Business Law

Largely unheard of in the business world until the mid-1990s, when Xerox Corp. used it to enhance its competitiveness, benchmarking has evolved to become an essential element of the business performance management (BPM) toolkit and a key input to financial and business improvement efforts. Despite this, it remains one of the most widely misunderstood improvement tools. The word means different things to different people, and, as a result, benchmarking projects all too frequently fail to deliver on their promise of real results.

However, when executed correctly, benchmarking can be a powerful focus for change, driving home sometimes uncomfortable facts and convincing leaders of the need to embark upon improvement efforts. Benchmarking is a tool that enables the investigation and ultimately the achievement of excellence, based on the realities of the business environment rather than on internal standards and historical trends.

There are two good reasons for organizations to benchmark. First, doing so can help them to stay in business by enabling them to outperform similar organizations, including competitors. Second, it ensures that the organization is continually striving to improve its performance through learning. Benchmarking opens minds to ideas from new sources, both within the same industry and in unrelated sectors.

In this article, I offer a definition of benchmarking and discuss the discipline's strategic role in the effective management of performance improvement.

What It Is, What It Isn't

Let's start with a look at what benchmarking is not. It's not "industrial tourism," in which superficial visits are undertaken in the absence of any point of reference or any real prospect of supporting the improvement process. It's impossible to acquire detailed knowledge of an operation after only a quick glance or a short visit.

Benchmarking also should not be considered a personal performance appraisal tool. The focus should be on the organization, not the...