Largely unheard of in the business world until the mid-1990s, when Xerox Corp. used it to enhance its competitiveness, benchmarking has evolved to become an essential element of the business performance management (BPM) toolkit and a key input to financial and business improvement efforts. Despite this, it remains one of the most widely misunderstood improvement tools. The word means different things to different people, and, as a result, benchmarking projects all too frequently fail to deliver on their promise of real results.
However, when executed correctly, benchmarking can be a powerful focus for change, driving home sometimes uncomfortable facts and convincing leaders of the need to ...view middle of the document...
The focus should be on the organization, not the individuals within it.
Nor is it a stand-alone activity; to succeed, benchmarking must be part of a continuous improvement strategy. Organizations must ramp up their performance rapidly to remain competitive in business environments today, and the pace is further accelerated in sectors where benchmarking is commonplace, where businesses rapidly and continuously learn from one another. A prime example is the oil and gas industry, where companies have to respond with lightning speed to ever-increasing business, technological, and regulatory demands. The majority of the key players in this industry participate in focused benchmarking consortia annually.
Benchmarking is not just a competitive analysis. It goes much further than a simple examination of the pricing and features of competitors' products or services; it considers not only the output, but also the process by which the output is obtained. And benchmarking is much more than market research, because it considers the business practices that enable the satisfaction of customer needs and thus helps the organization to realize superior business performance. Many definitions of benchmarking exist, each offering slight variations on common themes. Here's my definition: Benchmarking is a systematic and continuous process that enables organizations to identify world-class performance and measure themselves against that. Its goals can be summarized as:
* • Identify world-class performance levels;
* • Determine the drivers of superior performance;
* • Quantify gaps between the benchmarker's performance and world-class performance;
* • Identify best practices in key business processes;
* • Share knowledge of best practices;
* • Build foundations for performance improvement
Benchmarking projects can be classified in many different ways -- for example, by the subject matter of the analysis, by the type of participants, by data source, or by methodology. There's internal and external benchmarking; competitive and noncompetitive benchmarking; functional, process, and strategic benchmarking; and database and consortium benchmarking. While different approaches have their pros and cons, and some are clearly more effective than others, they all should have the same ultimate objective: to help an organization improve its business performance.
Irrespective of the type of benchmarking an organization undertakes, a well-structured and systematic process is critical to success. The Juran 7-Step Benchmarking Process(Exhibit 1) has been developed over many years by the Juran Institute and has formed the basis of numerous annual benchmarking consortia since 1995. I'll describe it here in terms of external consortium benchmarking, but the process is generic and equally applicable in principle to all types of benchmarking.
The process is divided into two phases. Phase 1 is a positioning analysis that provides the benchmarker with a...