Benchmarking

About Benchmarking
A method of comparing the performance of one organization or process with others by measuring and comparing with other organization's external and internal process performance that is widely considered to be an industry standard or best practice.

Best Practice Benchmarking and Process Benchmarking: it is a process methodology used by management of organisations and particularly senior management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within a specifice market segment or a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adopt best practice, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to challenge their practices by studying the trends year to year.

The term benchmarking was first used by cobblers to measure the size of one’s feet for shoes. The foot is placed on a "bench" and marked to make the pattern for the shoes. Benchmarking is mostly used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.

This is perhaps the most valuable way of determining the industry competitiveness of your company overall and with regards to:

• The opportunities for growth and performance improvement
• Confirming Current Positioning and Differentiation
• Differentiation status and standing
• Best practice analysis
• Strategic analysis
• Service Benchmarking
• Relationship Benchmarking
• Cost benefit analysis
• Customer Satisfaction Benchmarking
• Corporate Governance Benchmarking
• Product Benchmarking
• Who or which competitor performs the business process very well and has process practices that are adaptable to your own organization
• Pockets of best practice
• Potensial reasons for potential churn of customers or intermediaries
• Trends compaired to previous performance to measure new strategy implementation
• Performance against expectation and needs difference
  

Most business processes are common throughout industries. For example; Company X has the same Customer Satisfaction Survey Process as Company Y. These processes, albeit from different industries, are all common and can be benchmarked very effectively.

One of the biggest mistakes organizations make when first benchmarking is that they limit their benchmarking activity to their own industry. Benchmarking within your industry is essential. However, you already have a pretty good idea how your industry performs so it's imperative that you reach outside and above your own industry into other industries that perform a similar process but may have to perform this process extremely well in order to succeed.

Procedure

There is no single benchmarking process that has been universally adopted. The wide appeal and acceptance of benchmarking has led to various benchmarking methodologies emerging. The most prominent methodology is the 12 stage methodology by Robert Camp (who wrote the first book on benchmarking in 1989).

The following is

The 12 stage methodology consisted of: Select subject ahead Define the process Identify potential partners Identify data sources Collect data and select partners               Determine the gap Establish process differences Target future performance Communicate Adjust goal Implement Review / recalibrate

1. Identify your problem areas - Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include: informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depth marketing research, quantitative research, surveys, questionnaires, re-engineering analysis, process mapping, quality control variance reports, or financial ratio analysis. Before embarking on comparison with other organizations it is essential that you know your own organization's function, processes; base lining performance provides a point against which improvement effort can be measured.
2. Identify other industries that have similar processes - For instance if one was interested in improving hand offs in addiction treatment he/she would try to identify other fields that also have hand off challenges. These could include air traffic control, cell phone switching between towers, transfer of patients from surgery to recovery rooms.
3. Identify organizations that are leaders in these areas - Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study.
4. Survey companies for measures and practices - Companies target specific business processes using detailed surveys of measures and practices used to identify business process alternatives and leading companies. Surveys are typically masked to protect confidential data by neutral associations and consultants.
5. Visit the "best practice" companies to identify leading edge practices - Companies typically agree to mutually exchange information beneficial to all parties in a benchmarking group and share the results within the group.
6. Implement new and improved business practices - Take the leading edge practices and develop implementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.
   

Cost of Benchmarking

Benchmarking is a moderately expensive process, but most organizations find that it more than pays for itself. The three main types of costs are:

1. Visit Costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labor time.
2. Time Costs - Members of the benchmarking team will be investing time in researching problems, finding exceptional companies to study, visits, and implementation. This will take them away from their regular tasks for part of each day so additional staff might be required.
3. Benchmarking Database Costs - Organizations that institutionalize benchmarking into their daily procedures find it is useful to create and maintain a database of best practices and the companies associated with each best practice now.

The cost of benchmarking can substantially be reduced through utilizing the many internet resources that have sprung up over the last few years. These aim to capture benchmarks and best practices from organizations, business sectors and countries to make the benchmarking process much quicker and cheaper.

Types of Benchmarking

• Customer Satisfaction Benchmarking - Conducting a customer satisfaction study in a specific industry Compairing service providers customer satisfaction measurement outcome scores fom specidic identified market segments
• Intermediary Benchmarking - Conducting a Intermediary satisfaction study in a specific industry compairing service providers intermediary satisfaction measurement outcome scores fom specidic identified market segments
• Product Provider Benchmarking - Conducting a Customer satisfaction study in a specific industry Compairing product providers satisfaction measurement outcome scores fom specidic identified market segments
• Infrastructure Benchmarking - Conducting a Research study in a specific infrastructure environment to compare the different organisations infrastructure capacity and fisical condition.
• Product Quality Benchmarking – Measure product on perception as well as technical feasability conducted by technical experts
• Impact of Industrial Conduct - Climate Change Benchmarking
• Process benchmarking - 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 and productivity.
• Benchmarking from an investor perspective- extending the benchmarking universe to also compare to peer companies that can be considered alternative investment opportunities from the perspective of an investor.
• 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 - involves observing how others compete. This type is usually not industry specific meaning it is best to look at other industries.
• Functional Benchmarking - 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.