BENCHMARKING

What is Benchmarking…
Benchmarking is the process of studying and
adapting the best practices of other
organizations to improve the firm's own
performance and establish a point of reference
by which other internal performance can be
measured
What is Benchmarking…
 Stages in Benchmarking
1. Internal Study and Preliminary Competitive
Analysis
2. Developing long-term commitment to the
Benchmarking Projects and Unite the
Benchmarking Team
3. Identifying Benchmarking Partners
4. Information Gathering and Sharing Methods
5. Taking action to meet or exceed the
benchmark
1. Internal Study and Preliminary
Competitive Analysis
 Decides which key areas to benchmark for
study-
 Company's activities
 Products
 Management accounting methods

 Preliminary competitive analyses-

 Internal
 External
2. Developing long-term commitment to the
Benchmarking Projects and Uniting the Team

 Significant organizational changes such as

adopting a total-life-cycle costing approach can
take several years
 Long-term commitment requires:
 Senior management to give the benchmarking team the
authority
 Developing a clear set of objectives
 Empowering employees to make changes
 The benchmarking team should include individuals
from all functional areas in the organization
3. Identifying Benchmarking Partners
 Some critical factors are as follows:
 Size of the partners
 Number of partners
 Relative position of the partners within and
across industries
 Degree of trust among partners
4. Information Gathering and Sharing
Methods
 Two dimensions to information gathering and
sharing
 Type of information
 Product benchmarking

 Functional (Process) benchmarking

 Strategic benchmarking

 Methods of information collection

 Unilateral (covert) benchmarking

 companies independently gather information

 Co-operative benchmarking
 voluntary sharing of information through mutual
agreement
Co-operative benchmarking
 Co-operative benchmarking which is a
voluntary sharing of information through
mutual agreement
 The major advantage of co-operative
benchmarking is that information sharing
occurs both within and across industries
 Sub-categories: database, indirect/third party
and group
 Database benchmarking
 Pay a fee and in return gain access to
information from a database operator
 The database operator collects and edits the
information prior to making it available to the
users
 No direct contact with other firms and the
identity of the source of data is not revealed
 Advantage -A large amount of information.
 But insights regarding the meaning of data and
the way of using it are not available.
Indirect/third party benchmarking
 Uses an outside consultant to act as a link
among firms engaged in benchmarking
 The consultant supplies information from one
party to another and handles all communications
 Since the members may be competitors, they
pass information through a consultant so that the
members remain anonymous
 Group benchmarking
 Participants using group benchmarking meet openly to
discuss their methods
 They coordinate their efforts, define common
terminology, visit each other’s sites and generally have
a long term association
 Direct contact offer the opportunity of better
understanding of other parties involved
 Usually the most effective benchmarking method
 This method is also the most costly to implement and
therefore requires a cost-benefit study
 Benchmarking Gap
(Performance)
 Comparing their own organization’s performance
with the best performance that emerges from the
data
 The performance gap is defined by specific
performance measures on which the firm would like
to improve
 Performance measures may include reduced
defectives, faster on-line delivery, increased
functionality or reduced life cycle product costs
 5.Taking action to meet or exceed the
benchmark
 The organization takes action and begins to
change as a result of the benchmarking initiative
 After implementing the change, the organization
makes comparisons to the specific performance
measures selected
 In many cases, the decision may be to perform
better than the benchmark to be more competitive
Cost of Benchmarking
 The three main types of costs are:
 Visit costs - This includes hotel rooms, travel
costs, meals, a token gift, and lost labor time.
 Time costs - Members of the benchmarking
team will be investing time in researching
problems, finding exceptional companies to
study, visits, and implementation.
 Benchmarking database costs
-Organizations find it is useful to create and
maintain a database of best practices
Disadvantages
 Maintaining Benchmarking Efforts is Costly
 Reluctance to share information
 Today's Realistic Applications May Not be
Tomorrows Applications
 What is best for someone else may not suit
you
 Poorly defined benchmarks may lead to
wasted effort and meaningless results.
Advantages
 It opens organizations to new methods, ideas
and tools to improve their effectiveness
 Allows examination of present processes
 Learn from others experience & practices
 Overall industry improvement
Thank You!