Total Quality Management

Vol. 16, No. 2, 257 –275, March 2005

Benchmarking as a Tool of Strategic

Management

JANEZ PRAŠNIKAR, ŽIGA DEBELJAK, & ALEŠ AHČAN†


University of Ljubljana & Institute for South-East Europe, Slovenia,  Gorenje d.d, Velenje, Slovenia,
†
Faculty of Economics, University of Ljubljana, Slovenia

ABSTRACT The increasing dynamics of the business environment combined with the emergence
of new technologies calls for the development of new methodologies and tools within the concept
of benchmarking. Although recent progress has been made in the direction of expanding the
scope of benchmarking to include systems and strategies, the need exists more than ever for
a system-wide organizational approach. This paper introduces the Total Benchmarking Model
that effectively integrates four types of benchmarking activities: benchmarking of competitive
advantages, benchmarking of strategies, process benchmarking and performance benchmarking
within the process of strategic management, with the aim of supporting and improving the quality
of strategic management decision-making. The model we construct is the result of both long-term
research and its practical application with Slovenian firms.

KEY WORDS : Strategic management, benchmarking, total benchmarking model

Introduction
To achieve above-average performance, a company should be better than its competitors.
For this reason, companies develop their capabilities, which are the scarcest resources in
contemporary conditions of competition (Sutton, 2001). At the same time, they monitor
their competitors and try to anticipate their actions and reactions. They behave strategi-
cally. They want to gain as much information as they can from their competitors and
include this information in their decisions. In order to improve their business perform-
ance, they also study information about other companies’ performance. We call this
benchmarking.
Business practice recognizes two American corporations – IBM and Xerox – as the
founders of benchmarking. The former started at the beginning of the 1960s to compare
the performance of individual business units in its research and development department
and in its production and quality department. The latter started at the end of the 1970s to

Corresponding Address: Janez Prašnikar, Faculty of Economics, University of Ljubljana & Institute for South-
East Europe, Slovenia. Email: janez.prasnikar@ef.uni-lj.si

1478-3363 Print=1478-3371 Online=05=020257–19 # 2005 Taylor & Francis Group Ltd

DOI: 10.1080=14783360500054400
258 J. Prašnikar et al.

compare its production capabilities and processes with its Japanese competitors. Because
of the benefits that benchmarking brought to the early users, its use had since spread gradu-
ally. From the 1980s onward, benchmarking has been applied in many companies in a
more or less formalized form. Nowadays, benchmarking is a widely spread management
tool (Harrington, 1995).
There is a comprehensive body of literature on benchmarking. The early literature
focuses on introducing and describing the idea of benchmarking (Pryor, 1989; Geber,
1990; Henricks, 1993), the differentiation of individual types (Pryor, 1989; McGonagle
& Fleming, 1993) and its application in practice (Tucker et al., 1987; Bemowski, 1999;
Shetty, 1993). Recently, some authors have also called for benchmarking to be applied
to the public sector (Shaller et al., 1998; Lagoe et al., 2000) and for the development of
new methodological techniques (Voss et al., 1994; Mentzer, 1999).
Our paper discusses the model of integral benchmarking, which we have named the
Total Benchmarking model. This model is a step forward from the individual types of
benchmarking with its emphasis on the integration of benchmarking mechanisms within
the strategic activities of the entire company. That is because extensive fragmentation is
estimated as the biggest deficiency in the discussion on benchmarking so far. We have
included the idea of integral benchmarking in the process of strategic management. It is
also useful when developing strategic thinking and the competitive capabilities of employ-
ees (Mintzberg, 1994).
The paper consists of the following: the introduction is followed by the second section,
which defines benchmarking in greater detail. The role of benchmarking in strategic man-
agement is described in the third section. The model of integral benchmarking is discussed
in the fourth section, followed by a discussion of implementing benchmarking. The ben-
efits of benchmarking in strategic management are presented in the sixth section. The
seventh section offers conclusions that summarize our findings.

Definition of Benchmarking
Benchmarking is a very general business concept used (intentionally or not) in many forms
by every company. Therefore, there are many definitions of benchmarking.1 The formal
form of benchmarking was first used in production companies, so it has been closely con-
nected with production, development and quality. More narrowly defined, benchmarking
is a systematic and continuous process involving the comparison of characteristics of
the best products, services and processes in order to improve business performance
(Harrington, 1995; Dahlgard et al., 1998). Gradually, the focus of benchmarking has
broadened. Thus, it is often defined as the process of continuous searching for the best
practices of competitors and other companies that lead to above-average performance
when applied in a company (Bogan, 1994; Coers et al., 2001).
Regardless of these definitions, we can summarize the following common character-
istics of contemporary benchmarking:

. its key purpose is to gather various types of business information about other
companies;
. the purpose of this information is to create new business knowledge;
. new business knowledge is gained by analysing and comparing the specifics of various
business factors of different companies; and
 Benchmarking as a Tool of Strategic Management 259

. on this basis, companies can make better business decisions and consequently enjoy
more successful and more effective business.

According to the above-stated findings, we believe we should define benchmarking in

the following way:

Benchmarking is a process of creating business knowledge by comparing and ana-

lysing business information about other companies with the goal of improving the
quality of decision-making.

We think that this definition encompasses all the objectives and activities that are nor-
mally performed within the framework of benchmarking. Its main purpose is the creation
of business knowledge, meaning that the findings of the comparison and analysis should be
transformed in such a way that they can be used in business decision-making. New knowl-
edge is created by comparing and analysing business information about various business
areas and factors of various companies – competitors as well as others. The final objective
of benchmarking is the application of new business knowledge to business decision-
making. In improving the quality of business decisions, the business performance of
companies also improves. Consequently, competitive advantages become stronger.
Since decision-making is part of management, benchmarking is a continuous activity
that refers to all areas and aspects of management. Since business performance and
long-term survival depend on competitors’ business and other factors of the business
environment, it is reasonable to build benchmarking systematically in the processes of
strategic management. This can improve the quality of decision-making and can
become one of the company’s competitive advantages.

The Role of Benchmarking in Strategic Management

The strategic management function is the aspect of management that takes superior entre-
preneurship, competent strategy implementation and execution to produce superior organ-
izational performance over the long run. The strategic management process has the
following components (Thompson & Strickland, 2001):

. defining the organization’s mission as a basis for establishing what the organization
does and does not do;
. establishing strategic objectives and performance targets;
. formulating strategies to achieve strategic objectives and targeted results;
. implementing and executing strategies; and
. evaluating strategic performance and making corrective adjustments.

The key components of strategic management are illustrated in Figure 1.

Activities in the framework of the strategic management process can be divided into
three parts:

. Planning – this includes all activities for preparing the plan of future activities and
anticipating their effects.
260 J. Prašnikar et al.

Figure 1. Process of strategic management

. Implementation – the execution of planned activities which leads to actual business

results.
. Controlling – monitoring any deviations of the actual results from those planned and
taking corrective action in the case of undesirable deviations.

When taking business decisions, the company uses business information derived from the
planning and controlling part of the strategic management process and is related to imple-
menting the activities. Additional business information reduces information asymmetry in
the business environment and consequently minimizes the possibility of adverse selection
and related costs.
With additional business information obtained by benchmarking, a company can
improve the quality of its decision-making in strategic planning. It can also improve the
quality of its decision-making in strategic controlling, leading to the more successful
achievement of the set objectives. Therefore, it is reasonable to integrally build bench-
marking into the activities of both planning and controlling. This is shown in the Figure 2.
According to the connections with individual activities of strategic management, we can
divide benchmarking into four basic types:

. the goal of benchmarking of competitive advantages is to create knowledge about

factors on which the competitive advantages of competitors and other companies are
based. The goal is to improve the company’s long-run competitive advantages.
 Benchmarking as a Tool of Strategic Management 261

Figure 2. Connection between benchmarking and strategic management

. the goal of benchmarking of strategies is to create knowledge about the specifics of

strategies used by competitors and other companies that lead to the successful achieve-
ment of objectives. The purpose is to use this knowledge in order to improve the effec-
tiveness of strategies that lead to the realization of strategic objectives in the long run.
. the goal of process benchmarking is to gain knowledge about the characteristics of
planning, designing, executing and controlling various business processes and activities
by which competitors and other companies successfully implement set strategies. The
goal is to improve the efficiency of implementing their own strategies in the long run.
. the goal of performance benchmarking is to create knowledge about competitors’
and other companies’ performance in order to assess comparatively the company’s
own business performance and to improve the quality of planning strategic objectives.

Since the four types of benchmarking described above cover all key categories of stra-
tegic management activities, we can now talk about a model of integral benchmarking –
the Total Benchmarking Model. Benchmarking activities bring the most benefits when
they are used integrally. Consequently, they support all interrelated activities within the
framework of the strategic management process.

The Total Benchmarking Model

Benchmarking can be integrated with the process of strategic management in such a way
that it becomes a component of strategic planning, controlling and implementing activities.
262 J. Prašnikar et al.

Figure 3. The Total Benchmarking Model

The Total Benchmarking Model as part of strategic management is shown in Figure 3.

The benchmarking of competitive advantages enables a company to make better
decisions about the competitive advantages it wants to develop and about its strategic
objectives. The set objectives are the platform for carrying out the benchmarking of strat-
egies, by which companies improve the quality of decisions about strategies that lead to
meeting the set objectives. Strategies are the basis for conducting process benchmarking,
by which the company tries to improve the efficiency of its processes for executing the set
strategies. The consequence of these executed processes and activities is the company’s
performance on which performance benchmarking is focused. Thus, individual types of
benchmarking are interrelated and their findings are intertwined. That is why benchmark-
ing can only offer real support to strategic management when all four types are integrally
connected. In the following sections, we describe these individual types in greater detail.

Benchmarking of Competitive Advantages

The chief goal of benchmarking competitive advantages is to create business knowledge
about the factors on which the competitive advantages of competitors and other companies
are based. The knowledge gained in this way can enable the company to:

. define the key elements of competitive advantages in the industry;

. confirm the alignment of proper competitive advantages with the mission of the
company and its strategic objectives; and
 Benchmarking as a Tool of Strategic Management 263

. make better quality decisions about planning strategic objectives and the strategies for
their realization.

The benchmarking of competitive advantages is based on the model illustrated in

Figure 4.
A company that performs above the average gains economic profit. Economic profit is
the difference between a company’s revenues and its explicit and implicit (opportunity)
costs, including the opportunity costs of used capital. If the company gains economic
profit, it is awarded for its innovations and efficiency. If it does not, it is punished for
its stagnation or inefficiency. The company owners are warned to check if their investment
of capital still makes sense. Changing the size of economic profit is therefore vital in
forming incentives for innovations, production efficiency and allocation efficiency.
Besides, economic profit sends signals to all stakeholders that the company is healthy
(Prašnikar & Debeljak, 1998).
The size of a company’s economic profit depends on market conditions in the industry
and on the economic value created in the company. The economic value of the company
equals the sum of the consumer and producer’s surplus.2 The company creates a greater
consumer surplus if it increases the consumer’s perceived benefit or if it sells at a lower
price than its competitors. If the company cannot offer the same surplus as its competitors,
its sales drop. The company creates a higher producer’s surplus if it has lower costs or if it
sells at a higher price than its competitors. If a company in a specific industry achieves
higher economic value than its competitors, it does so because of its competitive advan-
tages. Competitive advantages enable the company to have lower costs (cost advantages)
or to gain higher benefits for consumers (benefit advantages).
For the company, sustainable competitive advantages are more important than contest-
able ones. Contestable advantages last only for a short time and can be quickly imitated by
competitors. Conversely, a competitive advantage lasts longer and persists in spite of

Figure 4. Model of benchmarking of competitive advantages

264 J. Prašnikar et al.

competitors’ efforts to imitate or to neutralize it (Barney, 1991). Besanko et al. (2003) dis-
tinguish between two main sources of a sustainable competitive advantage: (1) companies
differ regarding their stocks of distinctive resources and capabilities; and (2) companies
differ regarding the isolating mechanisms that limit the extent to which a competitive
advantage can be duplicated or neutralized.
A company has to have scarce resources and capabilities3 available if it wants to bring
forward a sustainable competitive advantage. However, this is in itself not enough.
Resources and capabilities have to be imperfectly mobile. Special capabilities of compa-
nies are incorporated in their organizational practices and tacit knowledge that is not avail-
able to the competitors. They are a result of cumulative experience and cannot be gained in
parts (e.g. by employing an individual from a competitive company). Further, the available
special resources and capabilities are generally crucial internal factors of the company.
Isolating mechanisms are to a firm what an entry barrier is to an industry. They can be
divided into factors that impede competitors from duplicating resources and capabilities
that form the basis of the company’s advantage and factors that give the company
early-mover advantages. In the first group, we find legal restrictions (patents, copyrights,
trademarks etc), superior access to inputs or consumers (diamond mine or distribution
channels), market size and scale economies (market for specialized products where
demand is just large enough to support one company), intangible barriers to imitating (dis-
tinctive organizational capabilities in the company), and strategic fit (the competitor has to
develop an entire system of interrelated activities and processes).
The early-mover advantage is enabled by the following factors: the learning curve (the
company that has sold higher volumes of a new product than its competitors will move
further down the learning curve and achieve lower unit costs), network externalities (a
company that has made more sales develops a larger customer base that gives it an advan-
tage when introducing new products and services), reputation (when introducing a new
brand name, the company influences the customer’s perception of the product/service)
and buyer switching costs (buyers who want to switch to another supplier may incur sub-
stantial costs).
Isolating mechanisms as a source of sustainable competitive advantage are, on one
hand, dependent on a company’s activity and have an internal nature. On the other
hand, they are related to the position that a company has in the industry (e.g. patents in
the pharmaceutical industry), which means they depend on their business environment.
The business environment influences economic profit even without competitive advan-
tages. Circumstances in the industry and in the broader business environment can lead
to the behaviour of competitors that prevents a company gaining economic profit, even
though it has certain competitive advantages and creates higher economic value.
Thus, the basic task of benchmarking competitive advantages4 is to identify the key
factors that influence the economic profitability of successful companies in the industry:5

. Which competitive advantages enable the creation of above-average benefits for

consumers?
. Which competitive advantages enable the creation of above-average cost benefits?
. What are the industry specifics that enable the creation of above-average economic
profit?
. What are the specifics of the broader business environment that enable the creation of
above-average economic profit?
 Benchmarking as a Tool of Strategic Management 265

To conclude, the purpose of benchmarking of competitive advantages is not only to

discover which companies create above-average value and economic profits, but also
(by analysing and comparing) to find out the reasons for this. The company thereby
creates new business knowledge, which is used in making its own strategic decisions.

Benchmarking of Strategies
The key goal of benchmarking strategies is to create knowledge about the specifics of
strategies used by competitors and other companies that lead to the successful achieve-
ment of strategic objectives. The purpose is to use this knowledge in order to improve
the effectiveness of strategies that lead to realization of the strategic objectives in the
long run.
The model of the benchmarking of strategies is shown in Figure 5.
The strategies of the company describe the approach for meeting the set strategic objec-
tives. Objectives are the answers to the questions of what the company wants to achieve,
whereas strategies give an answer to the question of how to achieve these objectives. Con-
sidering how general and extensive strategies are, we can categorize them on four levels.
Corporate strategy includes basic principles and methods of planning business processes
and represents the framework for all other subordinated strategic levels. Functional strate-
gies include planning approaches and the implementation principles of specific basic
business functions. Business unit strategies consist of approaches and the principles of
implementing strategies of business units (if the company is organized in such a way).
Finally, operating strategies determine the planning, implementing and controlling of
operational processes in the company. These strategies are developed from business
unit strategies and functional strategies, depending on the way the company is organised.
Therefore, all strategies are developed from corporate strategy (Thompson & Strickland,
2001). The interrelatedness of the individual levels of strategies is shown in Figure 6.
The task of benchmarking strategies is to find out which effective strategies are used by
other companies with objectives similar to those of your company.6 By other companies,
we refer to competitors as well as all other companies. Hence, only an analysis of those

Figure 5. Model of benchmarking strategies

266 J. Prašnikar et al.

Figure 6. The levels of strategies

strategies that lead to the same or similar objectives as the company under consideration is
sensible.
On the basis of benchmarking strategies, a company gains new business knowledge
about strategies that have enabled other companies successfully to achieve their strategic
objectives and about strategies that have not brought satisfactory results. In other words,
knowledge not only refers to positive experience; it should also include negative experi-
ence in order to learn from it.

Process Benchmarking
The basic role of process benchmarking is to create knowledge about the planning, imple-
menting and controlling of different business processes by which the competitors and their
companies successfully implement their operational strategies.
A company’s strategy is fulfilled by processes composed of individual activities. Every
strategy should be divided into sub-strategies which are then accomplished through con-
crete activities. The implementation of individual activities within the framework of indi-
vidual processes brings the strategies of the company to life and leads to business
achievements. Therefore, in the framework of fulfilling strategies, benchmarking deals
with the analysis and comparison of methods of planning, implementation and controlling
of individual business processes. The model of process benchmarking based on the value
chain model (Porter, 1985) is illustrated in Figure 7.
Business processes can be divided in two groups: primary and support business
processes. Primary business processes relate to the transformation of input factors
into outputs, and support processes include all other processes that support the execution
 Benchmarking as a Tool of Strategic Management 267

Figure 7. Model of process benchmarking

of primary processes. All processes are designed and executed on the basis of operational
strategies, with the goal of contributing to the achievement of strategic objectives.
The goal of process benchmarking is to find out which methods of planning, implemen-
tation and controlling lead to the effective achievement of the set strategies on the basis of
the analysis and comparison of the execution of operational and support processes of other
companies. At this point, it is very important to compare only the processes of those
companies that pursue the same or similar strategies.7
On the basis of process benchmarking, the company creates business knowledge about
handling and methods of planning, organization, implementation, and controlling of
various business processes that can be used when implementing the same or similar
proper processes. The expanded business knowledge improves the competitive position
of the company and increases the capability of effective performance in the changing
environment.8 In this way, it can successfully and effectively implement the set strategies
and achieve the set objectives.

Performance Benchmarking
The basic task of performance benchmarking is to create knowledge about competitors’
and other companies’ performance in order to relatively assess the company’s own
business performance and to improve the quality of planned strategic goals.9
268 J. Prašnikar et al.

Business performance in absolute terms does not have a high information value; it can
be gained only when compared to the performance of other companies that operate in the
same or similar industry and business environment. When the company comparatively
assesses its own performance, it gains quality information about:

. the relative attractiveness of the company to individual stakeholders: consumers,

business partners, lenders, owners, employees, the state and others;
. the ambitiousness and reality of its strategic objectives and effectiveness in meeting its
objectives; and
. the ability to achieve at least an average level of economic performance.

For successful business, it is crucial that the company is attractive to various stake-
holders. Companies that perform better have the possibility to acquire more qualified
employees, can make easier contracts with quality suppliers, raise new equity from
owners and finally gain new funds from lenders. Besides, a good reputation based on
business success positively influences the confidence and interest of consumers.
Moreover, by performance benchmarking, a company can critically assess the reality
and ambitiousness of its strategic goals, which is directly related to the benchmarking
of competitive advantages. Otherwise, the company could find out in the process of stra-
tegic controlling that the set objectives cannot be achieved. This can be the consequence of
either unsuitable competitive advantages or unsuitably set objectives. Performance bench-
marking enables the company to check if its objectives are planned realistically and are
ambitious enough.
Further, it is very important that through performance benchmarking the company finds
out if it is achieving at least an average level of economic performance typical for its line
of business. If it does not, its long-term survival is questionable because the owners might
decide to shift their invested capital into more profitable investments.
The model of performance benchmarking is shown in Figure 8.
When conducting performance benchmarking, the company should compare and
analyse the performance of competitors and other companies according to individual
aspects that will yield an integral comparative assessment of business performance. For
defining the individual areas and measures used in the measurement of performance,
the company can use various methods:

. Comparison and analysis of the performance of other companies is carried out accord-
ing to the areas that are related to the fulfilment of an individual company’s fundamental
objectives. This enables a simple assessment of the strategic objectives and perform-
ance of the company that conducts benchmarking.
. Comparison and analysis of the performance of other companies is carried out on the
basis of the balanced scorecard concept (Kaplan & Norton, 2001), which is reasonable
when the company also uses this model in strategic planning and controlling.
. Comparison and analysis of the performance of other companies according to the areas
related to specific company stakeholders.
. Comparison and analysis of the performance of other companies in any other way.

In any event, it makes sense for a company to analyse and compare the performance of
other companies in such a way that the maximum applicability of the knowledge is
 Benchmarking as a Tool of Strategic Management 269

Figure 8. Model of performance benchmarking

enabled.10 Irrespective of the method of performance analysis, it is important to stress that

a company should assess which achievements are important from the aspect of fulfilling its
strategic objectives and from the aspect of the effects on stakeholders that could have a
significant influence on the business environment in which it operates.

Effective Conduct of Benchmarking

Benchmarking can become a useful tool of strategic management if it is introduced inte-
grally into the company. This means that it should cover all important categories of activi-
ties and that the company can take advantage of positive synergies arising between
individual types of benchmarking.
The benefits of benchmarking also depend on the appropriateness of introduction and
implementation. Different companies have different modes for executing benchmarking.
In general, we can define the following basic phases of benchmarking: (Bogan, 1994;
Harrington, 1995; Coers et al., 2001):

. Planning phase, where the objectives and purpose of benchmarking are clearly defined;
. Collecting business information phase, where both primary and secondary data about
other companies are gained;
. Comparison and analysis phase, where new business knowledge about the subject of
benchmarking is created on the basis of an analysis of data about other companies
and a comparison with the subject company; and
. Application phase, where the business knowledge gained is used in decision-making.

When planning it is most important to define accurately the purpose and objective of
benchmarking. This enables the effective gathering of the business information that is
270 J. Prašnikar et al.

needed. Besides, it is important to select clear and accurate measures of information that
allow us to perform the analysis and comparison.
When gathering information, it is crucial to assure its relevancy and comparability. If
we collect information that is not comparable (for content or methodological reasons)
or it is of low quality, we cannot create quality knowledge. Moreover, the knowledge
gained in this way could be incorrect, which could lead to unsuitable business decisions.
We can gather information from direct contact with other companies or from secondary
data. In both cases, we should ensure the accurate treatment of information and suitable
behaviour in the process of selection.
Comparing and analysing is a crucial phase of benchmarking because new business
knowledge is formed during this phase. The methodology used depends on the purpose
of benchmarking as well as the form of the available business information. However,
we should stress that benchmarking is not only about the collecting and presenting of com-
parative business data, but also about understanding the reasons for any differences. Only
by understanding the cause and effect relations among various factors can we create new
business knowledge that will be beneficial in further business decision-making.
The last step differentiates benchmarking from business analysing – created business
knowledge should also be used. Findings from high quality benchmarking studies that
are never used in practice have little value. That is why it is important to ensure an appro-
priate way of reporting the benchmarking results. In such a way, the gained knowledge
will be transferred to those who will use it in the decision-making process.
Since benchmarking is related to the analysis and comparison of business specifics of
other companies, it is very important we choose the right companies for acquiring the
data. In general, we can use the following data in benchmarking:

. other companies in the group – in this case we are referring to internal benchmarking;
. competitors in the industry;
. other companies in the industry that are not direct competitors; and
. other companies in other industries.

According to the type of companies, we can determine some crucial characteristics of the
effective process of benchmarking (Harrington, 1995) – see Table 1
Considering willingness for collaboration or difficulties in acquiring the required
business information, the best position is generally seen with companies in the same

Table 1. Characteristics of the effective process of benchmarking

Data of benchmarked Expected level of Relevancy of Possibility of

companies collaboration findings breakthrough insight

Other companies in the group High High Low

(internal benchmarking)
Competitors in the industry Low High Medium
Companies in the industry that are Medium Medium High
not competitors
Companies from other industries Medium Low High
 Benchmarking as a Tool of Strategic Management 271

Table 2. Adequacy for individual sorts of benchmarking

Benchmarking of
Data of benchmarked competitive Benchmarking Process Performance
companies advantages of strategies benchmarking benchmarking

Competitors in the industry Very adequate Very adequate Very adequate Very adequate
Companies in the industry Adequate Adequate Very adequate Adequate
that are not competitors
Companies from other Less adequate Adequate Very adequate Less adequate
industries

business group, and the worst amongst direct competitors. The greatest relevance of results
can be achieved in the case of direct competition due to the high level of comparability.
The least relevant results are those obtained from companies from other industries. The
possibility of a breakthrough insight that refers to the possibility of acquiring exception-
ally useful knowledge is generally the highest with companies that are not in the same
industry – there we can create knowledge that it is not typical of our industry and this
could mean an important shift in our business knowledge.
Regarding the types of companies used in benchmarking, we can also define adequacy
for individual sorts of benchmarking (Table 2).
Competitors in the industry are most suitable for the benchmarking of competitive
advantages since they are exposed to similar competitive factors and characteristics
of the broader business environment. This enables an easier comparison and analysis
of competitive advantages. This also applies to the benchmarking of strategies and
performance benchmarking. Competitors and other companies that do business
in similar circumstances are exposed to similar competitive forces, have contact with
similar stakeholders, and usually pursue similar objectives. All the stated details
simplify the comparison and analysis of business information used in benchmarking.
However, in process benchmarking we can usually use data about all companies that
perform similar processes regardless of whether they are competitors or in the same
industry.

The Benefits of Benchmarking in Strategic Management

The benefits of benchmarking in strategic management are already intuitively clear. In the
business environment, companies position themselves according to the competitive
advantages they hold in comparison to competitors. Besides this, it is unlikely that the
given company has the best knowledge and experience about all the aspects of business.
Therefore, newly created business knowledge can improve the quality of decision-making
and, consequently, the success of its business. This is especially important when gaining
knowledge about the negative experiences of other companies, which help an inexperi-
enced company avoid mistakes by not having to go through similar problems on
its own. Further, we should emphasise that gaining appropriate knowledge by using
benchmarking is more cost efficient than gaining knowledge through the trial-and-error
process.
272 J. Prašnikar et al.

The benefits of benchmarking in strategic management can be summarized in

the following points (Bogan, 1994; Harrington, 1995; Karlöf et al., 2001; Coers et al.,
2001):

. it enables more effective strategic planning and controlling;

. it lowers the costs of incorrect business decisions;
. it enables a company’s efficiency to increase through the successful design and
implementation of restructuring business processes and their continuous improvement;
. it helps in solving business problems;
. it adds an important element to the continuous education of employees, encourages their
innovativeness, creativity and contributes to the creation of new ideas;
. it enables a relative assessment of the business success and effectiveness of diverse
business factors; and
. it encourages changes and fosters special knowledge, which enables greater flexibility
and faster adaptation to the changing business environment.

The last point is particularly important in today’s circumstances of quick changes.

Namely, strategic planning is in many places still understood as a formal process that
follows stable procedures and is based on the preservation or reorganization of existing
categories in the company. On the contrary, benchmarking by studying the practices of
others releases the process of learning. Consequently, it shows new possibilities and
creates new applicable business knowledge. As such, it stimulates strategic thinking
and the orientation of strategic management to solving problems in the company (Min-
tzberg, 1994). For this reason, we can assume that the effective introduction of Total
Benchmarking processes within a company can represent a competitive advantage for
the company mainly because it leads to the creation of additional business knowledge
and more efficient decision-making. In turn, the latter results in more effective strategic
management.

Conclusion
There is no doubt that benchmarking is a useful business tool that enables a company to
systematically gain new useful business knowledge that can increase the quality of its
decision-making. Better business decisions that are based on the additional knowledge
lead to the improved business of companies and consequently strengthen their competitive
advantages. Empirical research has confirmed that benchmarking positively influences
business success and competitiveness (Lawler et al., 2001).
In spite of this, benchmarking is today still not seen enough in business practice.
Research has shown that one of the main reasons for this is the opinion of companies’
top management. They believe that their companies do not have much to learn from
others (Karlöf et al., 2001). The introduction and use of benchmarking within companies
reveals two things: (1) that managers are self-confident enough to admit that others might
be better in some things; and (2) that managers are smart enough to learn how to achieve or
even exceed in their business through benchmarking (Coers et al., 2001). Only companies
aware of the fact that they cannot be the best in all aspects and are prepared to constantly
acquire new knowledge, including though benchmarking, will survive in the long run.
 Benchmarking as a Tool of Strategic Management 273

Over the past few years, the Total Benchmarking Model has become a recognized and
applied tool amongst Slovenian companies. Although it is hard to directly link the success
of Slovenian companies in competing in foreign markets with the use of more advanced
management tools, such as benchmarking, the fact that Slovenian companies admit to
using these techniques is its own proof.

Notes
1. For more about this topic, see Karlöf et al. (2001).
2. The consumer surplus is the difference between the perceived benefit of the product/service and the
price of the product that the consumer pays. Producer surplus is the difference between the price of
the product/service and the costs that producer has.
3. In accordance with the resource-based theory of the firm (Barney, 1991) the capabilities of companies
can also be categorized as scarce resources. However, the term ‘capabilities’ has gained significance in
the business literature. For example, Prahalad & Hamel (1990) name them ‘core competencies’ and
define them as special procedures used by companies when performing individual business functions;
in opposition to special resources – things that they have available. Stalk et al. (1992) define capabilities
as the capability for establishing effective relations between individual phases of the value added chain.
4. Competitive advantages in terms of scarce resources and capabilities should be distinguished from key
success factors. Key success factors refer to the skills and assets a firm must possess to achieve
profitability in a particular market. As such, they should be thought of as market-level characteri-
stics rather than being unique to individual firms. Possessing an industry’s key success factors is
necessary, but it is not a sufficient condition for achieving a competitive advantage (Besanko et al.,
2003).
5. An example of the application is shown in Matzko & Wingfield (1995). For Slovenia, Košak et al.
(2002) show how the new Capital Accord proposed by the Basel Committee on Banking Supervision
changes the Slovenian banking sector by giving larger banks competitive advantages in terms of
improvement of the risk management process in the bank, the lower cost of capital, lower level of
the regulatory capital per unit of bank assets and lower costs of the financial intermediation process.
6. Vodlan et al. (2002) compare and contrast the international expansion strategy of Wal-Mart, the largest
retailer in the world, into Germany and the United Kingdom, with the international expansion of
Mercator, the largest retailer in Slovenia, into the markets of pre-1991 Yugoslavia. The crux of the
analysis relates to three core areas of an international retailing strategy: international market(s)
entry, standardisation versus adaptation of the retailing mix strategy and an evaluation of inter-
nationalization’s effectiveness.
7. Dmitrović et al. (2002) compare processes in three DHL subsidiaries: DHL Slovenia, DHL Portugal
and DHL Yugoslavia. They show that even within the DHL corporation all operations are highly stan-
dardized; the benchmarking analysts need to consider carefully the specifics of the business and cultural
environment in which the units operate and take them into account when making direct comparisons of
the subsidiaries’ performances.
8. The capability of effective business is strongly related to the enlarged knowledge about the environ-
ment or to the idea of the learning organization (Malhotra, 1996).
9. For more on the topic, see Biesada (1991), Walleck et al. (1991).
10. Lončarski et al. (2002) found some problems when comparing selected financial ratios of the Slovenian
port Luka Koper to those of other selected port operators. Problems arose with respect to the selection
of comparable peers and even more in obtaining data for use in the benchmarking process. They show
that these problems can be tackled by setting assumptions and broadening the scope of the peer group,
which can help to gain an insight into the underlying reasons and ways of improving the port’s
competitiveness.

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