Other uses of the tool: To reveal successful business processes. It is often unclear how successful companies achieve superior performance.
Professionals in the computer industry have used the term benchmarking since the early s. Computer manufacturers published their benchmarking results in their sales brochures and their marketing literature.
To resolve competing claims, academic and commercial concerns developed benchmark standards such as whetstones and dhrystones. Later, IS professionals also sought practical measures of productivity and output that could be compared to industry norms.
Generally, organizations used broad measures, such as the ratio of IS budget to sales or expenses, the return on investments in information technology IT and systems, and the percentage of IS projects completed on time and within budget.
Some organizations complemented these measures with more group-specific or task-specific ones to evaluate individual services or products.
For example, to evaluate the help desk, they might use measures such as the ratio of help-desk workers to the number of help-desk calls and the percentage of problems reported to the help desk that are resolved on the initial call. Norms for broad measures such as the ratio of IS expenses to sales were established by trade organizations that collected such data from their membership.
Additionally, many organizations, unhappy with the broad comparisons published by trade organizations, formed consortia of relatively similar companies to share each others' measures confidentially. Consultants who collected metrics from clients and other sources also, for a fee, sold such information, aggregated to protect confidentiality, to interested parties.
The term "benchmarking" was first applied to business practices by Xerox Corporation circa Most of this confusion was caused by the fact that in the popular press "benchmarking" retained two meanings. One, commonly called metric benchmarking, is indeed what IS professionals have been used to.
Metric benchmarking is the use of quantitative measures as reference points for comparison against prior experience, industry norms, or best-in-class organizations.
The other meaning, commonly called best practice benchmarking, is the identification, and potentially the adoption, of best practices or techniques for performing common tasks.
The next section compares the pros and cons of these two types of benchmarking, recognizing, of course, that one type of benchmarking does not preclude the other. In subsequent sections we focus on best practice benchmarking, although not to the exclusion of metric benchmarking.
This focus reflects the large volume of existing research and publication concerning metric benchmarking and the relative absence of and need for similar information about best practice benchmarking, particularly in the field of information systems.
Best Practice Benchmarking The major drawback to metric benchmarking is that it fails to identify the cause of and possible solutions for sub-par performance on any measure.
For example, suppose a company finds that, relative to the norm, a low percentage of its help-desk calls are resolved on the initial call. It may conclude that its help-desk staff is insufficiently trained, that its systems are relatively complex and hard to diagnose, or that the norm has been established at companies whose help desk is so poor that users, in frustration, have learned to work around it when faced with complex problems.
Each of these conclusions implies a different solution. In contrast, best practice benchmarking of the help desk function, rather than relying on statistical measures, would involves a detailed study of help-desk processes at other organizations.
This type of benchmarking, rather than simply identifying areas for improvement, is more likely to produce a plan for continuous improvement or radical reengineering of the process or processes under study.
Several drawbacks to best practice benchmarking may limit its usefulness. First, the level of effort required to study even a few processes is high relative to metric benchmarking. As a result, the returns to the benchmarking effort have to be substantial in order to justify its undertaking.
Second, as this form of benchmarking studies only a small number of organizational units, there is no guarantee that it will uncover exemplary, or even representative practices. Third, benchmarking partners may be wary of sharing their knowledge, especially if they believe it to be a source of competitive advantage.
Finally, considerable judgment is required to ascertain whether the practices that work well in one organization can be effectively transplanted to another organization, especially when industry, culture, size, and function may differ.
Benchmarking also often occurs as one component of a more extensive cost assessment or cost reduction effort, a total quality management TQM program, or a strategic planning effort.
The budgeting process periodically motivates IS managers to perform some benchmarking. Most organizations subject development and acquisition of new systems to stringent return-on-investment hurdles.
With the increasing popularity and availability of outsourcing services, many organizations require a justification of existing systems as well.
Metric benchmarking allows a company to compare its investment in IT and IS to other similar companies. A company that spends less than similarly sized companies in the same industry may be operating more efficiently than its competition.
Alternatively, it may be spending less because it has neglected to use IT to achieve competitive advantage, to match its competitors' services, or simply to save more money elsewhere in its budget. Benchmarking might spur such a company to increase spending in IT or it may help the company identify a low cost IT strategy that works effectively.
Conversely, a company that spends more than similar companies in the same industry may be operating less efficiently than its competition, using IT to achieve competitive advantage, or investing in IT to reduce other expenses. Another reason to benchmark is to assess job performance and to set performance goals.
The satisfaction of supervisors, subordinates, and peers is, of course, a key measure of job performance. However, if a company is complacent, its urge to achieve satisfaction is likely to entice it to set goals that are too easy to reach.
In the absence of objective measures and external comparisons, lack of performance may not be noticed until it is too late to recover. Complacency is a potential problem at all levels of management.The term: strategic benchmarking, is used to describe when a firm is interested in comparing its performance versus the best-in-class or what as deemed as world-class performance.
This process often involves looking beyond the firm's core industry to firms that are known for their success with a particular function or process.
Benchmarking occurs across all types of companies, including private, public, nonprofit, and for-profit, as well as industries e.g., technology, education, and manufacturing. Many companies have positions or offices in the company that are in charge of benchmarking. Within these broader categories, there are three specific types of benchmarking: 1) Process benchmarking, 2) Performance benchmarking and 3) Strategic benchmarking.
a company will focus its benchmarking on a single function to improve the operation of that particular function. Complex functions such as Human Resources, Finance and.
Benchmarking is a way of discovering what is the best performance being achieved – whether in a particular company, by a competitor or by an entirely different industry. This information can then be used to identify gaps in an organization’s processes in order to achieve a competitive advantage.
In this lesson, we will look at the different types of benchmarking, the stages of benchmarking, and a real world example. Functional benchmarking is a comparison to similar or identical practices within the same or similar functions outside the immediate industry.
Generic benchmarking broadly conceptualizes unrelated business processes or functions that can be practiced in the .