Benchmarking

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This article is about the business term. For the geolocating activity, see Benchmarking (geolocating). For other uses of the term, see Benchmark. Benchmarking is the process of comparing the cost, time or quality of what one organization does against what another organization does. The result is often a business case for making changes in order to make improvements. Also referred to as "best practice benchmarking" or "process benchmarking", it is a process used in management and particularly strategic management, in which organizations evaluate various aspects of their processes in relation to best practice, usually within their own sector. This then allows organizations to develop plans on how to make improvements or adopt best practice, usually with the aim of increasing some aspect of performance. Benchmarking may be a one-off event, but is often treated as a continuous process in which organizations continually seek to challenge their practices.

Contents

1 Popularity and benefits from benchmarking 2 Collaborative benchmarking 3 Procedure 4 Cost of benchmarking 5 Technical benchmarking or Product Benchmarking 6 Types of Benchmarking 7 See also 8 References

[edit] Popularity and benefits from benchmarking

In 2008,a comprehensive survey on benchmarking was commissioned by the Global Benchmarking Network(a network of benchmarking centres representing 22 countries and for which the founder of benchmarking, Dr Robert Camp, is the honorary president). Over 450 organisations responded from over 40 countries. The results showed that: 1. Mission and Vision Statements and Customer (Client) Surveys are the most used (by 77% of organisations) of 20 improvement tools, followed by Strengths,

Weaknesses, Opportunities, and Threats SWOT (72%), and Informal Benchmarking (68%). Performance Benchmarking was used by (49%) and Best Practice Benchmarking by (39%). 2. The tools that are likely to increase in popularity the most over the next three years are Performance Benchmarking, Informal Benchmarking, SWOT, and Best Practice Benchmarking. Over 60% of organizations that are not currently using these tools indicated they are likely to use them in the next three years. 3. When Best Practice Benchmarking is done well significant benefits are obtained with 20% of projects resulting in benefits worth US$250,000. The full report is free from BPIR.com who undertook the research on behalf of the GBN.

[edit] Collaborative benchmarking

Benchmarking, originally invented as a formal process by Rank Xerox, is usually carried out by individual companies. Sometimes it may be carried out collaboratively by groups of companies (eg subsidiaries of a multinational in different countries). One example is that of the Dutch municipally-owned water supply companies, which have carried out a voluntary collaborative benchmarking process since 1997 through their industry association. Another example is the UK construction industry which has carried out benchmarking since the late 1990's again through its industry association and with financial support from the UK Government

[edit] Procedure
There is no single benchmarking process that has been universally adopted. The wide appeal and acceptance of benchmarking has led to various benchmarking methodologies emerging. The most prominent methodology is the 12 stage methodology by Robert Camp (who wrote the first book on benchmarking in 1989)[1]. The 12 stage methodology consisted of 1. Select subject ahead 2. Define the process 3. Identify potential partners 4. Identify data sources 5. Collect data and select partners 6. Determine the gap 7. Establish process differences 8. Target future performance 9. Communicate 10. Adjust goal 11. Implement 12. Review/recalibrate. The following is an example of a typical shorter version of the methodology: 1. Identify your problem areas - Because benchmarking can be applied to any business process or function, a range of research techniques may be required. They include: informal conversations with customers, employees, or suppliers; exploratory research techniques such as focus groups; or in-depth marketing research, quantitative research, surveys, questionnaires, re-engineering analysis, process mapping, quality control variance reports, or financial ratio analysis. Before embarking on comparison with other organizations it is essential that you

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know your own organization's function, processes; base lining performance provides a point against which improvement effort can be measured. Identify other industries that have similar processes - For instance if one were interested in improving hand offs in addiction treatment he/she would try to identify other fields that also have hand off challenges. These could include air traffic control, cell phone switching between towers, transfer of patients from surgery to recovery rooms. Identify organizations that are leaders in these areas - Look for the very best in any industry and in any country. Consult customers, suppliers, financial analysts, trade associations, and magazines to determine which companies are worthy of study. Survey companies for measures and practices - Companies target specific business processes using detailed surveys of measures and practices used to identify business process alternatives and leading companies. Surveys are typically masked to protect confidential data by neutral associations and consultants. Visit the "best practice" companies to identify leading edge practices Companies typically agree to mutually exchange information beneficial to all parties in a benchmarking group and share the results within the group. Implement new and improved business practices - Take the leading edge practices and develop implementation plans which include identification of specific opportunities, funding the project and selling the ideas to the organization for the purpose of gaining demonstrated value from the process.

[edit] Cost of benchmarking

Benchmarking is a moderately expensive process, but most organizations find that it more than pays for itself. The three main types of costs are:

Visit Costs - This includes hotel rooms, travel costs, meals, a token gift, and lost labor time. Time Costs - Members of the benchmarking team will be investing time in researching problems, finding exceptional companies to study, visits, and implementation. This will take them away from their regular tasks for part of each day so additional staff might be required. Benchmarking Database Costs - Organizations that institutionalize benchmarking into their daily procedures find it is useful to create and maintain a database of best practices and the companies associated with each best practice now.

The cost of benchmarking can substantially be reduced through utilizing the many internet resources that have sprung up over the last few years. These aim to capture benchmarks and best practices from organizations, business sectors and countries to make the benchmarking process much quicker and cheaper.

[edit] Technical benchmarking or Product Benchmarking

The technique initially used to compare existing corporate strategies with a view to achieving the best possible performance in new situations (see above), has recently been extended to the comparison of technical products. This process is usually referred to as "Technical Benchmarking" or "Product Benchmarking". Its use is particularly well developed within the automotive industry ("Automotive Benchmarking"), where it is vital to design products that match precise user expectations, at minimum possible cost, by applying the best technologies available worldwide. Many data are obtained by fully disassembling existing cars and their systems. Such analyses were initially carried out inhouse by car makers and their suppliers. However, as they are expensive, they are increasingly outsourced to companies specialized in this area. Indeed, outsourcing has enabled a drastic decrease in costs for each company (by cost sharing) and the development of very efficient tools (standards, software).

[edit] Types of Benchmarking

Process benchmarking - the initiating firm focuses its observation and investigation of business processes with a goal of identifying and observing the best practices from one or more benchmark firms. Activity analysis will be required where the objective is to benchmark cost and efficiency; increasingly applied to back-office processes where outsourcing may be a consideration. Financial benchmarking - performing a financial analysis and comparing the results in an effort to assess your overall competitiveness. Performance benchmarking - allows the initiator firm to assess their competitive position by comparing products and services with those of target firms. Product benchmarking - the process of designing new products or upgrades to current ones. This process can sometimes involve reverse engineering which is taking apart competitors products to find strengths and weaknesses. Strategic benchmarking - involves observing how others compete. This type is usually not industry specific meaning it is best to look at other industries. Functional benchmarking - a company will focus its benchmarking on a single function in order to improve the operation of that particular function. Complex functions such as Human Resources, Finance and Accounting and Information and Communication Technology are unlikely to be directly comparable in cost and efficiency terms and may need to be disaggregated into processes to make valid comparison.

Performance Appraisals

TRADITIONAL METHOD 1.ESSAY APPRAISAL METHOD This traditional form of appraisal, also known as Free Form method involves a description of the performance of an employee by his superior. The description is an evaluation of the performance of any individual based on the facts and often includes examples and evidences to support the information. A major drawback of the method is the inseparability of the bias of the evaluator. 2. STRAIGHT RANKING METHOD This is one of the oldest and simplest techniques of performance appraisal. In this method, the appraiser ranks the employees from the best to the poorest on the basis of their overall performance. It is quite useful for a comparative evaluation. 3.PAIRED COMPARISON A better technique of comparison than the straight ranking method, this method compares each employee with all others in the group, one at a time. After all the comparisons on the basis of the overall comparisons, the employees are given the final rankings. 4.CRITICAL INCIDENTS METHODS In this method of Performance appraisal, the evaluator rates the employee on the basis of critical events and how the employee behaved during those incidents. It includes both negative and positive points. The drawback of this method is that the supervisor has to note down the critical incidents and the employee behaviour as and when they occur. 5. FIELD REVIEW In this method, a senior member of the HR department or a training officer discusses and interviews the supervisors to evaluate and rate their respective subordinates. A major drawback of this method is that it is a very time consuming method. But this method helps to reduce the superiors personal bias. 6.CHECKLIST METHOD The rater is given a checklist of the descriptions of the behaviour of the employees on job. The checklist contains a list of statements on the basis of which the rater describes the on the job performance of the employees. 7.GRAPHIC RATING SCALE In this method, an employees quality and quantity of work is assessed in a graphic scale indicating different degrees of a particular trait. The factors taken into consideration include both the personal characteristics and characteristics related to the on-the-job performance of the employees. For example a trait like Job Knowledge may be judged on the range of average, above average, outstanding or unsatisfactory. 8. FORCED DISTRIBUTION To eliminate the element of bias from the raters ratings, the evaluator is asked to distribute the employees in some fixed categories of ratings like on a normal distribution curve. The rater chooses the appropriate fit for the categories on his own discretion.

MODERN METHOD

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Management by Objectives (MBO) The concept of Management by Objectives (MBO) was first given by Peter Drucker in 1954. It can be defined as a process whereby the employees and the superiors come together to identify common goals, the employees set their goals to be achieved, the standards to be taken as the criteria for measurement of their performance and contribution and deciding the course of action to be followed. The essence of MBO is participative goal setting, choosing course of actions and decision making. An important part of the MBO is the measurement and the comparison of the employees actual performance with the standards set. Ideally, when employees themselves have been involved with the goal setting and the choosing the course of action to be followed by them, they are more likely to fulfill their responsibilities.

2.

360 Degree appraisal 360 degree feedback, also known as 'multi-rater feedback', is the most comprehensive appraisal where the feedback about the employees performance comes from all the sources that come in contact with the employee on his job. 360 degree respondents for an employee can be his/her peers, managers (i.e. superior), subordinates, team members, customers, suppliers/ vendors - anyone who comes into contact with the employee and can provide valuable insights and information or feedback regarding the on-the-job performance of the employee. 360 degree appraisal has four integral components: 1. 2. 3. 4. Self appraisal Superiors appraisal Subordinates appraisal Peer appraisal.

Self appraisal gives a chance to the employee to look at his/her strengths and weaknesses, his achievements, and judge his own performance. Superiors appraisal forms the traditional part of the 360 degree appraisal where the employees responsibilities and actual performance is rated by the superior. Subordinates appraisal gives a chance to judge the employee on the parameters like communication and motivating abilities, superiors ability to delegate the work, leadership qualities etc. Also known as internal customers, the correct feedback given by peers can help to find employees abilities to work in a team, co-operation and sensitivity towards others. Self assessment is an indispensable part of 360 degree appraisals and therefore 360 degree Performance appraisal have high employee involvement and also have the strongest impact on behavior and performance. It provides a "360-degree review" of the employees performance and is considered to be one of the most credible performance appraisal methods. 360 degree appraisal is also a powerful developmental tool because when conducted at regular intervals (say yearly) it helps to keep a track of the changes others perceptions about the employees. A 360 degree appraisal is generally found more suitable for the managers as it helps to assess their leadership and managing styles. This technique is being effectively used across the globe for performance appraisals. Some of the organizations following it are Wipro, Infosys, and Reliance Industries etc.

3. Assessment Centres

Assessment centre refers to a method to objectively observe and assess the people in action by experts or HR professionals with the help of various assessment tools and instruments. Assessment centers simulate the employees onthe-job environment and facilitate the assessment of their on-the-job performance. An assessment centre typically involves the use of methods like social/informal events, tests and exercises, assignments being given to a group of employees to assess their competencies and on-the-job behaviour and potential to take higher responsibilities in the future. Generally, employees are given an assignment similar to the job they would be expected to perform if promoted. The trained evaluators observe and evaluate employees as they perform the assigned jobs and are evaluated on job related characteristics. An assessment centre for Performance appraisal of an employee typically includes:

Social/Informal Events An assessment centre has a group of participants and also a few assessors which gives a chance to the employees to socialize with a variety of people and also to share information and know more about the organisation. Information Sessions information sessions are also a part of the assessment centres. They provide information to the employees about the organisation, their roles and responsibilities, the activities and the procedures etc. Assignments- assignments in assessment centres include various tests and exercises which are specially designed to assess the competencies and the potential of the employees. These include various interviews, psychometric tests, management games etc. all these assignments are focused at the target job.

The following are the common features of all assessment centres:

The final results is based on the pass/fail criteria All the activities are carried out to fill the targeted job. Each session lasts from 1 to 5 days. The results are based on the assessment of the assessors with less emphasis on selfassessment immediate review or feedback are not provided to the employees.

4.

Arguments Against 360 Degree Performance Appraisal

Despite the fact that 360 degree appraisals are being widely used throughout the world for appraising the performance of the employees at all levels, many HR experts and professionals argument against using the technique of 360 degree appraisals. The main arguments are: 360 performance rating system is not a validated or corroborated technique for Performance appraisal. With the increase in the number of raters from one to five (commonly), it become difficult to separate, calculate and eliminate personal biasness and differences. It is often time consuming and difficult to analyze the information gathered.

The results can be manipulated by the employees towards their desired ratings with the help of the raters. The 360 degree appraisal mechanism can have a adversely effect the motivation and the performance of the employees. 360 degree feedback as a process- requires commitment of top management and the HR, resources(time, financial resources etc), planned implementation and follow-up. 360 degree feedback can be adversely affected by the customers perception of the organisation and their incomplete knowledge about the process and the clarity o f the process. Often, the process suffers because of the lack of knowledge on the part of the participants or the raters.

Business Definition for: Merit Rating

a payment system in which the personal qualities of an employee are rated according to organizational requirements, and a pay increase or bonus is made against the results of this rating. Merit rating has been in use since the 1950s. Unlike new performance-related pay systems, which focus rewards on the output of an employee, merit rating examines an employee's input to the organizationfor example, their attendance, adaptability, or aptitudeas well as the quality or quantity of work produced. In merit rating programs, these factors may be weighted to reflect their relative importance and the resultant points score determines whether the employee earns a bonus or pay increase.