Bench marking

• Benchmarking is the continuous process of

measuring products, services or activities against
the best levels of performance that may be found
either inside or outside the organization.
• It is a process of comparing a firm’s activities
with best practices. It involves establishment of
benchmarks (targets or comparators), through
use of which the levels of performance of the
company is sought to be improved.
 Benchmarking
• “A systematic and continuous measurement process; a
process of continuously comparing and
• measuring an organization’s business processes against
business leaders anywhere in the world, to gain
information that will help the organization take action
to improve its performance”.
• Benchmark: “ A measure, “best - in - class”
achievement; a reference or measurement standard for
comparison, a performance level recognized as the
standard of excellence for a specific business practice”.
The International Benchmarking Clearinghouse (“IBC”) of American Productivity and Quality Center
• (“APQC”)
 Steps in Benchmarking

• Planning
• Integration
• Action

• Benchmarking is a tool for continuous improvement because after indentifying a

best practice performance, it becomes a target to beat.
 Steps in Benchmarking-Planning

• 1. Identify benchmark outputs

• 2. Identify best competitors
• 3. Determine data collection method.
• 4. Determine current competitive “gap”
• 5. Project future performance level
Steps in Benchmarking-Integration

• 6 Establish functional goals;

• 7. Communication of data ;
• 8.Acceptance of Analysis.
• 9. Development of functional action plan
 Steps inBenchmarking-Action

• 10. Implement specific actions

• 11. Monitor results / Report Progress
• 12. Recalibrate benchmarks
 Types of Benchmarking
• A. Product Benchmarking (Reverse Engineering)
• B. Process Benchmarking
• C. Functional Benchmarking
• D. Generic Benchmarking
• E. Internal Benchmarking
• F. Competitive Benchmarking
• G. Strategic Benchmarking
• H. Global Benchmarking
 Product Benchmarking/Reverse
Engineering
• Every organization buys its rival’s products and tears
them down to find out the features and performances
etc. compared with its products. This could be the
starting point for improvement.
• When Ford Motor Company redesigned the Tauras in
1992, it benchmarked 209 features on the car against 7
competitors. The company then worked to match /
excel the higher standard set by any of its rival, in each
of these features with its own product.
• Japanese seemed to have excelled at this practice but
to their credit it must be said that they just do not
imitate, but ingeniously innovate.
 Process Benchmarking
• “The activity of measuring discrete performance and functionality
against organizations through performance in excellent analogous
business processes.
• Hospitals in U.S. compare their patient management systems with
the guest management practice in hotels. American Express credit
card division compares its document handling process with that of a
courier company.
• Citibank (India) instituted a benchmarking exercise in respect of HR
practices and public relations with those of Hindustan Lever Ltd.
Cadbury India benchmarks its distribution and logistics function not
with Nestle but with Hindustan Lever Ltd.
• For supply chain management the best practice would be that of
Mumbai Dubbawallas, which has now won universal acclaim.
Functional and Generic Benchmarking
• An application of process benchmarking that
compares a particular business function at
two or more organizations is called functional
benchmarking
• An application of functional process
benchmarking that compares a particular
business function at two or more
organizations, selected without regard to their
industry is called generic benchmarking
 Internal Benchmarking
• “An application of process benchmarking performed, within an
organization by comparing the performance of similar business units or
business processes”.
• Hewlett Packard through an extensive internal benchmarking exercise on
the Best Scheduling Practice amongst its several product groups was able
to cut its “time-to-market” by half. For a company like HP introduction of
new products in time was a crucial performance metric. McKinsy study has
shown that hi-tech products that were on budget, but six months behind
schedule, sacrificed 33% of their potential profit over the first five years in
the market. It might interest Management Accountants to know that the
same study showed that on time project that were 50% over budget lost
only 4% of the profits over the same period.
• With 35 companies spanning seven different businesses, RPG Group is
benchmarking the process and standards in each company against others
in the group. Named the knowledge improvement process (KIP),
benchmarking is a formal exercise to spread the best practice of one
company horizontally across the group
 Competitive Benchmarking
• A Measure of organizational performance compared
against competing organization; studies the target
specific product designs, process capabilities or
administrative methods used by a company’s direct
competitors
• In this benchmarking, the process studied may include
marketing, finance, human resource, R & D etc. A typical
example would be the classical study the Rank Xerox
performed with those of Canon and other photo copier
manufacturers when it faced heightened competition
from US and Japanese companies
 Competitive benchmarking at Xerox
company
By Benchmarking Xerox achieved significant performance
improvements as given below:
• Unit manufacturing cost reduced to half; comparable
to 1980 product costs
• Machine defects have improved by over 90%
• Incoming parts acceptance has improved to 99.5%
• Inventory methods of supply reduced by at least two
thirds.
• Engineering drawings per person year more than
doubled
• Marketing Productivity improved by one third.
• Service labour cost reduced by 30%
• Distribution productivity increased from 5% to 10%
 Strategic Benchmarking

• “The application of process benchmarking at the level of business

strategy; a systematic process for evolving alternatives,
implementing strategies, and improving performance by
understanding and adapting successful strategy from external
partners who participated in an on-going business alliance”.
• It will be seen that strategic benchmarking differs from operational
benchmarking in its scope; it helps to develop a vision of the
changed organizations; it will develop core competencies that will
help sustaining competitive advantage; targeting a specific shift in
strategy such as entering new markets or develop new products,
developing a new line of business or making an acquisition and
creating an organization that is more capable of learning how to
respond in an uncertain future because it has increased its
acceptance of change.
 Strategic Benchmarking by G.E.
• In mid 1980’s When Jack Welch of General Electric wanted to position his
company for the coming decade, he asked his Strategic Planning Group to
study how successful companies positioned themselves for continuous
improvement. The results of the study provided operating definitions of a
company that is World Class.
• • It is one which knows its process better than its competitors knows their
processes.
• • Knows its industry competitors better than its competitors.
• • Knows its customers better than its competitors.
• • Responds more rapidly to customer behavior than competitors do.
• • Competes for market share on a customer by customer basis.
• GE applied benchmarking in the area of strategy which clearly shows the
contribution of macro level benchmarking for developing long range plans.
• When Hindustan Lever Ltd., planned to penetrate into rural areas, it benchmarked its rural
market against a beedi manufacturer
 Global Benchmarking
• This is defined as “the extension of strategic benchmarking to
include benchmarking partners on a global scale”. A classic example
of global benchmarking is given by Michael Hammer in his book
“Reengineering the corporation”. He cites the example of Ford
Company of US, which benchmarked its accounts payable function
with that of Mazda in Japan and found to its astonishment that the
entire function was managed by 5 persons as against 500 in Ford.
• When Larsen & Toubro Ltd., the engineering and construction
powerhouse wanted to enter the world market for projects, it
deemed it fit to benchmark its project management skills with
global rivals, Bechtel and Flour Daniel Corporation of US, assisted by
McKinsy Co., Draughtsman were benchmarked for their CAD/CAM
proficiency as well as their ability to handle bill of materials. Once
gaps were identified, L & T used a combination of training and
external recruitment to close them.
 Sources for collecting information on
Benchmarking
• (i) Management consulting organization have set up data
bases as mentioned below :
• a. A.T. Kearney’s Manufacturing Centre for Excellences.
• b. Price Water Houses’ Benchmarks Alliance
• c. Arthur Andersons Global Best Practices Knowledge Base.
• (ii) American Productivity and Quality Centre’s,
International Benchmarking Clearing house.
• (iii) Industry Associations
• (iv) Govt. Publications
• (v) Business Magazines
• (v) Market survey findings etc.
 Bench Trending
• While the benefits of benchmarking are quite impressive, it results
in the benchmarking partner to be forever in a catch up situation.
The better partner will not stand still but will be booking
continuously for ways to improve his own performance. To leapfrog
it becomes imperative for an organization to continuously do a
P.E.S.T Scan - monitor the developments in the political, economic
social and technological fronts and identify future gaps that may be
created by significant market changes, customer preferences,
innovation, threats of new entrants and other environmental
variables critical to the long term success of the firm. Such trend
studies are known as “Benchtrending” which is similar to
benchmarking, but with a structural dimension.
• Strategic Performance Evaluation and Management Tools
 Steps in Strategic Bench Trending
• i) Firstly the market is defined by determining its size, customer
preferences, competitors and relative business position of the company
within the market.
• (ii) The industry direction, technology shifts, geopolitical changes,
customer changes and potential threats from outside sources are
assessed.
• (iii) The strongest current and potential competitors are then determined
by evaluating the trends in industry.
• (iv) Data on performance of competitors is gathered and the current and
future performance of the unit is compared with that of its competitor.
• (v) A performance baseline for the business units is then established and
the relative performance of current and projected competition is
estimated.
• (vi) A set of initiatives which form the basis of an improvement plan are
identified to maintain strengths while reducing projected gaps.
•
Thank u