BENCHMARKING

Benchmarking is the process of comparing one's business processes and

performance metrics to industry bests and/or best practices from other
industries. Dimensions typically measured are quality, time and cost.
Improvements from learning mean doing things better, faster, and cheaper.
Benchmarking involves management identifying the best firms in their
industry, or any other industry where similar processes exist, and
comparing the results and processes of those studied (the "targets") to
one's own results and processes to learn how well the targets perform and,
more importantly, how they do it.
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 most 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", it is a process 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.

Benefits and use

In 2008, a comprehensive survey on benchmarking was commissioned by

The Global Benchmarking Network, a network of benchmarking centers
representing 22 countries. Over 450 organizations responded from over 40
countries. The results showed that:

1. Mission and Vision Statements and Customer (Client) Surveys are

the most used (by 77% of organizations of 20 improvement tools,
followed by SWOT analysis(72%), and Informal Benchmarking
(68%). Performance Benchmarking was used by (49%) and Best
Practice Benchmarking by (39%).
2. The tools that are likely to increase in popularity the most over the
next three years are Performance Benchmarking, Informal
Benchmarking, SWOT, and Best Practice Benchmarking. Over 60%
of organizations that are not currently using these tools indicated
they are likely to use them in the next three years.

Collaborative benchmarking
Benchmarking, was originally invented as a formal process by Rank Xerox,
is usually carried out by individual companies. Sometimes it may be carried
out collaboratively by groups of companies (e.g. subsidiaries of a
multinational in different countries). One example is that of
theDutch municipally-owned water supply companies, which have carried
out a voluntary collaborative benchmarking process since 1997 through
their industry association. Another example is the UK construction
industry which has carried out benchmarking since the late 1990s again
through its industry association and with financial support from the UK
Government.

Procedure

There is no single benchmarking process that has been universally

adopted. The wide appeal and acceptance of benchmarking has led to
various benchmarking methodologies emerging. The seminal book on
benchmarking is Boxwell's Benchmarking for Competitive Advantage
published by McGraw-Hill in 1994.[1] It has withstood the test of time and is
still a relevant read. The first book on benchmarking, written and published
by Kaiser Associates,[2] is a practical guide and offers a 7-step approach.
Robert Camp (who wrote one of the earliest books on benchmarking in
1989)[3] developed a 12-stage approach to benchmarking.
The 12 stage methodology consisted of
1. Select subject ahead
2. Define the process
3. Identify potential partners
4. Identify data sources
5. Collect data and select partners
6. Determine the gap
7. Establish process differences
8. Target future performance
9. Communicate
10. Adjust goal
11. Implement
12. Review/recalibrate.

The following is an example of a typical benchmarking methodology:

1. Identify your problem areas - Because benchmarking can be

applied to any business process or function, a range of research
techniques may be required. They include: informal conversations
with customers, employees, or suppliers; exploratory research
techniques such as focus groups; or in-depth marketing
research, quantitative research, surveys, questionnaires, re-
engineering analysis, process mapping, quality control variance
reports, or financial ratio analysis. Before embarking on comparison
with other organizations it is essential that you know your own
organization's function, processes; base lining performance provides
a point against which improvement effort can be measured.
2. Identify other industries that have similar processes - For
instance if one were interested in improving hand offs in addiction
treatment he/she would try to identify other fields that also have hand
off challenges. These could include air traffic control, cell phone
switching between towers, transfer of patients from surgery to
recovery rooms.

3. Identify organizations that are leaders in these areas - Look for

the very best in any industry and in any country. Consult customers,
suppliers, financial analysts, trade associations, and magazines to
determine which companies are worthy of study.

4. Survey companies for measures and practices - Companies

target specific business processes using detailed surveys of
measures and practices used to identify business process
alternatives and leading companies. Surveys are typically masked to
protect confidential data by neutral associations and consultants.

5. Visit the "best practice" companies to identify leading edge

practices - Companies typically agree to mutually exchange
information beneficial to all parties in a benchmarking group and
share the results within the group.

6. Implement new and improved business practices - Take the

leading edge practices and develop implementation plans which
include identification of specific opportunities, funding the project and
 selling the ideas to the organization for the purpose of gaining
demonstrated value from the process.

Costs
The three main types of costs in benchmarking are:

 Visit Costs - This includes hotel rooms, travel costs, meals, a token
gift, and lost labor time.

 Time Costs - Members of the benchmarking team will be investing

time in researching problems, finding exceptional companies to study,
visits, and implementation. This will take them away from their regular
tasks for part of each day so additional staff might be required.

 Benchmarking Database Costs - Organizations that institutionalize

benchmarking into their daily procedures find it is useful to create and
maintain a database of best practices and the companies associated
with each best practice now.

The cost of benchmarking can substantially be reduced through utilizing the

many internet resources that have sprung up over the last few years.
These aim to capture benchmarks and best practices from organizations,
business sectors and countries to make the benchmarking process much
quicker and cheaper.

Technical Benchmarking/Product Benchmarking

The technique initially used to compare existing corporate strategies with a

view to achieving the best possible performance in new situations (see
above), has recently been extended to the comparison of technical
products. This process is usually referred to as "Technical Benchmarking"
or "Product Benchmarking". Its use is particularly well developed within the
automotive industry ("Automotive Benchmarking"), where it is vital to
design products that match precise user expectations, at minimum possible
cost, by applying the best technologies available worldwide. Many data are
obtained by fully disassembling existing cars and their systems. Such
analyses were initially carried out in-house by car makers and their
suppliers. However, as they are expensive, they are increasingly
outsourced to companies specialized in this area. Indeed, outsourcing has
enabled a drastic decrease in costs for each company (by cost sharing)
and the development of very efficient tools (standards, software).

Types

 Process benchmarking - the initiating firm focuses its observation

and investigation of business processes with a goal of identifying and
observing the best practices from one or more benchmark firms. Activity
analysis will be required where the objective is to benchmark cost and
efficiency; increasingly applied to back-office processes where
outsourcing may be a consideration.
 Financial benchmarking - performing a financial analysis and
comparing the results in an effort to assess your overall competitiveness
and productivity.
 Benchmarking from an investor perspective- extending the
benchmarking universe to also compare to peer companies that can be
considered alternative investment opportunities from the perspective of
an investor.
 Performance benchmarking - allows the initiator firm to assess their
competitive position by comparing products and services with those of
target firms.
 Product benchmarking - the process of designing new products or
upgrades to current ones. This process can sometimes involve reverse
engineering which is taking apart competitors products to find strengths
and weaknesses.
 Strategic benchmarking - involves observing how others compete.
This type is usually not industry specific, meaning it is best to look at
other industries.
 Functional benchmarking - a company will focus its benchmarking
on a single function to improve the operation of that particular function.
Complex functions such as Human Resources, Finance and Accounting
and Information and Communication Technology are unlikely to be
directly comparable in cost and efficiency terms and may need to be
disaggregated into processes to make valid comparison.
 Best-in-class benchmarking - involves studying the leading
competitor or the company that best carries out a specific function.
 Operational benchmarking - embraces everything from staffing and
productivity to office flow and analysis of procedures performed.[4]
 Energy benchmarking - developing an accurate model of a
building's energy consumption with the purpose of measuring reductions
in usage.

Metric Benchmarking
Another approach to making comparisons involves using more aggregative
cost or production information to identify strong and weak performing units.
The two most common forms of quantitative analysis used in metric
benchmarking are data envelope analysis (DEA) and regression analysis.
DEA estimates the cost level an efficient firm should be able to achieve in a
particular market. In infrastructure regulation, DEA can be used to reward
companies/operators whose costs are near the efficient frontier with
additional profits. Regression analysis estimates what the average firm
should be able to achieve. With regression analysis firms that performed
better than average can be rewarded while firms that performed worse than
average can be penalized. Such benchmarking studies are used to create
yardstick comparisons, allowing outsiders to evaluate the performance of
operators in an industry. A variety of advanced statistical techniques,
including stochastic frontier analysis, have been utilized to identify high
performers and weak performers in a number of industries, including
applications to schools, hospitals, water utilities, and electric utilities.[5]
One of the biggest challenges for Metric Benchmarking is the variety of
metric definitions used by different companies and/or divisions. Metrics
definitions may also change over time within the same organization due to
changes in leadership and priorities. The most useful comparisons can be
made when metrics definitions are common between compared units and
do not change over time so improvements can be verified.

Collaborative benchmarking
Benchmarking, was originally invented as a formal process by Rank Xerox,
is usually carried out by individual companies. Sometimes it may be carried
out collaboratively by groups of companies (e.g. subsidiaries of a
multinational in different countries).
One example is that of the Dutch municipally-owned water
supply companies, which have carried out a voluntary collaborative
benchmarking process since 1997 through their industry association.
Another example is the UK construction industry which has carried out
benchmarking since the late 1990s again through its industry association
and with financial support from the UK Government.

BENCHMARKING IN BPR

Business process reengineering

Business process reengineering (BPR) is an approach aiming at improvements by
means of elevating efficiency and effectiveness of the processes that exist within and
across organizations. The key to business process reengineering is for organizations to
look at their business processes from a "clean slate" perspective and determine how
they can best construct these processes to improve how they conduct business.

Business process reengineering (BPR) began as a private sector technique to help

organizations fundamentally rethink how they do their work in order to dramatically
improve customer service, cut operational costs, and become world-class competitors.
A key stimulus for reengineering has been the continuing development and deployment
of sophisticated information systems and networks. Leading organizations are
becoming bolder in using this technology to support innovative business processes,
rather than refining current ways of doing work.
Business process

A business process is a collection of related, structured activities or tasks that

produce a specific service or product (serve a particular goal) for a particular customer
or customers. There are three main types of business processes:

1. Management processes, the processes that govern the operation of a system.

Typical management processes include "Corporate Governance" and "Strategic
Management".
2. Operational processes, processes that constitute the core business and create
the primary value stream. Typical operational processes
are Purchasing, Manufacturing, Marketing, and Sales.
3. Supporting processes, which support the core processes. Examples
include Accounting, Recruitment, Technical support.
A business process can be decomposed into several sub-processes, which have their
own attributes, but also contribute to achieving the goal of the super-process. The
analysis of business processes typically includes the mapping of processes and sub-
processes down to activity level. A business process model is a model of one or more
business processes, and defines the ways in which operations are carried out to
accomplish the intended objectives of an organization. Such a model remains an
abstraction and depends on the intended use of the model. It can describe the workflow
or the integration between business processes. It can be constructed in multiple levels.

A workflow is a depiction of a sequence of operations, declared as work of a person,

work of a simple or complex mechanism, work of a group of persons, [5] work of an
organization of staff, or machines. Workflow may be seen as any abstraction of real
work, segregated in workshare, work split or whatever types of ordering. For control
purposes, workflow may be a view on real work under a chosen aspect.