What is it?
CIMA Official Terminology defines benchmarking as the 'establishment, through data gathering, of targets and comparators that permit relative levels of performance (and particularly areas of underperformance) to be identified. Adoption of identified best practices should improve performance.’
Benchmarking exercises may involve either the whole organisation, or a part of it, but always require the involvement of more than one party or partner. They may be classified as either results-based, which compares performance metrics, or process-based, which looks behind the metrics to analyse the processes that generate them.
Several different types of benchmarking can be used:
- Internal Benchmarking compares one operating unit or function with another within the same industry.
- Functional Benchmarking (also known as operational or generic benchmarking) compares internal functions with those of the best external practitioners, regardless of their industry.
- Competitive Benchmarking gathers information about direct competitors through techniques such as reverse engineering.
- Strategic Benchmarking is a type of competitive benchmarking aimed specifically at strategic action and organisational change.
The development of benchmarking is most closely associated with Xerox, which introduced the practice in 1983.
Benchmarking programmes comprise four steps:
- Identification and/or calibration of performance gap
- Clarification of the strategic impact of the benchmarked process
- Identification and implementation of process improvements or strategic changes
- Maintaining stimulus for continuous improvement.
What benefits does Benchmarking provide?
Benchmarking can help organisations to: show that performance targets can be achieved; accelerate and manage change; and enable process improvement. It can also help them to maintain focus on the external environment and generate an understanding of world-class performance.
Questions to consider when implementing Benchmarking
- Which activities or processes will we benchmark?
- Can we identify a suitable ‘best in class’ benchmarking partner?
- How will we overcome confidentiality issues?
|Actions to take / Dos||Actions to Avoid / Don'ts|
Xerox Corporation leads the way
The Xerox Corporation is often cited as the pioneer in benchmarking practice. When the company wanted to improve performance in its warehousing and distribution operation, it didn’t go down the then conventional road of process redesign. Instead, it identified the business that was acknowledged as the very best practitioner of warehousing and distribution: catalogue retailer LL Bean.
LL Bean agreed to conduct a co-operative benchmarking project, and so the two firms exchanged information on various aspects of their inventory handling and processing of orders. As a result, Xerox identified those areas in its own operation that were performing at below LL Bean’s standards and implemented improvements.
One critical point to note is that Xerox adopted a business operating in a different sector altogether, instead of using another office equipment company as its model. There are many other high-profile cases reported in management literature. When IT services company ICL wanted to improve its distribution system, it benchmarked with Marks & Spencer, for example. And, when Motorola was trying to improve the process of delivering its mobile phones to customers, it benchmarked with both Domino’s Pizza and Federal Express.
Related and similar practices
- Continuous improvement