Hagan School of Business

What is Benchmarking?

Leibfried and McNair state that benchmarking is analogous to the human learning process:

Benchmarking Process Overview

Benchmarking’s relationship with quality strategies is even more visible as the process is further defined. The benchmarking process can be compared to the simple four-step approach: Plan-Do-Check-Act (PDCA). Chaffee and Sherr (1992) and the other literature on quality also call PDCA the Shewart Cycle, and it is the fundamental method taught by management guru, W. Edward Deming.

The first step in benchmarking, like in the PDCA cycle, starts with planning. This means selecting and defining the process to be studied, identifying how the process will be measured, and then deciding which institutions or organizations should be studied. In other words, planning what to benchmark and who to benchmark with. The second step uses primary and/or secondary research to gather the data. This can involve researching publicly available information about the organizations through professional associations, personal contacts, a library, or on-line computer services. The primary research may involve direct communication via telephone surveys, written questionnaires, or visits to make detailed inquiries. The third step in benchmarking consists of analyzing the data gathered to calculate the research findings and develop recommendations. This is the critical point in study where the differences or gaps between the participants’ performance are identified, and from which the "process enablers" are derived. Understanding and applying these enablers to the organization conducting the benchmarking study is the essence of the benchmarking process. The overall goal is improved performance from these enablers that were learned from the other organization(s) and then adapted. Watson (1993) summarizes the importance of this point:

A benchmark study produces two results: (a) a measure of process performance excellence that can be used as a standard for comparison . . . and (b) a determination of the process enablers that helped develop the level of performance observed . . . . These enablers are the key to improving the observer company’s performance, and their discovery is the real goal of the benchmarking study. (Watson, 1993, p. 17).

Adaptation of these enablers for improvement is the fourth and final step in the benchmark process, at least in the first iteration of the cycle. For benchmarking to be truly effective, the process should be never ending. Organizational leaders should never believe that they can or should stop comparing their performance with others.

A detailed 10-step process was defined in Camp’s first book in 1989, and is also widely used elsewhere. In his 1995 follow-up companion book, Business Process Benchmarking, Camp states that different companies have diverse benchmarking models with varying numbers of steps in the benchmarking process. They have similar terminology and overlapping areas, but differing levels of process description (see Figure 1). In addition to Xerox’s 10-step process, there is a nine-step process at Alcoa, a twelve-Step process at AT&T, and a five-step process at IBM. All of these multi-step benchmarking processes can be looked at in conjunction with the four phases of the aforementioned PDCA cycle.

Figure 1 - Benchmarking process models (Camp, 1995), p. 9 - adapted from Comparing Process Models for Benchmarking, American Productivity and Quality Center
 

	4-step	6-step	7-step	8-step	10-step
Planning the study	Prepare to benchmark	Plan	Determine functions or processes to benchmark Identify key performance variables Identify best-in- class companies	Define business issue Define what to benchmark Define benchmark measures Determine who to benchmark	Identify process Identify partner
Collecting process data	Research process	Research Observe	Measure performance	Acquire data	Collect data
Analyzing data for results	Document best practices	Analyze	Compare performance and estimate gaps	Compare performance Indentify actions to close the gap	Determine gap Project future performance
Adapting for improvement	Report and implement	Adapt Improve	Specify improvement programs and actions Implement and monitor results	Implement improvements and monitor results	Gain support Set goals Develop plans Implement plans Recalibrate benchmarks
Number of companies Percentage of companies	6 14%	7 17%	8 19%	4 10%	8 19%

The first phase involves planning the benchmarking study by deciding what organizational processes are to be benchmarked, to whom these processes will be compared, and how the data will be collected. After deciding what, and who, and how the benchmarking project will be conducted, the actual data collecting is done through primary and secondary research. There is no one correct way to conduct all benchmarking studies, and the different studies require different methods of gathering the information. Recognizing that the purpose of benchmarking is not only to derive quantifiable metrics and targets, but to investigate and document the best practices that enable the achievement of the goals and targets is important. The second phase contains the analysis of the benchmarking data where the performance gaps between the organizations are identified, and provides the objective basis on which to improve the process. The performance gaps must then be used for adapting improvement efforts, and setting operation goals for change. The plans for change should contain markers for updating the benchmarking findings because the external practices of the other organizations are constantly changing, or continuously improving.

According to Camp, benchmarking really has two important overall components or process groups: the management of the benchmarking process and the user processes. The processes described above are what the users of benchmarking do, while the managers who supervise the overall project have their own broader process steps to establish support and sustain the benchmarking effort. Figure 2 shows the relationship between the management of the benchmarking process with the step-wise user processes:

Figure 2 - Benchmarking processes and phases (Camp, 1995), p. 10
 

Management process: Establish User process:

Support 10-Step

Sustain

Benchmarking provides an objective measurement for base-lining, goal-setting, and improvement tracking (Detrick, Magelli & Pica, 1994). It helps sort out what should be measured, and provides insight to the inefficiencies of certain processes. Benchmarking is truly a learning experience for those managers that participate. Often, during the initial stage of planning what to benchmark and gathering internal data, an organization learns immediately that there are obvious inefficiencies. This often happens in the consortium or association-type benchmarking studies, where participants are first mailed a survey form to collect industry standards and then begin to fill in their own data on the form. However, tempting as it is to act on, this is not the goal or best result possible of benchmarking. The benchmarking manager should ensure that the project team does not slow down and get too involved at the self-analysis stage.

Importantly, benchmarking can help overcome resistance to change that can be very strong in many organizations that have changed little operationally in many years. It does this by relying on data and analysis, which are difficult to argue with if the data are valid and the analysis has merit However, benchmarking is not an end in itself, but rather a means to an end, which is organizational improvement. Researchers can easily get caught up in the details of data collection and analysis, and should remember to keep the goal of process improvement in sight at all times.

In The Benchmarking Book, Michael J. Spendolini (1992) summarizes what benchmarking is and is not (see Table 1). As stated earlier, benchmarking is a continuous process, not a one-time event. Although it can have great benefits, even if performed successfully only once, the improvement gained can easily be lost as competitors improve their own processes. Benchmarking is not a process that provides simple answers through the numbers reported (the "metrics") or in the process enablers that are the means for achieving the better numbers. It is a process that provides valuable information that needs to be incorporated, or adapted, into the organization that hopes to improve, and can identify industry standards. W. Edwards Deming offered the following advice on this, "Adapt, don’t Adopt" (Watson, 1993, p. 3). The process enablers are originally developed at the institutions that have best practices to meet their own specific needs in their own specific environment. Since no two organizations or competitive environments are exactly alike, the process enablers need to be adapted to fit. Outright copying of a business process without thorough analysis for organizational fit can cause unforseen problems.

Table 1 - Benchmarking: what it is and isn’t (Spendolini, 1992, p. 33).
 

Benchmarking Is	Benchmarking Isn’t
A continuous process	A one-time event
A process of investigation that provides valuable information	A process of investigation that provides simple answers
A process of learning from others; a pragmatic search for ideas	Copying, imitating
A time-consuming, labor intensive process requiring discipline	Quick and easy
A viable tool that provided useful information for improving virtually any business activity	A buzzword, a fad

(Excerpted by permission of the publisher, from The Benchmarking Book by Michael J. Spendolini. © 1992 AMACOM, a division of the American Management Association)

This is why benchmarking is not as quick and easy as it first seems. Although benchmarking is not difficult, it does require sufficient planning, employee training, time, and financial support. The costs will be discussed later, however, practitioners of benchmarking report that the return-on-investment is very respectable (AACSB, 1994; NACUBO, 1995). Benchmarking is effective for several reasons. First, it is easy to understand and carry out by all levels of employees in the organization for all kinds of processes. Second, many companies such as Xerox, Motorola, IBM, and others have been using it for years (Spendolini, 1992). Third, benchmarking uses reliable research techniques, such as surveys, interviews, and site visits, which provide external and objective measurements for goal setting and for improvement tracking over time.

Benchmarking is clearly more than a fad. It is a learning experience for those who participate, because its method forces participants to analyze and compare continually, identify industry standards and set the definitions for performance. Just as there are different kinds of learning that can be planned for, the suitable form of benchmarking should also be chosen. The literature reviewed shows there are at least four kinds of benchmarking:

• Internal benchmarking
• Competitive benchmarking
• Functional/Industry benchmarking
• Generic benchmarking

Table 2 - Key Benchmarking Characteristics (Camp, 1989, p. 57)
 

Benchmarking Operation	Relevance	Data Collection Ease	Innovative Practices
Internal Operations	X	X
Direct Product Competitors	X
Industry Leaders		X	X
Generic Processes		X	X

Internal and competitive benchmarking have the most relevant data to the operation being benchmarked. However, neither of these processes usually results in obtaining world-class breakthrough innovations. The other types, except for competitive benchmarking, are not hampered by obtaining sensitive information that may be confidential. However, the industry and generic processes are more difficult to benchmark because the practitioner must decide how to adapt the best practices to the home organization that may be in a different industry. The most significant benefit of benchmarking lies in discovering the world-class leading processes in a parallel process usually in a different industry. This is how Xerox Corporation leapt ahead in the reproduction industry by competitively benchmarking warehousing and distribution processes from L. L. Bean, which is in a completely different industry.

AACSB. (1994). New Benchmarking Survey Makes Business Schools Introspective. Newsline, 25(1), 16-17.

APQC. (1993). The Benchmarking Management Guide - American Productivity and Quality Center. Portland, Oregon: Productivity Press.

Camp, R. C. (1989). Benchmarking: The Search for Industry Best Practices That Lead toSuperior Performance. Milwaukee: ASQC Quality Press.

Chaffee, E. E., & Sherr, L. A. (1992). Quality: Transforming Postsecondary Education. ASHE-ERIC Higher Education Report No. 3. Washington, D.C.: The George Washington University, School of Education and Human Development.

Detrick, G., & Pica, J. A. (1995, April 10-12, 1995). Benchmarking Business School

Performance: Lessons Learned. Paper presented at the American Association of Collegiate Schools of Business, Minneapolis, MN.

Leibfried, K. H. J., & McNair, C. J. (1992). Benchmarking. New York: Harper Collings Publishers.

NACUBO. (1995). Benchmarking Prospectus . Washington, DC: National Association of College and University Business Officers.

PSQR. (1994). "Benchmarking" Being Bandied Too Broadly, Public Sector Quality

Report (pp. 4). Lakeville, MN.

Spendolini, M. J. (1992). The Benchmarking Book. New York: AMACOM.

Watson, G. H. (1993). Strategic Benchmarking: How To Rate Your Company's

Performance Against the World's Best. New York: John Wiley and Sons.