Benchmarking – Definition, Types and Steps
When you are doing a Six Sigma project, you are trying to take the performance of the process to the highest level. When you want to reduce the defect level, you want to reduce that to that level which the best in class companies have. If you are improving the delivery time, you want to improve it to the level what the best in class companies have. For example, if you are a local restaurant and start doing home delivery and you want to improve the home delivery timing, you want to improve it to the level of Pizza Hut or any other international company.
Definition: What the Benchmarking is?
The process of comparing one’s business processes and performance metrics to industry bests and best practices from other companies.
For example, in the case of a local restaurant, as we talked about, the delivery time is one of the processes or the performance metrics, which you want to improve to industry best.
Types of Benchmarking
Three common types of benchmarking are:
When you want to Benchmark a process, with the best-in-class process, for example, here the delivery process you want to benchmark with the best in class companies’ delivery process.
Example: Delivery process, Billing process
In this type, you want to benchmark the features of a product or service. For example, let’s say if you are a mobile service provider, you want to benchmark your download speed with the best in class.
Features of products and services e.g. mileage, download speed
How your organization competes with others?
Types of Benchmarking
Another way to classify benchmarking could be internal vs external.
If you are doing internal Benchmarking, it means within your organization you have a number of silos, departments, or locations. One specific location or department might be the best in class. For example, if one of your locations has the best delivery time, you want to make sure that all other locations use the same process so that they can also improve their delivery time. So that’s internal Benchmarking when you’re looking inside the company for finding out the best in class. Internal benchmarking is easy because you can have access to sensitive information, which you cannot have in case of an external Benchmarking.
For internal Benchmarking, less time and resources are required.
However, inside your organization, you might not have the world-class process. What you have is just the best within your organization, not the world class, so the gain also might be limited. But it makes sense to do internal benchmarking before you go for external Benchmarking.
So, start with internal Benchmarking and then you can look at external Benchmarking.
Benchmarking Process Steps:
- What function to benchmark (D)
- What is the current performance level (M)
- Select the Best-in-Class (M)
- Compare (A)
- Agree on actions to achieve or beat the Best-in-Class and Implement (I)
- Monitor (C )
Let us understand these seven steps listed above.
- You need to define your Benchmarking project, what is a function to be benchmarked. This is the first step in benchmarking process.
- Next, you look at the current performance level. This is very important when you want to benchmark with an external process. You really need to understand your own process in much more detail, what performance level you are at. Learn about your internal process first before you start jumping to an outside company and trying to follow their process.
- Select the best-in-class process by your studying databases, finding out which company does the best.
- Then you compare that best-in-class process with your existing process.
- Based on the gap analysis done in the above step, you would have a number of actions to bridge the gap between the existing process and the best-in-class process. Identify and prioritize those actions and take those actions.
- Monitor your new process. You might need to update your work processes, work instructions. You might have to provide training to your employees about this new way of working.
- Repeat this process over and over again.
Just like any change, Benchmarking also needs management support. Without management support, your Benchmarking is bound to fail.
The process being benchmarked needs to be aligned with the strategic objectives of the company. These processes which are aligned with the organization’s strategy have a higher chance of success.
Another reason for Benchmarking failure is the lack of resources. This in a way is related to management support.
You need to have a right mix of people on the benchmarking team. This could include people from that particular work process which you want to benchmark, people from Six Sigma team, people who are specialized in change management.
For a successful external benchmarking you need a suitable and willing partner who is willing to share the information. Even for internal benchmarking also you would have to face internal politics, where the departments or the locations do not want to share that information.
The last item in this list of challenges is the willingness to change. The organization should be willing to change.