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Pros and Cons of Benchmarking

written by: N Nayab•edited by: Linda Richter•updated: 8/14/2010

Benchmarking goes beyond competitive analysis to understanding the competitor’s output and process of obtaining the output. The advantages of benchmarking include enabling organizations to outperform competitors, opening minds to new ideas, and placing organizations in a continuous improvement mode.

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    Advantages of Benchmarking Benchmarking is the systematic process of comparing business processes and performance metrics to industry best practices in terms of quality, time, and cost dimensions, and making such comparisons the basis to do things better, faster, and cheaper.

    First introduced by Xerox Corporation in the mid-1990s, benchmarking is a key tool of business performance management and finds use by enhancing the competitiveness of the organization. It enables organizations to outperform competitors, opens minds to ideas from new sources, and places the organization in a continuous improvement mode. It goes beyond competitive analysis to understanding not just the competitor’s output, but also the process of obtaining such output.

    Image Credit: flickr.com/luistxo eta marije

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    Performance Improvement

    A primary advantage of benchmarking is that it sets the foundation of performance improvement aimed at enhancing competitiveness. By showing how to better competitors, benchmarking ensures the basic survival of the business.

    Benchmarking identifies best practices in key business processes and determines what constitutes superior performance. It then quantifies the gap between the expected performance and the actual state; in the process it drives home uncomfortable facts and harsh realities about the business. This provides the organization with both the reason to improve and a definition of what constitutes improvement.

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    New Paradigms

    A permanent benchmarking program forces organizations out of their comfort zones and provides specific and measurable short-term improvement plans based on current reality rather than historical performance.

    Very often, organizations set goals based on past trends and established internal patterns. Benchmarking helps remove such “paradigm blindness" and forces the organization to take a fresh approach to goal setting based on a broader perspective, including the external perspective, the most critical factor that drives customer expectations.

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    Change

    Benchmarking help place organizational focus on change and provides the direction for the change process.

    Benchmark heralds change by:

    1. Making explicit the competitors' standards that provide the organization with minimum standards of excellence.
    2. Providing new ideas and better ways of doing things.

    Benchmarking opens minds to new ideas, heralding a process of continuous learning that leads to a learning organization.

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    Disadvantages

    A major limitation of benchmarking is that while it helps organizations in measuring the efficiency of their operational metrics, it remains inadequate to measure the overall effectiveness of such metrics. Benchmarking reveals the standards attained by competitors but does not consider the circumstances under which the competitors attained such standards. If the competitor’s goals and visions were flawed or severely restricted due to some specific factor, an organization by benchmarking such standards runs the risk of trying to ape such flawed standards or settling for extremely low standards.

    A bigger disadvantage of benchmarking is the danger of complacency and arrogance. Many organizations tend to relax after excelling beyond competitors' standards, allowing complacency to develop. The realization of having become the industry leader soon leads to arrogance, when considerable scope for further improvements remains.

    Finally, many organizations make the mistake of undertaking benchmarking as a stand-alone activity. Benchmarking is only a means to an end, and it is worthless if not accompanied by a plan to change.

    Comparing the pros and cons of benchmarking, the advantages of benchmarking overshadow disadvantages. The 2008 Global Benchmarking Network survey finds organizations preferring benchmarking over any other performance analysis tools, including SWOT. Most organizations include benchmarking as a part of continuous improvement initiatives such as Total Quality Management and Six Sigma.

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    References

    1. Wood, Brad. 7 Steps to Better Benchmarking. Retrieved from http://bpmmag.net/mag/7-steps-better-benchmarking-0507/index1.html
    2. Boxwell, Robert, J., Jr. (1994). Benchmarking for Competitive Advantage. New York: McGraw-Hill. ISBN 0-07-006899-2.