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Benchmarking Definition and Understanding the Purpose

BenchmarkingBenchmarking is the practice of comparing business processes and performance metrics to industry bests and best practices from other companies. 

It was begun in the late 1970s by Xerox Corporation. That time, Xerox was losing market share and feeling a lot of pressure from its competitors. In an attempt to try and “get back into the game”, Xerox decided to compare its operations to those of its competitors.

After finding quality standards with which to compare itself, Xerox began one of the greatest trends in the business world today (McNair and Leibfried, 1992). source.

 

Benchmarking

Reasons and Perceived benefits of benchmarking.

Benchmarking is the process by which companies look at the “best” in the industry and try to imitate their styles and processes.

This helps companies to determine what they could be doing better.

  • Strategic tool: A company’s competitors may be stuck in the same rut as the company deciding to benchmark. It would be possible to get a jump on competitors by using new-found strategies.
  • Enhance learning: It is overcoming disbelief and enhancing learning.
  • Growth potential: It may cause a necessary change in the culture of an organization.
  • Assessment of performance tool: Benchmarking is defined as “the process of identifying and learning from best practices anywhere in the world” (Allan, 1997). By identifying the “best” practices, organizations know where they stand in relation to other companies.
  • Continuous improvement tool: It is increasing in popularity as a tool for continuous improvement. Organizations that faithfully use benchmarking strategies achieve a cost savings of 30 to 40 percent or more.
  • Vehicle to improve performance: It acts as a vehicle to improve performance by assisting in setting achievable goals that have already been proven successful.

 

Types of Benchmarking

There are four different types of benchmarking which consist of –

  1. Internal benchmarking,
  2. Competitive benchmarking,
  3. Functional or industry benchmarking, and
  4. Process or generic benchmarking.

Before deciding to benchmark, a company needs to determine what it is they want to benchmark.

 

Benchmarking

A new organization or factory with short capital base may substantially develop its productivity and efficiency by following strategy, management, techniques, technology, etc. of the topmost and advanced organization under this sector.

An advanced organization generally possess vast experience, resource, capital, research base, technology, technical and managerial human resource base which a new or domestic organization may seriously lack.

A topmost or foreign-based organization may have enough resources to spend on research and innovation in different spheres of work. This a new or domestic organization may not afford. Experience and expertise of the topmost organization can’t be assimilated within a short span of time except by benchmarking.

It said to assimilate by an organization the best practices of the most advanced and successful organizations in the same or relevant field. This is very commonly known as “follow the leaders in your field”.

Assimilating the best practices from leaders in the field is the easiest and cheapest way of gathering technique, technology, management practice, know-how, strategic planning, quality & production management, cost management, etc.

 

The local organization suffers, from intrinsic limitations. Examples –

  • They don’t have long term strategic planning
  • Lacking in the quality management system
  • Failure in providing technology-oriented training of workers, employees, etc.
  • Lacking in product or service improvement technique
  • Failure in effective continuous improvement in all ways of work
  • Unskilled manpower recruitment and development policy
  • Failure in implementing full safety and protection system
  • Failures in introducing supply chain system
  • Failure in introducing a system of internal audit cost reduction system etc.

All above-mentioned factors may make a competitive edge in the most competitive era of modern business. On all this factor organization have a good chance to follow the most advanced and successful organization in the respective field. This method delivers in a very short time.

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About Mohammed Ahaduzzaman

Mr. Zaman is a Founder and Freelance Writer @ BBALectures Blog! Blogging is his passion. He loves writing on Entrepreneurship, Finances, Accounting, HR and Business Issues. By profession, He serving as Accounting Professional at Zaman Accounting.

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