Mar 31, 2010

MBA study material-What is Benchmarking

Benchmarking relies upon a comparison between the activities of your own organization and those of another. Originally benchmarking was used in manufacturing operations where one process could be compared and contrasted with another.

Think about it in basic terms - you measure a piece of wood along your bench. You keep one end of the wood level/flush with the end of the bench and cut a notch in the bench itself with your chisel at the other end. Then you place other pieces of wood in the same location - the shorter ones you reject and the longer ones you cut down. A benchmark is a measurement tool.

Basic types of benchmark.

Competitive or Industry/sector benchmarking enables an organization to compare its performance with competitors trading in the same industry or sector.

Best-in-class benchmarking is similar to industry or sector benchmarking. However managers would compare their organization to the market or sector leader i.e. the best-in-class.

Internal or historical benchmarking is the internal procedure for comparing results from past performance to current or forecasted performance.

Functional or external benchmarking involves comparing your business activities with those of companies from other industries/sectors with similar processes.

Collaborative benchmarking involves two phases; firstly between two voluntary collaborators within a sector, then secondly between the two collaborators and a party outside the current sphere of competition. Of course this is better suited to the public sector e.g. hospitals, police services since commercial rivals are unlikely to collaborate in this manner.
Benefits of benchmarking (Gift 1996)

* It is an effective approach for achieving operational change. Benchmarks are the catalyst that moves an organization to higher levels of performance.
* Since customer requirements are so rigorously defined, benchmarking improves customer orientation.
* It focuses upon the processes that improve results - not simply results.
* Performance measures are often improved as a result of benchmarking.
* Decision making improves because the organization has enhanced customer knowledge, process focus, and performance measures.
* Benchmarking improves innovation and creativity since self-imposed barriers to success are removed.

Potential pitfalls with benchmarking.

* Benchmarking needs to be supported and driven by senior leaders.
* Prerequisites (such as organizational structure, processes) need to be in place.
* Conducting benchmarking for the wrong reasons can be problematic e.g. to produce data - ignoring processes and insights gained into practices that produce benchmarks.
* Selecting the wrong benchmarks.
* Selecting the wrong benchmark partner.
* Not gaining management support for plans resulting from benchmarks.

Marketing benchmarking.

When applying benchmarking techniques to an organization's marketing activities you are essentially comparing one or a number of your company's marketing activities to those of another part of the business, a competitor or a business that operates in another industry. Vorhies and Morgan (2005) used the following marketing benchmarks in their research:

* Pricing
* Product Development
* Channel Management
* Marketing Communications
* Selling
* Market Information Systems
* Marketing Planning
* Marketing Implementation

Essentially they focus upon the marketing mix, marketing information, planning and operations. Each of these could be sub-divided and new factors introduced e.g. Customer Relationship Management (CRM) - to suit your own organization's marketing strategy.

Camp, R.C. (1995) Business Process Benchmarking: Finding and Implementing Best Practises. Milwaukee: ASQC Quality Press, p18.

Camp, R.C. (1989 Benchmarking: The Search for Best Practises that Lead to Superior Performance. Milwaukee: ASQC Quality Press, p12.

Gift, R.G. (1996) Today's Management Methods, P245 - 261.

Prasnikar, J., Debeljak Z. and Ahcan, A. (2005) Benchmarking as a Tool for Strategic Management, Total Quality Management, Vol.16, No. 2, 257 - 275, March 2005.

Vorhies, D.W. Morgan, N. A. (2005) Benchmarking Marketing Capabilities for Sustainable Competitive Advantage, Journal of Marketing, Vol. 69, Issue 1, p80-94.

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