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MNG992DL
Competitive Benchmarking

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Lecture 2

Benchmarking Types

Internal Benchmarking

Many organizations that are highly decentralized can take advantage of a highly cost-effective method called "internal benchmarking." This is a type of benchmarking in which processes are compared between operating units, divisions, or sister companies (Watson, 1993). These internal benchmarking studies can produce detailed data about process improvement opportunities because the usual hurdles of access and cooperation from other institutions will be reduced if it is done within one system. Internal studies can also help the organization focus on the critical issues to be examined, provide useful information by themselves, and define areas for future external investigations. Although it has these benefits, internal benchmarking has a lower probability of achieving significant breakthroughs because comparable departments tend to have relatively similar practices and processes compared with external organizations.

Competitive Benchmarking

A more common type of benchmarking focuses on measuring performance against peer or competitor organizations. The goal of competitive benchmarking is to study the product designs, process capabilities, and/or administrative methods used by an organization’s competitors or peers (Watson, 1993). Watson states:

Studies of this type differ from process benchmarking studies in terms of their depth and the fact that their goal tends to end with measurement rather than with implementing process enablers. Competitive benchmarking studies may be conducted directly with competitors on benchmark processes that are noncontroversial, such as facilities management, internal auditing practices, human resource practices, employee safety and health, compensation and benefits, employee training and development, quality programs and methods, purchasing and supplier management, and industrial policy issues. Often these studies are conducted by a third party to sanitize the competitive information, nominalize sensitive performance information to an agreed-on base measure, and report case study information that has been approved by the contributing company (Watson, 1993, p. 109). It is easy to see why third-parties such as The Benchmarking Exchange (TBE), the American Productivity and Quality Center (APQC), Educational Benchmarking Incorporated (EBI), or the private consultants are popular methods through which organizations often enter the benchmarking field. See the External Links page for examples of third-party benchmarking organizations. Benchmarking practitioners often ask for a neutral and external standard for institutional comparison of processes. After internally analyzing a process and determining a benchmark, a manager typically may ask if this result is really good, and if so compared with whom (Detrick & Pica, 1995; Rush, 1994)? Another reason for seeking external third-party analysis for competitive benchmarking, particularly for large organizations, is that one-to-one comparisons with competitors can raise concerns over possible antitrust violations and unfair trading practices (Watson, 1993). Some information may be impossible to obtain because it is proprietary and is the reason for an institution’s competitive advantage (Camp, 1989). However, while obtaining information may be not be easy, it should nevertheless be pursued, perhaps by using third party associations or consultants to guarantee confidentiality and anonymity.

Functional Benchmarking

Also called industry benchmarking, functional benchmarking is similar to competitive benchmarking except that the group of competitors analyzed is larger and more broadly defined (Rush, 1994). Robert Camp (1995) defines functional benchmarking as "a comparison of methods to companies with similar processes in the same function outside one’s industry" (Camp, 1995, p.15). This kind of benchmarking presents a good opportunity to produce breakthrough results by analyzing high performing processes and learning the process enablers from these industry-wide organizations (Watson, 1993).

Xerox Corporation found, through functional benchmarking, that it could look outside its industry for best practice leaders and relate it to an overall company-wide benchmarking effort. As briefly described in an earlier lecture, Xerox realized that it needed to radically improve performance and decided to look at a warehousing and distribution process leader in another industry, L. L. Bean. Despite their differences, Robert Camp commented on the similarities between his company (Xerox) and the company he visited. He found a very efficient operation that was designed with the full participation of the hourly work force, and used quality circles to do it (Camp, 1989). L. L. Bean was identified as a best practice leader in the area of warehousing and distribution through an article published in a trade periodical. Since Xerox and L. L. Bean are in two very different industries, the problem of confidentiality was reduced and a distribution manager at L. L. Bean agreed to a site visit by Xerox personnel. The visit was conducted, data was gathered and compared between the two organizations. L. L. Bean also learned about the benchmarking process itself and began visiting other firms (although not Xerox) to learn from them as well.

This is why functional benchmarking can be one of the most productive and cost-effective benchmarking types. The objective is to learn about competitors in a general way rather than specifically (Thor, 1995). Overall, the goal of both competitive and functional benchmarking is to identify the best operational practices and processes that can be adapted or learned from the leaders.

Generic Benchmarking

Generic benchmarking, also called "best-in-class," uses the broadest application of data collection from different kinds of organizations. Generic benchmarking compares work processes at one organization to others who have truly innovative and exemplary performance (Camp, 1995). Also called "best-in-class" benchmarking, Rush (1995) states that generic benchmarking

. . . seeks out those organizations with the best practices regardless of the industry. The basic criterion is: Who performs this activity best? As a result, a college or university might compare itself to an airline’s purchasing process or a credit-card company’s billing process or a manufacturer’s facilities maintenance operation (Rush, 1994). The value of generic benchmarking is that an organization is not restricted to a competitive or industry group of institutions, and is equipped to look at important internal processes generally for analogous processes elsewhere (Watson, 1993). The difference between functional and generic benchmarking is that generic benchmarking seeks to uncover the "best of the best" practices, regardless of industry. The organizations doing the functional benchmarking must understand how the processes can translate across industries, and need to look for the leaders accordingly. Generic benchmarking is therefore probably the most difficult benchmarking type to use, but can have the highest probability for long-term returns. This creative approach can often result in changed standards and a complete reengineering of business operations. Robert Dale, a benchmarking consultant to the higher education industry, recently held a conference where he stated that reengineering is really the natural result of benchmarking (Dale, 1995). If, during a benchmarking project, it is determined that the processes under scrutiny needs to be changed entirely, then complete process reengineering may be the proper tool. However, if only minor adjustments are needed or changes are required in other areas of the organization, then reengineering may not be the tool for this job. Benchmarking and reengineering are related techniques, but have different purposes and uses in an overall quality improvement effort.

Each of the four benchmarking types can be important tools for process analysis and quality improvement. The type that should be used depends on the kind of process being analyzed, the availability of data, and the accessibility of potential benchmarking partners for the college or university conducting the benchmarking study. Regardless of which benchmarking type is used, the purpose is still the same--to help the organization continually learn from other organizations (Camp, 1995). This is done by analyzing the operation, knowing the competition and industry leaders, incorporating the best of the best, and finally gaining superiority to become the new benchmark for others to seek.

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

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

Dale, B. (1995, October 30 & 31, 1995). Practical Benchmarking for Colleges and Universities. Paper presented at the AAHE Workshop, Key Biscayne, Florida.

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.

Rush, S. C. (1994). Benchmarking -- How Good is Good? In J. W. Meyerson & W. F.

Thor, C. G. (1995). Practical Benchmarking for Mutual Improvement. (Vol. 10). Portland, Oregon: Productivity Press.

Watson, G. H. (1993). Strategic Benchmarking: How To Rate Your Company's Performance Against the World's Best. New York: John Wiley and Sons.
 

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