Benchmarking is a tool that provides goals for realistic process improvement and helps you understand the changes required to improve performance. You may use benchmarking to identify and rectify problem areas, implement strategic change initiative, or for continuous process improvement. Benchmarking is the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to be as good or even better than them. (McCall, Jr. & Kaplan, 2003)
Companies benefit from benchmarking through improved performance and productivity levels. Benchmarking helps, organizations understand their industry better, which leads to innovative thinking. Innovative thinking helps you to achieve the desired performance level more rapidly. Other benefits include the identification of the best practice to use in a particular process. Savings are generated using benchmarking because it allows you to continuously improve performance and productivity, therefore eliminating costly errors.
Benchmarking also enables competitors to talk to each other through structured studies and shared findings, which can raise the standard of excellence industry-wide. Since global competition is increasing, the need for competitive advantage is necessary. Benchmarking can help your business gain that competitive edge through improved performance and productivity. (Evans, 2002)
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People often mistake benchmarking for competitive analysis. Competitive analysis typically looks at intelligence data: facts and figures, product breakdown and strategic goals. It is a guessing game as to how to achieve the competitive advantage. (Evans, 2002)
Types Of Benchmarking
There are four types of benchmarking used, process, performance, strategic and internal. Each one has its benefits and its shortcomings and may be more useful in some situations than in others. Benchmarking is a necessary decision making tool for any business that wants to be successful.
Process benchmarking focuses on discrete work processes and operating systems. It can look at customer service, billing, the way orders are filled, recruitment or the strategic planning process. Process benchmarking tries to identify the most effective operating practices from many other companies who perform similar work or deliver similar services. These practices become independent industry standards and this type of benchmarking has the ability to produce results that are seen immediately in performance improvements. These are evident in increased productivity, lower costs or improved sales with a result of improved financial performance. (Koskinen, 2000)
Performance benchmarking is competitive benchmarking and allows managers to assess their competitive positions through product and service comparisons. Also known as direct competitors benchmarking, this application focuses on elements of price, technical quality, labor product or service features, speed, reliability and other performance characteristics. This application uses direct product or service comparisons and the analysis of statistics as primary techniques. Many industries use performance benchmarking as a standard competitive tool. To protect confidentiality, of proprietary information, a third party is usually used. (Koskinen, 2000)
Strategic benchmarking examines how companies compete. It is seldom industry focused and moves across industries looking for winning strategies (best practices) that have enabled high-performers to be successful in their markets. Also called outside-of-industry, this method is used widely by Japanese corporations as it influences the long-term competitive patterns of a company. As a result, benefits are slow to accrue compared to the immediate benefits, which can be had from process benchmarking. (Koskinen, 2000)
In addition to the three primary types, there is also internal benchmarking. This effort looks for internal best practices and tries to establish them uniformly throughout the company. This method is achieved by comparing all the functions in the various operations in a business organization. The main advantage of internal benchmarking is its ease of implementation and low requirement of time and resources. However, being internally focused, it targets only internal standards. For competitiveness, the internal standard should be measured against the best in class to determine if there is a gap and how wide it is. Most firms start benchmarking with an internal benchmarking exercise. (Koskinen, 2000)
Benchmarking at Work
We use both performance and process benchmarking with my current employer. Performance benchmarking is used to compare our help desk to other help desks in the industry. We belong to the “Help Desk Institute”. The “Help Desk Institute” sends us reports on what the industry standards are for reporting, resolution time, calls logged, average call length and many other standards. We continually review these reports and try to meet or exceed the industry standards (of which we have been very successful.)
Process Benchmarking is used when we choose to upgrade and change equipment and systems. Sometimes we use benchmarking measurements from the companies that we are considering buying equipment from, this is usually if we are looking to just buy on piece of equipment, such as a new server. Standard S.O.P. is to get an example of several different types of systems and test them against our own benchmarking standards; this is normally used when we are replacing several systems in the environment.
Limitations of Benchmarking
Benchmarking is a great decision making tool when you are comparing your operations to the industry or when you are planning and purchasing new equipment (such as is used in my place of employment.) Benchmarking is limited to processes that you have time to make decisions. This would not be a good decision making technique if you had to come up with an instant answer to a problem. This also would not be appropriate for deciding layoffs or terminations, unless you were to use the argument that the people being laid off or terminated did not meet the industry standards for abilities and knowledge.
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