What is Benchmarking? Benchmarking is the process of comparing one’s business processes and performance metrics to industry bests or best practices from other industries. Dimensions typically measured are quality, time and cost. In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compare the results and processes of those studied (the “targets”) to one’s own results and processes. In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful. Source: Wikipedia
Benchmarking is a measurement of the quality of an organization’s policies, products, programs, strategies, etc. and their comparison with standard measurements or similar measurements of its peers.
The objectives of benchmarking are:
(1) to determine what and where improvements are called for,
(2) to analyze how other organizations achieve their high performance levels, and to use this information to improve performance. [ Source: Businessdictionary.com]
Advantages of Benchmarking
• sets the foundation of performance improvement aimed at enhancing competitiveness.
• identifies best practices in key business processes
• determines what constitutes superior performance.
• quantifies the gap between the expected performance and the actual state;
• forces organizations out of their comfort zones and provides specific and measurable short-term
improvement plans based on current reality rather than historical performance.
• Remove “paradigm blindness” and forces the organization to take a fresh approach to goal
setting based on a broader perspective, including the external perspective, the most critical
factor that drives customer expectations.
• enables organizational focus on change and provides the direction for the change process.
• making management aware of the competitors’ standards that provide the organization with
minimum standards of excellence.
• provide new ideas and better ways of doing things.
• opens minds to new ideas, heralding a process of continuous learning that leads
to a learning organization.
Disadvantages of Benchmarking
A major limitation of benchmarking is that while it helps organizations in measuring the efficiency of their operational metrics, it remains inadequate to measure the overall effectiveness of such metrics. Benchmarking reveals the standards attained by competitors but does not consider the circumstances under which the competitors attained such standards. If the competitor’s goals and visions were flawed or severely restricted due to some specific factor, an organization by benchmarking such standards runs the risk of trying to ape such flawed standards or settling for extremely low standards.
A bigger disadvantage of benchmarking is the danger of complacency and arrogance. Many organizations tend to relax after excelling beyond competitors’ standards, allowing complacency to develop. The realization of having become the industry leader soon leads to arrogance, when considerable scope for further improvements remains.
Finally, many organizations make the mistake of undertaking benchmarking as a stand-alone activity. Benchmarking is only a means to an end, and it is worthless if not accompanied by a plan to change.
Methods of Benchmarking
Matrix technology, Comparison tables, Graphs: Pie Chart, Bar Charts/ Histograms, SWOT Analysis, Potential/resources-analysis, Price / Performance Ratio, Potential Analysis, Lifecycle Analysis, Portfolio attractiveness customer/supplier position, Technology/ Resource strength, Market position/technology position portfolio, Market growth/ Market Share portfolio, Market attractiveness/competitive strength portfolio, Contribution margin/ Cost development portfolio, Price/customer satisfaction portfolio etc.
Revenue share/ Revenue portfolio, Spider web diagram
Types of Benchmarking
Different types of Benchmarking
- Process Benchmarking
- Financial Benchmarking
- Product Benchmarking
- Performance Benchmarking
- Strategic Benchmarking
- Functional Benchmarking
- Operational Benchmarking
Overall the Benchmarking can be classified under two Qs
Qualitative Benchmarking and Quantitative Benchmarking
Quantitative or Performance benchmarks are used to compare the results achieved with a given product or service against those offered by other similar companies. The outcome generally provides a comparative ranking and is often used to highlight performance areas that need further study and improvement. Often the companies selected for quantitative comparison are from the same sector, either by industry or functional group.
Qualitative or Process benchmarks are used to improve specific processes and operations within the business. Well-managed companies don’t use benchmarks simply to set targets. Instead they look beyond the quantitative data to understand the processes, tools methods, and environment etc that leading companies use to achieve superior results.
In Experian world of consulting, “Business Review ´´ covers the aspects of Qualitative benchmarking
For best results, both Quantitative and Qualitative benchmarking should be used together as they complement each other
As quoted by Lord Kelvin on measurement „If you cannot measure it, You cannot improve it „
`Quantitative Benchmarking Model´ will therefore focus to drive improvements quantified with the help of SMART (Specific, Measurable, Achievable, Realistic and Time bound) KPIs in similar markets or within similar industry in different markets, provided the other conditions affecting those benchmarks remain same.
Questions that pose a greater challenge to the Consultants/ Analysts are:
- What KPIs need to be measured? At Portfolio level (Strategic) and Operational level (Productive)?
- Are the clients using standard KPIs to monitor the performance?
- How to judge if the performance is good, bad or ugly?
- How to compare their performance with other players?
- Who to follow to set up most appropriate KPI benchmarks?
The Quantitative benchmarking model will address to these challenges and guide them to take appropriate decisions.
Value addition to Clients
- Recommending the standard set of KPIs for the organization that have been used and tested over years by leading players.
- Value addition in the form of KPI level quantitative benchmarking
- Enabling the organization to realize, where they stand in performance as compared to the others in country or region.
- Quantified Business Cases: How much quantified potential can be achieved with the improvements?
- Enable the organizations to take appropriate decisions on system investments to realize the business cases
- Improving not just in the respective region but being competitive at global level and set high standards for other organizations.
Value addition to Experian
- Creating a value relationship with the clients on an ongoing basis.
- Gaining an edge over the competitors using info. gathered at global level through the various Business/ Strategy Reviews executed
- Leveraging on vast industry knowledge and experience of consultants globally
- Synergy Effect by joining hands with Credit Services (markets with Experian Bureau) to offer Benchmarking as a Value Added Product
- Benchmarking projects as a revenue stream