Lesson 04: Benchmarking

Lesson 04: Benchmarking

• Benchmarking is a systematic search for best practices, innovative ideas, and highly effective operating procedures.
• It's the practice of comparing key metrics of a business's operations to other similar companies.
• It involves measuring the quality of an organization's policies, products, programs, strategies, etc., and comparing them to standard measurements or similar measurements of peers.

Objectives of Benchmarking

• Determine areas and improvements needed.
• Analyze how other organizations achieve high performance levels.
• Improve performance using the analyzed information.

Benchmarking Concept

• Benchmarking performance is achieved through creative adaptation.
• Organizations adapt from other organizations' performance levels.

Types of Benchmarking

• Internal benchmarking: Sharing opinions between departments within the same organization. Advantages: Easier to implement, easier access to data. Disadvantages: External ideas blocked.
• External benchmarking: Comparing with external organizations to discover new ideas, methods, and services. Advantages: Helps to measure one's own performance, helps in searching for best practices. Disadvantages: Time consuming, requires support, legal and ethical issues, and industrial espionage.
• Functional benchmarking: Investigating the performance of core business functions. Advantages: Discovering innovative practices. Disadvantages: Not suitable for every organization.
• Process benchmarking: Applies to business processes, breaks functions down into discrete areas, more focused than functional benchmarking.
• Product benchmarking: Reverse engineering or competitive product analysis, assessing competitor products' concept, strengths, and weaknesses.
• Strategic benchmarking: How companies compete and identify winning strategies that enable high-performing companies to succeed in marketplaces.

Benchmarking Process

• Decide what to benchmark.
• Understand current performance.
• Plan for benchmarking.
• Study others.
• Learn from the data.
• Use the findings to set benchmarks.
• Continuously monitor and evaluate performance, adapting and improving as needed.

Decide What to Benchmark

• Quickly and efficiently select the process/area to benchmark.
• Start by analyzing the organization's mission and critical success factors.
• Identify processes causing the most trouble.
• Determine which processes contribute most to customer satisfaction.
• Understand the firm's competitive pressures.
• Identify processes with potential for differentiating the firm from others.

Understanding Current Performance

• Thoroughly study and record the organization's current performance.
• Use flow diagrams and cause-and-effect diagrams to understand each aspect of performance.
• Carefully analyze all inputs and outputs.
• Collect input from working personnel who have in-depth knowledge of processes.
• Quantify performance measures.
• This data forms the baseline for benchmarking.

Planning

• Benchmarking planning is a learning process.
• Use accessible public information to discover possible benchmark partners, including trade journals, magazines, and the internet.
• Examine success stories, technical information, and top-performing companies.
• Use databases of publicly traded firms and relevant government resources.
• Use business contacts as alternative information sources.

Study Others

• Use internal sources, public domain data, and original research to gather information about competing firms.
• Original research is possible through questionnaires, site visits, or focus groups.
• Employ a combination of research techniques.

Learning from the Data

• Identify the gap between the benchmark firm's and your own firm's performance or process.
• Determine the extent of the gap.
• Identify causes of the gap.
• Assess the performance/product characteristics of best-in-class firms.
• Understand the advantages of applying best-in-class practices of the benchmark firm.

Use the Findings

• Communicate the gap to employees and encourage them to implement changes.
• Translate intended changes into goals, objectives, and action plans.
• Develop an action plan including specific tasks, task sequence, and resource needs.
• Establish a task schedule, assign responsibilities, and describe expected results.
• Define monitoring methods for tracking the results.

Pitfalls of Benchmarking

• Benchmarking is an improvement tool, not a panacea.
• It's a copy of others, not original action.
• It's not a substitute for innovation.