The Concept of Benchmarking

Benchmarking is first and foremost a tool for improvement, achieved through comparison with other organizations recognised as the best within the area. In this chapter we will present some central definition, different type of benchmarking, and the motivation for using benchmarking. We do also try to position benchmarking I relation to other quality and improvement tools in use in the organization as well as strategy and strategic planning. Pre-condition for using benchmarking are also reviewed. (Andersen, et al., 1996)

BENCHMARKING DEFINITIONS

Somewhat philosophically, benchmarking can be defined as follow:

Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match and even surpass them as it (APQC, 1993) (Andersen, et al., 1996)

A benchmark is a measured -“best-in-class” achievement recognised as the standard of excellence for that business process. (APQC, 1993), (Andersen, et al., 1996)

The original meaning of the word is: A predefined position, used as a reference point for taking measures against.

There are several different theories about where the word benchmark really comes from. One of them claims it to originate from geographical surveying, where a benchmark is a topological reference point in the terrain. The position of other points is given with reference to this benchmark. (Andersen, et al., 1996)

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Another theory says that the word comes from the sale of fabrics, where the stores usually had, and other still have, a ruler sunk into the counter to measure the amount of fabric. Thus, the salesperson took measures against a benchmark. (Andersen, et al., 1996)

A third one claims that benchmark comes from fishing contests. The size of the fish is compared through placing the fish on a bench and measuring the length of it by using a knife to make a mark in the bench. When the next fish is put on the bench, one can easily see whether its size matches the previous ones (Andersen, et al., 1996)

Operational definition of benchmarking.

Many people see benchmarking only as a method for comparing key figures, very often financial, for the purpose of marking a company against competitors or an industry standard. We would strongly like to emphasise that this is a far too limited view of benchmarking. Benchmarking might have been used this way earlier, but is today a far more powerful tool. Do therefore, please, observe the points made by the arrows in the definition above:

• The purpose of a benchmarking study is not only comparing for the sale of evaluation, but learning for achieving improvement.
• One does not compare only key figures, although performance measures are an important element in the comparison. Processes, i.e. how tasks are performed, are the central element in the comparison.
• By looking at how those who are better perform their processes, one can learn from the companies that have already achieved a higher performance level than oneself.
• The learning efforts are not limited to information available from competitors. It is rather encouraged to take an external view, seeking the best companies, regardless of industry.
• Benchmarking is not some left-hand task that one hires a consultant to do. Benchmarking should be done according to a structured process, where one self harvests the learning effects. (Andersen, et al., 1996)

DIFFERENT TYPES OF BENCHMARKING

Benchmarking is about comparing a company with other companies. One can compare the company on a whole or one can compare processes, function, products, etc. different types of benchmarking can be define based on what is compared and whom it is comparing against.

Compare what?

• Performance benchmarking;
• Process benchmarking;
• Strategic benchmarking;

Compare against whom

• Internal benchmarking;
• Competitive benchmarking;
• Functional benchmarking;
• Generic benchmarking

(Andersen, et al., 1996)

Benchmarking of what?

Three types of benchmarking can be define, depending on what is being compared:

• Performance benchmarking is comparison of performance measures (often financial, but also operational), for the purpose of determining how good one”s own company is compared to others.
• Process benchmarking is comparison of methods and practice for performing business processes, for the purpose of learning from the best to improve one”s own processes.
• Strategic benchmarking is comparison of the strategic choices and disposition made by other companies, for the purpose of collecting information to improve one”s own strategic planning and positioning. (Andersen, et al., 1996)

When Xerox launched benchmarking in the early 1970s, it was mainly used for two purposes;

• To -“wake up” the organization and show that improvement were necessary.
• To motivate the organization for improvement and to show that improvements could be made (by referring to others who had made it). (Andersen, et al., 1996)

Later, one has realised that too much focus on performance measures (performance benchmarking) gives little information about how to improve or close the gap to the partner. This might often lead to the three D”s of benchmarking; disbelief, denial, and despair. One does not believe the presented results from the comparisons (disbelief), one denies the results by claiming that the companies are not comparable (denial), and one gets paralysed and unable to act because one does not know how to catch up with the competitors (despair). (Andersen, et al., 1996)

If learning, motivation, and improvement are to be the result of a benchmarking study, it requires that the causes for the performance gap are the focus of attention. The process itself has to be analysed, not only the measures (process benchmarking).

A business process can be defined as;

• A chain of logically connected, repetitive activities; that
• Makes use of the organization”s resources; to
• Refine an object (physical or mental); with the objective of producing specified and measurable results/products; for
• Internal or external customers.

(Andersen, et al., 1996)

Benchmarking against whom?

Four types of benchmarking can be defined, depending on whom one compares against;

• Internal benchmarking is comparison between departmental, units, subsidiaries, or countries within the same company organisation.
• Competitive benchmarking is direct comparison of own performance /results against the best real competitors. i.e., those manufacture the same product or deliver the same service.
• Financial benchmarking is comparison of process or function against non-competitor companies within the same industry or technological area.
• Generic benchmarking is comparison of own processes against the best processes around, regardless of industry. (Andersen, et al., 1996)

Internal benchmarking – A soft start

Internal benchmarking is mainly used within large corporations where different units are evaluated and compared to each other. If one unit performs better than the others, practices can be transferred internally for improvement. The advantages of internal benchmarking are that it is often easy to define comparable processes, data and information are easily accessible, and often on a standard format. (Andersen, et al., 1996)

Competitive benchmarking – A sensitive area

Competitive benchmarking is an extension of competitor analysis where instead of focusing on the industry average, focus is on the best competitors. Due to problems regarding sharing of sensitive information between competitors and the legal and ethical limitations connected to this type of benchmarking, competitive benchmarking is often seen as superficial and too focused on key figures. (Andersen, et al., 1996)

Functional benchmarking – To learn from your closest

In functional benchmarking, benchmarking partners can be customers, suppliers, or other companies within the same industry or technological area. It is other easy to get in touch with such companies and the problems facing these companies are often similar (Andersen, et al., 1996)

Generic benchmarking – Exercise in creativity

Finding companies in totally unrelated industries that perform similar processes as one might sometimes require a solid portion of creativity. The same goes for transferring knowledge for one industry to another. Still, the potential for identifying new technologies or practise that will lead to breakthroughs is highest in generic benchmarking. One example is the spread of bar coding from industry to industry. (Andersen, et al., 1996)

THE CORE OF BENCHMARKING

Benchmarking basically has four main attractions;

• Benchmarking helps the organisation understand and develop a critical attitidue to its own business processes
• Benchmarking promotes an active process of learning in the company an motivates change and improvements
• Through benchmarking, the company can find sources for improvement and new ways of doing things outside their own organisation.
• Through benchmarking, reference points for measuring the performance of the company”s business process are established.(Andersen, et al., 1996)