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Evolution of the concept of Benchmarking
Management Concepts & Organisational Behaviour - Benchmarking
Evolution of the concept of Benchmarking
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The concept of benchmarking is not new. In the early 1800s, Francis Lowell, a New England industrialist traveled to England to study manufacturing techniques at the best British factories.
Evolution
of the concept of Benchmarking
The concept of benchmarking is not new. In the early 1800s, Francis Lowell, a New England industrialist traveled to England to study manufacturing techniques at the best British factories. Henry Ford created the assembly line after taking tour of a Chicago slaughterhouse and watching carcasses hung on hooks mounted on a monorail move from one workstation to another. Toyota’s just-in-time production system was influenced by the replenishment practices of U.S. supermarkets. Modern benchmarking was initiated by Xerox (in the 1980s), an eventual winner of the Malcolm Balridge National Quality Award for quality. IBM, Motorola and Xerox became the pioneers in instituting the benchmarking processes. Xerox initially studied their direct competitors and discovered that:
-- their unit manufacturing cost equalled the Japanese selling price in the United States.
-- the number of production suppliers was nine times that of the best companies.
-- assembly line rejects were 10 times higher.
-- product lead times were twice as long, and
-- defects per hundred machines were seven times higher.
These results helped them to understand the amount of change that would be required to set targets to all the functional areas of the business.
-- Benchmarking promotes a thorough understanding of the company’s own process i.e., the company’s current profile (strengths and weaknesses) is well understood.
-- Benchmarking process involves imitation and adaptation of the practices of superior competitors, rather than invention, thereby saving time and money for the company practicing benchmarking.
-- Intensive studies of existing practices often lead to identification of non-value-added activities and plans for process improvement.
-- Benchmarking enables comparison of performance measures in different dimensions, each with best practices for that particular measure. It involves comparison with several companies who are best for the chosen measure. (Some common performance measures are return on assets, cycle time, percentage of on-time delivery, proportion of defects, percentage of damaged goods and time spent on administrative functions).
-- Benchmarking focuses on performance measures and processes and not on products. Thus, it is not restricted to the industry to which the company belongs. It extends beyond these boundaries and identifies organizations in other industries that are superior with respect to chosen measures.
-- Benchmarking allows organizations to set realistic, rigorous new performance targets and this process helps convince people of the credibility of these targets.
-- Benchmarking allows organizations to define specific gaps in performance and to select the processes to improve. It enables the company to redesign its products and services to achieve outcomes that meet or exceed customer expectations.
-- Benchmarking provides a basis for training human resources.
-- The primary limitation or weakness of benchmarking is the fact that best-in-class performance is not a static but a moving target.
-- Benchmarking is not a panacea that can replace all other quality efforts or management processes that can improve the competitive advantage of a company.
-- Benchmarking is not an “instant pudding’.
-- The potential pitfalls of benchmarking could be overcome by:
-- Involving the employees who will ultimately use the information and improve the process (participation can lead to enthusiasm).
-- Relating process improvement to strategy and competitive positioning.
-- Defining the firm’s own process before gathering data for the purpose of comparison.
-- Perceiving benchmarking as an ongoing process and not as a one-time project with a finite start and completion dates.
-- Expanding the scope of the companies studied instead of confining to one’s own areas, industry or to direct competitors, which is a narrow approach in identifying excellent performance that are appropriate to one’s own processes.
-- Perceiving benchmarking as a means to process improvement, rather than an end in itself.
-- Setting goals for closing the gap between the existing performance (what is) and the benchmark (what can be).
-- Empowering employees to achieve improvements that they identify
and for which they solve problems and develop action plans.
To compare one’s business practices with those of other organizations, four common approaches to benchmarking are adopted. They are:
-- Internal benchmarking ,
-- Competitive benchmarking,
-- Non-competitive benchmarking, and
-- World-class benchmarking.
Internal benchmarking is done within one’s organization or perhaps in conjunction with another division or branch office. Internal benchmarking is the easiest to conduct since data and information should be readily available and confidentiality concerns are minimized.
Competitive benchmarking involves analyzing the performance and practices of best-in-class companies. Their performance becomes a benchmark to which a firm can compare its own performance and their practices are used to improve that firm’s practices. However benchmarking the competition could be difficult since it might be impossible to collect or learn a competitor’s secrets. This type of information can often be obtained through a confidential survey of all competitors, usually conducted by a third party, quite often by a consulting firm.
Non-competitive benchmarking is learning something about a process a company wants to improve by benchmarking:
-- a related process in the industry with another firm, the company does not directly compete with,
-- a related process in a different industry, and -- an unrelated process in a different industry.
An advantage of this type of benchmarking is that new processes which could easily be adapted to one’s organization might be discovered.
World-class benchmarking: This approach to benchmarking is the most ambitious. It involves looking towards the recognized leader for the process being benchmarked – an organization that does it better than any other.
The concept of benchmarking is not new. In the early 1800s, Francis Lowell, a New England industrialist traveled to England to study manufacturing techniques at the best British factories. Henry Ford created the assembly line after taking tour of a Chicago slaughterhouse and watching carcasses hung on hooks mounted on a monorail move from one workstation to another. Toyota’s just-in-time production system was influenced by the replenishment practices of U.S. supermarkets. Modern benchmarking was initiated by Xerox (in the 1980s), an eventual winner of the Malcolm Balridge National Quality Award for quality. IBM, Motorola and Xerox became the pioneers in instituting the benchmarking processes. Xerox initially studied their direct competitors and discovered that:
-- their unit manufacturing cost equalled the Japanese selling price in the United States.
-- the number of production suppliers was nine times that of the best companies.
-- assembly line rejects were 10 times higher.
-- product lead times were twice as long, and
-- defects per hundred machines were seven times higher.
These results helped them to understand the amount of change that would be required to set targets to all the functional areas of the business.
Advantages of Benchmarking
-- Benchmarking promotes a thorough understanding of the company’s own process i.e., the company’s current profile (strengths and weaknesses) is well understood.
-- Benchmarking process involves imitation and adaptation of the practices of superior competitors, rather than invention, thereby saving time and money for the company practicing benchmarking.
-- Intensive studies of existing practices often lead to identification of non-value-added activities and plans for process improvement.
-- Benchmarking enables comparison of performance measures in different dimensions, each with best practices for that particular measure. It involves comparison with several companies who are best for the chosen measure. (Some common performance measures are return on assets, cycle time, percentage of on-time delivery, proportion of defects, percentage of damaged goods and time spent on administrative functions).
-- Benchmarking focuses on performance measures and processes and not on products. Thus, it is not restricted to the industry to which the company belongs. It extends beyond these boundaries and identifies organizations in other industries that are superior with respect to chosen measures.
-- Benchmarking allows organizations to set realistic, rigorous new performance targets and this process helps convince people of the credibility of these targets.
-- Benchmarking allows organizations to define specific gaps in performance and to select the processes to improve. It enables the company to redesign its products and services to achieve outcomes that meet or exceed customer expectations.
-- Benchmarking provides a basis for training human resources.
Limitations of Benchmarking
-- The primary limitation or weakness of benchmarking is the fact that best-in-class performance is not a static but a moving target.
-- Benchmarking is not a panacea that can replace all other quality efforts or management processes that can improve the competitive advantage of a company.
-- Benchmarking is not an “instant pudding’.
Pitfalls of benchmarking
-- The potential pitfalls of benchmarking could be overcome by:
-- Involving the employees who will ultimately use the information and improve the process (participation can lead to enthusiasm).
-- Relating process improvement to strategy and competitive positioning.
-- Defining the firm’s own process before gathering data for the purpose of comparison.
-- Perceiving benchmarking as an ongoing process and not as a one-time project with a finite start and completion dates.
-- Expanding the scope of the companies studied instead of confining to one’s own areas, industry or to direct competitors, which is a narrow approach in identifying excellent performance that are appropriate to one’s own processes.
-- Perceiving benchmarking as a means to process improvement, rather than an end in itself.
-- Setting goals for closing the gap between the existing performance (what is) and the benchmark (what can be).
Approaches of Benchmarking
To compare one’s business practices with those of other organizations, four common approaches to benchmarking are adopted. They are:
-- Internal benchmarking ,
-- Competitive benchmarking,
-- Non-competitive benchmarking, and
-- World-class benchmarking.
Internal benchmarking is done within one’s organization or perhaps in conjunction with another division or branch office. Internal benchmarking is the easiest to conduct since data and information should be readily available and confidentiality concerns are minimized.
Competitive benchmarking involves analyzing the performance and practices of best-in-class companies. Their performance becomes a benchmark to which a firm can compare its own performance and their practices are used to improve that firm’s practices. However benchmarking the competition could be difficult since it might be impossible to collect or learn a competitor’s secrets. This type of information can often be obtained through a confidential survey of all competitors, usually conducted by a third party, quite often by a consulting firm.
Non-competitive benchmarking is learning something about a process a company wants to improve by benchmarking:
-- a related process in the industry with another firm, the company does not directly compete with,
-- a related process in a different industry, and -- an unrelated process in a different industry.
An advantage of this type of benchmarking is that new processes which could easily be adapted to one’s organization might be discovered.
World-class benchmarking: This approach to benchmarking is the most ambitious. It involves looking towards the recognized leader for the process being benchmarked – an organization that does it better than any other.
Tags : Management Concepts & Organisational Behaviour - Benchmarking
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