What is Benchmarking?
Overview
The primary goal is to acquire knowledge and leverage the advancements made by others, avoiding the need to reinvent existing solutions. By actively seeking and researching established methodologies, one can enhance and optimize their own processes. It is essential, however, to comprehend the context in which these methods operate and understand the rationale behind their characteristics. Just as a wheel with loose spokes can lead to imbalance, any operational deficiencies within an organisation can have detrimental effects if left unaddressed.
In the analogy of a wheel representing an organisation's internal business system, the spokes symbolize the various internal operational functions. The immediate surroundings of the wheel encompass the target environment of the organisation, including "Competitors," "Suppliers," "Market," "Stakeholders," and "Customers." Meanwhile, the external environment of the wheel encompasses factors such as "Economics," "Directional Trends," "Politics," and "Technology Trends." While it may not always be feasible to replace the entire wheel at once, adjustments can be made to individual spokes or the direction of the wheel. This concept can also be applied to project management, where the wheel represents a project and its spokes signify key project events.
Although business objectives vary in terms of organisational structure, rules, procedures, infrastructure, and technology, certain supporting functions, such as "Human Resources," "Finance," "Procurement," and "Material Management," exhibit similarities across different businesses. By comparing and aligning these supporting functions, an organisation can elevate its own standards, potentially leading to the establishment of a best-practice business system. Notably, adjustments made to line functions as opposed to supporting functions can yield more immediate and substantial benefits.
To illustrate, the main objectives (line functions) and auxiliary objectives (supporting functions) of a Steel Manufacturing Company are presented as a straightforward example.
Example of line supporting function:
Individuals, teams, or organizations are continually developing innovative ideas and refining approaches for enhanced performance. The adoption of best practices, operational strategies, cutting-edge solutions, and successful strategies employed by others can significantly expedite one's progress and advancement. The notion that individuals and organizations might reach a juncture where no new initiatives or ideas are discerned is nearly implausible, given the vast capabilities of the human mind.
Throughout the historical annals of benchmarking, the assimilation of commendable ideas has been a recurrent practice. For instance, during a tour, Henry Ford of the Ford Motor Company observed workers cutting meat and witnessed carcasses hanging on hooks mounted on a monorail, inspiring the inception of the world's inaugural assembly line.
Likewise, the Remington Rifle Company grappled with a challenge where customers sought shinier rifle shells. The solution to manufacturing such rifle shells was gleaned from a cosmetic company that specialized in producing glossy lipstick cartridges.
Benchmarking should be regarded as an integral business process and skill residing within organizations, fostering excellence in operations, quality, service, and other critical facets. By exposing individuals and organizations to novel ideas and methodologies, the benchmarking experience stimulates enhanced insights and promotes breakthrough thinking. Benchmarking finds broad applications in problem-solving, planning, goal-setting, process improvement, re-engineering, strategy formulation, and various other elements.
Fundamentally, one cannot assert that the engineering of a business system or its components is complete without conducting measurements against other business systems. This comparison need not be confined to similar organizations or industries; for instance, the business system of Project Management in a Construction Company can be juxtaposed with the Project Management business system of a Software Implementation Company. Novel ideas can emanate from diverse environments, not exclusively from analogous ones.
Definition
In concise terms, benchmarking can be defined as the process of identifying optimal practices, innovative ideas, and highly efficient systems that contribute to superior performance. The term "benchmark" signifies a reference point from which measurements can be taken or a standard against which comparisons can be made. In contemporary terms, benchmarks are measurements used to assess the effectiveness and efficiency of a function, process, business area, or entire business in relation to others.
Primarily, a benchmark may reveal disparities in the internal operations of a business system or differences in the target and external environment of the system. Secondly, the execution of benchmarking itself may demonstrate an alternative method of tracking or measuring the performance of a system. In the former case, a more effective and efficient operational framework for a business system could be identified.
In the latter case, a more robust method of evaluating the effectiveness and efficiency of a business system could be pinpointed, thereby enhancing the benchmarking function. It is as though the benchmarking function is introspectively evaluating its own performance.
Benchmarking means:
“ Firstly, it is a process of continuously studying the internal business system and seeking from the most
effective and efficient elements in the internal and target environment of the business system that could
produce leading edge performance. Secondly, implementing the most effective and efficient internal
business system and Thirdly, taking into account the influencing factors of the target and external
environment on a continuous basis.”
Effectiveness serves as an indicator of how well an entity aligns with established benchmarks, gauged through financial or non-financial performance indicators. Conversely, efficiency denotes the relationship between inputs and outputs within a business system.
The assessment of a project management function's operational efficiency can be benchmarked against similar functions within the same organization or compared to functions in organizations with divergent objectives. The factors influencing project management in a construction company differ significantly from those in a software implementation company. The former is influenced by factors such as labour and material availability, while the latter is affected by resistance to change and scope creeping. Nevertheless, adopting an object-oriented approach to project management, as employed by leading software implementation companies, can prove highly beneficial for construction companies.
In the context of a project, benchmarking should be regarded as an event integral to the life cycle of each deliverable, supporting the objective of ensuring the project's overall quality. When applied to a business, benchmarking assumes the role of an ongoing internal function that contributes to maintaining an effective and efficient business or product. Benchmarking is intricately linked to Business Engineering and its supporting objectives. Just as benchmarking is relevant within the project context, it should also be integrated into the continuous internal business system engineering function.