25th Jun 2010
Organisations are constantly looking for new ways and methodologies to improve their performance and gain a competitive advantage. As they seek improvements to their own business processes, many organisations recognise the importance of learning from best practices that have been achieved by other organisations.
It is useful to distinguish between the main types of benchmarking.
This is a type of benchmarking that most of us do unconsciously at work and in our home life. We constantly compare and learn from the behaviour and practices of others — whether it is how to use a software program, how to cook a better meal, or play our favourite sport. In the context of work, most learning from informal benchmarking comes from the following:
There are two types of formal benchmarking:
This describes the comparison of performance data obtained from studying similar processes or activities. Comparisons of performance may be undertaken between companies; or internally within an organisation. It is useful for identifying strengths and opportunities for improvement. Performance benchmarking may involve the comparison of financial measures (such as expenditure, cost of labour, cost of buildings/equipment, cost of energy, adherence to budget, cash flow, revenue collected) or non-financial measures (such as absenteeism, staff turnover, the percentage of administrative staff to front-line staff, budget processing time, complaints, environmental impact or call centre performance).
Most people equate benchmarking to performance benchmarking. This is unfortunate, because performance benchmarking on its own is of limited use. Too often performance benchmarking data is collected (often at significant cost) and no further action is taken after the data has been obtained. Whilst performance benchmarking enables a performance gap to be identified, it does not provide the idea, best practice or solution as to how performance can be improved and the gap closed.
Best Practice Benchmarking
This describes the comparison of performance data obtained from studying similar processes or activities and identifying, adapting, and implementing the practices that produced the best performance results. Best practice benchmarking is the most powerful type of benchmarking. It is used for “learning from the experience of others” and achieving breakthrough improvements in performance. Best practice benchmarking focuses on “Action” – i.e. doing something with the comparison data and learning why other organisations are achieving higher levels of performance. Best practice benchmarking projects typically take from 2 to 4 months to identify best practices. The practices then need to be adapted and implemented. The time taken for the whole project varies dependent on the project’s scope, importance, and resources used. Projects are usually resource intensive (in terms of the project team’s time) and so care needs to be taken that they focus on issues of high strategic importance that will deliver major bottom-line benefits.
What is the payback from benchmarking?
This depends on the type of benchmarking. For Informal or Performance Benchmarking it is difficult to assess as these types of benchmarking are focussed on organisational learning and/or better decision making and usually the benefits are not quantified by organisations using these techniques. However, it can be assumed that these methods and benchmarking in general is very important if an organisation wishes to compete nationally and internationally – it makes sense for an organisation to have management processes and systems of a similar or better standard than competitors. Certainly, business excellence models, which are used in over 80 countries to encourage companies to apply the principles of business excellence, have as a core element the need for organisations to benchmark, identify performance gaps and learn from others. The most popular business excellence models are the Baldrige Criteria for Performance Excellence (developed in the United States) where benchmarking accounts for approximately 50% of the model score and the European Foundation for Quality Management (EFQM) Excellence Model.For best practice benchmarking the payback can be calculated on a project by project basis. Payback, from a financial perspective, is likely to vary dependent on the specific aims of the project. If projects are carefully selected, planned and managed, there is no reason why major benefits (financial and non-financial) should not be obtained. A study of 57 organisations that used best practice benchmarking indicated an average financial return of $100,000 to $125,000 per project with over 20% reaping benefits of more than $250,000 per project (COER, 2009).
Methodologies for Best Practice Benchmarking
There is no single benchmarking methodology that has been universally adopted. The wide appeal and acceptance of benchmarking has led to various benchmarking methodologies emerging. TRADE is one such methodology. The TRADE benchmarking methodology focuses on the exchange (or ‘trade’) of information and best practices to improve the performance of processes, goods and services.
TRADE consists of five stages:
Benchmarking is a proven, powerful tool that can facilitate organisations to improve efficiency, increase value-add, and gain a competitive edge. The rationale underpinning benchmarking is sound, and the benchmarking concept of ‘learning from others’ should be embedded throughout all improvement-focused organisations. Benchmarking projects should be linked to key organisational objectives and support from senior management needs to be both strong and visible.
There is little doubt about the potential and versatility of benchmarking as a tool. It has been successfully applied by organisations of different sizes and in different industry sectors and has become one of the most popular management tools. However, it is thought most organisations use performance benchmarking (comparing of performance) rather than the more powerful but resource intensive approach of best practice benchmarking (comparing and learning from others and implementing best practices).
This page was prepared for the Institute of Customer Service by BPIR.com.