Tanatsiwa Tafirei

Section A

Question 1 - JHk

d) Benchmarking is the process of comparing the performances of an organisation, or a unit or

division in an organisation to another entity or unit. This is done to enable identification of
performance gaps and try to fill in these gaps. The main aim of benchmarking is to emulate the
best practice of operating. A benchmarking system allows for the identification and rectification
of any flows in an entity’s processes, hence allowing better performance. This is especially
relevant for JHK’s purchasing function, for which management is not sure if it is aiding to the
entity’s ovarall goal of maximising profits. In this case, internal benchmarking may be
impleamented, which will compare the performance in the purchasing function with similar ones
in JHK. This is easier to do than comparing performance with external organisations considering
information is readily accessible. However there is a limitation in determining a similar business
unit to the purchasing unit that will be a perfect comparison match. In that case, JHK may
consider doing an internal benchmark of the purchasing unit with another purchasing unit of a
similar organisation. This will allow JHK to learn from other external organisations, hence
leading to the impleamentation of innovative or best practice solutions.

e) To introduce the benchmarking system in JHK successfully, the following steps can be
impleamented:

Set objectives - The ovarall objective of JHK is to maximise shareholder wealth. The
benchmarking system will be established to measure performance of this objective and seek to
imporove.

Establish key performance measures- The key performance measures have to be able to measure
the maximisation of shareholder’s return. Apart from TSR, RI, ROI and EVA, other measures can
be usefull in evaluating shareholder wealth like dividend yield, earnings yield and price-earning
ratio.

Select units to compare performance with- JHK’s purchasing unit can be compared to another
purchasing unit of a similar or different organisation.

Measure performance - Having identified the performance measures and the unit to measure
performance with, performance has to be measured and compared, to come up with quantitative
and even qualitative performance results.

Identify performance gaps- gaps can be identified when JHK’s performance results are not up to
the standard of the choses best practice.

Implement solutions to cover gaps- This involves designing and implementing an improvement
programme to close the performance gaps identified. This will also invlove analysing how the
comparator unit achieves superior performance, then assessing whether similar processes and
techniques could be introduced into JHK.
organisation.

Monitor improvements- The improvements in performance are ongoing and management will
have to constantly monitor these to maintain the desired standard.

f) With internal benchmarking, it is difficult to indentify similar business units that make the best
comarators, as information will be less relevant if units are diversified. Also, internal
benchmarking alone is unlikely to lead to innovative or best practice solutions, because there is no
scope to learn from other external organisations. An altenative will be using extenall business
units of other organisations, however this can create considerable difficulties in obtaining from
competitors data needed for benchmarking. In reality no competitor is likely to volunteer to help
another organisation to emulate their standards.