A technique allowing a company to measure its performance against the ‘best in class’. It determines how comparators achieve their performance and uses that information to improve its own performance.
There are many definitions of benchmarking and all offer some insight into it as a process. The above definition is generic and contains the gen- eral flavour of the process while leaving several key terms vague. For example, what does ‘performance’ mean – highest profit level, lowest cost, raw material conversion rate, and highest customer satisfaction rating are all possibilities. Also ‘best in class’ has little direct meaning as an objective term. Who decides what qualifies an organisation to be the best in class and on what criteria? No organisation is perfect in all aspects of its activities and performance, so what should be compared in the benchmarking process – every aspect whether good as well as bad, or just the superior features? Having said all of this, benchmarking is a
potentially valuable process involving the comparison of two situations in order to be able to make judgements and take actions intended to improve the functioning of an inferior situation. Given the lack of clar- ity in the meaning of some of the terms used to define benchmarking, it gains significance as an organisational process from the fact that an organisation’s strategic capability is also a ‘relative’ issue since it is about meeting and beating the performance of competitors. In other words, benchmarking encourages a continuous improvement at many levels of organisational functioning in the search for a competitive advantage. Benchmarking as a process can involve quantitative and/or qualitative techniques as the basis of comparison. However these are measured the basic process is to compare the inputs and outputs of particular processes in order to be able to draw meaningful conclusions about the relative performance of the activities under investigation. Such comparisons do not have to be restricted to whole-company inter-organisational scenarios; they can be made between parts of organisations or between different sections within the same organisation. It is not a new idea, although it is only over recent years that it has been widely publicised and embraced as a formal part of management practice. In essence there are four different types of benchmarking:
• Internal Comparisons between similar activities within the same organisation. • Competitive Comparisons with direct competitors. • Functional Comparison with similar functions or operations but from different industries or sectors of the economy. For example, an aircraft manufacturer could compare their metal cutting and bending practices with those used in shipbuilding. • Generic Comparison of work processes with other organisations with innovative but not directly comparable work practices. For example, a rail infrastructure company could compare its track build- ing and repair practices with the processes used in coal mining to cut and extract coal.
The basic benchmarking process comprises 11 stages grouped under four categories. These are:
• Planning:
Identify own organisation benchmark target. Identify benchmark comparator.
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Determine the data required and collection methods. Collect appropriate data.
• Analysis:
Determine the gap between the target and comparator. Determine an action plan and performance targets/timescales.
• Integration:
Communicate the results and garner support. Establish the specific goals in collaboration with appropriate stakeholders.
• Action:
Develop appropriate action plans. Implement these plans and monitor their progress. Recompile the benchmark comparisons.
It is generally understood that benchmarking is an iterative process and so the conclusion of this first cycle of 11 steps would be followed by beginning the cycle again, the justification being that change is an ever present feature of organisational life and that continuous improvement is necessary because existing comparators will also improve their perfor- mance and new and innovative practices are to be found in unexpected places. For example, some years ago an airline studied the maintenance, refuelling and support processes provided in Formula 1 racing car facili- ties in order to improve the turnaround times of their aircraft at the pas- senger gates of international and domestic airports. Common issues and potential problems associated with benchmark- ing include gaining access to appropriate comparisons within other organisations. Most organisations are wary of releasing information about their activities and processes, particularly if they see them as a source of competitive advantage. These concerns can become even greater if the organisation seeking the information is a direct competitor or there are separate concerns that the information may be made available to such a competitor. There is a danger of deliberate misinformation or only partial information being supplied unless adequate safeguards and recip- rocal arrangements are put in place. In order to ensure both fair play and an honest supply of information, it is usual for protocols to be agreed upon regarding how the contributors should behave in the benchmark- ing process. The American Productivity and Quality Center suggests
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that the following points can help with the appropriate exchange of mutually beneficial information:
• Know and abide by the Benchmarking Code of Conduct. • Have a basic knowledge of benchmarking and follow a benchmark- ing process. • Prior to initiating contact with potential benchmarking partners, determine what needs to be benchmarked, identify the key perfor- mance variables to study, recognise the superior performing compa- nies, and complete a rigorous self-assessment. • Develop a questionnaire and interview guide, and share these in advance if requested. • Possess the authority to share and be willing to share information with benchmarking partners. • Work through a specified host and agree mutually on scheduling and meeting arrangements.
If the benchmarking process involves face-to-face meetings or site vis- its, then the same source encourages that the following be adopted:
• Provide a meeting agenda in advance. • Be professional, honest, courteous and prompt. • Introduce all the attendees and explain their role and presence. • Adhere to the agenda. • Use a universal language, not company-specific jargon. • Ensure that no party is sharing proprietary information unless prior approval has been obtained by all parties from the proper authority. • Share information about your own process, and, if asked, consider sharing your study results. • Offer to facilitate a future reciprocal visit. • Conclude meetings and visits on schedule. • Thank the partners for sharing their information and processes.
In human resource management terms there are many possibilities for benchmarking to take place. These include (based on issues indicated by the CIPD (2008), and for which some benchmark data are available based on surveys carried out on behalf of the Institute):
• The level of spending on training. • Learning and development issues and trends.
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• Absence management and levels. • Recruitment, retention and turnover levels and issues. • Reward issues. • Diversity issues and trends.
In addition there are of course many aspects of human resource management operation, strategy and practice that could form part of a benchmarking exercise. For example, resourcing practice, reward practice, salary levels, benefit provision, and so on. Any form of benchmarking is a comparison with what already exists elsewhere. At its most basic it is a comparison with similar organisations or those in the same industry and so it is in danger of becoming an incestuous process, even assuming that competing organisations can be trusted to be honest and open in the benchmarking process. At its best it encourages comparisons with dissim- ilar organisations in perhaps very different industries but with processes that contain lessons for others to learn from. Carried out on such a basis, benchmarking can be a creative process only limited by the ability of those involved to seek out and find meaningful comparisons. But even in such cases it is still ultimately limited to comparing what exists, however creative (or lacking in it) that may be. As a methodology, benchmarking does not require or encourage the application of creative development and innovative thought in seeking to develop/change/improve organisational processes in order to achieve an improved performance; it assumes that as long as such processes are comparable (or better than) others that is good enough. It also assumes that somewhere, someone will have found the best way to do something and that ‘we can capture it, if only we can find them’. These two assumptions presume that someone will indeed have found the best way to do something, that they can be found, and that they will be willing to pass on their expertise. In short this reflects the ‘me-tooism’ approach to management based on ‘we do what others do, and so we don’t have to think too deeply or fundamentally challenge ourselves to be the best we can, or to develop new ways of doing things’. The terms ‘best practice’, ‘best in class’ and ‘world class’ are often used in relation to the identification of benchmark comparison targets. Indeed the term ‘best in class’ is used in the definition at the start of this section. But what do these terms mean, particularly in relation to human resource management activities? Usually they are taken to refer to organisations either in whole or part that are commonly accepted as being exemplary by journalists, academics, practising managers, graduates
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or some other group