Benchmarking:

The establishment through data gathering of targets and comparators, through whose use relative levels of performance and particularly areas of underperformance can be identified.

It can either be:-

a) Internal benchmarking:- comparing one operating unit or function with another within the same organisation.

b) Functional:- Compares functions with those of the best external practitioners regardless of the industry they are in. They are also called generic benchmarking.

c) Competitive:- gather information about direct competitors.

Advantages:

• Position audit:- It can assess the firm’s existing position.
• The comparisons are carried out by the managers who have to live with any changes implemented as a result of the exercise.
• It focuses on improvement in key areas and sets targets that are challenging yet achievable. What is really achievable is discovered by what others have achieved.
• It assists firms to set high standards of quality and therefore making it a source of competitive advantage

Dangers:

• Implies there is one best way of doing business. It boils down to differences between effectiveness and efficiency.
• It may be yesterday’s solution to tomorrow’s problem as performance is measured against targets set on historical data.
• It is a catching up exercise rather than developing distinctive competences. After the benchmarking exercise the competitor may improve performance in a different way.
• It heavily depends on the accuracy of information used to set targets.