What exactly is benchmarking?

Definition:

The simplest definition is "improving by learning from others". Benchmarking is the systematic comparison of processes and performance in organizations. In other words benchmarking is a system used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within their own sector.

Origin of term:

The term benchmark originates from the chiselled horizontal marks or notches that surveyors made in stone structures. These notches or marks represented a given altitude and against which other heights could be calibrated or "benchmarked". Xerox is the first modern corporation to use benchmarking extensively and systematically.

Benefits:

Benchmarking is done usually to create new standards and/or improve processes. Benchmarking lets organizations develop plans on how to adopt such best practice for increasing performance. However, we should remember that rather than being a one time only affair, Benchmarking is a continuous process in which organizations regularly seek to challenge and improve their processes and practices. If properly and efficiently conducted, benchmarking can provide valuable insights into relative strengths, weaknesses of the organisation or it's processes. Further it can bring in fresh ideas, new insights of different kinds and show possible improvements.

Different kinds of Benchmarking:

There are basically four different kinds of benchmarking:

1. Internal - Here benchmarking takes place inside an organisation, e.g. between departments or business units
2. Functional - Here benchmarking is done for similar processes within the same field or industry
3. Competitive - Benchmarking operations/processes and performance with competitors in the same field or market is conducted here
4. Generic - Here processes/operations and performance is compared between organisations of similar size in unrelated industries

Another way to categorize benchmarking is by aims of benchmarking - Process benchmarking, Financial benchmarking, Performance benchmarking, Product benchmarking, Strategic benchmarking and Functional benchmarking.

When to use Benchmarking?

Benchmarking is very difficult. It requires the full commitment of the managers in the organisation. They must also be prepared to analyse everything methodically and be ready for the occasional unpleasant surprise. Most importantly all parties must be committed to accepting change.

The main question to be asked is: what do we aim to achieve with benchmarking?

Typically benchmarking answers the following questions:

• How good are we in all the areas we choose to investigate?
• Are we as good as the others in these actions?
• How can we perform better?

In order to justify the significant costs involved, benchmarking should be a systematic process and all parties involved should know why it is being done. The actual process may vary from organization to organization and from industry to industry. The real needs of the organization dictate the model or tool to be chosen. The five-phase model with planning, data collection, analysis, implementation and monitoring is a commonly used benchmarking tool.

Rather than being just an add-on, Benchmarking is integral to the business strategy and it should be practiced continuously. David Kearns, Chairman of Xerox Corporation once said "Striving for best practice is like running in a race without a finish line". Best practice models and tools may constantly change, but continuous benchmarking can help an organisation identify what it needs to remain in the race.

References:

• Spendolini, M.J. (1992). The benchmarking book. New York: ANACOM.
• Camp, R. C. (Ed.) (1998). Global cases in benchmarking: Best practices from organizations around the world. Milwaukee, WI: American Society for Quality Control: Quality Press.