AN INTRODUCTION TO BENCHMARKING
Introduction
The purpose of this document is to provide a general introduction to
benchmarking. It reviews what benchmarking is, why we need to benchmark, the
types of benchmarking that can he used and illustrates the major steps
involved in a benchmarking project.
What is benchmarking?
Benchmarking is the continuous search for and adaptation of significantly
better practices that leads to superior performance by investigating the
performance and practices of other organisations (benchmark partners). In
addition, it can create a crisis to facilitate the change process.
Benchmarking goes beyond comparisons with competitors to understanding the
practices that lie behind the performance gaps. It is not a method
for 'copying' the practices of competitors, but a way of seeking superior
process performance by looking outside the industry. Benchmarking makes it
possible to gain competitive superiority rather than competitive parity. The
term benchmark refers to the reference point by which performance is measured
against. It is the indicator of what can and is being achieved. The term
benchmarking refers to the actual activity of establishing benchmarks
and 'best' practices.
It must be noted, however, that there will undoubtedly be difficulties
encountered when benchmarking. Many of them are detailed in the corresponding
document "Guide to Benchmarking" under "factors to be aware of". Significant
effort and attention to detail is required to ensure that problems are
minimised.
Why do we need to benchmark?
There are many benefits of benchmarking. The following list summarises the
main benefits:
provides realistic and achievable targets
prevents companies from being industry led
challenges operational complacency
creates an atmosphere conducive to continuous improvement
allows employees to visualise the improvement which can be a strong motivator
for change
creates a sense of urgency for improvement
confirms the belief that there is a need for change
helps to identify weak areas and indicates what needs to be done to improve.
For example, quality performance in the 96 to 98% range was considered
excellent in the early 1980's. However, Japanese companies, in the meantime,
were measuring quality by a few hundred parts per million by focusing on
process control to ensure quality consistency.
Thus, benchmarking is the only real way to assess industrial competitiveness
and to determine how one company's process performance compares to other
companies'.
Types of Benchmarking
There are four types of benchmarking. They are not mutually exclusive and
companies can choose any one or a combination to meet their objectives. It is
recommended that strategic benchmarking is conducted first to create a context
and rationale that will enhance all other benchmarking efforts.
Strategic Benchmarking
Concerned with comparing different companies' strategies and assessing the
success of those strategies in the marketplace.
Analyses the strategies with particular reference to:
strategic intent
core competencies
process capability
product line
strategic alliances
technology portfolio
Should begin with the needs and expectations of the customer. This can be
achieved through surveys to measure customer satisfaction and the gaps between
a company's performance and its customers' standards.
Ensures a co-ordinated strategic direction regarding benchmarking and reduces
the possibility that one improvement project will cancel out the effect of
another. Benchmarking candidates are normally direct competition.
The main difficulty is persuading the benchmark partner to discuss their
strategy. However, there is a great deal of information which can be obtained
from customers, common suppliers and public domain information.
Functional Benchmarking
Investigates the performance of core business functions.
Does not need to focus on direct competition but, depending on the function to
be benchmarked, the benchmark partner may need to be in a similarly
characterised industry for useful comparisons to be made.
Best Practices Benchmarking
Applies to business processes.
It breaks the function down into discrete areas that are the targets for
benchmarking and is therefore a more focused study than functional
benchmarking.
Some business processes are the same regardless of the type of industry.
Attempts to benchmark not only work processes, but also the management
practices behind them.
Product Benchmarking
Commonly known as reverse engineering or competitive product analysis.
Assesses competitor costs, product concepts, strengths and weaknesses of
alternative designs and competitor design trade-offs, by obtaining, stripping
down and analysing competitors' products.
The four different types of benchmarking are evolutionary beginning with
product, through to functional, process and strategic. For the purposes of
this document and the corresponding document 'Guide to Benchmarking' best
practice benchmarking will be used due to its focus on processes. As
benchmarking is becoming more widespread and companies are more proficient in
its use, best practice benchmarking is becoming increasingly popular. This is
also reinforced by the move away from functionality in organisations towards
business processes. For further information on the other types of
benchmarking, see the references to Watson, Camp and Miller.
Conclusion
Benchmarking must be a continuous process with the extent and scope of the
project being dependent on the resources that the company has available.
The above key steps to benchmarking are detailed further along with a list of
factors to be aware of in the companion document 'Guide to Benchmarking'.
Key steps to benchmarking
Based on our research and experience we would recommend the following stages
in your Benchmarking projects:
Identify what to benchmark
Ensure management support and involve all stakeholders
Select the benchmarking team
Analysis of internal processes
Identify companies to benchmark
Decide on method(s) of data collection
Collect public domain information
Analyse collected information to establish what other information needs to be
collected
Establish contacts with benchmark partners
Plan the actual visits
Conduct the benchmarking visits
Establish whether a performance gap exists
Predict future performance levels
Communicate benchmark findings
Establish targets and action plans
Gain support and ownership for the plans and goals
Implement the action plans, measure performance and communicate progress
Re-calibrate benchmarks
Adopt benchmarking on a company-wide scale
Saturday, July 28, 2007
Subscribe to:
Posts (Atom)