Wootinun Sung-Ong - January 2003 1

Benchmarking

Wootinun Sung-Ong

January 2003

Introduction

Traditionally, the organisation typically enhances their product and process performance

by focusing on their internal functional activities (Kolarik, 1995). The organisation, for

example, may use techniques such as Quality Function Deployment to achieve their

customer satisfaction. However, this traditional performance improvement trend seems

not to be sufficient for a competition in the highly competitive markets (Juran, 1993).

Benchmarking, therefore, become a significant technique facilitating an improvement of

organisation performance as it regards competitor issues (Juran, 1993). The purpose of

this paper is to discuss regarding background, benefits and limitations of benchmarking.

Background of benchmarking

Benchmarking was originally defined by D.T. Kearns, the CEO of Xerox Corporation, as

the continuous process of measuring products, services, and practices against the toughest

competitors or non-competitors who is the leader in their industry (Kolarik, 1995).

According to the research of benchmarking activity in the UK, benchmarking is

usually implemented in industries such as utilities, health, and education as shown in

Figure 1 (Hinton et al, 2000). Moreover, as shown in Figure 2, a tendency of

benchmarking activity is a function of size. A larger organisation is more likely to be

benchmarking than a smaller one (Hinton et al, 2000).

According to Slack et al (2001), benchmarking can be classified into a various types.

Firstly, at the company level, organisation may select an existing process in their firm or

outside industry (Keegan, 1998). For example, to solve a problem of reliability in

Windows 9x series, Microsoft Corp. launched the newest Windows 9x version, Windows

XP, by benchmarking some module from their NT series, which is more reliable.

Secondly, organisation may decide benchmarking from competitors or non-competitor

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firms (Kolarik, 1995). For instance, with regard to benchmarking of the Xerox’s product,

Apple can develop “Macintosh”, the first personal computer using mouse, icons and

menus. Consequently, Microsoft Corporation, a direct competitor, benchmarked the

Apple Macintosh and, then, launched Windows operating systems. Thirdly, organisation

may benchmark in the particular business activities such as processes, performances, and

strategies (Bogan and English, 1994).

Figure 1 Relationship between benchmarkers and industry type

Source: Hinton M. et al. (2000)

In practice, selecting the appropriate activity to benchmark is significant to an

effectiveness of benchmarking (Peppard, 1999). As noted by Porter (1985), the process or

activities in value chain, which are primary activities (inbound and outbound logistics,

operations, marketing and sales, and service) and support activities (firm infrastructure,

human resource management, technology development and procurement) should be

considered benchmarking. However, this type of benchmarking may have difficulties in

order to obtain some sensitive information (Ralston et al, 2001). Consequently,

benchmarking, in practice, tend to focus on competitor performances and strategies using

secondary data source, which is straightforward to obtain (Anderson, 1999).

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Approximately, 85 per cent of benchmarking activities use this type of data source

(Spendolini et al., 1999).

Figure 2 Relationship between benchmarkers and industry type

Source: Hinton M. et al. (2000)

As introduced by Camp, there are five elements to successful benchmarking as follows

(Kolarik, 1995):

• Planning – identifying product or process, identifying comparative organisations,

and identifying data needs

• Analysis – collecting data, calculating performance gap, and projecting to future

performance

• Integration – communicating findings, establishing functional goals, and

developing action plans

• Action – implementing action plans, monitoring progress, and attaining leadership

position

• Maturity – integrating benchmarking into corporate culture

Benefits of benchmarking

Product and Process Improvement:

In general, by implementing benchmarking activity, organisation can improve their

operation process (Slack et al, 2001). For instance, South African Breweries plc had

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encountered the problem of poor employee skill, which is a significant difficulty to

implement the world-class process. As such, they decided to benchmark strategy from

organisation in Geneva. They, consequently, attain the solution, which support a

reduction of redundant employees (Slack et al, 2001).

Cost reduction:

Benchmarking facilitate a reduction of operation costs (Delpachitra et al, 2002). For

example, benchmarking facilitates Australian Financial Institutes to reduce operation

costs by outsourcing some operation and alternating distribution channels (Delpachitra et

al, 2002).

Competitive strategy:

The most significant benefit from benchmarking is that it help organisation planning and

performing competitive strategies (Kolarik, 1995). In other words, as benchmarking

provides an ability to compare and learn from the best practice in any particular industry,

organisation can develop their system to achieve competitive advantages or eliminate

their competitive disadvantages. For instance, Benchmarking of R&D in buyer–supplier

relationship facilitates organisation comparing R&D system among industry value chain,

which leads to their strategic decision (Hurmelinna, 2002).

Limitation of Benchmarking

Typically, the organisation may encounter some difficulties in benchmarking activity.

Firstly, the sensitive information from prototype organisation is, obviously, difficult to

obtain (Kolarik, 1995). Secondly, process benchmarking of direct competitors in the

same industry also encounter difficulties of collecting information (Ralston et al, 2001).

Moreover, according to case study of benchmarking of R&D in buyer–supplier

relationships, Hurmelinna (2002) claimed that benchmarking tend to be time-consuming

and costly process, if not implementing properly.

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Discussion

According to the research of benchmarking activities of British companies, there are a

number of causes leading to failure of benchmarking as follows (Davies et al, 1999):

• Preoccupation with metrics

• Industrial tourism

• Benchmarking being mistaken for competitive analysis

• Lack of implementation of findings

• Lack of planning – resulting in poor findings

• Lack of structure in benchmarking project

• Failure to involve all levels and areas of organisation

• Perception of the need to benchmark

• Belief that a company is unique

• Studies too large and superficial

To achieve a successful benchmarking activity, the organisation should consider on

significant issues as follows:

Firstly, the benchmarking project should have a commitment from top management as

well as member (Stonehouse et al., 2000).

Secondly, as concluded by Xerox, before comparing with other organisations, it is

significant to clearly understand their own process (Slack et al, 2001).

Thirdly, benchmarking should not focus only comparison of performance but should

include the underlying process (Hinton, 2000). For example, with regard to only

performance, a low rate defect of one organisation may convince another organisation to

benchmark a process. However, when focusing on causal process, they may discover the

fact that a prototype process consists an extremely high inspection rates (Davies et al,

1999).

Fourthly, as benchmarking is the way of thinking, planning, and doing process, the

real benefits of benchmarking seem not to be only capability of copying processes from

another firm (Kolarik, 1995). The organisation, therefore, should have a creativity to

understand how they can gain competitive advantages against the rivals (Kolarik, 1995

and Slack et al, 2001).

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