Benchmarking
Benchmarking is an improvement approach that seeks to enhance the performance of a product or process by analyzing market best practices. The team compares the product or process with the best examples to establish reference models or benchmarks. This way, the team understands the standards to adopt in order to remain relevant.
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Approach to Benchmarking
The normal benchmarking process can involve the following steps:
- Clarifying the Improvement Objective – The first step is to identify the area to improve. For example, the team may want to enhance the processes of a project. Another team may seek to improve the efficiency of a service delivery.
- Identifying References – The second step is to choose the companies or industries to monitor.
- Analyzing References – The next step involves gathering information about those companies or industries according to what we want to monitor.
- Analyzing Gaps – Next, an analysis of the gaps between the internal process and the external best practices should be conducted.
- Establishing Improvement Points – Finally, the feasibility and justification of potential improvements are analyzed, leading to a decision.
Advantages of Benchmarking
Benchmarking helps align the company with the needs and standards of its market and customers. This aspect should never be overlooked to ensure that the company does not realize too late that it has become irrelevant to the market. For example, imagine you are a successful company in mobile phone sales. If you did not pay attention to what customers are looking for in the future, you would continue to offer traditional mobile phones while the market shifts toward smartphones. Even though the mobile communications market continues to grow, you would likely lose sales if you did not start offering smartphones, as your competitors do and as customers desire.
Benchmarking can help companies find new products that will meet the future needs of their market, but it can also assist in:
- Improving Performance – Organizations always strive to enhance the performance of their products, processes, and projects. Benchmarking helps them know where to focus their efforts.
- Focusing on the Right Improvements – While continuous improvement is essential, knowing where to direct efforts can be challenging. Benchmarking assists organizations in defining the path they should take.
- Reducing Costs – Benchmarking allows companies to learn about the latest innovations, technologies, working methods, and processes. This knowledge can lead them to implement more productive practices that reduce costs.
- Creating Transparency – Recognizing where strengths and weaknesses exist fosters a shared understanding of the current situation and highlights areas for improvement. Increased transparency motivates individuals to enhance their performance and can significantly boost organizational morale.
Challenges of Benchmarking
Now that we have discussed the advantages of benchmarking, let’s look at some of the challenges:
- Availability of Information – The available information may not be sufficient for making decisions or tracking data. Organizations may not disclose testing and performance data, making it difficult for competitors to know what is truly happening.
- Limiting Innovation – If an organization discovers what its competitors are doing well, it may incorporate that information into its work and products. However, if it does not seek to innovate and go further, the market may stagnate, and it might realize too late that it has missed the innovation train.
- Neglecting Strengths – A company that focuses too much on what its competitors are doing may forget to look inward and acknowledge its own strengths. If one company benchmarks itself against yours, it is likely that your company is also a benchmark for others. Do not forget to recognize and value what you do well; your team will appreciate it.
Types of Benchmarking
There are various ways to implement benchmarking,for example, the context can be internal or external:
- Internal – Internal benchmarking compares performance across various departments, business areas, or structures within the organization.
- External – External benchmarking compares our organization to other organizations outside of ours.
There are also different types of benchmarking based on focus:
- Strategic – This type of benchmarking focuses on comparing the organization’s strategies with the best references.
- Product – The focus of product benchmarking is to improve the products offered to the market.
- Process – The focus of process benchmarking is to enhance the processes used to develop, improve, correct, support, and deliver products.