BENCHMARKING
INTRODUCTION
The term ‘benchmark’ originally meant a surveyor’s mark out in a rock used as a point of reference. It has come to mean anything taken as a point of reference or comparison. In general sense, therefore, benchmarking mean setting standards which acts as a point of reference. In business, benchmarking has come to mean variety of things. It has assumed a very special significance in today’s competitive world. It is now recognised as an effective approach towards improvement of productivity, quality and other dimensions of performances that are determinants of competitiveness. Benchmarking is one of the many techniques that one can employ to gather management information.
MEANING
Benchmarking is a process or system which allows the comparison of performances between businesses that will produce results or recommendations for improvement to that
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business. Benchmarking is a valuable process for any business and it needs to be part of the ongoing planning for success of any business. Benchmarking is an important tool for bringing about continuous improvement that is required to survive competitive world of business these days. It is a structured management tool that involves comparison of management process and learning from the others for the further organizational improvement. Not the whole process is to be change but the important and critical processes can be changed according to the need in view of improvement. Benchmarking will be result oriented when approach to the learning is positive and mind of the learner is ready to adopt the changes.
DEFINITION
“Benchmarking is the search for industry best practices that lead to superior performance.” “Bench marking is a tool to help you improve your business process.any business process can be bench marked.” “Bench marking is the process of identifying, understanding, and adapting outstanding practices from organizations anywhere in the world to help your organization improveits performance.”
ORIGIN OF BENCHMARKING
In its general sense, benchmarking has been with operations. us since business has bee in From earlier times, traders have sought to compete by offering better,
cheaper and wide range of products. In order to do this they used to compare with standard norms. After the advent of Industrial revolution, the business processes have
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become more complex. For measuring the performance of business processes, a whole range of scientifically based methods like operations research, work-study, organisation and methods, statistical quality control etc. were evolved. Even though those methods have sought to measure and promote improvement of performance, they often lacked any external reference or benchmark, thereby making only constant small improvements. These methods could not give a quantum leap in the performance of business processes. Since benchmarking is based on reference (mainly external), the company could recognize the competition which in turn forces the organisation to learn from the best processes and make a quantum leap in their performance to gain competitive advantage.
ROLE OF BENCHMARKING
The role of benchmarking is to provide management with knowledge of what constitutes ‘best performance’ or ‘superior performance’ in a particular field. Best performance relates to output, efficiency, quality and any other measurement relevant to performing the job. Benchmarking not only investigates what best practice means in terms of performance yardsticks but also examine how best practices is achieved. Benchmarking is, therefore, not only the practice of obtaining measurements but also involves understanding the conditions, resources and competence necessary to deliver top
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performance. No individual, team, or operating unit-no matter how creative or prolific can possibly parent all innovation. No single department or company can corner the market on all good ideas. In view of this reality recognizing human limitations, it makes eminently good sense to consider the experience of others. Those who always go it alone are 2 doomed to perennially reinvent the wheel, for they do not learn and benefit from others progress. By systematically studying the best practices and by innovative adaptations an organisation can accelerate the progresses of improvement.
BENCHMARKING AND TOTAL QUALITY MANAGEMENT
Total Quality Management is a long-term commitment to satisfying customer requirements in every aspect of business operations. It is a philosophy, which has been adopted by many organisations who wish to enhance customer satisfaction and thereby increase market share. The basic principle is that individuals are responsible for improving the service they provide to their customers, be it external customers (outside the orgaisations) or internal customers (inside the organisation). Companies who adopt a TQM approach make a commitment to continuous improvement.Often a team approach is adopted under the TQM banner to identify areas of improvement generate and implement solutions. Increasingly, benchmarking is being adopted by organisations that are striving for continuous improvement because it offers an external perspective in the
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quest for service quality. That’s why Benchmarking progammes often take place as part of total quality management.
BENCHMARKING AND BUSINESS PROCESS Re-ENGINEERING
Benchmarking is a tool in the armory of Business Process Re-engineering. Process Benchmarking exposes organisations to state-of-the-art practices, thereby acting as a catalyst for improvements in performance through emulation of best practices. Effective benchmarking cannot take place unless the organisations’ existing process is well understood. Benchmarking and process improvement are therefore fundamentally linked. Re-engineering is “radical redesign of business processes” whereas benchmarking is “finding and implementing best practices”. Through Benchmarking best practices can be unearthed and when these practices form basis for the new design of the process then it is called Re-engineering. Thus Benchmarking is essential to Re-engineering but still a necessary stand-alone tool. The radical re-design of business process is useful for continuous improvement whether it radically affects business processes or not
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BENCHMARKING AND SMALL BUSINESS
Every company is interested in improving its performance and therefore its profitability. It is therefore important to use the system of benchmarking to measure the performance of the business against similar businesses and then bring in to play procedures for improvement. Large companies can obviously afford to carry out benchmarking because of available resources, but sometimes it's much more difficult for the smaller operator. Most small businesses will not look at benchmarking at the start, simply because of a shortage of time, money or other resources and of course others have to be convinced of the value of benchmarking in the operation. Nevertheless, it's good for small businesses to undertake some sort of benchmarking, even if only to compare basic performance and basic processes with other similar businesses in their industry. Benchmarking is very versatile, so to use it to improve product and service processes, as well as customer processes and internal support processes, is of great advantage to the business.
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AREAS TO BENCHMARK
? ? ? ? ? Key business processes Areas of customer dissatisfaction Applications with rapidly changing technology Areas of employee dissatisfaction Processes where overhead exceeds value
BENEFITS OF BENCHMARKING
? ? ? ? ? ? Develop realistic stretch goals and strategic targets Establishes realistic, actionable objectives for implementation Provides a sense of urgency for improvement Encourages striving for excellence, breakthrough thinking and innovation Creates a better understanding of competitors and the dynamics of the industry Emphasises sensitivity to changing customer needs
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STAGES IN BENCHMARKING
There are normally 4 stages to benchmarking: 1. Gathering together information. 2. Comparing the results of that information. 3. Analysing the information fully. 4. Impleme nting strategies to improve.
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1. Gathering Information Benchmarking can assist in the improvement of any business. Benchmarking allows the gathering together of information relating to your business and then measuring that against the results achieved by similar businesses in the marketplace. This results in identifying areas where your business can improve its performance by strengthening its weaknesses and utilising its strengths more. The factual information extracted is easy enough to put together, but there are also other areas, such as customer reaction and satisfaction that are more difficult to gauge or record. In any case, the gathering together of information is the most important first stage of benchmarking.
2. Comparing the Information The data gathered is of no use unless there is a person with experience, able to understand the figures and other data generated. There must be a company or personnel with
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experience, who can look at the information and make sensible comparisons with the results achieved by other businesses. Where there is comparison of database, it is necessary to have knowledge of how to profile your business, especially if you have more than one product or service line.
3. Analysing Information As your business grows and becomes more comfortable with using benchmarking techniques, you will need to learn how to analyse the data. Analysis is far more than just crunching numbers. It involves looking at the variation between your results and the standard results achieved by others in the industry, and then coming to conclusions that will enable the improvement in your operation, as well as your profits. Analysing the trends and understanding these areas is important.
4.Implementing Action to Improve When the benchmarking techniques produce results from your analysis, your business will then have to make a conscious decision of how to bring about the improvement suggested by its conclusions. The information is only a study and it is not strictly benchmarking until you have implemented any changes to your current and past business programmes to achieve more competitiveness and higher growth.
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BENCHMARKING PROCESS
You should not start a benchmarking analysis until you have fully assessed the operations of your own business and understand the function and process of each section that may require assessment. That is, you need to know what you are doing and why you are doing it. Management needs to get together and brainstorm to dissect the performance as well as the nature of the business, because they need to know in detail how their business operates and what areas need attention. Once benchmarking is complete they need to be able to take the information and use it for comparison as well as developing new strategies that the benchmarking report suggests. It is important to know clearly what steps are required to ensure the success of the business. The first step is to ask the following questions: 1. What is your business all about?
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2. What are your most important products? 3. What makes your business different from other competitors? 4. Who are your customers and how do they react to your products and services? 5. What areas are clearly suspect and require a deeper investigation? 6. Are there any processes that are under performing and may need a fresh look for improvement?
The benchmarking steps consists of five phases: 1. Planning. The essential steps are those of any plan development: what, who and how.
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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 it’s a physical good, an order, a shipment, an invoice, a service or a report.
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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.
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How will the data be collected? There’s no one way to conduct benchmarking investigations. There’s an infinite variety of ways to obtain required data – and most of the data you’ll need are readily and publicly available. Recognize that benchmarking is a process not only of deriving quantifiable goals and targets, but
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more importantly, it’s 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.
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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 act—to 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:
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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.
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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
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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:
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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?
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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.
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Benchmarking process steps
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TYPES OF BENCHMARKING
Most companies do not know how benchmarking can be used as a management tool to improve their performance. Also, the amount of information obtained through benchmarking is sometimes hard to digest. Any company new to benchmarking usually needs to carry out some research first to understand their business totally and how they operate. Once they can isolate the issues they need to address, they can move on to use a benchmarking system. There are basically 9 types of benchmarking: 1. Diagnostic Benchmarking - Diagnostic benchmarking looks at areas in the company that the director's suspect requires a wider assessment. 2. Holistic Benchmarking - Holistic benchmarking simply provides a set of indicators, which allows a company to measure its results and compare its performances against a pre-determined framework. This easily isolates areas that appear to be performing below par and to which the business can focus its attention for improvement. 3. ProcessBenchmarking - Process benchmarking should start once the analysis has been completed and looks in detail at areas of the business and compares them against other businesses in the industry. The business can compare its process performance against companies in the same sector, but in some situations it is best to do the comparisons outside of the sector. 4. Stratagic Benchmarking - Strategic benchmarking is used to improve overall performance by examining the long-term strategies and approaches that have enabled great performers to succeed. It involves considering core competencies, developing new products and services; changing the balance of activities; and improving capabilities for dealing with changes in the background environment. 5. Competitive Benchmarking Competitive benchmarking is used when
organizations consider their positions in relation to performance characteristics of
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vital products and services. Benchmarking partners are drawn from the same segment. 6. Functional Benchmarking – Functional benchmarking is used when
organizations look to benchmark with partners from different business areas of activity in order to find ways of improving like functions or work processes. 7. Internal Benchmarking - Internal benchmarking seeks partners from within the same organization. The main advantages of internal benchmarking are that sensitive data and information is more accessible, general data is readily available, and less time and resources are needed. 8. External Benchmarking - External benchmarking seeks outside organizations that are known to be best in their field. External benchmarking provides the chance to learn from those who are known to be best in class, although it is important to remember that not every best practice solution can be adopted by others. 9. International Benchmarking - International benchmarking seeks partners from other countries because the best organizations are located in other parts of the world or there are too few benchmarking partners within the same country to produce valid results.
PROS AND CONS OF BENCHMARKING
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Benchmarking goes beyond competitive analysis to understanding the competitor’s output and process of obtaining the output. The advantages of benchmarking include enabling organizations to outperform competitors, opening minds to new ideas, and placing organizations in a continuous improvement mode. Benchmarking is the systematic process of comparing business processes and performance metrics to industry best practices in terms of quality, time, and cost dimensions, and making such comparisons the basis to do things better, faster, and cheaper. First introduced by Xerox Corporation in the mid-1990s, benchmarking is a key tool of business performance management and finds use by enhancing the competitiveness of the organization. It enables organizations to outperform competitors, opens minds to ideas from new sources, and places the organization in a continuous improvement mode. It goes beyond competitive analysis to understanding not just the competitor’s output, but also the process of obtaining such output.
Performance Improvement
A primary advantage of benchmarking is that it sets the foundation of performance improvement aimed at enhancing competitiveness. By showing how to better competitors, benchmarking ensures the basic survival of the business. Benchmarking identifies best practices in key business processes and determines what constitutes superior performance. It then quantifies the gap between the expected performance and the actual state; in the process it drives home uncomfortable facts and harsh realities about the business. This provides the organization with both the reason to improve and a definition of what constitutes improvement.
New Paradigms
A permanent benchmarking program forces organizations out of their comfort zones and provides specific and measurable short-term improvement plans based on current reality rather than historical performance. 18
Very often, organizations set goals based on past trends and established internal patterns. Benchmarking helps remove such “paradigm blindness” and forces the organization to take a fresh approach to goal setting based on a broader perspective, including the external perspective, the most critical factor that drives customer expectations.
Change
Benchmarking help place organizational focus on change and provides the direction for the change process. Benchmark heralds change by: 1. Making explicit the competitors' standards that provide the organization with minimum standards of excellence. 2. Providing new ideas and better ways of doing things. Benchmarking opens minds to new ideas, heralding a process of continuous learning that leads to a learning organization.
Disadvantages
A major limitation of benchmarking is that while it helps organizations in measuring the efficiency of their operational metrics, it remains inadequate to measure the overall effectiveness of such metrics. Benchmarking reveals the standards attained by competitors but does not consider the circumstances under which the competitors attained such standards. If the competitor’s goals and visions were flawed or severely restricted due to some specific factor, an organization by benchmarking such standards runs the risk of trying to ape such flawed standards or settling for extremely low standards. A bigger disadvantage of benchmarking is the danger of complacency and arrogance. Many organizations tend to relax after excelling beyond competitors' standards, allowing complacency to develop. The realization of having become the industry leader soon leads to arrogance, when considerable scope for further improvements remains.
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Finally, many organizations make the mistake of undertaking benchmarking as a standalone activity. Benchmarking is only a means to an end, and it is worthless if not accompanied by a plan to change. Comparing the pros and cons of benchmarking, the advantages of benchmarking overshadow disadvantages. The 2008 Global Benchmarking Network survey finds organizations preferring benchmarking over any other performance analysis tools, including SWOT. Most organizations include benchmarking as a part of continuous improvement initiatives such as Total Quality Management and Six Sigma.
BENCHMARKING EVOLUTION
A lot of commentators have suggested a variety of origins of the concept of benchmarking. However, it was not until Xerox started using a process of learning from
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its Japanese partner in the late 1970s and early 1980s that the modern concept gained prominence. Benchmarking was pioneered in the 70s when Xerox saw its market share plummet as a result of Japanese competition (Japanese copiers were 10 times cheaper). Rather than seek protection or go to drastic cost reduction, Xerox benchmarked the Japanese, adapted their processes and survived and thrived in the copier business. Having succeeded at that, Xerox realized this approach need not be restricted to the manufacturing area nor to competitors, and so started looking at the best-in-class companies to learn how they undertook different processes. For the next ten years most of the efforts in benchmarking focused on trying to overcome the 'apples and pears' issues of comparability. It is only in recent years that companies have recognized that focusing simply on performance measures and metrics leads to frustration because even if the 'apples and pears' issues are resolved it is not clear as to how the leading performer achieves that performance. Benchmarking concepts started to grow and organizations started taking notice all over the Western World. In 1991, a study in the UK revealed that: Best practice benchmarking is little known as a management technique in Britain, and a general lack of awareness was revealed by the survey. However, interest was growing rapidly and benchmarking uses were becoming more widespread and varied. The survey also revealed that most UK organizations who do undertake benchmarking are still following internal benchmarking or external competitor benchmarking. Very few were found to undertake best practice benchmarking (any sector). In the same year, APQC created an 'International Benchmarking Clearinghouse' whose main purpose was to help individuals and organizations (in any nation) to benchmark more efficiently and effectively. Similarly, EFQM launched its 'best practice benchmarking program' . These steps were some sort of official recognition of the powerful potential of benchmarking, and were indicators that the concept has developed into a clear methodology throughout the 80's. However, although the main concept seemed to spread, the proper methodology still seemed to pose problems for many. In 1992, Grayson noted that "Even though benchmarking is now being recognized as the
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key to increased competitive edge, many companies are still confused as to how, why and whom to benchmark." This was stressed by Holligns who noted that: Benchmarking is one of those terms that is becoming part of normal management language. No longer is it a term familiar only to TQM 'experts.' However, it is still greatly misunderstood. Many organizations think that they are benchmarking when, in reality, they are simply assessing performance - either their own or some other organization's. So it is clear that benchmarking was becoming a very 'hot' management topic in the early 90's. That period also witnessed a boom in other management topics like 'TQM', 'BPR', and naturally researchers started questioning their relation to benchmarking. Saxl asked the question, how does benchmarking relate to other programs? Is it part of TQM, complementary, replacement? Up to this time, i.e. 1992, all benchmarking seemed to have relied on various sources for information from literature, case studies, interviews, site visits, and so on . Networking is probably the only one missing and was brought about by the power of the net in a later period. However, although the 'tools' for gathering benchmarking data have seemingly reached a mature level by then, still from the literature available, there seemed to be more focus on detecting the best measures rather than on studying and adapting the best practices that created them. For example, Wilkerson et al.still discussed benchmarking as a primarily measurement tool to help establish goals. In 1993, the growth and maturity of benchmarking were still on the rise but remained under to most followers. Price Waterhouse conducted a study then that revealed that "fewer than 30% of out top 200 companies carry out benchmarking as a regular management activity. Of these, 60% looked only within their industry . Another study in the USA suggested that "79% of CEOs recognized that benchmarking is critical, but 95% of them claimed they are not sure how to go about it". Still, with this boom in awareness, the study concluded that "Benchmarking will continue for many companies to become a regular management process." It also stresses that the methodology was becoming more focused:
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Benchmarking is about improving competitive position, and using 'best practice' to stimulate radical innovation rather than seeking minor, incremental improvements on historic performance. On the technical side, it was noted that the significant increase in the popularity of benchmarking has also seen a shift in its emphasis. While in the past it may have been the case to benchmark a product's tangible features, now it is more likely to major on value and business process. By the year 1994/1995, it was being shown without a doubt that benchmarking can provide tremendous leverage. A study by the American Productivity and Quality Center found that more than 30 organizations reported an average of $76 million for the first year payback from their most successful benchmarking project. Among the most experienced benchmarkers, the average payback soared to $189 million. In 1995, Fisher noted that the rapid increase in international competition was the result of technological advancement and access to information, mainly due to the spread of the internet, and stated that: As a result, companies can no longer afford to be inward looking and rely on their own collective, intellectual resources to survive. They must look outside and gather best practices from other companies if they are to remain competitive in a global market. It was argued that global competition, quality awards, and breakthrough improvements were the key drivers for benchmarking . 550 of 1000 total points in the MBNQA are influenced by benchmarking . No other business concept, including process management, empowerment, employee motivation, cycle time reduction, strategic quality planning, new product development, or innovation yields such broad-reaching influence in the MBNQA criteria. By now, benchmarking was becoming acknowledged as one of the most effective techniques for identifying and optimizing opportunities for implementing change to improve competitiveness . A survey conducted by Zairi and Sinclair found that benchmarking as a tool for competitiveness has become widespread and has been used in one way or another by over 60% of the firms across all sectors. Whilst there may be some
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debate about definitions, there is still sufficient evidence to suggest that benchmarking has reached maturity, in usage at least. The question about effectiveness of use is much more complex and little evidence exists to indicate how effectively benchmarking was being applied. It was emphasized that in this realm there was still considerable work left to be done . Still, there was definitely better awareness of the 'art of benchmarking' and its application was spreading to encapsulate various organizational contexts, including non-profit making sectors such as health-care, the Army, and local government agencies, amongst others. Indeed, examples of benefits which may be derived from the use of benchmarking were in abundance, and ranged from cost reductions, time reductions, and quality improvements, to better awareness and new learning . In a 1995 survey of The Benchmarking Exchange members, benchmarking was in the top five most popular business processes on which there is current focus. More than 70% of Fortune 500 companies use benchmarking on a regular basis, including AT&T, Eastman Kodak, Ford Motor, GM, IBM, Weyerhaeuser, and Xerox. Around that same period, the CBI launched a benchmarking program which compared UK manufacturers to a database of over 800 European companies, PROBE (Promoting Business Excellence) . This grew out of the 'Made in Europe' studies and the associated explorations of best practice in the service sectors. In 1998, the Benchmarking Exchange (The Benchmarking Exchange, 1998) reported on the business processes that enjoyed the most focus in benchmarking activities every year. Benchmarking is now well defined as a critical business process that is being continuously improved within most major organizations . Benchmarking is not a policy but a tool to improve performance. It goes beyond competitive analysis, does not simply make comparisons, and is a learning process to promote cultural change. Moreover, through the Internet as well, global alliances for benchmarking are coming together to help spread and share best practices world wide. In 1999, APQC joined forces with the Hong Kong Productivity Council (HKPC) and the Australian Quality Council (AQC) as the first members of this global alliance. Moreover, another initiative was launched in 1997 between APQC and EFQM labeled Best Practices for Global Competitiveness which had profound impacts on spreading and improving the benchmarking concept
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world-wide. It allowed participants to benchmark their organizations on a truly global basis via satellite. Today we see examples of successful benchmarking in all sectors like Health Services, Insurance , Financial Services , Construction, Real Estate Advisors, Banking , Government , Maintenance Management, Higher Education , Brand Management, etc. General consortia or union-lead studies are abundant (mostly involve the building of a database of metrics from across the industry) like the grocery retailers in Canada, Construction in the UK, metalcasting (American Association of Cost Engineers). The practice of benchmarking is expected to gain even more momentum. There is an Obsession' with the tool of benchmarking and the mechanistic aspects of stages and steps involved in conducting successful benchmarking expeditions .
BENCHMARKING METHODOLOGIES
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Choosing the right benchmarking methodology is an essential key in making benchmarking a success. Many organizations have their own guides, success stories, and benchmarking methodologies like AT&T, The Post Office, American Express, Xerox, Schmidt, Alocoa, APQC/IBC, TNT, McKinsey & Company, BBC, Rover Oroup, Texas Instruments, and IBM. Benchmarking at AT&T involves 12 steps, IBM uses 16, Xerox has 10, and Weyerhaeuser has 33. There is nothing magical about the number of steps, the fundamentals are almost identical. After analyzing most of these approaches, Zairi concluded that "most, if not all, of the methodological approaches are preaching the same basic rules of benchmarking, but using different languages," and that "most methodological approaches are based on the Rank Xerox approach, which is considered to be an effective and generic way of conducting benchmarking projects." After conducting a benchmarking study of 14 documented methodologies to benchmarking at the European Centre for TQM, Zairi noted that The International Benchmarking Clearinghouse (IBC) benchmarking methodology came in at number one as it demonstrated better clarity, clearer focus, more logical progression, and completeness .
BEST PRACTICES FOR BENCHMARKING
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As experience with benchmarking applications increased, many realized some common threads in successful benchmarking approaches and efforts. These are considered to be the 'best practices' for successful benchmarking and are presented here from various sources 1. Senior management's strong support for benchmarking. APQC studies revealed that organizations in which senior management vigorously supports benchmarking more consistently gain operational benefits and see higher financial paybacks than do other organizations. Senior managers at Xerox, Digital Equipment Corp., Motorola, GTE, AT&T, Chrysler, AMP, Texas Instruments, Sprint, and other organizations strongly support benchmarking . 2. A culture that generally encouraged teams to seek out and adapt ideas originating outside the organization. Experience proves that many ideas originate not just outside one's own company but also outside one's industry . Adapt, do not adopt. Most best practices will need adapting to another organization. 3. Making a business case (cost/profit projection) before implementing benchmarking findings. 4. Follow up benchmarking projects by measuring the operational and financial results implementation. Such follow up gives senior management the information it needs to judge benchmarking's financial value and relative importance in meeting the organization's strategic objectives. 5. Insist on a formal methodology. It is very important to understand that there are three parts to benchmarking: comparative analysis, new process design, implementation. Benchmarking must include all three parts. Many people claim they are doing benchmarking when all they are really doing is comparative analysis. The message is 'do not set benchmarks, do benchmarking'. 6. Insist on a strict adherence to a Code of Conduct. There should be a clear Code of Conduct for Benchmarking for organizations to follow in order to advance the professionalism and effectiveness of benchmarking, and to protect participating organizations. APQC and EFQM both have their own Code of Conduct. They cover
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legality, confidentiality, information use, preparation and even offer a protocol for the whole process. 7. Clarify the objectives of the study: what needs to be accomplished, which questions must be asked, which areas to look at, etc., i.e. do your homework. 8. Understand your own processes. Choosing the optimal benchmarking partner requires a deep understanding of the process being studied and of the benchmarking process itself. 9. Sources of finding best practices include: published information, annual reports, conferences, professional benchmarking organizations, customers, suppliers, benchmarking databases, professional associations, trade associations, professional journals, magazines, newspapers, exchanges, face-to-face interviews, direct information exchange, groups, intermediaries, site visits.
CONCLUSION
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The benchmarking process is not an easy one. It requires more time and effort than most managers think. There are a series of steps to follow to ensure that the process is successful. The first step is to identify what is to be benchmarked and then determine what firm(s) to benchmark against. They should be a leader or “best in class” in the area that is being benchmarked. The next step is to establish how data will be collected and measured in order for it to be a meaningful comparison. Then, the company should analyze current performance levels and find the gaps between them and the target firm. Future performance levels should also be forecasted so that goals can be set. Next, the benchmark findings should be communicated to everyone concerned in order for them to understand what improvements need to be made. Specific actions should be implemented and progress should be continually monitored to determine whether or not the plan was really effective. The last step is to recalibrate benchmarks to ensure that the firm can react to and keep up with others’ improvements.
REFERENCES
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Books 1. N Sreenivasa Guptha & B Valarmathi, Total Quality Management, (1st edition), Tata McGraw-Hill Education Private Limited, 2009 2. Dr. S.Kumar, Total Quality Management, (1st edition), Laxmi Publications Private Limited,2006 Websites 1. www.productivity.in/knowledgebase/General/Bench Marking/Introduction to Bench Marking.pdf as on date 29/04/2011 2. http://www.beginnersguide.com/quality-control/benchmarking/what-are-thedifferent-types-of-benchmarking.php as on date 29/04/2011 3. http://www.enotes.com/management-encyclopedia/benchmarking as on date29/04/2011
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doc_134659569.doc
INTRODUCTION
The term ‘benchmark’ originally meant a surveyor’s mark out in a rock used as a point of reference. It has come to mean anything taken as a point of reference or comparison. In general sense, therefore, benchmarking mean setting standards which acts as a point of reference. In business, benchmarking has come to mean variety of things. It has assumed a very special significance in today’s competitive world. It is now recognised as an effective approach towards improvement of productivity, quality and other dimensions of performances that are determinants of competitiveness. Benchmarking is one of the many techniques that one can employ to gather management information.
MEANING
Benchmarking is a process or system which allows the comparison of performances between businesses that will produce results or recommendations for improvement to that
1
business. Benchmarking is a valuable process for any business and it needs to be part of the ongoing planning for success of any business. Benchmarking is an important tool for bringing about continuous improvement that is required to survive competitive world of business these days. It is a structured management tool that involves comparison of management process and learning from the others for the further organizational improvement. Not the whole process is to be change but the important and critical processes can be changed according to the need in view of improvement. Benchmarking will be result oriented when approach to the learning is positive and mind of the learner is ready to adopt the changes.
DEFINITION
“Benchmarking is the search for industry best practices that lead to superior performance.” “Bench marking is a tool to help you improve your business process.any business process can be bench marked.” “Bench marking is the process of identifying, understanding, and adapting outstanding practices from organizations anywhere in the world to help your organization improveits performance.”
ORIGIN OF BENCHMARKING
In its general sense, benchmarking has been with operations. us since business has bee in From earlier times, traders have sought to compete by offering better,
cheaper and wide range of products. In order to do this they used to compare with standard norms. After the advent of Industrial revolution, the business processes have
2
become more complex. For measuring the performance of business processes, a whole range of scientifically based methods like operations research, work-study, organisation and methods, statistical quality control etc. were evolved. Even though those methods have sought to measure and promote improvement of performance, they often lacked any external reference or benchmark, thereby making only constant small improvements. These methods could not give a quantum leap in the performance of business processes. Since benchmarking is based on reference (mainly external), the company could recognize the competition which in turn forces the organisation to learn from the best processes and make a quantum leap in their performance to gain competitive advantage.
ROLE OF BENCHMARKING
The role of benchmarking is to provide management with knowledge of what constitutes ‘best performance’ or ‘superior performance’ in a particular field. Best performance relates to output, efficiency, quality and any other measurement relevant to performing the job. Benchmarking not only investigates what best practice means in terms of performance yardsticks but also examine how best practices is achieved. Benchmarking is, therefore, not only the practice of obtaining measurements but also involves understanding the conditions, resources and competence necessary to deliver top
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performance. No individual, team, or operating unit-no matter how creative or prolific can possibly parent all innovation. No single department or company can corner the market on all good ideas. In view of this reality recognizing human limitations, it makes eminently good sense to consider the experience of others. Those who always go it alone are 2 doomed to perennially reinvent the wheel, for they do not learn and benefit from others progress. By systematically studying the best practices and by innovative adaptations an organisation can accelerate the progresses of improvement.
BENCHMARKING AND TOTAL QUALITY MANAGEMENT
Total Quality Management is a long-term commitment to satisfying customer requirements in every aspect of business operations. It is a philosophy, which has been adopted by many organisations who wish to enhance customer satisfaction and thereby increase market share. The basic principle is that individuals are responsible for improving the service they provide to their customers, be it external customers (outside the orgaisations) or internal customers (inside the organisation). Companies who adopt a TQM approach make a commitment to continuous improvement.Often a team approach is adopted under the TQM banner to identify areas of improvement generate and implement solutions. Increasingly, benchmarking is being adopted by organisations that are striving for continuous improvement because it offers an external perspective in the
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quest for service quality. That’s why Benchmarking progammes often take place as part of total quality management.
BENCHMARKING AND BUSINESS PROCESS Re-ENGINEERING
Benchmarking is a tool in the armory of Business Process Re-engineering. Process Benchmarking exposes organisations to state-of-the-art practices, thereby acting as a catalyst for improvements in performance through emulation of best practices. Effective benchmarking cannot take place unless the organisations’ existing process is well understood. Benchmarking and process improvement are therefore fundamentally linked. Re-engineering is “radical redesign of business processes” whereas benchmarking is “finding and implementing best practices”. Through Benchmarking best practices can be unearthed and when these practices form basis for the new design of the process then it is called Re-engineering. Thus Benchmarking is essential to Re-engineering but still a necessary stand-alone tool. The radical re-design of business process is useful for continuous improvement whether it radically affects business processes or not
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BENCHMARKING AND SMALL BUSINESS
Every company is interested in improving its performance and therefore its profitability. It is therefore important to use the system of benchmarking to measure the performance of the business against similar businesses and then bring in to play procedures for improvement. Large companies can obviously afford to carry out benchmarking because of available resources, but sometimes it's much more difficult for the smaller operator. Most small businesses will not look at benchmarking at the start, simply because of a shortage of time, money or other resources and of course others have to be convinced of the value of benchmarking in the operation. Nevertheless, it's good for small businesses to undertake some sort of benchmarking, even if only to compare basic performance and basic processes with other similar businesses in their industry. Benchmarking is very versatile, so to use it to improve product and service processes, as well as customer processes and internal support processes, is of great advantage to the business.
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AREAS TO BENCHMARK
? ? ? ? ? Key business processes Areas of customer dissatisfaction Applications with rapidly changing technology Areas of employee dissatisfaction Processes where overhead exceeds value
BENEFITS OF BENCHMARKING
? ? ? ? ? ? Develop realistic stretch goals and strategic targets Establishes realistic, actionable objectives for implementation Provides a sense of urgency for improvement Encourages striving for excellence, breakthrough thinking and innovation Creates a better understanding of competitors and the dynamics of the industry Emphasises sensitivity to changing customer needs
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STAGES IN BENCHMARKING
There are normally 4 stages to benchmarking: 1. Gathering together information. 2. Comparing the results of that information. 3. Analysing the information fully. 4. Impleme nting strategies to improve.
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1. Gathering Information Benchmarking can assist in the improvement of any business. Benchmarking allows the gathering together of information relating to your business and then measuring that against the results achieved by similar businesses in the marketplace. This results in identifying areas where your business can improve its performance by strengthening its weaknesses and utilising its strengths more. The factual information extracted is easy enough to put together, but there are also other areas, such as customer reaction and satisfaction that are more difficult to gauge or record. In any case, the gathering together of information is the most important first stage of benchmarking.
2. Comparing the Information The data gathered is of no use unless there is a person with experience, able to understand the figures and other data generated. There must be a company or personnel with
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experience, who can look at the information and make sensible comparisons with the results achieved by other businesses. Where there is comparison of database, it is necessary to have knowledge of how to profile your business, especially if you have more than one product or service line.
3. Analysing Information As your business grows and becomes more comfortable with using benchmarking techniques, you will need to learn how to analyse the data. Analysis is far more than just crunching numbers. It involves looking at the variation between your results and the standard results achieved by others in the industry, and then coming to conclusions that will enable the improvement in your operation, as well as your profits. Analysing the trends and understanding these areas is important.
4.Implementing Action to Improve When the benchmarking techniques produce results from your analysis, your business will then have to make a conscious decision of how to bring about the improvement suggested by its conclusions. The information is only a study and it is not strictly benchmarking until you have implemented any changes to your current and past business programmes to achieve more competitiveness and higher growth.
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BENCHMARKING PROCESS
You should not start a benchmarking analysis until you have fully assessed the operations of your own business and understand the function and process of each section that may require assessment. That is, you need to know what you are doing and why you are doing it. Management needs to get together and brainstorm to dissect the performance as well as the nature of the business, because they need to know in detail how their business operates and what areas need attention. Once benchmarking is complete they need to be able to take the information and use it for comparison as well as developing new strategies that the benchmarking report suggests. It is important to know clearly what steps are required to ensure the success of the business. The first step is to ask the following questions: 1. What is your business all about?
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2. What are your most important products? 3. What makes your business different from other competitors? 4. Who are your customers and how do they react to your products and services? 5. What areas are clearly suspect and require a deeper investigation? 6. Are there any processes that are under performing and may need a fresh look for improvement?
The benchmarking steps consists of five phases: 1. Planning. The essential steps are those of any plan development: what, who and how.
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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 it’s a physical good, an order, a shipment, an invoice, a service or a report.
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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.
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How will the data be collected? There’s no one way to conduct benchmarking investigations. There’s an infinite variety of ways to obtain required data – and most of the data you’ll need are readily and publicly available. Recognize that benchmarking is a process not only of deriving quantifiable goals and targets, but
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more importantly, it’s 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.
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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 act—to 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:
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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.
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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
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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:
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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?
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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.
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Benchmarking process steps
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TYPES OF BENCHMARKING
Most companies do not know how benchmarking can be used as a management tool to improve their performance. Also, the amount of information obtained through benchmarking is sometimes hard to digest. Any company new to benchmarking usually needs to carry out some research first to understand their business totally and how they operate. Once they can isolate the issues they need to address, they can move on to use a benchmarking system. There are basically 9 types of benchmarking: 1. Diagnostic Benchmarking - Diagnostic benchmarking looks at areas in the company that the director's suspect requires a wider assessment. 2. Holistic Benchmarking - Holistic benchmarking simply provides a set of indicators, which allows a company to measure its results and compare its performances against a pre-determined framework. This easily isolates areas that appear to be performing below par and to which the business can focus its attention for improvement. 3. ProcessBenchmarking - Process benchmarking should start once the analysis has been completed and looks in detail at areas of the business and compares them against other businesses in the industry. The business can compare its process performance against companies in the same sector, but in some situations it is best to do the comparisons outside of the sector. 4. Stratagic Benchmarking - Strategic benchmarking is used to improve overall performance by examining the long-term strategies and approaches that have enabled great performers to succeed. It involves considering core competencies, developing new products and services; changing the balance of activities; and improving capabilities for dealing with changes in the background environment. 5. Competitive Benchmarking Competitive benchmarking is used when
organizations consider their positions in relation to performance characteristics of
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vital products and services. Benchmarking partners are drawn from the same segment. 6. Functional Benchmarking – Functional benchmarking is used when
organizations look to benchmark with partners from different business areas of activity in order to find ways of improving like functions or work processes. 7. Internal Benchmarking - Internal benchmarking seeks partners from within the same organization. The main advantages of internal benchmarking are that sensitive data and information is more accessible, general data is readily available, and less time and resources are needed. 8. External Benchmarking - External benchmarking seeks outside organizations that are known to be best in their field. External benchmarking provides the chance to learn from those who are known to be best in class, although it is important to remember that not every best practice solution can be adopted by others. 9. International Benchmarking - International benchmarking seeks partners from other countries because the best organizations are located in other parts of the world or there are too few benchmarking partners within the same country to produce valid results.
PROS AND CONS OF BENCHMARKING
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Benchmarking goes beyond competitive analysis to understanding the competitor’s output and process of obtaining the output. The advantages of benchmarking include enabling organizations to outperform competitors, opening minds to new ideas, and placing organizations in a continuous improvement mode. Benchmarking is the systematic process of comparing business processes and performance metrics to industry best practices in terms of quality, time, and cost dimensions, and making such comparisons the basis to do things better, faster, and cheaper. First introduced by Xerox Corporation in the mid-1990s, benchmarking is a key tool of business performance management and finds use by enhancing the competitiveness of the organization. It enables organizations to outperform competitors, opens minds to ideas from new sources, and places the organization in a continuous improvement mode. It goes beyond competitive analysis to understanding not just the competitor’s output, but also the process of obtaining such output.
Performance Improvement
A primary advantage of benchmarking is that it sets the foundation of performance improvement aimed at enhancing competitiveness. By showing how to better competitors, benchmarking ensures the basic survival of the business. Benchmarking identifies best practices in key business processes and determines what constitutes superior performance. It then quantifies the gap between the expected performance and the actual state; in the process it drives home uncomfortable facts and harsh realities about the business. This provides the organization with both the reason to improve and a definition of what constitutes improvement.
New Paradigms
A permanent benchmarking program forces organizations out of their comfort zones and provides specific and measurable short-term improvement plans based on current reality rather than historical performance. 18
Very often, organizations set goals based on past trends and established internal patterns. Benchmarking helps remove such “paradigm blindness” and forces the organization to take a fresh approach to goal setting based on a broader perspective, including the external perspective, the most critical factor that drives customer expectations.
Change
Benchmarking help place organizational focus on change and provides the direction for the change process. Benchmark heralds change by: 1. Making explicit the competitors' standards that provide the organization with minimum standards of excellence. 2. Providing new ideas and better ways of doing things. Benchmarking opens minds to new ideas, heralding a process of continuous learning that leads to a learning organization.
Disadvantages
A major limitation of benchmarking is that while it helps organizations in measuring the efficiency of their operational metrics, it remains inadequate to measure the overall effectiveness of such metrics. Benchmarking reveals the standards attained by competitors but does not consider the circumstances under which the competitors attained such standards. If the competitor’s goals and visions were flawed or severely restricted due to some specific factor, an organization by benchmarking such standards runs the risk of trying to ape such flawed standards or settling for extremely low standards. A bigger disadvantage of benchmarking is the danger of complacency and arrogance. Many organizations tend to relax after excelling beyond competitors' standards, allowing complacency to develop. The realization of having become the industry leader soon leads to arrogance, when considerable scope for further improvements remains.
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Finally, many organizations make the mistake of undertaking benchmarking as a standalone activity. Benchmarking is only a means to an end, and it is worthless if not accompanied by a plan to change. Comparing the pros and cons of benchmarking, the advantages of benchmarking overshadow disadvantages. The 2008 Global Benchmarking Network survey finds organizations preferring benchmarking over any other performance analysis tools, including SWOT. Most organizations include benchmarking as a part of continuous improvement initiatives such as Total Quality Management and Six Sigma.
BENCHMARKING EVOLUTION
A lot of commentators have suggested a variety of origins of the concept of benchmarking. However, it was not until Xerox started using a process of learning from
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its Japanese partner in the late 1970s and early 1980s that the modern concept gained prominence. Benchmarking was pioneered in the 70s when Xerox saw its market share plummet as a result of Japanese competition (Japanese copiers were 10 times cheaper). Rather than seek protection or go to drastic cost reduction, Xerox benchmarked the Japanese, adapted their processes and survived and thrived in the copier business. Having succeeded at that, Xerox realized this approach need not be restricted to the manufacturing area nor to competitors, and so started looking at the best-in-class companies to learn how they undertook different processes. For the next ten years most of the efforts in benchmarking focused on trying to overcome the 'apples and pears' issues of comparability. It is only in recent years that companies have recognized that focusing simply on performance measures and metrics leads to frustration because even if the 'apples and pears' issues are resolved it is not clear as to how the leading performer achieves that performance. Benchmarking concepts started to grow and organizations started taking notice all over the Western World. In 1991, a study in the UK revealed that: Best practice benchmarking is little known as a management technique in Britain, and a general lack of awareness was revealed by the survey. However, interest was growing rapidly and benchmarking uses were becoming more widespread and varied. The survey also revealed that most UK organizations who do undertake benchmarking are still following internal benchmarking or external competitor benchmarking. Very few were found to undertake best practice benchmarking (any sector). In the same year, APQC created an 'International Benchmarking Clearinghouse' whose main purpose was to help individuals and organizations (in any nation) to benchmark more efficiently and effectively. Similarly, EFQM launched its 'best practice benchmarking program' . These steps were some sort of official recognition of the powerful potential of benchmarking, and were indicators that the concept has developed into a clear methodology throughout the 80's. However, although the main concept seemed to spread, the proper methodology still seemed to pose problems for many. In 1992, Grayson noted that "Even though benchmarking is now being recognized as the
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key to increased competitive edge, many companies are still confused as to how, why and whom to benchmark." This was stressed by Holligns who noted that: Benchmarking is one of those terms that is becoming part of normal management language. No longer is it a term familiar only to TQM 'experts.' However, it is still greatly misunderstood. Many organizations think that they are benchmarking when, in reality, they are simply assessing performance - either their own or some other organization's. So it is clear that benchmarking was becoming a very 'hot' management topic in the early 90's. That period also witnessed a boom in other management topics like 'TQM', 'BPR', and naturally researchers started questioning their relation to benchmarking. Saxl asked the question, how does benchmarking relate to other programs? Is it part of TQM, complementary, replacement? Up to this time, i.e. 1992, all benchmarking seemed to have relied on various sources for information from literature, case studies, interviews, site visits, and so on . Networking is probably the only one missing and was brought about by the power of the net in a later period. However, although the 'tools' for gathering benchmarking data have seemingly reached a mature level by then, still from the literature available, there seemed to be more focus on detecting the best measures rather than on studying and adapting the best practices that created them. For example, Wilkerson et al.still discussed benchmarking as a primarily measurement tool to help establish goals. In 1993, the growth and maturity of benchmarking were still on the rise but remained under to most followers. Price Waterhouse conducted a study then that revealed that "fewer than 30% of out top 200 companies carry out benchmarking as a regular management activity. Of these, 60% looked only within their industry . Another study in the USA suggested that "79% of CEOs recognized that benchmarking is critical, but 95% of them claimed they are not sure how to go about it". Still, with this boom in awareness, the study concluded that "Benchmarking will continue for many companies to become a regular management process." It also stresses that the methodology was becoming more focused:
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Benchmarking is about improving competitive position, and using 'best practice' to stimulate radical innovation rather than seeking minor, incremental improvements on historic performance. On the technical side, it was noted that the significant increase in the popularity of benchmarking has also seen a shift in its emphasis. While in the past it may have been the case to benchmark a product's tangible features, now it is more likely to major on value and business process. By the year 1994/1995, it was being shown without a doubt that benchmarking can provide tremendous leverage. A study by the American Productivity and Quality Center found that more than 30 organizations reported an average of $76 million for the first year payback from their most successful benchmarking project. Among the most experienced benchmarkers, the average payback soared to $189 million. In 1995, Fisher noted that the rapid increase in international competition was the result of technological advancement and access to information, mainly due to the spread of the internet, and stated that: As a result, companies can no longer afford to be inward looking and rely on their own collective, intellectual resources to survive. They must look outside and gather best practices from other companies if they are to remain competitive in a global market. It was argued that global competition, quality awards, and breakthrough improvements were the key drivers for benchmarking . 550 of 1000 total points in the MBNQA are influenced by benchmarking . No other business concept, including process management, empowerment, employee motivation, cycle time reduction, strategic quality planning, new product development, or innovation yields such broad-reaching influence in the MBNQA criteria. By now, benchmarking was becoming acknowledged as one of the most effective techniques for identifying and optimizing opportunities for implementing change to improve competitiveness . A survey conducted by Zairi and Sinclair found that benchmarking as a tool for competitiveness has become widespread and has been used in one way or another by over 60% of the firms across all sectors. Whilst there may be some
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debate about definitions, there is still sufficient evidence to suggest that benchmarking has reached maturity, in usage at least. The question about effectiveness of use is much more complex and little evidence exists to indicate how effectively benchmarking was being applied. It was emphasized that in this realm there was still considerable work left to be done . Still, there was definitely better awareness of the 'art of benchmarking' and its application was spreading to encapsulate various organizational contexts, including non-profit making sectors such as health-care, the Army, and local government agencies, amongst others. Indeed, examples of benefits which may be derived from the use of benchmarking were in abundance, and ranged from cost reductions, time reductions, and quality improvements, to better awareness and new learning . In a 1995 survey of The Benchmarking Exchange members, benchmarking was in the top five most popular business processes on which there is current focus. More than 70% of Fortune 500 companies use benchmarking on a regular basis, including AT&T, Eastman Kodak, Ford Motor, GM, IBM, Weyerhaeuser, and Xerox. Around that same period, the CBI launched a benchmarking program which compared UK manufacturers to a database of over 800 European companies, PROBE (Promoting Business Excellence) . This grew out of the 'Made in Europe' studies and the associated explorations of best practice in the service sectors. In 1998, the Benchmarking Exchange (The Benchmarking Exchange, 1998) reported on the business processes that enjoyed the most focus in benchmarking activities every year. Benchmarking is now well defined as a critical business process that is being continuously improved within most major organizations . Benchmarking is not a policy but a tool to improve performance. It goes beyond competitive analysis, does not simply make comparisons, and is a learning process to promote cultural change. Moreover, through the Internet as well, global alliances for benchmarking are coming together to help spread and share best practices world wide. In 1999, APQC joined forces with the Hong Kong Productivity Council (HKPC) and the Australian Quality Council (AQC) as the first members of this global alliance. Moreover, another initiative was launched in 1997 between APQC and EFQM labeled Best Practices for Global Competitiveness which had profound impacts on spreading and improving the benchmarking concept
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world-wide. It allowed participants to benchmark their organizations on a truly global basis via satellite. Today we see examples of successful benchmarking in all sectors like Health Services, Insurance , Financial Services , Construction, Real Estate Advisors, Banking , Government , Maintenance Management, Higher Education , Brand Management, etc. General consortia or union-lead studies are abundant (mostly involve the building of a database of metrics from across the industry) like the grocery retailers in Canada, Construction in the UK, metalcasting (American Association of Cost Engineers). The practice of benchmarking is expected to gain even more momentum. There is an Obsession' with the tool of benchmarking and the mechanistic aspects of stages and steps involved in conducting successful benchmarking expeditions .
BENCHMARKING METHODOLOGIES
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Choosing the right benchmarking methodology is an essential key in making benchmarking a success. Many organizations have their own guides, success stories, and benchmarking methodologies like AT&T, The Post Office, American Express, Xerox, Schmidt, Alocoa, APQC/IBC, TNT, McKinsey & Company, BBC, Rover Oroup, Texas Instruments, and IBM. Benchmarking at AT&T involves 12 steps, IBM uses 16, Xerox has 10, and Weyerhaeuser has 33. There is nothing magical about the number of steps, the fundamentals are almost identical. After analyzing most of these approaches, Zairi concluded that "most, if not all, of the methodological approaches are preaching the same basic rules of benchmarking, but using different languages," and that "most methodological approaches are based on the Rank Xerox approach, which is considered to be an effective and generic way of conducting benchmarking projects." After conducting a benchmarking study of 14 documented methodologies to benchmarking at the European Centre for TQM, Zairi noted that The International Benchmarking Clearinghouse (IBC) benchmarking methodology came in at number one as it demonstrated better clarity, clearer focus, more logical progression, and completeness .
BEST PRACTICES FOR BENCHMARKING
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As experience with benchmarking applications increased, many realized some common threads in successful benchmarking approaches and efforts. These are considered to be the 'best practices' for successful benchmarking and are presented here from various sources 1. Senior management's strong support for benchmarking. APQC studies revealed that organizations in which senior management vigorously supports benchmarking more consistently gain operational benefits and see higher financial paybacks than do other organizations. Senior managers at Xerox, Digital Equipment Corp., Motorola, GTE, AT&T, Chrysler, AMP, Texas Instruments, Sprint, and other organizations strongly support benchmarking . 2. A culture that generally encouraged teams to seek out and adapt ideas originating outside the organization. Experience proves that many ideas originate not just outside one's own company but also outside one's industry . Adapt, do not adopt. Most best practices will need adapting to another organization. 3. Making a business case (cost/profit projection) before implementing benchmarking findings. 4. Follow up benchmarking projects by measuring the operational and financial results implementation. Such follow up gives senior management the information it needs to judge benchmarking's financial value and relative importance in meeting the organization's strategic objectives. 5. Insist on a formal methodology. It is very important to understand that there are three parts to benchmarking: comparative analysis, new process design, implementation. Benchmarking must include all three parts. Many people claim they are doing benchmarking when all they are really doing is comparative analysis. The message is 'do not set benchmarks, do benchmarking'. 6. Insist on a strict adherence to a Code of Conduct. There should be a clear Code of Conduct for Benchmarking for organizations to follow in order to advance the professionalism and effectiveness of benchmarking, and to protect participating organizations. APQC and EFQM both have their own Code of Conduct. They cover
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legality, confidentiality, information use, preparation and even offer a protocol for the whole process. 7. Clarify the objectives of the study: what needs to be accomplished, which questions must be asked, which areas to look at, etc., i.e. do your homework. 8. Understand your own processes. Choosing the optimal benchmarking partner requires a deep understanding of the process being studied and of the benchmarking process itself. 9. Sources of finding best practices include: published information, annual reports, conferences, professional benchmarking organizations, customers, suppliers, benchmarking databases, professional associations, trade associations, professional journals, magazines, newspapers, exchanges, face-to-face interviews, direct information exchange, groups, intermediaries, site visits.
CONCLUSION
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The benchmarking process is not an easy one. It requires more time and effort than most managers think. There are a series of steps to follow to ensure that the process is successful. The first step is to identify what is to be benchmarked and then determine what firm(s) to benchmark against. They should be a leader or “best in class” in the area that is being benchmarked. The next step is to establish how data will be collected and measured in order for it to be a meaningful comparison. Then, the company should analyze current performance levels and find the gaps between them and the target firm. Future performance levels should also be forecasted so that goals can be set. Next, the benchmark findings should be communicated to everyone concerned in order for them to understand what improvements need to be made. Specific actions should be implemented and progress should be continually monitored to determine whether or not the plan was really effective. The last step is to recalibrate benchmarks to ensure that the firm can react to and keep up with others’ improvements.
REFERENCES
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Books 1. N Sreenivasa Guptha & B Valarmathi, Total Quality Management, (1st edition), Tata McGraw-Hill Education Private Limited, 2009 2. Dr. S.Kumar, Total Quality Management, (1st edition), Laxmi Publications Private Limited,2006 Websites 1. www.productivity.in/knowledgebase/General/Bench Marking/Introduction to Bench Marking.pdf as on date 29/04/2011 2. http://www.beginnersguide.com/quality-control/benchmarking/what-are-thedifferent-types-of-benchmarking.php as on date 29/04/2011 3. http://www.enotes.com/management-encyclopedia/benchmarking as on date29/04/2011
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