Benchmarking in Performance measure

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Benchmarking in Performance measure

The role of benchmarking in performance measurement

“Benchmarking is the management process which involves comparison of competences with best practice including comparison beyond the organisation’s own industry”

Exploring Corporate Strategy by Johnson and Scholes

Benchmarking requires organisations to:

  • identify what they do and why they do it

  • have knowledge of what the industry does and in particular what competitors do

  • be fully committed to achieving best practice

Types and levels of Benchmarking

  1. Internal benchmarks

    Comparisons between different departments or functions within an organisation.

  2. Competitive benchmarks

    Comparisons with competitors in the business sector through techniques e.g. reverse engineering (buying a competitor’s product and dismantling it to understand its content and configuration).

  3. Functional (operational/generic) benchmarks

    Internal functions are compared with those of the best external practitioners of those functions, regardless of the industry they are in.

    For example, comparing the performance of the internal accounts receivable department with that of a leading credit card company.

  4. Strategic benchmarks

    A type of competitive benchmarking aimed at strategic action and organisational change.

The Benchmarking Process

Eight steps are typically employed in the benchmarking process.

  1. Identify processes, activities, or factors to benchmark and their primary characteristics.

  2. Determine what form is to be used: strategic, functional, competitive, or internal.

  3. Determine who or what the benchmark target is: company, organisation, industry, or process.

  4. Determine specific benchmark values by collecting and analysing information from surveys, interviews, industry information, direct contacts, business or trade publications, technical journals, and other sources of information.

  5. Determine the best practice for each benchmarked item.

  6. Evaluate the process to which benchmarks apply and establish objectives and improvement goals.

  7. Implement plans and monitor results.

  8. Recalibrate internal base benchmarks.

Advantages of Benchmarking
  • Benchmarking sets the foundation of performance improvement by showing how to improve continuously.

  • It helps with cost reduction.

  • It improves the quality of operations.

  • It can be used both in the public and private sector.

  • It is an effective method of implementing change.

Disadvantages of Benchmarking
  • Benchmarking reveals the standards attained by competitors but does not consider the circumstances under which the competitors attained such standards,

  • A bigger disadvantage of benchmarking is the danger of complacency and arrogance. 

    Many organisations tend to relax after excelling beyond competitors' standards, allowing complacency to develop. 

    The realisation of having become the industry leader soon leads to arrogance, when considerable scope for further improvements remains,

  • Many organisations make the mistake of undertaking benchmarking as a stand-alone activity. 

    Benchmarking is only a means to an end, and it is worthless if not accompanied by a plan to change.

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