Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests or best practices from other companies. Dimensions typically measured are quality, time and cost. In the process of best practice benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compares the results and processes of those studied (the “targets”) to one’s own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful.
Benchmarking is used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.
Also referred to as “best practice benchmarking” or “process benchmarking”, this process is used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice companies’ processes, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to improve their practices.
The Xerox approach to benchmarking is as
Planning
- Identify what is to be benchmarked.
- Identify comparative companies.
- Determine the data collection method and collect data.
Analysis
- Determine current performance ‘gap’.
- Project future performance levels.
Integration
- Communicate benchmark findings and gain acceptance.
- Establish functional goals.
Action
- Develop action plans.
- Implement specific actions and monitor progress.
- Recalculate benchmarks.
Maturity
- Leadership position attained.
- Practices fully integrated into processes.
The following are some of the formal benchmarking systems
- Quality function deployment (QFD) – This benchmarking approach has been developed by Japanese managers. It takes the customer’s requirements as the starting point and aims to improve performance by converting customers’ perceptions of suppliers’ performance into an improvement agenda.
- ISO 9004 – As part of the ISO 9000 series of quality management frameworks, ISO 9004 provides a framework of constant comparison for any type of business.
- The Malcolm Baldridge National Quality Award benchmarking framework – This is an award for quality awareness started in 1987 in the United States. The framework is based on four basic elements of, role of senior managers in promoting quality excellence, the processes used to achieve the objectives of the organization, quality achievements and customer satisfaction.
