companies to benchmark
6. Decide on method(s) of data collection
7. Collect public domain information
8. Analyse collected information to establish what other information needs to be collected
9. Establish contacts with benchmark partners
10. Plan the actual visits
11. Conduct the benchmarking visits
12. Establish whether a performance gap exists
13. Predict future performance levels
14. Communicate benchmark findings
15. Establish targets and action plans
16. Gain support and ownership for the plans and goals
17. Implement the action plans, measure performance and communicate progress
18. Re-calibrate benchmarks
19. Adopt benchmarking on a company-wide scale