BENCHMARKING

BENCHMARKING

Submitted by: Areeba Mushtaq

Date : 12th September 2013

BENCHMARKING

Introduction: Benchmarking is a process by which you can find answers to questions regarding the performance ofyour business, such as how your business is doing compared to other businesses, whether you are gauging your performance based on the most appropriate measures, and whether you are using the best practices. By means of benchmarking, you can collectdata that will help you answer these questions, and that will show you what you can achieve and how you can achieve it. Benchmarking is a systematic and ongoing process of identifying and understanding the best practices and processes of other businesses and organizations, in order to adapt and use them in your own business, to improve your performance. It is a continuous learning process, starting with what is happening around you and extending to the best practices in all parts of the world. The idea behind benchmarking consists of defining specific performance standards in areas such as production costs, cycle times, and the prices charged. In its beginnings, benchmarking was used as a means of systematizing information related to competitors in a certain sector of an industry, but it soon became obvious that benchmarking could be used only not only to understand and compare with competitors, but also to understand the behavior of any organization, including those in other industries, whether large or small, public or private, local or global.

1. BENCHMARKINGBenchmarking is a popular method for developing requirements and setting goals. In more conventional terms, benchmarking can be defined as measuring your performance against that of best-in-class companies, determining how the best-in-class achieve those performance levels, and using the information as the basis for your own companys targets, strategies, and implementation. Benchmarking involves research into the best practices at the industry, firm, or process level.Benchmarking goes beyond a determination of the"industry standard." It breaks the firms activities down to process operations and looks for the best-in-class for a particular operation. For example, Xerox corporation studied the retailer LL Bean to help them improve their parts distribution process. Benchmarking goes beyond the mere setting of goals. It focuses on practices thatproduce superior performance. Benchmarking involves setting up partnerships that allow both parties to learn from one another. Competitors can also engage in benchmarking, providing they avoid proprietary issues. Benchmarking projects are like any other major project. Benchmarking must have a structured methodology to ensure successful completion of thorough and accurate investigations. However, it must be flexible to incorporate new and innovative ways of assembling difficult-to-obtain information. It is a discovery process and a learning experience.

Types of BenchmarkingProcess 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 aconsideration.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 industryspecific meaning it is best to look at other industries.Functional benchmarking - a company will focus its benchmarking on a single function in order 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.

PROCEDUREThere is no single benchmarking process that has been universally adopted. The wide appeal and acceptance of benchmarking has led to various benchmarking methodologies emerging. The most prominent methodology is the 12 stage methodology by RobertCamp (who wrote the first book on benchmarking in 1989) .The 12 stage methodology consisted of 1. Select subject ahead 2. Define the process 3. Identify potential Partners4. Identify data sources5. Collect data andselect partners 6. Determine the gap7. Establish process differences 8. Target future performance 9.Communicate 10. Adjust goal 11. Implement 12.Review/recalibrate. The following is an example of atypical shorter version of the methodology:

1.Identify your problem areas Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include: informal conversations withcustomers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depthmarketing research, quantitative research, surveys, questionnaires, re-engineering analysis, processmapping, quality control variance reports, or financial ratio analysis. Before embarking on comparison with other organizations it is essential that you know your own organization's function, processes; base lining performance provides a point against which improvement effort can be measured.2.Identify other industries that have similar processes - For instance if one were interested in improving hand offs in addiction treatment he/she would try to identify other fields that also have hand off challenges. These could include air traffic control, cell phone switching between towers, transfer of patients from surgery to recovery rooms.3.Identify organizations that are leaders in these areas - Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study.4.Survey companies for measures and practices - Companies target specific business processes using detailed surveys of measures and practices used to identify business process alternatives and leading companies. Surveys are typically masked to protect confidential data by neutral associations and consultants.5.Visit the "best practice" companies to identify leading edge practices - Companies typically agree to mutually exchange information beneficial to all parties in a benchmarking group and share the results within the group.6.Implement new and improved business practices - Take the leading edge practices and developimplementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.

ASPECTS OF BENCHMARKINGWhy Benchmark?Benchmarking is practiced: As an enabler for achieving and maintaining high levels of competitiveness. As a measurement of business performance against the best of the best through a continuous effort of constantly reviewing processes and methods. As a process which can characterized by a standard and variables. As a continuous process of measuring products, services and business practices against the toughest competitors and those organizations recognized as industry leaders. To emulate the by continuously implementing change and measuring performance.

2.2. The Benefits Of BenchmarkingThe benefits of competitive benchmarking include: Creating a culture that values continuous improvement to achieve excellence. Enhancing creativity by devaluing the notinvented- here syndrome. Increasing sensitivity to changes in the external environment. Shifting the corporate mind-set from relative complacency to a strong sense of urgency for ongoing improvement. Focusing resources through performance targets set with employee input. Prioritizing the areas that need improvement. Sharing the best practices between benchmarking partners.2.3. Some Dangers Of BenchmarkingBenchmarking is based on learning from others, rather than developing new and improved approaches. Since the process being studied is there for all to see, a firm will find that benchmarking cannot give them a sustained competitive advantage. Although helpful, benchmarking should never be the primary strategy for improvement. Competitive analysis is an approach to goal setting used by many firms. This approach is essentially benchmarking confined to ones own industry. Although common, competitive analysis virtually guarantees second-rate quality because the firm will always be following their competition. If the entire industry employs the approach it will lead to stagnation for the entire industry, setting them up for eventual replacement by outside innovators.