FORMS OF BENCHMARKING

Formal benchmarking can be classified into four types (Reider, 2000; McNair & Leibfried, 1992):

1 Internal benchmarkinginvolves benchmarking between business units within the same company. For example, a manufacturing plant of Eastman Kodak in Brazil may benchmark its performance against other Kodak plants internationally. This is the simplest form of benchmarking, as access to benchmarking partners is easy to establish. However, it may not provide the world's best benchmarks, as companies outside the business group, including competitors, maybe better performers.

2 Competitive benchmarkinginvolves identifying the strengths and weaknesses of competitors to assist a company in prioritising areas for improvement. The objective is to catch up or surpass the competitors' performance, using continuous improvement processes. However, formal benchmarking access may be difficult to arrange with direct competitors so that companies may rely on external sources for data. An example of competitive benchmarking occurs when a manufacturing company collects data relating to its main competitors to determine how those competitors can manufacture and deliver a product to customers within three days of the customer order.

3 Industry benchmarkinginvolves comparing performance with that of companies that have similar interests and technologies. Because the business and the benchmarking partners may have technological processes in common, performance measures and practices are directly comparable. For example, a retail bank may gather benchmarking data on the new forms of automation used in the financial services industry and the various processes branches use to manage customers. Direct access to companies may be possible if those companies operate in the same business type but compete in different markets. As industries become more globalised and compete directly in the same markets, opportunities of this nature diminish.

4(Page 634)Best-in-class or process benchmarkinginvolves benchmarking against the best practices that occur in any industry. For example, measures of the percentage of deliveries made to customers on time, or of the percentage of rejects, are of interest to managers in many different types of businesses, as are safety practices and measures of human resources practices. The difficulty with this approach is that some characteristics of best-practice businesses may not be common to other companies. For example, a best-practice company may achieve 98 per cent of its deliveries to customers on time because it has only a few major customers who place orders many weeks in advance. Performance measures may not be directly comparable with those of another company that does not have the same advantages. Some businesses try to normalise the measures to make them directly comparable.Normalisationrefers to removing the effects of factors outside the control of the organisation so that narrowing the performance gap is achievable. However, some managers do not do this as, despite differences in technology or processes, the benchmark is still the level of performance that the company needs to achieve.

Research and answer the following questions. Review the document to answer the last question.

1.Describe the Kaplan and Norton balanced scorecard approach to performance measurement.

2.Describe the advantages and limitations of the four type of benchmarking.