Learn about the Benchmarking process and its importance for a company!

Have you ever missed a tool for comparing performance between your company and other organizations? Strategic benchmarking is exactly what you are looking for.

Being of enormous importance for business processes, benchmarking studies has already become an absolute rule for those who aim for the top of their business line.

If you are interested in using this management technique and don't know where to start, this reading is for you. Follow the topics:

• What is benchmarking?
• How important is benchmarking?
• What are the four types of benchmarking?
• How to do benchmarking?
• How to use benchmarking to set goals?

What is benchmarking?

Benchmarking is the process of measuring performance, comparing your products, processes and methods to those of companies considered to be the best in the field. The big issue in benchmarking is identifying opportunities for improvement.

In other words, it is a widely used resource in the corporate environment to conduct a gap analysis in various areas of a company and set goals for improving results.

Benchmarking can be used both internally and externally to keep the company's continuous process evolving. In Lean Six Sigma, we can use benchmarking in the "Definition" step of the DMAIC method to help define the project theme and goal according to the gap.

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How important is benchmarking?

As we have seen so far, benchmarking is a great management tool. By observing other industry peers, it is possible to identify possibilities for improvement within your own enterprise.

In this way, it is possible to learn from the mistakes and successes of other players in the market.

Don't be fooled into thinking that performance benchmarking is useful only for large companies. This tool can be used by any type of business, regardless of size and market segmentation.

What are the four types of benchmarking?

As you may have noticed, there are several types of benchmarking, among which we can highlight:

1. Competitive benchmarking

Competitive benchmarking is carried out between companies that are in the same industry or sector, usually direct competitors. Here, thorough research will be carried out to conduct data collection about these competitors' processes and performance.

It focuses on measuring performance metrics, methods, and basic characteristics of production, analyzing what your company can do to reach the level of excellence of the organization being treated as a reference.

Due to the difficulty in obtaining this data, this type of benchmarking is one of the most difficult to put into practice.

After all, no successful company will open the secrets of this success, on the contrary, they will hide these secrets in any way they can, bringing only the most trivial information to public knowledge.

It is important to remember that this process of obtaining data must be done legally. Ethics and consistency are two characteristics that cannot be missing during benchmarking.

2. Collaborative benchmarking

Collaborative benchmarking involves a group of institutions studying a certain object, which can be a process, product, or service, to share knowledge and solve common problems.

It is generally performed between non-competing companies and is based on the principle that benchmarks and best practices are not found in the industry itself.

3. Functional benchmarking

Here, processes that are common to any company are evaluated. As an example, we have human resource management.

Due to this characteristic, in this type of benchmarking the comparison can be made with companies from other sectors. Therefore, this improved performance tool has a quick and easy application, if compared to competitive benchmarking.

4. Internal benchmarking

This is, without a doubt, the most common kind of benchmark in an organization focused on continuous improvement. Internal benchmarking is all about comparing historical data within the company itself, focusing on identifying which actions are delivering the best results.

It is done between company departments or business units (branches), being a constant practice of the Lean Manufacturing methodology. As it is carried out within the company and does not generate external research costs, it is quite accessible and simple to perform.

However, it is important to be careful not to get stuck only in this form of benchmarking, as it is limited to the standards defined by the company, thus running the risk that these standards have been already exceeded by competitors.

How to do benchmarking?

To carry out a competitive analysis that works effectively, it is necessary to follow some steps, which we can summarize in five:

1. Conduct an internal analysis

The first step in starting benchmarking is to conduct a thorough analysis of your own internal processes. With this analysis, it is possible to identify which processes are hindering business growth.

Here, you can do internal benchmarking before comparing yourself to competitors.

2. Choose your references

At this point, you should conduct research seeking to select who are the great references in the market. Generally, two to three reference companies are chosen, which will be studied in the next step.

3. Gather information from these competitors

After selecting these companies, you must start deep research regarding the internal performance of these competitors.

The metrics used by these companies must be considered, as well as the tactics used by them to achieve the performance shown in the data.

4. Compare the data obtained with your company's

From the data gathered in the performance surveys of your competitors, you can compare it with the information gathered in the internal analysis carried out in the first step.

According to benchmarking, through this comparison, you will be able to identify the performance gaps present in your production processes. Having identified these gaps, we can proceed to the next step.

5. Implement the changes

Having identified your company's performance gaps, it is now necessary to put into practice what makes these reference companies able to present such performance.

To do this, the best way is to make strategic plan, in which a goal will be drawn with the objective of reducing this gap.

How to use benchmarking to set goals?

One of the main focuses of a benchmark is to set goals and find ways to turn a company into an improved business. For this, we will make use of the performance gaps discovered through this benchmarking and, based on them, we will establish a goal.

In a Lean Six Sigma project, every goal must be written with an objective, value and deadline. A good target value to set is to cover 50% of the identified gap in a specified period. To make it easier for you to understand, let's look at an example.

Example 1

The company IronGo produces steel blades for the automotive industry. The results of the scrap generation indicator show, on average, 99 lbs/ton of final product.

Recently, the company compared market information and noticed that the competitor considered as a reference works with the same indicator at around 33 lbs/ton.

What would be a good goal to set?

Well, in a Lean Six Sigma project, a good goal would be to reduce the scrap generation gap by 50% in a period of 4 months, for example. Therefore, we would reduce scrap generation from 99 lbs/ton to 66 lbs/ton.

Were you able to understand the application of benchmarking in projecting goals? How about one more example, now showing the financial impact of this? Keep reading!

Example 2

ConnectLu is a large outsourcing company, with more than 7 thousand employees in five cities in the Southeast. An annual survey indicated that the company's turnover is 9.5% and each percentage point represents a cost of US$ 120,000.00.

Recently, the company hired a Director with years of experience in the Telephony segment, who defined an annual turnover of 2.5% as benchmarking.

What should be the goal for a Lean Six Sigma project to reduce the turnover rate? What would be the financial gain of the project based on the stipulated goal?

Once again, we are going to set a target of 50% of the gap, that is, we are going to reduce turnover by 3.5% in a period of 12 months. Let's get to the data:

• Current performance: 9.5%
• Benchmarking: 2.5%
• 50% of the performance gap: 3.5%
• Reduce the company's annual turnover from 9.5% to 6% in a 12-month period.

As each percentage point represents a cost of US$40,000.00, therefore, if we are able to apply this goal, we will have a financial gain given by:

Financial Gain = 3.5 % * US$ 40,000.00 = US$ 1400,000.00

So, did you see the considerable impact that benchmarking has on a company? So, it needs to be a constant practice in every organization that aims to reach the top!

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