What Are the Analytical Foundations of the Management Technique Referred to as Benchmarking - Coursework Example

Benchmarking Introduction Contemporary business and market environments are characterized by increased cut throat competition which is coupled by turbulent and shifting political, economical, technological, environmental, legal, financial, cultural and social forces which necessitates modern firms and institutions to increasingly adapt and be flexible to these changes in order to sustain their competitiveness and remain successful. Patterns towards globalization demands that organizations are not only effectively managed but also are highly adaptable and outward oriented. The flexibility to changes and effective planning and implementation of change processes can be achieved through benchmarking as stated by Voss, Ahlstrom, & Blackmon (1997, p. 2). Alternatively, benchmarking is an essential component in the process of setting goals and designing performance objectives which helps in attaining improved performance and productivity. Benchmarking refers to the process where organizations weigh their operational processes and their performance metrics against the industry’s best. This definition is further expounded by Andersen (1999, p. 287) who defines benchmarking as a process entailing core elements of measurement, when a firm measures its own and benchmark partner’s performance for comparison and registering improvements, comparison, of level of performance, business practices and processes, learning, from what the best are doing and introducing similar or superior improvements and Improvement, which forms the aim of undertaking a benchmarking exercise (Andersen, 1999, p. 288). Among variables that are compared and contrasted includes time efficiency, costs and quality produced. During the process of benchmarking, the top management establishes the best performing organization within or even across industries where comparable processes are utilized and then the organization compares the performance, outcomes and processes their own performance, outcomes and processes (Larry, 2003, p. 8). This helps the organization in understanding what the best in the industry are doing different that makes them different thus, changing accordingly. Simply put, benchmarking entails establishing who is the very best, analysing who creates the standards and understanding what the standards are (Larry, 2003, p. 8). This report seeks to examine what are the analytical foundations of benchmarking are and evaluate whether these foundations place any limitations on its applicability. Why benchmark? Benchmarking process focuses not merely on results, products and services, but also on process issues. This is echoed by Peppard (1999, p. 299) who indicates that processes are building blocks of organizations and help in capturing natural workflows. Prior to fully analysing analytical foundations of benchmarking, it is important to establish the reasons why an organization should benchmark. Among the main reasons why an organization should benchmark is because they are able to understand what the standards of performance and productivity are and hence, they are effectively able to measure up their performance and business processes, it is able to continuously learn, and it helps create a critical attitude towards one’s own business processes and performance as discussed by Andersen (1999, p. 288). In addition, through benchmarking, an organization understands who the active and prospective competitors are, and they are able to acquire new insights as they compare their policies, standards, ideologies, performance measures and processes against the world’s or industry’s best. However, organizations need to be keen not to misinterpret the concept as noted by Monkhouse (1995, p. 41). Among other reasons why organization should invest in the process includes identifying better and superior means of satisfying the needs, meeting demands and exceeding the preferences and expectations of the customers, it is a lucrative means of gathering innovative ideas and organizations are able to identify its strengths and capitalize on them and identify its weaknesses and problem areas and work on ameliorating or eliminating them as supported by Larry (2003, pg. 8). In addition, it helps firms to prioritize improvement prospects, acts as a baseline for measuring performance, helps in enhancing performance expectations and finally, organizations are better placed to continually improve its business processes and performance as indicated by Kozak & Rimmington (1998, p. 185). As discussed by Smith, & Tuggle (1993, p. 43), benchmarking differs from competitive comparison analysis since competitive comparison analysis collects data on attained organizational outcomes, analyses what has already occurred, compares processes and performance within an industry, is company-focused, its objective is understand the industry, is intended to be competitive and is selective and independent. On the other hand, benchmarking collects data on how the industry’s best attained the said outcomes, analyses how things are done, compares processes and performance within and across the industry, is not necessarily competitive, is customer-focused, its aim is to gain process knowledge and permits sharing and is co-operative in nature (Smith, Ritter & Tuggle, 1993, p. 43). The analytical foundations of benchmarking Not all benchmarking is necessarily competitive even though it is relative since it can be used in varied ways to attain a variety of needs for improvement. Important to note is that prior to starting the benchmarking processes, it is crucial to be precisely clear on the goals and objectives of benchmarking in order to apply the right type of benchmarking. Although benchmarking is an essential tool for strategic management for both large and small enterprises, small enterprises are reluctant to apply it owing to cost and time constraints despite the fact that they are better placed to incorporate innovation and new processes in contrast to their counterparts who are often deterred by bureaucracy. Primarily, benchmarking involves more than merely collecting data on a firm’s level of performance and efficiency; it extends to developing new innovations, perspectives and means of enhancing processes in both service and manufacturing industries. The concept of benchmarking is based on the need for organizations to continuously improve the quality of its business processes and enhance its performance in order to effectively and efficiently meet the needs of the customer and is also founded on the increased desire to produce quality the first time and every time and is centred on mutual aspect of sharing and cooperation among industry’s players as highlighted by DeVito & Morisson (2000, pg. 56). Moreover, the process is intended to extend beyond goal setting to focusing on processes and practices that generate higher performance. It is entails developing partnerships which permits continuous learning among the parties and competitors are able to engage in the process provided they shun from proprietary challenges. According to Andersen (1999, p. 290), conducting a benchmarking study entails activities vital to analysing and understanding one’s own processes, identifying benchmarking partners, evaluating processes adopted by the benchmarking partners, identifying existing variance among one’s own processes and those of the benchmarking partners and implementing improvement dependent on learnt lessons from the benchmarking partners. As earlier stated, benchmarking is variedly used to accomplish different objectives and is used differently based on whom it is evaluated against and what is being weighed. In addition, varied terms are used to define various ways of applying the process. Among the varied types and methods of benchmarking which forms part of the analytical foundation of benchmarking process are namely Strategic benchmarking This method is utilized intents to enhance performance in all the aspects of its business by analysing sustainable strategies and action plans which allows industry’s best to succeed. The method entails factoring in essential elements like core competences is, new product and service developments, implementing changes in processes and enhancing the capacity and flexibility to internal and external changes. The types of changes that are generated by strategic benchmarking are hard to apply and it takes more time to realize the benefits. Competitive benchmarking Competitive Benchmarking also referred to as Performance Benchmarking is applied where organizations seek to compare against its best direct rivals within the same industry or sector. The organizations compare their positions relative to performance aspects of key brands (Andersen, 1999, p. 288). Process Benchmarking This type of benchmarking is applied where organizations seeks to realize benefits in the short term and intends to enhance particular vital business processes and operations. Often, benchmarking partners in this method are derived from best practice firms that undertake related functions or provide comparable products and services (Andersen, 1999, p. 287). It is essential to generate process maps in order to carry out the comparison and assessment exercise. External Benchmarking In this type of benchmarking, benchmarking partners are sought from the outside best firms, where organizations are able to learn from the best in class, although it consumes substantial amounts of time and resources while comparing information and verifying the authenticity and reliability of the results and developing effective conclusions and recommendations (Andersen, 1999, p. 287). As organizations learn the best practice results, it is essential for the comparing firm to realize that not all best practice resolutions are transferable. Internal Benchmarking The internal benchmarking technique entails focusing on varied performance levels within an organization and applying the same to other functional units within the organization. For instance, when a firm has two or more manufacturing plants producing similar products, it can use internal benchmarking to evaluate the best performing areas in each of the plants and thereafter transfer the best performance attributes to other operations of the firm, which helps in bringing all aspects of the firm’s operations up to the best internal operational levels (Andersen, 1999, p. 289). It is important however, to ensure the analysis process takes into considerations that there exists differences in operations and therefore, processes and performance features should be transferred to suitable areas with closer similarity with the best performing areas. The internal benchmarking technique is overly advantageous to organizations as it is not only cost effective and easy for the management to get access to all information needed, but also it does the method does not the organization to offer anything to competitors and other benchmarking partners from the outside (Andersen, 1999, p. 289). The method is essential in helping organizations identify areas that are performing poorly and where the weak points are and helps in bringing all operations to a higher performance level. Nevertheless, the method is limited in that internal practices are inadequate in countering external pressures as the organization needs to look at the broader external picture to know what the needs of the external environment are and hence, enhance performance in operations accordingly. Often, it is difficult to get radical solutions from focusing internally making external benchmarking favourable (Andersen, 1999, p. 289). A common ground for all the highlighted methods and types of benchmarking is that the processes helps in identifying drivers of superior performance, examining the gaps between the performance of the bench marker with that of the best practicing firm, helps generate understanding and sharing of best practices in fundamental processes and are essential in constructing basis for enhancing performance. Regardless of the type and method of benchmarking used, it is essentially fundamental to not only comprehensively prepare but also engage and involve all the relevant stakeholders such as employees, top management, business partners and benchmarking partners in the whole process of comparing, analysing the results and in compiling conclusions and recommendations (Larry, 2003, p. 8). Organizations that are able to effectively and adequately engage all the relevant teams during the whole process of benchmarking are better placed to enhance understanding and agreement on actual problem areas, learn new practices utilized and results being attained and helps empower and inspire the participating parties to take ownership of benchmarking goals and objectives and join forces internally and therefore, exceed external benchmarks (Larry, 2003, p. 8). Development of benchmarking The concept of benchmarking was established as a means to obtain and sustains one’s competitive edge. Based on a study conducted by Monkhouse (1995), majority of SME managers perceive the process as worth while and expects its use to extend significantly. The author states “managers of smaller organizations have absolutely no hesitation in recognizing the potential of benchmarking as a tool for articulating and sharing their vision and for providing individuals with a clear sense of purpose, and a clear sense of what is possible, in their work’ (Monkhouse 1995, p. 47 ). As discussed by Peppard (1999, p. 299), majority of organizations such as UK based Assembly TEC company have in the past depended on procedures and work practices and IT integration to enhance work efficiency and performance. However, the author notes that modern firms and institutions are adopting a process perspective to ensure effective and efficient production and delivery of quality products and services to their customers. Process perspective entails analysing how orders are fulfilled, new products are created and how marketing strategies are developed without considering functional limits or specialization Peppard (1999, p. 300). As the author indicates, benchmarking entails the process of re-engineering. Xerox Corporation is reputed as the pioneer of the process in the late 1970s in the US. Initially, benchmarking was limited to finished brands where the organizations whose brands were being analysed were unaware the process was being undertaken (Alberta, p.2). Previously, the private sector was eager and implemented benchmarking processes where organizations benefited from improbable partnerships as illustrated by Xerox comparing its processes with L.L. Bean, and Motorola, learning from Domino Pizza among others (Alberta, p.2). Later on, the public sector embraced the process as illustrated by Milwaukee fire department measuring up to its equal Oregon, New York City Transit Authority benchmarked with Federal Express and the U.S. Mint benchmarking with Lenox China and Black and Decker among others (Alberta, p.2). The benchmarking processes was previously constrained in the manufacturing industry but would later be integrated in the service sector as service industries and organizations sought to enhance the efficiency and effectiveness of their operational and business processes and at the same time , improve the performance of their workforce (Alberta, p. 3). The benchmarking process cycle Benchmarking is not a one time thing but is a continuous process that involves various steps. It is essentially important that a structured methodology is developed while facilitating the benchmarking process in a view to have a thorough and reliable analysis. The process needs to be flexible enough to integrate and accommodate new and novel ways of acquiring hard to get information (Andersen, 1999, p. 291). The benchmarking process is focused on discovering and learning and allows organizations view its processes and performance using an external view. Bauer, Tanner, and Neely (2004, p. 17) indicates that the benchmarking process is undertaken through five stages namely planning, collecting, analysing, adapting and reviewing. According to Andersen (1999, p. 291), the planning phase in the benchmarking process entails choosing the process to be compared against, creating a benchmarking team or partner, understanding and documenting the process to be compared against and identifying processes that influence known problem areas. The second phase is the analysis which involves identifying existing performance gaps and projecting future levels of performance. During this phase the firm seeks to find out who the best in the industry, understanding why they are better and assessing how best practices by the benchmarking partners can be integrated into the organization’s processes (Andersen, 1999, p. 291). The third phase is integration where the organization communicates the findings of the benchmarking process to all relevant stakeholders to gain support, dedication and ownership and generating acceptance and functional objectives are created (Bauer, Tanner, and Neely, 2004, pg. 17). The fourth phase is referred to as the action where the benchmarking firm create plan of actions, it implements particular actions and evaluates progress and it recalibrates benchmarks. Finally, there is the maturity phase of the benchmarking process where leadership status is achieved, best practices becomes fully incorporated into the firm’s operational processes and performance. Despite the numerous gains derived by firms from the benchmarking process, there exist some limitations which organizations applying benchmarking needs to be aware. As organizations learn from others, they rarely develop new and enhanced strategies and approaches which means reduced sustainability of their competitiveness (Alberta, p.14). Therefore, the processes should be applied as a secondary plan for improvement. In addition, the processes requires substantial amount of time to carry out, is costly to implement and is dependent on commitment and sharing among benchmarking partners which is often hard to achieve owing to competitive sensitivity. There are benchmarking costs which includes visit costs, time costs and benchmarking data base costs, which are obtained from creation and maintenance of a database of best practices and their respective organizations linked with each (Bauer, Tanner, and Neely, 2004, p. 17). Case study of consortium benchmarking Often different stakeholders in varied sectors and industries are engaged in consortium benchmarking. Consortium benchmarking is a participative case study approach where stakeholders create an association and mutually benchmark best practices (Zairi, 1996, p. 257). The concept entails the consortium members being co-partners and analysts where efforts and inputs generated inform the benchmarking process since the concept gathers information from varied sources and utilizes different benchmarking techniques based on the situation. Legal and Ethical considerations Initially due to limited knowledge on the benchmarking process, many managers perceived the process as a n attempt by competitors to generate as much information from benchmarking partners without giving anything in return (Andersen, 1999, p. 290). This was perceived unethical. However, the perceptions were ill based since benchmarking involves generating mutual benefits for the benchmarking partners. Be it as it may, there is a thin line and benchmarking organizations needs to be keen to ensure their processes are ethically acceptable. Do these foundations place any limitations on its applicability? The analytical foundations ranging from various types of benchmarking, its applicability in manufacturing and the service industries, to its utilization in private and public sectors and existing legal and ethical implications do not place any limitations to the effectiveness and applicability of benchmarking. For instance, the concept of consortium benchmarking is beneficial as it generates clarity and agreement on the scope of the benchmarking process which helps in establishing support and helps generate results which can be replicated instantly, there is better quality solutions as consortium members help generate them, helps develop operational definitions of measures and establish the most effective type of benchmarking format to use such as metric, process or practice as implied by (Zairi, 1996, p. 257). In regards to legal implications and to ensure every benchmarking organization does not fall prey to competitive sensitivity which compromises on the benchmarking process, there are ethical guidelines that have been established which helps firms in knowing what to do in varied circumstances which are simplified by Andersen (1999, p. 290) “… Do to your benchmarking partners as you want them do to you,” And ‘If you are in doubt whether an activity is legal or ethically justified, refrain from it. Among other legal issues linked to the process is industrial espionage, which are effectively dealt with by organizations being knowledgeable on current legislation that restrict applying benchmarking (Andersen, 1999, pg. 290). The benchmarking process is bound to elicit ethical fears on reliability of benchmarking partners to mutually coordinate with the aim of improvement (Boulter, 2003, p. 528). Be it as it may, not all benchmarking processes and practices are successful owing to one reason or another. Successful benchmarking is continuous, periodic and focuses on mutual benefiting for the benchmarking organizations. Importantly, the process of benchmarking should be applied to a firm’s critical success processes. Benchmarking should therefore be purposive in nature, outward focused, measurable, fair and helps initiate actions. Successful benchmarking is easier said than done since it is bound to encounter varied challenges and obstacles such as un-preparedness, poor planning and evaluation, high costs for implementation, inadequate knowledge on how to carry out the process and inability to understand how to use collected data to enhance performance and lack of mutual interests and collaboration among benchmarking teams and partners. In addition, incapacity to identify and source benchmarking partners. Lack of reliable and accurate information, ineffective communication, poor training and loss of focus are some of the other barriers to successful benchmarking. Having varied types and methods of benchmarking as highlighted in the report, do not limit applicability of benchmarking in fact what it does, is offer firms the flexibility and an option to choose from. Firms select a type or a method based on what they want to accomplish and the suitability of the benchmarking method or type in the sector or industry the firm is founded. The five steps of the benchmarking process ensure a systematic application of the process which safeguard from duplication of tasks and helps the firm to track its benchmarking. Conclusively, the analytical foundations do not place any limitations to the applicability of benchmarking. Conclusion Benchmarking is an essential tool for modern firms and institutions that seek to enhance the performance of its workforce, enhance effectiveness and efficiency of its operational and business processes and meet the rising demands and changing needs of their customers. Benchmarking provides an opportunity for organizations to continually learn from the best and thus improve their sustainable competitive advantage. Benchmarking refers to the process where organizations weigh their operational processes and their performance metrics against the industry’s best. The report has examined what are the analytical foundations of benchmarking and evaluated whether these foundations place any limitations on its applicability. Benchmarking is fundamental to organizations because it helps in identifying better and superior means of satisfying the needs, meeting demands and exceeding the preferences and expectations of the customers, it is a lucrative means of gathering innovative ideas and organizations are able to identify its strengths and capitalize on them and identify its weaknesses and problem areas and work on ameliorating or eliminating them. Works Cited Alberta. Benchmarking best practices; Module 2. An overview for workshop participants. Accessible from http://www.finance.alberta.ca/publications/measuring/results_oriented/module2_overview.pdf Andersen, B. Industrial benchmarking for competitive advantage. Human Systems Management, 18 (3/4), 1999, 287-296. Bauer, J., Tanner, S.I. and Neely, A. Developing a performance measurement audit template- a benchmarking study. Measuring Business Excellence, 8 (4), 2004, 17-25. Boulter, L. Legal issues in benchmarking; Benchmarking. 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Marketing Management, 2(3), 1993, pp 43-49. Voss, C., Ahlstrom, P., & Blackmon, K. Benchmarking and Operational Performance: Some Empirical Results. International Journal of Operations and Production Management, 17(10), 1997, pp1046-1059. Zairi, .M. Effective benchmarking: learning from the best. New York: Springer, 1996. Read More