This process involves comparing your business' processes and performance metrics to sector 'bests' and best practices from others. Some benchmarks you could consider include quality, time, cost and productivity.
Why use benchmarking?
Benchmarking is a way to discover the best performance being achieved, whether in a particular company, by a competitor or by an entirely different industry. This information is then used to identify gaps in an organisation's processes to achieve a competitive advantage.
What is benchmarking?
Benchmarking is the process of comparing your business' processes and performance metrics to industry 'bests' and best practices from other companies. Metrics often measured are quality, time and cost. In the process of best practice benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compares the results and processes of those studied (the 'targets') to their own results and processes. This way, you can learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful.
Simply stated, benchmarks are the 'what' and benchmarking is the 'how', but it is not a quick or simple process tool. Before undertaking a benchmarking opportunity it's important to have a thorough understanding of your company's guidelines. Some companies have strict guidelines as to what information can be gathered and whom practitioners can contact to get that information. Depending on the size of the company, practitioners may be surprised at what is readily available in-house.
Benchmarking is not just a matter of making enquiries to other companies or touring and documenting another company's facilities or processes. When making use of benchmarking, a company should not limit the scope to its own industry, nor should benchmarking be a one-time event.
Although there are many forms of benchmarking, they can be classified into three categories – internal, competitive and strategic.
- Internal benchmarking
- Used when a company already has established and proven best practices and simply needs to share them. Again, depending on the size of the company, it may be large enough to represent a broad range of performance (such as cycle time for opening new accounts in branches coast to coast). Internal benchmarking also may be necessary if comparable industries are not readily available.
- Competitive benchmarking
- Used when a company wants to evaluate its position within its industry. Competitive benchmarking is also used when a company needs to identify industry leadership performance targets.
- Strategic benchmarking
- Used when identifying and analysing world-class performance. This form of benchmarking is used most when a company needs to go outside its own industry. Within a company's strategic plan, goals are established relative to benchmarks set by world-class organisations. Often these benchmarks are obtained from outside industries.
How do we do it?
It's important to have a thorough understanding of your company's guidelines before undertaking a benchmarking opportunity.
The following list of vital steps involved in the process should be tailored based on company policies, resource availability and the project or process you're dealing with:
- Understand the company's current process performance gaps. This will help decide what needs benchmarking.
- Obtain support and approval from the executive leadership team. That approval and support will help to eliminate roadblocks, provide adequate resources and expedite the benchmark-gathering process.
- Document benchmarking objectives and scope. This is a necessity for any project.
- Document the current process. Without up-to-date knowledge of the current process:
- Time and resources can be wasted, collecting process documentation and data that already exists.
- The project may lack focus, purpose and/or depth.
- Benchmarking visits may appear to be random exercises in information gathering.
- The team could select a partner whose performance is actually worse than that of its own organisation.
- Collected benchmarking data will be difficult to compare 'apples to apples' in terms of process requirements.
- Agree on the primary metrics. Benchmarking measurements are used as the basis of many comparisons:
- to determine the gap between current performance and that of partner organisations
- to track progress from the present (with the current process) into the future
- to track partners' progress toward their goals
- to determine superior performance with process improvements
- to use a measurement systems analysis (MSA): these comparisons will be valid only if everyone participating in the study measures performance in exactly the same way — every time
It is important to make sure metrics are being established that potential benchmarking partners are probably already tracking or that can be easily derived from existing measurements.
- The metrics should be put in writing. In particular:
- What is being measured.
- How the units of measure will be classified.
- What should be included in the measurement.
- What should not be included.
- How to make any necessary calculations.
- Examples of typical measurements.
- Agree on what to benchmark. Everyone must be in agreement on what to benchmark prior to any benchmark gathering initiative in order to:
- Understand gaps of low performers.
- Understand impact to customers, associates and shareholders.
- Prioritise and select one to three metrics to benchmark.
- Develop a data collection plan.
- Identify research sources and initiate data gathering.
- Design a screening survey to assist with partner selection. Characteristics of the survey are important:
- crisp focus on indicators of excellence
- two pages maximum
- 30 minutes maximum to complete
- objective, multiple-choice questions
- communicates the plans, objectives and resource requirements for the study
- reflects focus areas for subsequent in-depth questionnaires
- Determine how to contact and screen companies.
- Design a detailed survey to gather information.
- Decide if gathered information meets original objectives.
- Conduct a site visit.
- Apply the learnings to performance gaps.
- Communicate to the executive leadership to ensure continued support.
- Develop a recommended implementation plan with process owner.
- Know when to update and recalibrate.