Benchmarking is the practice of identifying, understanding, and adapting the successful business practices and processes used by other companies (or even other departments within the same company) to increase your own business success. It is a business strategy that is used by manufacturers and service-oriented companies alike. While it may involve learning from one's competitors, benchmarking is more focused and narrowly defined than competitive analysis. Competitive analysis can be used in conjunction with benchmarking to identify gaps and provide strategic direction; however, benchmarking itself measures specific performance gaps between a company and its competitors. When used effectively, benchmarking can be a valuable tool in increasing the health of any business. "It is not an unnecssary cost to be avoided," wrote James Dodd and Mark Turner in National Public Accountant, "but rather, a tool that when used properly can produce …quantum leaps in company performance."
Benchmarking relies on the study of general business practices that are not industry specific (generic benchmarking), specific business or manufacturing functions (functional benchmarking), general industry characteristics (industry benchmarking), strategies in general (tactical benchmarking), or the numerical characteristics of specific products or processes (performance benchmarking). Benchmarking is most often implemented by examining other organizations within the same industry. "Most [small businesses] regard their businesses as too unique to warrant detailed comparison across industries, " stated Dodd and Turner. "They see no valid comparisons and, therefore, do not recognize any meaningful benefit from examining practices outside their own industries." But many analysts believe that companies can learn from the experiences of enterprises from a wide range of industries. After all, new lessons in business efficiency, innovation, and financial success can be found every day in all types of businesses.
In recent years, the benchmarking concept has also made an impact on the burgeoning world of ecommerce. Uncertainties still surround the utility, significance, and dimensions of benchmarking in the electronic business world. For example, some observers contend that the dot-com emphasis on speed to market—while an essential component of overall business success—has led many businesses to give too little attention to examining revenue streams, site traffic, and other web site activity data that might anable them to improve their practices and processes. But analysts believe that as more dot-coms establish a presence on the Internet, benchmarking will grow in importance as a productive tool to measure web site activity as well as core business processes such as customer service and marketing. "Once those core processes have been determined," wrote Tamara Wieder in Computer world, companies need to figure out how much those processes are costing them. Then, based on that information, businesses can compare their cost structures to those of other companies and evaluate their own performance over time."
BARRIERS TO SUCCESSFUL BENCHMARKING
Business experts point to several factors that can hinder a company's efforts to institute meaningful benchmarking practices. These include:
Unexamined core business processes. The ultimate quality, price, or reliability of the end product or service that is made available to customers is predicated on many aspects of a company's operations, and these facets need to be taken into consideration when examining internal processes..
Inadequate people or technology resources. A business should make sure that it has the resources (in terms of workforce, technology, or funding) to both launch a thorough benchmarking program and implement its findings.
Unwillingness or inability to accept the legitimacy of business ideas or practices from outside sources. Many employees and organizations are resistant to change, because of general contentedness, fear of the unknown, perceived challenges to their abilities, etc. Resistance can be minimized, however, if owners and managers make it clear that benchmarking is not a fault-finding exercise but rather an established program to help the company grow and prosper in a fast-changing business world.
Speed of in-house benchmarking processes. Effective benchmarking programs are given mandates to conduct their investigates in a timely manner, so that improvements can be implemented quickly.
Inadequate follow-up training. Benchmarking programs can uncover many areas in which companies can improve their performance. But if the company does not provide its work force with sufficient training to implement needed changes in a timely and effective fashion, then the initiative becomes a waste of time and resources.