Why should companies benchmark?
What is Benchmarking? The ongoing, systematic process to search for and introduce international best practice into an organisation Australian Manufacturing Council (AMC 1994) Benchmarking is the process of comparing ones own performance of company against the world in the same business field which provides benchmarking service.
Benchmarking can be described as an endless examination and determination of functions, strategies, processes, services, products and performances of an organisation, distinguished within the organisation and among the best organisations in the outside business world. This can be done by collecting the useful data through the appropriate ways. And finally it comes up with ways that improve the performance of organisation.
In general, an industry or company uses benchmarking as a tool/technique to compare their performances with their competitors in the market in order to develop their company performance or to know their faults and status. Benchmarking is the continuous search for an adaptation of significantly better practices that leads to finer performance by investigating the performance and practices of other organisations.
Benchmarking is the effective tool to develop an industrys performance by comparing with other industry performances in the market. Industries can obtain many benefits from the global use of Benchmarking like quality improvement, development in performance, increased productivity, better staff motivation from inter benchmarking (within the organisation). In sum an effective management should use Benchmarking as a tool/technique in order to survive in these competitive market days.
Mind Mapping or Concept Mapping of Why Benchmarking
In addition, it can create a crisis to facilitate the change process. Benchmarking is a management technique to improve business performance. It is used to compare performance between different organisations - or different units within a single organisation - undertaking similar processes.
Purpose: Benchmarking helps to improve process effectiveness, product quality and service delivery. It enables an organization to compare their existing performance and approach to others, and identify elements that can be adopted and adapted in their business context. Benchmarking enables organizations to compare and improve themselves and prompt innovation. Although benchmarking is widely used, it not a precise science and there are many different approaches - ranging from models of quality measurement to basic comparison undertaken on a pragmatic basis. It is often necessary to tailor an approach that provides a sustainable method of benchmarking in view of the organizational goals and business needs. Process: Benchmarking involves looking outward (outside a particular business, organisation, industry, region or country) to examine how others achieve their performance levels and to understand the processes they use. In this way benchmarking helps explain the processes behind excellent performance. When the lessons learnt from a benchmarking exercise are applied appropriately, they facilitate improved performance in critical functions within an organisation or in key areas of the business environment. Application of benchmarking involves four key steps: Planning Analysis Integration Action
Benchmarking Process Steps:
Benchmarking in different types: Strategic Benchmarking: Where businesses need to improve overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed. It involves considering high level aspects such as core competencies, developing new products and services and improving capabilities for dealing with changes in the external environment. Changes resulting from this type of benchmarking may be difficult to implement and take a long time to materialise. Purpose: Re-aligning business strategies that have become inappropriate
Performance or Competitive Benchmarking: Businesses consider their position in relation to performance characteristics of key products and services. Benchmarking partners are drawn from the same sector. This type of analysis is often undertaken through trade associations or third parties to protect confidentiality. Purpose: Assessing relative level of performance in key areas or activities in comparison with others in the same sector and finding ways of closing gaps in performance
Process Benchmarking: Focuses on improving specific critical processes and operations. Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services. Process benchmarking invariably involves producing process maps to facilitate comparison and analysis. This type of benchmarking often results in short term benefits. Purpose: Achieving improvements in key processes to obtain quick benefits
Functional Benchmarking:
Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements. Purpose: Improving activities or services for which counterparts do not exist.
Internal Benchmarking: Involves benchmarking businesses or operations from within the same organisation (e.g. business units in different countries).The main advantages of internal benchmarking are that access to sensitive data and information is easier; standardised data is often readily available; and, usually less time and resources are needed. There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organisation. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking. Purpose: Several business units within the same organisation exemplify good practice and management want to spread this expertise quickly, throughout the organisation
External Benchmarking:
Involves
analysing outside organisations that are known to be best in class. External
benchmarking provides opportunities of learning from those who are at the "leading edge". This type of benchmarking can take up significant time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations. Purpose: Where examples of good practices can be found in other organisations and there is a lack of good practices within internal business units.
International Benchmarking: Best practitioners are identified and analysed elsewhere in the world, perhaps because there are too few benchmarking partners within the same country to produce valid results. Globalisation and advances in information technology are increasing opportunities for international projects. However, these can take more time and resources to set up and implement and the results may need careful analysis due to national differences Purpose: Where the aim is to achieve world class status or simply because there are insufficient national" businesses against which to benchmark.
Benefits from Benchmarking: Benchmarking can save us from re-inventing the controls/wheels. It also shows what is possible and promotes an organisational culture that is open to new ideas. Improvements in quality Greater performance Increased productivity Better staff Motivation
Benchmarking also provides organisations with reassurance and enables them to celebrate by showing where they perform well. From the Benchmarking one can identify: If a company or organisation utilises benchmarking as a tool then they can compare strengths, weaknesses, sales, processes, strategies, turnover, customer satisfaction, profitability, costs, costs of research and improvement or development, critical achievement indicators, chances for growth, of their competitor to them. We can also identify requirements needed for the improvement. Key presentation methods Profit and sales performance Asset management Creating value or value creation.
Importance of benchmarking: Benchmarking is the effective tool to develop an industrys performance by comparing with other industry performances in the market. Industries can obtain many benefits from the global use of Benchmarking like quality improvement, development in performance, increased productivity, better staff motivation from inter benchmarking (within the organisation). In sum an effective management should use Benchmarking as a tool/technique in order to survive in these competitive market days.
Acquisition and Creation of knowledge takes places from various sources such as Individual level, Group level, and Organizational level. Sharing of knowledge among stakeholders ensures in capturing, collating and creating specific, reliable, useful, up-to-date and timely knowledge. Organizations are today striving for improving their bottom line and therefore
realize the importance of involvement of customers and suppliers as sources of product and service innovation. Strategic partnerships with customers are viewed as long-term proposition. Emergence of Communities of Practice has shown that individual and common goals and interests are taken into account to provide a natural focal point for organizing and promoting knowledge in a particular area. This helps to provide solutions to organizational problems, as well as to provide insight on new or innovative product and services. Hence Benchmarking is seen as an important aspect with respect to Knowledge Management. It helps in understanding where the organization features in comparison with other organization's in the industry with respect to knowledge, competency and capability which helps in the growth of the organization. Benchmarking provides following to a company
a performance assessment tool companies know where they stand in relation to other companies;
an enhanced performance tool benchmarking also allows companies to learn new and innovative approaches, and provides a basis for learning;
a growth potential tool benchmarking can cause a needed change in a company's culture involving searching inside the company for growth;
Job satisfaction tool because benchmarking is growing and changing so rapidly, bench markers have bonded together and developed networks to share methods, successes, and failures with each other.
Benchmarking Surveys and their findings: 78 per cent of top UK companies actively using benchmarking concepts for improvement. Coopers & Lybrand (1995)
88 per cent of European companies engaged in benchmarking; show a correlation between use of benchmarking and improved operational and business performance. A high level of employee involvement and participation and teamwork is necessary for success of a benchmarking project Voss et al. (1997)
Around 85 per cent of UK companies are using benchmarking as a continuous improvement tool Confederation of British Industry (1997)
Narrowly focused benchmarking projects; Respondents identify real problems in finding suitable partners, and also reluctance from within their own organization to share information. A lack of generic benchmarking projects and only a few has progressed into process analysis involving site visits and open sharing of best practices. Lack of confidence, lack of time and resources are identified as major problems during implementation of benchmarking Longbottom. (2000)
Around 45 per cent of the organizations were found to be engaged in benchmarking activities but a little evidence of a wide participation of the UK manufacturing organizations. More emphasis on competitive benchmarking when compared to internal or functional benchmarking. Use of generic benchmarking is in nascent stage Hinton et al. (2000)
Most of the manufacturing organizations in USA perceive benchmarking as an effective management tool. The most effective type of benchmarking is found to be functional and process benchmarking whereas strategic benchmarking was considered the lowest Kumar and Chandra (2001)
Wide participation in benchmarking activities embarked on by the various industry sectors. It was the manufacturing sector which outperformed in adopting benchmarking concepts to compare and improve product and services. Growing use of information technology will result in spread of best practices Jarrar and Zairi (2001)
Practically: Benchmarking provides key personnel in charge of processes with an external standard for measuring the quality and cost of internal activities, and to help identify where opportunities for improvement might reside. Benchmarking helps organizations to focus on the external environment and to improve process efficiency. Benchmarking is therefore a positive, practical process to change operations in a structured fashion to achieve superior performance. Collecting the data which relates to benchmarking from X named industry and Y named industry. Analysing the collected data by using benchmarking as a tool Finding differences in performances of both X and Y industries Comparing the practical and theoretical performances between X and Y industries By analysing the data we will know the differences in x and y businesses And we will carry out important activities from the both industries Identifying the problems and competency in both X and y industries Identifying areas for important information and exercises for business development
Then from the Benchmarking we can identify: strengths and weaknesses highlight required changes for improvement Identify opportunities for growth. We can compare costs such as research and development Sales and turnover Profitability Key performance indicators Processes
Strategies Customer satisfaction Key performance measures Sales and profit performance Value creation Asset management.
Review Data to gather sale turnover/ employee() pre tax profit / employee() Pre tax profit / turnover (%) Return on capital employed (%) Return on net assets (%) acid test(ratio) Cash in bank or turn over (%) Interest cover (%) Debtor days (%) Sales turnover (%) value added per employee Customer performance: complaints per customer complaints per order order value of complaints/turnover orders not delivered on time orders rejected during warranty People performance: new employees/total employees total leavers/total employees early leavers/total employees accidents/employee directs to in-directs(ratio)
number of employees per manager Supplier performance: non confirming supplies supplies delivered on time value of supplies/supplier stock turns Exercise: simple and straight forward using industry norms Join forces with business of similar size and structure. And finally Analysing the collected data by using benchmarking tool Finding differences in performances of different industries Comparing the practical and theoretical performances By analysing the data we will know the differences in businesses And carry out important activities from the analysis Identify the problems in developing performance
