Fundamental of the Week:

BENCHMARKING

Presented by: Justis McEvilly

2/13/01

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“Benchmarking is the continuous search for and application of significantly better practices that leads to superior competitive performance.”

-Westinghouse

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What is Benchmarking?

Continuous method of measuring and comparing a firm’s business processes against those of another firm

Incorporate leading firm’s processes into one’s own strategy to fill the gaps and improve performance

Discover performance gaps between one’s own processes and those of leading firms

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Benchmarking Basics

1. Firm establishes where it currently is.2. Firm decides where it wants to be.3. Firm finds companies that currently

are where it wants to be.4. Firm investigates what processes

enabled these companies to be successful, and then tries to do the same.

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Why do firms benchmark?

Build core competencies that will help to sustain competitive advantage

Access to a variety of markets Perceived benefit of product or service will increase Product or service is hard to imitate Low-cost leader

Target specific shift in strategy Entering new markets Developing new products

To create a firm more adaptable to change

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Basic Process

Step 1

Step 2

Step 4

Step 3

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Step 1:Plan the Benchmarking Project

1. Company must identify its:a. strategic intentb. core competenciesc. map capabilities

2. Select the process to be benchmarked and determine what value it would add

3. Determine how to measure the success factors

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Step 2:Collect the Necessary Data

1. Internal Data Collection “How do WE do it?”

2. Secondary Research Public disclosures about particular

process

3. External Data Collection Select who to benchmark “How do THEY do it?”

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Step 3:Analyze Data for Performance Gaps

Compare current performance against benchmark

Identify performance gaps and determine their root causes

Isolate the processes that enabled the benchmarked firm to thrive

Determine if these processes are adaptable to one’s own company culture and structure

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Step 4:Implement New Processes

Set necessary goals to close the performance gap

Modify and enhance the new processes to fit one’s company culture and structure

Commit the necessary resources for implementation

Take action and implement the plan

Monitor progress and measure success

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Financial Performance Benchmarking

Profit Margin R&D Spending Return Ratios: ex. ROA, ROE, ROI Liquidity: ex. Current, Quick Leverage: ex. Debt-Equity Ratio Inventory Turnover Receivables Turnover

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Questions?