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© Farrukh Idrees <shadrees@gmail.com> 1
Benchmarking for Competitive Advantage – Process vs. Performance Benchmarking forFinancial Results
Farrukh IdreesFellow of the University of Bradford, U.K.Pakistanshadrees@gmail.com
Abstract
This paper responds to call in literature to advance research into benchmarking narratives for holistic Competitive Advantage (CA)by acknowledging the areas of weakness in presenting a comprehensive role of benchmarking for CA; Defending better contributionof process benchmarking for gaining financial excellence as compared to the role of performance one. Key benchmarking roles for gaining CA in an organisation are identified through cross industrial literature review to making better focus of benchmarkingefforts. Benchmarking definition with common pitfalls is clarified along with a recommended general implementation methodology.Pre and post impact of benchmarking on performance of different organisations is mentioned. Its role for CA has been put forward under two sections A) General benchmarking role in three perspectives i.e. Knowledge sharing, facilitating appraisal process and usage of excellence models are presented. B) Role of process benchmarking is compared with performance one towards CA through financial results. Research can be used in multi dimensions; Alignment of company’s benchmarking strategy with it's corporate one for organisational cohesiveness; Customised scorecard with specific measures can be derived for performance monitoring of thestrategy; Process benchmarking is recommended to generate better financial results; A customer oriented company can bedeveloped by keeping in view their (customer's) importance in developing and deploying the strategy; Roles of benchmarking modelsare generic and cross industrially applicable. Further research can be done to identify its organisational level, industry, size &sector (public or private) specific role/benefits/methodology. Too, specific relationship/ weightage can be developed amongvariables of roles of benchmarking models.
Key Words:
 
Benchmarking, Competitive Advantage, Process Benchmarking, Performance Benchmarking.
Introduction
:
Companies are becoming more performance oriented in this dynamic environment as Mukherjee et. al.(2002) say that performance challenges and the need to be cost effective are apparent through out the world. Ho et.al. (2006)say, “Choosing a viable method for effective evaluation of performance is not an easy task. There is a substantial body of literature discussing different research methods applied to performance evaluation. These methods include: multivariatestatistical analysis; balanced scorecard; data envelopment analysis; analytic hierarchy process; fuzzy set theory and financialstatement analysis (FSA).” Too, a lot of literature defends other methods of performance measurement e.g. grey relationanalysis (GRA) (Tsai, 2000); performance prism (Pursglove, 2007); Activity Based Management, TQM, SPC, DOE, JIT(Kumar et.al. 2001); Data Envelopment Analysis (DEA) (Mukherjee et.al. 2002)”. Wong et.al. (2008) has divided theperformance data analysis techniques in to parametric (e.g. simple/multiple regression analysis etc.) and non parametric ones(e.g. BSC, DEA etc.). However, regardless of approach, the strength of performance management systems lies in domains of strategic and change management (Ho et.al. 2006). Welch et.al. (2001) say that over the last ten years benchmarking,excellence and performance improvement have become important to those organisations perusing performance improvement.This study is about benchmarking based performance excellence in an organisation.Pfeffer says that CA is some thing that “distinguishing an organisation from their competitors; provides positiveeconomic benefits, is not readily duplicated (Pfeffer 1994). Massa et.al. (2004) implies that it is an outcome of particular mixof tangible and intangible assets, to which the firm has access. CA has been taken more or less around these definitions in thispiece of work.As managers seek new ways to compete in market, one technique that has made headlines in the management community isbenchmarking (Bagchi 1997). Kearns says that in order to have a competitive edge over others, more and more companiesare starting to assess their performance. Among the processes used, benchmarking seems to be, if one judges its results in
 
© Farrukh Idrees <shadrees@gmail.com> 2
many US and Japanese companies, one of the most effective. It is a continuous and systematic process of assessment of theproducts, services and methods of a company compared to those of the most serious competitors or the companies recognizedas leaders (Kearns, 1986). Too, Anand (2008) says that 65% of Fortune 1000 companies use benchmarking as a tool to gaincompetitive advantage. Further, Wong et.al. (2008) argue that 75% of managers worldwide report using it as a tool forperformance improvement. Benchmarking facilitates fact based decision making (Parkan 2005). It has been extensively andrapidly adopted in industries such as transportation, construction, health and education (Delpachitra et.al. 2002). Actually it allstarted with Xerox’s successful use of benchmarking to re-engineer its processes in 1970s. Experts heralded how Xerox wasable to reduce costs, improve quality, and obtain better customer satisfaction. The notion behind benchmarking is theacceptance of fact that some organisation somewhere in the world has developed the same or a similar process or product thatis more effective and superior to anyone else. Thus, benchmarking involves continuous monitoring and measurement of acompany’s performance against the “best-in-class” companies. Benchmarking has been defined in a number of ways.According to Camp (1989) ‘benchmarking is a continuous process of measuring products, services and practices against thetoughest competitors or those companies recognised as industry leaders. It is also defined as an external focus on internalactivities, functions, or operations in order to achieve continuous improvement or an ongoing search for best practices thatproduce superior performance, when adopted and implemented in one’s organisation.” Bowerman et.al (2002) have declaredit “an alternative” to market testing. The principal motivation comes from the desire to search for excellence to becomecompetitive in the marketplace. Maire (2002) also says about it, “A benchmarking process includes a comparative evaluationof the levels of performance reached by various companies”. Its a systematic management process that helps managers tosearch and monitor the best practices and/or processes. Too, Maire (2002) says, “A benchmarking process includes acomparative evaluation of the levels of performance reached by various companies”.A thirteen step implementation methodology adapted from works of Povey (2007); Kumar et.al. (2001); Wang et.al. (2008);Zairi (1998); Zairi (2000); Anand et.al. (2008) and Freytag et.al. (2001) for generic benchmarking is presented here: 1) Get theleadership and followership commitment, 2) Develop a benchmarking team with a sponsor and owner by using Belbin’sapproach, 3) Classify the firm’s processes on a matrix of Important (Strategic impact on business performance) vs.performance 4) Pick the process to be benchmarked (i.e. with low performance, important (strategically significant), 5) Scoreits activities individually on a selected scale, 6) Identify the firms with similar challenges, 7) Identify the selected benchmarkingprocess in other firm(s), 8) Score the process activities on the same scale in each individual benchmarking partner (if there aremore than two), 9) Select the highest performing activities for improvement through benchmarking data, 10) Adapt thebenchmarking data to Co.’s culture for improvement, 11) Implement the improvement, 12) Monitor the performance to ensurebetter results, 13) For higher performance identify another process from the matrix of important vs. performance & strategicimpact on overall performance.Like all researches this study has some assumptions: 1) Measures taken in the models are generally acceptable measuresacross the industries and businesses. 2) The measures are excellence oriented. 3) Benchmarking is taken as a holistic conceptregardless of type/level in the first half of the paper to demonstrate its contribution for CA. 4) Benchmarking is taken as anintegral part of TQM to present its pre and post impacts on performance (Carpinetti et.al. 2002). 5) Excellence/contribution toCA also involves generating financial results (Fuller 2000). There are two research questions: 1) How does benchmarkingcontribute towards CA in an organisation? 2) Weather performance based or process based benchmarking contributes betterfor financial results? These questions are chosen to help focus on filling the gap of developing holistic dimensions of benchmarking strategies which able to be integrated with other business processes in developing CA (Wang et.al. 2008)through cross industrial literature review. Moreover, argument about the better role of performance vs. process benchmarkingtowards financial progress helps a company in adopting the most appropriate type for improvement. Too, a limited literatureis available on this aspect of performance management. The research intends to fill this gap. The remainder of this paper isorganised as follows: The next section reflects significance of benchmarking. Then, general benchmarking role for CA ispresented in four perspectives. After that, the comparison of process and performance benchmarking in contributing towardsfinancial results is detailed. Finally, summary/conclusion and scope for future research are discussed.
A)
 
General Benchmarking Role for CA:
Bagchi (1996) argue that search for the best practices can go beyond directcompetitors to indirect ones (regardless of industry affiliations). Nevertheless, there are also some misconceptions aboutbenchmarking e.g. considering it merely a catching up process to produce a me- too product/process. One of the main reasons
 
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such misconceptions can be traced back in eighties; when TQM was rapidly developed during the early 1980s, benchmarkingattained its highest level of recognition. Its popularity started to wane as companies failed to recognize its importance in TQMprojects. Moreover its implementation with out considering the critical success factors (CSFs) was another reason for failure.Sarkis (2001); Zairi et.al (1995); Zairi (2000); Sharif (2002); Delphchitra et.al. (2002); Anderson et.al. (1999); Jones et.al. 2008;Freytag et. al. 2001; Wainwright et.al (2005); Delphchitra et.al. (2002); Bowerman et.al.. (2002); Bagchi (1996) argue aboutsome of the characteristics to make benchmarking successful for CA in an organisation, including, being tied to thecorporation's overall strategic objectives; being able to operate efficiently; being composed of interested motivated people;focus on relevant work-group-level issues; set realistic timetables; pick the correct business partners; follow proper protocol;collect manageable bodies of data; understand the processes behind the data; and identify targets in advance.” managementcommitment, focusing on processes rather than metrics, abolishing cultural silo mentality, and follow-up commitment to thebenchmarking process; visible sponsorship, KPIs containing strategic intent, definition of metrics used as a part of a genericperformance management manifesto, company-wide understanding of definitions of concepts involved and metric; notconsidering it a one off process, no reluctance to divulge sensitive information and inability to form benchmarking partnerships,“finding right benchmarking partners”, no blaming culture, focus on people, no over reliance on quantitative data, lackingproper implementation methodology, and no fear of exposure of weaknesses. However, the benefits of benchmarking, e.g.broadening of employee experience & knowledge base, better understanding of customer needs (Wainwright et.al 2005),reduced costs, higher productivity and improved customer services, cultural and behavioural management outweigh itsproblems (e.g. cost, risk of sensitive information sharing among partners etc. (Delphchitra et.al. 2002; Bowerman et.al., 2002).Bowerman, Francis and Ball say that many of the gains from benchmarking were difficult to quantify. Some were ableto cite specific gains; for example, an internal benchmarking project helps to reduce staff absences by half among theworst teams. The most commonly cited benefit are that benchmarking yields useful information, which promptedfurther investigation which sometimes led to changes to processes or reduced costs. Generally participants felt that theprojects encouraged people to think about the way they did things and how they could be improved and often helped toforge support networks with others doing a similar job (Bowerman et.al. 2002). Zairi and Whymark argue thatbenchmarking (both internal and external) is an integral part of Total Quality Management (TQM). Consequently theconcept is embedded in excellence models e.g. EFQM Excellence Model, MBNQA etc They present some exampleswhere TQM (embedding benchmarking) generate these impressing results: Motorolla achieves cumulativemanufacturing cost savings of $5.5 billion from 1988-second quarter of 1994; Solectron Corp. increases its sales from$130 million to $1.455 billion and net profits from $4 million to $56 million. Its stock price has achieved an averagegrowth of 82 %; Federal Express gets revenue of $1 billion in first ten years of TQM application; Ames Rubber Corp.achieves a 99.9 % quality and on time delivery status through sharing its TQM techniques with its suppliers.Since the function of benchmarking is to gather/utilize secondary information in a systematic way to excel, so “economy of scope of best practices” is its major contribution in improving value added activities. This, in turn, contributes towardsbusiness growth either internally/externally or both. However, in this research, its role in CA has been presented in fourperspectives which are described in the later. In each perspective a model is given with some specified measures. Thesemeasures are generally accepted measures across the industries. As Rothenberg et.al. (2005) argue that there should be anenterprise consensus about the measures because different metrics tell different about how the organisation is doing. Forexample, it is assumed that service quality and customer satisfaction will always lead to better financial performance (Rust etal., 1995). Sharief (2002) & Maire (2002) go ahead and argues about a flexible benchmarking management reportingmethod in an industry with properties of a "score card' of strategic and operational factors, that could be cross industriallyapplicable. It means, choice of right measures also significantly depends upon the strategic direction of an organisation. Too,Pursglove et.al (2007) say that measuring performance in a changing business environment requires that measurementsystems must be relevant and appropriate for the environment and the strategies of the organisation. They also say thatmanagers’ perceptions of the success and failure of performance measurement initiatives were related to: the purpose of theinitiative, and; the structure and culture of the organisation. Moreover, Parken (2005) argues that measures should be selectedby keeping in view the internal and external stakeholders’ interests. Besides selecting right measures, “aggregation” isanother topic of concern in segregating performance indicators under different dimensions (Parketn 2001). There are severalways of organizing the measures e.g. on the basis of efficiency (output per unit input), life cycle, regulatory etc (Rothenberget.al. 2005) e.g. Mukherjee et.al. (2002) say, “Data envelopment analysis (DEA) is a mathematical approach to handlesituations with multiple inputs and multiple outputs and has been a proven way to measure bank performance”. In thisresearch the aggregation has been made in four perspectives. The choice of these perspectives is backed by vast literature
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