Global benchmarking is the process of identifying best practices in organizations anywhere in the world to seek information that can help an organization to measure and compare its performance against those best practices in order to improve its operations. A benchmark is a reference point for taking measures against. Best practices are the techniques that have worked reliably in different situations to achieve their desired purpose in the most efficient and effective way. The best practices are demonstrated to repeatedly work in different situations and can be replicated in different situations with more or less the same results. The process of benchmarking is aimed at finding the best practices within and outside the industry to which an organization belongs.
The purpose of benchmarking is to find the best performers in an area so that one can match them and even surpass them. Thus, if Dell is thought to have the best supply chain management practices or Toyota the best manufacturing processes, organizations of any type, anywhere in the world, can benchmark their own practices and processes against these and make improvements in their own practices and processes. Global benchmarking is a subset of benchmarking, which is a generic term that refers to the systematic and continuous process of measuring and comparing an organization’s practices, products, or services against best practices demonstrated to be effective by industry leaders.
The American Productivity and Quality Center gives an interesting interpretation of the term benchmarking by proposing that it is “the practice of being humble enough to admit that someone else is better at something, and being wise enough to learn how to match and even surpass them at it.” An often cited example of benchmarking is that of Xerox when it was facing trouble in the 1980s. It decided to implement benchmarking to identify ways to improve its performance. Xerox benchmarked against L. L. Bean for distribution procedures, Deere & Company for central computer operations, Procter & Gamble for marketing, and Florida Power & Light for total quality management.
By the early 1990s, Xerox was benchmarking 240 functions against comparable areas in other companies. Benchmarking is credited with dramatically improving Xerox’s performance. 758 Global Benchmarking In the United Kingdom, Lucas Industries is widely reported as a company using benchmarking, looking outside their own organization when measuring performance and generating targets. Managers at Lucas are required to prepare competitive action plans on an annual basis. These plans provide targets for performance designed to align the business unit with leading international competitors in a particular function and explain how the business unit will achieve such performance levels.
When an organization is interested in finding out what is to be compared, there are three types of benchmarking: performance, process, and strategic benchmarking. Performance benchmarking is to compare one’s own performance with that of some other organization for the purpose of determining how good one’s own performance is. Process benchmarking is to compare the methods and practices for performing processes. Strategic benchmarking is to compare the long-term, significant decisions and actions undertaken by other organizations to achieve their objectives. When an organization looks to compare itself to other organizations, four other types of benchmarking may be used.
Internal benchmarking is comparison between units or departments of the same organization. Competitive benchmarking is direct comparison of one’s own performance against the best competitors. Functional benchmarking is comparison of processes or functions against noncompetitive organizations within the same sector or technological area. Generic benchmarking is comparison of one’s own processes against the best practices anywhere in any type of organization. Global benchmarking is generic benchmarking as it involves comparisons with any type of organizations anywhere around the world. A firm can attempt benchmarking at several levels using the different types of benchmarking.
The major application of benchmarking is for performance improvement. It can also be used to find out the relative cost position of an organization in comparison with competitors. Benchmarking is a good learning experience for an organization because it helps to bring in new ideas and facilitates sharing of experiences. The main purpose of benchmarking is to find out the best practices so that one can conform to them. But before one conforms, benchmarking is enough to show where a firm excels or lags behind. This is helpful in assessing the strengths and weaknesses of an organization and finding ways to gain strategic advantage.
Benchmarking involves these steps: Selecting a product, service, or process to benchmark Identifying the key performance metrics such as efficiency of a process Choosing functions, business, departments, or internal areas to benchmark Collecting data on performance and practices Analyzing the data and identifying opportunities for improvement Adapting and implementing the best practices, setting reasonable goals, and ensuring companywide acceptance. Despite its popularity in industry and elsewhere, benchmarking has some limitations. First, it is a tough process to use, is time consuming and expensive, and requires a high level of sustained commitment.
Second, it serves little purpose if it is used sporadically, so it should be done on a continuous basis for effective results. Third, financial statements of publicly-held companies are easily and openly available and therefore organizations may be tempted to do benchmarking on the basis of these. However, it must be remembered that financial statements provide lagging indicators and may not be really useful as the basis for benchmarking. Last, it may be difficult to find comparable benchmarking candidates in all types of areas and activities, and organizations may have to rely on the second-best available choice.