Definitions of Benchmarking
The formal definition of benchmarking is The continuous process of measuring products, services, and practices against the company s toughest competitors or those companies renowned as industry leaders. Benchmarking is the process of understanding what is important to your organization s success, understanding your own processes and finding and learning from others whose processes are better than yours, then adapting that learning to improve your performance.

Benchmarking is far more than copying. It requires deep selfassesment and the ability to translate practices that work in another context into a process appropriate to your own organization. Benchmarking is a systematic process - it must have a framework and use a standard set of attributes that are measurable to compare multiple organizations objectively. Benchmarking must be performed on a specific area or activity only, such as operational best practices, information technology, staffing, compensation packages, distribution systems, budgeting, and the like. Limiting the scope of the benchmarking activity allows the formulation of a more focused agenda that provides more useful information from better-targeted benchmark partners.

Benchmarking philosophy has roots in Japan, where it is called as Dantotsu, which means: striving to be the best. Dantotsu was used in Japan since World War-II. Western world adopted it through the experiences of Xerox, which benchmarked (compared) its practices with Japanese firm, Furi-Xerox, and other Japanese competitors in 1979. Xerox (in USA) was making photocopier at a cost which was more than the selling price (cost + profit + market expenses) of its Japanese counterparts. Through a series o benchmarking efforts. Xerox could reduce its production cost and become market-leader.

In baseball, you could argue that seven consecutive World Series Championships made the New York Yankees the benchmark. If we were to benchmark "world conquest", what objective measure would we use to compare Julius Caesar to Adolph Hitler; Genghis Khan to Napoleon? Which of them was the epitome, and why? We do the same thing in business. Who is the best sales organization? The most responsive customer service department? The leanest manufacturing operation? And how do we quantify that standard?

Benchmarking Teams
Benchmarking is conducted by teams consisting of individuals with direct operational experience and knowledge of the process. Members should possess analytical, research, process documentation, and team facilitation skills. These requirements favor candidates with engineering or technical backgrounds, and those with research experience. Benchmarking teams are typically commissioned by the process champion. Teams rarely function effectively if they consist of more than 9 to 12 members. Team size of 3 to 6 is preferred. Large teams can be considered but will most likely break down into small subgroups to do their work.

Benchmarking Objectives
The objective of benchmarking is to understand and evaluate the current position of a business or organization in relation to "best practice" and to identify areas and means of performance improvement. The purpose of benchmarking is derived primarily from the need to establish credible goals and pursue continuous improvement. It is a direction-setting process, but more important, it is a means by which the practices needed to reach new goals are discovered and understood.

Why is there a need to benchmark?

Problem. If a crisis occurs within an organization, such as a major cost overrun or
a major customer threatening to cancel an existing contract, the topic for an improvement project may be apparent.


Innovation. If the organization becomes aware of some innovative technology,
practice, or process employed by another organization, this information may well cause an organization to commission a benchmarking study.


Policy. If the organization does not have a significant problem or need to
understand an innovative practice, then selecting a benchmarking project may be difficult. This is especially true for an organization employing a total quality management (TQM) philosophy. However, a well-established quality management effort includes a strategic planning process. In organizations with such efforts, it is common for one of the outputs of the planning process to be a list of nominations for appropriate benchmarking projects.

Types of Benchmarking

Generic Competitive Functional


Internal (Vertical and Horizontal) Public Information
Low Easy Difficult

Functional Benchmarking
It is the application of process benchmarking that compares a particular business function in two or more organization. Businesses look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements. Improving activities or services for which counterparts do not exist.

For example, a low-cost airline in southwest Texas undertook a project to maximize its revenue by benchmarking the time a plane spends on the ground. After all, revenues are generated only when the plane is in the air. The project was to determine how ground crews could safely clean and service the aircraft, refuel it, change tires, and provide food service in the most efficient manner to minimize ground time. The benchmarking team decided to meet with individuals who have perfected such techniques race pit crews at the Indianapolis Speedway. Racing professionals certainly are experts at these very practices because they are faced with the same issues, and have developed anexpertise in rapid service.

Internal Benchmarking
Involves benchmarking businesses or operations from within the same organization (e.g. business units in different countries). The main advantages of internal benchmarking are that access to sensitive data and information is easier; standardized data is often readily available; and, usually less time and resources are needed. There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organization. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking.

Competitive Benchmarking
This involves the investigation of competitor s services, processes, practices, styles and products. Reverse engineering, which involves unfolding processes from end product to raw material (reverse of production process), may be one way to involve into competitive benchmarking. Camp (1989) defines it as direct product competitor benchmarking looking at processes and products. Zairi (1992) defines it as comparing specific models or functions with competitors. Watson (1993) defines it as product-oriented comparison with processes involved.

External Benchmarking
y Involves analyzing outside organizations that are known to be

best in class. External benchmarking provides opportunities of learning from those who are at the "leading edge". This type of benchmarking can take up significant time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations.

Example: Where examples of good practices can be found in other organizations and there is a lack of good practices within internal business units

Generic Benchmarking
In this, we consider the practices of identified leaders, irrespective of the business sector, where benchmarking is performed against very specific activities. This approach initiates great opportunities for companies to collaborate and exchange information as it can only be advantageous to both parties.

International Benchmarking
Best practitioners are identified and analyzed elsewhere in the world, perhaps because there are too few benchmarking partners within the same country to produce valid results. Globalization and advances in information technology are increasing opportunities for international projects. However, these can take more time and resources to set up and implement and the results may need careful analysis due to national differences Example: Where the aim is to achieve world class status or simply because there are insufficient national" businesses against which to benchmark.

The organization with which one would benchmark is known as a partner. The concept of partnership is important because it conveys the notion that there must be something in a benchmarking exchange for both parties. There may a common interest in a particular process, or the benchmarking partner may ask for assistance in arranging a benchmarking visit with another department of the requesting organization. Without such mutual benefit, the likelihood of a successful, long-term benchmarking exchange is low.

In general, benchmarking partners are classified into four (4) categories: 1) Internal - which pertains to departments, factories, etc. of the same company 2) Competitive - which pertains to direct competitors 3) Functional - which pertains to best-in-class organizations who are in the same field or activities 4) Generic - which pertains to leading organizations from various fields and industries.

Benchmarking is a proven technique for process improvement as evidenced by the growing number of successful companies who have embraced it as an integral part of their organizational culture. This document discusses preparation required for successful benchmarking, and outlines a six-step approach to implementation. It also illustrates the differences between benchmarking for best practice and performance measurement using key performance indicators.


The 10-step process for conducting a benchmarking investigation consists of the following five essential phases.
Phase 1: Planning
1st Step: Decide what to benchmark. All functions have a product or output. These are priority candidates to benchmark for opportunities to improve performance. 2nd Step: Identify whom to benchmark. World-class leadership companies or functions with superior work practices, wherever they exist, are the appropriate comparisons. 3rd Step: Plan the investigation, and conduct it. Collect data sources. A wide array of sources exists, and a good starting point is a business library. An electronic search of recently published information on an area of interest can be requested. Begin collecting. Observe best practices.

Phase 2: Analysis 4th Step: It is important to have a full understanding of internal business
processes before comparing them to external organizations. After this, examine the best practices of other organizations. Then measure the gap. 5th Step: Project the future performance levels. Comparing the performance levels provides an objective basis on which to act and helps to determine how to achieve a performance edge.

Phase 3: Integration
6th Step: Communicate benchmarking findings and gain acceptance from upper management and revise performance goals.Thus, goals that reflect projected improvement are necessary. On the basis of the benchmarking findings, the targets and strategies should be integrated into business plans and operational reviews and updated as needed. 7th Step: Redefine goals and incorporate them into the planning process.

Phase 4: Action
8th Step: Develop and implement action plans. 9th Step: Monitor progress. 10th Step: Recalibrate the benchmarks. Best practices are implemented and periodically recalibrated as needed.

Phase 5: Maturity
‡ Determine when a leadership position is attained. Maturity is

achieved when best practices are incorporated in all business processes; when benchmarking becomes a standard part of guiding work; and when performance levels are continually improving toward a leadership position. ‡Assess benchmarking as an ongoing process.

Benchmarking Requires
y An investment of resources y People y Time y Money

Two budgets are always involved in Benchmarking:  The first for the benchmarking project itself  The second for the implementation stage y Competencies  Project Management skills  Team work  Communications  Clear Thinking  Action orientation

What are the Benefits of Benchmarking?
Benchmarking encourages a company to become open to new methods, ideas, processes, and practices to improve effectiveness, efficiency and performance. A benchmarking study results in valuable data that can stimulate thought-provoking discussions with key stakeholders. The results provide answers to the following key questions: How well are we performing compared to other companies? What are the best practices? What improvement opportunities should we focus on?

Companies who benchmark their performance report the following benefits:

Identifies specific problem areas and eliminates guesswork Builds confidence when "gut feel" assumptions are validated Helps to prioritize improvement opportunities Shifts internal thinking from "inputs" to "outputs" (i.e. measures) Serves as an excellent baseline "report card" Makes it easier to increase performance expectations and "raise the bar" Creates a sense of competitiveness and a real desire to improve Challenges people to "work smarter" instead of "working harder".

Companies who involve their team throughout the benchmarking process report the following benefits: Accelerates understanding and agreement on the real problem areas Educates on the latest practices being used and performance being achieved Motivates the team to work collaboratively internally to surpass external benchmarks Removes emotion from the discussion. Most importantly, regular benchmarking encourages a culture of continuous evaluation and improvement.

Internal Benefits of Benchmarking
External Focus Exposes need for change Framework for change New ideas Best practices Learning culture Quality improvement Promotes contacts Utilises existing knowledge Decreases subjectivity Legitimises targets

Demystifies change

Tips for Success
y Preparation, preparation, preparation y Using a proven process y Knowing your own processes y A desire to get behind the measures and discover the causes y y y y y

of best practice Choosing the right partner Integrating it into other changes management activities Forming the right team Using benchmarking to stimulate creative thinking and change Acting on the results

Common Mistakes
y Inappropriate (too broad) scope y Focus on numbers y Insufficient homework on own situation y Poorly designed instrument y Selecting wrong partner y Ignoring comparisons outside industry y Failing to follow-up and implement findings

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