Every business can use benchmarking. At its simplest, it helps you to compare statistics and control costs. More sophisticated benchmarking looks at process design and business strategy. Benchmarking is a process that compares your business activities to similar companies. It questions what you are doing, identifies opportunities for improvement and often provides the momentum necessary for implementing change.
This briefing outlines:
Benchmarking simply involves comparing your business activities and processes to those of other companies (see 3).
Costs which are higher than the industry norms may provide opportunities for savings.
This tends to focus on productivity and efficiency.
For example, sales per employee, gross profit margins or wastage levels.
For example, to assess the effectiveness of training activities or levels of customer satisfaction.
Indicators showing that the company is underperforming suggest opportunities to improve.
This involves looking in detail at how other organisations carry out the same or similar processes.
You may be able to apply some of these ideas to your business.
Again, you may be able to incorporate the lessons learnt into your own strategy.
However you use benchmarking, it is only a tool which highlights opportunities. Benchmarking does not tell you what to do about them (but see 5).
Valuable benchmark information can be obtained without approaching an external benchmarking partner.
You can benchmark key statistics against widely available industry norms.
You can assess yourself using a benchmark package. A benchmark package may include:
You can get involved in a collaborative study of your industry.
You can use the internet as a primary source of data.
Unless your company is prepared to change, the project will lead to nothing.
Benchmarking models or consultants (see 6.1) can help you.
Focus on the key areas of your business.
Be clear about the 'cultural' factors which influence your performance. These will include:
For example, your market and your customers' requirements.
For example, if your company has highly centralised management control, it will be difficult to introduce processes which work in more decentralised organisations.
A typical benchmarking project takes three to four months, until it can be set up. Unless you buy in external services, the only significant cost is employee time.
Use the aims of your project to decide on the kind of benchmarking partners you want.
Understanding how their objectives, limitations and cultures differ from yours is important if you are going to make meaningful comparisons.
For example, the operation of the postroom is likely to be similar for most companies.
It may be difficult to collect detailed information from them.
Never ask for information that you are not prepared to share in return.
The more focused your research is the more useful it is likely to be.
Use a checklist and visit in pairs. (Two people may find it easier to get complete, objective information and impressions.)
Invite your partners to carry out similar visits.
Depending on your objectives, you may identify:
For example, higher staff turnover or lower gross margins.
For example, how you recruit or how your production processes work.
For example, what your human resources policies are, or what quality standards you have for your products.
Typical reasons include:
For example, if you choose to recruit low-grade (and inexpensive) employees in the knowledge that they will soon leave.
For example, if you have a different target market.
For example, if you do not have the financial resources to invest in new technology.
There will normally be several options open to you:
You may accept that there is a good reason for the difference, or that it would be impossible to make changes.
If your benchmarking partners are similar to you and achieve better results with a different process, you may want to adopt elements of that process in your business.
For example, if it is clear that your marketing is underperforming but unclear what you can or should do about it.
Like all business improvement tools, the success of benchmarking depends on management commitment.
The more complex and far-reaching the change, the more time and effort you will need to spend on developing and setting up action plans.
What went well and what would you do differently next time?
Did the actions you took lead to incremental improvements or to a step change in performance?
Benchmarking is not a one-off activity. Even if you have achieved best practice today, regular benchmarking is essential to keep you up to date and ahead of the competition.
Although many benchmarking studies are conducted without external help, a consultant can help with:
An external consultant may find it easier to be objective about your business.
Only use a consultant for the parts of the study you need help with.
It can also highlight where benchmarking activity would be most helpful to your business.