BENCHMARKING
A business model for improving efficiencies
The Xerox Company is often credited as the originator of benchmarking which it pioneered in 1979. Benchmarking has most of its history in quality management. The wave of interest in improving quality led to the establishment of the Benchmarking Journal (1994) which is focused on total quality management.
Benchmarking is important in business. Benchmarks provide reference points against which you can measure your performance. Benchmarks can be goals, internal metrics or most frequently performance measures of competitors. Competitor benchmarking can cover a myriad of subjects from financial performance through to delivery times or customer satisfaction. External comparisons are useful as they give an indication of how an organisation is performing against a competitor or an industry standard.
The aim of benchmarking is to improve performance. There are four measures of importance:
1. Measures of time – how long it takes to produce something, how quickly the phone is answered, the speed of response to an enquiry, the time taken to deal with a complaint.
2. Measures of quality – the number of defects in a product, the length of life of a product, the cost of maintenance of a product, the ability of a product to withstand stress, the reliability of a product.
3. Measures of cost and effectiveness – the price of a product, the cost per application or use of a product, the cost of maintenance of a product, the savings that a product confers.
4. Measures of customer satisfaction – overall satisfaction with a product, satisfaction with different aspects of a product, the likelihood to recommend a product, the likelihood to repurchase a product.
These benchmarking measures are in attempts to improve processes in some way, to see if costs can be reduced, profits can be increased, and customer loyalty can be strengthened.
As the diagram indicates, it is important to consider what should be benchmarked and then determine key performance indicators that are readily available for tracking.
The benchmarking wheel (the figure below) takes you through the necessary steps.
The trickiest part of benchmarking is usually steps 3 and 4 – finding an easily available source against which to make the comparisons.
The key to benchmarking is to find data against which to benchmark. External data may be the gold standard but if it isn’t available, find an internal data source that is. It is better to have frequent benchmarking tracking data with imperfections than to seek perfect benchmarking data that is not readily available.