Benchmarking - An introduction

Benchmarking is key to achieving business excellence; that is excellence in management practices and business results. Benchmarking provides a systematic process for identifying and implementing better or best practices. Why spend time in re-inventing the wheel when you can learn from the experience of others?

Studies of the practices of New Zealand and Australian organisations (Australian Manufacturing Council, 1994, Ministry of Commerce, 1999, Ministry of Economic Development, 2002) have indicated the importance of benchmarking. The 1994 report stated that benchmarking was the single practice that clearly separated high and low performing firms and the 2002 report found that benchmarking against a competitor provided the most important source of information and ideas for innovative firms. The reports noted that leading firms were using benchmarking to go beyond competitor analysis to find better practices, innovative ideas and effective operating procedures, comparing their performance with a wide range of firms, within their industry and worldwide. Recent evidence of the importance of benchmarking comes from the latest Pricewaterhouse Coopers (PWC) Trendsetter Barometer Survey (PWC, 2003). The survey involved interviewing the CEOs of 405 Product and Service companies that had been identified in the media as the fastest growing U.S. businesses over the last five years. The results showed that Benchmarking-database users have distinguished themselves with superior performance compared to the rest. They have achieved 69 percent faster growth, and 45% greater productivity.

There are two main categories of benchmarking, and their definitions and the differences between them can be summarised as follows:

  • Performance/competitive benchmarking involves comparing the performance levels of organisations for a specific process or activity.
  • In best practice benchmarking organisations search for and study other organisations that are high performers in particular areas of interest. Best practice benchmarking includes the whole process of identifying, capturing, analysing, and implementing best practices.

Whilst the benefits of benchmarking are proven, the scarcity of organisations using the technique is of concern. Within New Zealand only 2% of organisations were undertaking best practice benchmarking, with 48% undertaking performance benchmarking. As best practice benchmarking is recognised as one of the key approaches necessary to achieve world-class performance this very likely explains why only two NZ organisations have been assessed as world-class (Telecom Directories and Toyota Thames) since the CPE was introduced into New Zealand in 1993.


References

1. MED (2002a), Firm Foundations 2002: A study of New Zealand Business Practices & Performance, Knuckey, S. & Johnston, H. (eds), Ministry for Economic Development, ISBN 0-478-26325-2

2. PWC, (2003), Barometer Surveys: Fast-Growth Companies That Benchmark Grow Faster, Are More Productive Than Their Peers, Link, 12 Sept, PWC




“Fast-growth companies who used a benchmarking database to measure business performance against their peers achieved 69% faster growth and 45% greater productivity over those who did not”.
Pricewaterhouse Coopers 2002 "Trendsetter Barometer" survey
 
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