What is Benchmarking?
Benchmarking is the methodical comparison of organizational processes and performance with industries best against certain reference point in order to create new standards and/or improve processes. Initially US manufacturers started doing this when they realised that Japanese competitors were taking away their markets.
Historically Xerox being the first large corporation to benchmark as this was in late 1970s when, like many of its compatriots, it was feeling the competitive heat. It took all the key parts of the business from Production to Sales and measured them against their counterparts in other companies globally and at home.
Another famous early Benchmarking exercise was the International Motor Vehicle Programme which ran from 1985-90 coordinated at the Massachusetts Institute of Technology and involving US, European and Japanese automobile manufacturers, is sought to establish why the Japanese were performing so much better than everyone else. The conclusion led to the adoption of strategy called lean manufacturing thereafter.
There are four basic type of benchmarking:
- Internal – benchmarking within an organization i.e. between business units.
- Competitive – benchmarking operations and performance with direct competitors.
- Functional – benchmarking similar process within broader range of the industry.
- Generic – comparing operations between unrelated industries.
Is there difference between KPI and Benchmarking?
- Benchmarks are reference points that are used to compare organisations performance against the performance of others.
- KPIs, on the other hand, are decision-making and monitoring tools, used to track performance in relation to strategic goals. KPIs are a bit like an early warning system, flagging up where things might be heading off-course and where action might be needed.
Both – KPIs and benchmarks – are used to identify opportunities for improving performance, which may be where the confusion arises.
Benchmarking can be very rewarding as it can provide new insights into entity’s strength and weakness, identify possible improvements and generates new ideas.
There are lots of article and written work around the process which needs to be followed when applying the benchmarking. Robert Camp of Xerox recommended the 12-step process called “Camp Process” for benchmarking:
It is not easy process and no wonder, many benchmarking projects end in failure. All too often, benchmarking is carried out by semi-committed managers, without the use of predetermined measures, and without the proper and right tools for analysis and presentation.
Mohammad Usman Ali – Author is the Director of Financial Shared Services in Australian subsidiary of a US multinational company, based in Melbourne. He is a member of various prestigious professional organisation including CPA Australia, ACCA UK and ICAP Pakistan. He is also a panel member of ACCA Australia & New Zealand chapter. He has a several years of professional and industry experience working with some of the world-renowned organisations including E&Y, PWC Dubai, KPMG UK, BBC UK, Vodafone UK, Fisher outdoor leisure UK and Cardtronics UK, and Cardtronics Australasia.
Disclaimer: The content of this article is for information only and is not offered as an advice. Readers are encouraged to consult a suitably qualified professional adviser to obtain advice tailored to their specific requirement.