Benchmarking
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Benchmarking is a process that allows to measure how a company is performing against top-performing organizations worldwide. By doing so, companies gain insights into the practices and strategies that set these outstanding companies apart.
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Benchmarking
- 1. CITOOLKIT Benchmarking The Impact of Benchmarking on Performance and Continuous Improvement
- 2. citoolkit.com Benchmarking Definitions A systematic approach for measuring products, services, processes, and performance against high-performing organizations or other entities to understand and adopt their successful strategies and practices. Benchmarking 2 One of the common practices in the business world today. Aims to learn from the best and continuously improving performance.
- 3. citoolkit.com Benchmarking and Continuous Improvement Benchmarking 3 Should be viewed as one of the primary tools for achieving continuous improvement Should be integrated into quality and operational excellence activities
- 4. citoolkit.com Benchmark A benchmark typically refers to a point of reference or standard used for comparison to assess the performance or success of something during the benchmarking exercise. Benchmark 1 Benchmark 2 Benchmark 3 Performance It serves as a basis for improvement or evaluation Benchmarking 4
- 5. citoolkit.com Uses and Benefits Benchmarking 5 Companies can use such information to develop improvement plans and adopt specific best practices. A valuable resource for various purposes, including designing, redesigning, and improving processes. Mainly used to better understand how outstanding companies operate. Helps in establishing quantitative improvement goals.
- 6. citoolkit.com What to Benchmark? Benchmarking involves the measurement of their strategies, practices, processes, and procedures and allows companies to gain valuable insights to improve their own. Benchmarking 6 Financials Processes Services Strategies Operations Products Procedures Performance Practices
- 7. citoolkit.com Benchmarking Types Benchmarking 7 • Uses top-performing units within a company as examples for improvement. • Relies on easily accessible internal data, encourages collaboration, and supports long-term continuous improvement. Internal Benchmarking • Provides a broader perspective and enables companies to stay competitive and adopt innovative practices. • Serves as a valuable tool for companies seeking to enhance their strategies and operations by learning from the successes of others. External Benchmarking
- 8. citoolkit.com Internal Benchmarking Example Operations managers can learn from the best-performing production lines in their facility to implement and replicate successful practices. Benchmarking 8
- 9. citoolkit.com External benchmarking can further be categorized as . . . Benchmarking 9 When the company compares its performance with direct industry competitors COMPETITIVE If a group of companies carry out the benchmarking exercise collaboratively COLLABORATIVE When comparing with industry leaders or organizations that excel beyond direct competitors or industries WORLD-CLASS World-class organizations are also referred to as best-in-class, high-performing, and outstanding organizations.
- 10. citoolkit.com Competitive Benchmarking Companies usually assess their own progress over time, which is helpful for understanding internal improvements. However, it doesn't reveal how competitors are doing. There is a possibility that the company may fall behind or be outpaced in the market. Keep a close eye on the successes and performance of rival companies to remain competitive. Benchmarking 10
- 11. citoolkit.com Benchmarking Types Benchmarking 11 External Benchmarking Competitive Strategic* Functional* Financial Process* Product Collaborative Strategic* Functional* Financial Process* Product World Class Strategic* Process* Functional* Product Internal Benchmarking Process Functional Product * This type is usually not industry specific which means that one can study other industries.
- 12. citoolkit.com Additional details for each type of benchmarking . . . Benchmarking 12 Strategic Benchmarking • Benchmarking may be conducted at the higher level to assess strategic approaches. • Aims to enhance the competitive advantage, performance, and overall strategic effectiveness. Financial Benchmarking • Evaluates the financial performance in comparison with external entities. • Aims to evaluate the financial health, efficiency, and effectiveness of the company by assessing key financial indicators such as profitability and liquidity. Product Benchmarking • The assessment of a product's competitive position by comparing it with industry benchmarks. • Normally conducted during the design of new products or the upgrading of existing products. Functional Benchmarking • Focuses on a single function, like human resources, purchasing or information technology. • Aims to compare and analyze performance, processes, and best practices of the chosen function within a company against external benchmarks. Process Benchmarking • Allows to streamline and enhance processes that may span multiple functions. • Involves activity analysis and often focuses on aspects such as quality, efficiency, cost and overall effectiveness.
- 13. citoolkit.com Performance Benchmarking Benchmarking 13 Strategic Benchmarking • Benchmarking may be conducted at the higher level to assess strategic approaches. • Aims to enhance the competitive advantage, performance, and overall strategic effectiveness. Financial Benchmarking • Evaluates the financial performance in comparison with external entities. • Aims to evaluate the financial health, efficiency, and effectiveness of the company by assessing key financial indicators such as profitability and liquidity. Product Benchmarking • The assessment of a product's competitive position by comparing it with industry benchmarks. • Normally conducted during the design of new products or the upgrading of existing products. Functional Benchmarking • Focuses on a single function, like human resources, purchasing or information technology. • Aims to compare and analyze the performance, processes, and best practices of the chosen function within a company against external benchmarks. Process Benchmarking • Allows to streamline and enhance processes that may span multiple functions. • Involves activity analysis and often focuses on aspects such as quality, efficiency, cost and overall effectiveness. Performance Benchmarking • A generic term, where all the previous types of external and internal benchmarking involve performance benchmarking. • Compares performance metrics, practices, and outcomes and helps identifying areas for improvement and adopting best practices.
- 14. citoolkit.com Beyond Industry Boundaries Some types of benchmarking are not limited to a particular industry, which means that one can consider other industries when conducting a benchmarking study. Benchmarking 14 Benchmarking can go beyond industry boundaries allowing companies to adopt successful practices from different sectors to improve their operations. An electronic company can improve its inventory and supply chains processes by looking at how a logistics company handles its processes. A healthcare facility can enhance patient appointment scheduling by exploring airline reservation systems.
- 15. citoolkit.com Benchmarking Can be Implemented at the national level In recent years, Chinese businesses have actively adopted benchmarking to learn from global best practices and improve their own operations. This allows them to identify successful strategies, adopt cutting-edge technologies, and optimize their business models. Benchmarking 15
- 16. citoolkit.com Data and Data Collection Data collection in benchmarking activities is essential as it . . . Benchmarking 16 DATA Allows for a thorough comparison with the selected benchmarks Provides valuable insights into the performance among the different entities
- 17. citoolkit.com Data Collection Challenges Collecting data can sometimes be challenging due to various reasons . . . Benchmarking 17 Difficulties in accessing relevant information Complexities in data sources Limitations in the availability of accurate and comprehensive data Data privacy concerns
- 18. citoolkit.com Professional Researchers Consulting Firms Internal Teams Benchmarking Agencies The Internet There are many organizations who facilitate and provide benchmarking information for the public or for sale in a business setting The Internet is also considered a valuable and free source of benchmarking data Data Sources Benchmarking data are typically gathered by: Benchmarking 18 Internal teams within an organization Professional researchers Consulting firms with expertise in the field
- 19. citoolkit.com Performance Metrics Identifying performance metrics before starting the benchmarking activity is important to ensure a focused, relevant, and measurable approach. Benchmarking 19 Typical performance metrics often considered include . . . Defect level Cycle time Service response time Return on investment Cost per unit Customer satisfaction
- 20. citoolkit.com How to Conduct a Benchmarking Exercise While there is no universally adopted benchmarking approach, the following four stages can assist in conducting a benchmarking exercise. Planning Data Collecting Analyzing Acting Note: Benchmarking can be performed as a one-time effort, but it is ideally conducted on a continuous basis. In such ongoing process, companies should continually strive to enhance their performance and practices, especially in the face of growing competition. Benchmarking 20
- 21. citoolkit.com How to Conduct a Benchmarking Exercise Benchmarking 21 Form a dedicated benchmarking team • Determine the specific function, product, or process to be benchmarked. • Identify relevant performance metrics for the benchmarking analysis. • Identify data sources, partners, or companies for comparison. Planning Data Collecting Analyzing Acting
- 22. citoolkit.com How to Conduct a Benchmarking Exercise Benchmarking 22 Utilize appropriate methods to collect benchmarking data • Collect data from data sources. Planning Data Collecting Analyzing Acting
- 23. citoolkit.com How to Conduct a Benchmarking Exercise Benchmarking 23 Determine current performance gaps and their root causes Planning Data Collecting Analyzing Acting Our Performance World Class Competitor 1 Competitor 2 • Bar charts simplify benchmarking data presentation by visually comparing performance metrics.
- 24. citoolkit.com How to Conduct a Benchmarking Exercise Benchmarking 24 Set goals and develop plans based on the analysis findings. • Put plans into action to fill the performance gaps. • Monitor progress continuously. Planning Data Collecting Analyzing Acting
- 25. citoolkit.com Benchmarking Identification Template This template can be used to identify companies for comparison as a preliminary step before starting an in-depth benchmarking exercise. Benchmarking 25 Feature or Metric → Benchmark 1 2 3 4 5 Company 1 Company 2 Company 3 Company 4
- 26. citoolkit.com Further Information – Useful Tools A range of useful tools and research techniques may be required to conduct a benchmarking study . . . Benchmarking 26 Informal conversations KPIs review Financial ratio analysis Interviews Focus groups Surveys & questionnaires Process mapping Observations Re-engineering analysis Quantitative research QC variance reports Marketing research
- 27. citoolkit.com Further Information – Benchmarking and Six Sigma Within the DMAIC framework of Six Sigma projects, benchmarking can play an important role across the various phases. Benchmarking 27 Define Phase Benchmarking supports the selection of the improvement project and helps in establishing a performance baseline. Measure Phase Benchmarking evaluates the possibility of improving the existing process. Improve Phase Benchmarking helps in identifying successful strategies and practices to serve as a foundation for the intended improvement. DEFINE MEASURE ANALYZE IMPROVE CONTROL
- 28. citoolkit.com Further Information - Cost of Benchmarking Benchmarking is only useful if the study's cost doesn’t exceed the expected benefits. If the benchmarking is to be conducted by an internal team within the company, costs may involve: Benchmarking 28 Time costs Such as research time and time of visits Data costs Such as maintaining a database of best practices Visit costs Such as travel and lost labor time Utilizing internet resources can significantly reduce costs.
- 29. citoolkit.com Further Information - Limitations of Benchmarking 1. The benchmarking process is time-consuming and costly. 2. Selecting the target company to be benchmarked may be challenging. 3. Successful benchmarking requires significant commitment. 4. Variations in metric definitions may vary among companies. 5. Companies may be reluctant to share information due to fear of revealing competitive advantages. 6. Some projects may face obstacles due to the 'they are different from us' syndrome 7. Benchmarking is viewed as a study or research without providing ready-made solutions. Benchmarking 29
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