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Benchmarking for Competitive Advantage – Process vs. Performance Benchmarking for

Financial Results

Farrukh Idrees Fellow of the University of Bradford, U.K.

Pakistan shadrees@gmail.com

Abstract

This paper responds to call in literature to advance research into benchmarking narratives for holistic Competitive Advantage (CA)

by acknowledging the areas of weakness in presenting a comprehensive role of benchmarking for CA; Defending better contribution

of process benchmarking for gaining financial excellence as compared to the role of performance one. Key benchmarking roles for

gaining CA in an organisation are identified through cross industrial literature review to making better focus of benchmarking

efforts. Benchmarking definition with common pitfalls is clarified along with a recommended general implementation methodology.

Pre and post impact of benchmarking on performance of different organisations is mentioned. Its role for CA has been put forward

under two sections A) General benchmarking role in three perspectives i.e. Knowledge sharing, facilitating appraisal process and

usage of excellence models are presented. B) Role of process benchmarking is compared with performance one towards CA through

financial results. Research can be used in multi dimensions; Alignment of company’s benchmarking strategy with it's corporate one

for organisational cohesiveness; Customised scorecard with specific measures can be derived for performance monitoring of the

strategy; Process benchmarking is recommended to generate better financial results; A customer oriented company can be

developed by keeping in view their (customer's) importance in developing and deploying the strategy; Roles of benchmarking models

are generic and cross industrially applicable. Further research can be done to identify its organisational level, industry, size &

sector (public or private) specific role/benefits/methodology. Too, specific relationship/ weightage can be developed among

variables of roles of benchmarking models.

Key Words: Benchmarking, Competitive Advantage, Process Benchmarking, Performance Benchmarking.

Introduction: Companies are becoming more performance oriented in this dynamic environment as Mukherjee et. al. (2002) say that performance challenges and the need to be cost effective are apparent through out the world. Ho et.al. (2006) say, “Choosing a viable method for effective evaluation of performance is not an easy task. There is a substantial body of literature discussing different research methods applied to performance evaluation. These methods include: multivariate statistical analysis; balanced scorecard; data envelopment analysis; analytic hierarchy process; fuzzy set theory and financial statement analysis (FSA).” Too, a lot of literature defends other methods of performance measurement e.g. grey relation analysis (GRA) (Tsai, 2000); performance prism (Pursglove, 2007); Activity Based Management, TQM, SPC, DOE, JIT (Kumar et.al. 2001); Data Envelopment Analysis (DEA) (Mukherjee et.al. 2002)”. Wong et.al. (2008) has divided the performance data analysis techniques in to parametric (e.g. simple/multiple regression analysis etc.) and non parametric ones (e.g. BSC, DEA etc.). However, regardless of approach, the strength of performance management systems lies in domains of strategic and change management (Ho et.al. 2006). Welch et.al. (2001) say that over the last ten years benchmarking, excellence and performance improvement have become important to those organisations perusing performance improvement. This study is about benchmarking based performance excellence in an organisation. Pfeffer says that CA is some thing that “distinguishing an organisation from their competitors; provides positive economic benefits, is not readily duplicated (Pfeffer 1994). Massa et.al. (2004) implies that it is an outcome of particular mix of tangible and intangible assets, to which the firm has access. CA has been taken more or less around these definitions in this piece of work. As managers seek new ways to compete in market, one technique that has made headlines in the management community is benchmarking (Bagchi 1997). Kearns says that in order to have a competitive edge over others, more and more companies are starting to assess their performance. Among the processes used, benchmarking seems to be, if one judges its results in

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many US and Japanese companies, one of the most effective. It is a continuous and systematic process of assessment of the products, services and methods of a company compared to those of the most serious competitors or the companies recognized as leaders (Kearns, 1986). Too, Anand (2008) says that 65% of Fortune 1000 companies use benchmarking as a tool to gain competitive advantage. Further, Wong et.al. (2008) argue that 75% of managers worldwide report using it as a tool for performance improvement. Benchmarking facilitates fact based decision making (Parkan 2005). It has been extensively and rapidly adopted in industries such as transportation, construction, health and education (Delpachitra et.al. 2002). Actually it all started with Xerox’s successful use of benchmarking to re-engineer its processes in 1970s. Experts heralded how Xerox was able to reduce costs, improve quality, and obtain better customer satisfaction. The notion behind benchmarking is the acceptance of fact that some organisation somewhere in the world has developed the same or a similar process or product that is more effective and superior to anyone else. Thus, benchmarking involves continuous monitoring and measurement of a company’s performance against the “best-in-class” companies. Benchmarking has been defined in a number of ways. According to Camp (1989) ‘benchmarking is a continuous process of measuring products, services and practices against the toughest competitors or those companies recognised as industry leaders. It is also defined as an external focus on internal activities, functions, or operations in order to achieve continuous improvement or an ongoing search for best practices that produce superior performance, when adopted and implemented in one’s organisation.” Bowerman et.al (2002) have declared it “an alternative” to market testing. The principal motivation comes from the desire to search for excellence to become competitive in the marketplace. Maire (2002) also says about it, “A benchmarking process includes a comparative evaluation of the levels of performance reached by various companies”. Its a systematic management process that helps managers to search and monitor the best practices and/or processes. Too, Maire (2002) says, “A benchmarking process includes a comparative evaluation of the levels of performance reached by various companies”. A thirteen step implementation methodology adapted from works of Povey (2007); Kumar et.al. (2001); Wang et.al. (2008); Zairi (1998); Zairi (2000); Anand et.al. (2008) and Freytag et.al. (2001) for generic benchmarking is presented here: 1) Get the leadership and followership commitment, 2) Develop a benchmarking team with a sponsor and owner by using Belbin’s approach, 3) Classify the firm’s processes on a matrix of Important (Strategic impact on business performance) vs. performance 4) Pick the process to be benchmarked (i.e. with low performance, important (strategically significant), 5) Score its activities individually on a selected scale, 6) Identify the firms with similar challenges, 7) Identify the selected benchmarking process in other firm(s), 8) Score the process activities on the same scale in each individual benchmarking partner (if there are more than two), 9) Select the highest performing activities for improvement through benchmarking data, 10) Adapt the benchmarking data to Co.’s culture for improvement, 11) Implement the improvement, 12) Monitor the performance to ensure better results, 13) For higher performance identify another process from the matrix of important vs. performance & strategic impact on overall performance. Like all researches this study has some assumptions: 1) Measures taken in the models are generally acceptable measures across the industries and businesses. 2) The measures are excellence oriented. 3) Benchmarking is taken as a holistic concept regardless of type/level in the first half of the paper to demonstrate its contribution for CA. 4) Benchmarking is taken as an integral part of TQM to present its pre and post impacts on performance (Carpinetti et.al. 2002). 5) Excellence/contribution to CA also involves generating financial results (Fuller 2000). There are two research questions: 1) How does benchmarking contribute towards CA in an organisation? 2) Weather performance based or process based benchmarking contributes better for financial results? These questions are chosen to help focus on filling the gap of developing holistic dimensions of benchmarking strategies which able to be integrated with other business processes in developing CA (Wang et.al. 2008) through cross industrial literature review. Moreover, argument about the better role of performance vs. process benchmarking towards financial progress helps a company in adopting the most appropriate type for improvement. Too, a limited literature is available on this aspect of performance management. The research intends to fill this gap. The remainder of this paper is organised as follows: The next section reflects significance of benchmarking. Then, general benchmarking role for CA is presented in four perspectives. After that, the comparison of process and performance benchmarking in contributing towards financial results is detailed. Finally, summary/conclusion and scope for future research are discussed.

A) General Benchmarking Role for CA: Bagchi (1996) argue that search for the best practices can go beyond direct competitors to indirect ones (regardless of industry affiliations). Nevertheless, there are also some misconceptions about benchmarking e.g. considering it merely a catching up process to produce a me- too product/process. One of the main reasons

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such misconceptions can be traced back in eighties; when TQM was rapidly developed during the early 1980s, benchmarking attained its highest level of recognition. Its popularity started to wane as companies failed to recognize its importance in TQM projects. Moreover its implementation with out considering the critical success factors (CSFs) was another reason for failure. Sarkis (2001); Zairi et.al (1995); Zairi (2000); Sharif (2002); Delphchitra et.al. (2002); Anderson et.al. (1999); Jones et.al. 2008; Freytag et. al. 2001; Wainwright et.al (2005); Delphchitra et.al. (2002); Bowerman et.al.. (2002); Bagchi (1996) argue about some of the characteristics to make benchmarking successful for CA in an organisation, including, being tied to the corporation's overall strategic objectives; being able to operate efficiently; being composed of interested motivated people; focus on relevant work-group-level issues; set realistic timetables; pick the correct business partners; follow proper protocol; collect manageable bodies of data; understand the processes behind the data; and identify targets in advance.” management commitment, focusing on processes rather than metrics, abolishing cultural silo mentality, and follow-up commitment to the benchmarking process; visible sponsorship, KPIs containing strategic intent, definition of metrics used as a part of a generic performance management manifesto, company-wide understanding of definitions of concepts involved and metric; not considering it a one off process, no reluctance to divulge sensitive information and inability to form benchmarking partnerships, “finding right benchmarking partners”, no blaming culture, focus on people, no over reliance on quantitative data, lacking proper implementation methodology, and no fear of exposure of weaknesses. However, the benefits of benchmarking, e.g. broadening of employee experience & knowledge base, better understanding of customer needs (Wainwright et.al 2005), reduced costs, higher productivity and improved customer services, cultural and behavioural management outweigh its problems (e.g. cost, risk of sensitive information sharing among partners etc. (Delphchitra et.al. 2002; Bowerman et.al., 2002). Bowerman, Francis and Ball say that many of the gains from benchmarking were difficult to quantify. Some were able to cite specific gains; for example, an internal benchmarking project helps to reduce staff absences by half among the worst teams. The most commonly cited benefit are that benchmarking yields useful information, which prompted further investigation which sometimes led to changes to processes or reduced costs. Generally participants felt that the projects encouraged people to think about the way they did things and how they could be improved and often helped to forge support networks with others doing a similar job (Bowerman et.al. 2002). Zairi and Whymark argue that benchmarking (both internal and external) is an integral part of Total Quality Management (TQM). Consequently the concept is embedded in excellence models e.g. EFQM Excellence Model, MBNQA etc They present some examples where TQM (embedding benchmarking) generate these impressing results: Motorolla achieves cumulative manufacturing cost savings of $5.5 billion from 1988-second quarter of 1994; Solectron Corp. increases its sales from $130 million to $1.455 billion and net profits from $4 million to $56 million. Its stock price has achieved an average growth of 82 %; Federal Express gets revenue of $1 billion in first ten years of TQM application; Ames Rubber Corp. achieves a 99.9 % quality and on time delivery status through sharing its TQM techniques with its suppliers. Since the function of benchmarking is to gather/utilize secondary information in a systematic way to excel, so “economy of scope of best practices” is its major contribution in improving value added activities. This, in turn, contributes towards business growth either internally/externally or both. However, in this research, its role in CA has been presented in four perspectives which are described in the later. In each perspective a model is given with some specified measures. These measures are generally accepted measures across the industries. As Rothenberg et.al. (2005) argue that there should be an enterprise consensus about the measures because different metrics tell different about how the organisation is doing. For example, it is assumed that service quality and customer satisfaction will always lead to better financial performance (Rust et al., 1995). Sharief (2002) & Maire (2002) go ahead and argues about a flexible benchmarking management reporting method in an industry with properties of a "score card' of strategic and operational factors, that could be cross industrially applicable. It means, choice of right measures also significantly depends upon the strategic direction of an organisation. Too, Pursglove et.al (2007) say that measuring performance in a changing business environment requires that measurement systems must be relevant and appropriate for the environment and the strategies of the organisation. They also say that managers’ perceptions of the success and failure of performance measurement initiatives were related to: the purpose of the initiative, and; the structure and culture of the organisation. Moreover, Parken (2005) argues that measures should be selected by keeping in view the internal and external stakeholders’ interests. Besides selecting right measures, “aggregation” is another topic of concern in segregating performance indicators under different dimensions (Parketn 2001). There are several ways of organizing the measures e.g. on the basis of efficiency (output per unit input), life cycle, regulatory etc (Rothenberg et.al. 2005) e.g. Mukherjee et.al. (2002) say, “Data envelopment analysis (DEA) is a mathematical approach to handle situations with multiple inputs and multiple outputs and has been a proven way to measure bank performance”. In this research the aggregation has been made in four perspectives. The choice of these perspectives is backed by vast literature

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review. Besides selection/aggregation of measures, another critical domain is selecting their relative importance to the other measures in benchmarking management systems (Bowen et.al. 2007). The weightage can be equal and unequal, depending upon the company and the industry (Moesen et.al. 2007; Parken, 2005). However, an equally weighted benchmarking scorecard is presented in the appendix as a generic framework with leading and lagging measures to help organisations in structuring their benchmarking strategies. 1) Benchmarking & Excellence models for CA: Zairi et.al (1995) argue that importance of benchmarking has been explicitly acknowledged in excellence awards e.g. Malcolm Baldridge National Quality Award (MBNQA) criteria, EFQM Excellence Model ®. However this research has only discussed the case of EFQM Excellence Model ®. This model encourages the applicants for the European Quality Award (EQA) to justify the role of continuous learning and improvement in the organisation. This justification is the adoption of an approach of management by processes and facts; which in turn is one of the basic building blocks of the model. The most critical aspect of continuously improving the processes is adoption of benchmarking activity as EFQM Excellence Model ® allocates specific percentage of points to benchmarking activity for winning the award. Maire (2002) says “it is obvious that the value assigned to the weight of an element has a determining influence on the result of the aggregation”. Too, Eskildsen et al (2001) argue that the EFQM Excellence Model® allocates points to both enablers and results. This allocation of points helps in focusing on both sides of the business i.e. what business does and what it achieves. More over the organisatons can recognise and acknowledge the relationship between the enabler and the result criteria in the EFQM excellence model. The understanding of this relationship facilitates the business in identifying and picking the related superior practices. Theses practices can be either from inside or outside of the business. These best practices are then adapted to add value in the value chain of the business. And this addition in the value chain ultimately leverages CA over competitors. Moreover Motwani (2001) argues about the centrality of continuous improvement in the quality frameworks by declaring it as a main driver for continuous improvement. Figure (1) summarizes the impact of benchmarking on CA creation through EFQM Excellence Model ® usage:

EBEM helps in identifying systematic nature of a business by connecting enablers and results. The causal effect facilitates focus for benchmarking efforts. This could be in the form of differentiating core and support processes that are creating value chain in an organisation. Too, the model stresses measurement in both enabler and result sides by defending, “if you can’t measure you can’t manage.” Further, it provides a non prescriptive template for measurement of performance of a business. The performance measurement highlights performance gaps (i.e. the goal of benchmarking). These performance gaps then focuses benchmarking efforts. And this better focus plays its significant role in setting strategic direction of a company (by implementing the results of benchmarking studies); as Thomas (1992 a) defends about complementary role of performance with strategic planning by declaring them two sides of a coin. Finally, it contributes towards self assessment; which facilitates identification of what to benchmark. Zairi & Hutton say that this assessment fully takes in to consideration stakeholders’ requirements, which contributes towards improvement of CA by reducing non conformance costs (Zairi et al, 1995). The above model can be functional by adopting these generally acceptable measures: 1) Systematic Approach to organisation: # of enablers, # of results, results enabler ratio, core processes to enablers ratio, support processes to enablers ratio; 2) Goal Setting Framework: # of low performing processes identified/self assessment, # of performance benchmarking studies/quarter; 3) Self Assessment: # of self assessment exercises/quarter, # of processes benchmarked, low performing processes identified/assessment, high performing processes identified/assessment. 2) Benchmarking & knowledge sharing (KS) for CA: A knowledge-based perspective of the firm has recently emerged in strategic management literature. Innovation needs to be managed (Massa et.al. 2004); it doesn’t occur accidentally from contingencies. Benchmarking is a methodology to bring innovation in an organisation by knowledge sharing. It is a pursuit by an organisation to enhance performance by learning from other’s successful practices.” “It’s a continuous activity; key internal processes are adjusted, performance is monitored, new comparisons are made with the current

Systematic Approach to organisation

Framework for Goal setting

Self Assessment Fig. 1: Benchmarking role through

EFQM Excellence Model ® for CA

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best performers and further changes are explored. Where information about these key processes is obtained through a co-operative partnership with specific organisations, there is an expectation of mutual benefit over a period of time” (Bowerman et al 2002). Zairi et.al (1995) say, “Many organisations, of different types, are beginning to recognize that discovery is just as good as invention, and bench-marking can provide a route to discovery”. Since benchmarking deals with diffusion of best practices so KS has a very long role to play in it. Benchmarking role for KS has been presented under following aspects (influenced by work of Massa et.al. 2004; similar variables have been clustered together due to space limitation): a) Internal Growth: Following variables are presented in this facet: 1) Horizontal Communication Flow: Benchmarking facilitates communication which goes beyond using technology by involving people from all levels of an organisation to understand/contribute to improvement process. There are many ways to improve communication for developing a harmonized organisation but the most crucial one, supported by the phenomenon is cross-functional team working. This forces individuals and groups to work away from the silo mentality and to begin learning to communicate horizontally for KS. That helps in spreading the best practices for improving culture and operations of a business. 2) Leadership Style/Empowerment/Shared Values/Willingness of people to work with others & share knowledge: Knowledge transfer will not occur in an organisation unless its employees/work groups display a high level of co-operative behaviours; unless employees/groups have a natural tendency to share/collaborate with each other. Benchmarking supports it by accepting participative leadership as its KSF. The participative leadership cultivates collaborative/co-operative climate in an organisation. That in turn, leads to business’s internal growth. Besides leadership there should be an appropriate culture for any management initiative success, as Barney (1986) relates the financial performance with the culture (shared values) by arguing that firms with culture of required attributes can obtain sustained superior financial performance from their cultures. 3) Training in creativity/experimentation relationship between knowledge recipients and source: Knowledge may be freely accessible in an organisation but the recipient of that knowledge has to be able to use it (Szulanski, 1996). Benchmarking enables this process by declaring training its CSF. People need training to better adept the adopted practices (either from internally or externally). Further, people need training for conducting productive benchmarking studies. Thus, benchmarking plays a significant role in developing a synergistic impact in an organisation. That finally aligns the organisations efforts towards a united direction (by aligning knowledge recipients and source). Pfeffer (1994) stresses up on the criticality of training for CA through HR by arguing that it’s the people who make things happen. 4) Self Assessment: Benchmarking helps in understanding of “as is” of processes of an organisation, thus contributes towards knowledge generation based on facts/practices (Zairi et.al. 1995). Moreover, it contributes in maintaining quality culture in an organisation. b) External Growth: Following variables are included in external growth domain: 1) Transfer of Technology: Benchmarking’s goal is to learn, incorporate process and product innovations that have proven successful in other places. The emphasis is not only on the outcome, but on the process employed to achieve an objective. That’s how benchmarking process facilitates transfer of technology (Bagchi 1996). This role has a strong role to play in external growth of a firm by developing its external focus. Moreover this phenomenon can also be defended in context of Information Technology (IT). As now a days IT has a significant contribution as an enabler/facilitator//initiator for benchmarking processes. So benchmarking itself facilitates installation of information system; which in turn is widely acknowledged as competitive advantage itself (Russel et.al. 1988). 2) Supply Chain Management (SCM): SCM involves integration of all the value-creating elements in the supply/manufacturing/distribution/retailing/subcontracting processes, from raw material extraction, through transformation process, to ultimate goal of adding value to end-users (Wong et.al. 2008; Basnet et.al. 2003). Richardson, (1995) takes the discussion ahead and says that two of the crucial functions of SCM are maintaining CA in an industry and conserving its profit as far as materials are concerned. Moreover he declares that takeover or merger with supplier can increase control on essential supplies & their price. Further SCM activities are motivated by the ideals of customer service, compression of lead-time, and inventory reduction (Basnet et.al. 2003). 3) Industry Structure/Strategic Grouping: Mukherjee et.al., (2002) say that benchmarking, on the basis of overall financial performance and resultant strategic grouping can help the banks to restructure their policy choices to compete in this dynamic environment. The change in policy choice may help them to become a member of a high performer

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strategic group in an industry. 4) Partnerships/Alliances: Strategic alliance is a part of TQM programme (Cante et.al. 2004). Alliances are made to pool up resources to have an access to broaden markets (Thorne et.al. 2005). Benchmarking facilitates partnerships through benchmarking partnerships. Literature has widely acknowledged their benefits as Thorne et.al. (2005) say, “It is difficult to quantify the benefits of partnerships between organisations, as their impact does not appear in financial analyses. Rather, the benefits of positive partnerships for business organisations are long-term loyalty and customer retention (Hakansson et.al. 1995). The partnership element of a service has an impact on the perceived value of the service supplier by supplementing specialised skills, techniques and experience (Ravald and Gro¨nroos, 1996). Those involved directly with managing partnerships therefore need to balance technical, administrative and social competencies.” 5) Competitive Response: In particular, marketers and new product development managers can benefit greatly by benchmarking their performance against fast followers. Later entrant firms can begin the process of improving their responsiveness to the pioneering competition over the long-term. Such firms can uncover and address the many broader organisational and product impediments to faster competitive response as well as identify and embrace more effective and efficient new product development practices (Watson, 1993). Increasingly, firms are viewing fast competitive responses as a means of achieving competitive advantage (Stalk, 1990). Yet a strategy of an ever-faster response rate will lead at some point to decreased effectiveness if not integrated with a broader business strategy (Gilbert, 1993). To the extent a firm's benchmarking activities can be used to better understand its core competences and process capabilities, benchmarking can be an essential element of a firm's strategic planning efforts (Watson, 1993). Of course, in order to be successfully integrated into planning efforts, the process of benchmarking competitive responsiveness must be viewed as a team-dependent process that is supported by senior management in planning and execution and where emphases are on process improvements on an on-going basis (Parker et.al, 1995). The benefits of benchmarking can therefore be to improve activity for greater profitability as well as intangible benefits including enhanced communication, a better external perspective, and greater clarity in leadership and management (Codling, 1998).

The above model helps an organisation in identifying the KPIs by focusing on two domains of internal and external growth of an organisation. Too, its holistic nature helps in integrating in a range of other business operations for excellence. These measures can be incorporated generically/cross industrially to make the model operational: 1) Culture/Shared Values: Documented code of conduct availability/employee, cross departmental cooperation index 2) Self Assessment: see benchmarking role in excellence model; 3) Leadership Style/Empowerment/Communication: employee involvement index, follow up suggestion ration, opinion surveys; 4) Transfer of Technology: Training offered per appraisal, % of time allocated for inventing new things, Time allocated to develop/adopt next generation; 5) Competitive Response/Strategic Grouping: Stakeholders perception survey, Senior management/month, # of performance benchmarking/quarter; 6) SCM/Alliances: # of support outsourced processes, Core/support processes ratio, # of suppliers, # of customers, customers supplier ratio etc.). 3) Benchmarking & Appraisal for CA: “If the management of enterprises could conduct their own measurement or

Competitive Response

Empowerment

Transfer of Technology

Communication

Training Shared Values Horizontal Communication

Leadership Style

Supply Chain Mgt

Partnership

Self Assessment

Strategic Grouping Industry

Structure

Motivation/Willingness

Internal Growth

Figure 2: Benchmarking

Role in KS External Growth

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diagnosis of the enterprises at regular intervals, management most likely would gain a better understanding of how effectively they have used their resources. The result of this performance evaluation could serve as reference for future resource allocation for the enterprise. (Tapas, 1998) says that benchmarking is undoubtedly a very important tool for enterprises and consultants for establishing their goals, developing methods for achieving the goals, and measuring system performance. Therefore, effective benchmarking performance evaluation for enterprises could definitely contribute to effective management (Ho et.al. 2006)”. Day et.al. (1988) argue that effective strategy moves are grounded in valid and insightful monitoring of the current competitive position both internally and externally. Through appraisal, benchmarking exposes one’s weaknesses and thereby provides a justification to act. Mukherjee et.al. (2002) say, “Comparing with industry benchmarks can enable a bank to analyze the alignment of the process design, the way in which the bank is utilizing different resources to deliver customer value, and its human resource management”. The following model in figure 3 presents the relationship of benchmarking with appraisal:

Figure 3: shows that internal benchmarking is leading to internal appraisal. The outcome of the internal appraisal is an identification of distinct competencies (DC) of a firm. DCs are those competencies in which the firm does better than the others. As internal appraisal reveals resources of firm, that can be transformed in to capabilities (Jay Barney 1991). More over it also allows the firm to look for the opportunities for the internal growth. This opportunity could be in the form of synergizing the output of two processes to reduce cost. Porter five forces is one of the classical models in favor of internal appraisal or benchmarking (Freytag 2001). On the other hand external benchmarking facilitates external appraisal. Zairi et. al. (1995) says, “Benchmarking adds an external perspective to a total quality organisation. It ensures that the wheel of continuous improvement is turning in the right direction, that is, towards achieving higher standards of competitiveness. Many companies have adopted benchmarking for this very reason, e.g. Alcoa, AT&T, Kodak, etc.” The result of it is the identification of key success factors (KSF). This external scanning helps the business in finding out the opportunities of external growth. That could be in the form of seeking mergers, strategic alliances etc. CA is basically the outcome of blending DC and KSF; which in turn are the outputs of appraisal process. As Powell (1992) argues about the alignment between internal and the external environment of the organisation for producing the competitive advantage. The above model can be operational at ground level by adopting these measures: 1) External Appraisal: # of strategic groups in industry, # of direct competitors, # of indirect competitors, Common potential success factors/strategic group; Uncommon potential success factors/strategic group, 2) Internal Appraisal: # of total resources/Co, Type of resources consumed per core process, Type of resources consumed per support processes, resources consumed/total # of core processes, resources consumed/total # of support processes etc.).

B) Process Benchmarking vs. Performance Benchmarking: Anand et.al. (2008) argue that there is a lack of consensus on benchmarking categories because, there are many bases of its categorisation e.g. Freytag et.al. (2001) mention

External

Benchmarking

Internal

Benchmarking

External Appraisal

Internal Appraisal

CA Aligned to produce CA

Key Success Factors

Distinct Competencies

For AGILITY

Need For

Improvement /

Change

Figure 3: Benchmarking

role in appraisal for CA

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three types based on “what company wants to benchmark”. However different types of benchmarking can be classified in three major areas i.e. “contents of benchmarking, nature of referent other, and purpose of relationship (Anand et.al. 2008). Based on benchmarking contents, Delpachitra et.al. (2002) propose three types, namely: 1) process benchmarking; 2) performance benchmarking; and 3) strategic benchmarking. Process benchmarking analyses work processes involved in a range of business systems e.g. budgeting, order entry, recruitment and customer complaint systems etc. It also involves substantial commitment of resources, in particular, time and personnel, divulging information that is generally considered confidential to the institutions which become the cause of its reluctance in application. On the other hand performance benchmarking involves comparing published statistics of benchmarking firms about financial/non financial performance. While strategic benchmarking involves comparison of strategies, management practices and organisation’s structures; it has some similarities with process benchmarking. Because of reluctance to process benchmarking, strategic or performance benchmarking types are more in use. Many academicians have written in favour of process/and performance benchmarking for excellence e.g. Drew, (1995); Anand et.al. (2008); Mukherjee et.al, (2002); Delpachitra, (2002); Zairi et.al. (1995); Carpinetti et.al. (2002) etc. Following part of the paper presents different view points to help managers in taking informed decisions about application of right type of benchmarking in right time. The comparison of process and performance benchmarking has been made in two domains, namely: external variables and internal variables. Although, it is difficult to categorise them in these section yet their predominant roles are taken into consideration for this division: A) Internal Variables: Following dimensions are covered in this context (adapted from the work of Rolstadas 1998): 1) Operational Efficiency: “Performance of a bank is generally conceptualized as the extent to which the bank is able to utilize its resources to generate business transactions, and is measured by their ratio, which we call efficiency. (Mukherjee et.al. 2002).” Process benchmarking seeks to identify the most effective operating practices from many companies that perform similar work functions. Therefore, process benchmarking could be considered as an indirect measure of operational efficiency or the ability of a firm to carry out its operations in the best possible way for a given set of resource constraints (Delpachitra et.al, 2002). 2) Innovation: Commitment to process innovation has a significant relationship with product success (Drew, 1995). “While process benchmarking is strategically useful in all types of markets and industries, it is especially beneficial to firms competing against strong rivals in turbulent markets. In such markets, innovative research designs such as process benchmarking partnerships are needed to generate the detailed competitive comparison information that firm survival requires (Ralston, 2001)”. Too, Rolstadas (1998) says that process oriented thinking is one of the major trends towards CA.

3) Key Processes: Modern benchmarking involves the comparison of performance between organisations but the primary objective of benchmarking is to increase the probability of attaining CA. In comparing the performance of one institution with other institutions, all benchmarking studies aim to define and examine the key internal activities within critical business processes, those offering the potential to improve competitiveness and overall business performance (Delpachitra, 2002).

4) Fundamental Understanding of “As Is” of business system: “Benchmarking, when carried for maximum benefit, is a process-driven activity which requires an organisation to have a fundamental understanding of its “as is” process and the superior performing benchmark process. This means in terms of both its outputs and practices. (Zairi et.al. 1995).” This shows that process benchmarking contributes in much detail in this perspective. 5) Research Tool: The information sought in benchmarking normally consists of two parts: quantitative and qualitative

performance data (Andersen, et.al. 1999). Ralston, Wright and Kumar say that process benchmarking partnerships are

emerging as a research tool to help small firms to build a competitive advantage against larger rivals. Managers are now

beginning to appreciate the need to benchmark the strategically relevant processes in their value chain. Process benchmarking

begins with exploratory qualitative research to determine the core processes to be benchmarked. Quantitative research then

follows, using an audit methodology and involving the collection of the costs of core processes from benchmark partners on a

standardised computer spreadsheet. Strategic planning decisions can then be made about how to generate greater customer

value by eliminating excess capacity, outsourcing and modifying existing processes (Ralston et.al. 2001). Too, Hanman

projects the dangerous outcome to form conclusions/develop improvement strategies on quantitative comparisons without

understanding processes and the definitions behind these performance comparisons (Hanman 1997). Further, Jones &

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Kaluarachcha say that the linking of KPIs to detailed analysis of the underlying factors affecting performance (through case

study analyses) provided an effective research tool that produced reliable and resilient results (Jones et.al. 2008).

6) Systematic Collection of Data: This point relates to the above mentioned one. Process benchmarking facilitates a

systematic collection of data by focusing on systematic nature of a business. Akhlaghi says that in process benchmarking

the information can be explored in categories of input, processes and outputs (Akhlaghi 1997).

7) TQM Culture: Performance benchmarking is based on secondary performance statistical data. So it doesn’t require“A total

quality culture represents the ideal environment for process-driven bench-marking to improve significantly the processes that

are critical to business success (Zairi et.al. 1995).” “Day (1990) describes market driven organisation as a commitment to a

set of processes, beliefs and values that permeate all aspects and activities of the organisation [....] for the purpose of achiev-

ing superior performance by satisfying customers better than the competition.”

8) Value Chain: Ralston, Kumar and Wright say that the ultimate objective of benchmarking is to increase the probability of

gaining and sustaining a competitive advantage. Consequently, Porter argues that the activities in a firm's value chain should

be regularly benchmarked (Ralston et.al. 2001). This defends benchmarking role in focusing on process improvement as the

building block of a process is an activity.

9) Knowledge Sharing (KS)/Management: Massa & Testa say that it is not so much the tangible resources that create the

firm’s CA, but the services rendered by those resources that are, in their turn, a function of the firm’s know-how. Because

knowledge-based resources are often the product of extended learning processes and so are complex and difficult to acquire

and copy, the knowledge-based extension of the resource-based view of the firm posits they may produce long-term

sustainable competitive advantage” (Massa et.al. 2004). Although both process and performance benchmarking contributes

for KS in identifying better practices. Yet, Process benchmarking goes a mile ahead by developing long term detailed

research based partnerships.

10) Integration with HR: Companies consist of individuals. These individuals are meant to perform specific tasks. So performance of a firm is not independent of the individuals (Freytag et.al. 2001). Performance benchmarking can better integrate with HR as it helps in setting statistical measures with appropriate aims for improvement for individuals’ tasks. 11) Integration with BSC/Performance Prism: Both performance management models require process oriented approach to be followed for their application in an organisation. So process benchmarking is naturally integrated in them as compared to performance benchmarking.

B) External Variables: This area covers variables outside an organisation (predominantly). Following aspects are presented

in this dimension:

1) Industry Trend: Wassen (2007) argues that performance benchmarking better contributes for understanding industry trends/strategy dimensions e.g. Using Audit Commission performance indicators, CIPFA comparative statistics and monitoring information etc (Bowerman et.al. 2002). 2) Business Flux/Impact on BPR: Delpachitra et.al. (2002) is an advocate of connecting BPR with benchmarking. Grant says that when the external environment is in a state of flux, the firm's own resources and capabilities are a more durable basis on which to define strategy (Grant, 1991). Resources are inputs for processes, so the role of process benchmarking can be exploited in this perspective. Ralston, Kumar & Wright say that process benchmarking allows the firm to improve and/or re-engineer its work processes and functions to build a competitive advantage that is more sustainable in today's fluctuating external environment. It is therefore, likely that process benchmarking will grow in popularity as an essential market research tool for strategic planning for all firms. (Ralston et.al. 2001). 3) New Product Success: This variable is related to the above mentioned second point. Drew says that commitment to process innovation and administrative innovation seems to have significant relationship with new product success (Drew1995). 4) Value Chain: Porter argued that firms should regularly benchmark each significant activity. Activities in which the firm

performs better or at lower cost can be used as the basis for building competitive advantage (Anderson, 1999)”.

5) Centralisation vs, Decentralisation/Outsourcing: Process benchmarking also helps FIs to identify the areas where excess

capacity is present and to take appropriate measures to manage it. Such activities will certainly improve profitability in lending

© Farrukh Idrees <shadrees@gmail.com> 10

operations and efficiency across the institution (Dalpachitra et.al. 2002).”

6) Strategic Grouping: Mukherjee, Nath & Pall argue about performance benchmarking role in defining/improving strategic

groups in industries. They say that the framework of strategic grouping would be necessary for a bank to identify its position

against competitors and to enable poor performing banks willing to switch over to better groups. A bank needs to understand

the inherent dimensions/KSFs, which make that group more efficient. It also has to figure out the required sorts of structural

changes in its business policy (Mukherjee, et.al. 2002).

7) Multiple Drivers: Process benchmarking is backed by more driving forces as compared to performance one, thus leading to developing a holistic approach to improvement programme. As, Zairi & Hutton defend the more comprehensive role of process benchmarking. They say that competitive cost-driven benchmarking has been the most common type of benchmarking carried out in the West, and has been a major catalyst in helping companies to reduce costs. However, it is somewhat surprising that cost has been the main emphasis of benchmarking efforts, considering in most markets product differentiation, rather than low-cost production, will determine success or failure. Process-driven benchmarking when applied to processes that effect product differentiation, can enable companies to improve dramatically their competitive position by enhancing areas such as product features, quality, new product development, reliability, customer service brand image, etc. (Zairi et.al. 1995). Following Table 1 summarizes the above discussion of comparison between process and performance benchmarking:

KEY: y=lower contribution x=higher contribution

Attributes Process Benchmarking Performance Benchmarking

External Variables

Centralisation vs. Decentralisation x y

Opens up chances for Alliances/Partnership x y

Coordinates with External Environmental Flux x y

Depicts Industry Trend y x

Encourages Outsourcing x y

Involves multidimensional Drivers x y

Relationship with New Product Success x y

Impact on BPR x y

Facilitate Rankings y x

Significance on Supply Chain Mgt x y Internal Variables

Knowledge Sharing/Mgt x y

Strategy Analysis y x

Facilitates ABC/Management x y

Cause & Effect Relationship x y

Having Leading & Lagging Nature x y

Productivity Mgt x y

Contribution for Operational Efficiency x y

Enables Effectiveness y x

Integration in BSC/Performance Prism x y

Fundamental Understanding of "As Is" x y

Contribution towards Value Chain Development x y

Supports TQM Cultural x y

Contributes for Qualitative & Quantitative based data x y

Integration with HR y x

Table 1: Process Benchmarking vs. Performance Benchmarking

Process benchmarking contributes towards CA more than the role of performance one when their roles are directly compared with each other. Notwithstanding Bowerman, Francis, and Ball say that performance benchmarking plays its role in making a focused performance diagnosis by identification of areas of weaknesses for detail analysis by process benchmarking

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(Bowerman et.al., 2002). Too, Massa and Testa say that benchmarking performs comparison with others in terms of performance and practices (Massa et.al. 2004). So these types should be taken as phases of benchmarking instead of categories on the way to improvement. Process & Performance benchmarking can also be taken as evolutionary stages e.g. Anand & Kodali say that traditionally benchmarking occurred at output stage which is more downstream (based on lagging measures). Increasingly benchmarking should occur at input and process stage which is upstream element of an organisation where by lead benchmarks of performance are to be identified (Anand et.al. 1998).

Conclusion & Extension of Future Work: The aims of the research are to clarify the role of generic benchmarking for CA and to differentiate contribution of process & performance benchmarking for financial results. Two main assumptions of the study are; 1) benchmarking as an integral part of TQM, 2) CA incorporates financial excellence. Three dimensions are explored where it helps in developing CA in an organisation i.e. by knowledge sharing; facilitating the appraisal process; and encouraging organisations to implement quality frameworks. The common objective of the dimensions is to facilitate a learning culture. One major outcome of benchmarking is “agility” in terms of lean and flexible production, which drives the organisations to system improvement by maintaining/updating CA. Process benchmarking has found to be more contributory towards CA as compared to performance one along the perspectives of internal and external variables. However the connection between them can better be explored by accepting; 1) Process benchmarking is evolved from performance one, 2) Performance and process benchmarking are instead two phases of benchmarking for CA. The research can be practically applied in several prospects e.g. 1) Models presented are cross industrially applicable because the dimensions are generic and acceptable; 2) Company’s benchmarking strategy can be aligned with its business strategy for bringing organisational cohesiveness; 3) Customized scorecard with relative weightage of each dimension (depending upon the company) can be derived from the models to monitor benchmarking strategy performance in an organisation for excellence (Moesen et.al. 2007); 4) A customer oriented organisation can be developed by keeping in view the importance of centrality of customers due to benchmarking (Zairi 1995); 5) Models can help organisations in taking informed decision for evaluating benchmarking investments in a business due to their holistic nature. Primary limitation of the study is that it draws its data cross industrially. Further research can be done to conduct an industry specific (e.g. public vs. private, large vs. small etc) research about benchmarking role for CA e.g. Ralston et.al. (2001) implies that benchmarking has been ignored in literature in small financial firms; Bowerman, Francis, Ball and Fry argue about the different motives in public sector for benchmarking for instance fiscal restraint etc. This shows that different drivers/targets may require different methodology for deploying benchmarking strategies in public sector. They further imply that public sector tend to follow compulsory approach to benchmarking as compared to private sector which goes for voluntary approach. This difference in context/culture may cause different outcomes. More over they argue that competition is not the only driving force for benchmarking; it can be applied to the services/products which are in continuous need. Too, further research is needed to uncover different types of benchmarking for different levels (Bowerman et.al. 2002).

“We shall not cease from exploration and the end of all our exploring will be to arrive where we started and

know the place for the first time.” (TS Eliot, Four Quartets)

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