Benchmarking
Benchmarking is a strategic management practice that allows organizations to compare their processes and performance against industry leaders or competitors to identify areas for improvement. Originating in the 1970s at Xerox Corporation, benchmarking involves a systematic approach where organizations define key performance indicators, collect and analyze data, and adapt superior practices to enhance their own operations. This practice not only aims to improve efficiency and performance but also seeks to foster innovation, gain strategic advantages, and expand organizational knowledge.
Different types of benchmarking exist, including internal, competitive, and functional benchmarking. Internal benchmarking focuses on performance comparisons within different departments of the same organization, while competitive benchmarking assesses performance against direct competitors or industry leaders. Functional benchmarking compares specific processes or functions with "best-in-class" organizations, even if they operate in different industries. Successful benchmarking requires ongoing feedback and follow-up to ensure sustainable improvements, rather than a one-time application of learned practices. With various software tools available, benchmarking has become more accessible for managers seeking to enhance their organizational processes.
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Benchmarking
In the discipline of management, the practice of benchmarking was developed by Xerox Corporation in the 1970s as a way to identify models of superior performance and to understand the processes driving that performance. Properly used, benchmarking may improve a firm’s performance by finding superior practices in order to apply them to various types of operations and processes, from production to sales. When managers identify a superior practice, either internally or externally, they use it to compare the performance of their own processes or products. A firm or department may improve its performance by adapting these practices to its own operations, innovating in the process. Among the goals that companies may have when using benchmarking are improving performance and efficiency, gaining strategic advantages or market share, innovating, increasing organizational knowledge, and understanding relative costs.
Overview
Benchmarking is both a strategy and a management tool. It serves as a reference point by which organizations can compare its practices against others’. In general, benchmarking is a systemic, continuous practice that works by following a series of steps. First, the benchmarker must choose a type of benchmarking to pursue and who will be involved; select a product or process to benchmark; and identify its key performance indicators. Next, they must collect data from both the benchmarker and the industry leader or competitor; analyze the data acquired; and identify areas for improvement. Once that is done, the benchmarker should report their findings; share best practices with others, if appropriate; make strategic plans to adapt and implement best practices according to their needs and circumstances; and finally, execute those plans.
Benchmarking, in short, consists of taking as a reference the best and adapting their methods or strategies, always within legal and ethical standards. To be sustainable, benchmarking should include consistent follow-up and feedback, rather than a one-time application of practices learned from industry leaders and competitors. On the other hand, sometimes benchmarking may be used very specifically to boost one particular aspect in need of improvement.
Different types of benchmarking include internal, competitive, and functional, among others. Internal benchmarking examines performance across divisions and departments or over time, making it easier, faster, and less costly to gather data and measure performance. Competitive benchmarking is most commonly used when intense, direct competition exists between firms; it can also be done with market leaders in the same industry. While data on specific competitor results may be obtainable, it may be impossible to learn the drivers behind them. By contrast, functional benchmarking may consist of comparing one facet, such as sales, to that of a "best-in-class" firm or organization belonging to a different industry or a noncompetitor. Consequently, the leader may more willingly offer information to the benchmarker. Many software tools and methods exist to make the complex statistical processes behind benchmarking achievable for most human resource managers.
Bibliography
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Zairi, Mohamed, and Paul Leonard. Practical Benchmarking: The Complete Guide. Springer, 1996.