Classification of Benchmarking Processes - Research Paper Example

Benchmarking Introduction The current economic environment is characterized by some dynamics and players in the economy need to have quick response to the observed changes. There is high level of competition among players in a given industry and each player strives to be the best in terms product quality, fastest in technological advances, and cheapest in terms of operation costs as compared to their competitors (Anand & Kodali, 2008). It may be necessary for the companies to learn and borrow from other organizations the approaches that can be applied in improving operations, functions, and processes. This brings in the concept of benchmarking. Benchmarking is ‘the process of identifying best practices in relation to both the products and the processes by which those products are created and delivered’ (Tutor2U, 2012). The identification of the best practice can be carried out within a given organization that has several units/departments, within a given industry or sector, or outside the industry and outside the geographical region. Benchmarking is carried out to understand the organization’s current position of performance in relation to the best practices adopted by other successful organizations to identify how to bridge the gaps that may exist (Clores, 2007). Ideally, benchmarking involves an analysis of the performance levels that have been achieved by other successful players outside a given business, industry, organization, country or region in order to understand the strategies and approaches that these organizations have applied to reach this state. It helps an organization to identify the gap that still exists between its performance and the required excellent performance through an identification of the process that contribute to quality performance. Organizations that successfully apply the knowledge that they learn from such analysis of external practices will have improved performance in various functions and processes (Tutor2U, 2012). This will improve on the overall output of the business organization. In their article ‘Benchmarking the benchmarking models’, Anand and Kodali (2008) provides a suggestion that benchmarking should be categorized into two groups; internal benchmarking and external benchmarking. The duo asserts that the other remaining aspects of benchmarking like products, strategy development, process, or functions, among many others can then be classified into either of these two principal categories. The focus of this paper is an evaluation of the validity of the assertion that benchmarking is internal or external. It further examines the consequences of such a consideration. Overview of the Benchmarking Process Benchmarking involves an examination of an organization’s practices and processes in relation to the ‘best practices’ within or outside a given business, industry, country, or region (Stroud, 2012). As such, an organization begins the benchmarking process through an in-depth analysis of its business processes. A benchmark will function like a typical ruler, some form of controlled tool of measurement that enables one to identify his level of performance (Andersen & Pettersen, 1996, p.102). The organization has to understand its operational strategies like the prices, the products, product locations, promotional strategies, or the stakeholder management approaches. An analysis of the different functions within the organization is also helpful. There is need to understand the results that have been achieved within the organization through these strategies. The results can be evidenced by the level of customers’ satisfaction, customer loyalty, employee satisfaction (resulting from good workplace conditions), operational efficiency, and the overall output of the organization. Benchmarking targets are derived from sources like the contacts with suppliers and customers, reading literatures, or through the personal experience of the benchmarking personnel (Ahmad & Benson, 1999, p.20). After the analysis of the existing business processes, the benchmarking organization then proceeds to examine the business processes and practices that are being applied by the other players within and outside the given business industry. The top management of organizations is often interested in the external benchmarks to help them understand the performance of various executives within their organization (Zimmerman, 2006). It is appropriate to examine the operations of business organizations that are actually successful in their respective industries. Little will be borrowed from organizations that are also struggling to gain a better position in the market. The management strategies as well as the operational strategies, the products, prices, promotions, or product availability measures adopted by these successful organizations need to be considered. There is also need to consider the overall performance of these business organizations. After these considerations, the next challenge is to compare the current business processes that had been observed and the findings from the analysis of operations from other organizations. Besides, to apply benchmarking successfully as a management tool, an organization needs to ‘recycle’ the process. This means repeating the benchmarking process for similar and new areas and not just redefining the benchmarks (Andersen & Pettersen, 1996). The firm will be able to identify the gap that exists between its performance levels and the level of performance in the other successful organizations. It will be positioned to identify mechanisms of bridging this gap, which becomes the other important aspects of benchmarking process. The benchmarking process does not end in identification of the performance gap between an organization and the other players. It involves an identification and evaluation of the procedures that worked well, the difficulties encountered in the benchmarking processes, and the adjustments that need to be made for the next study (Andersen & Pettersen, 1996, p.103). Since the market system is not static, the operational procedures and processes often need to be adjusted to the changing market needs. This implies that the benchmarking process should also be carried on continuously as long as an organization remains in a given business. It is not guaranteed that carrying out the above procedures will help improve the performance and operations of a given organization. The environment that has been created in the organization will be the key determining factor in the success of the benchmarking process. For successful benchmarking, the organization needs to have some requirements in place. The organization has to be focused on its key stakeholders like the customers and employees (Anand and Kodali, 2008). It has to promote research and development to ensure sustainable and continuous development. Similarly, the management of the organization needs to be flexible and ready to adapt to the changes that are bound to occur (Anand and Kodali, 2008). The benchmarking process will be successful if the top management is in its full support. The process requires a lot of time and other resources, and only support from the management will ensure that processes like gathering data from external sources are carried out effectively. The organization also needs to be ready to share its crucial information with other organizations in order to access crucial external information (Anand and Kodali, 2008). Similarly, there is need for effective communication within the organization that will ensure that a common understanding is achieved by different units within the organization on the corrective measures to be applied. . Classifications for benchmarking Benchmarking has been considered an appropriate management tool by many business organizations. various researches have been conducted that reveal that a good proportion of organizations apply benchmarking as a management tool to gain competitive advantage over the other players in the same sector or industry (Anand & Kodali, 2008). The concept has since been extended to other areas like insurance, health services, government operations, as well as in academics. The benchmarking process in business organizations has been considered in different dimensions that form the basis of different classifications that have been used for benchmarking. One such classification, developed by Fong et al (1998, cited in Anand & Kodali, 2008) has been done based on the content of benchmarking, purpose of the relationship, or the nature of referent other. Based on the content of benchmarking, strategic benchmarking, performance benchmarking, process benchmarking, and functional benchmarking have been cited. Strategic benchmarking is concerned with the assessment of strategic and not operational issues within the organization (Anand & Kodali, 2008). Through strategic benchmarking, an organization strives to improve its performance by examining the operational strategies and approaches that have been applied the successful organizations within or outside a given industry (Tutor2U, 2012). This benchmarking is applicable for an organization that attempts to re-align its failed strategies with the strategies that can help achieve its objectives. It considers the core competencies in the successful organizations and the approaches that the organizations in the management of change. Nonetheless, it should be noted that it might be difficult to implement the changes identified in strategic benchmarking: the strategies that worked for some organization may not necessarily work for the organization in question; and the implementation process may take long Performance benchmarking involves the comparison of an organization with the other players within a given sector dealing in similar or related products and services. In this case, an organization considers the outcomes of its practices and processes in terms of aspects like speed/ efficiency of operations, product prices, or process reliability (Anand & Kodali, 2008). An organization will compare the performance of its products and services to the high-performing products and services in the industry. Process benchmarking involves organizations that perform similar woks and provide similar services. An effective process benchmarking is carried out by developing concept maps for the two or more organizations under considerations (tutor2u, 2012). It is mainly concerned with the improvement of processes and operations that are essential for the successful operations of an organization. Functional benchmarking occurs when an organization compares its business functions to the functions of other organizations (Anand & Kodali, 2008). It entails collaborating with business partners from other sectors to learn their functions and work processes, which can be helpful in improving similar functions at the organization in consideration. Successful functional benchmarking often enhances innovations, research, and development within an organization leading to a significant improvement in the overall performance of the organization. Based on the nature of referent other, benchmarking can be considered as internal benchmarking, competitor benchmarking, industry benchmarking, generic/best-practice benchmarking, and global/international benchmarking. Internal benchmarking entails benchmarking businesses processes and operations that are applied within a given organization. Internal benchmarking is often necessary to ‘identify the best practices within an organization, to compare the best practices within the organization and to compare current practice over time’ (Hughes, 2008). It involves a comparison of the performance, processes, and operations of similar business units or departments within a given organization. One of the advantages of internal benchmarking is that there is good access to important data and information (tutor2u, 2012). As such, the implementation of the changes identified by the benchmarking process may not be very difficult. It is quite easy to transfer the identified practices from one business unit or department to the other units within the organization. However, internal benchmarking does not promote research and real innovations. Its success will require that at least some sections of the organization have matured and adopted best operations and practices. Competitor benchmarking involves comparing an organization’s processes or operations to those of its competitors within the same industry. An organization will undertake competitor benchmarking to meet the competitors’ standards or even go beyond their standards to gain competitive advantage in the industry. Fong et al also mention industry benchmarking that involves comparison with other companies within the industry that also includes non-competitors. Generic benchmarking involves comparing an organization’s operations and processes with the processes in other organizations outside the business industry. In other classification models, this fall under external benchmarking that entails an analysis of the external organizations that are known to perform well in their industries. Global benchmarking (international benchmarking) is a comparison that will go beyond geographical boundaries of countries of operations. Global benchmarking has been fueled by the current globalization and technology advances that have been registered. Both generic and global benchmarking provides the organizations with opportunities to learn from the external sources in order to develop relatively universal operation models. Nonetheless, these benchmarking processes are costly in terms of time and other organizational resources. In terms of the purpose of relationship, Fong et al cite competitive and collaborative benchmarking. In competitive benchmarking, an organization performs comparison in order to compete and become superior to the others. In collaborative benchmarking, an organization will perform a comparison in order to learn and share information with the others for mutual development Several other methods of classifications of benchmarking exists most of which were developed before this classification model by Fong et al while others developed later. For instance, Clores (2007, p.76) provides two broad classifications for benchmarking: competitive benchmarking and generic benchmarking. In this view, the competitive benchmarking process involves an analysis of the products and the manufacturing operations applied by the competitors of an organization. On the other hand, generic benchmarking involves a comparison of the business processes, functions, and strategies of an organization with the best practices that have been adopted by successful companies within and outside the industry (Clores, 2007). Clores recognizes that there are different types of benchmarking, which can all be grouped into these two categories. However, Anand and Kodali (2008) argue, and it appears to be true, that all these forms of classification had flaws and make it hard for the users to identify the correct benchmarking type to be applied in their organization. The duo observes that the explanations that each of these individuals gave for their classification models were inconsistent as they overlapped with each other. It then becomes difficult to determine if there is possibility of developing a particular benchmarking process for each of the classification. If there is that possibility, the duo further questions the need for identification of the benchmarking subject (Anand and Kodali, 2008, p.266). The benchmarking process requires an identification of the subject of benchmarking. The duo observes that the subjects can be the product, function, performance, process, or strategies among others. Regardless of the benchmarking subject considered, Anand and Kodali (2008) argue out that there is need for some partner for benchmarking. This partner can be drawn from the internal sources such as a separate unit or department within the organization. The partner can also be drawn from external sources like a competitor in the same industry or an organization that is in a completely different industry. The argument here is that, in order to avoid such confusion, benchmarking needs to be classified as internal and external benchmarking; all the other prior classifications like process, strategies, functional, or products will fall in either of the two categories. Apart from the different classification methods that have been identified, a number of benchmarking models have also been developed by different professionals. The models that have been developed can be grouped broadly as those developed by consultants/professionals, those developed by academicians, and the models developed by individual organizations and industries. Anand and Kodali (2008) performed a benchmarking process to identify the best practices that were applied by many developers of benchmarking models to come up with a universal benchmarking model. Using one of the commonly used models, Xerox model, as the benchmark, the duo considered the other models available from literatures by examining the shared practices and practices that are just unique to the model. From the process, a model was developed that consists of 12 phases and 54 steps that define the best practices identified from the different models of benchmarking. Critical discussion: considering benchmarking as internal or external It may still be considered inappropriate to adopt the classification system for benchmarking as either internal or external. Just as it was noted by Anand and Kodali, the classification models that had been advanced earlier had various discrepancies that failed to help a user identify which benchmarking type will fit a given classification. Similarly, consideration of benchmarking either as external or internal may have other flaws as well. To begin with, Anand and Kodali (2008) were mainly concerned with the classification of benchmarking in order to identify the benchmarking models that could fit in each of the identified classes. After their suggestion of grouping benchmarking as either internal or external, the duo went ahead to develop a universal benchmarking model that could be used. However, the universal model that Anand and Kodali developed is not concrete and down to earth, but a rather highly theoretical model. It has also not been implemented to see if the model is effective in benchmarking in the industries. The positive consequence of this classification procedure is its simplification of what has taken different forms by different theorist. In deed, it is justifiable that all the benchmarking processes pertain to the products, strategies, functions, processes or operations of an organization, with a comparison of similar characteristics in other organizations. In this way, the assertions by Anand and Kodali (2008) are justified that these aspects are mere components of the benchmarking process (Murray, 2012) and a more condensed classification is necessary. It is also appropriate that the processes to be considered are either internal or external to the organization. However, while internal benchmarking is clearly defined in this classification, external benchmarking seems to go beyond what Anand and Kodali express here. Externality in this case could be in reference to the organization, the business industry, or to the national or geographical boundaries, and these have different implications. The duo fails to recognize that the external processes will take different dimensions, which will affect the benchmarking approach to be applied by the organization. A benchmarking company can be prompted to collaborate with one company or compete with the company. An organization will mostly likely strive to compare with, and compete, other organizations within the industry. Similarly, an organization may strive to imitate approaches applied by other companies outside the industry. This implies that the Anand and Kodali (2008) missed out an important category, which was purportedly included in the external benchmarking- this is competitive benchmarking. Rather than considering benchmarking as either internal or external, it would be appropriate to consider another classification model that improves on this model to include a third category. Just like in the early cases, different approaches have been applied here and all seem to yield the same classification criterion. Murray (2012) suggests that benchmarking can be classified as internal benchmarking, external benchmarking, or competitive benchmarking. In this classification criterion, internal benchmarking involves examination of processes within a given company, competitive benchmarking involves an analysis of the processes applied by the competing firms in the same industry, and external benchmarking involves an analysis of the processes of companies that are outside the organization’s direct industry (Murray, 2012). A comparable classification approach has also been provided by Stroud (2012). Stroud observes that benchmarking needs to be concerned with the kind of performance standard that is being achieved within an organization as well as similar achievements that are made by other organizations within and outside the given industry. In this view, benchmarking can be considered as internal benchmarking, competitive benchmarking, or strategic benchmarking (Stroud, 2012). This classification seems appropriate, taking into consideration the different aspects. Internal benchmarking occurs in a situation where an organization has been fully established and some of its business units are successful in their operations (Stroud, 2012. It then involves sharing information between the units within the organization on the ‘best practices’ that have been adopted. The business organizations operate in industries that have other players, creating competition. A company would always want to understand its position in a given industry in relation to the other competitors (Stroud, 2012). Competitive benchmarking is appropriate in enabling the organization to identify the leadership skills and performance targets suitable in the industry, which are applied by the competitors. Finally, strategies and processes applied by business operations may be similar across industries and geographical boundaries. Strategic benchmarking involves a company moving outside its industry to understand the performance strategies adopted by high-class performers not only within a given region or country but also on the global scene. In this regard, this latter classification is considered to have better weight than the classification given by Anand and Kodali. Conclusion Business organizations are increasingly concerned with the quality of their products, efficiency of their operations, and continued cutting down of operating costs. The process of benchmarking is necessary given the current economic situation in which all the companies strive to be the best in their operations and the customers expect the best products from these companies. Benchmarking promotes improvement and innovations in a company as the company access information from other successful organizations. Various approaches have been given to the classification of benchmarking processes and so are the models applied for these classifications. The benchmarking classification approach advanced by Anand ad Kodali as either internal or external is helpful as it simplifies the classification process. It helps identify that the process, functional, financial, strategic, product, or performance benchmarking are just components of benchmarking and do not suffice to be termed categories of benchmarking. However, this classification criterion over-generalizes external benchmarking. It fails to stress on the heterogeneity of the factors external to the internal processes and operations of a given organization. From the classification, it appears as though all the other companies operate in either similar or different industry as the company under consideration. A better classification model would categorize benchmarking as internal benchmarking, competitive benchmarking, or strategic benchmarking making. The last category, strategic benchmarking is also grouped as external benchmarking in comparable classifications systems. Reference List Ahmad, M & Benson, R 1999, Benchmarking in the process industries, Institution of Chemical Engineers, Warwickshire. Anand, G & Kodali, R 2008, ‘Benchmarking the benchmarking models’, Benchmarking: an International Journal, Vol. 15 No. 3, pp. 257-291. Andersen, B & Pettersen, P 1996, The benchmarking handbook: step-by-step instructions, Springer, London. 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