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What means Benchmarking?

2017-06-30T18:35:51+00:00

The term 'Benchmarking' is included in the Economics edition of the Financial Dictionary. It's available on mazon in Kindle or Paperback version. See more details here.

Benchmarking is a practice favored across many different industries and individual corporations. It refers to the idea of making a comparison between one’s own company, processes, and operations against competing businesses within the entire market or only the businesses’ own sector of the market. Companies can carry out this activity utilizing processes, products, approaches, or functions. There are a range of comparison points in such initiatives. Some of the most common include measuring quality, time, customer satisfaction, and effectiveness versus cost.

The goal and idea behind this Benchmarking lies in comparing and contrasting a company’s own internal operations as measured against the competitors’ own. It aims to create suggestions for bettering approaches, processes, and technologies in order to lower business costs, build up customer satisfaction and brand loyalty, and boost revenues and profits. This Benchmarking proves to be a critical component of initiatives for constantly boosting quality, as with Six Sigma.

There are many reasons that drive companies to benchmark. They often start with the idea that one of their approaches to business or internal processes may be improved somehow. Other corporations will draw these comparisons with competitors in an effort to discover problems within their own internal product delivery or service quality so that they can obtain a competitive advantage. The ultimate motivation in doing this activity lies in measuring up a company against the market leader or best in class corporation in a given industry. Many times companies will benchmark against corporations that are outstanding examples in a different industry to attempt to copy their success at a particular product, process, or method.

It is always helpful to look at a tangible example of a real world case study to better understand the concept. Southwest Airlines today is an industry-leading airline that did not always boast such a stellar reputation. A number of years ago, they notoriously analyzed the approaches, processes, and speed of delivery from pit crews in car racing. They did this with the goal of obtaining actionable ideas on boosting the time of their turn around on the ground and at the gate. As a result of this famous experiment with benchmarking, Southwest Airlines was successful in revamping their gate cleaning, maintenance, and customer boarding operations which helped the company to save one millions of dollars’ worth of expenses each year.

Corporations which wish to engage in a benchmarking exercise do not have to come up with all of the data on their own. In fact a number of consumer organizations and industries themselves publish their own comparative data studies which companies can utilize to do a benchmark initiative. As an example, in the industry of used and new cars, Consumer Reports publishes an incredibly detailed section on the test results of both used and new cars. The fact that companies can often purchase such data means that they can pursue such initiatives without having to spend inordinate amounts of time and effort coming up with the comparison data in the first place.

Companies which are keen to boost their own customer service efforts could choose to compare their personal internal processes and measurements versus the ones which the industry leading success story company boasts. When they determine what their shortcomings are in the metrics, they can then decide to strengthen their processes and overall performance. To do this, the benchmarking corporation will study, consider, and then measure the operations of their successful competitor. They might go so far as to dispatch some of their employees to act as customers of the rival in order to obtain real-world experience in what the other company is doing so exceptionally well.

This means that a fast food restaurant chain which needs fast and accurate drive thru service to be successful would consider the efforts and results of its critical competitors. This is not an arbitrary example as the industry companies are well known for continuously studying and benchmarking against the various other competing companies in the sector. The best example of this is Pal’s Sudden Service. They have won such prestigious awards for their speed and service that they opened an educational institute that now trains the employers and management of other businesses. A number of fast food corporations consider them to be the world class benchmark for themselves and their own operations.

The term 'Benchmarking' is included in the Economics edition of the Financial Dictionary. You can get your copy on mazon in Kindle or Paperback version. See more details here.