When you establish standards, you are benchmarking. If you do not have a benchmark, then there is no means of comparison and hence no drive to enhance the effort for achieving improvement. Benchmarking emerged when businesses started searching for best practices that lead to improved performance.
Let us take the common example of Olympic records. When Florence Griffith Joyner ran the 100 meters in 10.49 seconds in 1988, she set a world record. She set a benchmark. With the 2008 Olympics around the corner at Beijing, lets us wait and see who will break this record. Joyner had set the benchmark and all efforts will be to improve that benchmark.
Benchmarking is required for bringing in continuous improvement in any process. Benchmarking as a tool has proved effective when used to measure the performance of one’s own product, service or product as compared to that of a competitor. If the performance falls short of the benchmark, we look for ways to improve the performance to reach the benchmark.
As per modern management theories, the goal of every business is to maximize shareholder value. This can be achieved by implementing methods to enhance productivity and thereby increase revenues, leading to the goal of maximizing share holder value.
However, benchmarking doesn’t stop with knowing where you stand as against your competitors. Benchmarking now also means that along with achieving benchmarks, a business must be able to recognize opportunities to improve these benchmarks along with drawing up action plans for achieving them. Benchmarking has become a dynamic process, a continuous process of improvement. According to Peter Drucker, effective management and effective performance are interlinked with each affecting the other.
The concept of benchmarking has long come into effect in Government Department with the Government Performance and Results Act of 1993 (GPRA). GPRA made it necessary for government departments to establish performance measure. Assessment of the effectiveness of these Departments would be made against these performance measures. Citizens get quality service while the government saves times and costs.
The Balanced Scorecard method is a benchmarking method that takes into account the assessment of a business from four angles namely, finance, process, employee and customer. That is why the scorecard has been given the name ‘balanced’. This is a holistic model and ensures involvement of all the employees of a business. This is important to achieve your overall goals.
Benchmarking is an important tool in bringing about improvement in quality. The Malcolm Baldrige National Quality Award was instituted in 1987 to promote awareness of quality in business, manufacturing, service, education, and health care and industry. The importance of benchmarking is evident from the fact one of the performance measures for consideration for the award is benchmarking.
A business should necessarily incorporate benchmarking as a part of its corporate strategy. This should translate into an action plan that will trickle down to the last employee on the organization. There should be regular assessment of performances against benchmarks. The reasons for shortfall in achieving benchmarks should be assessed and corrective action taken. Benchmarks should be reassessed and reset. This process is continuous.
While one can be taken with the idea of benchmarking every area in a business, it may not be practical. A company should necessarily identify the processes that can be benchmarked and focus on those processes. This can be done by picking out those processes that have highest costs and those that fetch the highest revenues. Production cycles can also be benchmarked. Those processes that can be outsourced should receive your attention. By asking questions, you can identify the processes for benchmarking.
The benefits of Benchmarking are manifold. Many of the Fortune 500 companies have incorporated Benchmarking into their strategic planning process. The benefits have been reduction of costs by over 10%, improved productivity and growth in business.
The effectiveness of Benchmarking has been proved by research. To highlight the importance of benchmarking, many leading companies have established quality control awards.
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