BENCHMARKING

What is Benchmarking…
Benchmarking is the process of studying and adapting the best practices of other organizations to improve the firm's own performance and establish a point of reference by which other internal performance can be measured

What is Benchmarking…

Stages in Benchmarking
1. Internal Study and Preliminary Competitive 2.

3. 4. 5.

Analysis Developing long-term commitment to the Benchmarking Projects and Unite the Benchmarking Team Identifying Benchmarking Partners Information Gathering and Sharing Methods Taking action to meet or exceed the benchmark

1. Internal Study and Preliminary Competitive Analysis
 Decides which key areas to benchmark for

studyCompany's activities  Products  Management accounting methods

 Preliminary competitive analyses-

Internal  External

2. Developing long-term commitment to the Benchmarking Projects and Uniting the Team
 Significant organizational changes such as

adopting a total-life-cycle costing approach can take several years  Long-term commitment requires:
  

Senior management to give the benchmarking team the authority Developing a clear set of objectives Empowering employees to make changes

 The benchmarking team should include individuals

from all functional areas in the organization

3. Identifying Benchmarking Partners
 Some critical factors are as follows:

Size of the partners  Number of partners  Relative position of the partners within and across industries  Degree of trust among partners

4. Information Gathering and Sharing Methods
 Two dimensions to information gathering and

sharing

Type of information  Product benchmarking  Functional (Process) benchmarking  Strategic benchmarking Methods of information collection  Unilateral (covert) benchmarking
 companies independently gather information

Co-operative benchmarking
 voluntary sharing of information through mutual agreement

Co-operative benchmarking
 Co-operative benchmarking which is a

voluntary sharing of information through mutual agreement
The major advantage of co-operative benchmarking is that information sharing occurs both within and across industries  Sub-categories: database, indirect/third party and group

Database benchmarking
 Pay a fee and in return gain access to    

information from a database operator The database operator collects and edits the information prior to making it available to the users No direct contact with other firms and the identity of the source of data is not revealed Advantage -A large amount of information. But insights regarding the meaning of data and the way of using it are not available.

Indirect/third party benchmarking
 Uses an outside consultant to act as a link

among firms engaged in benchmarking  The consultant supplies information from one party to another and handles all communications  Since the members may be competitors, they pass information through a consultant so that the members remain anonymous

Group benchmarking
 Participants using group benchmarking meet openly to 

  

discuss their methods They coordinate their efforts, define common terminology, visit each other’s sites and generally have a long term association Direct contact offer the opportunity of better understanding of other parties involved Usually the most effective benchmarking method This method is also the most costly to implement and therefore requires a cost-benefit study

Benchmarking Gap
(Performance)
 Comparing their own organization’s performance

with the best performance that emerges from the data  The performance gap is defined by specific performance measures on which the firm would like to improve  Performance measures may include reduced defectives, faster on-line delivery, increased functionality or reduced life cycle product costs

5.Taking action to meet or exceed the benchmark
 The organization takes action and begins to

change as a result of the benchmarking initiative  After implementing the change, the organization makes comparisons to the specific performance measures selected  In many cases, the decision may be to perform better than the benchmark to be more competitive

Cost of Benchmarking
 The three main types of costs are:

Visit costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labor time.  Time costs - Members of the benchmarking team will be investing time in researching problems, finding exceptional companies to study, visits, and implementation.  Benchmarking database costs -Organizations find it is useful to create and maintain a database of best practices

Disadvantages
 Maintaining Benchmarking Efforts is Costly  Reluctance to share information  Today's Realistic Applications May Not be

Tomorrows Applications  What is best for someone else may not suit you  Poorly defined benchmarks may lead to wasted effort and meaningless results.

Advantages
 It opens organizations to new methods, ideas

and tools to improve their effectiveness  Allows examination of present processes  Learn from others experience & practices  Overall industry improvement

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