This paper seeks to explain, evaluate and demonstrate the use and benefits of benchmarking in the present world. The paper will look at benchmarking as a process and action by any organization and the benefits derived from such a process. Just like any other measure taken by any organization, the paper will also look in to the challenges associate with benchmarking and make a strong attempt to suggest some ideas which could see benchmarking become a more efficient and beneficial idea for any organization that wishes to venture in to it. The paper will also explain different types of benchmarking and their applicability to any organization.
Benchmarking is defined as a long term and ongoing formal, structured and organized, as well as analytical process in an organization with the aims of evaluation, assessment, measurement, and comparison of the organizations that have been identified and recognized as best in class or best performers of the world class for the purposes of organizational comparison and improvement. It is simply the act of using the best performing organizations’ practices as a blue ray to base the improvement of an organizational performance. Benchmarking seeks to improve the organizational performance by continuously identifying, understanding and adapting various outstanding and unique practices and processes found inside and outside an organization. It takes an organizational humility to admit that another organization is better in doing something and expend unconditional willingness to learn from the better practitioner so as to achieve organizational development and growth. Benchmarking can serve as an effective tool for great customer satisfaction and to feed the internal needs within an organization.
The technique aims at improving the processes and practices of the recipient organization by applying knowledge obtained from the donor organization.
Benchmarking is founded on the premise that the greater the number of people gets involved, the greater the possibility of generating better opinions and therefore it makes it simpler to introduce new better practices to the organization.
Stages in benchmarking
It can be launched in a five step process:
- Planning .
The recipient organization determines the type of benchmarking to use and the organization to benchmark against.
This involves the careful analysis of the data obtained to perform a performance gap analysis between the source organization and the recipient organization.
The recipient organization prepares to launch the the actions.
The actions are implemented in the recipient organization.
This is a continuous monitoring and evaluation in the recipient organization to ensure the effectiveness of the implemented actions and their contribution to organizational improvement.
Types of benchmarking
Benchmarking can take the following types:
- Internal benchmarking
This is an intra-type of benchmarking where the comparisons are made within the same organization. It can for example be a comparison of similar activities in different departments of an organization. An organization can conduct a trend analysis to improve its performance by: Identifying the areas where the organization is performing excellently so as to duplicate success, Identifying areas where the organization is underperforming, and providing evidence to inform a sound decision making.
The merits of internal benchmarking include the ease of obtaining the data needed because it is usually obtained from within the organization. It also enhances a good sense of communication and sharing among departments in an organization. The process also ensures that good practices are adopted by the trailing departments and the benefits of internal benchmarking are derived immediately.
The sole reliance on internal benchmarking could also turn ort to be disastrous to any organization because it could breed a limited focus and internal bias within the organization. It could also mislead the entire organization in the event that the benchmarking department Is sailing I the wrong direction.
- Competitive benchmarking
The organization usually tries to study the operations of the best performing direct competitors who operate on a similar base and use such knowledge to improve on their activities. An organization can for example study the practices and rationale behind a competitor’s high return on investment, return on capital employed and applies the same in the organization for improvement.
An example of benchmarking on ROA,
The comparison with direct competitors is directly relevant because it can lead to organizational improvement once applied extensively. Immediate competitors use comparable technologies and practices and these can be of great impact to the organizational improvement. The greatest disadvantages of this type of benchmarking are usually occasioned by the fact that the data used is obtained from the competitors who would often decline or give false data. This makes the process more antagonistic. Some industries codes of ethics will not allow reliance on competitor’s information. This makes the competitive benchmarking impossible in such cases.
- Functional/ industry benchmarking
This involves the use of information from the best performing/ leaders in a particular industry. Any organization that seeks to use this kind of benchmarking will be focused on doing things the way they are done in the industry leaders. An organization can compare itself with other organizations within the same industry which have a low debt to asset ratios and high profit margins. Example: benchmarking on the return on investment
The process is advantageous because it is easy to find willing partners within an industry. The transfer of processes and functional ideas within the same industry is also easy. The process could be costly for the organization and some willing partners may not be really willing and this could mess the other organization.
- Process benchmarking
This could make use of internal or external information but it is only focused on specific processes and breaks the organization into specific generic functions for comparison purposes. It greatly contributes to breakthrough ideas, network development and provides a high potential for innovation in the organization. Occasionally, it is a difficult process to implement due to the diversity of processes involved. It is also time consuming and some information might not be transferrable. The organization may compare its performance in processes to that of its peers and benchmark against such.
S.Cheney, (1998), Benchmarking, ASTD-Online, Alexandria.
B.Anderson, (19976), Benchmarking Handbook, Chapman & Hall, London.