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Benchmarking is the process of through which we are comparing ones business efficiency, process and performance metrics to industry bests or best practices from other industries. Its main purpose typically to measured the quality, time and cost. In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compare the results and processes of those studied (target) to one's own results and processes. In this way, they can learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful.
Benchmarking is used to measure performance and efficiency using a specific indicator such as cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure and resulting in a metric of performance that is then compared to others.
Also referred to as 'best practice benchmarking' or 'process benchmarking', this process is used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice companies' processes, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to improve their practices.
The basics of benchmarking:
The main objective of benchmarking is to identify the weaknesses within an organization and improve upon them, with the idea of becoming the 'best of the best.' In the market in which they are working. The benchmarking process helps managers to find out the gaps in performance and turn them into opportunities for further improvement. Benchmarking enables companies to identify the most optimal successful strategies used by other companies of comparable size of the organization, type, or regional location, and then adopt or uses relevant measures to make their own programs more efficient. Most companies apply benchmarking as part of a broad strategic process. For example, companies use benchmarking in order to find breakthrough or most advanced ideas for improving processes, to support quality improvement programs, to motivate staffs to improve performance, and to satisfy management's need for competitive assessments.
Benchmarking targets roles, processes, and critical success factors. Roles are what define the job or function that a person fulfills. Processes are what consume a company's resources. Critical success factors are issues that company must address for success over the long-term in order to gain a competitive advantage. Benchmarking focuses on these things in order to point out inefficiencies and potential areas for improvement that can lead the company.
A company that decides to undertake a bench-marking initiative should consider the following questions: When? Why? Who? What? And How?
Benchmarking can be used at any time as and when required, but it is usually performed in response to the needs that would arise within a company. In this benchmarking process include :
cost reduction/budget process
operations improvement efforts
new operations/new ventures
rethinking existing strategies
This is the most important question in management's decision making to begin the benchmarking process. There are several reasons why companies may embark upon benchmarking:
to signal management's willingness to pursue a philosophy that embraces change in a proactive rather than reactive manner;
to establish meaningful goals and performance measures that reflect an external/customer focus, foster "quantum leap" thinking, and focus on high-payoff opportunities;
to create early awareness of competitive disadvantage; and
to promote teamwork that is based on competitive need and is driven by concrete data analysis, not intuition or gut feeling.
In these Companies may decide to benchmark internally, against competitors, against industry performance, or against the 'best of the best'. Internal benchmarking is the analysis of existing practice within various departments or divisions of the organization, looking for best performance as well as identifying baseline activities and drivers. Competitive benchmarking looks at a company's direct competitors and evaluates how the company is doing in comparison to them. Knowing the strengths and weaknesses of the competition is not only important in plotting a successful strategy, but it can also help prioritize areas of improvement as specific customer expectations are identified
Benchmarking can focus on roles, processes, or strategic issues. It can be used to establish the function or mission or goal of an organization. It can also be used to examine existing practices and efficiency while looking at the organization as a whole to identify practices that support major processes or critical objectives. When focusing on specific processes or activities, the depth of the analysis is a key issue. The analysis includes vertical or horizontal benchmarking. Vertical benchmarking is that where the focus is placed on specific departments or functions, while horizontal bench-marking is required where the focus is placed on a specific process or activity. Concerning strategic issues, the objective is to identify factors that are of greatest importance to competitive advantage, to define measures of excellence that capture these issues, and to isolate companies that appear to be top performers in these areas.
Benchmarking uses different sources of information, including published material, trade meetings, and conversations with industry experts, consultants, customers, marketing representative and business research. The emergence of Internet technology has facilitated the bench-making process.
TYPES OF BENCHMARKING:-
Process benchmarking - 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 benchmarking - 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 benchmarking - allows the initiator firm to assess their competitive position by comparing products and services with those of target firms.
Product benchmarking - 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 benchmarking - involves observing how others compete. This type is usually not industry specific, meaning it is best to look at other industries.
Functional benchmarking - 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 benchmarking - involves studying the leading competitor or the company that best carries out a specific function.
Operational benchmarking - embraces everything from staffing and productivity to office flow and analysis of procedures performed.
Energy benchmarking - process of collecting, analyzing and relating energy performance data of comparable activities with the purpose of evaluating and comparing performance between or within entities. Entities can include processes, buildings or companies. Benchmarking may be internal between entities within a single organization, or - subject to confidentiality restrictions - external between competing entities
Advantages of benchmarking process:-
Lowering Labor Costs : benchmarking may helps in lowering labor costs. For example, a small manufacturing company may study how a top competitor uses robots for several basic plant functions. These robots may help the competitor save a significant amount of money on labor costs. Company managers may obtain information on these robotics systems through the competitor's website or online articles. They may also identify the company that sold the competitor the robots in order to lowering the labor cost.
Improving Product Quality: - benchmarking also help to improve product quality. Engineers sometimes purchase leading competitors' products. They may then take them apart, study them and determine how the competitors' products outlast or outperform others in the industry. Chemical engineers may study food or cleaning products in a similar manner. They can then compare various elements contained in competitive products to their own product line. Subsequently, improvements can be made to product quality.
Increasing Sales and Profits:- benchmarking also help to improve its functions, operations, products and services that may enjoy increases in sales and profits. Customers are likely to notice these improvements. The benchmarking company may also promote is improvements through company brochures, its sales reps, magazine and television ads. These efforts are likely to increase sales, especially among core customers..
Considerations:- Sometimes organizations use internal benchmarking to improve performance in different departments. Department managers may study and emulate the best practices of one particular department. These changes may spark improvements among all departments and ultimately help in improving the coordination among different department.
Process of benchmarking :-
There is no single benchmarking process that has been universally adopted. The wide appeal and acceptance of benchmarking has led to the emergence of benchmarking methodologies.
The 12 stage methodology consists of:
Define the process
Identify potential partners
Identify data sources
Collect data and select partners
Determine the gap
Establish process differences
Target future performance
Review and recalibrate
The following is an example of a typical benchmarking methodology:
Identify problem areas: 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, re-engineering analysis, process mapping, quality control variance reports, financial ratio analysis, or simply reviewing cycle times or other performance indicators. Before embarking on comparison with other organizations it is essential to know the organization's function and processes; base lining performance provides a point against which improvement effort can be measured.
Identify other industries that have similar processes: For instance, if one were interested in improving hand-offs in addiction treatment one would identify other fields that also have hand-off challenges. These could include air traffic control, cell phone switching between towers, transfer of patients from surgery to recovery rooms.
Identify organizations that are leaders in these areas: 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 practices: 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 practices: 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 practices: 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 function that benefit most from benchmarking:-
Facilitating development of an externally focused ethos.
Promoting a shift in corporate mindset to learning from and building upon the wisdom of others and being open to adopting best practice and innovative ideas from elsewhere.
Accelerating organizational learning
Providing a systematic means for developing a better understanding of competitors' strengths, weaknesses and behavior
Facilitating identification of gaps across a wide range of business elements based on objective evaluation,
Enabling establishment of effective performance targets
Helping identify valid best practices
Facilitating planning and implementation of proven and stateâ€ofâ€theâ€art ideas, processes, practices, equipment and technologies
Providing an effective and efficient means for the attainment of business goals
Accelerating the rate of improvement
Helping to identify breakthroughs
Enabling the organization to become (and remain) a leader
Enabling prioritization of improvement projects
Helping gain consensus data and information rather than personal opinion on the best way of doing things
An integral component of Total Quality Management
Helping the organization attain superior performance and customer satisfaction
Can be integral to attaining external quality marks/judgments
The three main types of costs in benchmarking are:
Visit Costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labor 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.
The cost of benchmarking can substantially be reduced through utilizing the many internet resources that have sprung up over the last few years. These aim to capture benchmarks and best practices from organizations, business sectors and countries to make the benchmarking process much quicker and cheaper.
Quality and efficiency measures:
Benchmarking helps in increase the efficiency in the manufacturing organizations this will leads to effectives there level of work.
Regular evaluation of work leads to less wastage of materials and in turn reduces the cost of production.
Overall management improved with the help of benchmarking because when we are comparing our company with best industry we apply some of the technique or find more improved technique that would improve the coordination among the department.
Improved quality also increase reputation or goodwill building of the organization.
Use of the state of the art technologies available best in the industry help in cost cutting and also improve the production and resulting in efficiency.
Benchmarking helps in cost cutting by minimizing the wastage of the resources.
Using better training methods available reduce red tapism, and motivate employees this would increase the productivity.
Employing industries best methods and procedures in processing materials.
The above research about benchmarking help us to identify which key areas can be target to improve the efficiency, quality and cost function of the company as compared to best rival in market. Benchmarking become very important in these days because if a company need survive in this highly competitive market they need to keep on doing the same so that their competitive edge can be remain in the market.