Benchmarking

Farhad Zargari, MD, PhD Zargari,

drzargari@gmail.com July 2010

Outline
Benchmarking Definition Benchmarking Background Why Benchmarking? Benchmarking, Dimensions & Types Survey Benchmarking Process Benchmarking Essentials Benchmarking Costs Benchmarking Ethics Benchmarking Pitfalls References
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What is Benchmarking?
Benchmarking is the process of improving performance by continuously identifying, understanding, and adapting outstanding practices found inside and outside the organization.

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What is Benchmarking?
Benchmarking is the process of comparing one's business processes and performance metrics to industry bests and/or best practices from other industries.
    

Why are others better ? How are others better ? What can we learn ? How can we catch up ? How can we become the best in our sector ?

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What is Benchmarking?
Benchmarking is an improvement process that is used to identify best practice within a peer group and facilitate it s incorporation into your organization. Studying best practices provides the greatest opportunity for gaining a strategic, operational, and financial advantage.

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What is Benchmarking?
Benchmarking is the continuous search for and adaptation of significantly better practices that leads to superior performance by investigating the performance and practices of other organizations (benchmark partners). In addition, it can create a culture to facilitate the change process.

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What is Benchmarking?
Best practice refers to techniques, methods or processes that are more effective at delivering a desired outcome.Japanese Word DANTOTSU means striving to be the best of the best, captures the essence of Benchmarking. Incorporating best practice into your organization can lead to greater efficiency and effectiveness and a happier customer.

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What is Benchmarking?
Benchmarking means to measure the best practices of leading businesses, and learn and adapt them for use in your business.

Benchmarking is Making Best Practices Your Daily Practice.

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What is Benchmarking? (J. McEvilly-2008)

Benchmarking has three main features:
Continuous method of measuring and comparing a firm s business processes against those of another firm. Discover performance gaps between one s own processes and those of leading firms. Incorporate leading firm s processes into one s own strategy to fill the gaps and improve performance.
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What is Benchmarking?
An organization s ability to evaluate its practices against specific business strategies and objectives is critical to leveraging its knowledge capital (Harper, 1996). Information is there for organizations and it should be evaluated, used, and shared. This is one of the primary goals of benchmarking.

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Operational Definition of Benchmarking

A structured technique Comparing business processes, not only performance measures

Benchmarking is a technique of identifying, understanding and adapting superior practices from organizations locally and world wide to improve performance and achieve priority business results.

Learn from others

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External focus

Improvement, not evaluation

What is Benchmarking?
Benchmarking goes beyond comparisons with competitors to understanding the practices that lie behind the performance gaps. More and more organizations are realizing how much more can be achieved if there is more collaboration between them and leaders in an industry.

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What is Benchmarking?
Benchmarking is not a method for 'copying' the practices of competitors, but a way of seeking superior process performance by looking outside the industry.

When Benchmarking a System, Adapt What You Find, Don t Just Copy It

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What is Benchmarking?

Benchmarking = Copying
Conditions are never identical You can pick up critical variables and apply them Create a system a comprehensive set of reinforcing practices that are responsible for success
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What is Benchmarking?
Benchmarking is not just making changes and improvements for the sake of making changes, benchmarking is about adding value. Benchmarking makes it possible to gain competitive superiority rather than competitive parity.

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What is Benchmarking?
Benchmarking enables organizations to assess their own performance, compare it with that of others, analyse the gap between the two, identify and make fundamental changes in specific areas, in order to improve and enhance their own performance.

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What is Benchmarking?
Benchmarking is a tool for continuous improvement of the management of processes in companies to help them to gain world leadership.
Benchmark Purpose and Quality Maturity
Quality Maturity

I Learning from success

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II

III

IV

VI National leadership

Borrowing Best-inideas firm

Beating Best-inindustry class standards

What is Benchmarking?
In Japan, benchmarking is a part of their manager's job descriptions (Boxwell, 1994). This is one of the ways that the Japanese are able to keep up with and surpass others in industries such as automobiles, motorcycles, electronics, etc.

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What is Benchmarking?
Benchmarking is critical to formulating a knowledge-based plan of action to achieve objectives. A benchmark is a standard that provides a measuring-stick for relative performance.

US Department of Energy

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Benchmark
A benchmark is an organization recognized for its exemplary operational performance. There are many benchmarks in the world including:

Toyota for Intel for Motorola for

Scandinavian Airlines for

Processes Design Training Service

Rapid product development

Honda for
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Benchmarking and Industries

Relationship between benchmarking and industry type (According to one research done in the UK ):

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Benchmarking and Organization Size

Moreover a tendency of benchmarking activity is a function of size. A larger organization is more likely to be benchmarking than a smaller one.

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Actual Benchmarking Examples

Initiator Southwest Airlines Xerox IBM

Improvement Sought Faster plane turnaround time Warehousing operations Employee theft reduction

Target Firm Indy 500 pit crews L. L. Bean Las Vegas Casinos

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American Productivity and Quality Center-1988

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What is Benchmarking?
At its simplest, benchmarking means:

"Improving ourselves by learning from others."

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Background of Benchmarking
The term benchmarking was first used by cobblers to measure people's feet for shoes. They would place someone's foot on a "bench" and mark it out to make the pattern for the shoes.

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Background of Benchmarking
Traditionally, the organizations used to enhance their products and performance by focusing on their internal functional activities (Kolarik, 1995). The organization, for example, may use techniques such as Quality Function Deployment to achieve their customer satisfaction.

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Background of Benchmarking
However, these traditional performance improvement trends seem not to be sufficient for the highly competitive markets (Juran, 1993). A significant technique facilitating improvement of organizational performance at a competitive environment is benchmarking. (Juran, 1993).

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Background of Benchmarking
In other words external environment and market conditions change rapidly; goal setting which is internally focused can t be true reflection of customer s expectations.

In-ward Vision

Out-Ward Vision

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Background of Benchmarking
Customers expectations are highly liquid and are driven by standards set by best performer. Any product or service just below these standards may not catch the eyes of customer.

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Continuous and Breakthrough Improvement

Time
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Background of Benchmarking
Benchmarking was originally defined by D.T. Kearns, the CEO of Xerox Corporation, in 1981 as the continuous process of measuring products, services, and practices against the toughest competitors or non-competitors who is the leader in their industry (Kolarik, 1995).

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Why Benchmarking?
Survival lies in emulating best and not in lagging behind. Bench marking is time and cost efficient because it involves imitation and adaptation rather than pure invention. Prevents the Reinventing the wheel .

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Why Benchmarking?
Benchmarking gives us the chance of gaining: Better Awareness of Ourselves (Us)
 What we are doing  How we are doing it  How well we are doing it

Better Awareness of the Best (Them)

 What they are doing  How they are doing it  How well they are doing it

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Why Benchmarking
Performance Improvement
.

Meeting Quality Standards

Creative Thinking
.

Innovation In Management Methods

enchmarking Keep Pace with Science and Technology Changes

.

Cope with Competitive Markets

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Meeting Customers Expectations

.

Three Major Benefits of Benchmarking

Product and Process Improvement

Cost Reduction

Competitive Strategy

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Product and Process Improvement

In general, by implementing benchmarking activity, organizations can improve their operation process (Slack et al, 2001). For instance, South African Breweries plc had encountered the problem of poor employee skill, which is a significant difficulty to implement the world-class processes. As such, they decided to benchmark strategy from an organization in Geneva. They, consequently, attained the solution (Slack et al, 2001).
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Cost Reduction
Benchmarking facilitates a reduction of operation costs (Delpachitra et al, 2002). For example, benchmarking helped Australian Financial Institutes to reduce operation costs by outsourcing some operation and alternating distribution channels (Delpachitra et al, 2002).

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Competitive Strategy
The most significant benefit from benchmarking is that it helps the organization planning and implementing competitive strategies (Kolarik, 1995). In other words, as benchmarking provides an ability to compare and learn from the best practices in any particular industry, organizations can develop their system to achieve competitive advantages or eliminate their competitive disadvantages.

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Competitive Strategy
Build core competencies that will help to sustain competitive advantage
   

Access to a variety of markets Perceived benefit of product or service will increase Product or service is hard to imitate Low-cost leader

Target specific shift in strategy

 Entering new markets  Developing new products

To create a firm more adaptable to change

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Why Benchmarking?
Benchmarking stimulates seeking new ways of doing things and promotes a culture that is receptive to fresh approaches and ideas.

Benchmarking provides opportunities for staff to learn new skills and be involved in the transformation process from the outset.

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Why Benchmarking?

It is an effective wake-up call and helps to make a strong case for change.

Offers practical ways in which step changes in performance can be achieved by learning from others who have already undertaken comparable changes.

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Benchmarking Becoming More Common

There are three reasons that benchmarking is becoming more commonly used in industry (Boxwell, 1994).
 Benchmarking is a more efficient way to make improvements. Managers can eliminate trials and errors.  Benchmarking speeds up organization s ability to make improvements. Today, time is of the essence.  Benchmarking has the ability to bring your performance up as a whole significantly.

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Why Benchmarking?

Those who benchmark do not have to reinvent the wheel (Parker, 1996).

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