How is benchmarking typically assessed in the CIPS exam?
Continuous improvement is necessary to stay competitive in the market. If companies become complacent with the results, they face the risk of being overtaken by their opponents. One effective method for driving ongoing improvement is benchmarking. It is the process of comparison between your own company with other companies (such as a industry leaderor a strong competitor) to identify weaknesses and opportunities for enhancement…In fact, benchmarking is truly applied in your everyday life by observing and learning from the sucess of others. For example, you are inspired by a popular person with a fit body and strong health. You start analysing his diet and his exercise routine, then relfect on yourself to identify your weaknesses. To implement benchmarking effectively, you need to ask some exploratory questions such as: who do you compare your company to? What areas should you evaluate in comparison with other companies? How difficult or easy it is for your company to compare with external company?… If you can answer all questions well, you can find the appropriate type of benchmarking.
Depening on the scope and purposes of benchamarking, they are categorized in various types such as strategic benchmarking, performance benchmarking, process benchmarking, competitive benchmarking, internal benchmarking, generic benchmarking and functional benchmarking. In the exam, CIPS may require you to identify the characteristics and challenges of each type. You can easily score marks on those questions if you have a deep understanding of this topic.
Strategic benchmarking:
It refers to the process of analyzing the winning strategies of the successful companies and implementing those in your company. Benchmarking is not a copy or applying their strategy exactly as they did. Instead, it involves researching, selecting best practices and adjusting them to fit to your company to achieve competitive advantages. For example, Walmart is a well-known brick and mortat retail store. Due to the development of technology, e-commerce has become popular and dominant in the retail industry and Amazon quickly becomes a leader in the industry. Walmart has to learn Amazon’s business strategy to maintain market share. Amazon has invested heavily in digital infrastructure, cloud computing, logistics, automation and AI to faciliate online retail and offer excellent services such as curbside pickup or same-day delivery. In response, Walmart started investing significantly on its online platform and mobile app as well as supply chain management. As a results, Walmart has quickly become a major player in e-commerce industry.
Performance benchmarking:
As the name implies, it refers to the process of comparing the performance of an organization against industry standards, competitors or best in practice companies across different industries. In performance benchmarking, it is best to rely on Key Performance Indicators (KPIs) metrics as business performances are measured and tracked through KPIs. You can compare your company’s performance in areas such as:
Financial performance: we use metrics to assess how welll a company manage their finance, allowing us identify the financial health and efficiency of the company. We can use some metrics such as revenue growth, profitability, cash flow, debt to equity, return on investment, current and non-current liabilities.
Operational performance: we use metrics to assess the efficiency and effectiveness of core business processes like production or sales and marketing….Some metrics can be productivity rate, quality control metrics, the production downtime…
Customer service performance: we measure how well a company meet customer needs. Some metrics can be used to measure the performance: customer retention rate, customer satisfaction score, average response time
Human resource performance: we assess the effectiveness of workforce and HR practices through some metrics such as employee productivity, employee engagement, employee turnover rate….
Marketing and sale performance: we measure the effectiveness of marketing and sales activities through various metrics such as sales growth, number of visitors to website, marketing ROI,…
Product performance: we assess the quality and market acceptance of our products through a variety of metrics such as time to market, ratings, reviews, defect rates, the number of new products launched over a period
These metrics can vary depending on specific industries. You should be flexible to use appropriate metrics to benchmark the performance of specific areas of your company against those of other companies. For example, in Vietnam, Vinamilk and TH True Milk are big milk providers in the maket. Although TH True Milk entered the market later, they are well-known about the high quality of their products. Due to the high performance of cross-functional team in developing new products, TH True Milk identified the potential demand of healthy products and they are the first one to launch less-sugar, sugar-free products along with healthy meals involving cereals and yogurt. TH gains strong customer endorsement and trust. In response, Vinamilk benchmarks their product performance against that of TH True Milk, then adjusts their range of products accrodingly. They quickly launch new products with organic standards, drinking yogurt with multi-strain probiotics and plant-based milk to maintain their competitve advantages. Currently, both companies have a wide range of products to meet diverse customer needs and they still maintain a large market share.
Process benchmarking
It refers to the examination of the specific process of a leading company in the industry. It is not necesary to compare within the industry, you can study best-in-class companies from other sectors to identify and adopt their best practices. The benchmarking aims to enhance the effeciency of processes in your company. By analyzing best-in-practice processes, your company can remove unnecessary steps, reduce overprocessing and enhance automation to free up manpower.
For example, Toyota is a leading car manufacturer in the market. Their car assembly process commits to lean manufacturing which removes wastes caused by defects, over production, waiting, overprocessing, unused talent, transportation, inventory and motion. They also apply Just-in-Time production to reduce inventory needs and overproduction as well as quickly adapt to market changes. These best practices in production process are adopted by many other car manufacturers and companies in different industries.
Competitve benchmarking
It is a process of comparing your company’s practices with those of competitors in your industry to identity the weaknesses and opportunities for innovation. It differs from performance benchmarking, which allows comparision with companies in other industries. In competitive benchmarking, your strong competitor is examined and analysed to identify their best practices. You use KPIs metrics to assess your competitors’ performance in various areas such as business strategy, customer service, sales & marketing or core business operation to find the key to their success. This helps you spot where your company lag behind competitors. In the market with high rivalry, your company needs to update and innovate frequently to gain competitive advantages. Otherwise, your customers may switch to your competitors, potentially leading to significant decline in sales or bankruptcy.
Internal benchmarking
This benchmarking is easily implemented because you just compare among different departments in your company or different units. You have full access to data and performance records which are always availabe and accurate. Through internal benchmarking, you can identify best practice of departments who have the most effective performance. After that, these knowledge are shared and implemented across different deparments who are underperforming in the same areas. This method is scpecially useful in a companies with multiple branches.
Generic benchmarking
It refers to the process of comparing the performance of your company to leading companies to identify best practices regardless of industry or function. This benchmarking aims to find universally applicable best practices that can be applied to improve any processes, even unrelated processes. Generic benchmarking will broaden your perspectives beyond your own industry, which can help you find the innovative practices.For example, a company can apply best practices from Apple’s research and development activities to the same function in a car manufacturer, or to human resource management in a retail company.
Functional benchmarking
It is a comparison of the same function across different companies. For example, you compare the performance of customer service department with that of other company. This method often chooses a specific function to compare with non-competitors who are best-in-class in that area. For example, Airlines may benchmark their customer services against that of luxury hotels. Airlines learn how the luxury hotels categorize their customer base and deliver customized services. As a result, Airlines also introduces personalized welcome kits and upgraded in-flight amenities.
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