The Management Of Technology Information And Change

Published Date: 02 Nov 2017

Benchmarking is the process of comparing one's business processes and performance metrics to industry bests or best practicesfrom other industries. Dimensions typically measured are quality, time and cost. In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compare the results and processes of those studied (the "targets") to one's own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful.

Benchmarking is 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.

Also referred to as "best practice benchmarking" or "process benchmarking", this process is used in management and particularlystrategic management, in which organizations evaluate various aspects of their processes in relation to best practice companies' processes, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, 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 improve their practices.

Procedure

The Benchmarking Process : Camp (1989) lists the following steps for the

1. Planning:

1. Identify what is to be benchmarked

2.Identify comparative companies

3.Determine data collection method and collect data

2. Analysis

1. Determine current performance "gap"

2. Project future performance levels

3. Integration

1. Communicate benchmark findings and gain acceptance

2. Establish functional goals

4. Action:

1. Develop action plans

2. Implement specific actions and monitor progress

3. Recalibrate benchmarks

5. Maturity:

1. Leadership position attained

2. Practices fully integrated into process

The first step in benchmarking is determining what to benchmark. To focus the benchmarking initiative on critical issues, begin by identifying the process outputs most important to the customers of that process (i.e., the key quality characteristics). This step applies to every organizational function, since each one has outputs and customers. The QFD/customer needs assessment is a natural precursor to benchmarking activities.

 

TYPES OF 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 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.

Best-in-class benchmarking - involves studying the leading competitor or the company that best carries out a specific function.

Operational benchmarking - embraces everything from staffing and productivity to office flow and analysis of procedures performed.

Energy benchmarking - process of collecting, analyzing and relating energy performance data of comparable activities with the purpose of evaluating and comparing performance between or within entities. Entities can include processes, buildings or companies. Benchmarking may be internal between entities within a single organization, or - subject to confidentiality restrictions - external between competing entities.

A company that decides to undertake a bench-marking initiative should consider the following questions: When? Why? Who? What? and How?

WHEN.

Benchmarking can be used at any time, but is usually performed in response to needs that arise within a company. According to C.J. McNair and Kathleen H.J. Leibfried in their book Benchmarking: A Tool for Continuous Improvement, some potential "triggers" for the benchmarking process include:

quality programs

cost reduction/budget process

operations improvement efforts

management change

new operations/new ventures

rethinking existing strategies

competitive assaults/crises

WHY.

This is the most important question in management's decision to begin the benchmarking process. McNair and Leibfried suggest several reasons why companies may embark upon benchmarking:

to signal management's willingness to pursue a philosophy that embraces change in a proactive rather than reactive manner;

to establish meaningful goals and performance measures that reflect an external/customer focus, foster "quantum leap" thinking, and focus on high-payoff opportunities;

to create early awareness of competitive disadvantage; and

to promote teamwork that is based on competitive need and is driven by concrete data analysis, not intuition or gut feeling.

WHO.

Companies may decide to benchmark internally, against competitors, against industry performance, or against the "best of the best." Internal benchmarking is the analysis of existing practice within various departments or divisions of the organization, looking for best performance as well as identifying baseline activities and drivers. Competitive benchmarking looks at a company's direct competitors and evaluates how the company is doing in comparison. Knowing the strengths and weaknesses of the competition is not only important in plotting a successful strategy, but it can also help prioritize areas of improvement as specific customer expectations are identified. Industry benchmarking is more trend-based and has a much broader scope. It can help establish performance baselines. The best-in-class form of benchmarking examines multiple industries in search of new, innovative practices. It not only provides a broad scope, but also it provides the best opportunities over that range.

WHAT.

Benchmarking can focus on roles, processes, or strategic issues. It can be used to establish the function or mission of an organization. It can also be used to examine existing practices while looking at the organization as a whole to identify practices that support major processes or critical objectives. When focusing on specific processes or activities, the depth of the analysis is a key issue. The analysis can take the form of vertical or horizontal benchmarking. Vertical benchmarking is where the focus is placed on specific departments or functions, while horizontal bench-marking is where the focus is placed on a specific process or activity. Concerning strategic issues, the objective is to identify factors that are of greatest importance to competitive advantage, to define measures of excellence that capture these issues, and to isolate companies that appear to be top performers in these areas.

HOW.

Benchmarking uses different sources of information, including published material, trade meetings, and conversations with industry experts, consultants, customers, and marketing representatives. The emergence of Internet technology has facilitated the bench-marking process. The Internet offers access to a number of databases-like Power-MARQ from the nonprofit American Productivity and Quality Center-containing performance indicators for thousands of different companies. The Internet also enables companies to conduct electronic surveys to collect bench-marking data. How a company benchmarks may depend on available resources, deadlines, and the number of alternative sources of information.

Advantages

Lowering Labor Costs

One advantage of benchmarking may be lower labor costs. For example, a small manufacturing company may study how a top competitor uses robots for several basic plant functions. These robots may help the competitor save a significant amount of money on labor costs. Company managers may obtain information on these robotics systems through the competitor's website or online articles. They may also identify the company that sold the competitor the robots. Subsequently, the company using benchmarking may call the robot manufacturer to help set up its own system.

Improving Product Quality

Companies may also use benchmarking to improve product quality. Engineers sometimes purchase leading competitors' products. They may then take them apart, study them and determine how the competitors' products outlast or outperform others in the industry. Chemical engineers may study food or cleaning products in a similar manner. They can then compare various elements contained in competitive products to their own product line. Subsequently, improvements can be made to product quality.

Increasing Sales and Profits

A company that uses benchmarking to improve its functions, operations, products and services may enjoy increases in sales and profits. Customers are likely to notice these improvements. The benchmarking company may also promote is improvements through company brochures, its sales reps, magazine and television ads. These efforts are likely to increase sales, especially among core customers. Companies that operate more efficiently due to benchmarking can drastically lower their expenses. These savings can be lead to greater profits.

Considerations

Some organizations use internal benchmarking to improve performance in different departments. Department managers may study and emulate the best practices of one particular department. These changes may spark improvements among all departments. Internal benchmarking has its limitations, however. The company's top department may not be functioning as efficiently as others in the industry. This means the other departments were not truly benchmarking against the best departments out there.

COSTS

The three main types of costs in benchmarking are:

Visit Costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labor time.

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.

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.

COLLABORATIVE BENCHMARKING

Benchmarking, originally described Rank Xerox, is usually carried out by individual companies. Sometimes it may be carried out collaboratively by groups of companies (e.g. subsidiaries of a multinational in different countries). One example is that of the Dutchmunicipally-owned water supply companies, which have carried out a voluntary collaborative benchmarking process since 1997 through their industry association. Another example is the UK construction industry which has carried out benchmarking since the late 1990s again through its industry association and with financial support from the UK Government

TECHNICAL/PRODUCT BENCHMARKING

The technique initially used to compare existing corporate strategies with a view to achieving the best possible performance in new situations, has recently been extended to the comparison of technical products. This process is usually referred to as "technical benchmarking" or "product benchmarking". Its use is well-developed within the automotive industry ("automotive benchmarking"), where it is vital to design products that match precise user expectations, at minimal cost, by applying the best technologies available worldwide. Data is obtained by fully disassembling existing cars and their systems. Such analyses were initially carried out in-house by car makers and their suppliers. However, as these analyses are expensive, they are increasingly being outsourced to companies who specialize in this area. Outsourcing has enabled a drastic decrease in costs for each company (by cost sharing) and the development of efficient tools (standards, software)

SUCCESSFUL BENCHMARKING

There are several keys to successful benchmarking. Management commitment is one that companies frequently name. Since management from top to bottom is responsible for the continued operation and evaluation of the company, it is imperative that management be committed as a team to using and implementing benchmarking strategies. A strong network of personal contacts as well as having an open mind to ideas is other keys. In order to implement benchmarking at all stages, there must be a well-trained team of people in order for the process to work accurately and efficiently. Based on the information gathered by a well-trained team, there must also be an effort toward continuous improvement. Other keys include a benchmarking process that has historical success, sufficient time and staff, and complete understanding of the processes to be benchmarked.

In almost any type of program that a company researches or intends to implement, there must be goals and objectives set for that specific program. Benchmarking is no different. Successful companies determine goals and objectives, focus on them, keep them simple, and follow through on them. As in any program, it is always imperative to gather accurate and consistent information. The data should be understood and able to be defined as well as measured. The data must be able to be interpreted in order to make comparisons with other organizations. Lastly, keys to successful benchmarking include a thorough follow-through process and assistance from consultants with experience in designing and establishing such programs.

THE FUTURE OF BENCHMARKING

Although early work in benchmarking focused on the manufacturing sector, it is now considered a management tool that can be applied to virtually any business. It has become commonplace for companies to use in order to compete in and lead their respective industries. It has helped many reduce costs, increase productivity, improve quality, and strengthen customer service.

In the book Benchmarking the Information Technology Function, Charles B. Greene noted that companies are increasingly interested in benchmarking for a number of activities, including:

cost of supporting business driver (transaction costs, or cost per order)

systems development activities, including maintenance, backlogs, development productivity and project management

end-user support

data centers/communication networks

skills management

business strategy alignment

technology management

customer/user satisfaction

According to a 2003 Bain and Company survey quoted in Financial Executive, benchmarking received the second-highest usage score (84 percent) among more than two dozen management tools used by senior executives around the world. The survey also reported that users tend to be highly satisfied (rated 3.96 on a 5-point scale) with the results benchmarking provides to their companies.