What Is Bench Marking - Example

BENCHMARKING Name: Grade Course: Tutor’s Name: 10th July, 2010 Introduction In response to these questions: What criteria are used to evaluate current practices and processes in a benchmarking exercise? What are the logical foundations of these criteria and do they make sense? A discussion will be given on what bench marking is, what a benchmarking exercise is, the current processes and practices in bench marking exercise, the criteria for evaluation and then determination of the logical foundations done and reasons why they make sense given. Bench Marking In order to understand the processes and practices in benchmarking, it is important to first determine what benchmarking is. A benchmark is an established measurable parameter that is used to determine the progress of a business project towards its objectives or goals. It can also be referred to as a project target or a standard (Due TBA, 2010).Benchmarking is therefore a process of ensuring that a project meets its objectives. In almost all cases, managers of the organizations set higher targets to improve the performance of the organization, they set standards that ensure improvement of organizations performance in relation to the aims. Benchmarking therefore aims at helps an organization in achieving improvements (University of Leicester, 2009). Andersen & Pettersen noted that “Benchmarking is a structured process of continuously measuring and comparing one’s business processes against comparable processes in leading organizations with an aim of achieving improvement in the business” (1996, p. 1). In the process, information that helps in identifying improvements is obtained and improvements implemented (Andersen & Pettersen, 1996). A bench marking exercise has three basic phases, which are; planning, analysis and implementation. Different authors however have different views on benchmarking exercise, some describe the exercise as having five phases for example planning, analysis, integration, action maturity, others combine the last three steps of the five phased exercise to the above mentioned there phases (ASQ, 2010). Damelio for example considers the benchmarking exercise as consisting if analysis, discovery and implementation (1995), while Codling, (1995) indicated that it has four stages which are; planning, analysis, action and review. The basic process of benchmarking is identification of the process or area that needs improvement in the organization, determination of benchmarking partners and making the changes so that improvement is achieved (University of Leicester, 2009). The main purpose of benchmarking is to achieve improvement. Because of this, so many organizations use it for ensuring successful change in the organization (Cheney, 1998). What Criteria Are Used To Evaluate Current Practices And Processes In A Benchmarking Exercise? A bench marking exercise includes the processes and the practices of benchmarking. Identification of the criteria of evaluation of the practices and the processes requires identification of what the processes and the practices are in the current world and their functions. This will help understand the reason for selecting a specific process or for adapting a specific process in the benchmarking exercise. The purpose of any evaluation exercise if to select an object of target for example, in a classroom, students are evaluated to determine if they understand what they are taught in class (Zairi, 1996). Business processes may be evaluated to find out the best or one with a problem that causes the organization’s poor performance. In the case of benchmarking, evaluation of the processes and practices is conducted to achieve the best for the organization’s purpose (Seybert, 2006 & John & Eeckhout, 2006). Already from this, it is clear that one criterion of evaluation is the purpose of the organization when undertaking the benchmarking exercise. This will be explained later. Current Benchmarking Processes and Practices According to Damelio (1995), Andersen & Pettersen, (1996), and Codling (1995), the concept of benchmarking as a process and a tool for making improvements in the company changed after the implementation of the process by Xerox. Before Xerox implementation of the process, the basic purpose of benchmarking was to determine the development of a company when compared to its development in the previous year. The companies were internally focused and only considered the financial figures. The competitors were not considered in the benchmarking processes of the 1960s (Andersen & Pettersen, 1996). In the early 1970s, management started recognizing the importance of competitor analysis and strategy analysis and these became part of ordinary tools for the manager. The norm of comparing key figures was however still dominating and companies were considered well performing when above average. Above average was a satisfactory performance (Andersen & Pettersen, 1996). In 1979, Xerox introduced a new system of benchmarking that changed the comparison of performance to the toughest competitors. The benchmarking practices focused on comparisons of operational performance and financial figures. This has since changed with time. From comparison against the toughest competitors, benchmarking has since changed to a well structured process that involves comparison of performance levels and the practices that lead to such performances for the purpose of learning and performing better (Andersen & Pettersen, 1996). The development has led to the selection of partners outside an organization’s competitors to increase probability of finding new and innovative customs of doing things. The current concept of benchmarking involves a lot. An organization can decide to conduct benchmarking process on its performance, on a specific department’s performance for example the communication’s departments, it can compare its reputation with a well performing organization in terms of reputation to improve, it can also benchmark its processes. The practices behind the benchmarking process guide the company to success, if for example a specific company maintains its competitive advantage by maintaining its customers and gaining more, this practice will be viewed as a best practice to maintaining a competitive advantage. The organization in need of maintaining a competitive advantage will try to develop such a practice (Peters, 2006). The current process of benchmarking for example is as follows; This is just an example of an illustrated process as according to ASQ. It has five phases which are: planning, analysis, integration, action and maturity. Planning: Planning as part of the process considers what is to be benchmarked, who will be used as a partner to compare what is to be benchmarked, and the data that should be collected. Benchmarking is appropriate for any organizational function that produces output, therefore any function of that kind that the management analyses and finds in need of improvement can be benchmarked. Benchmarking is conducted against best practices which are obtained from various companies mostly competitors. A company that has also been rewarded for specific best practice can also be used as a benchmarking partner for example the Xerox. There is no specific way to obtain data and various methods can be use depending on the kind of information needed and the aim of the company (ASQ, 2010). Analysis: This phase requires the understanding of what the organization is to benchmark of the current practices and processes of the organization and those of the company that will be used as a benchmark. The analysis has to determine the strengths and weaknesses of the organization in comparison to the benchmark. It has to check what areas the benchmarking company is better that the company that needs improvement, what practices make them better and by how much are they better. The company can then determine how to incorporate the practices that cause such differences (ASQ, 2010). Integration: This involves incorporation of the findings into the organization. After determination of what factors contribute to better performance in an organizational function, the objectives have to be set and methods of achieving such objectives developed. This requires careful planning and development of new practices that will ensure that the benchmarking findings are incorporated into the organization (ASQ, 2010). Action: Is the process of implementing the developed methods of achieving the aims of the organization after the findings. Maturity: This is when the aims of the organization to incorporate the findings of benchmarking have been incorporated and the company has achieved superiority. The industry’s best practices have been adopted and incorporated in all business processes (ASQ, 2010). The Criteria for Evaluation 1) The Aim of the Organization or What Is To Be Benchmarked There are so many types of benchmarking all which produce different results based on the reason why it was implemented. The types of benchmarking have their functions which show the reason for their selection. One criterion for evaluation of the practices and processes in a benchmarking exercise is the aim of the organization (Karlöf & Östblom, 1993). The types of benchmarking are: Metric internal, competitive, strategic, consortium and process benchmarking. Metric internal benchmarking is the initial step and involves identification of the difference in performance of the organization by collecting numerical data and analyzing. This kind of bench marking can be used to check the performance of the organization in the market. As indicated before, the aim of the organization dictates the type of benchmarking to be selected. The process of benchmarking is also determined by the organization’s aim among other factors, but this will be discussed in the paragraphs that will follow. If an organization is only interested in the performance of its human resource department for example, it has to determine which type of benchmarking is appropriate and the processes involved (Andersen & Pettersen, 1996 & Fitz-enz, 1993). Internal benchmarking is meant for measuring the internal performance standards of the organization. This kind of benchmarking can combine metrics internal and process benchmarking to determine the organizations standards compared to high performing organizations or just standards set for specific processes. Internal metrics and process benchmarking will allow the identification of the gap between a process and the other by analyzing the practices and determining the best practices in any industry. In most cases, internal benchmarking is used in large organizations where processes in a section of the organization are more efficient than processes in another section of the organization (Andersen & Pettersen, 1996). Competitive benchmarking is used to determine an organization’s place in the industry. This is important but may not be easy to achieve since most companies would want to remain competitive in the industry and would not want to share information about their sustainable competitive advantage (Andersen & Pettersen, 1996). Strategic benchmarking is the analysis of up-and-coming trends in the distribution, technology, processes and in the markets to identify strategic change opportunities for the business. Consortium benchmarking is meant for sharing information. Firms may have important information that can help each other firm improve in its performance and so when group studies are held/organize, they share such information (Andersen & Pettersen, 1996 & Watson, 2007). What is to be benchmarked determines what type of benchmarking to be done and therefore the practices and the processes. If an organization wants to improve its competitive advantage, it will compare it with the well performing organizations in terms of competitive advantage, analyze their practices and develop a process that incorporates such practices in order to improve. The aim of the organization and what is to be benchmarked therefore is a criterion. Evaluation of the best practices or processes is dependent on the aims of the organization. The best performing process, practice will be chosen. Evaluation can be based on the aim, the results of the process/practice or the amount of work needed to complete the work (McNair & Leibfried, 1997). 2) Can The Process Or Practice Produce The Expected Improvement? Companies that recognize the importance of change use benchmarking as a way to achieve best practice. According to Andersen & Pettersen, the key to successful change or improvement initiatives is identification and transfer of best practices (1996). It is well known that by designing new processes using the already developed, used and successful practices, insights and ideas from other people for a company, reduces the cost, the cycle time and improves the competitive advantage of such a company (Watson, 1993). This is where the already developed processes in benchmarking fit. Benchmarking gained extensive use after its implementation by the Xerox. Before in the 1960s, benchmarking was internally focused comparing the performance of the organization of the previous year to the current year to identify any improvements. This was focused mainly on financial figures and not a lot of processes like the current benchmarking processes. After the development of benchmarking where a competitor’s best practice was included as a comparison to a company’s performance by the Xerox, benchmarking changed and today, is used in different operations of the business for example making improvements in the business processes, ensuring successful change, and improving business strategies among others (Coers et al, 2002). It is from that time that the process of benchmarking was developed. As indicated earlier, for improvement initiatives and change to be successful, best practices have to be identified and transferred. One of the best practices identified is the benchmarking process. APQC’s benchmarking process has four phases which are; Planning This includes identification of the process that requires improvement, identification of management support, identification of the benchmarking team, defining the extent of the study, understanding the other processes that may affect the process to be improved and how they may affect it, determining what measures are used to rate or rank the current process, developing a criteria for selecting best practice companies and identification of benchmarking partners through research from secondary materials (Andersen & Pettersen, 1996). Collecting Data Which involves selecting partners that will be involved in the data collection process and securing their participation, preparing questions to be administered and selecting a method for example interviews or surveys, developing a database to record the results for analysis and validation of the data (Andersen & Pettersen, 1996). Site visits can also be conducted if found necessary. Analysis and Reporting Analysis and reporting involves the following activities: identification of gaps in the performance from an analysis of the best practices and performances, identification of the factors that contribute to best practices and reporting the findings for implementation in order to achieve improvements (Andersen & Pettersen, 1996). Adapting and Improving After the analysis, the factors that contribute to best practices are known and the organization can set its goals on how to achieve them. This phase involves establishment of long term and short term goals, development and approval of an implementation plan and adapting the changes. After the implementation of the plan, the organization should be able to measure the changes that have occurred and compare it to the previous performance of the organization and the benchmark. The results of the whole process dictate whether a different approach should be taken or the same process should be undertaken but with different goals but all with the aim of improving organization performance (Andersen & Pettersen, 1996). Coers and others’ benchmarking process model is known as the bench marking wheel and has 5 steps which are; planning, searching, observing, analysis and adapting the best practice (2002). Planning: According to Coers et al, the benchmarking process starts with identification of the success factors followed by selection of the benchmarking process, then documentation of the process and lastly, development of the performance measures all under the first step of the whole process (planning) (2002). Searching: this is the second step in the process and involves identification of benchmarking partners Observation: Involves understanding the benchmarking partners, the process, the best practices and the performances and documenting them. Analysis: involves identification of the differences in performance and determination of the causes of the differences. Adaptation: involves selection of the best practices, adapting them to the company’s condition and implementing the identified changes (Coers et al, 2002). Research has revealed that many companies bench mark in order to; Increase and manage change, Improve effectiveness and profits Making improvements to reach the Malcom Baldridge National Quality Award criteria, To overcome arrogance and complacency, To achieve innovations and breakthroughs and To set stretching goals (Andersen & Pettersen, 1996) Because companies want success in every section, they will implement a process that has been previously used and has proven effective in the past years like the ones described above. This is the reason why the basic process of benchmarking is considered during the evaluation of the process for use in a benchmarking exercise. 3) The Effect of the Benchmarking Practices and Processes on the External Environment In this section, questions to be considered are; can the benchmarking practices and processes lead an organization to success in the current external environment? Can it help the organization keep up with the pace of change? The current benchmarking practices are not focused on the internal environment of the organization only as before. Twentieth century business developed and grew without much involvement of the external environment. Apart from considering the economy and government policies in developing their operation plans, the businesses never involved other external environment factors that currently affect business performance. Business strategies were based on production –led and internal factors (Codling, 1995). The current bench marking practices link the external environment and the internal environment of the company because of the changes that have occurred since the 1960s. Consumers changed to those who wanted innovation, color, variety, novelty, choice from those who simply bought goods because they were available. The current market of different products and for different industries has high number of changes and high rate of change that cannot be managed by the old bench marking practices that only focused on the internal environment (Codling, 1995). Generally, the changes in the world show how rapid the changes in the markets are and how many they are meaning that people or businesses cannot afford to be complacent. The bench marking practices of the past are of little use to the future. The frames of references or standards of the past can hardly be used as guidance to behavior in the future. Consumer behavior changes with time and with changes in different sectors for example technology. An example is in the case of candles where people’s preference shifted to gas lighting when it was developed. Gas lighting has also since been replaced by electricity. Previous tourism travelling had no guides like in the current tourism market. There were no guide books to show people the hotels, the accommodation facilities and the prices, the activities and even where to shop when in a specific country. There were no internet advertisements. In the current tourism market, internet and television form the basic forms of passing on advertisements to the consumers (Codling, 1995). For this reason, a wide perspective is needed to consider the developments and opportunities anywhere that can alter the shape and the direction of the market. This requires the consideration of the external market in benchmarking practices in order to keep up with the pace of change in the current world. Current benchmarking practices and processes involve consideration of external factors such as comparing processes with that of a competitor, comparing the general performance of an organization with a competitor and finding high performing organizations and sharing information in order to improve (Codling, 1995). Current benchmarking has evolved to a level where there are different types of benchmarking such as the previously mentioned, competitive, merit internal, process and so on, all which put into account the external environment of the business a main factor that contributes to business success (Codling, 1995). What are the Logical Foundations of These Criteria and Do They Make Sense? One logical foundation is the changing world with changes in the market, technology, consumer behavior and so on. What maintains the business apart from its management team is the customer. Because of changes in consumer behavior like the need for efficiency, other changes have occurred like the changes in technology and the management techniques. Businesses have to keep up with these changes in order to be successful. Several ways have been developed to cope with the changes and one of the efficient ways is through benchmarking. The current processes of benchmarking have to consider the external environment to ensure good performance of the organization, so it makes sense to consider benchmarking processes that can enable a company perform better in a rapidly changing environment. Organizations also have aims and aims have to be achieved. If by improving the performance of the human resource department the organization’s competitive advantage will be improved, the company has to select processes that will enable it achieve such aims. Selection of specific types of benchmarking to achieve the aims of the organization also makes sense. The third criterion is; if the process can deliver. Every organization strives to be successful and cannot use a process that has never been used before without thorough analysis and determination of if the process can be effective. Development of processes all the time is not a sign of success, and even so, their development and implementation can be very expensive (Stapenhurst, 2009). The use of already developed and proven successful processes such as that of Xerox and APQC’s is more appropriate. It is therefore logical. Conclusion When evaluating a process, there have to be factors on which the evaluation has to be based. In the above discussion, there are four factors that have been considered as the basis of evaluating the processes and practices of benchmarking. The factors are; the aim of the organization which affects what type of benchmarking to be undertaken, the reliability of a benchmarking process that has been previously developed, what is to be benchmarked by the organization and the high rate and number of changes in the world. Businesses depend on the consumer, the investors and other stakeholders for survival for example, it has to be managed to perform and so on. The changes in the world affect all the stakeholders and therefore they affect the business in different ways. Benchmarking has been shown to be an effective way to help managers deal with and effect changes in the organizations effectively. References Andersen, B. & Pettersen, P., 1996, The Benchmarking Handbook: Step-By-Step Instructions, New York, US: Springer. ASQ, 2010, Organization Wide Approaches: Benchmarking, Viewed on 9th July, 2010 from: Codling, S., 1995, Best Practice Benchmarking: A Management Guide, 2nd Ed., Guildford, UK: Gower Publishing. Damelio, R. 1995, The Basics of Benchmarking, Cambridge, MA: Productivity Press. Due TBA, 2010, Project Benchmarking Exercise, Viewed on 4th July 2010 from: Cheney, S., 1998, Benchmarking, Alexandria, Virginia: American Society for Training and Development. Coers, M., Gardner, C., Higgins, L. & Raybourn, C., 2002, Benchmarking: A Guide for Your Journey to Best-Practice Processes, Houston, Texas: APQC. Fitz-enz, J., 1993, Benchmarking Staff Performance: How Staff Departments Can Enhance Their Value To The Customer, San-Fransisco: Jossey-Bass Publishers. John, L. K & Eeckhout, L., 2006, Performance Evaluation and Benchmarking, Boston, MA: CRC Press. Karlöf, B. & Östblom, S., 1993, Benchmarking: A Signpost To Excellence In Quality And Productivity, New York: Wiley. McNair, C. J. & Leibfried, K. H. J., 1997, Benchmarking: A Tool for Continuous Improvement, New York: John Wiley & Sons. Peters, R. W., 2006, Maintenance Benchmarking and Best Practices: A Profit- And Customer Centered Approach, New York: McGraw-Hill Professional. Seybert, J. A., 2006, Benchmarking: An Essential Tool For Assessment, Improvement, And Accountability, San-Fransisco: Jossey-Bass. Stapenhurst, T., 2009, The Benchmarking Book: A How-To-Guide To Best Practice For Managers And Practitioners, Oxford, UK: Butterworth-Heinemann. University of Leicester, 2009, Benchmarking, Cheltenham, Learning Resources. Watson, G. H., 1993, Strategic Benchmarking: How To Rate Your Company's Performance Against The World's Best, New York: J. Wiley and Sons. Watson, G. H., 2007, Strategic Benchmarking Reloaded With Six Sigma: Improve Your Company's Performance Using Global Best Practice, 2nd Ed., New York: John Wiley and Sons. Zairi, M., 1996, Effective Benchmarking: Learning from The Best, New York: Springer. Read More