Benchmarking programs: Opportunities for enhancing performance

Journal of Business Logistics, 1995 by Rogers, Dale S, Daugherty, Patricia J, Stank, Theodore P

Benchmarking, or the establishment of operating targets based on best practices, is becoming increasingly commonplace within industry.(1) Recent studies indicate that most major U.S. companies have some type of benchmarking program in place.(2) Involvement has generally been driven by the promise of improved competitive positioning and enhanced productivity. Knowledge gained through external evaluations allows firms to realize "what level of performance is really possible" and to identify the existence of gaps between actual performance and optimum potential performance.(3)

Most of the material published on benchmarking focuses on "how to" guides(4) and case studies of specific applications.(5) In general, the articles offer glowing praise for the potential benefits associated with benchmarking. However, limited empirical evidence is available documenting specific benchmarking practices, extent of involvement, or tangible results associated with benchmarking programs. In order to explore these issues in depth, a survey was conducted. Specifically, the research focused on developing a profile of typical logistical benchmarking practices, identifying tangible rewards/results associated with benchmarking, and determining what issues constitute the greatest barriers to conducting effective benchmarking.

BACKGROUND AND RESEARCH QUESTIONS

Benchmarking is typically used as part of an overall problem-solving process targeted at achieving organizational improvements or as a proactive mechanism to keep management aware of state-of-the-art business practices.(6) Firms use benchmarking to facilitate strategic planning, improve forecasting, gain access to new ideas, allow product/process comparisons, and focus goal setting. Benchmarking offers a formalized method of managing change, which can lead to improved performance.(7) It forces a firm to compare itself to an external standard, quantify differences, document why those differences exist, and identify steps that must be taken in order to catch up to and surpass the standard.(80

Benchmarking has been credited with effecting dramatic turnarounds for companies in trouble and generally improving competitive positioning. For example, Xerox used benchmarking within their logistics function as part of their overall Quality Improvement Program.(9) Subsequently--and directly attributable to knowledge gained through benchmarking--Xerox "regained market share, dramatically lowered cost and improved quality, and saved itself from financial disaster."(10) Ford's success with the development, design, and manufacturing of the Taurus and Motorola's quality and cycle time improvements, are believed to result directly from benchmarking efforts.(11)

In spite of the favorable press associated with benchmarking, little empirical evidence was found to document benefits of the programs. The literature contains vague comments such as "universally beneficial," but very little documentation beyond the previously cited case studies. The current research addresses specific questions in order to provide further insight into benchmarking.

Potential benefits associated with benchmarking(12) as well as limitations or disadvantages(13) have received extensive attention. Benchmarking provides firms with a means of striving to be the best of the best. It is "...a positive, proactive process designed to change operations in a structured fashion to achieve superior performance."(14) Goals are more likely to be met because benchmarking forces a continual focus on the external environment. Camp summarizes the bottom-line benefit of benchmarking as obtaining and maintaining competitiveness:

"Benchmarking helps to develop a picture of how the operation should look after the change has been made ...This is a powerful way to marshall the energies of the operation to enable it to become competitive and then outdistance the competition."(15)

Benefits of benchmarking do not come easily. Firms involved in benchmarking must make large commitments of time and personnel resources if they are to achieve substantial results. Benchmarking is a continuous process of investigation requiring time-consuming, labor-intensive examination of one's own operations and identification of the differences between internal operations and the target firm's operations. Optimally, top level management should be involved to ensure that benchmarking receives sufficient attention across functional areas and truly becomes a part of the planning process.(16)

Specific examples of benchmarking's impact are rare. Results of some of the most successful benchmarking programs remain confidential.

However, among the most notable documented results are AT&T's 40% improvement in cycle time, 200% jump in product introductions, and 33% drop in R&D expense-to-revenue ratio. AT&T's market share grew and the number of customer complaints declined during the same period due to process changes accompanying benchmarking.(17) Oryx Energy surveyed its competitors' operational procedures prior to modifying Gulf of Mexico operations. Using knowledge gained during the benchmarking process, Oryx was able to decrease personnel and transportation costs by 21% and estimated a 32% improvement in operating expenses per well, per day.(18)