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INTRODUCTION

Almost all businesses are engaged in some form of business improvement activity ensuring that your business can stay one step ahead of the competition through optimized business processes, systems and policies is integral to both maximizing your profits and satisfying your customers. But how do you ensure that your business operates to the best practice standard? Benchmarking is a business tool that is used to adapt best practice from peers (which may be within or outside the organization) and facilitate improvement in business performance and increase the value add to its customers. The process of Benchmarking centres on the process of comparing business activities and methods to those that are considered best in class. Identifying the gap between current activity in your organization and best in class can help facilitate the production of an improvement plan that can lead the benchmarking company to optimize its processes and procedures. Benchmarking is now commonplace and is an everyday activity in many organizations. One of its key benefits is that it forces organizations to review the outside environment and take account of the market and changes that are taking place. To that end, Benchmarking should be viewed as an ongoing process that takes place throughout the business lifecycle and be central to an organizations continuous improvement program.

DEFINITION
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries. Dimensions typically measured are quality, time and cost. Improvements from learning mean doing things better, faster, and cheaper. Benchmarking involves management identifying the best firms in their industry, or any other industry where similar processes exist, and comparing the results and processes of those studied (the "targets") to one's own results and processes to learn how well the targets perform and, more importantly, how they do it. The term benchmarking was first used by cobblers to measure people's feet for shoes. They would place someone's foot on a "bench" and mark it out to make the pattern for the shoes. Benchmarking is most 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", it is a process used in management and particularly strategic 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.

HISTORY OF BENCHMARKING
The benefits of benchmarking have long been recognized in the manufacturing industry. In 1912, a curious Henry Ford watched men cut meat during a tour of a Chicago slaughterhouse. Carcasses hung from hooks mounted on a monorail. After each man performed his job, he pushed the carcass to the next station. Less than six months later, the world's first assembly line started producing magnetos in the Ford Highland Park plant. The idea that revolutionized modern manufacturing was imported from another industry. Although benchmarking has been practiced since the beginning of modern manufacturing, it has only recently entered the official business lexicon. In the 1970s, the concept of a benchmark evolved beyond a technical term signifying a reference point. The word migrated into the lexicon of business, where it came to signify the measurement process by which to conduct comparisons. Xerox Corp., an early leader in benchmarking, referred to benchmarking in rather narrow terms that focused primarily on comparisons with one's primary competitors. During the 1970s and '80s, benchmarking referred primarily to numerical measurements used to gauge the performance of a function, operation, or business process relative to others. In this respect, managers used benchmarks as divining rods to lead the organization to hidden opportunities to innovate and improve performance.

Benchmarking also enabled managers to monitor manufacturing ideals such as total quality and best-in-class in terms of objective, quantifiable metrics. Although this metric-focused benchmarking enabled companies to compare organizational performance against their competitors, these statistical benchmarks provided incomplete comparisons. In a sense, they were superficial because they drew attention to performance gaps without offering any evidence or explanation for why those gaps existed. At times, the performance gaps that surfaced through benchmark comparisons reflected significant differences in operating systems and procedures; on other occasions, benchmark variances reflected differences in the way organizations track and measure the performance of their systems. The root causes of operating differences usually could not be discerned from the metrical benchmarks alone. Benchmarking comes of age In light of shortcomings of metrical benchmarking, executives extended both the scope and the functional application of benchmarking methodology. In the 1990s, executives began using benchmarking to identify both the metrical indicators and the key operational drivers of performance excellence. Metrical benchmarks were no longer the primary area of interest -- they were merely indicators of performance gaps. Of real interest to managers were the underlying processes and strategies that drive performance metrics. Benchmarking came to refer to the process of investigation and discovery that emphasizes the operating procedures as the things of greatest value. Consequently, "best practices benchmarking" came to describe the process of seeking out and studying the best internal and external practices that produce superior business results.

Benchmarking also grew from a performance measurement tool to an advanced business concept with general management applications in an array of operating areas. These more recent benchmarking applications include: * Strategic planning. Markets are in a dynamic state of flux; consequently, important insights can be gleaned by studying the experiences and competitive strategies of others. The strategic lessons learned by other organizations and industries have helped executives refine corporate strategy, project the possible outcomes of changing current business objectives, and forecast potential cataclysmic shifts brought on by changing market circumstances. By reviewing the strategies of competitors and other industry front-runners, executives have validated the adequacy of their own goals, plans, and strategies. * Change management. The pace of change is so rapid that no single organization can ever control or dominate all effective operating practices and good ideas. To be a marketplace leader, one must look outward -- as well as inward -- for constant improvement and new ideas. Benchmarking teams, with a mandate to look far and wide for better operating practices, are arguably one of the best sentinels senior management can post along the watchtowers of the organization. They can sound the alarm when the first signs appear on the horizon that the organization has fallen behind the competition or has failed to take advantage of important operating improvements developed elsewhere. Best practices benchmarking provides executives with the tool, the rationale, and the process to accept change as constant, inevitable, and good. * Process re-engineering. Benchmarking is a necessity for companies engaged in reengineering processes and systems.

Through the study of outside best practices, a company can identify and import new technology, skills, structures, training, and capabilities. Benchmarking also provides a potent source for incremental change and improvement. Benchmarking projects frequently yield golden nuggets that are weighed in ounces rather than pounds. * Knowledge management. Benchmarking is a tool for achieving idea enrichment and general education that can be spread throughout the organization. Successful benchmarkers return to their organizations with valuable trophies -- new ideas and approaches for accomplishing old tasks. By regularly benchmarking critical functions, organizations ensure they remain open to new ideas, changing trends, and evolving technology. If seeing is believing, then benchmarking is an effective process to ensure that managers and front-line operators see other approaches to accomplishing the activities over which they preside. * Advanced problem solving. Benchmarking frequently demonstrates its value in the problem-solving process. Ironically, most corporate problem-solving processes do not methodically look outside the team or organization for solutions. Standard problemsolving processes provide a structure that makes work groups more effective; they also prompt teams to root their analysis in empirical data, which supports management by fact rather than fancy. But most problem solving processes indirectly encourage teams to reinvent the wheel because they seldom encourage work groups to consider external experience in developing their solutions. As an enabling tool for problem solving, benchmarking frequently produces elegant answers for thorny operating issues. Benchmarking in the 1990s gave executives a panoramic view of the competitive landscape and enabled them to revolutionize their own business processes with

innovative best practices. Because of its proven ability to drive consistent business results, best practice benchmarking has grown to become an invaluable management tool. In fact, a survey conducted in 1999 by Bain and Co. identified benchmarking as one of the most highly utilized management tools. Benchmarking in the new millennium For nearly three decades, executives have used both metrical and best practice benchmarking to drive significant performance improvements. However, today's highoctane business environment has had an interesting effect on executives' use of benchmarking. On one hand, executives need benchmarking data more than ever to keep abreast of industry trends amid fierce global competition. On the other hand, executives are moving faster than ever, and they feel they don't have the time to undergo a benchmarking project that requires several months to complete. Working in "Internet time" intensifies the need for benchmarking data, yet requires the data to be collected much more quickly. Best Practices LLC has developed a benchmarking methodology -- "rapidmarking" -that compresses the traditional benchmark project cycle time of three to six months down to 10 to 20 business days. Rapidmarking is based on the traditional six-step benchmarking process (Figure 1). However, adjustments reduce the project cycle time significantly: * Determine which function to benchmark. Teams that set out to benchmark expansive subjects such as empowerment might as well try to boil the ocean -- and many bench marking projects have spent months trying to do so. Begin with well-focused project

missions that target manageable topic areas. Select high-leverage research subjects by identifying precisely where customer value is created in a process and designing the project around that area.

BENEFITS AND USE


In 2008, a comprehensive survey on benchmarking was commissioned by The Global Benchmarking Network, a network of benchmarking centers representing 22 countries. Over 450 organizations responded from over 40 countries. The results showed that:
1.

Mission and Vision Statements and Customer (Client) Surveys are the

most used (by 77% of organizations of 20 improvement tools, followed by SWOT analysis(72%), and Informal Benchmarking (68%). Performance Benchmarking was used by (49%) and Best Practice Benchmarking by (39%).
2.

The tools that are likely to increase in popularity the most over the next

three years are Performance Benchmarking, Informal Benchmarking, SWOT, and Best Practice Benchmarking. Over 60% of organizations that are not currently using these tools indicated they are likely to use them in the next three years.

Advantages:

Benchmarking has many advantages which will be discussed in this section. Rank Xerox's experience with benchmarking led them to the following benefits (16): Benchmarking brings out the newness and innovative ways of managing operations. It is an effective team building tool. It has increased general awareness of costs and performance of products and services in relation to those of competitor organizations. It brings together all the divisions and helps to develop a common front for facing competition. It highlights the importance of employee involvement and, as such, encourages recognition of individual/team efforts. These illustrate the benefits of competitive benchmarking, which is used in both the business sector and the public sector. Some of the advantages that will be discussed here are team building, comprehensibility, flexibility, creativity, and evolution. Team Building Benchmarking cannot be successful without the full involvement of everyone in contact with a project. It creates a united front for an organization and gives those who work within it a common goal to accomplish. It also includes the ideas and concerns of those affected. Along with good work on such a project comes recognition. As mentioned there are several awards for an organization to receive. Within an organization may be yet more

awards for individuals, teams, or agencies that have exemplary performance. This is achieved by setting goals, then meeting, or exceeding them. Comprehensibility Unlike some methods, benchmarking is easy to understand. This is due largely to the fact that benchmarking produces a direct comparison to another organization. After determining whom to follow, you study what they do, and emulate it. There is no misunderstanding of the overall goal of being the best. Flexibility Benchmarking is flexible and can be interdisciplinary. Benchmarking can be used on almost any organization, public, private, or, non-profit. It can be fitted to a large multinational corporation or a local shop, from a federal agency to the government of a small village. Identifying the best does not necessarily mean that a competitor has the best solution. It may be a company who just does something well. When Rank Xerox needed to make its shipping better, it relied on L.L. Bean. This sort of out-of-the-box thinking can create new standards rather than emulating someone else's practices. Creativity Sometimes an organization might know where their goals are, but the path to meet them is not clear. Furthermore, even if another organization is perceived to be doing something the best, it does not mean it couldn't be done better. After clearly defining

goals, however, it can be easier to come up with new, innovative ways of getting there. It could also create news ways of obtaining information or making partnerships, such as Remington, a shotgun shell manufacturer, getting information on how to make shinier shells from Maybellienes lip stick containers. Evolution Benchmarking evolves with the consumer and doesn't require a large up-front cost. As things change in the world, so does who is the best. Because benchmarking involves constant reiteration, evaluating and changing, it changes as the market or consumer does. Although benchmarking is constantly in change, it isn't a big price tag up-front. All one needs are office supplies and a list of the best performers to get started.

Disadvantages:

Benchmarking can require a large investment in time, labor, and capital. Costs for a large project can easily reach into the hundreds of thousands of dollars. These can be minimized through careful, thoughtful, and deliberate planning. As Robert Graham of Medrad notes, Typically, there are expenses related to travel as well as indirect costs associated with employee time devoted to trips and team meetings. With careful planning benchmarking costs can be kept to a minimum (17). Size

The size and scope of a benchmarking project is related directly to the cost. An easy way to minimize costs is to take on a stepwise approach. This minimizes the amount of investment and risk taken concurrently. Dividing Costs Organizations can pool resources by taking joint benchmarking projects and dividing costs accordingly. This is more easily done in organizations that are not directly competing, such as government agencies. Various organizations have pooled their resources and knowledge into benchmarking groups. Consultants Many consultant firms will also aid an organization in a benchmarking project. These organizations have the technical knowledge and experience to more efficiently gather and interpret data. Careful background research of a consultant must be made to make this process more effective and it comes at a price. However, this does not require hiring additional staff or expanding roles of current staff. Education and Travel Benchmarking does require education and travel costs. Once a team is chosen, they often need to be educated on the methods of benchmarking. This is accomplished through workshops, seminars, meetings, and courses. Then, this information must be disseminated to others. When researching organizations, sometimes it is best to see

the organization in action and meet with the team that performed and implemented the changes to gain first-hand knowledge of the processes involved. Communication One of the most important methods of keeping benchmarking costs low is effective communication. This involves knowing what you need and where your own deficiencies are and sharing information about yourself. Also, informing others inside of your organization of what has been learned through reports, analyses, etc. and its method of implementation involving flowcharts, matrices, schematics, etc. is critical. Clear communication also lets management know how the project is going and its status. This reduces confusion and conflicts among management and the team and among team members themselves.

BENCHMARKING PROCESS
1. Planning. The essential steps are those of any plan development: what, who and how.

What is to be benchmarked? Every function of an organization has or delivers a product or output. Benchmarking is appropriate for any output of a process or function, whether its a physical good, an order, a shipment, an invoice, a service or a report.

To whom or what will we compare? Business-to-business, direct competitors are certainly prime candidates to benchmark. But they are not the only targets.

Benchmarking must be conducted against the best companies and business functions regardless of where they exist.

How will the data be collected? Theres no one way to conduct benchmarking investigations. Theres an infinite variety of ways to obtain required data and most of the data youll need are readily and publicly available. Recognize that benchmarking is a process not only of deriving quantifiable goals and targets, but more importantly, its the process of investigating and documenting the best industry practices, which can help you achieve goals and targets.

2. Analysis. The analysis phase must involve a careful understanding of your current process and practices, as well as those of the organizations being benchmarked. What is desired is an understanding of internal performance on which to assess strengths and weaknesses. Ask:

Is this other organization better than we are? Why are they better? By how much? What best practices are being used now or can be anticipated? How can their practices be incorporated or adapted for use in our organization?

Answers to these questions will define the dimensions of any performance gap: negative, positive or parity. The gap provides an objective basis on which to actto close the gap or capitalize on any advantage your organization has.

3. Integration. Integration is the process of using benchmark findings to set operational targets for change. It involves careful planning to incorporate new practices in the operation and to ensure benchmark findings are incorporated in all formal planning processes. Steps include:

Gain operational and management acceptance of benchmark findings. Clearly and convincingly demonstrate findings as correct and based on substantive data.

Develop action plans. Communicate findings to all organizational levels to obtain support, commitment and ownership.

4. Action. Convert benchmark findings, and operational principles based on them, to specific actions to be taken. Put in place a periodic measurement and assessment of achievement. Use the creative talents of the people who actually perform work tasks to determine how the findings can be incorporated into the work processes. Any plan for change also should contain milestones for updating the benchmark findings, and an ongoing reporting mechanism. Progress toward benchmark findings must be reported to all employees. 5. Maturity. Maturity will be reached when best industry practices are incorporated in all business processes, thus ensuring superiority. Tests for superiority:

If the now-changed process were to be made available to others, would a knowledgeable businessperson prefer it?

Do other organizations benchmark your internal operations?

Maturity also is achieved when benchmarking becomes an ongoing, essential and selfinitiated facet of the management process. Benchmarking becomes institutionalized and is done at all appropriate levels of the organization, not by specialists. Figure 1 Benchmarking process steps

COSTS OF BENCHMARKING

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. The cost of benchmarking can substantially be reduced through utilizing the many internet resources that have sprung up over the last few years. These aim to capture benchmarks and best practices from organizations, business sectors and countries to make the benchmarking process much quicker and cheaper.

TYPES OF BENCHMARKING

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.

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.

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.

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 - developing an accurate model of a building's energy

consumption with the purpose of measuring reductions in usage.