DISCUSSION PAPER An Introduction to Benchmarking

The purpose of this document is to provide a general introduction to benchmarking. It reviews what benchmarking is, why we need to benchmark, the types of benchmarking that can he used and illustrates the major steps involved in a benchmarking project.

What is benchmarking?
Benchmarking is the continuous search for and adaptation of significantly better practices that leads to superior performance by investigating the performance and practices of other organizations (benchmark partners). In addition, it can create a crisis to facilitate the change process. Benchmarking goes beyond comparisons with competitors to understanding the practices that lie behind the performance gaps. It is not a method for 'copying' the practices of competitors, but a way of seeking superior process performance by looking outside the industry. Benchmarking makes it possible to gain competitive superiority rather than competitive parity. The term benchmark refers to the reference point by which performance is measured against. It is the indicator of what can and is being achieved. The term benchmarking refers to the actual activity of establishing benchmarks and 'best' practices. It must be noted, however, that there will undoubtedly be difficulties encountered when benchmarking. Many of them are detailed in the corresponding document "Guide to Benchmarking" under "factors to be aware of". Significant effort and attention to detail is required to ensure that problems are minimized.

Why do you need to benchmark?

There are many benefits of benchmarking. The following list summarizes the main benefits: Provides realistic and achievable targets Prevents companies from being industry led Challenges operational complacency Creates an atmosphere conducive to continuous improvement Allows employees to visualize the improvement which can be a strong motivator for change Creates a sense of urgency for improvement Confirms the belief that there is a need for change Helps to identify weak areas and indicates what needs to be done to improve.

For example, quality performance in the 96 to 98% range was considered excellent in the early 1980's. However, Japanese companies, in the meantime, were measuring quality by a few hundred parts per million by focusing on process control to ensure quality consistency. Thus, benchmarking is the only real way to assess industrial competitiveness and to determine how one company's process performance compares to other companies'.

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Types of Benchmarking
There are four types of benchmarking. They are not mutually exclusive and companies can choose any one or a combination to meet their objectives. It is recommended that strategic benchmarking is conducted first to create a context and rationale that will enhance all other benchmarking efforts. Strategic Benchmarking It is concerned with comparing different companies' strategies and assessing the success of those strategies in the marketplace. Analyses the strategies with particular reference to: Strategic intent Core competencies Process capability Product line Strategic alliances Technology portfolio

It should begin with the needs and expectations of the customer. This can be achieved through surveys to measure customer satisfaction and the gaps between a company's performance and its customers' standards. Ensures a coordinated strategic direction regarding benchmarking and reduces the possibility that one improvement project will cancel out the effect of another. Benchmarking candidates are normally direct competition. The main difficulty is persuading the benchmark partner to discuss their strategy. However, there is a great deal of information which can be obtained from customers, common suppliers and public domain information. Functional Benchmarking It investigates the performance of core business functions. It does not need to focus on direct competition but, depending on the function to be benchmarked; the benchmark partner may need to be in a similarly characterized industry for useful comparisons to be made.

Best Practices Benchmarking Applies to business processes. It breaks the function down into discrete areas that are the targets for benchmarking and is therefore a more focused study than functional benchmarking. Some business processes are the same regardless of the type of industry. Attempts to benchmark not only work processes, but also the management practices behind them.

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Product Benchmarking Commonly known as reverse engineering or competitive product analysis. Assesses competitor costs, product concepts, strengths and weaknesses of alternative designs and competitor design trade-offs, by obtaining, stripping down and analyzing competitors' products.

The four different types of benchmarking are evolutionary beginning with product, through to functional, process and strategic. For the purposes of this document and the corresponding document 'Guide to Benchmarking' best practice benchmarking will be used due to its focus on processes. As benchmarking is becoming more widespread and companies are more proficient in its use, best practice benchmarking is becoming increasingly popular. This is also reinforced by the move away from functionality in organizations towards business processes. For further information on the other types of benchmarking, see the references to Watson, Camp and Miller.

Key steps to benchmarking

Based on our research and experience we would recommend the following stages in your Benchmarking projects: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Identify what to benchmark Ensure management support and involve all stakeholders Select the benchmarking team Analysis of internal processes Identify companies to benchmark Decide on method(s) of data collection Collect public domain information Analyze collected information to establish what other information needs to be collected Establish contacts with benchmark partners Plan the actual visits Conduct the benchmarking visits Establish whether a performance gap exists Predict future performance levels Communicate benchmark findings Establish targets and action plans Gain support and ownership for the plans and goals Implement the action plans, measure performance and communicate progress Re-calibrate benchmarks Adopt benchmarking on a company-wide scale

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Seven Steps to Effective Competitor Benchmarking

When it comes to Competitive Intelligence, there are a few simple tools that can provide for sophisticated comparisons of business functions between organizations that can help firms "benchmark" the constituent processes of the company with direct or indirect competitors, allowing a company to gain the upper hand in a marketplace. But, what is the process for setting the metrics, methodologies, milestones and comparisons which might be used to measure the success of a CI/benchmarking function, or the success of a Strategic Planning department as a whole? Benchmarking is best used and described as a framework for strategic planning in that, once elements of study are identified, metrics can be applied to the key success factors (KSFs) of the industry or marketplace and these measures or "benchmarks" are then used to develop future quality and market initiatives for the firm to enhance its overall competitive position. It is generally considered that there are seven steps to this process, as explained below. However, this analysis of intra- and sometimes inter-industry competitors can form the foundation for future competitor analysis when the emphasis is placed upon the goals and financial capabilities of the competitor. This becomes a question of how will the competitor compete with their particular set of resources and culture? The body of work surrounding business benchmarking has identified seven unique steps in this benchmarking process, many of which may offer some insights on the question of metrics. Seven Steps in the Benchmarking Process: 1. Determine which functional areas within your operation are to be benchmarked -- those that will benefit most from the benchmarking process, based upon the cost, importance and potential of changes following the study. 2. Identify the key factors and variables with which to measure those functions -- usually in the general form of financial resources and product strategy. 3. Select the best-in-class companies for each area to be benchmarked -- those companies that perform each function at the lowest cost, with the highest degree of customer satisfaction, etc. Best-in-class companies can be your direct competitors (foreign or domestic), or even companies from a different industry (parallel competitors with replacement or substitute products or services; latent competitors which might backwards- or forwards-integrate into your market; or, out-ofindustry firms with whom you do not compete, but which have best-in-class areas to be studied such as FedEx or Wal-Mart in logistics). 4. Measure the performance of the best-in-class companies for each benchmark being considered -- from sources such as the SEC, companies themselves, articles in the press or trade journals, analysts in the market, credit reports, clients and vendors, trade associations, the government or from interviews with other organizations willing to share their prior research or "swap" it with you.

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5. Measure your own performance for each variable and begin comparing the results in an "apples-to-apples" format to determine the gap between your firm and the best-in-class examples. Always feel free to estimate results, as exact measures are usually disproportionately difficult to obtain and often do not significantly add value to the study. 6. Specify those programs and actions to meet and surpass the competition based on a plan developed to enhance those areas that show potential for compliment. The firm can choose from a few different approaches -- from simply trying harder, to emulating the best-in-class, changing the rules of the industry or leapfrogging the competition with innovation or technology from outside the industry. 7. Implement these programs by setting specific improvement targets and deadlines, and by developing a monitoring process to review and update the analysis over time. This will also form the basis for monitoring, revision and recalibration of measurements in future benchmarking studies. Since most of the measures in a benchmarking process fall into one of two categories, financial resources and product strategy, this understanding can often be used to simplify the framework of analysis. It remains my gut feeling that, regarding the success of the process itself, ROI is only really measured in documented "wins", for example we can describe success terms of contracts won due to a CI success. This can therefore be thought of in terms of new business signed and the profitability of that new business, a problem solved or costs contained or reduced by the implementation of the CI/benchmarking process.

Conclusion
Benchmarking must be a continuous process with the extent and scope of the project being dependent on the resources that the company has available.

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