Benchmarking is a way to go backstage and watch another company’s performance from the wings, where all stage tricks and hurried realignments are visible.
In Joseph Juran’s 1964 book Managerial Breakthrough, he asked the question:
What is that organizations do that gets result so much better than ours?
The answer to this question opens door to benchmarking, an approach that is accelerating among many firms that have adopted the total quality management (TQM) philosophy.
The Essence of Benchmarking
The essence of benchmarking is the continuous process of comparing a company’s strategy, products, processes with those of the world leaders and best-in-class organizations.
The purpose is to learn how the achieved excellence, and then setting out to match and even surpass it.The justification lies partly in the question: “Why reinvent the wheel if I can learn from someone who has already done it?” However, Benchmarking is not a panacea that can replace all other quality efforts or management processes.
The Evolution of Benchmarking
The method may have evolved in the early 1950s, when W. Edward Deming taught the Japanese the idea of quality control. Other American management innovations followed.
The best example is Toyota Motor Corporation’s following the footsteps of Ford Motor Corporation albeit with the adaptation of the Ford’s Just-in-case system into Toyota’s Just-in-time system. The term “benchmarking,” however, was not coined by that time.
The term “benchmarking” emerged when the idea took ground in US during 1980s when Xerox, Ford and Motorola became the pioneers of benchmarking in USA. Robert Camp, the logistics engineer who initiated Xerox’s benchmarking program and who is generally regarded as the guru of the benchmarking movement, defines it: “Benchmarking is the search for industry best practices that lead to superior performance”.
The Xerox Case
The company invented the photocopier in 1959 and maintained a virtual monopoly for many years thereafter. “Xerox” became a generic name for all photocopiers. By 1981, however, the companies market shrunk to 35% as IBM and Kodak developed high-end machines and Canon, Richo and Savin dominated the low-end segment of market.
The company instituted the quality improvement plan, which resulted in tremendous progress and survival of the organization. This quality improvement plan was later known to the world as Benchmarking Program. Xerox’s approach focused on key processes, rather than simply on finished products, and highlighted distinctive elements of those processes that accounted for product superiority.
Xerox’s benchmarking strategy recognized that many processes are not unique to a single industry and that comparisons need not be confined strictly to one’s competitors. Xerox and other benchmarkers now believe that breakthrough advances are more likely to occur by adapting lessons learned from leaders operating in entirely different industries.
Xerox benchmarked companies both, in and outside the industry. The particular example is L.L.Bean, catalog seller of outside equipment for improving distribution system based on the same. The benchmarking process resulted in: Quality problems cut by two-thirds, manufacturing costs cut in half, development task cut by two-thirds, direct labor cut by 50% and corporate staff cut by 35% while increase in volume.
It should be noted that all these improvements were not direct result of benchmarking rather it became the cause climate for change and continuous improvement followed as a natural result.
Levels of Benchmarking
There are three levels of benchmarking:
1. Internal benchmarking (within the company)
2. Competitive or strategic benchmarking (Industry and competitors)
3. Benchmarking outside the industry.
What benefits have been achieved by the organizations that have successfully completed their benchmarking programs?
There are three sets of benefits:
1. Cultural Change
2. Performance Improvement
3. Human Resources
1. Cultural Change: Benchmarking allows organizations to set realistic, rigorous new performance targets, and this process helps convince people of the credibility of these targets. It helps people to understand that there are other organizations who know and do job better than their own organization.
2. Performance Improvement: Benchmarking allows the organization to define specific gaps in performance and to select the processes to improve. These gaps provide objectives and action plans for improvement at all levels of organization and promote improved performance for individual and group participants.
3. Human Resources: Benchmarking provides basis for training. Employees begin to see gap between what they are doing and what best-in-class are doing. Closing the gap points out the need of personnel to be trained to learn techniques of problem solving and process improvement.
What theoretical model would you suggest to implement a benchmarking program?
Organizations that benchmark, adapt the process to best fit their own needs and culture. Although number of steps in the process may vary from organization to organization, the following six steps contain the core techniques:
1. Decide what to benchmark.
2. Understand the current performance of your organization.
3. Do proper planning of what, how and when of benchmarking endeavor.
4. Study others well (the practices or system you wish to benchmark)
5. Gather data and learn from it.
6. Use the findings.
Some prominent beneficiaries of Benchmarking
Within a decade following its introduction, benchmarking had distinguished itself as an important tool for performance improvement in corporate America.
In several highly publicized cases, benchmarking corporations were learning and benefiting from what would have seemed unlikely partnerships in the pre-benchmarking era.
- Xerox learned from L.L. Bean, a clothing store catalogue retailer
- Motorola from Domino’s Pizza
- Digital Equipment Corporation (DEC) from a seemingly illogical set of partners that included Scott Paper, Campbell Soup, Whirlpool, Boeing, Hewlett-Packard, and Apple.