Analytic Foundations of Benchmarking

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Introduction

This paper looks into the foundation of benchmarking as a management technique. There are many management techniques and tools at the disposal of modern day managers. The managers use these tools so as to streamline and establish processes that respond to business needs. Benchmarking is a management tool that has been in use for several centuries.

As a tool, the technique enables managers to discern and adopt best practices in the market (Armstrong, 2000, p. 689). Therefore, such a tool is vital in ensuring an organization operates competitively in the industry.

It is only by adopting best practices that a company can operate in tandem with others and through continuous improvement move towards become a trend or standard setter itself. This paper defines benchmarking, considers the general Benchmarking Process, looks at types of benchmarking and for each type of benchmarking, the paper provides illustrative examples.

Definition of Benchmarking

Before defining the term benchmarking, it would be helpful to consider the definition of benchmark. The word benchmark has been in use for a very long time and its meaning has not changed much. A benchmark refers to a reference point or a standard (Damelio, 1995, p. 19).

To set a benchmark implies putting in place considerations in terms of acceptable standards or levels. Therefore, to have set a benchmark is to have instituted a point against which others can be measured or compared.

Benchmarking is an important management technique that has been in use for quite some time now. By definition, benchmarking implies a company identifying those operations in application in the market that are considered the best. (Damelio, 1995, p. 23) Once such practices have been identified, they are adopted and in some cases customized then applied in an organization with the aim of improving organizational standards.

Therefore, benchmarking as a process aims scanning the business environment or industry for best practices and adopts them into or to organizational practices with the aim improving organizational performance. Benchmarking as a tool, therefore, is a powerful tool at the disposal of managers that they can use to import and adapt best practices in the market to the operations in their home practices.

Benchmarking happens both within an organization, within an industry and without the industry in which the organization operates.

The aim is, anchored on appreciation of the situation in the organization, to seek other ways of doing things that are employed by other organizations towards enhancing performance in own organization. Therefore, benchmarking requires identification of areas that require improvement and discerning best practices in the market and applying the same towards improving the organization.

Origins of Benchmarking

Benchmarking is as old as human history given the process of socialization in it has some semblance of benchmarking. However, in the late 1900s, benchmarking by organizations was widely practiced by US managers seeking to learn from their Japanese counterparts

. The Japanese were known to work well and were registering great gains in their industries. They had adopted traditional standards and cultures like Kaizen, which promoted continuous improvement.

One notable company that employed benchmarking very well to its advantage was Xerox. The organization operated subsidiaries across nations and was able to benchmark internally towards improving practices in other subsidiaries.

Increasingly, the organizations in the US started using very systematic ways of collecting information on operations of other companies, comparing the same with own operations for the purposes of enhancing efficiency and effectiveness (Codling, 1992, p. 13).

Those organizations against which the less performing are widely known as partner organizations. A partner organization is the better performing organization or the one at better standing in terms of efficiency and effectiveness. The more efficient and effective ways applied by the better performing organization are known as best practices.

The benchmarking process as originally conceptualized has clear hall marks. For instance, there has to be a team well informed in terms how to go about the benchmarking process. In order to establish such a well-informed team, training is essential.

Training consists in equipping team with tools and knowledge on how to identify the problems, study the processes and set necessary performance measures against which they are to measure operational performance.

The team is responsible for doing relevant research, collecting data and identifying the relevant partners or organization against which benchmarking can happen (Codling, 1992, p. 45).

Equally important, the team seeks audience with the partner organization and arranges for sharing of information. Once information between the partner organization and the host organization has been shared, the team makes recommendation to be accepted by management for adoption.

While there are many measures of efficiency and effectiveness, the concern when it comes to benchmarking is best practices. By best practices is meant the key ways of doing that are deemed to improve efficiency and effectiveness the most.

Therefore, when it comes to benchmarking focus is on best practices as opposed to focusing on different performance measures. It is the best practices or standards that are adopted towards improving practices in home country.

Steps in Benchmarking

The process of Benchmarking involves looking beyond organizational operations towards appreciating what others are doing and learning from them. The looking beyond own organizational operation involves looking at other departments in the organization, looking at operations in other organizations in the industry or looking at organizations beyond the industry.

The key issue is to understand how others are achieving exceptional performance levels (Zairi, 1996, p. 128). Then, having understood how others are achieving better performance, the organization aligns its operations in tandem with operations of best performers.

Therefore, at the heart of benchmarking is desire and effort to learn from others. The lessons one acquires, he or she applies them meticulously towards improving how things are done.

The benchmarking process therefore is a step by step process that enables systematic learning and application of what is learnt to improve organizational performance.

The key steps in benchmarking therefore include, collecting information on own operations so as to understand them thoroughly, studying the operations of others so as to understand them, comparison of own performance levels or operations with those of others, and finally, implementing or adopting certain measures to improve on performance.

Understanding Own Operations

In a small organization, understand own operations is an easy task. However, in a large organization, understanding own operation would require proper research. Before redesigning or doing anything, organizations have to have enough information on the operations. There is need for proper analysis and proper forecasting and thus managers have to use relevant tools of analysis (Morden, 2004, p. 14).

The environment is monitored to identify issues or trends that can define the current state of affairs in the organization and in its external environment. Changes in the external environment occur on many platforms. The changes can be political, economic, social, technological, environmental or legal. Whatsoever the change, a response has to be envisaged that will ensure the organization continues to operate optimally

Research is very important and necessary survey tools have to be developed towards capturing necessary data. Data on own operations can be captured from the workers, customers, suppliers, or the general public. The managers endeavor to design research tools properly so that aspects from either relevant stakeholder are captured.

Understanding other operators i.e. the desired partner organizations

Apart from relevant data on own operations, the managers need information on other departments, organizations or industries. Just as is the case when it comes to understanding own operations only a systematic inquiry and analysis can help towards understanding the operations of other departments, organizations or in other industries (Morden, 2004, p. 34).

To understand operations in other organizations and in other industries, managers have to adopt proper analysis tools and models. Using relevant research methodologies and tools, managers gather information and with proper regression, trends and relationships are established. Based on the analysis, the actual situation in other organizations is established.

Comparing Own Performance against Others

Once the managers have analyzed research results on both own operations and other company or departments, the two results are compared. The aim of comparison is to identify strong points and weak points in the operations of the different companies. The comparison helps show reasons for different performance levels (Zairi, 1996, p. 19).

For instance, it will help show why the better organization has higher performance levels when compared to own company. Therefore, this process is only beneficial if the best companies are chosen for comparison. The management has to identify the best organization and study it properly before making comparisons with own operations.

Implementing Change To Improve Own Performance

The comparisons will help the managers to understand why there is a gap in performance between best performer and own organization. This means that managers are helped to realize what is good in the way the other company goes about its operations.

Such information then is employed towards devising means and strategies that transform own operations to be in tandem with best performers operations. The strategies are translated into operational activities which are then implemented. The final step is to implement or affect the activities in the organization while closely monitoring and evaluating the same.

Types or Levels of Benchmarking

Benchmarking can be done at different levels and in different ways. The key types of benchmarking include strategic benchmarking, competitive benchmarking, process bench marking, international benchmarking, external benchmarking and internal benchmarking. The categorization or types of benchmarking are anchored on nature or the level at which benchmarking happens.

Strategic Benchmarking

Strategic benchmarking happens when managers feel the strategies already in place are not proper. In such a case, management scans the industry for best performers and tries to align its own ways of operating or strategies towards what the best performers in the market are doing (Watson., 2007, p. 8). This implies that an organization looks into its long term goals and the plans put in place towards realizing those goals.

Further, the organization looks at the long term goals and long term plans of the best performers. The gaps realized are then addressed through aligning own goals and operations with those of the best performer. This means that the strategic objectives of the organization are improved and new operational strategies adopted.

The organization doing strategic benchmarking often has to reconsider its core competencies and realign itself in terms of its competitive edge. Strategic benchmarking is very helpful when it comes to meeting new challenges especially in the external business environment (Watson., 2007, p. 8).

Process Benchmarking

Process Benchmarking unlike other general benchmarking endeavors focuses specifically on the operations in the organizations. By operation here is meant the specific activities and processes that define how an organization delivers its products and its services. The process here is to identify how other organizations are going about the same kind of operations.

The best practices are identified and the organization tries to improve its product manufacturing or delivery processes towards ensuring a competitive edge. For process benchmarking to be realized, an organization has to identify willing partners among the best performing organizations (Mintzberg et al, 1998, p. 129). The organizations must be dealing in same kind of processes or operations.

Once an understanding between parties has been established, the processes in the two companies are properly studied. For proper understanding of the processes in the two organizations, analysts may choose to use tools like the process map, which makes process analysis easy. Once the analysis is done, the differences or gaps are then tackled towards improving processes.

Functional Benchmarking

Sometimes, organizations do not benchmark against competitors in the same sector or industry but rather with other organizations who have similar functions or processes. This kind of benchmarking is called functional benchmarking. An organization benchmarks with partners because they have similar functions in their organization.

This is more or less like process benchmarking with the exception that rather than working with organizations in the same sector, benchmarks are against organizations in other sectors that have similar processes.

This kind of benchmarking comes in handy when an organization does not have clear competitors or enjoys some monopoly in its field. When such benchmarking happens, it contributes in a big way towards innovation and establishing of stands in a sector or an industry.

Competitive Benchmarking

Competitive benchmarking is done when a company seeks to improve its performance against competitors in the market. This kind of benchmarking involves looking at different product or service and organizational characteristics with the aim of improving their performance in comparison to competition.

An example of a company that has successfully done competitive benchmarking is Wal-mart. Using other nationwide retail chains as benchmarks, Wal-mart sought to improve its operations.

Organizational performance is measured against the performance of competitors. The gaps between organizational performance and competitors’ performance are looked into in terms of triggers or causes. Once the causes are established, the organization then puts in place measures towards ensuring proper returns are realized.

Given the benchmarking in this case is done against competitors; it is only possible when there is some trade partnership between the competitors. Alternatively a very independent consultant is used towards ensuring that in as much as the other organization shares information, its secrets are not compromised.

The consultant acts as a go between and helps the management to learn the best practices from the other company without compromising confidentiality.

International benchmarking

We live in an age characterized by highly improved information and communication technology. Apart from ICT, it is worth noting that the transport sectors has transformed tremendously. At the moment, air transport has become common place and competition among the many operators has made air travel accessible and affordable.

This implies that it is easier to communicate with others across the globe i.e. by a click on a computer or pressing a key on one’s mobile phone. Easy of travel implies that business executives can travel more often across the globe and interact with others. The interlinking of the world due to technology is widely referred to as globalization.

In this era of globalization, it is always possible to learn more about other organizations (Ward, 1999, p. 102). There is enough information accessible on the internet about global organizations or firms in international markets. Therefore, rather than benchmarking against local institutions, firms find it more strategic to benchmark internationally.

International benchmarking is very critical especially for companies involved in export and import trade. Majority of companies appreciate the need to internationalize their operations.

The international market offers great opportunity for organization whose goods have reached maturity or saturation point in the traditional market. Moreover, through the internet and other technologies, international competition is closer than before. This implies that for a business enterprise to remain afloat, it has to measure up to international standards.

International operations are not easy to implement. Therefore, an organization will find it beneficial learning from and benchmarking against best performers in the market. To be able to do this, managers have to identify the best performing organizations on the globe.

Once they have reached some understanding with the global leader, the managers have to study the operations of the company and come up with necessary recommendation to help take operations to the next level in their organization (Camp, 2006, p. 13). International benchmarking helps an organization to save money and other resources that would be lost through trying to do things on their own.

Internal Benchmarking

Benchmarking does not just happen between organizations. Within an organization there are better performing departments and better performing employees or sections. This means that within one organization, it is possible to use certain departments, employees or sections as benchmarks (Camp, 2006, p. 13).

For instance, one branch that performs well can be used as a benchmark for other poor performing branches. Managers have to always monitor performance and seek ways of ensuring success is replicated throughout the organization. As such, managers will study operations in a given well performing branch and choose to spread standards from the same to other branches or business units.

Internal benchmarking is a management technique widely employed because all information about operations in different areas are accessible to the management. Secondly, it is easy to induce willingness to share information because there are not secrets and the center of control is one.

Moreover, given there is some relative resemblance in operations across the organization, internal benchmarking is not very challenging. It is easier to copy, transfer or share the differences that may exist between participating units.

The only problem with internal benchmarking is that it may lower innovation and creativity (Coers et al, 2002. p. 6). Once certain operations have been certified by the management as the best, employees are likely to remain complacent even when the best internal practices are not the best market practices.

Therefore, while internal benchmarking is helpful, managers have to go a step further and consider operators in the external market or business environment.

External Benchmarking

Majority of managers only consider benchmarking when it is done against other organizations. This means that an organization looks into its operations and the operations of other partner organizations with the aim of learning from the partner organization and improving its operations.

This kind of benchmarking is called external benchmarking and the aim is to measure ones organization against others and adopt strategies that deliver the desired competitive advantage.

The focus here is on best practices in the other institutions where own operations are considered inferior. Based on how the other organization organizes their operations, managers seek out strategies and formulate plans to help deal with the gaps.

Applicability of Benchmarking

Benchmarking is a great tool that has wide applicability. Over the years both public and private, profit making and non-profit making organizations; have used benchmarking to improve their performance.

Since when the benchmarking steps were developed in the 1900s, over the years, they have been realigned to the changing realities (Mintzberg et al, 1998, p. 124). This implies that there are many versions of benchmarking enabling business units in organizations to ably implement the technique.

Additionally, teaching benchmarking is easy given benchmarking is not a technical subject. It is for this reason that many staff trainings these days have benchmarking as a unit. Given benchmarking is widely taught, it is widely accepted in organizations and implemented. The increased inclusion of benchmarking in management training and the fact that the technique is known to deliver results makes it very appealing among managers.

Moreover, the stability in the overall benchmarking methodology makes is very easy to understand and adopt. There is enough literature and examples that managers can rely on when using this technique (Kay, 2003, p. 44). Just like in years past, a manager puts together a team to do the study to guide the benchmarking process.

The key limiting factor when it comes to applicability of benchmarking is that it is very resource intensive. As a process, benchmarking is data driven and unless proper data is collected, the process fails (Ward, 1999, p. 78). This means that some level of technical understanding is required in order to achieve desired objectives.

If a management team is not well informed when it comes to data collection, analysis and interpretation capacity, the process is imbedded. If the data collection and analysis process is not done properly, best practices will not be clear enough. Despite the need for data collection, which is resource intensive, organizations can go beyond such a challenge and just focus on identifying problems and dealing with them as they come.

Therefore, majority organizations no longer focus on data collection but on problem solving. The issue is an organization identifies a problem and seeks to solve it by employing solutions that other organizations are employing.

Secondly, benchmarking requires commitment from two parties i.e. both parties have to be interested in mutually sharing information. Securing such commitment is not easy especially when an organization is doing competitive benchmarking. Such a process is bound to be rout with misunderstandings and challenges that the team has to be well prepared for (Damelio, 1995, p. 25).

Therefore, proper plans have to put in place with regard to knowledge management if both participating parties are to feel confident about knowledge sharing (Coers et al, 2002. p. 11)

The other challenge or limitation to implementation of benchmarking is the challenge of defining and determining best practices. In the current business environment, best practices are not easy to pinpoint. The business environment is continually changing and strategies evolve with changes in the external environment. Difficulty in defining best practice goes to the core of what benchmarking is all about.

Benchmarking is a process of getting best practices from the better performing company. However, the best practices in one company or in one country may not necessarily be applicable in another country. There is need for caution when deciding on best practices (Codling, 1992, p. 20).

A common case that is sighted is where Phoenix adopted untested best practices leading to awful results. There are many purported best practices; however managers ought to thoroughly scrutinize each best practice in terms of suitability to the organization’s business environment.

Conclusion

This paper looked into the analytical foundations of benchmarking as a management tool and the issues therein that may limit its applicability. Benchmarking was defined as a process of defining or identifying best practices and adopting the same to home operations. Benchmarking is a step by step process that heavily relies on data or information both on home operations and the operations of the other company or section (Kay, 2003, p. 44).

Traditionally, benchmarking starts by setting up a team and training the team in benchmarking processes. Such processes include data collection, analysis and interpretation, identifying partner organizations, comparing partner organization with home organization, deciding on best practices to be adopted, implementing the best practices and finally monitoring and evaluating the implementation to ensure the results are guaranteed.

The benchmarking process is simple and widely appreciated (Armstrong, 2000, p. 689). Therefore, there are no major challenges towards the applicability of benchmarking.

However, the issue of enormous data requirements and formation of teams implies a resource intensive process. Therefore, for organizations that are hard up on resources or cash, resource can be a constraint or limitation if they desired to use benchmarking as a management technique.

However, modern variations of benchmarking have minimized information requirements by using a solution oriented approach to benchmarking. Instead of huge assessment and data collection, all managers have to do is identify a problem and seek a solution in the form of how other organizations handle the same kind of issue.

Finally, there is a problem when it comes to defining and choosing best practices. While, traditionally, best practices were kind of self-evident; in the modern business environment, there are no clear cut issues. This means that managers have to be apt enough to discern and test the best practices. Unless the perceived best practices are properly tested, an organization may adopt practices that will jeopardize it more.

References

Armstrong, M., 2000. A Handbook of Management Techniques: The Best Selling Guide to Modern Management Method. 3^rd eds. Kogan Page Publishers: London

Camp, Robert, C., 2006. Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance. Taylor and Francis: New York

Codling, S., 1992. Best Practice Benchmarking: A Management Guide. 2^nd Eds. Gower Publishing, Ltd: Vermont

Coers M., Gardner C., Higgins L., & Raybourn C., 2002. Benchmarking: A Guide for Your Journey to Best-Practice Processes. APQC , Houston

Damelio R., 1995. The Basics of Benchmarking. Productivity Press, Oregon

Kay, J., 2003. Foundations of Corporate Success: How Business Strategies add Value. Oxford University Press, Oxford

Mintzberg, H., Ahlstrand, B., W., & Lampel, J., 1998. Strategy Safari: A Guided Tour through the Wilds of Strategic Management. Free Press: New York

Morden, T., 2004. Principles of Management 2^nd Ed., Ashgate Publishing, Ltd: London

Ward, M., 1999. 50 Essential Management Techniques. Gower Publishing, Ltd: Vermont

Watson, G. H., 2007. Strategic Benchmarking Reloaded With Six Sigma: Improve Your Company’s Performance Using Global Best Practice. 2^nd Ed. John Wiley and Sons: New Jersey

Zairi, M., 1996. Effective Benchmarking: Learning From the Best. Springer: London

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