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AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES

An Overview of Benchmarking: Processes, Purposes, and Practices


Production and Operations Management 421-020

Abstract
This paper explores the many aspects of benchmarking through extensive research conducted
from peer-reviewed journals, text-books, and online resources. Specific research topics include
the definition and benefits of benchmarking; the steps and processes involved; examples of
benchmarking, the history of benchmarking; advantages and disadvantages of benchmarking,
different types of benchmarking, some significant research outcomes; and the challenges and
costs of benchmarking relevant to todays industries.

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES

An Overview of Benchmarking: Processes, Purposes, and Practices


Benchmarking has long been one of the most important business processes for
performance success in both for-profit and non-profit organizations. Not only is benchmarking a
critical aspect of organizational planning, it is an interdisciplinary field that directly and
indirectly involves practically every professional undertaking in complex organizations.
Although specific benchmarking techniques can be extremely complex and technical, the
fundamental underpinnings of the discipline are surprisingly straight forward and easy-to-grasp.
Definitions of Benchmarking
According to Pradeep Mahalik (2013), in the Six Sigma newsletter: Benchmarking is a
management tool for process improvement that takes into account an organization's performance
measurement. It also is an internal learning and sharing tool that continually improves processes
by motivating culture based on the idea that the company can be among the best in the world
(para. 2 ). Mahalik (2013) further describes benchmarking as a regular and systemic measuring
process which incorporates the use of varied metrics that help measure an organization's valueadding processes (para. 1).

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


According to S.M. Thacker and Associates, an independent best practice training and
consultancy defines benchmarking as; the continuous search for an adaptation of significantly
better practices that leads to superior performance by investigating the performance and practices
of other organizations (benchmark partners). In addition, it can create a crisis to facilitate the
change process (Davies et. al., para. 2).
According to the online Encyclopedia of Business and Finance, benchmarking is a
systematic process that compares the performance of one more companies with respect to both
objective and subjective standards. Benchmarking looks at specific activities with specific
identified methods to determine the best practice relating to minimizing costs, reducing product
defects, increasing quality, or improving a broad range of productive outcomes (para. 1-2).
One of the simplest definitions of benchmarking practices and processes according to
Marketingteacher.com is: Understanding what we do and how we do it. And understanding
what others do and how they do it. Applying creative adaptation leading to break through
improvement (para.2).
According to, The Manager's Guide to Benchmarking (1996), some of the most
commonly used benchmarking metrics across industries include the following: Cost/revenue
ratios for sales, service, customer administration, distribution, and general administration; labor
overhead rates; material overhead rates; man power performance ratio; cost per order; percentage
of parts meeting requirements; number of problem-free production days; internal and external
customer satisfaction measures; percentage of supplies delivered on time; and service response
time (Finnigan, 1996, p.68).
Purpose and Benefits of Benchmarking
According to the British consultancy, S.M. Thacker and associates, the main benefits of

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


benchmarking includes the following:
1. Gives organizations achievable targets for performance improvement
2. Prevents a company's industry from dominating the company
3. Interrupts the organizations status-quo
4. Creates a continuous improvement operating environment
5. Motivates employees by helping them see possible performance improvements
6. Creates a sense of urgency about performance improvement
7. Convinces the organization that it needs to change for the better
8. Identifies weak areas to target for immediate change (Davies et. al., para. 5)
Benchmarking is frequently referred to as a wake-up call. Organizations benchmark for a
variety of reasons, including: improving the ratio between time and value produced; defining
ways to enhance value-added; reducing costs; and improving competitive standing
(Benchmarking, para. 1. ).
The Best Practices Enterprise (2006) lists four key benefits of a program-centric strategic
planning approach to benchmarking.
1. Inclusion: encouraging everyone in the company to contribute ideas and initiative
towards successful benchmarking
2. Discipline: planning and implementing all organization benchmarking work in an
organized, well thought through manner
3. Executive Participation: Engaging senior executives from throughout the entire
organization in the benchmarking planning and implementation stages
4. Full-time emphasis: The program-centric strategic plan administrators are responsible
for over-seeing the publication and distribution of the plan. This helps management to

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


better understand which projects are on-just time and on-budget and which ones need
some help or should be considered for elimination altogether. (Kerr, 2006, p.36)
History of Benchmarking
The field of benchmarking currently lacks a unifying theory that is necessary to guide future
advances in the field (Wong & Wong, 2008). Benchmarking originated in Japanese industry and
gradually spread throughout international business. In the 1980's, Xeroxing made extensive use
of it in the Western marketplace. Since 1995, researchers have generated over 42 definitions for
benchmarking. Benchmarking has undergone an evolutionary process of becoming ever more
increasing in sophistication (Wong & Wong 2008, p. 25-28).
Although benchmarking has been popular in American business for nearly two decades,
professionals in many other nations may not be aware of the practice. Many international
professionals have stated that their awareness of benchmarking as varying from, never heard of
it, to just dabbling (Ettore, 1993, p. 16). Some worry that the exhaustive and precise process
of benchmarking itself could be diluted by different cultural business approaches (Ettore, 1993,
p. 16).
Xerox is cited most often as the first western company to engage in systematic benchmarking. In
1977 a Dutch water supply company was one of the first to engage in a collaborative
benchmarking process in their industry association. The United Kingdom construction industry
undertook benchmarking process in the late 1990s with some financial support from the U.K.
government ("Benchmarking," 2013, para. 1). There is no single benchmarking process that has
been universally adopted. Kaiser Associates wrote the first practical 7-step guide to
benchmarking, and Robert Camp developed a 12-stages benchmarking model ("Benchmarking,"
2013, para. 6).

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


According to the marketingteacher.com, since then numerous other benchmarking
practices have been added, such as analysis of micro-business practices, competitive advantages,
and performance strategies (Benchmarking, n.d.). Benchmarking as a legitimate professional
practice came into being with the prestigious Malcolm Baldrige Award, which established eleven
strategic core values for the award's criteria. The Baldrige committee identified the following
eleven core values: customer-driven quality; leadership; continuous learning and improvement;
valuing employees; vast response; design quality and prevention; long-range view of the future;
management by fact; partnership development; company responsibility and citizenship; and
results focus (Czarnecki, 1999, p. 239-244)
Types of Benchmarking
One model of benchmarking identifies seven types of benchmarking as follows:
1. Strategic benchmarking strives to improve organizational performance through
examining long-term strategies and their effectiveness over time. This includes such
contemporary strategic concepts as core competencies; developing new products and
services; and changes in the organizational background environment.
2. Competitive benchmarking is used to compare the performance of two or more industry
competitors in the area of product or service performance characteristics.
3. Process benchmarking focuses on critical processes and operations within an
organization.
4. Functional benchmarking seeks to improve work processes or functions, especially
between two or more business partners.
5. Internal benchmarking gathers and analyzes sensitive organizational data and information
towards the goal of increasing efficiency of time and resource use.

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


6. External benchmarking helps an organization learn from the best competitive practices of
its various competitors.
7. International benchmarking compares the competitive practices of multiple competitors
across national borders ("Types of benchmarking", para. 1 ).
The two most widely used general forms of benchmarking have been identified as
performance benchmarking and best practice benchmarking. Performance benchmarking seeks
to identify opportunities to improve performance through setting specific outcome targets. These
targets can be financial in nature, efficiency measures, or marketing related. Best practice
benchmarking looks at the competitive advantage of competitors and how these could possibly
be incorporated within the benchmarking company itself (What is benchmarking?, para. 7).
The Business Performance Improvement Resource (2011) professional organization defines
informal benchmarking as informal conversations professionals have with one another relating to
common competitive experiences. Often this informal form of benchmarking is a form of
professional networking taking place at conferences and seminars, in addition to online
discussions. (What is benchmarking? 2011 para. 4).
S.M. Thacker and Associates describe the strategic form of benchmarking as a
comparison of an organizations strategies with that of its major competitors. This includes the
organizations technology portfolio, process capability, and core competencies (Davies et. al.,
para. 7). Thacker defines functional benchmarking as the investigation of core business
functions. It identifies best practices benchmarking as the attempt to improve management
practices right along with work processes. Thacker also identifies product benchmarking as
reverse engineering or competitive product analysis (Davies et. al., para. 8-9).
Steps and Processes of Benchmarking

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


Derek L. Ransley (1994) provides six important realities to help companies successfully
benchmark (p. 51):
1. Benchmarking involved a wide range of activities, which must be specially identified by
each participating company.
2. Benchmarking can be done proactively or in a reactive way.
3. Benchmarking must be integrated into a holistic quality improvement system.
4. Benchmarking must be a carefully managed process, especially in large organizations.
5. Companies can engage in simple benchmarking without a true expert involved.
6. An organizations partners must be shown the specific value of the benchmarking
process.
According to Michael J. Spendolini, (1992) the most basic and fundamental steps of the
benchmarking process include: determine what to benchmark; form the organizations central
benchmarking team; identify the major partners involved; collect and analyze benchmarking
information; engage in appropriate actions suggested by the benchmarking information (p. 26).
According to the research of R. C. Camp (1995), the most commonly used specific
benchmarking techniques include: graphics; gap analysis charts; simple rations; maturity
matrices; weighted scoring methods; and regression statistics (Talluri, 2000, p. 293).
Consultants are commonly used in benchmarking. Consulting activities may be as extensive
as guiding the full fledge study, or as simple as involvement in a single stage of the study only. A
typical study takes six months and consumes significant financial and personnel resources
(Mustafa, 1994, p. 23).
A Six Sigma newsletter describes the normal benchmarking process as consisting of the
four phases of planning, analysis, integration, and action. (Mahalik, para. 4). The planning phase

AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


consists of identifying and prioritizing opportunities for organizational improvement. This
planning phase also decides which organizations benchmark and the specific operations areas to
be examined within these organizations. The analysis phase finds the payoffs of improved
processes and then sets goals for process improvement. The integration phase reveals
communication findings and establishes new functional goals. The three-part action phase
develops an implementation plan, a monitoring process, and procedures for continuous
improvement over time. (Mahalik, para. 5-23)
According to the Encyclopedia of Business and Finance, benchmarking entails the following
eight process steps:
1. Identify processes to benchmark and their primary characteristics.
2. Determine which form to use: generic, functional, competitive, or internal.
3. Determine which organizations to benchmark
4. Collect and analyze information from surveys, interviews, published industry
information, direct contacts, trade publications, and technical journals.
5. Discern the best practices for each item benchmarked
6. Establish goals for improvement
7. Implement plans and monitor results.
8. Revise benchmarks as appropriate from practice. (Benchmarking, para. 10)
The authors of Driving Your Company's Value (2004) mention four dismal documented
realities about benchmarking ineffectiveness, as reflected in an extensive benchmarking research
study: Only 5 percent of the workforce understands their company's strategy. Only 15 percent
of senior management teams spend more than one hour per month discussing strategy. Only 25

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AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


percent of managers have their compensation tied to their strategy. Only 40 percent of
organizations link their budgets to strategy. (Mard, Dunne, Osborne & Rigby, 2004, p. 121)
In Do It Right The Second Time, Peter Merrill (1996) discusses key realities of benchmarking
success. He recommends to define benchmarking success in terms broader than just profit. He
holds that the customer must final say in what constitutes successful corporate practice. To
Merrill, quality and success are opposite sides of the same coin. He goes on to cooment that
customers won't tell you where your performance is subpar; communication, commitment, and
cynicism characterize many benchmarking efforts; and everyone involved in benchmarking
efforts must clearly see where the process is headed, both in the immediate and intermediate
future (p. 24).
Examples of Benchmarking
Some benchmarking universities have looked at one or more specific internal departments for
benchmarking efforts, such as institutional marketing, student registration, and fundraising
(Ivancevich, Ivancevich & Fried, 2000, p. 51).
Oftentimes, competitive benchmarking is used by universities to gain a perceived
competitive edge over the schools it considers to be competitors for students. By benchmarking
successful executive master's programs at other schools, schools hoping to develop a solid
executive program can mitigate some of its risks (Ivancevich, Ivancevich & Fried, 2000, p. 51).
CKS Chiang Kai Shek International Airport completed a benchmarking study to close the
gap in several areas of lagging airport performance, including: transport facilities; operation
revenue/total operation cost; and parking lot maintenance and management. Results of the
benchmarking suggested that CKS airport administrators should pay more attention to overall
airport design elements (Hsiu-Li, 2002, p. 771).

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AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


In a benchmarking study of Maine's paper and food service, benchmarking information
identified high differences in performance between two company locations. The chief financial
officer of Maine's commented, One unit appeared to be markedly underperforming. We puzzled
over it for quite some time (Stauffer 2003, para. 3). Benchmarking identified the cause of the
performance differences as significant age differences between the companys two operations
facilities. The twenty-year-old paper facility had an older workforce than the newer facility. As a
result, the older facility had significantly higher personnel costs, since their older workforce was
higher paid in comparison to the younger, less-skilled, employees at the new location (Stauffer,
2003, para. 4).
Advantages and Disadvantages of Benchmarking
N. Nayab (2010) identifies a series of advantages and disadvantages of benchmarking.
Among the many advantages of benchmarking is that it enables organizations to surpass the
performance of its competitors, while it opens minds within the benchmarking organizations with
new ideas and ways of thinking. Organizations are also placed in a continuous improvement
mode, according to Nayab (Pros and Cons of Benchmarking 2010, para. 3). Nayab (2010)
mentions what he considers to be a primary advantage of benchmarking: creating a performance
improvement foundation that enhances competitiveness. By showing how to better
competitors, benchmarking ensures the basic survival of the business (para. 5). Benchmarking
also provides both the motive and direction of significant organizational change. Nayab
concludes that benchmarking removes what he calls paradigm blindness, in which
organizations become locked into the status-quo (para. 7).
Among the significant potential disadvantages of benchmarking, Nayab (2010) notes the
difficulty of creating appropriate and understandable metrics (para. 9). Benchmarking reveals

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AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


the standards obtained by competitors but does not consider the circumstances under which the
competitors obtained such standards (para. 9). Additionally, some organizations tend to view
benchmarking as a one-time fix, rather than as a continuous process. (para. 10)
Perhaps the biggest advantage of benchmarking according to Nayab (2010), is that it sets
the table for an organization's enhanced competitiveness. By showing how to better
competitors, benchmarking ensures the basic survival of the business (para. 4). Benchmarking
defines what constitutes superior performance. In a quantitative way it then narrows the gap
between current performance and expected future performance. Nayab further states, In the
process it drives home uncomfortable facts and harsh realities about the business (para. 5).
Even though benchmarking uses operational metrics, there is no guarantee that these
metrics are always accurate or the same ones used by competitors. According to Nayab (2010):
Benchmarking reveals the standards attained by competitors but does not consider the
circumstances under which the competitors attain such standards (para. 9 ). Additionally an
organization's complacency and arrogance is a potentially large disadvantage of
benchmarking. Many times, industry leaders discontinue benchmarking and fall behind their
rivals without even noticing (para. 10).
Challenges and Costs of Benchmarking
A professional benchmarking organization, Business Perfomance Improvement Resource
(BPIR), has identified some of the most common challenges dealing with benchmarking
partners. BPIR identifies these as: finding suitable partners; difficulties in comparing data
across a variety of organizations; staff resistance; resource constraints; and lack of relevance to
all participating partners (What Is Benchmarking? para. 13).

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A general problem common to most benchmarking efforts is focusing on micro-practices
while losing sight of larger operating systems and realities. (para. 8 pg. 3) A related challenge is
that the benchmarking practices of other companies may also be overly specific and separated
from the overall competitive practices of those rival companies. Benchmarking is not a
competitive analysis. Benchmarking is the basis for change. It is about learning
(Benchmarking, para. 4).
Barbara Ettorre (1993) conducted research into new directions experts are pursuing
benchmarking. Her study concluded that micro-usage of benchmarking incorporates the core
processes of several companies broken down, analyzed and pieced together as best practices for
the company doing the benchmarking (p. 16). She likens this as being similar to assembling
little pieces of best practices in an attempt to create a competitive edge for the benchmarking
company. The Ettorre study also concluded that there will be a convergence between the use of
benchmarking and the degree of customer satisfaction ( p. 16).
A study by Ransley (1994) identified the problem of closely watched corporate research
and development budgets. He maintained that benchmarking funds must be invested in research
and development initiatives that promise to visibly improve an organization's best practices. It
is, therefore, incumbent on the R&D manager to look continuously to improve R&D
performance (p.50).
Ransley (1994) recommends that organizations restrict most of their benchmarking
efforts to areas where the company already performs well competitively. Benchmarking topics
lacking in potential for performance improvement should be ignored, in addition to benchmark
process that are broad in scope and not well circumscribed (p. 52). Benchmarking should be
avoided where management lacks support; has no specific customer in view; and where few

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important organization stakeholders are involved. Ransley also concludes that a benchmark team
should have no more than eight members and no fewer than three members (p.52).
Research Outcomes of Benchmarking
An empirical study undertaken by Voss, Ahlstrom and Blackmon (1997) found that
Increased levels of benchmarking were associated with higher levels of practice and
performance (p. 1048 ). The study also ascertained that the higher the degree of understanding
of its competitive positioning, the more likely the company is to use the increased knowledge
gained through benchmarking appropriately (p. 1050). The study clearly points to a link
between benchmarking and corporate performance (p. 1046-1058).
According to James S. Sagner (1994), Healthcare organizations...face significant
variations in activities due to organizational structure; a treasury department's role within in an
organization; the extent of an organizations technological maturity; and competition within the
healthcare industry (p. 68). Sagner's (1994) study also discovered that some organizations
studied compelled employees to focus on quantity, rather than quality, as the result of
benchmarking operating costs and the quality of daily business transactions (p. 68).
From their study, Gooden and McCreary (2001) concluded that benchmarking becomes
meaningful only when it is a part of larger organizational issues, such as fulfilling overall
mission and values. Productivity measures, improvement, and benchmarking for best practices
activities should not become ends in themselves (p.120).
A health services industry study completed by Dacosta-Claro, and Lapierre (2003)
studied the central store services benchmarking efforts of various health services in Quebec,
Canada. The studied showed that the best performance of central store services comes with
flexible administrative structures, by receiving packages as small as possible and by using

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employees from the lowest range of the hierarchy. (p. 211). The researchers (2003) also
determined that Quebec health services achieved from 20% to 30% greater supply-chain
economy as a result of benchmarking efforts ( p. 211).
A study by Ivancevich (2000) drew a number of important conclusions from the
empirical study on brainstorming success. To begin with, benchmarking success hinges on an
organizations capacity to successfully implement changes. Thus, change management is the key
to benchmarking management. ivancevich also felt time management is critical to effective
benchmarking. He recommends that a realistic timeline be identified showing clear steps for
action at each major phase of an organization's benchmarking process. The all-important
implementation criteria must be precise and specific, answering the question of what does the
organization intend to accomplish. Furthermore, successful benchmarking identifies which
people or groups are part of the brainstorming administrative actions. Additionally,
benchmarking administrators must concretely define resources needed to accomplish benchmark
objectives. Lastly, administrators must agree on how to measure benchmarking results
meaningful (p. 57-58).
The business-process reengineering and improvement research study published by Talluri
(2000) concluded that identifying best practices criteria is easier said than done, because the
information is multidimensional. Such information must include multiple measures for
administrators to undertake; all factors must be defined by numerical metrics if at all possible. In
addition, game theory and clustering method may prove useful ( p. 291).
Conclusions
This paper demonstrates that benchmarking is a comprehensive profession of major
relevance to virtually all types of organizations in the 21st century. The research results portrayed

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AN OVERVIEW OF BENCHMARKING: PROCESSES, PURPOSES, AND PRACTICES


in this paper run the gamut from profit-oriented corporations to non-profit institutions both
locally, regionally, and internationally. Because of the well -defined and designed nature of
benchmarking knowledge and technology, these many and diverse organizations were able to
utilize similar benchmarking processes and experience similar results. Few conceptual fields in
the 21st century are as overlapping and practical as benchmarking. It is truly a discipline of
extraordinary value for modern organizations.

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