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Benchmarking is a systematic method by which organizations can measure themselves against the best industry practices.it promotes superior performance by providing an organized framework through which organizations learn how the best in class do things, understand how these best practices differ from their own ,and implement changes to close the gap .the essence of benchmarking is the process of borrowing ideas and adapting them to gain competitive advantage. It is a tool for continuous improvement.
NEEDS AND BENEFITS FOR BENCHMARKING
Benchmarking is a tool to achieve business and competitive objectives.it is powerful and extremely effective tool.Some organizations position benchmarking to keep themselves aware of the business practices. Some of the reasons organizations use benchmarking processes are:
It is a powerful and extremely effective tool when used for the right reasonsn and aligned with the organization strategy.It requires knowledge of 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 beyond the usual ideas.
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 MEASUREMENT AND ENHANCEMENT TOOL
Benchmarking promotes superior performance by providing an organized framework through which the organizations learn how the best in class do things .this enables organizations to identify the gap and take necessary measures to bridge the gap,As such it acts as a performance measurement tool also.Benchmarking enhances innovation by requiring organizations to constantly scan the environment and to use the information obtained to improve the process.
Benchmarking is one tool to help organization develop the strength and reduce weakness by learning from other competitive practices across industries.
Deciding What to Benchmark:
Most organizations have a strategy that defines how the firmwants to position itself and compete in the market place.these strategies are also known as critical success factors.Indeciding what to benchmark,it is best to begin by thinking about the mission and critical success factors.
Understanding the current performance:
To compare practices to outside benchmarks,it is first necessary to thoroughly understand and document the current process.it is essential that organizations performance is well understood.Several techniques such as flow diagrams and cause and effect diagram and understanding.
Once internal processes are documented and understood,it is possible to make decisions about how to conduct the study.A benchmarking team can be selected .the team should decide what type of benchmarking to perform,the type of data to be collected and method of collection.
It looks for two types of information-a description of how best in class processes are practiced and the measurable results of these practices.In seeking information,benchmarkers can use internal sources,data in public domainetc.considerations include cost and time in gathering data and quality of data.
Learning from the Data:
It involves answering a series of questions like is there a gap in performance levels of organization and best in class.if so how much ,why it exists and if adopted what would be the resulting improvement.
Using the findings:
When a benchmarking study reveals a negative gap in performance,the objective is to change the process to close the gap.it is a waste process if change does not occur.to effect change,the findings must be communicated to the people within the organization who can enable improvement.the findings must translate to goals and objectives and action plans must be developed to implement new processes.
THE ETHICAL ISSUES IN BENCHMARKING
Benchmarking questions certain ethical aspects:
Benchmarking is the process of imitating or adapting what the best in class have,as a result of which real contribution of the company which took this approach becomes a question.it becomes kind of copied ,rather than an individual companies achievement.
Typical concerns and questions focus on a few common themes,antitrust,proprietary information,perspectives on competitive benchmarking and the possibility of extensive interaction with corporate attorneys.Most experienced benchmarking organizations have developed a legal and ethical position on the subject of benchmarking.some examples of legal and ethical position points of established benchmarking organizations are given below:
Hiring from competitors
Taking advantage of personal relationship
Full disclosure (MichaelJ.Spendolini n.d.)
BENCHMARKING PROCESS: OVERVIEW OF THE COST INVOLVED:
Benchmarking has lot of benefits, but it does involve a cost for the company that uses this tool. The three main types of costs are:
VISITING COST - It is the cost incurred to visit the "best in class company".
LOST TIME COST - the benchmarking team has to work for a long time on analyzing what to benchmark,finding the best in class companies, visitin those companies,then changing the respective component in their companies.All this involves time,which otherwise could have been used for other activities.
INFORMATION COST -It is cost incurred in collecting and analysing information of the best practices across industry.Some companies might maintain and update such related information,so all this increases the cost associated with the process.
There are several types of benchmarking activities and each is defined by the Target or object of the benchmarking activity though the basic process of benchmarking remains the same.
In many organizations ,specific practices are performed in more than one location ,one department,one divisionor even one country. Many organizations begin their benchmarking activities by comparing business practices internally. Benchmarking process begins from home.internal benchmarking assumes that there are differences in the work processes of an organization as a result of differences in geography,local organization history,the nature of managers and employees in different locations,and so on.Many organizations follow this because a thorough understanding of their internal workings acts as a baseline for any subsequent investigation and measurement involving external benchmark partners.
Process benchmarking - this involves observation of best practices across industries.any process that company wants to emulate can be achieved through this benchmarking.it improves efficiency and reduces cost.
Product Benchmarking - this type involves studying the competitors products in order to upgrade or invent new products.reverse engineering is usually done for products.
Generic Benchmarking - The objective of generic benchmaking is to identify best practices in any type of organization that has established a reputation for excellence in the specific area being benchmarked.the focus is on a particular function Xerox benchmarked warehouses and ordering processes from L.L.Bean..The key distinction in this type is that it can focus on any organization in any industry -the common element being the analysis of excellent business practices.
Competitive benchmarking-it involves identification of products,services and work processes of your organizations direct competitors.the objective of this is to identify specific information about competitors products,processes and business results and make comparisons with those of your organization. (MichaelJ.Spendolini n.d.)
Benchmarking is used extensively by both manufacturing and service organizations ,including Xerox,AT&T,Motorola,Ford,andToyota.xerox is the pioneer of benchmarking. By benchmarking, Xerox cut quality problems by two-thirds, cut manufacturing costs , development time and direct labor and corporate staff ,though it helped in increasing volume . Xerox had identified a performance gap in relation to its competitors .specific standards of measurement,metrics in areas such as production costs cycle times,overhead costs and product features were identified and the performance of xerox was ranked in relation to that of its chief market rivals for those metrices.so Xerox continued to develop the concept of competitive benchmarking .
General Motors also adopted the benchmarking tool for strategic management.company benchmarked from Ford,Toyota and Suzuki.From Ford it compared the labor hours per vehicle ,Ford had comparatively From Toyota it imbibed their areas of superiority like defects ,cost of warranty,response time and number of fasteners per car.it looked upon Suzuki,for they were the leaders in painting vehicles .it also looked at NUMMI for internal and external JIT parts and number of fasteners.
Ford benchmarked from Mazda.situations in 1980s forced Ford to change its operations in order to reduce cost.they identified the area to be benchmarked as the Accounts payable department.After collecting ,analyzing relevant data from Mazdas accounts payable operations ,Ford reconciled and redesigned its operations which led to substancial reduction in cost. (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 employees.Benchmarking is not a panacea,it is a tool for improvement .It must be used properly.It is not a substitute for innovation but a source of new ideas.Benchmarking enables organizations to set realistical goals and objectives.companies striving to prosper and excel in global economy should adopt benchmarking tool for strategic management.
Benchmarking is the search for industry best practises.It is the systematic search for best practices,innovative ideas and highly effective operating procedures.benchamarking requires an external orientation which is critical in a world where the competitor can easily be on the other side of the globe.It is time and cost efficient because the process involves imitation and adaptation than pure invention.benchmarking allows goals to be set objectively.it is one tool to help organizations develop the identified strength and reduce the weaknesses. Benchmarking is a way to move away from tradition and one of the major strategic management tools. Benchmarking is not a panacea,it is not a strategy,nor it is a business philosophy,it is an improvement tool.all companies intending to be competitive and successful must use the benchmarking tool correctly.