Types of Benchmarking
Generally, one can distinguish among three types of Benchmarking, which are found throughout Europe and the world.
The Benchmarking of Companies has been spread most widely. Here, companies learn from another; they compare index numbers and exchange information about Benchmarking objects.
The Benchmarking of Sectors compares the performances of individual sectors. The goal is to learn from other sectors which, according to certain criteria, perform better.
Against the background of the developing European Union, the Benchmarking of the Environment gains increasing importance. In the future, countries can compare the political, social or economic environment. This will enable them to learn from each other.
The following chapter focuses on Benchmarking of Companies. This type of Benchmarking can be divided into internal and external Benchmarking.
Internal Benchmarking is the simplest type of Benchmarking. Users do not have to pay attention to any external restrictions. In internal Benchmarking, organizations attempt to learn from their own structures. They study and compare similar processes throughout different areas to obtain information on the available efficiency.
In internal Benchmarking, management looks at the inside. It is necessary to record and display the current work processes and practices objectively. This reveals the necessary details to focus the available resources on those aspects that need restructuring.
Internal Benchmarking is often used to acquaint oneself with the method and to utilize this knowledge in external Benchmarking projects.
It is hardly ever possible to find internal processes that can really be compared with each other. The processes are usually characterized by technological, organizational and personal influences and are targeted on ancillary plants or departments.
This method is used when comparing several plants or parts of a company within a corporation. Users can thus identify weaknesses as well as the best practice within the organization. Compared to company-specific Benchmarking, the comparability is much higher: In principle, the possibility to find potential areas for improvements is, therefore, higher. Corporation-specific Benchmarking is an objective and sound preparation of external Benchmarking and an assessment of the current position. It also helps to improve the internal communication and motivation.
Benchmarking is a method to look to the outside. Here, the practices of the own company are compared with the practices of external companies. Comparison implies that there must be basic similarities. These similarities must be identified before Benchmarking. Only if this has happened, the company can conduct a valid comparison and identify potential areas for improvement /Mertins et al. 1993/. Good preparation is helpful if the skeptics, that are often found in Benchmarking projects, shall be productive.
Competitive analysis should be regarded as an instrument to reveal information on the current and future activities of competitors, their strengths and weaknesses and their possible reactions to changes in the market. The competitive analysis allows a comparison with companies that set the standard in the relevant corporate activities. However, it only focuses on direct competitors. With market-specific Benchmarking companies can learn from their competitors; they can introduce improvements and keep an eye on the market objectively. The external impulses prevent the prevalent complacency and bureaucracy, therefore, supporting the conviction that one is always able to be just a little better.
The essential difference between competitive analysis and Benchmarking is the direct exchange of information between the companies and the initiation of a mutual learning process. A prevailing problem is the unwillingness to share information with a competitor. The Benchmarking code of conduct states certain rules for this situation, in practice, however, it is usually still difficult to talk constructively.
Industry-specific Benchmarking goes beyond the simple comparison of two companies. It focuses on trends and studies the efficiency of a certain function industry-wide. It is necessary to study many more companies than in the case of Benchmarking with competitors. Industry-specific Benchmarking looks for trends instead of competitive positions. It serves to analyze the efficiency of subsystems. However, the differences between industry-specific and market-specific Benchmarking are vague: There is no clear attribute signifying that a goal-directed study ends and trend analysis begins. Compared with market-specific Benchmarking, the essential advantage of industry-specific Benchmarking is the lack of an immediate competitive situation. The Benchmarking partners act on different markets. Usually, the transfer of information is thus easier. Additionally, many companies are in the same line of business. When comparing processes, there will be many similar characteristics, an aspect that is inevitable for successful Benchmarking.
The key to the long-term success of a company is not equality but superiority. Companies want to find out how the ‚best‘ companies meet their standards and adapt and apply the lessons learned from those approaches and ideas to meet and exceed those standards. This is why Benchmarking focuses on the best. Irrespective of the particular industry, and regardless of the source, the ‘inferior’ company seeks new, innovative practices. It attempts to find and apply the best practices in order to modify the practices that are available in the own organization innovatively. To measure success against external criteria implies developing an idea of the best performance. The goal is to raise the company to a new level of performance.
Benchmarking with the best in class is guided by the conviction that the value-adding process throughout many different institutions is based on similar features. Independent Benchmarking is compellingly Benchmarking of business processes. A clear definition of the process that should be compared is a mandatory prerequisite. During the definition stage, the project team is often able to identify incipient weak points and develop appropriate improvement measures. This is a considerable motivational factor, particularly for the participants.