Benchmarking

Benchmarking is the process of identifying and learning from the best business practices in a company, an indus­try, or the world. As stated by C. Jackson Grayson Jr., chairman of the American Productivity and Quality Cen­ter, the essence of benchmarking is, “Why reinvent the wheel if I can learn from someone else who has already done it?” The goals of benchmarking typically include cost reductions, quality improvement, and new product or process ideas.

Benchmarking involves a variety of considerations, including processing, legal issues, and limitations. Bench­marking is a structured analysis, starting with identification of the business or process to be benchmarked. In addition to comparing products with the “best in the business,” companies also compare processes. For example, Wal-Mart is well known as a leader in inventory management. Many companies, including Amazon (which was sued for hiring away Wal-Mart inventory management executives), bench­mark Wal-Mart as the leading firm in the area of cost control. Similarly, the United States is perceived by many nations as a leader in education. Education management personnel from other countries are often sent to the United States to study and bring back for adoption educational practices used in this country.

Once the product or process to be studied is identified, organizations develop a team to participate in the bench­marking process. Since benchmarking, by definition, is designed to create change, who is involved in the process is an important consideration. Team members must be knowledgeable, be open to new ideas, be able to analyze data, and have influence within the organization.

Once the team is formed, the benchmarking process typically involves data collection. For internal benchmark­ing, where similar operating units within an organization are compared, internal data is usually available. For exam­ple, many national sales organizations are broken down into dozens or hundreds of regional and local offices.

Sales, cost per sales, gross margins, and other performance measures can be compared. For competitive benchmark­ing, where companies compare their performance with direct competitors, data collection can be more difficult. Public data, observation, and surveys are often needed to collect needed information. Quality comparisons are often conducted using reverse engineering, purchasing and dis­mantling competitors’ products in order to assess quality, and production processes.

Using the data collected, the benchmarking team looks for gaps between the company’s processes and PRODUCTs and those of the leading unit, firm, or industry. Once gaps are identified, causes are searched for and hopefully iden­tified. This leads to the final step in the process: taking action to change existing practices to match or exceed those of the benchmarked unit or competitor.

As Dean Elmuti et al. suggest, benchmarking can lead to legal issues. Especially in competitive benchmarking, copy­ing the practices or processes of the leading firm in an industry can generate problems associated with PROPRIETARY INFORMATION and INTELLECTUAL PROPERTY. Groups of firms working together to improve industry standards and prac­tices can violate antitrust and unfair trade practices laws.

Benchmarking peaked as a business management process in the 1990s. While many companies used the process to reduce costs and improve quality, bench­marking has its limitations. First, the focus of bench­marking is data. If the numbers are not accurate or do not allow valid comparisons, the process will fail. Also, focusing on data can distract managers from their need to address the desires of customers and needs of employees. With its emphasis on details, benchmarking can misinterpret the organization’s “big picture,” their reason for existing.

Typical areas of business practices where benchmarking is applied include billing and collection, customer satisfac­tion, distribution and logistics, employee EMPOWERMENT, equipment maintenance, manufacturing flexibility, market­ing, product development, QUALITY CONTROL, supply chain management, and worker training.