Topic Gateway Series Benchmarking

Benchmarking
Topic Gateway Series No. 11

Prepared by Liz Murby and Technical Information Service Revised November 2008
Topic Gateway Series Benchmarking

About Topic Gateways

Topic Gateways are intended as a refresher or introduction to topics of interest
to CIMA members. They include a basic definition, a brief overview and a fuller
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Topic Gateway Series Benchmarking

Benchmarking
Definition
Benchmarking is defined as:

'Establishment, through data gathering, of target and comparators, that permits

relative levels of performance (and particularly areas of underperformance) to be
identified. Adoption of identified best practices should improve performance.’

'Internal benchmarking: comparing one operating unit or function with another

within the same industry.’

'Functional benchmarking: comparing internal functions with those of the best

external practitioners, regardless of their industry.’ (Also known as operational
benchmarking or generic benchmarking).

'Competitive benchmarking: in which information is gathered about direct

competitors through techniques such as reverse engineering.’

'Strategic benchmarking: type of competitive benchmarking aimed at strategic

action and organisational change.’

CIMA Official Terminology 2005

Additional definitions include:

'A systematic approach to business improvement where best practice is sought

and implemented to improve a process beyond the benchmark performance.’

Department of Trade and Industry

'Benchmarking is simply about making comparisons with others and then

learning the lessons that those comparisons throw up.’

The European Benchmarking Code of Conduct

Context
In the current syllabus, CIMA students will learn and may be examined on this
topic in paper P1 ‘Management Accounting and Performance Evaluation’. Study
systems for these papers are available from CIMA Publishing.
http://books.elsevier.com
[Accessed 7 November 2008]

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Topic Gateway Series Benchmarking

Overview
History and overview
Benchmarking has been around for some time. Its development is most closely
associated with Xerox, which introduced benchmarking in 1983.

Jacobsen and Hillkirk, 1986

A survey by the Open University Business School of more than 700 organisations
in the UK found that 48% had undertaken benchmarking activities.

Holloway, 1999

UK organisations % claiming to be benchmarking

Government 58

Education 62

Health 69

Manufacturing and construction 50

Transport 43

Financial services 33

Services and retailing 36

Other 49

Total across all sectors 48

Source: Holloway et al, 1999

Notable private sector exponents include Britannia Airways, Southwest Airlines

and the International Air Transport Association.

The launch of ‘Best Value’ in the U.K. in the 1990s prompted a sharp rise in
benchmarking activity in public sector organisations. Local Authorities and other
bodies were required to challenge, consult, compare and, if appropriate,
compete in aspects of service provision.

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Topic Gateway Series Benchmarking

Benchmarking in practice
Why benchmark?
Motivation to benchmark arises from a need to satisfy one or more of the
following objectives:

• to show that performance targets can be achieved

• to accelerate and manage change
• to enable process improvement
• to maintain focus on the external environment
• to generate an understanding of world class performance.
For public sector organisations operating under best value, some degree of
comparison of service delivery is required by current legislation. Formal
benchmarking programmes against other organisations provide a means of either
validating current performance levels or identifying process improvements.

In the absence of such legislation, non-commercial organisations may find

benchmarking programmes a useful catalyst for performance improvement.
Equally, benchmarking is often used in the public sector for issues of
accountability.

Scope
Benchmarking may involve either the whole organisation, or a part of it. By
definition, it always requires the involvement of more than one party, or partner.
Each must be willing to identify and share the relevant process based and
performance information.

It is not necessary for benchmarking partners to share similar organisational

characteristics in age, size, industry or operational logic. However, a degree of
trust regarding information disclosure is necessary if benchmarking exercises are
to be valuable.

Benchmarking exercises may be classified as either results based or process

based.

Results benchmarking involves comparison of reported/collected organisation

information elements: e.g. sales levels, defect rates, absenteeism,
debtors/receivables, inventory days, overhead costs or other metric.

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Topic Gateway Series Benchmarking

Process benchmarking refers to the practice of looking ‘behind’ reported

performance results (metrics) and analysing the different internal processes which
generate these.

Through dissection and analysis of process elements, benchmarking partners can

learn from the best in class and adapt their own internal processes to generate
improved results.

What it involves
Benchmarking programmes comprise four steps:

1. Identification and/or calibration of performance gap

2. Clarification of strategic impact of benchmarked process
3. Identification and implementation of process improvements, or strategic
changes in light of 2 (above)
4. Maintain stimulus for continuous improvement.

Problems of benchmarking
Problems of implementing benchmarking programmes and obstacles to deriving
maximum benefit include:

• deciding which activities/processes to benchmark

• identifying ‘best in class’ or other suitable benchmarking partners
• overcoming internal staff resistance
• resource constraints
• overcoming confidentiality issues from either benchmarking partner
• recognising and allowing for performance differences arising from
non-transferable process input elements (for example, employees’
skills/knowledge, organisational structure/culture)
• a tendency to focus on what is currently being done, rather than considering
potential future practices/innovative breakthroughs.

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Successful benchmarking
Measures taken by ‘successful’ benchmarking organisations in managing
benchmarking processes include:

• appointing a knowledgeable and enthusiastic benchmarking ‘champion’

• allowing sufficient authority and resources
• selecting the ‘right’ people (e.g. staff and managers directly involved in the
process) for involvement in benchmarking teams
• ensuring effective co-ordination and communication of information provided
by benchmarking partners
• providing reciprocal information to benchmarking partners – a formal
agreement regarding who will provide what information to whom and by
when may not be essential, but might be considered at the project outset
since it can reduce problems later on
• undertaking generic benchmarking with non-competitor organisations found
through informal networking
• concentrating on observing, describing and interpreting others’ processes.

Benchmarking: the future

The practice can arguably only benefit from increased advances in information,
technology and communications. There is no reason why organisations will not
continue to derive benefit from its adoption for a very long time.

References
Camp, R.C. (1995). Business process benchmarking: finding and implementing
best practices. Wisconsin: ASQC Quality Press

Doganis, R. (1992). Flying off course: the economics of international airlines. 2nd
ed. London: Routledge

Fisher, J.G. (1996). How to improve performance through benchmarking.

London: Kogan Page

Holloway, J.A. et al. (1999). Identifying best practice in benchmarking. London:

CIMA

Jacobsen, G. and Hillkirk, J. (1986). Xerox, American Samurai. New York:

Macmillan

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Topic Gateway Series Benchmarking

Further information
CIMA articles
Cleland, K. Power tool. Financial Management, February 2002, pp 34-35
Available from: www.cimaglobal.com/financialmanagement
[Accessed 7 November 2008]

Cooper, T. Financial fitness: benchmark the total cost of your function. CIMA
Insight, December 2006. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Cooper, T. Benchmark your closing time with financial fitness. CIMA Insight,
November 2006. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Cooper, T. Win a red letter day with financial fitness. CIMA Insight, October
2006. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Cooper, T. Financial fitness: pepping up your payroll. CIMA Insight, September

2006. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Higgins, Lisa. Financial fitness: upping the performance of your finance function.
CIMA Insight, June 2006. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Higgins, L. Benchmarking research shows large gaps in cost and productivity.

CIMA Insight, September 2005. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Higgins, L. Finance benchmarking research shows major cost gaps. CIMA Insight,
August 2005. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Higgins, L. Financial fitness: upping the performance of your finance function.

CIMA Insight, June 2006. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

Marr, B. Research reveals methods needed for good benchmarking. CIMA

Insight, April 2004. Available from: www.cimaglobal.com/insight
[Accessed 7 November 2008].

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Topic Gateway Series Benchmarking

Articles
Full text from Business Source Corporate available from:
www.cimaglobal.com/mycima
[Accessed 7 November 2008]

Batchelor, R. Metrics that matter: benchmarking. Franchising World, October

2006, Volume 38, Issue 10, pp 37-40

Bearden, F. Practice benchmarks for suitability. Advisor Today, November 2006,

Volume 101, Issue 11, pp 70-72

Charan, R. Ending the CEO succession crisis. Harvard Business Review, February
2005, Volume 83, Issue 2, pp 72-81

Clemmon, D. Benchmarking performance. Internal Auditor, December 2007,

Volume 64, Issue 6, pp 76-77

Francis, J. Benchmarking: get the gain without the pain. Supply Chain
Management Review, April 2008, Volume 12, Issue 3, pp 22-29

Higgins, L. F and A benchmarking. Business Credit, November/December 2006,

Volume 108, Issue 10, pp 63-64

Newman, K. Treasury benchmarking: what’s getting in the way. Financial

Executive, September 2007, Volume 23, Issue 7, p. 21

Prahalad, C.K., Ross, M. and Hamel, G. Strategic intent. Harvard Business Review,
July 2005, Volume 83, Issue 7/8, pp 141-161

Solnik, C. Benchmarking reveals industry best practices. Long Island Business

News, 05/09/2008, Volume 55, Issue 44, pp 32A-33A

Tesch, T. and Levy, A. Measuring service line success: the new model for
benchmarking. Healthcare Financial Management, July 2008, Volume 62, Issue 7,
pp 68-74

Tucker, F., Seymour, M. Z. and Camp, R. How to measure yourself against the
best. Harvard Business Review, January/February 1987, Volume 65, Issue 1,
pp 8-10

Tucker, F. Gaither and Zivan, Seymour, M. A Xerox cost center imitates a profit
center. Harvard Business Review, May/June 1985, Volume 65, Issue 3,
pp 168-174

DSO Benchmarking, Credit Management, August 2008, pp 38-39

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Topic Gateway Series Benchmarking

Supply Chain Benchmarking, Healthcare Financial Management, August 2008,

Volume 62, Issue 8, p. 124

Articles
Abstract only from Business Source Corporate available from:
www.cimaglobal.com/mycima
[Accessed 7 November 2008]

Hatten, K. and Rosenthal, S. Managing the process-centred enterprise. Long

Range Planning, June 1999, Volume 32, No. 3, pp 293-310

Leknes, H. and Carr, C. Globalisation, international configurations and strategic

implications: the case of retailing. Long Range Planning, February 2004, Volume
37, No. 1, pp 29-29

Tennant, C. Roberts, P. and Kanri, H. Implementing the catchball process. Long

Range Planning, June 2001, Volume 34, No. 3, pp 287-308

Books
Bowerman, M. (2001). Authorities on benchmarking: the state of benchmarking
in UK Local Government. London: CIMA Publishing

Ghobadian, A. (2001). Benchmarking: concept and practice with particular

reference to the finance function. London: CIMA Publishing

Keehley, P. and Abercombie, N. (2008). Benchmarking in the public and non

profit sectors: best practice for achieving performance breakthroughs. 2nd ed.
San Francisco: Jossey-Bass

Lennon, J. et al. (2005). Benchmarking national tourism organisations and

agencies: understanding best performance. Kidlington: Elsevier Science.
(Advances in Tourism Research)

Peters, R.W. (2006). Maintenance benchmarking and best practices: a profit- and
customer-centred approach. New York; London: McGraw-Hill

Watson, G.H. (2007). Strategic benchmarking reloaded with Six Sigma: improve
your company’s performance with global best practice. Hoboken, NJ: Wiley

Zairi, M. (1996). Benchmarking for best practice. Oxford: Butterworth Heinemann

Zairi, M. (1998). Effective management of benchmarking projects. Oxford:

Butterworth Heinemann

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Topic Gateway Series Benchmarking

CIMA Mastercourses
Performance measurement and benchmarking: principles and practice. To
book www.cimamastercourses.com please go to Find and key in the course
code PMCI.

Websites
About Business and Finance Management
Website with a benchmarking page.
Available from: http://digbig.com/4xtxe
[Accessed 7 November 2008]

Benchnet - the Benchmarking Exchange

The Benchmarking Exchange is the electronic benchmarking and bench mark
network. Available from: www.benchnet.com
[Accessed 7 November 2008]

The Benchmarking Network

International resource for business process research and metrics.
Available from: www.benchmarkingnetwork.com
[Accessed 7 November 2008]

You may be able to obtain further information by joining a benchmarking club.

The Best Practice Club is a UK based organisation. Further details can be found
on their website.
Available from: http://digbig.com/4xtxf
[Accessed 7 November 2008]

Global Benchmarking Council

A US based research network.
Available from: http://digbig.com/4xtxg
[Accessed 7 November 2008]

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Topic Gateway Series
Copyright ©CIMA 2006
First published in 2006 by:
The Chartered Institute
of Management Accountants
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United Kingdom
Printed in Great Britain
Benchmarking
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