Benchmarking is a technique that uses quantitative or qualitative data to make comparisons between different organizations or different sections of organizations. Benchmarking is usually treated as a continuous process in which organizations periodically measure, challenge, and improve their practices.
BENCHMARKING A term now often used to describe performance assessment is benchmarking, which seeks to assess the competencies of an organization against “best in class” wherever that is to be found. Often this taken to mean only measures of output performance which can be defined in quantitative term (comparison of financial performance, key financial ratio and other measure of output such as market share, production throughput). However there are also more qualitative less tangible feature of performance which result on quality or satisfaction such as attitude towards customers. Assessment of these features is more difficult and it can only be done by direct observation or surveying user. Benchmarking should include quantitative and qualitative measure of performance and its emphasize should be on continuous quality improvement.
There are two kinds of Benchmarking – Internal Benchmarking and External Benchmarking.
Internal Benchmarking
Most organizations monitor their own performance in order to identify change in key business activities over time. This may mean looking at the performance of the organization as a whole or comparing the performance of difficult individual teams or business unit with each other. Performance monitoring is continuous process. Those with an interest in an organization’s business (shareholder, analyst, management, etc.) will wish to compare result over time in order to reveal trends in business performance.
This is the only way to discern whether performance is in line with expectations. Management will be interested in far more then overall organizational performance. Manager will asses the performance of individual activities involved not just a business unit. Part of this process will involve regular analysis of performance against target e.g. financial performance budget, sales and production achievement against target.
External Benchmarking
This involves comparing performance with that of other organizations. Organizations need to decide:
- What activities or other dimension of the organization should be compared with others?
- Who the other organizations should be?
How information on other organizations can be obtained? In reality external benchmarking can be time consuming and be hampered by the difficulty of obtaining relevant information .There are also problems of finding comparable organizations to bench mark against. Nevertheless, most organization will wish to asses their own performance relatives to industry norm. They could do this with reference to industry averages or the time performance of best performing organization. However a danger in relying solely in industry norm analysis is that industry may itself perform badly. Obviously the scope of cross industry comparison will be more limited but could relate, for example the employee cost or to research and development expenditure.
Perhaps a good example of how to conduct bench marking exercise comes from Xerox Company. It has following 10 steps which are to be followed according to the sequence in which they are presented:
- Identify what is to be benchmarked.
- Identify comparable companies.
- Determine data collection methods and collect data.
- Determine current performance levels.
- Project future performance levels.
- Communicate benchmark results and gain acceptance.
- Establish functional goals.
- Develop action plans.
- Implement action plans and monitor progress.
- Recalibrate benchmarks.
Like general benchmarking, HR benchmarking is extremely important. When information on HR performance has been gathered, it must be compared to a standard, which is a model or measure against which something is compared to determine its performance level. For example, it is meaningless to know that organizational turnover rate is 75% if the turnover rates at comparable organizations are unknown. HR benchmarking compares specific measures of performance against data on those measures in other “best practices” organizations. HR professionals interested in benchmarking try to locate organizations that do certain activities particularly well and thus become the “benchmarks.” HR Benchmarking is useful for following reasons:
- An organization can identify how its HR practices compare with the best practices.
- It helps organizations learn what type of HR practices work and they can be successfully implemented.
- They provide a basis for reviewing existing HR practices and developing new practices.
- They also help managers to establish a strategy and set priorities for HR practices.
Some of the common benchmarked performance measures in HR management are:
- Total compensation as a percentage of net income before taxes
- Per cent of management positions filled internally
- Rupee sales per employee
- Benefits as a percentage of payroll cost
Managers need to consider several things when benchmarking. Managers must gather information about internal processes to serve as a comparison for best practices. It is also important to clearly identify the purpose of benchmarking and the practice to be benchmarked, and as with most quality approaches, upper-level management needs to be committed to the project. Both qualitative and quantitative data should be collected because descriptions of programmers and how they operate are as valuable as knowing how best practices contributed to the bottom line.
To ensure the broadest information possible, managers should be careful to gather data from the companies both within and outside their industry. Benchmarking may actually limit a company’s performance if the goal is only to learn and copy what competitors have done and not to consider various options to improve their process. It is also important not to view HR practices in isolation from each other. For example, examining recruitment practices also requires consideration on company’s emphasis on use of the company’s staffing strategy. Benchmarking will not provide “right” answer. The information collected needs to be considered in terms of the context of the companies. Finally, benchmarking is one part of an improvement process. As a result, use of the information gathered from benchmarking needs to be considered in the broader framework of organizational change.
