Benchmarking is the process of comparing an organization's operations and internal processes against those of other organizations within or outside its industry.  The other organizations against which the comparisons are made, known as 'benchmark partners', are usually those that are perceived to be the best performers in their class.  The purpose of benchmarking is to identify and adopt best known practices that can lead to superior performance. It was a buzzword in the 80's and 90's, but continues to be strongly practiced in various industries today.


Benchmarking is a systematic process - it must have a framework and use a standard set of attributes that are measurable to compare multiple organizations objectively. Benchmarking must be performed on a specific area or activity only, such as operational best practices, information technology, staffing, compensation packages, distribution systems, budgeting, and the like.  Limiting the scope of the benchmarking activity allows the formulation of a more focused agenda that provides more useful information from better-targeted benchmark partners.


In general, benchmarking partners are classified into four (4) categories:  1) internal, which pertains to departments, factories, etc. of the same company; 2) competitive, which pertains to direct competitors; 3) functional, which pertains to best-in-class organizations who are in the same field or activities; and 4) generic, which pertains to leading organizations from various fields and industries.


Benchmarking with internal partners is usually the best starting point for a benchmarking program. However, many companies or organizations are not big enough for internal benchmarking, and have to resort to external benchmark partners to get the information they need.  Identifying suitable external benchmarking partners depends on the purpose of the benchmarking activity as well as the nature of the benchmarking organization. 


For example, it would be good to be able to benchmark against a leading competitor, but this benchmarking arrangement is usually quite difficult to set up because most leading competitors will not divulge their 'trade secrets' to enable a competitor to catch up, resulting in bench mark results that are empty of useful information.  In such cases, functional or generic benchmarking partners involving world-class non-competitor companies are viable options, since these are often willing enough to share information with an organization.


Benchmarking consists of five (5) basic steps:  1) decide on what process or area to benchmark, considering which would give the most leverage or improvement potential; 2) understand the internal processes or operations involved in the area being benchmarked and collect data on their key performance metrics; a good understanding of how an internal system works would facilitate understanding of those of the benchmark partners; 3) identify organizations who are best in class in the area to be benchmarked and arrange mutually-beneficial benchmarking activities with them; 4) conduct the benchmarking activities arranged with the partners; and 5) analyze the benchmark data and adopt practices that will produce the greatest benefits to the organization.


There are many ways by which the benchmarking proper may be conducted with the benchmarking partner, but one of the most popular ones is by exchanging information through a questionnaire, possibly on a visit to the partner. This may consist of the following steps: 1) develop a questionnaire that covers all the information that need to be obtained; 2) answer the questionnaire internally to test it and so that the same information may be provided reciprocally if the partner asks for it; 3) provide a reason for every question so that its necessity may be rationalized to the partner if necessary; 4) discuss the questionnaire to clarify its objectives, areas of interest, and areas of confidentiality and sensitivity with the partner; and 5) arrange a visit with the partner.


If the visit to the benchmarking partner materializes, the following guidelines would be useful: 1) prepare for the visit  thoroughly; 2) define the purpose and objectives well; 3) commit the questionnaire to memory and leave the hard copy behind; 4) be open and honest during the visit; 5) avoid being seen by the partner taking down notes, but take down notes nonetheless; 6) reciprocate information requests; 7) thank the partner again and again.


Benchmarking is just a tool to learn from others, and not a tool to win in business.  It will not give information on what products and services customers want, or how to generate more revenues and profits. There are other management techniques to accomplish these objectives.  These must complement the regular use of benchmarking to ensure continuous improvement in everything that a company does.  Lastly, benchmarking per se is not useful unless knowledge gained from it are put in action to benefit the company.


See Also:   Knowledge ManagementSupply Chain Management;  TQM


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