Benchmarking (also "best practice benchmarking" or "process benchmarking") is a process used in management and particularly strategic management, in which companies evaluate various aspects of their business processes in relation to best practice, usually within their own industry. This then allows companies to develop plans on how to adopt such best practice. Benchmarking may be a one-off event, but is often treated as a continuous process in which companies continually seek to challenge their practices.

A process similar to benchmarking is also used in technical product testing and in land surveying. See the article benchmark for these applications.

Procedure

(1) Identify your problem areas - Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include: informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or indepth marketing research, quantitative research, surveys, questionnaires, reengineering analysis, process mapping, quality control variance reports, or financial ratio analysis.

(2) Identify organizations that are leaders in these areas - Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study.

(3) Study their best practices - An initial study can be done at a good university library or online. This will give you an overview, however more detailed information will require an in-person visit. Phone the CEO and ask if a group of your managers and employees can visit their operations for an hour. Be forthright as to the purpose of the visit. Most CEOs will be flattered and agree to the request. Make it clear that any information obtained from the visit will be shared with them. Determine what subject areas will be off-limits. Ask if camera or video recorders are acceptable. Prepare two lists well in advance: a list of your objectives, and a list of questions. Choose 2 to 5 visitors, people that are closest to the issue, that will be responsible for implementing any recommendations, and cover a broad range of functional responsibilities. Occasionally an outside consultant is included in the visit team so as to provide an alternative perspective. Meet with your employees to explain the purpose of the visit and assign one or two questions to each employee. Explain what subject areas are off limits. Ask them to think about how the visit could benefit their area, and ask them to device more questions. Stay away from questions that could cause legal problems (eg., price fixing or new product development). Send a confirmation letter one week before the visit stating the date, time, and location of the visit, the number of visiters and their positions, your objectives, and a list of possible questions. Visits are typically 1 to 3 hours long. When at the site, provide a token gift to show that you appreciate the opportunity, keep focused on your objectives, give praise where it is due, and do not criticize. Look for anything remarkable or unexpected. As soon as you get back to your office (or hotel), have an immediate debriefing. Discuss what you have learnt and how you can apply it. Make sure that every visitor has an action plan detailing how they will be implementing the new information in their job. Some formal analysis (such as process mapping) of the benchmarked process may be necessary. After several weeks, phone back the CEO to express your appreciation and give concrete examples of how the knowledge gained from the visit will be used in your company. Send them a copy of any written reports about the visit before they are distributed. This allows them to correct inaccuracies and modify sensitive or propriortory information.

(4) Implement the best practices - Delegate responsibility for actions to individuals or cross-functional teams. Set measurable goals that are to be accomplished within a specified time frame. Monitor the results. Get key personnel to give you a brief (one page) summary of how the immplementation is proceeding. Spread the information through out the entire organization.

(5) Repeat - Benchmarking is an ongoing process. Best practices can always be made better.

Cost of benchmarking

Benchmarking is a moderately expensive process, but most companies find that it more than pays for itself. The three main types of costs are:

• Visit costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labour time.
• Time costs - Members of the benchmarking team will be investing time in researching problems, finding exceptional companies to study, visits, and implementation. This will take them away from their regular tasks for part of each day so additional staff might be required.
• Benchmarking database costs - Organizations that institutionalize benchmarking into their daily procedures find it is useful to create and maintain a database of best practices and the companies associated with each best practice.

Competitive benchmarking

Some authors call benchmarking "best practices benchmarking" or "process benchmarking". This is to distinguish it from what they call "competitive benchmarking". Competitive benchmarking is used in competitor analysis. When researching your direct competitors you also research the best company in the industry (even if it serves a different location or market segment and is therefore not a direct competitor). This benchmark company is then used as a standard of comparison when assessing your direct competition and yourself.

Collaborative benchmarking

Benchmarking, originally invented as a formal process by Rank Xerox, is usually carried out by individual companies. Sometimes it may be carried out collaboratively by groups of companies (eg subsidiaries of a multinational in different countries). One example is that of the Dutch municipally-owned water supply companies, which have carried out a voluntary collaborative benchmarking process since 1997 through their industry association VEWIN.

Consulting organizations that do benchmarking

• Accenture
• A.T. Kearney, Inc
• Best Practices Benchmarking & Consulting Inc
• Towers Perrin
• Benchmarking Partners, Inc
• International Benchmarking Clearinghouse
• Strategic Planning Institute Council on Benchmarking
• Benchmarking exchange
• Benchmarking Network

References

• Camp, R. (1989) Benchmarking: The search for industry best practices that lead to superior performance, American Society for Quality Control, Quality Press, Milwaukee, Wis. 1989.

• Beating the competition: A practical guide to Benchmarking, Kaiser Associates, Vienna Virginia, 1988.

• Leadership through Quality: Implementing competitive Benchmarking, Xerox Corporation, Stamford Conn, 1987.