Since the early nineties, benchmarking is one of the most commonly used management and strategy tools around the world. In the Management Tools & Trends reports published by Bain & Company every two years, benchmarking regularly scores among the top five. However, there is some confusion in the literature and practice as to what benchmarking exactly is and how the method is best applied.
The purpose of benchmarking is basically to learn from others and thereby increase the overall performance and competitiveness of the own company. This is not to say, as some people believe, that benchmarking is just “copycatting,” i.e. imitating products, processes, and strategies of the so-called “best in class.” Rather, the aim of benchmarking is to identify and understand best practices that lead to superior performance and then adapt them to the own situation in an innovative fashion. It is using the knowledge and experience of other companies to develop new ideas.
Benchmarking is a time-intensive, costly, and sometimes difficult process, which includes the following steps:
- Selecting the benchmarking object
- Putting together a benchmarking team
- Identifying the key performance metrics
- Choosing a benchmarking partner (external benchmarking) or an internal function (internal benchmarking)
- Collecting benchmarking data
- Analyzing the data and identifying opportunities for improvement
- Adapting and implementing the best practices
- Monitoring and control
To ensure that the effort is worthwhile, here are some tips for you:
- Choose a benchmarking partner from a different industry
Benchmarking is about comparing your own performance with ones of the best companies in the world. To find these, you may have to look outside your own industry. Choosing companies from industries other than your own has two additional advantages: Firstly, in contrast to direct competitors, they will be more willing to share information and cooperate with you. Experience shows that this is one of the biggest challenges in benchmarking. Secondly, adapting best practices and trends from other industries can be a source of significant improvements and innovation in your own industry which can give you an competitive edge. Cross-industry benchmarking is particularly suitable for comparing business processes. For example, you may want to compare your logistics process with that of a professional logistics service provider.
- Ensure comparability of data
Benchmarking is only useful when the results can actually be transferred to the own company. The prerequisite for this is that the benchmarking partners are similar in size and culture. The same applies to the processes being compared. If you have difficulties in finding a suitable benchmarking partner, seek help from external consultants specialized in benchmarking.
- Select benchmarking projects strategically
Theoretically, any activity, process, or sub-process within an organization can be benchmarked. However, it is advisable to select benchmarking projects from a strategic point of view. Focus on those activities and processes that are essential to achieving your company’s goals and to further develop your core competencies. A strategic approach also means taking a look into the future. Which kind of performance will be needed in order to remain competitive in the mid- to long-term? How can it be achieved?
- Clearly define the benchmarking object
In order to ensure effective project implementation and data comparability, the benchmarking object must be clearly and understandably defined. In the case of process benchmarking, the selected processes must be manageable and delimitable. Especially in large companies with complex activity chains, it can be rather difficult to identify the primary characteristics of a process. Here, so-called “cross-functional maps” have proven useful. They help the benchmarking team to trace the path a product or service request is taking through the organization and identify the output for the customer. The focus is on the following questions: Who is involved in delivering the products or service? Why are they involved? Is what they are doing adding value for the customer? This helps to understand the process flow, cycle times, baseline transaction volumes, error rates, and costs for each part of the value chain (IMA, 1995).
- Provide the benchmarking team with sufficient resources and powers
Make sure that the benchmarking team has the necessary resources and powers to both launch a comprehensive benchmarking program and implement its findings. When selecting team members, consider not only their professional qualifications, but also their leadership and communication skills as well as their reputation within the company. Team members must be able to successfully drive change.
- Handle information carefully
Another important prerequisite for effective benchmarking is the openness and mutual trust between the benchmarking partners. Therefore, keep any data and information obtained confidential and be willing to share sensitive information yourself. The German Benchmarking Center in Berlin has developed a code of conduct which summarizes the main ethical and legal principles for benchmarking. Make sure that all members of the benchmarking team are familiar with these principles.
- Be open to change
Benchmarking can only be successful if the entire company—from senior management to frontline employees—is open to changes and new ideas. They must be willing to accept and implement the benchmarking results. Therefore, refrain from finger-pointing and develop an effective change management program to convince the staff of the urgency and necessity of the desired changes.
- Continue benchmarking on an on-going basis
In many industries, competitive pressures to improve are constantly increasing. At the same time, customer demands are changing and evolving at an ever faster pace. Therefore, benchmarking should not be a one-off event but rather an on-going process integrated into the strategic planning process.
- Make benchmarking a top-level management priority
The previous points have made one thing clear: benchmarking requires the active support of top-level management. Keep an open dialogue with everyone involved in the process and encourage them to provide their own input.
Used correctly, benchmarking can help to continuously improve performance throughout the entire organization. It is a proven tool to boost a company's competitiveness.
Deutsches Benchmarking Zentrum (n.d.). Der Benchmarking-Verhaltenskodex (Code of Conduct). http://www.benchmarkingforum.de/benchmarking-code-of-conduct.html
Institute of Management Accountants (1995). Effective benchmarking. http://www.imanet.org/resources_and_publications/research_studies_resources/statements_on_management_accounting.aspx