Benchmarking

Benchmarking compares organisational performance and processes systematically through predefined indicators. Its purpose is to expose the distance between current results and stronger practice, then use that evidence to set better standards and improve how work is performed.

When to use it

The design of a benchmark should follow the decision it needs to support. Typical questions include:

• How well do we perform the work today?
• How does that performance compare with others?
• When another organisation performs better, what practices and conditions explain the difference?

Many exercises compare the organisation with the mean of a peer population, clarifying whether current performance is typical. A more demanding benchmark uses the best performer or top quartile. Connecting those outcome differences with the practices behind them helps identify where improvement activity is most relevant.

Set scope according to the likely organisational impact, the freedom to communicate findings to the people who must act on them, and the effort required to produce evidence useful in practice.

A benchmark identifies where to investigate; it does not automatically explain how to improve. A deviation is not inherently good or bad. Higher training expenditure, for example, may reflect a deliberate investment in skills rather than inefficiency. Understand the strategic and operating reason for the gap before treating it as a problem.

Origins

Performance comparison is ancient, but modern management benchmarking is particularly associated with Xerox in the late 1970s and early 1980s. Under pressure from Japanese competitors, Xerox compared not only product features and costs but also the processes producing superior outcomes. Robert C. Camp led important work at the company and codified the method in his nineteen eighty-nine book Benchmarking: The Search for Industry Best Practices That Lead to Superior Performance. The practice then expanded beyond competitive product comparisons into internal, functional and cross-industry learning.

What it is

Five basic forms can be distinguished:

1. Historical benchmarking compares today’s indicators and results with the organisation’s own performance at an earlier time.
2. Internal benchmarking compares practices and outcomes across parts of the same organisation, such as business units.
3. Competitive benchmarking measures the organisation against direct rivals.
4. Functional benchmarking compares a function with similar functions across a broader industry group.
5. Generic benchmarking looks across unrelated industries for practices that represent an overall standard of excellence.

Each type can reveal strengths and weaknesses, make problems visible, indicate improvement opportunities and introduce new norms, practices or ideas. Its objectivity depends, however, on consistent definitions, reliable data and appropriate comparators.

Methods differ in how well they account for situational characteristics and other explanatory factors. Some also incorporate forward-looking trends, emerging practices and industry-specific implementation issues.