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Benchmarking is a tool aimed at understanding and improving business processes and performance. It is concerned with assessing aspects of a company's performance, its processes, procedures and methods and comparing these with other organisations in ordef to gain insights and new ideas for performance improvements. It is generally recognised as having been developed in the United States in the late 1970's and in its early stages of development in the form of "Competitive Benchmarking" was concerned with finding best practice from amongst direct competitors within the same product markets employing similar technologies and of a similar size.

The Xerox Corporation is often cited as pioneering this type of benchmarking. Their studies had shown that Japanese competitors were selling copiers in the US at below Xerox's manufacturing costs, and that between the late 1970's and early 1980's they had lost over half their market share. Using competitive benchmarking Xerox went on to reduce their their manufacturing costs by 50%, cut product development cycles by 25% and increased revenue per employee by 20%!¹

Evidence such as this has led to a remarkable growth in the use of benchmarking. Lucas industries cut the number of shop-floor grades four-fold following a benchmarking exercise against a German plant; Rover halved its test times after benchmarking against Honda and British Rail cut the cleaning time for a 660 seater train to just eight minutes having benchmarked against British Airways.

However the obvious potential for conflicts of interest in competitive benchmarking has led to non competitive benchmarking methods being developed. This involves organisations comparing their performance with best practice as demonstrated by often very different businesses and markets.

So to a definition:

Benchmarking focuses on how to improve any given business process by exploiting "best practices" rather than merely measuring the best performance. Best practices are the cause of best performance. Studying best practices provides the greatest insight into the drivers of best performance.

Summary of benefits of Benchmarking

  • Helps organizations to make better-informed decisions

  • Exposes organizations to innovations and breakthroughs

  • Allows organizations to see beyond the barriers, embrace change, and think "outside the box"

  • Provides organizations with a methodology and a plan for accelerating, implementing, and managing change

Benchmarking's positive influence extends beyond improving a particular business process. It also promotes the emergence and evolution of a "learning culture" throughout the enterprise-a key to continuous improvement, total quality, and competitiveness over the long term.

Strategic initiatives dot the corporate landscape. A common theme is the need to make better-informed decisions by getting more and better information. Given today's environment, there's simply less margin for error. Questions proliferate from organizations: How do we restructure accounts payable to reduce days outstanding? Why do we still get many customer complaints? How do we deliver field service without costs eating our lunch? Why do competitors beat us to market? How do we further improve product or service quality? What about process quality? The value chain? Positioning? Growth?

"At GTE, benchmarking is a stepping stone to our goal. It's one of our values and part of our mission statement. [It gets] top-level management commitment Benchmarking has been the major driving force that has allowed us to reinvent how we do business and how we are organized-from the front line to the front office.".²

Senior-level cheerleading alone doesn't produce optimum results. As with any process, benchmarking works best when senior management acquires a deep understanding of it. Consider, for example, the issue of selecting an optimum benchmarking partner. Should the organization look only within its own industry or broaden the search possibilities?

By observing production methods in a Chicago slaughterhouse, Henry Ford got the inspiration for assembly line manufacturing. Telecommunications giant GTE discovered how to improve its field service by studying that of an elevator company. This worked well because field service held sufficient similarities across industries. On the other hand, the Ritz-Carlton hotel chain revamped its housekeeping process after benchmarking innovative best practices at a competitors hotel.

Biggest pitfall and potential payback

Unfortunately, senior managers who are inexperienced in benchmarking often fall prey to a misconception. These executives see benchmarking as the process of measuring best performance. They believe that after discovering the best-performance benchmark, the organization should turn to its own creative resources to meet or beat the new benchmark.

This view completely misses the most valuable part of benchmarking-the part that more sophisticated benchmarking companies leverage to gain extraordinary strategic and financial advantage. The missing piece: Benchmarking is actually the process of learning lessons about how best performance is accomplished. That is why experienced benchmarkers refer to best-in-class organizations as having "best practice"-not "best performance". True, best-in-class companies do have best performance-but best practice is the cause.

The service we provide

We can provide a benchmarking service for you as follows:

  • Initially we provide data on best performance in the sector in which your company operates and can fine tune this to regional and business size where applicable.

  • If you wish to run a benchmarking project to analyse your own business processes with a view to improving the performance of these processes we are able to project manage this for you and make recommendations for achieving the best practice targets you wish to achieve

Please contact us if you wish to avail yourself of this service.

1- Benchmarking the Finance Function - Board of Chartered Accountants in Business - 1997
2- Q&A, Continuous Journey (APQC periodical), Summer 1995, interview with Steve Hertzberger, Director Benchmarking Initiatives, GTE Telephone Operations