Monday, August 22, 2011

Management Theories # 22 - Benchmarking concepts

Benchmarking is a systematic comparison of organizational processes and performance to create new standards or to improve processes. Benchmarking models are used to determining how well a business unit, division, organization or corporation is performing compared with other similar organizations.

A Benchmark is often used for improving communication, professionalizing the organization / processes or for budgetary reasons. Traditionally, performance measures have been compared with previous measures from the same organization at different times. Although this can be a good indication of the rate of improvement within the organization, it could be that although the organization is improving, the competition is improving faster.

Benchmarking (also "best practice benchmarking" or "process benchmarking") is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within their own sector. This then allows organizations to develop plans on how to adopt such best practice, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to challenge their practices.

There are four types of benchmarking methods:
1. internal (benchmark within a corporation, for example between business units)
2. competitive (benchmark performance or processes with competitors)
3. functional (benchmark similar processes within an industry)
4. generic (comparing operations between unrelated industries)

Typically, benchmarking models involves the following steps:
- scope definition
- choose benchmark partner(s)
- determine measurement methods, units, indicators and data collection method
- data collection
- analysis of the discrepancies
- present the results and discuss implications / improvement areas and goals
- make improvement plans or new procedures
- monitor progress and plan ongoing benchmark.

Benchmarking is a tough process that needs a lot of commitment to succeed. More than once benchmarking projects end with the 'they are different from us' syndrome or competitive sensitivity prevents the free flow of information that is necessary. However comparing performances and processes with 'best in class' is important and should ideally be done on a continuous basis (the competition is improving its processes also).

Historically, benchmarking is based on Kaizen and competitive advantage thinking.

No comments: