BENCHMARKING

Benchmarking is the practice of identifying another business that is the best, or one of the better practitioners, in its class and learning as much as possible from it. The term was popularized in the 1980s by Xerox Corporation's Robert C. Camp, who wrote the first major book on the subject, Benchmarking: The Search for Industry Best Practices that Lead to Superior Performance.

Benchmarking is a business strategy that is used primarily by manufacturers, although it is applicable to other business activities as well. 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; benchmarking itself, however, measures specific performance gaps between a company and its competitors.

Benchmarking is used when there is a clearly defined gap between a company and its competitors that must be overcome in order to remain competitive. For example, the Xerox Corporation benchmarked Japanese manufacturers that were able to sell a copier for the same amount it cost Xerox to build one. Benchmarking may focus on products, manufacturing processes, management practices, and/or overall corporate direction. It is often focused on learning from one's direct competitors. Benchmarking can also lead to improved performance by studying specific business or manufacturing functions (functional benchmarking), general industry characteristics (industry benchmarking), strategies in general (tactical benchmarking), the numerical characteristics of specific products or processes (performance benchmarking), or general business practices that are not industry specific (generic benchmarking). As a result of its benchmarking in Japan, Xerox eventually developed a completely new copying process by creatively improving on the concepts it had learned from its chief competitors.

Benchmarking involves some measure of cooperation between two companies that become benchmarking partners. Xerox has pioneered benchmarking and often serves as a benchmarking partner for other companies interested in learning from it. After a company chooses a competitor to study, information is exchanged between the two companies through a series of on-site visits by teams representing each partner. These cross-functional benchmarking teams contain representatives from different functional areas of each company, including management. At the on-site visits, teams representing the two partners determine such issues as the focus for discussion, proprietary issues, the agenda, and who the participants will be.

Once the period of study and information exchange is completed, the benchmarking team issues an action plan and presents it to management for approval. The study and plan provide evidence that a top company is doing things in a better way and that the benchmarking company can implement similar changes to become more competitive. The action plan sets objectives and provides a road map for achieving those goals. It also spells out the necessary capital investment.

In 1991, when benchmarking was still relatively new to most companies, the American Productivity and Quality Center (APQC) along with 86 companies established the International Benchmarking Clearinghouse to help managers find and adapt best practices. Member organizations include hundreds of companies, government agencies, healthcare providers, and educational institutions. Members discover and learn about best practices through networking, benchmarking studies, systematic knowledge transfer, and the sharing of outstanding practices. The APQC conducts best-practice research and makes its findings available to members. Among the areas in which it has studied best practices are assessment, budgeting and finance, competitive intelligence, customer satisfaction, facility management, leadership development, information technology, knowledge management, marketing and sales, measurements, new product development, strategic planning, and supply chain management.

Another membership organization that provides benchmarking resources for its members is the Benchmarking Exchange. Members can access an electronic communication and information system that was designed especially for use by individuals and organizations involved in benchmarking and process improvement. Through the Benchmarking Exchange users can conduct literature searches, obtain help from other member organizations, form a consortium with other members, exchange benchmarking questionnaires and agendas, and talk with organizations that have already benchmarked the same area.

Industry Week magazine has created a useful benchmarking database that is available on CD-ROM. Called IW's Benchmarking Tool Kit, it contains performance metrics on the manufacturing practices and performance results from 2,800 manufacturing facilities. Among the manufacturing areas benchmarked on this database are empowered work teams, supplier rationalization, quick changeover techniques, just-in-time/continuous flow production, cellular manufacturing, strategic outsourcing, and total quality management.