Benchmarking relies on a comparison of the characteristics of the organization with competitors or leading firms in the industry, and copying proven designs. Such comparing have long been used, hence some authors suggest that benchmarking is not a method that deserves special attention.
Using benchmarking managers try to eliminate the basic problem of comparisons - the inability to be better than company used for comparison.
Benchmarking is a systematic process of comparing own business with others, or comparing between each other among the various departments of the business to determine what is its current status and whether any change is needed.
Usually managers seek processes showing the highest effectiveness in a given area, and try to imitate the best. Benchmarking is treated as automatic and long-term process. Improving business areas should not be a one-off activity. Managers should collect information and search for better solutions.
Benchmarking in their current form began in a company Rank Xerox, which in the 70s underwent serious financial and organizational problems related to the strong competition in the market of photocopiers. Cost of production of main competitor - Canon - were repeatedly lower than those of Rank Xerox. Management has developed a three-part program of Leadership Through Quality, the second part was called Benchmarking.
There are four types of benchmarking:
- overall, also called horizontal.
- 'Internal benchmarking' is used in large organizations that have multiple branches or subsidiaries performing similar activities. There is the possibility of comparing the effectiveness of individual branches and dissemination of best practices. The advantage of this solution is to have full rights to the use of selected solutions, as well as access to all the data. The disadvantage is the access only to own solutions and the lack of comparison with others in the market. Therefore, internal benchmarking should be used complementarily for the dissemination of good practices.
- Competitive benchmarking is difficult to implement due to the reluctance of competitors to disclose their data. It is perceived as a cooperative method, not as a type of business intelligence acquisition. Cooperation between competitors of significant market share may give rise to adverse legal consequences associated with suspicion of preparing a collusion or other prohibited practices. Comparing with the competition does not give a large benefit also because it often uses similar technologies and related organisational solutions, typical for the industry. To find new solutions managers really need to go beyond the industry.
- Functional benchmarking requires finding an organization to comparisons in other industries, with the exception that there are compared only selected areas, which function similarly to our company. Managers can compare internal communications processes, organization of transportation, supply processes. Due to the lack of a competition, such partners are willing to exchange information. It is also possible to find new solutions that will significantly boost the efficiency of the operation. Functional bencmarking is considered by many authors as the best because of the potential effects of its use.
- Overall benchmarking is a variety of functional and it consists of comparing the processes of universal character that look similar in many organizations, regardless of their field of activity, such as customer service.
Examples of Benchmarking
- Product benchmarking: This involves comparing the features, design, and performance of a product with those of its competitors. Companies can use this type of benchmarking to identify areas where their own products are lacking, such as design flaws or inadequate performance, and then take steps to improve their products.
- Process benchmarking: Process benchmarking focuses on how a company performs certain tasks, such as customer service or order fulfillment. This type of benchmarking can help companies identify areas where their processes are inefficient and then look to their competitors to see how they can improve.
- Quality benchmarking: Quality benchmarking compares a company's quality standards to those of its competitors. This type of benchmarking can help companies identify areas where their quality standards are lacking and then take steps to improve their quality control processes.
- Financial benchmarking: Financial benchmarking compares a company's financial performance to that of its competitors. This type of benchmarking can help companies identify areas where their financial performance is lagging and then look to their competitors to see how they can improve.
Advantages of Benchmarking
Benchmarking is an important tool for organizations to assess and improve their performance. It involves the comparison of an organization’s processes, products and services to industry leaders, enabling organizations to identify areas of potential improvement. The main advantages of benchmarking include:
- Improved Performance: Benchmarking helps organizations to identify processes and strategies that are effective and those that need improvement. It allows organizations to measure performance against industry standards, enabling them to identify and prioritize areas where performance can be improved.
- Increased Efficiency: Benchmarking helps organizations to identify processes and strategies that are inefficient or ineffective. By comparing their performance to that of industry leaders, organizations can identify areas where improvements can be made, leading to increased efficiency and cost savings.
- Improved Quality: By comparing their products and services to those of industry leaders, organizations can identify areas where improvements can be made to enhance quality. This can help organizations to stay competitive in a rapidly changing marketplace.
- Enhanced Innovation: By comparing their processes and products to those of industry leaders, organizations can gain insight into innovative strategies and techniques that can be adopted to improve their own performance. This can help organizations to remain competitive and stay ahead of the competition.
Limitations of Benchmarking
Benchmarking is a powerful tool to measure an organization’s performance and identify areas for improvement, however it is not without its limitations. The following are some of the most common limitations of benchmarking:
- Benchmarking can be time consuming and expensive to implement. It requires significant data collection and analysis, and organizations may lack the resources to invest in such a process.
- Benchmarking results can be difficult to interpret. In some cases, the data collected does not provide enough information to identify genuine opportunities for improvement, making it difficult to implement meaningful changes.
- Benchmarking results can be subject to bias, as organizations may be more likely to compare themselves to competitors or firms with similar characteristics to their own.
- Benchmarking does not address the root causes of an organization’s performance problems. It can identify areas for improvement, but it does not necessarily provide insight into why those issues exist in the first place, or how to address them effectively.
Benchmarking is a method of comparing one company's performance against another's, in order to identify areas of improvement and best practices. However, there are several other approaches related to Benchmarking that can be used to improve performance and optimize resources. These include:
- Process Mapping – Process Mapping is a tool used to analyze and document business processes. It is a visual representation of steps, activities and tasks that need to be carried out to complete a process. It helps identify inefficiencies and areas for improvement.
- Quality Function Deployment (QFD) – QFD is a structured approach used to convert customer requirements into product design and quality characteristics. It is a process of translating customer needs into technical requirements.
- Six Sigma – Six Sigma is a set of techniques used to improve quality and reduce defects. It is a process of identifying and measuring defects in a process, and then reducing them to an acceptable level.
- Lean Manufacturing – Lean Manufacturing is a set of principles and techniques used to minimize waste and maximize efficiency. It is a process of continuously improving production processes by eliminating waste and streamlining the supply chain.
In summary, Benchmarking is a powerful tool for improving a company's performance by comparing it to others. However, there are several other approaches such as Process Mapping, Quality Function Deployment, Six Sigma and Lean Manufacturing that can also be used to optimize resources and improve performance.
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