Benchmarking - An Effective Management Tool in Attaining Competitive Advantage

If you’re not Benchmarking your performance against your competitors, You’re just playing with yourself.

-Al Paison

Benchmarking provides competitive advantage to companies. It’s also a relevant topic for ACCA students and equips them with successful implementation of Benchmarking.

Benchmarking is a vital management tool, that discovers the best practices behind the success of industry leaders in similar or different industries. The information collected from Benchmarked companies is then analyzed and used to compare and measure the performance of your company’s products, services and processes to identify and bridge the gaps in the areas, where improvements are needed. Thus enabling your company to attain competitive advantage.

Prerequisite to Benchmarking
A committed top management and its well-trained team is a prerequisite to successful implementation of Benchmarking Steps.

It’s imperative to form a Benchmarking team. The initial task of this Benchmarking team will be to select comparable and measurable metrics to be Benchmarked, and to collect and analyze the data of Benchmark companies. On the basis of this analysis, the team will implement the findings to bridge the gaps for reaching at desired level of performance.

The Benefits of Benchmarking
The benefits derived from Benchmarking include:

· Provides an insight into how well you can perform, compared to other companies.
· Helps in ascertaining performance gaps to identify areas for improvement
· Enables to develop a standardized set of processes and metrics
· Helps in determining the need of further changes in new processes
· Cultivates a culture of continuous improvement
· Develops capability to monitor the performance of the company for managing change
· Motivates employees, as Benchmarking supports growth of the company and helps in achieving short-term and long-term goals.

6 Types of Benchmarking

1. Internal Benchmarking
Internal Benchmarking refers to connecting best practices to strategies and goals of a company. This approach helps in deciding what types of best practices in the area of one unit can be most valuable to the areas of other units, having similar processes within a company.

Internal Benchmarking helps in setting same standards in all the related areas of your company. Thus ensuring consistent performance improvements and enhanced productivity in each area of different units within a company.

2. External Benchmarking
External Benchmarking refers to comparing performance of your company against the companies of similar industry or different industries. It’s not an easy task, as you requires access to industry data. However, your company have to adopt ways to obtain cooperation from other outside companies in getting required information.

The information collected through External Benchmarking enables your company to compare and measure its performance against Benchmarked companies. This activity helps in identifying and minimizing performance gaps in your company.

3. Competitive Benchmarking
Competitive Benchmarking refers to direct competitors. Here, you compare Processes and metrics against direct competitors. This type of Benchmarking gives you an insight into What Steps should be taken to minimize performance gaps, thereby reaching at desired level of Performance and Productivity.

4. Performance Benchmarking
Performance Benchmarking is concerned with discovering metrics and KPIs within your company. The quantitative data is gathered and used to analyze the metrics to set performance standards. It helps in identifying performance gaps within company. Performance Benchmarking continuously updates current standards for performance improvements.

5. Strategic Benchmarking
Strategic Benchmarking is like External Benchmarking. It seeks to evaluate and analyze the successful strategies of other companies and look at the ways to implement their methods and processes within your company.

6. Practice Benchmarking
Practice Benchmarking is a sort of Internal Benchmarking. It covers qualitative aspects of Practices and Procedures of your company. Established Procedures are used to gather and analyze the data to ascertain how employees and teams are performing their tasks or how technology is used.

Process mapping is a standard methodology to gather and analyze the qualitative information. This analysis helps in identifying and rectifying the performance gaps within a company.

7 Steps in Benchmarking

Step # 1 Selection of Performance metrics
Successful companies regularly Benchmark other companies. In order to be competitive, your company should identify core activities that need to be Benchmarked. Some of common metrics include: Customer satisfaction, reduced cycle time, quality of product or service.

Step # 2 Selection of Companies to Benchmark
In order to assess and improve the performance of your company, you have to select high achiever companies having best practices in the same industry or different industries to Benchmark.

Step # 3 Documentation of current Processes
Documentation of current Processes help in understanding the clear picture of company’s strategic goals; and critical success factors to achieve the goals. The process details are reflected in Process flow chart, that enables Benchmarking team to identify best performance. Thus attaining maximum benefits of Benchmarking.

Step # 4 Collection of information
Collection of information is based on two main sources i.e., Primary data and secondary data. The information collected from these two sources should be specific and relevant. Primary data is obtained directly from the Benchmarked companies, whereas secondary data is generated from published means like: Journals, magazines, reports, or websites.

Step # 5 Analysis of collected information
Once the required information is collected, the crucial step of analysis takes place. The findings obtained from this analysis enables a company to compare and measure its performance against Benchmarked companies. As a result of this process, the performance gaps are identified.

Step # 6 Implementation of changes
Once the performance gaps and need of changes identified, the implementation phase begins. Successful implementation of changes require well defined written action plan to bridge the performance gaps. The involvement of employees in this process, minimizes the resistance to change and enables the company to reach at desired level of performance.

All employees must be well trained and should possess capability to complete the assigned tasks. All implementation processes need to be documented for close monitoring of employees performance.

Step # 7 Repetition of Process
Benchmarking is not a one time process. Successful companies constantly Benchmark their competition. In order to determine the need of further changes in the process, you have to review the successful implementation of new process. This practice helps in covering other areas of the company for process improvement. As a result of this approach, your company can grow as one of the high performance companies.

Summary
Benchmarking is a vital management tool, that discovers the best practices behind the success of industry leaders in similar or different industries.

A committed top management and its well-trained team is a prerequisite to successful implementation of Benchmarking Steps.

Benchmarking provides an insight into how well you can perform compared to other companies. It develops capability in determining the need of further changes in new processes; thereby, cultivating a culture of continuous improvement. Benchmarking motivates employees, as it supports growth of the company and helps in achieving short-term and long-term goals.

6 Types of Benchmarking include:

1. Internal Benchmarking
2. External Benchmarking
3. Competitive Benchmarking
4. Performance Benchmarking
5. Strategic Benchmarking
6. Practice Benchmarking

7 Steps in Benchmarking consist:

Step # 1 Selection of Performance metrics
Step # 2 Selection of companies to Benchmark
Step # 3 Documentation of current Process
Step # 4 Collection of information
Step # 5 Analysis of collected information
Step # 6 Implementation of changes
Step # 7 Repetition of Process.

Bibliography

Stephen P. Robbins, Mary coulter, “Management,” New Jersy: Pentice Hall, 7th Edition.

Bruce R. Barringer, R. Duane Ireland, “Entrepreneurship: successfully launching new ventures,” USA: Pentice Hall.

William J. Stevenson: Rochester Institute of Technology, “Operations Management,” 10th Edition (2008)

SN Chary, Production and operations Management, “New Delhi: Tata Mcgraw – Hill Publishing company Limited, 3rd Edition.