The Roots of Benchmarking Model - Essay Example

BENCHMARKING MODELS Introduction Although the idea underlying the concept of ‘benchmarking’ is ancient (learning from others), it was not until the 1990s that benchmarking in private and public organisations became a widely used and recognised term. However, the roots of modern concepts of benchmarking can be traced back to the Xerox case when the famous copier producer took the advantage of learning from its Japanese competitors in the late 1970s – 1980s (Zairi, 1998; Zairi & Ahmed, 1999). Being the pioneer in benchmarking practices, Xerox defines benchmarking as “a continuous, systematic process of evaluating companies recognized as industry leaders, to determine business and work processes that represent ‘best practices’ and establish rational performance goals” (Zairi, 1998: 13-14). The core principle of benchmarking is measurement and comparison involving the best practices, which helps significantly improve the existing practices and performance. It should be noted that the so-called “best practices” have different levels and in reality the most preferable type of the ‘reference point’ or ‘benchmark’ may not even exist either due to limited technological levels, scarce resources and/or time, etc. Consequently, the best available practices are used as reference points in this case, which helps set feasible performance goals in the environment by incorporating realistic practices into operations. Jarrar & Zairi (2001) performed a large survey of 227 organizations in 32 countries in order to understand and assess the major tendencies and future directions of benchmarking. The survey results demonstrated that the practice of benchmarking was gaining prominence worldwide and across various industries, from manufacturing education. Also, Jarrar & Zairi (2001) listed several benefits of using benchmarking, namely: improving quality; increasing speed of service; improving processes; understanding customer requirements; setting internal standards; influencing strategic decision- making process; managing resources more effectively; deploying resources; and improving personnel management and changing leadership style within the organization. However, these benefits are available only to those whom are aware about the specifics of benchmarking process, and particularly such essential aspect as various types of benchmarking. Main Discussion There are four major types of benchmarking identified in the literature: benchmarking against internal operations (Internal Benchmarking); benchmarking against external direct product competitors (Competitive Benchmarking); benchmarking against external functional best operations or industry leaders (Industry or Functional Benchmarking); benchmarking a process in one or several unlike organisations (Generic or Process Benchmarking) (Bogan, 1994). Despite much similarity between different types of benchmarking, there are still some differences between them. According to Zairi (1998) competitive benchmarking is reported to have the following essential advantages: It brings the newness and helps discover innovative methods of managing organisation’s performance; It provides the organisation with a common goal availability of which is highly important in the process of team building; It helps improve organisation’s general awareness of costs and performance issues as compared to those of competitors; It helps adequately map a common front for facing the inevitable challenges of competition; It emphasises the value of employee involvement thus encouraging recognition of individual and team efforts. It is highly comprehensible as compared to many other management and/or performance improvement tools and strategies: the essence is direct comparison Some of the advantages of competitive benchmarking were particularly illustrated by the Xerox case. In 1980, Rank Xerox controlled almost 100 percent of the world market for plain paper copiers. By 1985, that market had plunged below 50 percent and was rapidly headed downward toward 40 percent (Zairi, 1998). Such situation prompted the company to perform direct comparison between itself and its direct competitors in order to find out what it could do to increase productivity simultaneously decreasing costs. The comparison revealed astounding results: Xerox's ratio of indirect to direct staff was twice that of direct competition; It had nine times the number of production suppliers; Assembly line rejects were in the order of ten times worse; Product time to market was twice as long; Defects per 100 machines were seven times worse (Zairi & Leonard, 1994: 24). However, the advantages of competitive benchmarking do not fully compensate for the difficulties associated with this model: competitive benchmarking is believed to be the most difficult type of benchmarking to implement. For evident reasons, competing organizations are not interested in helping their direct competitors by sharing information: this type of benchmarking is helpful in assessment of performance, services, and products an organization against its direct or indirect competitors in its own industry. Competitive benchmarking starts as basic reverse engineering and then expands into benchmarking. Reverse engineering is a competitive tool used in benchmarking which looks at all aspects of the competition's strategy. This includes analysis and examination of the entire customers’ path of the company’s competitor. This is a difficult task to complete because this information is not easily obtained. Therefore, it requires extensive research, and it is exceptionally critical to remember when using competitive benchmarking that the goal is to focus on the direct competitors and not the industry as a whole (Lankford, 1998). Internal benchmarking is commonly in most large organisation in which there are similar functions in different business units. One of the simplest benchmarking practices is to draw a comparison between two or more internal units. The objective of internal benchmarking is to identify the internal performance standards of an organisation. The advantages of internal benchmarking are first, there is often a significant amount of information sharing accompanying internal benchmarking. Second, many organisations are able to obtain immediate gains by identifying their best internal practices and transferring those to other parts of the organisation. This internal knowledge can be used as the starting point for further measurement and investigation involving external benchmarking partners. The key disadvantage of internal benchmarking is that it fosters the so-called ‘introverted vision’: it is very tempting to ignore the fact that other companies may have the edge on your organisation when you focus on competition between the internal competitors (Bogan, 1994). Process benchmarking focuses on the day-to-day operations of the organization. It is the task of improving the way processes performed every day. Some examples of work processes that could utilize process benchmarking are the customer complaint process, the billing process, the order fulfilment process, and the recruitment process (Bogan, 1994). All of these processes are in the lower levels of the organization. By making improvements at this level, performance improvements are quickly realized. This type of benchmarking normally leads to rapid improvements to the organization’s performance. Performance benchmarking focuses on assessing competitive positions through comparing the products and services of other competitors. When dealing with performance benchmarking, organizations want to look at where their product or services are in relation to competitors on the basis of things such as reliability, quality, speed, and other product or service characteristics (Lankford, 1998). Strategic benchmarking deals with top management. It deals with long term results. Strategic benchmarking focuses on how companies compete. This form of benchmarking looks atwhat strategies the organizations are using to make them successful. This is the type of benchmarking technique that most Japanese firms use (Bogan, 1994). This is due to the fact that the Japanese focus on long term results Initially, benchmarking was used as an effective tool of managing and improving performance within manufacturing businesses by helping identify the problematic issues and suggesting the adequate corrective measures. However, subsequent modifications of the original concept made it applicable to service industries, such as transportation or banking where benchmarking can be effectively used to measure and improve customer care and satisfaction which have traditionally been perceived as non-measurable and non-quantifiable. Numerous studies have demonstrated that higher level of customer satisfaction strongly correlates with better financial performance (Naumann and Giel, 1995). In a similar vein, Rust and Zahorik (1993) report positive effect of customer satisfaction on customer retention and profitability rate, which allows them to conclude that customer satisfaction is an essential indicator of an organisation’s financial health. And finally, Zairi et al. (1994) argue that better customer satisfaction is likely to result in an considerable increase in organisation’s market share and profits. References Bogan, C. (1994), Benchmarking Best Practices, McGraw Hill. Jarrar, J. & Zairi, M. (2001). Future trends in benchmarking for competitive advantage: A global study. Total Quality Management, 12(7-8), 906-912. Lankford, W. M. (1998). Benchmarking: Understanding the Basics. The Coastal Business Journal, 1(1), 57-62. Zairi, M. (1992). The Art of Benchmarking: Using Customer Feedback to Establish a Performance Gap. Total Quality Management 3(2): 177-188. Zairi, M. & Leonard, P., (1994). Practical Benchmarking - the complete guide. London: Chapman & Hall. Zairi, M. (1994). Measuring Performance for Business Results. London: Chapman &Hall Zairi, M. & Ahmed, P.K. (1999). Benchmarking maturity as we approach the next millennium? Total Quality Management Journal, 10(4/5), 810-16. Zairi M. (1998). Effective Management of Benchmarking Projects. Oxford: Butterworth-Heinemann. Read More