MB609F Discussion Question

DISCUSSION QUESTION 3–1

MB609 Capstone: Case and Industry Analysis

Lesson 3: Strategic Evaluation and Control

Discussion Question 1

Define benchmarking and describe the six steps involved in evaluating performance using this

method. What are the benefits of benchmarking?

Benchmarking, an increasingly popular program, is based on the concept that it makes no sense to reinvent something that someone else is already using (Wheelen, Hunger, Hoffman, Bamford, 2016, p.315). It involves openly learning how others do something better than one’s own company so that the company not only can imitate, but perhaps even improve upon its techniques. The benchmarking process usually involves the following steps (Wheelen et al., 2016, p.315):

Identify the area or process to be examined. It should be an activity that has the potential to determine a business unit’s competitive advantage.

Find behavioral and output measures of the area or process and obtain measurements.

Select an accessible set of competitors and best-in-class companies against which to benchmark. These may very often be companies that are in completely different industries but perform similar activities. For example, when Xerox wanted to improve its order fulfillment, it went to L.L. Bean, the successful mail order firm, to learn how it achieved excellence in this area.

Calculate the differences among the company’s performance measurements and those of the best-in-class and determine why the differences exist.

Develop tactical programs for closing performance gaps.

Benchmarking has been found to produce best results in companies that are already well managed. Apparently poorer performing firms tend to be overwhelmed by the discrepancy between their performance and the benchmark—and tend to view the benchmark as too difficult to reach. Nevertheless, a survey by Bain & Company of companies of various sizes across all U.S. industries indicated that about 65% were using benchmarking. Cost reductions range from 15% to 45%. Benchmarking can also increase sales, improve goal setting, and boost employee motivation.

• Implement the programs and then compare the resulting new measurements with those of the best-in-class companies. (Wheelen et al., 2016, p.315).

The average cost of a benchmarking study is around $100,000 and involves 30 weeks of effort (Wheelen et al., 2016, p.315). Manco Inc., a small Cleveland-area producer of duct tape, regularly benchmarks itself against Wal-Mart, Rubbermaid, and PepsiCo to enable it to better compete with giant 3M. APQC (American Productivity & Quality Center), a Houston research group, established the Open Standards Benchmarking Collaborative database, composed of more than 1200 commonly used measures and individual benchmarks, to track the performance of core operational functions (Wheelen et al., 2016, p.315). 

Benchmarking is a common practice and sensible exercise to establish baselines, define best practices, identify improvement opportunities and create a competitive environment within the organization (Wheelen et al., 2016, p.315). Integrating benchmarking into your organization will result in valuable data that encourages discussion and sparks new ideas and practices. At its best, it can be used as a tool to help companies evaluate and prioritize improvement opportunities

Benchmarking benefits (Wheelen et al., 2016, p.315):

Gain an independent perspective about how well you perform compared to other companies

Drill down into performance gaps to identify areas for improvement

Develop a standardized set of processes and metrics

Enable a mindset and culture of continuous improvement

Set performance expectations

Monitor company performance and manage change

References

Wheelen, T. L., Hunger, J. D., Hoffman, A. N. And Bamford, C. E. (2016). Strategic management and business policy (14th ed.). NJ: Prentice Hall.