Benchmarking is the measurement of a firm’s policies and practices through a logical comparison with another firm or a unit of the same firm in order to determine the relative performance. The main objectives of benchmarking include identification of what improvements are necessary and how high performance is attained by other companies.
When conducted well, it has the power to reveal important gaps which can be certainly used to improve the company’s performance (Stauffer, 2003).
It therefore remains relevant in the current global operations as more companies strive to achieve best results in a highly competitive market setting. In order to experience notable success in benchmarking, a company will need to be more creative especially by using companies whose core business is totally outside its industry.
The best way to approach this is to begin by looking at things from the customers’ point of view. To achieve this, the steps a customer takes in acquiring a product are considered alongside the companies that provide the products. These companies are then analyzed in order to understand how they carry out their processes (Iacobucci & Nordhielm, 2003).
For companies with locations spread across the world, benchmarking needs to be carefully conducted bearing in mind the aspect of international context which is fundamental in global benchmarking.
Factors like time of existence, number of employees and locality have to be analyzed precisely while conducting the benchmarking exercise. Benchmarking methodologies will differ from company to company depending on the company structure and the localities where it conducts its business.
Some companies operate in one country while others operate internationally in various countries, often spread across the world. The methodologies adopted by a company are crucial in determining the relevance and eventual success of the exercise.
There are numerous benchmarking methodologies that can be used by a company with locations spread across the world. They include reengineering, benchmarking questionnaires, task-resource maps and diagrams. For benchmarking questionnaires, organizations may need to turn to outside sources like academic institutions that engage in gathering relevant data.
Other sources they can utilize include specialized consulting companies whose core business is to collect such type of data. The questionnaires can then be used to obtain useful quantitative and qualitative data that is specific to every location of the organization across the world.
Task-resource maps can also be employed especially where internal processes are the subject of examination. They can map the flow of information systems, communication, orders, decisions, channels of communication and even customers in the various locations.
Reengineering focuses mainly on making rapid changes in people, processes, and the organization as move to attain a required change for the business to continue remaining relevant at a global scale.
However, it must be equally noted that reengineering can also lead to a sudden downturn if not implemented successfully, but it can improve an organization quite dramatically if it is implemented wisely especially through adoption of a global benchmark for guiding the process (Schniederjans, 1998).
The trade methodology, which is a best practice benchmarking methodology, can also be used by such companies. It is based on exchange of best practices and information related to goods, services and processes in order to improve their performance.
Since its development in New Zealand Benchmarking club, it has been applied in numerous benchmarking projects across the globe, gaining great momentum and application as from 2007 when it became possible to run several projects as a result of enhanced project management system and training materials.
The methodology comprises five steps which include planning the project (Terms of reference), current state research (Research), data collection and analysis (Act), communication & best practice implementation (Deploy) and evaluation of benchmarking process and outcomes (Evaluate).
It is best summarized by Terms of Reference, Research, Act, Deploy, and Evaluate which together make up the word TRADE (Centre for Organizational Excellence Research, n.d).
By exchanging information in different, unique locations where a company is conducting business, a precise outcome is arrived at which becomes useful in addressing the performance of the company.
Xerox Corporation is an example of a company that has used benchmarking in a highly international context. After becoming vulnerable to intense competition from US and Japanese companies, it embarked on vigorous benchmarking efforts.
By benchmarking against Japanese competitors, it established that it took twice the period taken by Japanese competitors to avail a product in the market; three times the costs of design, five times the number of engineers, and four times the number of changes in designs.
It was also established that for almost the same cost of manufacturing, the Japanese companies could afford to manufacture, ship and have the products sold. Another discovery was that in a million units, there were about 30, 000 defective parts-approximately 30 times those of the competitors.
It was equally revealed that if Xerox was to catch up with the competition it would need 18 percent annual productivity growth rate, consistently for five years. This proved a harsh reality for Xerox managers and they found it extremely hard to believe at first but they finally accepted and embarked on fixing it.
They defined benchmarking as a process to measure Xerox against its toughest competitors. As a result, overall customer satisfaction increased more than 90 percent.
It became the only company in the world to win all the three quality awards: the Japan Deming Award (1980), the Malcolm Baldridge National Quality Award (1989), and the European Quality Award (1992).
This success motivated many companies to undertake benchmarking including AT&T, Ford and IBM (ICMRINDIA, 2009). This was indeed an efficient benchmarking; serving to illustrate the potential of an excellently executed benchmarking exercise.
In conclusion, benchmarking is still very relevant in companies and organizations wishing to improve their performance in different markets and localities. It gives the companies a chance to look inwardly with the standards of a company that is performing better in business.
The greatest advantage of benchmarking is that it often benefits all the involved companies. By sharing valuable information affecting both companies, even the best performing company can gain.
In a world where competition is stiff and survival depends on efficiency, customer satisfaction, quality and social responsibility among other factors, business leaders cannot afford to ignore the consideration of what other companies could be doing differently.
Whatever is ignored might just be the reason for a company’s underperformance compared to others. Overall, benchmarking is healthy if carried out strategically and cautiously. However it should not be seen as the only best way to propel a business forward but rather one of the ways.
References
Centre for Organizational Excellence Research (n.d). TRADE Best Practice Benchmarking Methodology. Web.
Iacobucci, D.Nordhielm, C (2000). Creative Benchmarking. Havard Business Review, 89-91.
Icmrindia (2009) Xerox: The Benchmarking Story. Web.
Schniedejans, M.J. (1998). Operations management in a global context. Connecticut: Greenwood Publishing Group, 1998.
Stauffer, D (2003). Is your Benchmarking Doing the Right Work? Harvard Management Update, 85-88.