One way to develop a business is to study and learn from the best practices of other organizations.
“Benchmarking” is the methodology that facilitates this learning, via comparisons of processes, products, services and business practices.
Benchmarking can be thought of as an effective business management methodology that involves taking a systematic approach to the measurement and in-depth study of company performance against best practices, irrespective of the industry in which they occur. Lessons often come from market segments very different from that of the company applying the methodology.
One question that sometimes arises is about the difference between benchmarking and a benchmark.
Benchmarking is, as we have seen, a process of identifying companies considered “benchmarks of excellence” in a particular practice and studying what has made them excellent in this practice. It consists then of an in-depth analysis of the best practices that companies in the same or different sectors follow, which can can be replicated by the company conducting the study. A benchmark, in turn, is a company analyzed in the benchmarking study.
This methodology was developed in the 1980s when it was observed that Western companies were being outperformed by Asian companies in certain operations.
One of the pioneers in the development of the methodology was Robert Camp. He proposed four steps in a benchmarking study: planning, analysis, integration and action.
The planning stage is for identifying which practices need a benchmarking study, identifying the companies that per their performance should serve as a source of comparison, and establishing the data collection methods to be used.
The analysis step is for determining the present performance lag behind the competition and establishing desired performance levels.
The integration stage is about communicating benchmarking results and establishing operational goals.
In the action step, the company establishes an action plan to implement the lessons learned in the study, monitor the progress made, and refine the comparison process.
The main benefits of developing a benchmarking study include:
- The company learns more about itself,
- It refines processes and business practices,
- It motivates employees to engage in a continuous learning process,
- It results in reduced costs and increased productivity.
There are several types of benchmarking, including:
Internal benchmarking seeks to identify best practices within the organization itself, so that they can be shared across areas throughout the organization.
In competitive benchmarking the focus is on other companies within the same industry that can be considered benchmarks of excellence.
In functional benchmarking the comparison is between the work processes of different organizations. The comparison can be performed against companies in different industries.
In collaborative benchmarking two companies partner in the development of a benchmarking study, and the results are shared by both companies.