Benchmarking Process, Benchmarking Procedure24th September 2022 0 By indiafreenotes
Benchmarking is the practice of comparing business processes and performance metrics to industry bests and best practices from other companies. Dimensions typically measured are quality, time and cost.
Benchmarking is used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) 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 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.
In project management benchmarking can also support the selection, planning and delivery of projects.
In the process of best practice benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compares the results and processes of those studied (the “targets”) to one’s own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful. According to National Council on Measurement in Education, benchmark assessments are short assessments used by teachers at various times throughout the school year to monitor student progress in some area of the school curriculum. These also are known as interim government.
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. One seminal book is Boxwell’s Benchmarking for Competitive Advantage (1994). The first book on benchmarking, written and published by Kaiser Associates, is a practical guide and offers a seven-step approach. Robert Camp (who wrote one of the earliest books on benchmarking in 1989) developed a 12-stage approach to benchmarking.
The 12 stage methodology consists of:
- Select subject
- Define the process
- Identify potential partners
- Identify data sources
- Collect data and select all partners
- Determine the gap
- Establish process differences
- Target future performance
- Adjust goal
- 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.
- 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.
Benchmarking can be internal (comparing performance between different groups or teams within an organization) or external (comparing performance with companies in a specific industry or across industries). Within these broader categories, there are three specific types of benchmarking: 1) Process benchmarking, 2) Performance benchmarking and 3) Strategic benchmarking. These can be further detailed as follows:
- 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. Benchmarking is appropriate in nearly every case where process redesign or improvement is to be undertaking so long as the cost of the study does not exceed the expected benefit.
- 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.
- Benchmarking in the public sector: Functions as a tool for improvement and innovation in public administration, where state organizations invest efforts and resources to achieve quality, efficiency and effectiveness of the services they provide.
- 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, i.e. Strategic Benchmarking with the help of PIMS (Profit impact of marketing strategy).
- 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, analysing 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.
Prior to engaging in benchmarking, it is imperative that corporate stakeholders identify the activities that need to be benchmarked.
For instance, the processes that merit such consideration would generally be core activities that have the potential to give the business in question a competitive edge.
Such processes would generally command a high cost, volume or value. For the optimal results of benchmarking to be reaped, the inputs and outputs need to be redefined; the activities chosen should be measurable and thereby easily comparable, and thus the benchmarking metrics needs to be arrived at.
Prior to engaging in the benchmarking process, the total process flow needs to be given due consideration. For instance, improving one core competency at the detriment to another proves to be of little use.
Therefore, many choose to document such processes in detail (a process flow chart is deemed to be ideal for this purpose), so that omissions and errors are minimized; thus enabling the company to obtain a clearer idea of its strategic goals, its primary business processes, customer expectations and critical success factors.
An honest appraisal of the company’s strengths, weaknesses and problem areas would prove to be of immense use when fine-tuning such a process.
The next step in the planning process would be for the company to choose an appropriate benchmark against which their performance can be measured.
The benchmark can be a single entity or a collective group of companies, which operate at optimal efficiency.
As stated before, if such a company operates in a similar environment or if it adopts a comparable strategic approach to reach their goals, its relevance would, indeed, be greater.
Measures and practices used in such companies should be identified, so that business process alternatives can be examined.
Also, it is always prudent for a company to ascertain its objectives, prior to commencement of the benchmarking process.
The methodology adopted and the way in which output is documented should be given due consideration too. On such instances, a capable team should be found in order to carry out the benchmarking process, with a leader or leaders being duly appointed, so as to ensure the smooth, timely implementation of the project.
(2) Collection of Information
Information can be broadly classified under the sub texts of primary data and secondary data.
To clarify further, here, primary data refers to collection of data directly from the benchmarked company/companies itself, while secondary data refers to information garnered from the press, publications or websites.
Exploratory research, market research, quantitative research, informal conversations, interviews and questionnaires, are still, some of the most popular methods of collecting information.
When engaging in primary research, the company that is due to undertake the benchmarking process needs to redefine its data collection methodology.
Drafting a questionnaire or a standardized interview format, carrying out primary research via the telephone, e-mail or in face-to-face interviews, making on-site observations, and documenting such data in a systematic manner is vital, if the benchmarking process is to be a success.
(3) Analysis of Data
Once sufficient data is collected, the proper analysis of such information is of foremost importance.
Data analysis, data presentation (preferably in graphical format, for easy reference), results projection, classifying the performance gaps in processes, and identifying the root cause that leads to the creation of such gaps (commonly referred to as enablers), need to be then carried out.
This is the stage in the benchmarking process where it becomes mandatory to walk the talk. This generally means that far-reaching changes need to be made, so that the performance gap between the ideal and the actual is narrowed and eliminated wherever possible.
A formal action plan that promotes change should ideally be formulated keeping the organization’s culture in mind, so that the resistance that usually accompanies change is minimized.
Ensuring that the management and staff are fully committed to the process and that sufficient resources are in place to meet facilitate the necessary improvements would be critical in making the benchmarking process, a success.
As with most projects, in order to reap the maximum benefits of the benchmarking process, a systematic evaluation should be carried out on a regular basis.
Assimilating the required information, evaluating the progress made, re-iterating the impact of the changes and making any necessary adjustments, are all part of the monitoring process.