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The practice of benchmarking and its advantages and disadvantages

Introduction

Over the years, there has been a tremendous development in benchmarking techniques, in terms of both benchmarking practices and method, which are widely used in different organization to achieve different goals in the developing countries.

In this assignment I will discuss the definition of benchmarking and then the use of benchmarking. After that I will discuss the advantage and the disadvantage of benchmarking according the researches and the case studies of benchmarking. Then, I will discuss and analyze the practice of benchmarking to explain why managers find that benchmarking did not live up to their expectation. Finally, the conclusion will have summary of the assignment question.

Background of Benchmarking

2.1 Definition of Benchmarking

Benchmarking, as the definition of the CEO of Xerox -D.T. Kearns- is the continuous process of measuring the products, the services, and practices against the best competitors or the leader in their industry (Kolarik, 1995).

Freytag and Hollensen (2001) states that ‘benchmarking involves measurement of business performance against the best and makes continuous effort in reviewing process practice and method’.

Fernandez et al. (2001) also states that ‘benchmarking was a process that facilitates learning and understanding of the organization and its operations. It enabled organizations to identify the key processes that need improvement, and to search for applicable solutions from the best in class’.

Various definitions have been put forward describing the practice of benchmarking; they are primarily concerned with the concept of performance improvement centered on measuring current practices against exogenous entities and their subsequent implementation. (Anon, 2007)

2.2 Type of Benchmarking

Elmuti and Kathawala (1997) had identified four types of benchmarking which are internal benchmarking, competitive benchmarking, functional benchmarking, and generic or process benchmarking. It was obvious that many types of benchmarking had emerged and according to Slack et al (2001), benchmarking can be classified into a various types, firstly, at the company level, which considers the existing process in the firm… Secondly, the competitors or non competitor firms which is the market level (Keegan, 1998)… thirdly, the particular processes or strategies in the firm (Bogan and English, 1994). For example, at the company level, Microsoft Corporate launched Windows XP, by benchmarking it with their NT series. Or direct benchmarking with competitor, like Microsoft Corporation, benchmarked the Apple Macintosh and, then, launched Windows operating systems.

Kumar and Chandra (2001) suggested that when choosing the benchmarking procedure or the type of benchmarking we should be very caution in order to acquire desired results. Also, Bhutta and Huq (1999) argued that it is not useful to compare strategy at internal level but it will provide many ways of improvement when comparisons made between the competitors. Ahmed and Rafiq (1998) recommended that organization should use multiple benchmarking because it is not necessary to utilize only one tool but to integrate a range of techniques, since it could help to address different sets or sub-areas for improvement.

The use of benchmarking

According to the research of benchmarking activity, benchmarking is implemented usually in industries such as service, utilities, health, and education. (Hinton et al, 2000). Moreover, benchmarking activity tend to the size of the organization, a larger organization is more likely to be benchmarking rather than a smaller one (Hinton et al, 2000).

Traditionally, the organization usually enhances their products or process performance by focusing on the internal activities (Kolarik, 1995). For example the organization may use different techniques in the quality function to achieve their customer satisfaction. However, Juran (1993) argue that this conventional performance improvement seems not to be sufficient for a competition in the highly competitive markets. Therefore, benchmarking become a significant technique facilitating an improvement of organization performance as it regards competitor issues (Juran, 1993).

In order to benchmark effectively, a company needs a strong strategic focus and some flexibility in achieving management's goals. To effectively implementing benchmarking, adequate planning, training, and open interdepartmental communication needed. Developing and using measures helps to identify the current performance and monitor the direction of changes over a period. Measures identified during the planning stage of benchmarking may also help to determine the magnitude of the performance gaps and select what is to be benchmarked (Vaziri, 1992; Karlof & Ostblom, 2003).

Advantage of benchmarking

Benchmarking has multiple advantages like bringing the latest innovations and the inventions to manage the processes, It constitutes an efficient instrument for team work, It improves the knowledge of costs and performance of the products and services comparing to those of the concurrent companies, It brings together all the divisions and helps creating a common front to keep up with the competition and It emphasizes the importance of the personnel’s implication and in consequence it encourages the recognition of the individual and of the team merits.

Disadvantage of benchmarking

Cassell et al. (2001) stated that ‘most companies chose not to benchmark due to the lack of time and resources’. This also was supported by Henczel (2002), that ‘benchmarking requires a significant commitment of resources such as time, people and money... , without any guarantee any cost benefit’. Other limitation also was the difficulty in finding partners (Holloway et al., 1999), the misunderstanding of the need to benchmark and the concept of benchmarking, failure to link benchmarking to competitive priorities and difficulty to benchmark untenable factor such as skills and services (Freytag and Hollensen, 2001).

The organization may face some difficulties in benchmarking activity. Like, the sensitive information from the best organization (the model firm in the market) is difficult to obtain (Kolarik, 1995). Also, the benchmarking process with direct competitors in the same industry will face more difficulties in collecting the information (Ralston et al, 2001). Moreover, according to case study of benchmarking of research and development in buyer–supplier relationships, Hurmelinna (2002) claimed that benchmarking tend to be time-consuming and costly process, if not implementing properly.

The practice of benchmarking

As an example of the practice of benchmarking, if we assume that the cost of repairs service in housing department for X company need to be benchmark with company Y. assuming that the company X & Y are willing to participate in the exercise and we can compare the costs of company X with Company Y, the result could be, higher, lower or equal. Now, how we could know the reasons for the difference? There are many reasons like: Different age of housing stock, different build quality of stock, different quality of repairs, different type of standardization of parts, different scope of repairs, different quality of previous repairs, socioeconomic profile of tenants, geographical spread of stock, skill level of contractors, different cost of materials, different location and suitability of estate from which service is delivered,  different way in which overheads and profit are treated, different level of contractor profit, management competence, both supply side and contractor side, different ways in which repairs are diagnosed, different methods of inspection, different costs associated with payment mechanisms…etc.

The benchmarking analyst is therefore faced with multivariate problems and from our example still there are more things are not identified above. And the important things is what information could be conveyed if we found that a benchmarking partner’s (company X and company Y) costs were higher or lower? it will be almost nothing, because of the number of variables and the obvious difficulty in assigning a value or weight to each of them.

Another issue is how we can identify the reasons why the other organization is able to achieve superior performance. How would we go about finding out? Even if we talk to the staff and managers in the other organization, maybe they have the same view or maybe they have different views. Even if they are the same, how do we know they are right? Their views will be tainted by their own input into building the current system. It would be very unusual to find an organization that has data to back up their subjective views.

Finally, assuming we are fortunate enough to correctly discern the correct reasons for the other organization’s superior performance, how do we know that we can transplant the recipe into our own organization? Are we sure we have understood all the dependencies and relationships, and have anticipated and countered the cultural issues…?

From the above example of benchmarking organization X to organization Y it’s clearly showing that the gap between the potential that benchmarking exercises appear to offer (in theory) is different than the actual delivered when the techniques are put into practice.

Discussion

Why managers find that benchmarking did not live up to their expectations, because benchmarking, in practice, seams to be focusing on the competitor performance and strategies using secondary data source, which is easy to obtain (Anderson, 1999) and it’s not enough to have the expected result. The same was noted by Porter (1985) since the process or activities in value chain, which are primary activities (example, internal and external logistics, operations, marketing and sales, and service) and support activities (example, firm infrastructure, human resource management, and technology development) should be considered benchmarking. However, this type of benchmarking is having a lot of difficulties in order to obtain the required sensitive information (Ralston et al, 2001). Moreover, in practice it is very important to select appropriate activity to benchmark to get a useful value of benchmarking.

Although benchmarking had been a very useful technique for improvement, several researchers had illustrated some immeasurable things which could be as snare of benchmarking if it was not done correctly. Davies and Kochhar (2002) in the study of why British companies did not carry out effective benchmarking they highlighted that, “lack of use of benchmarking metrics, lack of implementation of best practices, no formal benchmarking strategy, and no feedback results into business plan target were among the main factors of benchmarking failures.

Freytag and Hollensen (2001) highlighted that sometimes companies spend time focusing on data rather than the actual process, and they forget to focus on the customer and the employees. In additional, they perceived benchmarking as a one-time project and that’s why studies would eventually make benchmarking ineffective.

Selecting partners for a strategic benchmark can be very difficult.  Keep in mind that this drives a company along the road to creating better business practices, streamline processes and building a more competitive organization.  There are many factors to consider when selecting a partner, such as: business of the organization, customer mix, product mix, complexity of the business process, service, or product, reputation of the company or product, marketplace position of the company or product, organizational culture, organizational structure, management style of the organization, size of the organization, geographic location, stability of the company, and willingness of the company to participate in the benchmark…etc. When entering into a strategic benchmarking partnership, there are expectations on both sides.  To be successful, the benchmarking partners need to develop a relationship which is open and honest, sharing the good and the bad aspects of the business processes, while not compromising proprietary information. However, many companies that are not direct competitors are willing to allow access to and share information. Often, a partnership for the exchange of data develops, with reciprocal visits and regular meetings to compare notes. Independent bodies can be used to gather data from competitive companies, but here it is often only the numbers that can be obtained and not the process that delivers the numbers (Anon, 2007).

Benchmarking is a very powerful tool if used correctly. However, the benchmarks themselves are only the basis for action. Any action should be supported by appropriate processes within the company. Benchmarking as we discussed is a continual process that has no end, as competitors themselves move forward. There are already companies on the escalator and with time they move further away. The important thing is to step on to the escalator and start to benchmark.

Conclusion

According to the research of benchmarking activities, there are some reasons leading to the failure of benchmarking. Davies et al, (1999) listed some of the reasons as follow: “preoccupation with metrics, industrial tourism, benchmarking being mistaken for competitive analysis, lack of implementation of findings, lack of planning – resulting in poor findings, lack of structure in benchmarking project, failure to involve all levels and areas of organization, perception of the need to benchmark, belief that a company is unique or studies too large and superficial”.

Managers find that benchmarking did not live up to their expectation because to achieve a successful benchmarking activity, the organization should consider on significant issues as follows: Firstly, the benchmarking project should have a commitment from top management as well as member (Stonehouse et al., 2000) which is very difficult in large company since it consume time and money in training all the employ and keep them updated with all the details.

Secondly, as concluded by Xerox, before comparing with other organizations, it is significant to clearly understand their own process (Slack et al, 2001). As we mentioned this is very difficult to be achieved specially with direct competitors and usually the information we have is secondary data source. Usually, numbers that can be obtained and not the process deliver the numbers.

Thirdly, benchmarking should not focus only comparison of performance but should include the underlying process (Hinton, 2000). For example, with regard to only performance, a low rate defect of one organization may convince another organization to benchmark a process. However, when focusing on causal process, they may discover the fact that a prototype process consists an extremely high inspection rates (Davies et al,1999). Fourthly, as benchmarking is the way of thinking, planning, and doing process, the real benefits of benchmarking seem not to be only capability of copying processes from another firm (Kolarik, 1995). The organization, therefore, should have a creativity to understand how they can gain competitive advantages against the rivals (Kolarik, 1995 and Slack et al, 2001).

In summary, the managers find that benchmarking did not live up to their expectation because in benchmarking the gap between the potential that benchmarking exercises appear to offer (in theory) is different than the actual delivered when the techniques are put into practice for the reasons we mentioned shortly in this paper. However, benchmarking can be very useful tool but we have to know first when and why and with whom I have to use benchmark.

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