CHAPTER 7

Benchmarking

INTRODUCTION
Benchmarking is a way for organizations to:

 Compare themselves to the best in their industry

 Learn from their strengths and weaknesses
 Improve their performance by adopting best practices
 Gain a competitive edge

It’s a tool for continuous improvement, used by many top companies like
Xerox, AT&T, and Toyota. Benchmarking helps organizations:

 Set quality goals based on industry standards

 Learn from others’ successes and mistakes
 Stay ahead of the competition
BENCHMARKING DEFINED
Benchmarking:

 Find out how others do things better

 Learn from their success
 Improve your own performance

It’s like copying from a classmate who gets high grades, but instead of
cheating, you learn from their study habits and techniques to improve your
own grades!

Benchmarking has two main steps:

1. Compare your performance to the best using numbers and metrics.

2. Understand why you’re different and use that knowledge to improve.

REASON TO BENCHMARK
Here are the main reasons to benchmark:

1. Stay ahead of the competition:

Benchmarking helps you keep up with the best in the industry and avoid
falling behind.

2. Set realistic goals:

It helps you set goals based on real data, making them more achievable and
motivating.

3. Save time and money:

By adopting proven methods, you can avoid wasting resources on trial and
error.

Benchmarking also encourages organizations to:

 Stay up-to-date with the latest technologies and innovations

 Continuously improve and adapt to changes in the industry

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BENCHMARKING PROCESS

Organizations adapt the benchmarking process to fit their needs and culture.
While steps may vary, the core process typically involves six steps:

1. Decide What to Benchmark:

Identify areas for improvement.

2. Understand Current Performance:

Analyze existing processes and performance levels.

3. Plan:

Develop a benchmarking strategy.

4. Study Others:

Research and collect data from top-performing organizations.

5. Learn from the Data:

Analyze the collected information.

6. Use the Findings:

Implement improvements based on the insights gained.

Examples:
AT&T’s 12-Step Process:

Incorporates training and ensures commitment from personnel using

benchmarking results. It includes testing the environment, selecting a
team, and continuous improvement.

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 Xerox’s 10-Step Process:

Focuses on integrating benchmarking into formal planning. It involves

identifying what to benchmark, collecting data, setting goals, developing
action plans, and recalibrating benchmarks.

Both companies adapt the core steps to meet their specific needs while
ensuring consistent benchmarking activities.

DECIDING WHAT TO BENCHMARK

Decision of what to benchmark are:

1. Align with mission and vision:

Focus on processes that matter most to your organization’s goals.

2. Identify critical processes:

Determine which processes are vital for success.

3. Ask key questions:

What causes problems?

What affects customer satisfaction?

What are the competitive pressures?

What sets you apart from competitors?

Examples:
 Insurance Company 1: Focuses on customer service, so they
benchmark customer support processes.
 Insurance Company 2: Focuses on investment performance, so they
benchmark investment processes.

Scope of Benchmarking:
Broad and Shallow:

Looks at many functions, useful for strategy and goal setting.

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Narrow and Deep:

Focuses on specific processes, useful for improving job performance.

Tools and Techniques:

Pareto Analysis: Helps identify important processes to benchmark.

Cause-and-Effect Diagrams: Trace process outputs back to inputs.

Flow Diagrams: Examine factors influencing processes.

Metrics:
Use metrics like value added per employee to measure efficiency and guide
benchmarking efforts.

UNDERSTANDING CURRENT
PERFORMANCE
To benchmark effectively, you need to understand your current process.
Here’s how:

1. Map it out:
Use diagrams to visualize the process, including inputs, outputs, and
exceptions.

2. Talk to the experts:

Involve the people who work in the process, as they know it best and can
help implement changes.

3. Measure performance:
Identify key metrics (e.g., costs, quality measures) to compare against
benchmarks.

4. Handle missing data:

Decide how to handle gaps in data, either by estimating or collecting more
information.

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5. Use accounting data wisely:
Ensure costs are accurately represented, as accounting systems may not
always reflect the specifics of the process.

PLANNING
Planning a Benchmarking Study:

1. Assemble a team:
Choose team members to conduct the benchmarking.

2. Decide on the type of benchmarking:

Internal (compare within your organization), competitive (compare with
competitors), or process benchmarking (compare common processes across
industries).

3. Identify data to collect:

Determine what data is needed and how to collect it.

4. Select benchmark partners:

Identify organizations to benchmark against.

5. Set deadlines and goals:

Establish timetables and desired outcomes.

Benchmarking Types:
1. Internal: Compare similar activities within your organization.

2. Competitive: Compare with competitors.

3. Process: Compare common processes across industries.

Planning Steps:
1. Use public information:

Start with trade journals, internet, and benchmarking databases.

2. Set project timetables:

Use tools like Gantt charts or PERT.

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3. Narrow down candidates:

Identify potential partners, then reduce to a short list.

The goal is to create a focused and efficient benchmarking study that aligns
with your organization’s needs and critical success factors. It’s like planning a
road trip – you need to know where you’re going, how to get there, and who’s
coming with you!

STUDYING OTHERS
To benchmark effectively, organizations need to understand both best
practices and their results. Here’s how to gather this information:

1. Use existing data:

Start with internal sources and public information to save time and costs.

2. Original research:
If needed, use:

 Questionnaires: Gather data from many sources while ensuring

anonymity.
 Site visits: Observe processes in action and have face-to-face
discussions.
 Focus groups: Discuss mutual interests with benchmarking partners,
customers, suppliers, or industry professionals.

Key steps for original research:

1. Questionnaires: Design carefully and use as a preparation or follow-up
tool.

2. Site visits: Establish mutual learning, plan the visit itinerary, and debrief
immediately afterward.

3. Focus groups: Use previous benchmarking partners or members from

relevant professional organizations.

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LEARNING FROM THE DATA
When analyzing data, ask:
1. Is there a performance gap between your organization and the best-in-
class?

2. How big is the gap?

3. Why does the gap exist? What do best-in-class organizations do

differently?

4. What improvements can be made by adopting best-in-class practices?

Benchmarking results might show:

Negative Gap: External processes are better, and major improvements are
needed.

Parity: Internal and external processes are similar, but there might still be
room for improvement.

Positive Gap: Internal processes are better, and recognition is deserved.

To prove one practice is superior, use:

Quantitative Analysis: Compare measures like costs, defect rates, or customer
satisfaction.

Market Analysis: Determine market preference or price of services.

By detailing best-in-class processes and quantifying key measures, you can

identify and understand gaps. These gaps might be due to process practices,
business practices, or organizational structure. Focus on changes that can be
made within the planning period to achieve benchmark goals.

USING THE FINDINGS

When a benchmarking study identifies a performance gap, the goal is to
change the process to close that gap. Effective change requires:

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1. Communication: Share findings with those who can make improvements.

2. Goal Setting: Translate findings into specific goals and objectives.

3. Action Plans: Develop detailed steps to implement new processes.

Two key groups need to agree on the changes:

Process Owners: Those who will implement the changes.

Upper Management: Those who provide support and resources.

Steps:
Steps for developing and executing an action plan include:

1. Specify tasks.

2. Sequence tasks.

3. Determine resource needs.

4. Establish a schedule.

5. Assign responsibility.

6. Describe expected results.

7. Monitor progress.

Benchmarking should be a continuous improvement tool, not a one-time

effort. Regular benchmarking helps integrate new ideas and avoid
complacency.

PITFALLS AND CRITICISMS OF

BENCHMARKING
Key Points:
1. Copying vs. Innovating: Benchmarking isn’t about copying others, but
about staying aware of external environments to survive and improve.

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2. Limitations: Benchmarking is an improvement tool, not a strategy or
business philosophy. It may not be effective for processes with little
improvement potential, and fails if process owners feel threatened or ignore
findings.

3. Continuous Need: Processes may need repeated benchmarking as things

change over time.

4. Complementary to Innovation: Benchmarking provides ideas, but isn’t a

substitute for innovation. It helps set realistic goals based on external
standards.

Conclusion:
Benchmarking ensures organizations meet consumer expectations for
quality, cost, and delivery by setting and achieving goals based on external
reality. It’s a tool to improve and stay competitive, not a replacement for
innovation and creativity!

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