In order to answer the question “What is Benchmarking?”, it would be a good idea to start with history.
As a method of business management, Benchmarking is most probably the product of the Japanese Rank Xerox.
It is Xerox who, when losing its market position to Canon, applied it for the first time (almost half a century ago). Or so the popular and oft-repeated rumor has it.
According to some sources, Benchmarking was, not surprisingly, invented in Japan, but much earlier - already in 1950s.
It was then that Japanese businesses began to boldly compete with American companies. In order to beat the Americans, the Japanese started to use Benchmarking, and base their activities on selected US models (e.g. Process Benchmarking).
Did you know?
Benchmarking is one of the methods for creating optimization strategies and competing. It is a method of creative use of the best market standards and practices.
Generally speaking, it is a widely applied, effective method used to improve company productivity.
In the most general sense, Benchmarking can be divided into External Benchmarking and Internal Benchmarking. What are they all about
Benchmarking - definition
The term ‘benchmark’ is used to refer to a performance test, a criterion, a way to evaluate something, and to determine a kind of standard and point of reference, in particular for comparison
All these aspects and shades of meaning are fully and deeply reflected in the Benchmarking concept which permanently features in the dictionaries of marketing and management terms.
Benchmarking is one of the main methods of business management, consisting in regular comparison with companies functioning as a positive role model, worth following in a particular aspect.
The companies employing Benchmarking make comparisons. And the comparisons with market rivals may concern the methods of:
- Production and provision of services
- Process, team, capital, technology, method and cost management
- Communication with customers using advertising and promotions, but also models and standards of business partner service (external communication), and models of communication between departments and employees (internal communication)
- Development and strategic planning
- Creating structures of dependence (e.g. logistics/distribution/production)
- Responding to crises, adapting to changing market situations
- Creating brands and images
- Distribution, reaching customers.
In fact, any aspect concerning company operations can be compared, analyzed, copied, adapted or optimized. In any industry and at any point in time.
However, the choice of elements cannot be random and arbitrary.
It is also important to point out that Benchmarking focuses more on processes than on static characteristics, features and qualities.
Benchmarking - a way to obtain key information
Valuable information is a resource that can help win wars (in a military sense), and gain tremendous competitive advantage.
The dynamics of market changes makes information even more important, but also prone to become outdated. Therefore, Benchmarking should be used regularly and periodically.
It enables you to obtain vital information which form a pattern of actions, decisions, plans, goals and methods field-tested by the organization recognized as a role model.
Thus, it is a method that saves time and (not only financial) resources, reduces risk, and allows you to achieve similar results and goals faster, easier and in a less labor-intensive and energy-consuming manner.
It is especially valued as a method of acquisition, categorization, aggregation and interpretation of key information, due to its strategic character.
It is as much valuable as it provides information on both external and internal functioning of a company. In the areas recognized as reference standard, i.e. worth following and developing.
Benchmarking goals and application methods
Remember that its goal is not to copy and blindly imitate, but to learn and creatively utilize the best models available in the market at a given moment.
‘Model’ is the key word here. According to the dictionary definition, a model is a pattern constituting a standard for other items and processes. It is a rule considered appropriate and desirable.
In practice, Benchmarking always means the adaptation of the solutions observed to your own goals, needs and capabilities. This method is change-oriented (usually introduced evolutionarily, not by revolution), pragmatic (observations, analyses and comparisons are to serve to develop your own solutions) and comprehensive.
The primary goal of Benchmarking as a method is:
- Organization self-improvement
- Self-awareness of strengths and weaknesses
- Awareness of the distance between a company and the leader, and of what is required to achieve the leading position
- Mobilization and inspiration for action (psychological effect resulting in consolidating group efforts around a problem)
- Continuous learning from the competitors’ successes and mistakes
- Setting reference points and creating self assessment criteria
- Gaining competitive advantage
- Increasing efficiency, satisfaction and rationality of actions
- Supporting strategic decisions and planning future activities
- Identification of issues, imperfections and shortcomings
- Getting a big picture, a system approach to the functioning of a company
- Multidimensional and multifaceted quality improvement
- Preparation for changes and readiness for changes
- Reputation and image enhancement by participating in various types of benchmarking competition.
Moreover, Benchmarking enables an organization to:
- Gain a new perspective inspiring to search for own solutions
- Avoid the complacency trap and being limited by own patterns of thinking, acting and attitudes
- Establish continuous learning as one of the constant characteristics, values and goals, at the individual and company-wide level
- Better understand the dynamics, specificity and diversity of customer needs and problems
- Deepen the understanding of the processes and the relationships between them
Types of Benchmarking - management method description
Benchmarking can be understood and applied in several variants, including:
- Horizontal / Generic
- External / Competitive
The above is the list of the most common types of Benchmarking, and it is by no means exhaustive.
‘Benchmarking examples’ is an entry under which you can find further, less popular, more customized comparison methods resulting from very specific, contextual needs. The above mentioned methods are recommended as universal.
In practice, Benchmarking in its form must always be tailored to the most desired goals of an organization.
It is most commonly used and recommended to large companies (corporations, holdings) where a significant number of facilities, suppliers, distributors, resellers, etc. makes perceiving all relationships, influences and necessities complicated.
The Internal Benchmarking serves to compare productivity, functionality, functions, roles, positions, adopted methods and solutions, technologies, procedures, etc. within an organization, as well as to identify problems and to find solutions to them.
Its biggest advantage is full availability of data and information, and the capability to fully control the methods of their aggregation.
The Internal Benchmarking does not have to take into account legal issues which are the most problematic in this method.
Legal issues, related, e.g. to trade secrets, do not prevent you from obtaining reliable benchmarking results, which often is a serious obstacle for the other types of Benchmarking.
It is the most general comparison of the practices, processes, solutions, technologies, methods, means, etc., commonly used by companies in a particular industry or in non-related industries.
Especially for cross comparison (between industries), the exchange of experience and information is not fraught with the risk of disclosure of sensitive information directly affecting a company’s competitive edge.
Similarly to the Horizontal Benchmarking, Functional Benchmarking also focuses on inter-industry comparisons, but in a much narrower range.
By typing ‘functional benchmarking example’ in a search engine, you can find a many cases and descriptions of best practices.
Using Functional Benchmarking, you compare selected company functions (hence the name), e.g. the way to organize a supply chain, logistics, b2b and b2c customer service, corporate culture, internal communication, and CSR (Corporate Social Responsibility) activities.
It is conducted by two competing companies in the same industry, on the principle of mutual consent and based on mutually applicable rules.
It is rarely used, as it generates much resistance resulting from the risk of obtaining sensitive data, or of being accused of illegal actions (e.g. price fixing).
The more similar are the two organizations being compared, the higher the cognitive value and usefulness of this method.
It is focused on the improvement of company processes, and making them more effective.
It consists in following, modeling and adapting of the solutions for operational management.
Which is one of the more important components of the competing strategy for businesses with similar potential.
As the name suggests, it is used solely for the purpose of product comparison, but across a broad spectrum of their functioning. From functional and usability features to price, packaging, distribution, advertising, brand, etc.
It allows you to improve the existing products and create new innovative ones, much better for solving problems, and better corresponding to the structure of needs.
For many companies, it is essential, especially when the strategy provides competitive advantage over manufacturers and service providers offering products and services with similar quality characteristics, at a similar price, and of comparable usability.
It enables you to set long-term plans for market presence, set goals in different time perspectives, and compare their potential to model solutions.
Benchmarking - step by step
As any method supporting business management, Benchmarking also requires a methodical approach (in any industry), following a procedure and a plan, and consistent data aggregation and analysis.
As a standard, Benchmarking should consist of:
- Phase of preparation when the scope, form, methods and subject of comparison are specified, i.e. we specify what, how and with whom we want to compare. In this phase, it is also necessary to describe in detail the functioning of the component to be compared in own company (e.g. process documentation)
- Phase of acquiring a Benchmark partner, a company with which we will be able to exchange information following a strictly defined scenario and clear and specific rules (e.g. for meetings or personnel)
- Phase of operationalization and Benchmark creation consisting in finding and defining KPIs (Key Performance Indicators). It is a very important phase, because the correct definition of ‘what’ we study, what we consider a ‘success’, how we measure it, and to what extent the measurement is precise, affect the validity and reliability of the entire comparison as well as the effectiveness of the activities taken based on it
- Phase of conclusion, data analysis and reporting
- Phase of the implementation of the changes made based on the information acquired.
A properly designed and conducted Benchmark allows you to determine the differences (qualitative and quantitative deviations) between the model component and the component compared to it.
A good example of qualitative deviations are differences in labor productivity, its costs, technology productivity, number of errors in the process, shortcomings, downtimes, faults, etc. in the process
The qualitative deviations can be observed in the division of labor, required qualifications and competences, powers and tools.
Benchmarking is a tool to manage processes, competences, structures, resources and methods.
Naturally, as any other methods, Benchmarking has its advantages and disadvantages, too. For example: Competitive Benchmarking can be difficult to conduct in practice.
Implementation of solutions, or Benchmarking application
The plan to implement the changes, resulting from Benchmarking, includes the following types of actions:
- Ad hoc, enabling you to initiate the process of change, performance improvement, competitiveness enhancement
- Strategic, requiring more structural, profound and long-term transformation and investments, which cannot be realized in the short term for various reasons. From financial to organizational to legal (e.g. obtaining permits).
Benchmarking implementation should be properly planned, controlled, managed and secured in terms of:
- Finances (budget)
- Organization (tasks, teams)
- Time (precise work schedule divided into phases)