Chapter 7

Benchmarking

Faculty of Industrial Management

Universiti Malaysia Pahang
26300 Gambang, Pahang Darul Makmur
Tel: +609 549 2166 Fax: +609 549 2167
www.fim.ump.edu.my
 What is Benchmarking?

Illustration 1 Illustration 2 Illustration 3

Measuring/Evaluating Process Comparison Performance Comparison
General definition: Evaluate or check (something) by comparing with a standard
 The Essence of Benchmarking
Learning from others what they do right, & imitate it.
Considering experience of others, & use it.
The process of borrowing & adapting ideas to gain competitive advantage,
which is part of continuous improvement efforts.
Basic Concept of Benchmarking

What is our performance

level? How do we do it?
Creative Breakthrough
Adaptation Performance
What are others’
performance levels? How did
they get there?
Benefits of Benchmarking

Through benchmarking, organizations can…

✓Learn how the best class do things.
✓Understand how the best practices differ
from their own.
✓Implement changes to close the gap.
✓Measure themselves against the best
industry practices.
Reasons to Benchmark
✓ A tool to achieve business & competitive
objectives.
✓ Helps organizations to determine strengths &
reduce weaknesses.
✓ Inspires organizations to compete.
✓ Allows goals to be set objectively, based on
external information.
✓ Time & cost efficient because involving imitation
& adaptation, not invention.
✓ Enhances innovation through constantly scanning
external environment & to use the information to
improve the process.
Elements of Benchmarking

#1. Performance Metrics

Units of measure in measuring performance

Target performance: performance of the best-in-class benchmark.

Plot our own performance against the target.
Elements of Benchmarking

#2. Understanding on why their performance differs

A thorough & in-depth knowledge on own company & benchmark company
is required to allow managers to organize their improvement efforts to meet
the goal
Types of Benchmarking

#1. Internal Benchmarking

#2. Competitive Benchmarking

#3. Process/Functional Benchmarking

#1. Internal Benchmarking
✓ Between different divisions with similar
activities within an organization.
✓ Focus on internal comparison.
✓ Data are easy to obtain, because no issue on
confidentiality.
#2. Competitive Benchmarking
✓ Between an organization & its competitors.
✓ Any organization’s survival depends on its
performance relative to the competitions.
✓ Some competitors do share the information,
but some do not.
✓ There are several ways of getting data (e.g.,
information from public domain & 3rd
parties).
#3. Process/Functional Benchmarking
✓ Across industry boundaries.
✓ Focuses on common processes with
the assumption that many processes
can be applied across industries.
✓ Compared to competitive
benchmarking, it is much easier to get
& share information.
✓ Be careful! The processes must be
comparable.
✓ Sometimes, data must be adjusted in
order to be meaningful.
Benchmarking Process

5. Learn from data

4. Study
6. Use the
others
findings

1. Decide what
3. Plan
to benchmark

2. Understand
current process
& performance
Step 1: Decide What to Benchmark
 Where to start?

✓ Thinking about mission & CSFs (Critical Success Factors).

✓ Choosing either broad & shallow or narrow & deep scope.

Broad & Shallow Narrow & Deep

Ask “what is done?” Ask “how is it done?”
Useful to develop strategies, set Useful to change how people
goals, & reorganize functions to be perform their jobs
effective
 Which processes are
causing the most
trouble? What are the most
important processes to
differentiate our firm from
competitors?
What are the competitive
pressures impacting the firm
most?
Which processes contribute most to
Questions to decide high customer satisfaction & which are
not performing up to expectations?
impact areas to
benchmark
Tools Used in Step 1

Welding

From
Storage bins
press
mach. Paint
shop
Mach. 3 Mach. 4
Machine 1

Mach. 2

Pareto diagram to analyze the priority Flow diagram to understand the process
Tools Used in Step 1

Fishbone diagram to
investigate the root
causes of the problem

Note: Ask 5W1H along the way.

Step 2: Understand Our Current Process &
Performance
To compare to outside benchmarks, understanding the current process &
performance is essential.
How to do Step 2?
✓ Attention must be paid to input, process, &
output.
✓ Determine the unit of measure (metrics) to
quantify the current process & performance.
✓ Common measures include: unit costs, hourly
rates, quality measures, etc.
The owner of the process MUST be involved
because they are the most capable of
identifying & correcting problems.

The results of step 2 will be the baseline for

benchmark comparisons.
 Step 3: Benchmark Planning
Once the internal process & performance are understood, how to conduct
the study should be decided.
What to DO?
✓ Create a team & choose team members.
✓ Determine type of benchmarking to
perform.
✓ Collect preliminary information about the
benchmark partners.
✓ Find the benchmark partners who are best
to refer.
✓ Plan benchmark tasks.
✓ Target the outcome.
✓ Finalize timetables for all tasks & the
desired output from the study.
Step 4: Studying Others
Types of Information Required

A description of
The measurable
how best-in-class
results of these
processes are
practices
practiced
In seeking this information, backmarkers can use internal sources, data
in public domain, original research or a combination of sources.
Data Collection
Techniques
Questionnaire
✓ Useful to ensure respondent anonymity &
confidentiality.
✓ Effective when data is required from many
organizations/parties.
✓ Can outsource 3rd party to collect the data.
✓ Careful interpretation about data is essential.
Data Collection Techniques

Site visits
Provide opportunity to see processes in action & face-to face contact.
Usually involve observation & followed by discussion period.
Should start with initial visit to plan the benchmark process.
Should establish a mutual learning & information sharing.
Data Collection Techniques
Focus group
Panels of benchmarking partners sit together to
discuss areas of interest.
Panels can be customers, suppliers, members of
professional bodies, etc.
Step 5: Learning from Data
This involves answering a series of questions
1. Is there any gaps of performance between ours & theirs?
2. What is the gap & how much?
3. Why is there a gap? What does the best-in-class do differently that
is better?
4. If best-in-class practices are adopted, what would be the resulting
improvement?
Possible Outcomes on Gap Analysis

Parity/
Negative Gap Positive Gap
Equivalent

Performance may be
equal – requires Internal is better –
External is better –
further investigation to should result in
needs major
determine if recognition for the
improvement effort
improvement internal process
opportunities exist
After knowing the gap…
✓Identify or quantify the size of the gaps.
✓Determine & analyze the root-causes of the gaps/problems.
✓Suggest the techniques of solving the problems.
Step 6: Use the Findings
When a negative gap is found, then change the process or close the
gap.

Benchmarking is wasteful if changes do not occur as a result.

The findings must be translated to goals & objectives, & action plans
must be developed to implement new processes.
There must be agreement and support
from…
❑ Process owner who ran the previous process
& will run the new process.

❑ Upper management, because…

✓ Process changes may affect upstream &
downstream operations as well as suppliers &
customers.
✓ Changes may affect organizational & operational
structure.
✓ Changes must be considered & incorporated into
strategic planning process.
When acceptance & agreement is gained, new goals & objectives are set based on the
benchmark findings – it should be consistent with action plan execution.
The next step…
5. Learn from data
To repeat the benchmarking process,
because it is a continuous improvement 4. Study
tool. 6. Use the
others
findings

Benchmarking is NOT to be done once &

NOT for a permanent improvement.
1. Decide what
3. Plan
to benchmark
To avoid complacency, benchmarking
must be used continuously to pursue 2. Understand
emerging new ideas. current process
& performance
Pitfalls & Criticisms of Benchmarking
1. Benchmarking is an improvement tool & isn’t helpful
if it is used for processes that don’t offer much
opportunity for improvement.
2. It breaks down if process owners/managers feel
threatened/do not accept & act on the findings.
3. Some processes may have to be benchmarked
repeatedly.
4. Not a substitute for innovation - it is a source of
ideas from outside the organization
5. Benchmarking forces an organization to set goals &
objectives based on external reality.
 Faculty of Industrial Management
Universiti Malaysia Pahang
26300 Gambang, Pahang Darul Makmur
Tel: +609 549 2166 Fax: +609 549 2167
www.fim.ump.edu.my