Different Benchmarking Types

This section explores the classification of benchmarking types being very complicated and more or less artificial named according to the classifier. The section will reveal that a generally accepted, uniform methodology does not exist. In practice the benchmarking process often seems to be a mixture of several benchmarking types. However, in developing and examining the benchmarking process and educating organizations in using it, a vocabulary for description and separating different alternatives is needed. This will become obvious also later when presenting a new benchmarking model.

Bendell et al. (1993) divide benchmarking types to four categories, which have their own advantages and disadvantages. Internal benchmarking involves making comparisons with other parts of the same organization. It can be with other departments, other sites, other companies within the same group, either in the same country or abroad. This type of benchmarking is usually straightforward to arrange and fairly common. It is relatively easy to obtain all the information necessary for a good comparison to be made. However, it is unlikely to yield improvements, which meet world best practice. Competitor benchmarking is much more difficult. Any information obtained is likely to be very relevant but, for reasons of

75 confidentiality, it will be almost impossible to get a full picture of how a direct competitor operates. Looking at outputs and available figures can give some information, but they can also mislead if the processes that deliver the outputs cannot be determined. Some of the larger organizations, however, do exchange information in selected areas in the interest of jointly coming to terms with best practice. Functional benchmarking involves making comparisons with typically non-competitive organizations, which carry out the same functional activity that one is interested in. Examples are warehousing, procurement, catering etc. This type of benchmarking has several advantages: functional leaders are easy to identify in many areas; confidentiality is not usually an issue; approaches, which may be novel for ones industry can be discovered; two-way partnerships can be developed. Weighing against these is likely to be problems in adopting and adapting their practices for ones operation. Generic benchmarking goes step further and may compare business processes, which cut across various functions and in quite different industries. Opportunities discovered by this process are likely to be the most innovative and to create breakthroughs for unprecedented improvements. However, the integration of novel concepts into a different industry is also likely to be the most challenging.

The corresponding division among the benchmarking types can be found in many other benchmarking books e.g. Hannus (1994) and Camp (1989) and almost the same division without the last, generic benchmarking is described by Karlöf (1995). Tuominen (1997) divides the benchmarking types according to an object in comparison. Also he describes four types of benchmarking: strategic benchmarking, product benchmarking, process benchmarking and know-how benchmarking.

Reider (2000) makes a division to two main benchmarking types. The idea is that after performing internal benchmarking by analyzing company’s existing practices, the organization goes on with external benchmarking. External benchmarking consists of comparing company operations to other organizations in some kind of formal study such as competitive benchmarking, industry benchmarking and Best-in-Class benchmarking. Industry benchmarking corresponds to functional benchmarking and Best-in-Class benchmarking corresponds to generic benchmarking in the types mentioned earlier.

Boxwell (1994) mentions three common categories of benchmarking into which most of the benchmarking that is taken place across the world falls; competitive, co-operative and collaborative benchmarking. Also Boxwell considers competitive benchmarking as the most difficult form of benchmarking because, as its name suggests, target companies are not usually interested in helping the benchmarking team. Competitive benchmarking means measuring functions, processes, activities, products, or services against those of competitors and improving

76 the own ones so that they are, ideally, the best-in-class but, at a minimum, better than those of the competitors. Collecting and analyzing data about the competitor is a fairly straightforward, though time-consuming, process. After collection of the data, the most important is to use it and learn from it the information, which have positive effects on their performance.

According to Boxwell (1994), cooperative and collaborative benchmarking are the most talked-about forms of benchmarking because they are relatively easy to practice, because they make interesting news copy, and because teams engaged in competitive benchmarking usually do not tell about it. In cooperative benchmarking, an organization that desires to improve a particular activity through benchmarking contacts best-in-class firms and asks them if they are willing to share knowledge with the benchmarking team. The target companies are usually not direct competitors of the benchmarking company, which is a key factor in securing cooperation. In cooperative benchmarking, the knowledge usually flows in one direction – from the target companies to the benchmarking company. Although the benchmarking team often offers to provide the target companies with some benefit in return, the targets typically give more than they receive.

Boxwell (1994) goes on with collaborative benchmarking in which a group of firms share knowledge about a particular activity, all hoping to improve based upon what they learn. There are collaborative efforts that have produced great results. One consortium that includes Arthur Andersen, Eastman-Kodak, and Xerox, among others, has been sharing data and knowledge in a number of areas, with many positive gains to show for it.

Jackson et al. (2000a) think that all schemes for classifying benchmarking activities are somewhat artificial because many exercises contain elements of different classifications. Nevertheless, classification is useful in developing a conceptual understanding of processes and purposes, and in creating a vocabulary to describe and distinguish between different types of activity. Therefore, Jackson (1998) classifies benchmarking activities according to the nature of the referencing processes that underpin the activity (Jackson, 1998) and/or whether the process is:

− implicit or explicit

− conducted as an independent or a collaborative exercise − internal or external to an organization

− focused on the whole process (vertical benchmarking) or part of a process as it magnifies itself across different functional units (horizontal benchmarking)

77 − based on quantitative and/or qualitative methods.

Schofield (1998) classifies benchmarking activities according to whether the activity is implicit i.e. a by-product of information-gathering exercises such as survey undertaken by a national agency or explicit i.e. a deliberate and structured process to facilitate comparison and identify directions for change that will lead to improvement. Explicit is the type of benchmarking usually discussed.

Independent benchmarking is considered when there are instances, where a single institution or administrative unit within an institution wishes to compare its own practice and performance against information in the public domain or a customized database provided by an external agency or consultant. Collaborative benchmarking involves the active participation of two or more organizations or organizational units in a formal structured process that facilitates comparison of agreed practices, processes or performance. (Jackson et al., 2000a)

Fig. 4.2 Classification of benchmarking (Jackson et al., 2000a, p.8)

Camp’s (1989) and Reider’s (2000) division to internal and external benchmarking is on the vertical axis in Figure 4.2. External benchmarking including three other benchmarking types; competitive, functional and generic benchmarking, is further refined by external competitive and external collaborative benchmarking offered by Schofield (1998) (Figure 4.3).

Internal

Independent Collaborative

78 Fig. 4.3 Typology of externally focused benchmarking activities (Jackson et al., 2000a, p.9)

Benchmarking can be focused on a single business process or incorporate a number of processes that collectively enable a function to be discharged. Alstete (1995) classifies benchmarking processes into vertical and horizontal components (Figure 4.4). Vertical benchmarking aims to quantify or qualitatively understand work processes in a discrete functional area. In contrast, horizontal benchmarking examines work processes that cross-cut the functional areas and organizational units.

Fig. 4.4 Nature of benchmarking activities (Jackson et al., 2000a, p.9)

A classification can be done according to what extent a benchmarking process uses quantitative and qualitative methods. In many cases, however, the complexity of interacting variables and the particularities of context require a mixture of quantitative and qualitative approaches. Benchmarking can be focused on the process and/or the inputs into and outputs

Functional Competitive Collaborative Generic Vertical Qualitative Quantitative Horizontal

79 from the process. Many benchmarking exercises, however, seek to understand the relationships between inputs, process and outcomes. (Jackson et al., 2000a)

As the previous section explores, the classification of benchmarking types is very complicated and more or less artificial named according to the classifier. A generally accepted, uniform methodology does not exist. In practice the benchmarking process is often a mixture of several benchmarking types. However, in developing and examining the benchmarking process and educating organizations in using it, a vocabulary for description and separating different alternatives is needed. This will become obvious later when presenting a new benchmarking model consisting of different types. Before that the different concepts will be used in presenting some useful practice models.