What is benchmarking?

Benchmarking is a way to go backstage and watch another companys performance from the
wings, where all stage tricks and hurried realignments are visible.

In Joseph Jurans 1964 book Managerial Breakthrough, he asked the question:

What is that organizations do that gets result so much better than ours?

The answer to this question opens door to benchmarking, an approach that is accelerating
among many firms that have adopted the total quality management (TQM) philosophy.

The Essence of Benchmarking

The essence of benchmarking is the continuous process of comparing a companys strategy,

products, processes with those of the world leaders and best-in-class organizations.

The purpose is to learn how the achieved excellence, and then setting out to match and even
surpass it. The justification lies partly in the question: Why reinvent the wheel if I can learn from
someone who has already done it? However, Benchmarking is not a panacea that can replace
all other quality efforts or management processes.

THE EVOLUTION OF BENCHMARKING

The method may have evolved in the early 1950s, when W. Edward Deming taught the Japanese
the idea of quality control. Other American management innovations followed.
.
The best example is Toyota Motor Corporations following the footsteps of Ford Motor
Corporation albeit with the adaptation of the Fords Just-in-case system into Toyotas Just-in-
time system. The term benchmarking, however, was not coined by that time.
The term benchmarking emerged when the idea took ground in US during 1980s when Xerox,
Ford and Motorola became the pioneers of benchmarking in USA. Robert Camp, the logistics
engineer who initiated Xeroxs benchmarking program and who is generally regarded as the guru
of the benchmarking movement, defines it: Benchmarking is the search for industry best
practices that lead to superior performance.

The Xerox Case

The company invented the photocopier in 1959 and maintained a virtual monopoly for many
years thereafter. Xerox became a generic name for all photocopiers. By 1981, however, the
companies market shrunk to 35% as IBM and Kodak developed high-end machines and Canon,
Richo and Savin dominated the low-end segment of market.

.
The company instituted the quality improvement plan, which resulted in tremendous progress
and survival of the organization. This quality improvement plan was later known to the world as
Benchmarking Program. Xeroxs approach focused on key processes, rather than simply on
finished products, and highlighted distinctive elements of those processes that accounted for
product superiority.

.
Xeroxs benchmarking strategy recognized that many processes are not unique to a single
industry and that comparisons need not be confined strictly to ones competitors. Xerox and
other benchmarkers now believe that breakthrough advances are more likely to occur by
adapting lessons learned from leaders operating in entirely different industries.

Xerox benchmarked companies both, in and outside the industry. The particular example is
L.L.Bean, catalog seller of outside equipment for improving distribution system based on the
same. The benchmarking process resulted in: Quality problems cut by two-thirds, manufacturing
costs cut in half, development task cut by two-thirds, direct labor cut by 50% and corporate staff
cut by 35% while increase in volume.
It should be noted that all these improvements were not direct result of benchmarking rather it
became the cause climate for change and continuous improvement followed as a natural result.

LEVELS OF BENCHMARKING
There are three levels of benchmarking:
1. Internal benchmarking (within the company)
2. Competitive or strategic benchmarking (Industry and competitors)
3. Benchmarking outside the industry.

What benefits have been achieved by the organizations that have successfully
completed their benchmarking programs?

There are three sets of benefits:

1. Cultural Change

2. Performance Improvement

3. Human Resources

1. Cultural Change: Benchmarking allows organizations to set realistic, rigorous new

performance targets, and this process helps convince people of the credibility of these targets. It
helps people to understand that there are other organizations who know and do job better than
their own organization.

2. Performance Improvement: Benchmarking allows the organization to define specific gaps

in performance and to select the processes to improve. These gaps provide objectives and action
plans for improvement at all levels of organization and promote improved performance for
individual and group participants.

3. Human Resources: Benchmarking provides basis for training. Employees begin to see gap
between what they are doing and what best-in-class are doing. Closing the gap points out the
need of personnel to be trained to learn techniques of problem solving and process
improvement.

What theoretical model would you suggest to implement a benchmarking program?

Organizations that benchmark, adapt the process to best fit their own needs and culture.
Although number of steps in the process may vary from organization to organization, the
following six steps contain the core techniques:

1. Decide what to benchmark.

2. Understand the current performance of your organization.
3. Do proper planning of what, how and when of benchmarking endeavor.
4. Study others well (the practices or system you wish to benchmark)
5. Gather data and learn from it.
6. Use the findings.

Some prominent beneficiaries of Benchmarking

Within a decade following its introduction, benchmarking had distinguished itself as an important
tool for performance improvement in corporate America.

In several highly publicized cases, benchmarking corporations were learning and benefiting from
what would have seemed unlikely partnerships in the pre-benchmarking era.

Xerox learned from L.L. Bean, a clothing store catalogue retailer

Motorola from Dominos Pizza

Digital Equipment Corporation (DEC) from a seemingly illogical set of partners that
included Scott Paper, Campbell Soup, Whirlpool, Boeing, Hewlett-Packard, and Apple.
Source/biblography: Total Quality Management: Text, Cases and
Readings
by Joel E. Ross and Total Quality Management by Dale H.Besterfield
INTRODUCTION
It is often stated that those who benchmark do not have to reinvent the wheel (Parker, 1996).
By following others one can make improvements and not focus on stale ideas. Benchmarking at
first glance may be mistaken for a copycat form of developing strategic plans and for making
improvements within an organization. This is not true. Benchmarking is a process that allows
Organizations to improve upon existing ideas. In order to eliminate myths and misconceptions
about benchmarking it is important to know exactly what benchmarking is, the different types of
benchmarking, the criticisms of benchmarking, and the ethical practices concerning
benchmarking.
WHAT IS BENCHMARKING?
Benchmarking is simply the process of measuring the performance of one's company against
the best in the same or another industry. Benchmarking is not a complex concept but it should
not be taken too lightly. Benchmarking is basically learning from others. It is using the
knowledge and the experience of others to improve the organization. It is analyzing the
performance and noting the strengths and weaknesses of the organization and assessing what
must be done to improve.

REASONS FOR BENCHMARKING

 There are several reasons that benchmarking is becoming more commonly used in industry;
Benchmarking is a more efficient way to make improvements. Managers can eliminate
trial and error process improvements. Practicing benchmarking focuses on tailori
tailoring existing processes to fit within the organization.
Benchmarking speeds up organizations ability to make improvements.
Compare business practices with those of world class organizations
Challenge current practices and processes
Create improved goals and practices for the organization
Change the perspective of executives and managers.

OBJECTIVES OF BENCHMARKING
Becoming competitive
Improving industry best practices
Defining customer requirement
Establishing effective goals and objectives
Developing the measures of productivity
ADVANTAGES OF BENCHMARKING
It helps improve process effectiveness
Helps in cost reduction
It provides focus in planning operations
The sharing of information may create opportunities for innovations
It assesses the firms existing position and provides a basis for establishing standards of
performance
Cross comparison are more likely to expose different ways of doing things
It provides evidence for additional resources
Is practitioner led, so gives a sense of ownership
Facilitates multi-disciplinary team building and networking
Provides an avenue for change in clinical practices.
DISADVANTAGES OF BENCHMARKING
Benchmarking is the danger of complacency and arrogance. Many organizations tend to relax
after excelling beyond competitors' standards. The realization of having become the industry
leader soon leads to arrogance, when considerable scope for further improvements remains.
It implies there is only one best way of doing business
The benchmark may be yesterdays solution to tomorrows problems. If the operating
environment is highly dynamic the solution will be dynamic.
 It depends on the accuracy of the information about the comparator company
It may be difficult to decide which activities to benchmark
It encourages the mentality of catching up rather than being innovative
Lack of strategic relevancy
PROCESS OF BENCHMARKING
Organizations that benchmark, adapt the process to best fit their own needs and culture. Although
number of steps in the process may vary from organization to organization, the following six
steps contain the core techniques:
1. Decide what to benchmark.
2. Understand the current performance of your organization.
3. Do proper planning of what, how and when of benchmarking endeavor.
4. Study others well (the practices or system you wish to benchmark)
5. Gather data and learn from it.
6. Use the findings.
It involves the following;
Plan: Critical success factors, select a process for benchmarking, document the process, and
develop performance measures
Search: Find bench-marking partners
Observe: Understand and document the partners process, both performance and practice
Analyze: Identify gaps in performance and find the root causes for the performance gaps
Adapt: Choose best practice, adapt to the companys conditions, and implement changes.

TYPES OF BENCHMARKING
Process benchmarking Its where we go beyond performance measures and also
compare how business processes are performed. The initiating firm focuses its observation and
investigation of business processes with a goal of identifying and observing the best practices
from one or more benchmark firms. Activity analysis will be required where the objective is to
benchmark cost and efficiency; increasingly applied to back-office processes where outsourcing
may be a consideration.
Financial benchmarking - performing a financial analysis and comparing the results in
an effort to assess your overall competitiveness.
Performance benchmarking - allows the initiator firm to assess their competitive
position by comparing products and services with those of target firms.
Product benchmarking - the process of designing new products or upgrades to current
ones. This process can sometimes involve reverse engineering which is taking apart competitors
products to find strengths and weaknesses.
 Strategic benchmarking - comparison of strategic decisions and dispositions at a higher
level. It involves observing how others compete. This type is usually not industry specific
meaning it is best to look at other industries.
Functional benchmarking - comparison against organizations that are not necessarily
competitors, but that performs related tasks within the same technological area. In the school
analogy, this will be benchmarking against someone from another school, but of the same type.
A company will focus its benchmarking on a single function in order to improve the operation of
that particular function. Complex functions such as Human Resources, Finance and Accounting
and Information and Communication Technology are unlikely to be directly comparable in cost
and efficiency terms and may need to be disaggregated into processes to make valid comparison.
Internal benchmarking, comparison against the best within the same organization or
corporation, often called benchmarking within your own class.
Competitive benchmarking, comparison against the best direct competitors, which then can be
termed benchmarking against someone in the parallel class.
External benchmarking, it involves seeking outside organizations that are known to be best in
class. It provides opportunities of learning from those who are at the leading edge, although it
must be remembered that not very best practice solution can be transferred to others.
International benchmarking. Is used where partners are sought from other countries because
best practitioners are located elsewhere in the world and/or there are too few benchmarking
partners within the same country to produce valid results.

DIFFICULTIES ENCOUNTERED WHEN BENCHMARKING DIRECT

COMPETITORS AND WAYS TO OVERCOME THEM.
1. Competitors may refuse to share their information
Competitive benchmarking is the most difficult type of benchmarking to practice. For obvious
reasons, organizations are not interested in helping a competitor by sharing information. It looks
at all aspects of the competition's strategy. This does not just include the disassembly and
examination of the product but it analyzes the entire customers path of the organizations
competitor. This is a difficult thing to do because this information is not easily obtained.
SOLUTION:
The company should conduct an extensive research. It is also important to remember when using
competitive benchmarking that the goal is to focus on your direct competitors and not the
industry as a whole.
 Reverse engineering. This is a process if buying a competitors product, dismantling it to
understand its components and its configurations.

2. Difficulties in deciding what activities to benchmark

This is where a company finds it difficult to make a choice on which activity to benchmark as
opposed to others. Therefore the company finds itself concentrating on irrelevant activities and
leaving the most important activities. At times the company will be forced to carry out so many
activities which make it expensive for the company.
SOLUTION:
The company should sub divide its processes so as to identify the most important activities to
prioritize.
They should involve experts in the relevant areas of concern so as to ensure quality decision
making.

3. Successful practices in one organization may not be successful in another organization

This where a company borrows ideas applied by other companies and apply them on their
strategy expecting them to have the same results. In return, they end up being frustrated due to
the failure of the whole process. This is because techniques applied by one company may not be
applicable to another company.
SOLUTION:
Appraisal This is to evaluate the worth, significance, status of or give expert judgment on value
or merit of the practice that is used constantly to check its effectiveness and change where
necessary.
Ideas borrowed should not be copied directly, but rather modified to suit the situation

4. It can be expensive to a firm

Benchmarking will involve an extensive research and experts knowledge in order to be
successful. Therefore the company has to spend more on resources required, thus increasing the
operating costs of the company.
SOLUTION:
The company should identify the key areas to benchmark and state the desired objective.

5. The benchmark may be yesterdays solution to tomorrows problem.

Since the operating environment is highly dynamic, the information obtained from the
competitor becomes obsolete before implementation thus the solution will be ineffective. Due to
changes in technology, current processes may be ineffective tomorrow.
SOLUTION:
Be up to date with the technology.
 6. It encourages the mentality of catching up rather than being innovative
The company using their competitor to benchmark, will rather be centralized to competition and
trying to reach the levels of performance of the company in question, instead of being creative
and innovative to come up with better means and ways of doing things, were it not for
consideration of the competitor. The competitor company being used as benchmark may even
have more advanced resources, making it difficult to directly use it as basis for evaluating your
company.
SOLUTION:
Emphasize on innovation rather than invention.
While using your competitor as basis for benchmarking, avoid the idea of trying to catch up,
rather, use it as a level of comparison to come up with better standards and ways for
organizational improvement and meeting or surpassing the industries best practices.

ETHICAL PRACTICES CONCERNING BENCHMARKING

Since the concept of benchmarking can lead to unscrupulous and sometimes unethical behavior,
the SPI Council on Benchmarking and the International Benchmarking Clearinghouse have
established a general code of conduct (Thompson). The code is as follows:
When benchmarking with competitors, set up certain rules that state that things will not be
discussed that give either company a competitive advantage. Establish the purpose for both
parties to improve or gain benefit. Costs should not be discussed.
Do not ask competitors for sensitive information. Do not make them feel that if the data is not
shared the benchmarking process will end. If you ask the company for sensitive and valuable
information, be prepared to give the same in return.
Use an ethical and unbiased third party such as a legal advisor for direct competitor advice.
Consult with a legal advisor if any information gathering procedure is in doubt.
Treat any information obtained from a benchmarking partner as privileged or top secret
information. Don't give away any information or potential trade secrets without permission.
Do not misrepresent yourself or your organization as being someone or something that you are
not.
Show that you are committed to the effectiveness of the process. And in doing so maintain a
professional and honest relationship with your benchmarking partners.

CASE STUDY ON BENCHMARKING (XEROX CORPORATION)

Benchmarking can be called the management tool that revived Xerox. Xerox defines
benchmarking as the continuous process of measuring our products, services, and practices
against our toughest competitors or those companies recognized as leaders (Parker, 1996). The
Xerox of today is not the Xerox of the sixties and seventies. During that time period the
organization experienced market erosion from competitors, primarily Japanese. These
competitors were marketing higher quality products in the United States at the same price or
 lower as Xerox. Xerox found that the Japanese were able to assemble quality products at a low
price. This was hard for Xerox to grasp because they were the first to develop the photocopy and
their name had come to be synonymous with photocopies. How could the Japanese be beating
them at their own game? Xerox found that they had to regroup. In doing this they used reverse
engineering and made competitive benchmarking a fundamental part of their operations by the
early eighties. Xerox began to study other organizations within and out of their industry. By
1983, Xerox had bench marked more than 230 process performance areas in their operation.
They looked at all aspects of their business. Identifying the best processes used by others, Xerox
adapted them for their own use. This is how they regained their core competency and strategic
advantage in the photocopying industry (Brogan, 1994).

CONCLUSION
Benchmarking can be as complex as re-engineering or as simple as thumbing through the
quarterly reports of organizations and making comparisons. Although organizations must use
benchmarking with some caution, it can be informative and foster a spirit of openness and
cooperation from indirect competitors. It is not enough to benchmark the costs of activities and
identify best practices. When an organization looks at benchmarking they must look at all aspects
of the business, its products, and its processes. It is crucial for organizations to focus on anything
that will impact its performance and quality.

REFERENCES

i. Boxwell, Robert (1994), Benchmarking for a Competitive Advantage, McGraw Hill, 1994.
ii. Thompson and Strickland (1996), Strategic Management - Concepts and Cases, Irwin
Publishing Company, 9th Edition, 1996.
iii. BENDELL, TONY, BOULTER, LOUISE AND KELLY, JOHN, 1993, Benchmarking for
Competitive Advantage (Pitman Publishing, London).

Successful businesses work consistently to streamline practices and increase

profits. Benchmarking is one way for business owners and management to evaluate
internal policies and do comparisons with competitors and other companies. This
assessment process gives management information on means of increasing the
bottom line. A company can then use benchmarking results to concentrate on one
area of operations or revamp several business processes within the company.

Benchmarking Background
Joseph Blakeman at the Center for Urban Transportation Studies, University of
Wisconsin-Milwaukee, wrote in a 2002 paper that land surveyors originally used the
term benchmarking. In that context, the term identified a predetermined spot
used to quantify subsequent measurements. When the term began being used in
the business world, it meant the procedure for finding out who does what best and
copying the best to improve practices.
Benchmarking Comparisons
Entrepreneur magazine cites evaluating sales revenue as the customary way to
gauge the success of a company. However, a number of internal policies and
procedures that achieve sales can be used as benchmarks for analysis. Performance
benchmarking can measure the contributions of each member of the sales team
and compare results. Utilizing product benchmarking, the company can compare
the percentage of revenue the sale of each product earns for the business. Through
strategic benchmarking, a company can compare advertising and promotional
strategies with those of other companies.

Evaluating Competitor Practices

When benchmarking a competitor, a company may compare production processes,
financial statements or overall performance. No two companies may use identical
methods to benchmark. For example, one company may choose to compare the
cost of overhead with competitors. A second company may choose to compare a
gross margin with many companies within the same industry. A third company may
compare shipping practices with one or more other businesses.

Internal Evaluation
To profit from benchmarking, a company must be willing to change, set goals and
follow through. An additional example of benchmarking is internal evaluation.
Suppose a company has several stores. One may outperform the others in inventory
management. A second store may lead the way in attracting repeat customers.
Identifying the best practices from each location through benchmarking can allow
management to revise operations company-wide to increase profits.

What is Benchmarking?
Benchmarking is the process of comparing your own organization, operations, or
processes against other organizations in your industry or in the broader marketplace.
Benchmarking can be applied against any product, process, function or approach in
business. Common focal points for benchmarking initiatives include: measures of time,
quality, cost and effectiveness and customer satisfaction.

The intent of benchmarking is to compare your own operations versus competitors and to
generate ideas for improving processes, approaches and technologies to reduce costs,
increase profits and strengthen customer loyalty and satisfaction. Benchmarking is an
important component of continuous improvement and quality initiatives, including Six
Sigma.

Why Should Your Firm Benchmark?

The case for benchmarking suggests that a particular process in your firm can be
strengthened. Some organizations benchmark as a means of both improving discrete areas
of their business and monitoring competitor's shifting strategies and approaches.
Regardless of the motivation, cultivating an external view of your industry and
competitors is a valuable part of managing in this world of change.

There are a number of core drivers of benchmarking initiatives in a firm.

The most common driver for benchmarking comes from the

internal perspective that a process or approach can be improved.
Organizations will collect data on their own performance at
different points in time and under different circumstances and
identify gaps or areas for strengthening.

Many organizations compare themselves to competitors in an

attempt to identify and eliminate gaps in service or product
delivery or to gain a competitive edge. The data gathered in a
competitive benchmarking initiative offers specific insights into
the competitor's processes and thinking.

The term: strategic benchmarking, is used to describe when a

firm is interested in comparing its performance versus the best-
in-class or what as deemed as world-class performance. This
process often involves looking beyond the firm's core industry to
firms that are known for their success with a particular function or
process.

The Limitations of Internal Benchmarking:

While important to measure and monitor performance for all critical processes,
organizations should beware of developing simply an inside or insular view of their
operations. The firm preoccupied on itself easily loses track of competitor and broader-
world innovations and changing demands of customers.

Strategic Benchmarking:
Looking beyond your own industry for best-in-class performance for particular processes
or functions is an excellent way to challenge your firm to rethink long-standing
assumptions and practices. For example, Southwest Airlines famously analyzed the
processes, approaches and speed of automobile racing pit crews to gain ideas for
improving their airplane turn-around time at the gate. The outcome of this benchmarking
study is reported to have helped Southwest reconfigure their gate maintenance, cleaning,
and customer loading operations, and to have saved the firm millions of dollars per year.
Benchmarking Data is Often Available for Purchase:
Many industries or industry or consumer related organizations publish comparative
data invaluable to the benchmarking process.

For example, consumers interested in the quality of new or used cars can look to the
organization that publishes Consumer Reports for their detailed testing and reporting
results on new and used cars.

Defining a Benchmarking Initiative:

Because any process, product, function in a business is eligible for benchmarking,
methodologies vary. Typically, a process involves:

Defining the subject of the benchmarking study.

Defining the process or attribute to be studied in detail.

Selecting and defining the measures.

Select the comparison set.

Collecting data on both the benchmarking subject and

comparison set.

Assessing the data and identifying differences and gaps.

Analyzing the root causes of the differences or gaps.

Defining an improvement initiative complete with goals.

Communicating the goals.

Implementing the improvement initiative and measuring results.

Reporting on the results, identifying improvements and repeating

the process.

Benchmarking Examples:
A firm interested in improving their customer service practices might compare their
own processes and metrics against those of their most successful competitor. If they
identify negative discrepancies or differences in measures, they may embark upon
process improvement to strengthen their performance. The firm will observe and measure
the competitor's operations, and in some industries, they will send in employees as
customers to gain direct experience.

A quick service restaurant chain dependent upon speedy, accurate service in the drive-
thru to maximize efficiency, cut costs and increase profits will study the drive-thru
practices of key competitors. Every second gained without sacrificing customer quality
allows the firm to increase profits. Over the years, competitors have consistently
innovated in their drive-thru operations with configuration, number of windows, menu
and speaker boards and ordering approaches in an attempt to improve in this area. They
are constantly watching and benchmarking against each other.

One firm, Pal's Sudden Service, a small hamburger and hot dog chain and a Baldrige
Quality Award winner, is so successful at achieving best-in-class performance for drive-
thru and overall restaurant operations, that it opened an educational institute to train other
organizations. Many companies in the fast food market use Pal's as a best-in-class
benchmark for their own firms.

The Bottom Line:

Benchmarking is a potentially powerful tool to promote continuous improvement in your
organization. As discussed, relying on internal-only measures breeds a myopic
perspective. High performing organizations strive to identify processes, functions or
offerings important to their business and evaluate their efficiency and effectiveness
versus leading competitors or leading innovators. Care should be taken to define
benchmarking initiatives deliberately and scientifically, or, the results can be misleading.