Benchmark

The term “benchmark” originally comes from surveying and refers to a measurement marker or a reference point from which something is measured and assessed.

Origin and subject of the benchmarking method

Benchmarking is the comparison and measurement of one’s own products, processes and services with “best practice companies”, i.e. the best competitors or recognised market leaders, in order to learn from this comparison. The aim is to understand the best methods and adapt them for your own company. The aim is not to analyse competitors and their products, but to search for new methods, tools, successes and approaches. This approach is derived from the realisation that potential for improvement in business processes can also be identified by comparing one’s own approaches with those of other companies, whereby the comparable companies should be characterised by a top level in the parameters to be compared. Benchmarking has been around since the end of the 1970s in the USA. The Xerox company in particular developed benchmarking as a new and powerful management method with which competitive advantages could be achieved. Benchmarking became widespread in Europe at the end of the 1980s. Theoretical work and practical application have increased significantly since the early 1990s, particularly in Germany.

Robert C. Camp gives the following working definition of benchmarking: “Benchmarking is the search for the best industry practices that lead to excellence.” From the many different definitions of the term benchmarking that are presented and discussed in the specialist literature, the following important key points can be filtered out:

• Systematic performance comparison based on objective performance criteria
• Identification of best practices
• Strengths/weaknesses analysis
• Defining goals and implementing appropriate measures

Careful planning of benchmarking activities is essential to ensure that the desired information comes from the right sources. The best way to obtain the desired information is to conduct and detail the research in stages. Camp suggests first using questionnaires, then conducting company visits and finally using advanced techniques such as discussion rounds with benchmarking partners. Benchmarking goes beyond the familiar company and operational comparisons, competitive observations and reverse engineering, as it not only focuses on the products, but also includes the services and, above all, the value creation processes.
In order to carry out benchmarking, a systematic approach is required for selecting benchmarking partners and the processes to be analysed, as well as for using the information gathered in one’s own company. In order to illustrate the many possibilities of benchmarking, the following chapter will take a closer look at the various types of benchmarking, benchmarking instruments and a possible benchmarking process.

The four types of benchmarking

A distinction is made between four types of benchmarking. Internal, external, functional and generic benchmarking.

Internal benchmarking

Comparing and analysing processes between different areas of a company or parts of a group or departments is referred to as internal benchmarking. Internal benchmarking is easy to carry out as the relevant data can be easily obtained within the company itself and there are no confidentiality issues. In addition, the data and information are directly suitable for comparison with your own department, as they originate from the same company and the knowledge gained can be easily transferred.

Internal benchmarking is usually used to prepare for external benchmarks, as internal data collection and evaluation can be used to prepare the analysis of differences and to define focal points for the investigation of external practices. At the same time, internal benchmarking measures and documents current practices and processes as well as their performance within the company. The common elements of similar activities are identified and those that should be standardised but are not are isolated. This then leads to initial discussions about what needs to be improved and why. In this way, the internal analysis can be used to define a baseline across all areas of the company, which serves as the basis for an external benchmark.

Large process improvement potentials cannot usually be identified through internal benchmarking, as the processes and products within a company are very similar. However, it is possible to identify an area of best practice within the company and define this internally as a benchmark for other areas of the company. Internal benchmarks also spread the understanding of benchmarking within the company and thus increase the acceptance of this method. In addition, internal benchmarking activities create new contacts between employees of the company, which can improve co-operation between different areas of the company in the future and break down barriers.

External benchmarking

External benchmarking offers the advantage of comparison with practices and technologies of other manufacturers, which can be direct competitors or companies similar to the industry. The prerequisite is the precise definition of the topic and the relevant information requirements. For external benchmarking to work, reciprocity must be taken into account, i.e. the company that is the subject of its own analyses must also be able to benefit from the benchmark, for example by being allowed to examine relevant processes in its own company. Obtaining data could be difficult due to the confidentiality and competitive relevance that is attached to it. The data may be falsified, which could result in misjudgements. When comparing processes, care must be taken to ensure comparability. Direct transferability may already be limited by differences in company size.

External benchmarking is also known as competitive benchmarking.

Functional benchmarking

In functional benchmarking, a specific corporate function, e.g. logistics, is compared within and outside the industry with the top performance of other companies (best in class) in this corporate function. It is important that the compared functions have similar characteristics to those of your own company in order to ensure transferability. Functional benchmarking offers the advantage that the willingness to exchange data between companies is usually higher here than with product benchmarking. This is due to the fact that the partner is also interested in familiarising itself with and understanding processes that are used elsewhere. Experience has also shown that methods from other sectors are more readily accepted, as the investigations are approached on a more objective basis. The “inventive combination and application” of the observed methods and processes results in the desired top performance.

Generic benchmarking

Generic benchmarking covers all areas and processes of a company. For this purpose, operational functional areas are analysed that are found in a large number of industries and different companies. The variety of solutions and concepts found usually results in starting points for increasing efficiency and for innovative solutions. Difficulties arise here from the questionable transferability of the knowledge gained.

Benchmarking process

Various procedures for conducting benchmarking studies are discussed in the literature. These essentially differ in terms of the phases and procedures in the process. Camp proposes a five-phase process that includes the planning phase, analysis phase, integration phase, implementation phase and a maturity phase.

As an example, a process according to Sabisch and Titelnot is presented here in detail, which includes a procedure in four phases that is divided into ten work steps. This process model is shown below and is then explained in more detail based on the authors’ explanations.

Benchmarking process as a process model

The basic step “0” is defined as the procurement and processing of information throughout the entire benchmarking process. This largely determines the level and success of the benchmarking activities. The first process phase is project planning. It includes the work steps of problem recognition and problem analysis (work step 1), as well as the planning of the benchmarking project (work step 2). Recognising and analysing the problem is the starting point for benchmarking. Here, the core problems of the company are identified and described in detail, which represent the most important improvement tasks for the further development of the company. In the problem analysis, the current state of the company is characterised and an initial objective for changing the situation to a new target state is derived. The more thorough the problem analysis is, the more targeted the benchmarking can be in terms of the necessary changes.

In the second step, planning the benchmarking project, the benchmarking object to be compared and the objectives to be achieved must be defined. In this context, it is important to define the measurement criteria and benchmarks for benchmarking. Project managers and the project team are determined, the project schedule is planned and the content-related tasks and responsibilities for internal and external information procurement are defined. The most important aspect of this work step is the acquisition of suitable benchmarking partners.

The second phase of the benchmarking process was named “evaluation” by the authors. In this context, evaluation includes the “measurement of the evaluation criteria for the object in one’s own company as well as for the reference objects included in the comparison”. The content of the evaluation phase is the preparation of the measurement and evaluation, the measurement and evaluation of the company’s own performance as well as the measurement and evaluation of comparable solutions and the identification of best solutions.

The preparation of measurement and evaluation section comprises three work items:

1. Selection of the objects of comparison, i.e. in competitive benchmarking, both leading competitors and companies with the best performance in individual evaluation criteria should be taken into account. In generic benchmarking, care must be taken to include the best solutions for individual functions in the comparison.
2. Selection of evaluation criteria based on the problem analysis.
3. Ensuring the comparability of the objects, whereby the focus is on adequately defining and limiting the scope of the objects to be compared and ensuring a coherent comparison period.

The fourth stage of the benchmarking process involves measuring the company’s own performance as a basis for comparison with the best performance of other companies. This section can be very extensive if no analyses of the company’s own products or processes are available. A thorough self-analysis is essential for tapping into the necessary reserves for improving performance.

The measurement and evaluation of comparable services and the identification of best solutions play a central role in the benchmarking process as the fifth work step. This is where the performance of the benchmarking partners is measured and evaluated and the best solutions are identified.

Target determination of the improvement, the third benchmarking phase, comprises the analysis and preview of the performance development as well as the target determination and planning of the performance improvement. Analysing and forecasting performance development (step 6) involves forecasting the future development of the identified best solutions, as the performance identified in this phase is dynamic in nature. The authors therefore suggest drawing up time series for past performance development and determining factors influencing future performance development. Furthermore, development trends and regularities for important performance parameters should be uncovered and performance gaps or competitive advantages of one’s own company should be identified. In this context, it is important to analyse the causes of the performance differences that occur.

In work stage 7, target definition and performance improvement planning, specific targets for performance improvement are derived from the previous work results by evaluating alternative ways of improving performance and critically analysing the benchmarking results. The best solutions identified must be adapted to the company’s own situation and their implementation in ambitious objectives defined as work tasks.

The implementation of the benchmarking results forms the fourth and final phase of the benchmarking process according to Sabisch and Titelnot. The content is the implementation of the targets determined in work stage 7 and the continuous continuation of benchmarking. The implementation of the targets should be carried out with the involvement of all those involved and the development of an implementation plan, i.e. the definition of projects and training of the employees concerned as well as the establishment of efficient implementation controlling.

Securing lasting learning effects and utilising the potential for improvement inherent in benchmarking is only possible through the continuous continuation of benchmarking. For this reason, this is the subject of the final stage of the benchmarking process. The aim here is to continue the investigations and constantly update the analyses produced.