What is Benchmarking ?
Benchmarking is a process of measuring the performance of a company’s products, services, or processes against those of another business considered to be the best in the industry, aka “best in class.” The point of benchmarking is to identify internal opportunities for improvement. By studying companies with superior performance, breaking down what makes such superior performance possible, and then comparing those processes to how your business operates, you can implement changes that will yield significant improvements.
That might mean tweaking a product’s features to more closely match a competitor’s offering, or changing the scope of services you offer, or installing a new customer relationship management (CRM) system to enable more personalized communications with customers.
There are two basic kinds of improvement opportunities: continuous and dramatic. Continuous improvement is incremental, involving only small adjustments to reap sizeable advances. Dramatic improvement can only come about through re engineering the whole internal work process.
Liberalization and globalization have made the global market very competitive. Every Company of this global market needs to maintain its competitive advantage for long term survival. The cut-throat external competition makes it absolutely necessary for the companies to benchmark with similar organizations or organizations of different industry.
Benchmarking is the measurement against defined standards, i.e., benchmark. It is essentially the setting up of principals of the best practices in relation to both products and the processes by which these products are created and delivered. It is applied by the senior management of a company, keeping in view :
• The detailed existing business processes •Business processes of similar or different organizations.
• The analysis of comparison of the business performance with that of own past records and other organizations
• And finally, taking the necessary action to fill the performance gap, if any
Benchmarking should be an on-going process in any industry or organization. There are many types of benchmarking process that senior management applies in various departments depending upon the various scenarios. They could be Strategic Benchmarking which is used as a tool by the senior management to re-align those business strategies which have become inapt or obsolete. Or it could be the Performance or Competitive Benchmarking, Process Benchmarking, Functional Benchmarking, Internal Benchmarking, External Benchmarking, International Benchmarking etc.
Almost every activity can be benchmarked. For example a banking company can benchmark on loan processing time from the competitor’s practices. A call center can benchmark on the reduction of number of dropped calls from one of its competitor. Or an auto ancillary industry can benchmark on reducing the number of defects from the quality practices adopted from the competitor. Be it any industry or any organization, benchmark is not only possible but also ‘need of the hour’.
It is also important as it helps the senior management to chart the organizations performance. If you want to determine the effectiveness of your company, you will have to put together the in-house metrics that show the organization’s capabilities and improvements. If you want to prove your organization’s worth to the overall industry, you will have to use benchmarking to show how you are measuring up your efforts and effectiveness vis-à-vis similar efforts at other companies.
The Indian organizations are becoming world class, both in terms of size and performance. Therefore, there is a greater need to become superior in performance consistently. Quality is becoming the hallmark for both products and services. Indian and multinational organizations are increasingly becoming quality conscious and try to deliver high quality products and services to customers.
Quality delivery which was considered as the property of foreign companies like General Electric, Ford, General Motors, Xerox and AT & T had become the buzzword in many corporate circles in India as well. From Software major Infosys to Automobile giant Mahindra, from educational institutes like IIM’s and IIT’s to Steel manufacturing giants like TATA, everyone is adopting best in class technology, borrows and adopt best ideas, incubate and implement them as part of their corporate strategy.
Even Indian Government considers Benchmarking as an important mechanism for introducing accountability in service delivery. Recognizing its importance, the Ministry of Urban Development, Government of India constituted a Core Group on Benchmarking under the chairmanship of Joint Secretary. This group has finalized a Handbook of Service Level Benchmarks, which provides –
(i) a common minimum framework for monitoring and reporting on service level indicators, and
(ii) guidelines on how to operationalize this framework in a phased manner.
Government of India has extended implementation support for the SLB framework in about 26 pilot cities so that they can serve as role models for other cities across the country. The Ministry of Urban Development, Government of India has formulated benchmarks for key performance indicators for water supply, waste water/sanitation, solid waste management and drainage to enable cities to measure and improve their own performance vis-à-vis the benchmarks. It is now well recognized that a sustained process of benchmarking comprising –
(i) developing comprehensive and dis aggregated baseline data on service levels
(ii) information system improvement to enhance quality of planning and
(iii) performance improvement plans to attain new standards , is critical to ensure optimal use of investment and to sustain outcomes in service delivery.
Benchmarking enables urban local bodies to identify strengths and weaknesses in their own practices and to reach out and learn from the practices of others to achieve excellence in service delivery. It also increases accountability and transparency to citizens. Thus, the process of benchmarking, although very important, is very complex as well. It does require a great degree of systematic process review and constant control apart from flexible planning, detailed analysis, qualitative implementation, constant review and progressive change management.