Chapter 8
Benchmarking
Rana Muhammad Zawar Khan
Introduction
Book definition: Benchmarking is a
systematic method by which
organizations can measure themselves
against the best industry practices
Benchmarking is a standard that
companies compare themselves to and
strive to be that good
Benchmarking
What is your definition of benchmarking?
What is the process for benchmarking?
Benchmarking Concept
What is our performance What are others' performance
level? levels?
How do we do it? How did they get there?
Creative
Adaptation
Breakthrough
Performance
Benchmarking Concept
Concept has been around for a while
2 Key elements
1) Units of measure (to measure performance)
2) Managers need to understand why their company's
performance differs
Reasons to Benchmark
Promotes continuous improvement
Makes companies search for the best practices,
innovative ideas, and highly effective operating
procedures
Can notify a company if it has fallen behind the
competition
Inspires managers to compete
Allows goals to be set objectively
Reasons to Benchmark
Weaknesses
Organizations must continue to innovate
as well as imitate.
6 General Steps to
Benchmarking
1) Decide what to
benchmark
2) Understand current
performance
3) Plan
4) Study others
5) Learn from the data
6) Use the findings
Deciding What to Benchmark
Think about the mission and critical
success factors
Decide the scope
Devise charts that will pin point the exact
problem
Decide on a numerical measure to show
improvement
Understanding Current
Performance
Understand and document current
processes
Form a benchmarking team
Decide on a way to numerically measure
findings
Planning
Decide what type of Identify which
benchmarking to organizations to use
perform (internal, as your benchmarks
competitive, or Make a timetable to
process) adhere to for each
Choose the type of task
data to be collected Have a desired
Devise a method of output for the study
collection
Studying Others
Use internal sources
Apply data in the public domain
Utilize original research
Combining all or some of these
Learning from the Data
Is there a gap between the organization’s
performance and the performance of the best-
in-class organization?
What is the gap? How much is it?
Why is there a gap? What does the best-in-
class do differently that is better?
If best-in-class practices were adopted, what
would be the resulting improvement?
Learning from the Data
Studies can reveal 3 outcomes:
Negative gap
External
process better than internal
processes
Parity
Process performance approximately equal
Positive gap
Internal
process better than that found in
external organizations
Learning from the Data
At least two ways to prove a superior
practice:
Analyzed quantitatively
Summary measures and ratios (activity costs,
return on assets, or customer satisfaction
levels)
Market analysis
Does the market prefer one process over
another?
Price outside services
Using the Findings
When a benchmarking study reveals a
negative gap in performance, the
objective is to change the process to
close the gap
Two groups must agree on the change:
Process owners (those who run the
process)
Upper Management (incorporating
changes and providing resources)
Using the Findings
Generic steps of Action Plans:
1. Specify tasks
2. Sequence tasks
3. Determine resource needs
4. Establish task schedule
5. Assign responsibility for each task
6. Describe expected results
7. Specify methods for monitoring results
Using the Findings
Goals and objectives should be
consistent with the execution of the
action plan so that the end result is
process superiority
The best results are obtained when the
process owners fully participate in the
design and execution of the plan
Using the Findings
The next step is to repeat the
benchmarking process
The benchmarking process must be
used continuously to pursue emerging
new ideas
Pitfalls & Criticisms
Idea of copying others
How can an organization be superior if it
does not innovate to get ahead? How can
an organization even survive if it loses
track of its external environment?
Not a strategy or business philosophy
It is an improvement tool
Not a substitute for innovation
It is a source of ideas from outside
Pitfalls & Criticisms
Avoid –
Benchmarking for the sake of it
Focusing entirely on comparisons of
performance measures rather than the
processes and activities that enable the
achievement of good practice
Expecting that benchmarking will be quick
or easy
Questions for Discussion
What are the six core techniques of the
benchmarking process?
1. Decide what to benchmark
2. Understand current performance
3. Plan
4. Study others
5. Learn from the data
6. Use the findings
Questions for Discussion
Efficiency has been defined as “doing
things better” and effectiveness as
“doing better things.”
Describe how benchmarking can be
used to improve both efficiency and
effectiveness…
Questions for Discussion
Explain how an organization might
benefit from benchmarking organizations
in a completely different industry…
Questions for Discussion
Identify and explain the three types of
benchmarking…
In what circumstances would each type
be most appropriate?
Questions for Discussion
How are critical success factors
important in benchmarking?
Questions for Discussion
Benchmarking studies are a search for
two types of information –
An understanding of best-in-class
processes
The metrics that result
Which piece of information is more
important and why?
Questions for Discussion
Why is it important to understand internal
processes before studying those of other
organizations?
What tools are useful in examining
internal processes?
Questions for Discussion
Who in the class has experience in the
benchmarking process?
Thanks for your time!