Chapter 8

Benchmarking

Rachal Roach
Tim Hyder
Chris Green
Introduction

Book definition: Benchmarking is a

systematic method by which
organizations can measure themselves
against the best industry practices
Benchmarking is a standard that
companies compare themselves to and
strive to be that good
Benchmarking

What is your definition of benchmarking?

What is the process for benchmarking?

 Benchmarking Concept
What is our performance What are others' performance
level? levels?
How do we do it? How did they get there?

Creative
Adaptation

Breakthrough
Performance
 Benchmarking Concept

Concept has been around for a while

2 Key elements
1) Units of measure (to measure performance)
2) Managers need to understand why their company's
performance differs
 Reasons to Benchmark

Promotes continuous improvement

Makes companies search for the best practices,
innovative ideas, and highly effective operating
procedures
Can notify a company if it has fallen behind the
competition
Inspires managers to compete
Allows goals to be set objectively
Reasons to Benchmark

Weaknesses
Organizations must continue to innovate
as well as imitate.
6 General Steps to
Benchmarking
1) Decide what to
benchmark
2) Understand current
performance
3) Plan
4) Study others
5) Learn from the data
6) Use the findings
Deciding What to Benchmark

Think about the mission and critical

success factors
Decide the scope
Devise charts that will pin point the exact
problem
Decide on a numerical measure to show
improvement
Understanding Current
Performance
Understand and document current
processes
Form a benchmarking team
Decide on a way to numerically measure
findings
Planning

Decide what type of Identify which

benchmarking to organizations to use
perform (internal, as your benchmarks
competitive, or Make a timetable to
process) adhere to for each
Choose the type of task
data to be collected Have a desired
Devise a method of output for the study
collection
Studying Others

Use internal sources

Apply data in the public domain
Utilize original research
Combining all or some of these
 Learning from the Data
Is there a gap between the organizations
performance and the performance of the best-
in-class organization?

What is the gap? How much is it?

Why is there a gap? What does the best-in-

class do differently that is better?

If best-in-class practices were adopted, what

would be the resulting improvement?
Learning from the Data

Studies can reveal 3 outcomes:

Negative gap
External
process better than internal
processes
Parity
Process performance approximately equal
Positive gap
Internal
process better than that found in
external organizations
Learning from the Data

At least two ways to prove a superior

practice:
Analyzed quantitatively
Summary measures and ratios (activity costs,
return on assets, or customer satisfaction
levels)
Market analysis
Does the market prefer one process over
another?
Price outside services
Using the Findings

When a benchmarking study reveals a

negative gap in performance, the
objective is to change the process to
close the gap
Two groups must agree on the change:
Process owners (those who run the
process)
Upper Management (incorporating
changes and providing resources)
Using the Findings

Generic steps of Action Plans:

1. Specify tasks
2. Sequence tasks
3. Determine resource needs
4. Establish task schedule
5. Assign responsibility for each task
6. Describe expected results
7. Specify methods for monitoring results
Using the Findings

Goals and objectives should be

consistent with the execution of the
action plan so that the end result is
process superiority

The best results are obtained when the

process owners fully participate in the
design and execution of the plan
Using the Findings

The next step is to repeat the

benchmarking process

The benchmarking process must be

used continuously to pursue emerging
new ideas
Pitfalls & Criticisms

Idea of copying others

How can an organization be superior if it
does not innovate to get ahead? How can
an organization even survive if it loses
track of its external environment?
Not a strategy or business philosophy
It is an improvement tool
Not a substitute for innovation
It is a source of ideas from outside
Pitfalls & Criticisms

Avoid
Benchmarking for the sake of it
Focusing entirely on comparisons of
performance measures rather than the
processes and activities that enable the
achievement of good practice
Expecting that benchmarking will be quick
or easy
Questions for Discussion

What are the six core techniques of the

benchmarking process?
1. Decide what to benchmark
2. Understand current performance
3. Plan
4. Study others
5. Learn from the data
6. Use the findings
Questions for Discussion

Efficiency has been defined as doing

things better and effectiveness as
doing better things.

Describe how benchmarking can be

used to improve both efficiency and
effectiveness
Questions for Discussion

Explain how an organization might

benefit from benchmarking organizations
in a completely different industry
Questions for Discussion

Identify and explain the three types of

benchmarking

In what circumstances would each type

be most appropriate?
Questions for Discussion

How are critical success factors

important in benchmarking?
Questions for Discussion

Benchmarking studies are a search for

two types of information
An understanding of best-in-class
processes
The metrics that result

Which piece of information is more

important and why?
Questions for Discussion

Why is it important to understand internal

processes before studying those of other
organizations?

What tools are useful in examining

internal processes?
Questions for Discussion

Who in the class has experience in the

benchmarking process?
Thanks for your time!

Rachal
Tim
Chris