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9. What is benchmarking? When and why do we need to use benchmarking?

Describe in some details the NPC Benchmarking Model and explain the main
processes involved.

Benchmarking has been identified as an effective management tool for improving


productivity and quality, and thereby enhancing organizational excellence and
competitiveness. Its value is attested to by world-class organisations which have
registered quantum improvements as a result of benchmarking.

In a simple word, benchmarking is a continuous performance evaluation which is


much needed by organizations regardless of size and nature. Since its development in
1940s benchmarking has undergone five generations. Its first generation is "reverse
engineering" that involved comparing product characteristics, functionality, and
performance of competitive offerings. Secondly is "competitive benchmarking" where
it compared processes. The third generation was "process benchmarking" where
sharing of information was less restricted and learning was made from companies out
of the industry. The fourth was "strategic benchmarking", which was a systematic
process to evaluate options, implement strategies and improve performance by
understanding and adopting successful strategies of external partners.

Then as digital communication improved, the fifth generation was "global orientated".
"Competence benchmarking" was the sixth. In the sixth, organizations improved their
effectiveness by developing competences and skills by changing attitudes and
practices. In the sixth too, the term "benchlearning" was used by Karlof and Ostblom
(1995) which referred to the cultural change to becoming a learning organization.

Benchmarking is a process of continuously measuring and improving products and


services against the best that can be identified to achieve market superiority and
significant competitive edge. Unlike traditional competitive analysis, which focuses
on outputs, benchmarking is applied to key processes within a business or an
organization. It relies on determining the critical success factors across the
organization. Processes governing those factors are analyzed. The best performances
against the key parameters are established and these are then used to target
improvements. Only a thorough understanding of the in-house processes makes it
possible to recognize and integrate the differences, improvements and innovations
which are found in best-practice organizations.
The benchmarking process also goes beyond simply determining the performance gap
between a company and its competitor. Among other things, it requires the
organization to identify what it wants to improve upon and continuously undertake
improvement measures. Benchmarking is also a tool that can be used to identify
improvement options and facilitate strategic business planning. While a business
strategy can answer questions such as identifying existing markets that offer excellent
profit potential, by itself, a good strategy does not guarantee success. Benchmarking –
a rationale, structured technique for continuously improving key business process and
practices using, as the drive, comparative measurement against best practice
regardless of industry or location – is potentially the most powerful tool in the
strategic armoury.

National Productivity Corporation of Malaysia defines benchmarking as “a systematic


and continuous process of searching, learning, adapting and implementing the best
practices from within the same organization or from other organizations toward
attaining superior performance”. It is about searching for the best practices and
learning from the best to become the best in the industry (Robert C. Camp). Simply
stated, in the words of Marion Harmon, Quality Digest; “Benchmarking is the practice
of being humble enough to admit that someone else is better at something and wise
enough to try and learn how to match and even surpass him at it”. Benchmarking is a
way of moving to become a world class organization through continuously improving,
by sharing and learning. Benchmarking is:

 To know your position/operation

 To know the industry leaders or competitors

 To incorporate the best

 To gain superiority

TYPES OF BENCHMARKING

Generally, there are four types of benchmarking studies that are conducted – internal,
competitive, functional and process. Each produces a different output that results in
different comparisons.
While internal benchmarking involves benchmarking businesses or operations from
within the same organisation,competitive benchmarking applies to companies that
produce similar products or services. It involves considering high level aspects such
as core competencies, developing new products and services and improving
capabilities for dealing with changes in the external environment. Changes resulting
from this type of benchmarking may be difficult to implement and take a long time to
materialise.

Meanwhile, process benchmarking focuses on improving specific critical processes


and operations. Benchmarking partners are sought from best practice organisations
that perform similar work or deliver similar services. Process benchmarking
invariably involves producing process maps to facilitate comparison and analysis.
This type of benchmarking often results in short term benefits.

Functional or generic benchmarking on the other hand is used when organisations


look to benchmark with partners drawn from different business sectors or areas of
activity to find ways of improving similar functions or work processes. It can lead to
breakthroughs that will result in major improvements.

BENCHMARKING & PERFORMANCE IMPROVEMENT


Benchmarking - Outdo Yourself

Benchmarking is an organisational practice of learning through comparing, in a


structured way that can cut through and across cultural, industry, size, and functional
boundaries to identify usable high-performing practices and benchmarks.
Benchmarking is the first step for identifying performance gaps between a business
and its peers. Next, the gaps need to be analyzed to determine their underlying causes
and to develop strategies and plans that address them. Subsequently, with continuous
process improvement, your organization will achieve superior performance and
attempt to overtake the “benchmark”.

BENEFITS OF BENCHMARKING

Benchmarking is a tool that provides goals for realistic improvement and helps you
understand the changes required for improving performance. You may use
benchmarking to identify and rectify problems, implement strategic change initiatives,
or for continuous improvement. Many organizations are finding that benchmarking is
helping them to improve or change in the following ways:

 Improve strategic planning;


 Provide assessments of the strengths and weaknesses of the current core business
processes and related critical work processes;

 Foster organizational methods and practices;

 Lead to significant cost savings, and improvements to products, services and


business processes by comparing and adapting current methods and practices to
those identified as “best practices”; and

 Foster and sustain an improved organizational capacity to successfully implement


quality and process improvement initiatives.

CONDITIONS NECESSARY FOR BENCHMARKING

Benchmarking is more than just comparing, it is about the awareness, ambition and
willingness to change, and actions should be undertaken only when an administration
is open and prepared to embrace change. For benchmarking to be successful it is
helpful to have the right conditions present in your administration. “The right
conditions” means the attitudes of people at all levels - not just at top management
level but at all relevant working levels. If the attitudes are right, the benefits this
process has to offer will be maximized. You need to be prepared to:

 Commit - at the highest level in your organization to improvement;

 Search for better practices - never be sure that you are the best and be prepared to
look for organizations that may be better than you in carrying out certain
processes or procedures;

 Compare - target precisely the process you want to benchmark and fully
understand how your organization carries it out, identify agreed measures of
performance, then share findings with your partner(s);

 Change - if someone is better than you by accepting new ideas and insights into
achieving tasks; and

 Implement - close performance gaps by adopting an implementation programme


for the improvements identified by the benchmarking exercise.
NPC BENCHMARKING MODEL

The Malaysian Benchmarking Service, NPC (1999) developed a generic approach for
benchmarking studies process following the Deming PDCA cycle. The benchmarking
study can be divided into three phases as shown in Figure 3. Each phase describe the
benchmarking processes conducted and their respected benefits. The first phase
provides awareness, understanding of key issues, establish key questions, learn the
methodology, review own process, and in-depth discussions for the benchmarking
study. In the second phase, the benchmarking activities carried out are preparing for
site visit, site visit, data collection, recommendations for improvement and share
findings.

The benchmarking processes performed in third phase are planning, implementing


best practices, monitoring the result, standardization and finally daily control of best
practices implementation. Adaptation and improvement resulting from the best
practices identified throughout the study only occur after the company had adopted
and implemented the recommendations from the benchmarking study.

NPC Benchmarking model

The model provides for gap identification process that facilitates comparison of
“apples to apples” identify “how” improvement can be made, focuses on learning and
best practices transfer and maximise improvements achieved from benchmarking
implementation. The NPC (1999) approach to benchmarking process seems to be
simple, systematic and can be applicable to any benchmarking projects in any
organizations.

The Vision-Driven Benchmarking Process

The Vision-Driven Benchmarking Process benchmarking to be driven by the same


corporate drivers that drive the organization, ensuring consistency throughout. The
vision – driven benchmarking process can be applied as follows:

 Identify what is to be benchmarked, in relation to vision, mission, key


performance indicators and critical success factors;

 Decide on potential benchmarking partners and gain their commitment;

 Decide who should be part of the benchmarking team;

 Benchmarking initiatives;

 Identify available internal information, generate internal/external information;

 Assess or identify best practice;

 Implement/manage changes; and

 Review, feedback, continuous improvement and monitoring.


The Vision-Driven Benchmarking Process

Conclusions

Benchmarking is a process of measuring the performance of a organization’s products,


services, or processes against those of another business considered to be the best in
the industry, aka “best in class.” The point of benchmarking is to identify internal
opportunities for improvement. By studying companies with superior performance,
breaking down what makes such superior performance possible, and then comparing
those processes to how your business operates, you can implement changes that will
yield significant improvements.