What is Benchmarking? (4 Types of Benchmarking, Steps)

Success is the product of daily habits, not once-in-a-lifetime transformations.

James Clear

Benchmarking practice means comparing what you do to a big number of comparable organizations or individuals. It is a way of discovering what is the best performance being attained – whether in a particular company, by a competitor, or by completely different industry. In this article, we will explore Types of benchmarking, steps, importnace.

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Benchmarking best practice is an improvement tool that considers an organization’s performance measurement and compares against a standard (ex ISO 9001), and then measuring against world-class performers / best-in-class companies and determines how those companies achieved their performance levels. Once the comparisons is complete, then you combine the best of your process & theirs to develop the best possible performance. 

Clearly said, benchmarks are the “what,” and benchmarking is the “how.” This is completed quantitatively.

Benchmarking practice is not just about making inquiries to other companies and documenting another company’s processes. But Benchmarking is a continuous process by which an enterprise measures and compares all its products, functions, processes, systems & practices against strong competitors, finding quality gaps in the organization leading to beneficial lean transformation, and striving to attain competitive advantage locally & globally.

What Exactly is Benchmark?

Benchmarking is nothing but a bar presenting who is the best in the Industry. So, Attaining a Benchmark Standard or exceeding it would improve & even increase their customer base and loyalty which is directly proportional to their business performance.

Best benchmarking practices refer to behaviors, methods, or systems that shows to generate supreme outcomes; chosen by a systematic process and concluded as ideal, good, or progressively demonstrated. These practices are then adapted to fit a particular organization.  Moreover, Benchmarking is an organize process, we use for recognizing & implementing best practices. Does benchmarking & knowledge of best practices help organizations today? Yes, but with several very important cautions.

Keep in mind the following points, when we talk about Benchmark.

• We should do Types of benchmarking against similar or same Industries – an orange should be compared with an orange and not an apple.
• Find the gaps in the process that will help in identifying the current state as well as create plans by comparing stage-wise performance to attain the required objective.
• Benchmarking should be done on particular metrics that are critical for a product or an organization’s performance. For instance, Cost, Quality, Productivity, etc.
• Identify any potential partners who can cooperatively work towards attaining the Benchmark Standards.
• Obtain all critical best benchmarking practices followed by an organization that has set the Benchmark. This is the key as this will help in comparing as well as strategizing on improving their performances. So, Process Benchmarking is also a Best Practice Benchmarking.

What are 4 Types of Benchmarking?

1. . Competitive or Performance Benchmarking

We use it when a company wants to evaluate its position within its industry. This type of benchmarking is very critical for all Industries. Hence, Performance Benchmarking helps in maintaining a competitive edge in an Industry as high performance directly impacts the business performance of an organization. Certainly, Customers would be more willing towards a company with better performances and this trust restores better business ultimately enabling a better business transformation.

2. Internal Benchmarking

We use It when a company already has accepted and proven best practices and simply needs to share them. Depending on the size of the company, it may be large enough to represent a wide range of performance (i.e., cycle time for opening new accounts in branches coast to coast). So, This benchmarking practices in terms of continuous development of teams and individuals is very beneficial.

3. Strategic Benchmarking

We use it when identifying & analyzing world-class performance. Six Sigma often uses Hoshin Kanri to make sure that all employees are knowledgeable about the strategic direction of the company. Hence, Within a company’s Hoshin plan, objectives establishes relative to benchmarks set by world-class organizations.

4. Process Benchmarking

This applies for a Process that can act as a Centre of Excellence and help an organization to expand their business by capturing similar Processes or outsourcing its Benchmarked process to attain operating cost benefits.

Leader’s Tip
Clearly establish performance measures and targets before beginning the benchmarking process.

Dangers of Benchmarking

• Duplicating errors of the company you are benchmarking against.
• Not establishing a competitive advantage for your company.

Benchmarking against Competitor Research

Competitor research is neither a better nor a worse practice than benchmarking. Also, there are some best benchmarking practices for total quality management in an organization. But there is a difference between the two. Available resources & time will help decide which tool will add the most value. So, The following table represents experience in dealing with the two practices:

• Benchmarking concentrates on Best Practices & Competitor research concentrates on performance measures.
• Benchmarking requires to have a competitive advantage & Competitor research is just simply nice to have.
• Benchmarking practices strives for continuous improvement while Competitor research is just about a quick fix.

Also Read: Top 3 Role of Logistics in a Supply Chain Management

What is the Importance of Benchmarking?

• Measure the effectiveness of past performance.
• improve procedures as well as processes.
• Enhance consumer satisfaction.
• Offers you a better perspective of how the competition operates, which will help you to find best practices to amplify performance.
• Increase efficiency as well as decrease costs, making your business more profitable.

Also See- What are the Core Lean Concepts and Lean Principles?

What is Benchmarking Process– 4 Steps?

In any benchmarking practice process, it is important to follow an organized and structured approach. There are 4 phases in a general benchmarking process – Planning, Analysis, Integration, and Action. And in these 4 phases, there are practical steps that can help any Lean Six Sigma practitioner engaged in a benchmarking process.

1. Planning

Before involving in benchmarking, corporate stakeholders should identify the activities that benchmarked. So, Being the initial phase, this is the crucial phase. Any errors, mistakes, or imperfection in this phase generally affect the rest of the phases. So, the complete process flow needs to give the required consideration. And hence makes the rest of the phases more effective and efficient for favorable lean transformation.

• Identify Subject & Prioritize (What to Benchmark)- Senior management and executives engages in deciding which processes are condemning to the company’s success. This should be the top-down approach of choosing the projects from the processes. The processes should then prioritize based on which metrics are essential to all stakeholders. Then, Customers’ critical-to-quality (CTQ) needs are studied properly to prioritize the best practice benchmarking processes. After prioritizing, select and define the measures you want to collect.
• Decide which Organization to Benchmark- The next step in the process is to decide the organization whose processes will serve as the benchmark. Determine whether you will benchmark practice processes within your own company, a company outside of your industry, or a competitor. The study should complete in many organizations. Information on their processes should collect from various sources & the most suitable organization selected. Ensure that you collect information from many sources to get the most detailed information about the organization you select to study.
• Studying the Superior Process- This step is perhaps the most important & time taking activity in the information gathering process in VUCA. It’s not always easy to gather genuine information even after making a planned & approved visit to another organization because a lot of times the information on processes & procedures followed at another company are confidential. The preparation for gathering essential information has to be planned in such a way that either one visit or a genuine data collection source can provide all the details, within a reasonable period.

Leader’s Tip
) Encourage information exchange and the adoption of best practises from industry leaders to foster a culture of learning and collaboration.

2. Analysis

The analysis phase, consist of 2 steps, involves the analysis of all the information and data gathered in the Planning phase. All the people closest to the process choses for different types of benchmarking should deeply engaged in this phase.

• Finding Reasons & come up with Improved Processes- The project team should find out the reasons for better outcomes from the benchmarked processes. This has to be done after the information from the best-in-class organization has been gathering and analyzing. Depending on the analysis, an improved process should be developed.
• Define Goal for Improved Processes- The next step is to define goals for the improvement of the company’s existing process of business transformation. We can extend these goals that will result in a process even better than the other organization’s best-in-class process.

3. Integration

This phase is a link between the previous 2 stages, Planning & Analysis, and the final phase, Action. If management accepts the outcomes of previous phases, then this phase goes forward. Because acceptance of proposed process revisions by the company is essential for the success of the project, this benchmarking practice phase is important.

• Discuss Findings & Obtain Acceptance– The proposals for the improved processes should be shown to senior management so that you can obtain approval for the proposed changes Until complete approval & commitment are secured, there will be an obstacle in the implementation of the action plans.
• Generate New Functional Objectives- If the proposed revisions to the processes are accepted, the acceptance of the revised functional objectives is the next big step.

4. Action

This is the last phase of the best benchmarking practice process. In this phase, We consider the improvement parts. A final benefit to a company from benchmarking is concludes how well this specific phase has been carried out. 

• Create Action Plan- After the improved process is accepted, make a plan to implement changes that you have identified as being the best to close performance gaps. Your plan include clearly defined goals, timeline, any shortcoming in the completion of the tasks, and what actions to remunerate shortcomings, and written with the company’s culture in mind to help minimize any pushback you may get from employees in VUCA.
• Implement Particular Actions & Monitor Progress- Closely monitor the changes & employee performance. If new processes are not running smoothly as expected, identify areas that need to be transformed. Ensure all employees understand their jobs, are well trained and have the expertise to finish their assigned tasks resulting in quality transformation.

When the process is in place, a full report has to be prepared, highlighting the benefits of the revised process compared with the expectations at the time of approval of the proposed revision of the process.

• Repeat the Process- The successful completion of one project can lead to milestones for the organization transformation. After successfully implementing a new process, it’s time to find other ways to improve. While carrying out the total activities, review the new processes you’re implementing and see if any change is require or not.

When you correctly implement and follow the continuous best benchmarking practice, your company will grow, and you will keep up with (or even surpass) your competitors.

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Final Word

Benchmarking and knowledge of best practices can be utilized by skilled leaders as a manner to wake up complacent organizations when the gap between what is being done and “the best” is distinctly large. In a swift world you need a manner of operating that invents notable numbers of better practices, sometimes even big jumps, and as fast as possible.

4 Best Lean Principles Books

Global Reader’s Click Below:

1. A Factory of One: Applying Lean Principles to Banish Waste and Improve Your Personal Performance
2. The 12 Principles of Manufacturing Excellence: A Lean Leader’s Guide to Achieving and Sustaining Excellence, Second Edition
3. The Lean Six Sigma Pocket Toolbook: A Quick Reference Guide to 100 Tools for Improving Quality and Speed
4. The Lean Turnaround: How Business Leaders Use Lean Principles to Create Value and Transform Their Company

India Reader’s Click below:

1. Lean IT – Principles to Practice: Toyota Way to Create Value for the Customer & Wealth for IT Organization
2. Creating a Lean R&D System: Lean Principles and Approaches for Pharmaceutical and Research-Based Organizations
3. Lean Principles and Application in BPO
4. The Principles of Product Development Flow: Second Generation Lean Product Development

Frequently Asked Questions

Key Takeaways

• By comparing processes, practises, and performance measures, benchmarking can assist discover performance gaps and possibilities for improvement.
• Best practises are tried-and-true approaches or strategies that have consistently produced superior results and can be implemented or changed to improve organisational performance.
• Review and update standards and best practises on a regular basis to remain relevant and maintain a competitive edge in a continuously changing business environment.