Benchmarking as a Tool to Improve Business Practices
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Published: Tue, 05 Dec 2017
BenchmarkingÂ (best practice benchmarking or process benchmarking) is a process 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. Dimensions typically measured are quality, time, and cost. Improvements from learning mean doing things better, faster, and cheaper. This then allows organizations to develop plans on how to adopt such best practice, usually with the aim of increasing some aspect of performance. Benchmarking is often treated as a continuous process in which organizations continually seek to challenge their practices.
NEEDS AND BENEFITS FOR BENCHMARKING
Organizations use benchmarking for a variety of purposes. Some organizations position benchmarking as part of an overall problem-solving process with a clear mandate for organizational improvement .Others position benchmarking more as a proactive mechanism to keep themselves aware of the state-of-the-art business practices. Some of the reasons organizations use benchmarking processes are:
It requires a thorough knowledge of the market place, the likely activities of the competition, the state of the art regarding products or services being produced, financial requirements for doing business in market, and the customer base. Benchmarking is useful tools for gathering information in these areas during the process of strategic planning. This type of information can shape a business strategy in a more realistic direction, or at least help identify the risks of doing business in certain markets.
Benchmarking information is often used to gauge the state of the marketplace and to forecast market potentials .it also provides a source of information regarding the business directions of key players in the marketplace, trends in product/service developments, patterns of consumer behaviour and so on. in many industries, the business direction of a few major companies can shape the direction of an entire marketplace.forecastion the activities of these types of organizations often provides their competitors and support services companies with important information about future implications for their businesses.
Benchmarking is an excellent source of new ideas. One of the primary large scale benchmarking is that it exposes individuals to new products, work processes, and ways of managing company resources.benchamarking requires that individuals establish formal contacts outside their oragainizations.the reward is exposure to different ideas and approaches to conducting business. It also provides an opportunity for employees to think “out of the box” to consider alternative paradigms and to engage in “What if “thinking.
A common type of benchmarking involves the collection of information about the products or processes of competitors or excellent companies. This information is often collected and used as a standard of comparison for similar products or services of the benchmarking organization. This type of benchmarking confirms more costly with traditional competitive intelligence activities. in these competitions product or service is compared feature by feature with the product or servic3e of the company performing the analysis.
Benchmarking is used as a means of identifying best practices. The standards set by excellent companies in many cases define what is possible on a state of art performances scale.These goals can help organizations accelerate their performance curves as they strive for continual improvement.Many small to medium size companies cannot hope to achieve the levels of performance of excellent companies that have far greater access to technologies,capital,or other resources.However,these companies can benefit dependant on organizational resources.
PERFORMANCE ASSESSMENT TOOL
Benchmarking is defined as the process of identifying and learning from the best practices in the world. By identifying the best practices, organizations know where they stand in relation to other companies. The other companies can point out problem areas and provide possible solutionsBenchmarking allows organizations to better understand their administrative operations, and targets areas for improvement. In addition, benchmarking can eliminate waste and improve a company’s market share.
CONTINUOUS IMPROVEMENT TOOL
Benchmarking is increasing in popularity as a tool for continuous improvement. Organizations that faithfully use benchmarking strategies achieve a cost savings of 30 to 40 percent or more. Benchmarking establishes methods of measuring each area’s units of output and costs. In addition, benchmarking supports the process of budgeting, strategic planning, and capital planning.
ENHANCED PERFORMANCE TOOL
Benchmarking also allows companies to learn new and innovative approaches to issues facing management, and provides a basis for training. Benchmarking improves performance by setting achievable goals.
ENHANCED LEARNING TOOL
Another reason to benchmark is to overcome disbelief and to enhance learning. For example, hearing about another company’s successful processes and how they work helps employees believe there’s a better way to compete.
GROWTH POTENTIAL TOOL
Benchmarking may cause a needed change in the organization’s culture. After a period of time in the industry, an organization may become too practiced at searching inside the company for growth. The company would be better off looking outside for growth potential. An outward-looking company tends to be a future-oriented company – usually leading to an enhanced organization with increased profits.
JOB SATISFACTION TOOL
Benchmarking is growing and changing so rapidly, benchmarkers have banded together and developed how-to networks to share methods, successes, and failures with each other. The process has successfully produced a high degree of job satisfaction and learning.
HELPS OVERCOME PARADIGM BLINDNESS
Benchmarking is a powerful management tool because it overcomes “paradigm blindness.” Paradigm Blindness can be summed up as the mode of thinking, “The way we do it is the best because this is the way we’ve always done it.” Benchmarking opens organizations to new methods, ideas and tools to improve their effectiveness. It helps crack through resistance to change by demonstrating other methods of solving problems than the one currently employed, and demonstrating that they work, because they are being used by others.
Some authors call benchmarking “best practices benchmarking” or “process benchmarking”. This is to distinguish it from what they call “competitive benchmarking”.Â Competitive benchmarkingÂ is used in competitor analysis. When researching your direct competitors you also research the best company in the industry (even if it serves a different location) .(MichaelJ.Spendolini n.d.)
Identify your problem areasÂ – Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include: informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depth marketing research, quantitative research, surveys, questionnaires, reengineering analysis, process mapping, quality control variance reports, or financial ratio analysis.
Identify organizations that are leaders in these areasÂ – Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study.
Survey companies for measures and practicesÂ – Companies target specific business processes using detailed surveys of measures and practices used to identify business process alternatives and leading companies. Surveys are typically masked to protect confidential data by neutral associations and consultants.
Visit the “best practice” companies to identify leading edge practicesÂ – Companies typically agree to mutually exchange information beneficial to all parties in a benchmarking group and share the results within the group.
Implement new and improved business practicesÂ – Take the leading edge practices and develop implementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.
THE ETHICAL ASPECTS OF BENCHMARKING
In benchmarking, ethics is defined as principles, guidelines, or standards that determine a protocol of interaction between individuals and organizations.
Many ethical questions may arise in the course of a benchmarking procedure. Two of the main questions which Johnson deals with are:
* Can the recipient take credit for developing the idea, approach, and so forth?
* If the benchmarking partner received information of tremendous value, can they take credit for it in their advertising?
These questions cannot be answered quickly or easily. Partners in the benchmarking process need to communicate their expectations and feelings on these issues, and to follow some basic guidelines. They should establish specific and detailed ground rules. This includes the notion that ideas are not shared to gain competitive advantage, but are shared so both partners can improve or benefit. Questions should not be asked about a company’s sensitive data; partners shouldn’t be pressured to divulge this information to continue the benchmarking process. Data should be treated as confidential; it shouldn’t be used to limit competition or to gain business. (MichaelJ.Spendolini. THE BENCHMARKING BOOK. AMERICAN MANAGEMENT ASSOCIATION-AMACOM.)
COST OF BENCHMARKING
Benchmarking is a moderately expensive process, but most organizations find that it more than pays for itself. The three main types of costs are:
Visit costs – This includes hotel rooms, travel costs, meals, a token gift, and lost labour time.
Time costs – Members of the benchmarking team will be investing time in researching problems, finding exceptional companies to study, visits, and implementation. This will take them away from their regular tasks for part of each day so additional staff might be required.
Benchmarking Database Costs – Organizations that institutionalize benchmarking into their daily procedures find it is useful to create and maintain a database of best practices and the companies associated with each best practice now.
TYPES OF BENCHMARKING
Process benchmarkingÂ – The initiating firm focuses its observation and investigation of business processes with a goal of identifying and observing the best practices from one or more benchmark firms. Activity analysis will be required where the objective is to benchmark cost and efficiency; increasingly applied to back-office processes where outsourcing may be a consideration.
Financial BenchmarkingÂ – Performing a financial analysis and comparing the results in an effort to assess your overall competitiveness and productivity.
Benchmarking from an Investor perspective- Extending the benchmarking universe to also compare to peer companies that can be considered alternative investment opportunities from the perspective of an investor.
Performance BenchmarkingÂ – Allows the initiator firm to assess their competitive position by comparing products and services with those of target firms.
Product BenchmarkingÂ – The process of designing new products or upgrades to current ones. This process can sometimes involve reverse engineering which is taking apart competitors products to find strengths and weaknesses.
Strategic BenchmarkingÂ – Involves observing how others compete. This type is usually not industry specific, meaning it is best to look at other industries.
Functional BenchmarkingÂ – A company will focus its benchmarking on a single function to improve the operation of that particular function. Complex functions such as Human Resources, Finance and Accounting and Information and Communication Technology are unlikely to be directly comparable in cost and efficiency terms and may need to be disaggregated into processes to make valid comparison.
Best-in-class BenchmarkingÂ – Involves studying the leading competitor or the company that best carries out a specific function.
Operational BenchmarkingÂ – Embraces everything from staffing and productivity to office flow and analysis of procedures performed.
Energy BenchmarkingÂ – Developing an accurate model of a building’s energy consumption with the purpose of measuring reductions in usage.
As mentioned earlier, many companies use the benchmarking process: Avon Products, Exxon Chemical, Microsoft, Ford, and General Motors.
Xerox is known as the pioneer of benchmarking. By benchmarking, Xerox cut quality problems by two-thirds, cut manufacturing costs in half; cut development time by two-thirds; and – while increasing volume – cut direct labor by 50 percent and corporate staff by 35 percent. All improvements were not a direct result of benchmarking: The improved process and climate indirectly improved the rest of the organization.
General Motors (GM) compares itself to the best-in-class company. This benchmarking shows GM where they are going wrong and that it is possible to do it better. The company compared its labor hours per vehicle to Ford’s: GM had 30 labor hours per vehicle; Ford only had 19 – a dramatic gap. GM also benchmarked from Toyota. Toyota was superior in four areas: defects per vehicle, warranty cost per vehicle, order response time, and fasteners per car. GM needed to improve in all these areas for future success. The company also looked at Suzuki, regarded as a leader in properly painting vehicles the first time. Finally, GM looked at NUMMI in three areas: external JIT parts, internal JIT parts, and fastener part numbers.
Due to the suffering automotive market in the early 1980s, Ford needed to change its operations to cut costs. Ford managers believed they could improve processes in the accounts payable department. After gathering, analyzing, and comparing data with Mazda’s accounts payable operations, Ford retooled its own accounts payable operations and reduced costs by 5 percent. (DEAN ELMUTI 1997)
Benchmarking has consequences which are beyond the process itself: it reforms all the levels of the company.; modifies the process of manufacture of the product leads(drives) ; also reforms the hierarchical organization of the company, the product itself, and the state of mind of the employeesThere is no doubt that benchmarking is here to stay. Any company should benchmark if it wants to attain world-class competitive capability, prosper in a global economy, and above all, if it wants to survive. These trends are not an option for companies anymore; they should be done by all who want to remain competitive. All companies strive to be profitable, competitive, and successful. Benchmarking can help any company succeed-as long as it is applied correctly
Benchmarking is the search for industry best practises. Improvements from learning mean doing things better, faster, and cheaper. This then allows organizations to develop plans on how to adopt such best practice, usually with the aim of increasing some aspect of performance. Benchmarking is often treated as a continuous process in which organizations continually seek to challenge their practices.Benchmarking is a way to move away from tradition and one of the major strategic management tools. It carefully dissects the organization into segments, and then removes and inserts pieces to account for changing environments. Changes occur once the process has started, and will continue to change and mold the organization for as long as individuals are continuously striving to make it better.
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