Many organisations, regardless of size and structure, will seek to benchmark themselves. Benchmarking helps with improving processes, approaches and technologies to reduce costs, increase profits and strengthen customer loyalty and satisfaction.  Benchmarking is an important component of continuous improvement and in supporting quality initiatives within an organisation.

Benchmarking can be applied against any product, process, function or approach in an organisation. Some key areas often include measures of time, quality, cost and effectiveness and customer satisfaction.  In seeking best practice, an organisation can compare inside their own industry sector or examine other industries.

In this article, we review benchmarking and how it can be used to support change and innovation within an organisation.

 

Why should your firm benchmark?

Organisations benchmark to both improve individual areas of their organisation and to monitor competitor’s shifting strategies and approaches. Regardless of the motivation, cultivating an external view of your industry and your competitors is critical to maintain relevance in this rapidly changing world.

Here are some drivers of benchmarking initiatives:

  • The most common benchmarking driver is an internal perspective that a process or approach can be improved. Every organisation collects data on their own performance at different times and in differing circumstances and uses this information to identify gaps or areas for strengthening.
  • Commonly, organisations compare themselves to competitors.  This is done to identify and eliminate gaps in service or product delivery or often to gain a competitive advantage and gives insights into a competitor’s processes and thinking.
  • Sometimes, benchmarking is carried out when an organisation is interested in comparing its performance against best practice (the best-in-class or world-class performance). This approach often called strategic benchmarking, extends an organisation’s view outside its core industry to other organisations well-known for their success with a particular product, approach or process.

What are the different types of benchmarking?

The following table provides a summary of the different types of benchmarking and some of their characteristics:

Benchmarking approach Characteristics
Strategic benchmarking

For re-aligning organisation strategies that have become obsolete or no longer relevant

·         when wanting to improve overall performance, strategic benchmarking examines the long-term strategies and general approaches that have enabled high-performers to succeed

·         considering high level aspects such as core competencies, developing new products and services, and improving capabilities for dealing with changes in the external environment

·         changes resulting from this type of benchmarking take time to implement and require considerable leadership investment

Performance or competitive benchmarking

For assessing the relative level of performance in key areas or activities in comparison with others in the same sector, and finding ways of closing gaps in performance.

·         when assessing a position in relation to performance characteristics of key products and services

·         benchmarking is conducted in the same industry sector

·         this type of analysis can be undertaken through trade associations or third parties to protect confidentiality

Process benchmarking

For achieving improvements in key processes to obtain quick benefits

·         the focus is on improving specific critical processes and operations

·         often benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services

·         this involves producing process maps to facilitate comparison and analysis

·         best applied for short term benefits

Functional benchmarking

For improving activities or services within and where there are no direct competitors

·         benchmarking with partners drawn from different organisation sectors or areas of activity to find ways of improving similar functions or work processes

·         most commonly leads to innovation and dramatic improvements

 

Internal benchmarking

For spreading good practices within an organisation and often quickly

·         commonly involves benchmarking operations from within the same organisation, such as different organisation units in different cities or even countries

·         main advantages of internal benchmarking are:

o    access to sensitive data and information is easier

o    standardised data is often readily available and

o    usually, less time and fewer resources are needed

·         there are fewer barriers to implementation owing to easy transfer of practices across the same organisation.

·         often, real innovation may be lacking; best practice performance is more likely to be found through external benchmarking

External benchmarking

For considering examples of good practices found in other organisations and where there may be a lack of good practice within internal organisation units

 

·         this involves reviewing and analysing external organisations known to be best practice/best in class

·         allows opportunities of learning from other considered to be “leading edge”

·         commonly consumes significant time and resources to ensure the comparability and credibility of data and information gathered and development of sound recommendations for adoption

International benchmarking

Similar to strategic benchmarking

·         best practices are identified and analysed elsewhere in the world

·         globalisation and improvements in information technology are increasing opportunities for international projects. These can be expensive and time demanding warranting careful analysis prior to implementation

How do I go about benchmarking?

Benchmarking is a process of looking outward (outside your own function, your own organisation, industry, even region or country) to review how other businesses and organisations achieve their performance levels and to understand the processes they use.  This can be a whole of business or part of business approach depending on perceived needs within the organisation seeking to improve.

Benchmarking involves four key steps:

  1. Gaining a detailed understanding of the existing organisation processes
  2. Review and analyse the organisation processes of other organisations
  3. Compare own organisation performance with that of others analysed
  4. Implement the steps considered to be necessary to close identified performance gaps

Benchmarking should not be a one-off exercise; it is much better to be an integral part of an ongoing improvement process, the goal being to maintain some form of parity with ever-improving best practice.

What is a simple example of benchmarking?

A firm interested in improving their customer service practices might compare their own processes and metrics against those of their most successful competitor.

If they identify negative discrepancies or differences in measures, they may embark upon process improvement to strengthen their performance. The firm will observe and measure the competitor’s operations and will most likely send in their own employees as customers to gain direct experience and to report back their findings.

Following this, the firm would then set about acting to close any performance gaps and consider innovative ideas and approaches to even further enhance performance.  Regardless of the outcomes, ongoing review becomes necessary to ensure the benchmarking has achieved its goals towards improvement.

Summary

Benchmarking is powerful tool in supporting continuous improvement in your organisation. Whilst internal benchmarking can lead to improvements in efficiency and inherent cost savings, more effective benchmarking with leading competitors or leading innovators. In developing strategies to benchmark and to then apply the resultant data following analysis, initially defining the benchmarking initiatives deliberately and scientifically, is quite critical to avoid misleading outcomes of information gathered and poor implementation and limited improvements being made.

Needing help?

For benchmarking to be most effective, it is important to ensure planning and review stages are established before embarking on reviewing the performance of other organisational functions or external organisations.

If you would like assistance in assessing and implementing benchmarking strategies and innovation practices, please contact hranywhere, part of AB Phillips Pty Ltd, Monday to Friday between 9:00 am and 5:00 pm AEST by phone on 1300 208 828 or by email hrondemand@hranywhere.com

Please note that the above information is provided as comment and should not be relied on as a substitute for detailed professional advice from hranywhere or professional legal or financial advice on any particular matter. Where you would like additional information and support about the content in this document please contact hranywhere.