Types of benchmarking
It is useful to distinguish between the main types of benchmarking:
Firstly, there is Informal Benchmarking. This is the type of benchmarking that most of us do unconsciously at work and in our home life. We constantly compare and learn from the behaviour and practices of others – whether it is how to use a software program, how to cook a better meal or play our favourite sport. In the context of work, most learning from informal benchmarking comes from the following:
- Talking to work colleagues and learning from their experience (coffee breaks and team meetings are a great place to network and learn from others)
- Consulting with experts (for example, business consultants who have experience of implementing a particular process or activity in many business environments)
- Networking with other people from other organisations at conferences, seminars, and Internet forums.
- On-line databases/web sites that share benchmarking information such as COER’s BPIR.com provide quick and easy ways to learn about better practices from organisations all around the world.
Secondly, there is Formal Benchmarking of which there are two types: Performance Benchmarking and Best Practice Benchmarking.
Performance benchmarking describes the comparison of performance data that has been obtained from studying similar processes or activities. Comparisons of performance may be undertaken between companies or internally within an organisation. It is useful for identifying strengths and opportunities for improvement. Performance benchmarking may involve the comparison of financial measures (such as expenditure, cost of labour, cost of buildings/equipment, cost of energy use, adherence to budget, cash flow, revenue collected) or non-financial measures (such as absenteeism, staff turnover, the percentage of admin staff to front-line staff, budget processing time, complaints, environmental impact or call centre performance).
In COER’s experience, most people equate benchmarking to performance benchmarking. This is unfortunate, because performance benchmarking on its own is of limited use. Too often performance benchmarking data is collected (often at significant cost) and no further action is taken after the data has been obtained. Whilst performance benchmarking enables a performance gap to be identified, it does not provide the idea, best practice or solution as to how performance can be improved and the gap closed.
Best Practice Benchmarking describes the comparison of performance data that has been obtained from studying similar processes or activities and identifying, adapting, and implementing the practices that produced the best performance results. Best practice benchmarking is the most powerful type of benchmarking. It is used for ‘learning from the experience of others’ and achieving breakthrough improvements in performance. Best practice benchmarking focuses on ‘Action’ i.e. doing something with the comparison data and learning why other organisations are achieving higher levels of performance. Best practice benchmarking projects typically take from 2 to 12 months. As these projects can be resource intensive, they should be undertaken in areas of high strategic importance and a cost/ benefit analysis should be undertaken before proceeding. Often such projects can deliver major bottom-line benefits.
What is the payback from benchmarking?
The easy answer to this is that it varies from project to project, since it depends on the aim of each individual project. All projects should begin with cost/benefits analysis and if the expected benefits are unclear or small, then the project should not proceed. If projects are carefully selected, planned and managed, there is no reason why major benefits (financial and non-financial) should not be obtained.
There are many case studies focusing on success gained through benchmarking. The best known of these describe the experiences of Xerox and Chrysler. In the late 70s and early 80s, faced with ruin due to more efficient Japanese competitors, benchmarking turned the giant Xerox organisation around and put it back at the top of the market. At Chrysler, the benchmarking of Japanese new product development techniques prior to the development of the Viper sports car is credited with saving three billion dollars from development costs and one year of development time.
One study of Fortune 500 companies found compelling figures relating to first year payback from benchmarking projects. Within organisations of ‘average’ benchmarking experience, an average $76-million payback was reported by more than 30 of these companies for their most successful benchmarking project. From ‘more experienced’ organisations, this figure was a staggering $189.4 million. Even among developing organisations, the study found average first year payback levels at $370,000.
COER’s own research indicates that organisations obtain substantial benefits through benchmarking. For instance, New Zealand Benchmarking Club members improved on average by 50 points per year average by 50 points per year, as assessed against the Baldrige Criteria for Performance Excellence through their increased focus on benchmarking whilst a global study reported 20% of respondents achieving an average financial return of over US$250,000 per best practice benchmarking project.
The winners of the GBN’s Benchmarking Award showcase the benefits of benchmarking each year. Watch the presentations of award winners:
2012, Watson Real Estate Ltd, New Zealand,
2013, Knowledge and Human Development Authority (KHDA), Dubai, UAE
2014, OCBC Bank, Singapore
2015, The Medical City, Philippines
2016, Al Jazeera International Catering LLC, UAE
2018, Road and Transport Authority, UAE