Benchmarking: is the process of comparing one’s business processes and performance metrics to industry bests or best practices from other industries. Dimensions typically measured are quality, time and cost. In the process of benchmarking, management identifies the best firms in their industry, or in another industry where similar processes exist, and compare the results and processes of those studied the “targets” to one’s own results and processes.
In this way, they learn how well the targets perform and, more importantly, the business processes that explain why these firms are successful. The term benchmarking was first used by cobblers to measure people’s feet for shoes. They would place someone’s foot on a “bench” and mark it out to make the pattern for the shoes. Benchmarking is used to measure performance using a specific indicator (cost per unit of measure, productivity per unit of measure, cycle time of x per unit of measure or defects per unit of measure) resulting in a metric of performance that is then compared to others.
Also referred to as “best practice benchmarking” or “process benchmarking”, this process is used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice companies’ processes, usually within a peer group defined for the purposes of comparison. This then allows organizations to develop plans on how to make improvements or adapt specific best practices, usually with the aim of increasing some aspect of performance.
Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to improve their practices. Lowering Labor Costs One advantage of benchmarking may be lower labor costs. For example, a small manufacturing company may study how a top competitor uses robots for several basic plant functions. These robots may help the competitor save a significant amount of money on labor costs. Company managers may obtain information on these robotics systems through the competitor’s website or online articles. They may also identify the company that sold the competitor he robots.
Subsequently, the company using benchmarking may call the robot manufacturer to help set up its own system. Improving Product Quality Companies may also use benchmarking to improve product quality. Engineers sometimes purchase leading competitors’ products. They may then take them apart, study them and determine how the competitors’ products outlast or outperform others in the industry. Chemical engineers may study food or cleaning products in a similar manner. They can then compare various elements contained in competitive products to their own product line.
Subsequently, improvements can be made to product quality. Increasing Sales and Profits A company that uses benchmarking to improve its functions, operations, products and services may enjoy increases in sales and profits. Customers are likely to notice these improvements. The benchmarking company may also promote is improvements through company brochures, its sales reps, magazine and television ads. These efforts are likely to increase sales, especially among core customers. Companies that operate more efficiently due to benchmarking can drastically lower their expenses.
These savings can be lead to greater profits. Considerations Some organizations use internal benchmarking to improve performance in different departments. Department managers may study and emulate the best practices of one particular department. These changes may spark improvements among all departments. Internal benchmarking has its limitations, however. The company’s top department may not be functioning as efficiently as others in the industry. This means the other departments were not truly benchmarking against the best departments out there.