Benchmarking is a methodology used to compare processes and performance metrics of a business with the best practices of the market or other companies, thus discovering opportunities for improvement.
In the process of benchmarking of best practices, management identifies the companies with the best performance in their industry (or in another industry where there are similar processes) and compares the results and processes of the model companies with their own results and processes. In this way, they learn how well the goals are executed and, most importantly, the business processes that explain why these companies are successful.
Benchmarking is used to measure performance using a specific indicator such as cost per unit of measure, productivity per unit of measure, x cycle time per unit of measurement or defects per unit of measure, resulting in a performance metric that is then compared with others. Although it is very common in areas of quality, the benchmark can also be used by the areas of marketing, financial, human resources and even strategy.
Also referred to as benchmark of best practices ou process benchmarking, the methodology is also used in management, which shows in particular the strategic management in which organizations evaluate various aspects of their processes in relation to the processes of the best practices of the companies, usually within a set group point for comparison purposes.
This allows organizations to action plans to improve or adapt specific best practices, usually with the aim of increasing their own performance in the short, medium or long term. The benchmark can be a unique event, but it is often treated as a continuous process in which organizations are constantly seeking to improve their practices.
The term "bench mark"Or benchmarking originates from the gray horizontal marks that surveyors made on stone structures in which an angle of iron could be placed to form a "seat" for a leveling rod, thus ensuring that this rod could be accurately repositioned in the same place in the future.
These marks were usually indicated with a gray arrow below the horizontal line. The benchmark is most often used to measure performance using a specific indicator resulting in a performance metric that is then compared to others. In 1994, was published one of the first technical newspapers denominated "Benchmarking: An International Journal".
In 2008, a comprehensive benchmarking survey was commissioned by the Global Benchmarking Network, a network of benchmarking centers representing 22 countries.
The Statements of Mission and Vision and Customer Surveys are the most used benchmark forms (by 77% of organizations) among 20 existing improvement tools, followed by SWOT Analysis (strengths, weaknesses, opportunities and threats) (72%) and Benchmarking Informals (68%). Performance benchmarking was used in 49% and Benchmarking best practices in 39%.
The tools that are likely to increase in popularity over the next three years are Performance Benchmarking, Informal Benchmarking, SWOT, and Benchmarking Best Practices. Over 60% of organizations that are not currently using these tools have indicated that they will likely use them again in the next three years.
There is no benchmark process only one that has been adopted universally. The great appeal and acceptance of the benchmark led to the emergence of benchmarking methodologies. A seminal book is the Boxwell Benchmarking for Competitive Advantage (1994). The first book on benchmarking, written and published by Kaiser Associates, is a practical guide and offers a seven step approach. Robert Camp (who wrote one of the first books on benchmarking in 1989) developed an approach in 12 stages for benchmarking.
The methodology of 12 stages consists of:
- Select Subject
- Define the process
- Identify potential partners
- Identify data sources
- Collect data and select partners
- Determine the gap
- Establish process differences
- Target future performance
- Adjust Goal
- Review and Adjust
The following is an example of a typical benchmark methodology:
- Identify problem areas: since benchmarking can be applied to any business process or function, a number of research techniques may be required. They include informal conversations with customers, employees or suppliers; techniques of exploratory research, as focus groups; or in-depth marketing research, quantitative surveys, surveys, questionnaires, reengineering analysis, process mapping, quality control variation reports, financial rate analysis or simply by reviewing cycle times or other performance indicators. Before embarking in comparison with other organizations, it is essential to know the function and processes of the organization; the performance of the base coat provides a point against which the improvement effort can be measured.
- Identify other industries that have similar processes: for example, if one were interested in improving the workforce in the treatment of addiction, it would identify other fields that also have labor challenges. These could include air traffic control, cell phone exchange between towers, transfer of patients from surgery to recovery rooms.
- Identify leading organizations in these areas: look for the 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.
- Hire Research 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 usually masked to protect confidential data by neutral associations and consultants.
- Visit "best practices" companies to identify cutting-edge practices: companies generally agree to exchange mutually beneficial information for all parties in a benchmarking group and share the results within the group.
- Implement new and improved business practices: adopt leadership practices and develop implementation plans that include identifying specific opportunities, financing the project, and selling the ideas to the organization in order to obtain the demonstrated value of the process.
The top three types of costs in benchmarking are:
- Visiting Costs - This includes hotel rooms, travel costs, meals, a token gift and loss of working time.
- Time Costs - Benchmarking team members will invest time in problem research, finding exceptional companies to study, visit and implement. This will take them away from their regular tasks for part of each day, so that additional staffing may be required.
- Costs of the benchmarking database - Organizations that institutionalize benchmarking in their daily procedures find it useful to create and maintain a database of best practices and companies associated with each best practice now.
The cost of benchmarking can be substantially reduced through the use of many internet resources that have emerged in recent years. These aim to capture benchmarks and best practices from organizations, business sectors and countries to make the benchmarking process much faster and cheaper.
Benchmarking can be internal (comparing performance across different groups or teams within an organization) or external (comparing performance with firms in a particular industry or between industries). In these broader categories, there are three specific types of benchmarking: 1) Comparative process analysis, 2) performance benchmark and 3) strategic benchmark. These can be detailed as follows:
- Process analysis - the initiating company focuses its observation and business process research with the objective of identifying and observing the best practices of one or more benchmark firms. Activity analysis will be needed where the goal is to compare costs and efficiency; increasingly applied to back-office processes where outsourcing may be a consideration. Benchmarking is appropriate in almost all cases where the redesign or improvement process should be undertaken as long as the cost of the study does not exceed the expected benefit.
- Financial Benchmarking - conducting a financial analysis and comparing the results in an effort to assess their overall competitiveness and productivity.
- Benchmarking from an investor perspective - extending the benchmarking universe to also compare with peer companies that may be considered alternative investment opportunities from an investor's perspective.
- Benchmarking in the public sector - works as a tool for improvement and innovation in public administration, where state organizations invest their efforts and resources to achieve the quality, efficiency and effectiveness of the services they provide.
- Performance Comparison - allows the initiating company to assess its competitive position by comparing products and services with target companies.
- Product Comparison - the process of creating new products or upgrades to current ones. This process can sometimes involve reverse engineering that separates competing products to find strengths and weaknesses.
- Strategic benchmarking - involves observing how others compete. This type is usually not industry specific, which means it is best to look at other industries.
- Functional comparative evaluation - a company will focus its benchmark on a single function 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 terms of cost and efficiency and can be disaggregated into processes to make a valid comparison.
- The best benchmarking in the best category - involves studying the lead competitor or the company that best performs a specific function. The operational benchmark covers everything from personal and productivity to office flow and analysis of procedures performed.
- Comparative Energy Assessment - process of collecting, analyzing and correlating energy performance data of comparable activities with the purpose of evaluating and comparing performance between or within entities. Entities may include processes, buildings or businesses. It can be internal between entities within a single organization, or - subject to confidentiality restrictions - external between competing entities.
O benchmarking software can be used to organize large and complex amounts of information. Software packages can extend the concept of benchmarking and competitive analysis, allowing individuals to deal with such large and complex quantities or strategies. Such tools support different types of benchmarks and can significantly reduce the costs above.
Emerging benchmark engine technology automates the stage of moving from data to remarkable comparative information, sometimes even expressing insights into English sentences.
Get to know our Benchmarking worksheet to help you in this important task.