Various Types of Benchmarking:
Benchmarking is a very versatile tool that can be applied in a variety of ways to meet a range of requirements for improvement.
Different terms are used to distinguish the various ways of applying benchmarking. The first word in each term relates to either the type of partner or the purpose for benchmarking. At the outset of benchmarking projects, it is vital to be clear on exactly what is to be achieved through benchmarking and apply an appropriate methodology.
Standard benchmarking terms include:
1. Strategic Benchmarking
2. Performance Benchmarking or Competitive Benchmarking
3. Process Benchmarking
4. Functional Benchmarking or Generic Benchmarking
5. Internal Benchmarking
6. External Benchmarking
7. International Benchmarking
1. Strategic Benchmarking is used where organisations seek to improve their overall performance by examining the long-term strategies and general approaches that have enabled high-performers to succeed. It involves considering high level aspects such as core competencies, developing new products and services; changing the balance of activities; and improving capabilities for dealing with changes in the background environment. The changes resulting from this type of benchmarking may be difficult to implement and the benefits are likely to take a long time to materialise.
2. Performance Benchmarking or Competitive Benchmarking is used where organisations consider their positions in relation to performance characteristics of key products and services. Benchmarking partners are drawn from the same sector. However, in the commercial world, it is common for companies to undertake this type of benchmarking through trade associations or third parties to protect confidentiality.
3. Process Benchmarking is used when the focus is on improving specific critical processes and operations. Benchmarking partners are sought from best practice organisations that perform similar work or deliver similar services. Process benchmarking invariably involves producing process maps to facilitate comparison and analysis. This type of benchmarking can result in benefits in the short term.
4. Functional Benchmarking or Generic Benchmarking is used when organisations look to benchmark with partners drawn from different business sectors or areas of activity to find ways of improving similar functions or work processes. This sort of benchmarking can lead to innovation and dramatic improvements.
5. Internal Benchmarking involves seeking partners from within the same organisation, for example, from business units located in different areas. The main advantages of internal benchmarking are that access to sensitive data and information are easier; standardised data is often readily available; and, usually less time and resources are needed. There may be fewer barriers to implementation as practices may be relatively easy to transfer across the same organisation. However, real innovation may be lacking and best in class performance is more likely to be found through external benchmarking.
6. External Benchmarking involves seeking outside organisations that are known to be best in class. External benchmarking provides opportunities of learning from those who are at the leading edge, although it must be remembered that not every best practice solution can be transferred to others. In addition, this type of benchmarking may take up more time and resource to ensure the comparability of data and information, the credibility of the findings and the development of sound recommendations. External learning is also often slower because of the ‘not invented here’ syndrome.
7. International Benchmarking is used where partners are sought from other countries because best practitioners are located elsewhere in the world and/or there are too few benchmarking partners within the same country to produce valid results. Globalisation and advances in information technology are increasing opportunities for international projects. However, these can take more time and resources to set up and implement and the results may need careful analysis due to national differences. An International Benchmarking Methodology Framework and Aide Memoire can be downloaded here (.DOC format, 23KB).
8. Competitive benchmarking
Some authors call benchmarking “best practices benchmarking” or “process benchmarking”. This is to distinguish it from what they call “competitive benchmarking”. Competitive benchmarking is used in competitor analysis. When researching your direct competitors you also research the best company in the industry (even if it serves a different location or market segment and is therefore not a direct competitor). This benchmark company is then used as a standard of comparison when assessing your direct competition and yourself.
9. Collaborative benchmarking
Benchmarking, originally invented as a formal process by Rank Xerox, is usually carried out by individual companies. Sometimes it may be carried out collaboratively by groups of companies (e.g. subsidiaries of a multinational in different countries). One example is that of the Dutch municipally-owned water supply companies, which have carried out a voluntary collaborative benchmarking process since 1997 through their industry association VEWIN.