Benchmarking in Performance Management - Literature review Example

INTERNATIONAL BUSINESS PERFORMANCE APPRAISAL- BENCHMARKING By Benchmarking Any organisation’s successful business performance evaluation or reviews can be achieved by measuring the employee’s performance. Benchmarking is one type of methodology that can be employed to measure the performance of an organisation. Moriarty, and Smallman (2009, pg. 485) illustrate that benchmarking is an organised and continuous process that facilitates organisations to recognise world-class performance and appraise themselves against that. As an external activity, it enables an organisation to compare their business practices and performance metrics to those of their industry’s leading companies (Hong, et al., 2012, pg.450). The elements of benchmarking notably considered are time, quality and cost (Schiffauerova and Thomson, 2006, pg. 650). Benchmarking involves a methodology whereby the management of a firm identifies the leading companies in the industry then compares and contrasts their processes with those of their own. Benchmarking employs several methods, but all of them are geared to enabling the company achieve a competitive advantage over its rivals. In evaluating how benchmarking can be used in measuring the performance of the organisation, there are three key aspects and issues that relate to benchmarking. This includes why organisations should engage in benchmarking, the scope and limitations of benchmarking and the possible solutions. In tackling these key aspects, a business will know whether to use benchmarking and how to use it best (Goetsch and Davis, 2014, pg. 9). Benchmarking as an appraisal mechanism offers various advantages to the firm executing the approach. One of the key benefits that accrue to a firm when benchmarking is the performance improvement. Benchmarking sets the basis of performance development intended for facilitating competitiveness. In the quest for finding ways to outperform competitors, benchmarking ensures the fundamental survival of any business. Moreover, Camp (2003, pg. 29) suggests that benchmarking identifies best practices in the industry then establishes what comprises better-quality performance. The process of also benchmarking enumerates the gap between the actual performance and the anticipated performance thereby instituting real objective facts about the business. Consequently, this provides the business entity with what improvement entails and the rationale to improve (Dragolea and Cotirlea, 2009, pg. 820). Benchmarking also helps organisations to focus on transformation and presents the direction for the transformation process. Organisational transformation allows the organisation to change its previous business processes that gave certain results to new processes that will trigger improved results. The firm is supposed to set minimum standards of quality by making unequivocal the competitor’s standards and continuously referring to them. The firm is also required to provide new ideas for implementation. Benchmarking embraces new ideas, sparking a process of constant learning that leads to a learning business, and a business that embraces change (Lines, 2005, pg. 15). New paradigms are also created when a firm benchmarks. An enduring benchmarking plan provides measurable and specific interim improvement plans based on existing realities; as opposed to the historical performance of the business. Therefore, business entities are mandated to stop routine activities and shift the paradigm. Minderhoud and Fraser (2005 pg. 132) articulate that the usual way of setting business objectives based on historical trends and internal patterns is discouraged. Objectives are set based broader outlooks using external perceptions and perspectives. Benchmarking improves the teambuilding spirit of a company. For successful benchmarking, every employee is engaged in the activity. Benchmarking creates a forum whereby employees are collectively involved in setting up goals and objectives. Teambuilding is an important aspect of a business that aims to achieve objectives, business goals or even exceeding the goals set (Barber, 2004, pg. 304). Another advantage of benchmarking is that it is flexible and for that reason, it can be used in any organisation. Diverse organisations such as public, private and government entities can apply benchmarking when evaluating their performance. Additionally, benchmarking can be integrated into a large multinational conglomerate or a small enterprise such as a local shop, from a national government entity to a local government agency (Camp, 2013, pg. 41). Flexibility in benchmarking makes the practice, therefore, adaptable to any business entity. The other benefit is that of the contemporary status evaluation of the function. This evaluation involves an accurate baseline of cycle time and quality, external and internal comparisons of cost and performance, and the recognition of significant gaps. The result of this evaluation is a fact-based, of the function’s cost and performance drivers. Prasnikar, Debeljak, and Ahcan (2005, pg. 258) exemplify that benchmarking is also a strategic tool that ensures a company survives the competition. Benchmarking can offer an opportunity for a firm to outdo its competitors since as a strategic tool; the business can find new strategies to compete. There are myriads of issues in benchmarking. Benchmarking has attracted a lot of criticisms from both international business managers and local business people. One such challenge is that of putting much effort on focusing on the numbers. Francis and Holloway (2007, pg. 175) point out that as benchmarking involves evaluating figures of a particular data, many financial managers are much concerned with figurative analysis. If a company is performing well in terms of profitability, the other firms in the industry would try to emulate it by benchmarking in terms of profit margins. Even though, this is not an appalling method of ensuring improved results, focusing on numbers could omit the importance of other performance indicators such as quality. Another challenge that faces benchmarking is that of putting less focus on the company’s employees and consumers or customers. According to Kyro (2003, pg. 212), benchmarking may make the organisation focus exclusively on improving productivity for better numerical performances indices such as increased sales revenue and profits. As a result, they may not consider employee welfare such as giving them free time and engaging in employee’s stress management. For customers, a company may opt to force debtors settle their accounts hurriedly and, on the other hand, remain sluggish in closing the account payables. Employees could be overworked causing others to quit. Lacking clarity on the origin of data used to benchmark is another challenge. This causes errors in benchmarking, as an inaccurate comparison is performed. Benchmarking based on inaccurate data may cause even greater errors in trying to outdo the company an organisation has identified for benchmarking (Vorhies and Morgan, 2005, pg. 86). In addition, a company may strain employees in trying to mimic a leading company in a specific industry causing employee burnouts. An error may also occur whereby an organisation relaxes thinking that it has benchmarked against the right company. This may lead to low productivity among employees and potentially losing the competitive edge in the industry. Mihaela, et al. (2008, pg. 10) argue that benchmarking faces a challenge in circumstances where there subsists resistance by some employees. Paradigm shifts and change from the usual way of doing things may be an unwelcome business endeavor. With new changes, there will constantly be some staff reluctant to get concerned and work together with new company policies and strategies. This limits benchmarking as a strategic tool. Lack of appropriate implementation techniques also hampers benchmarking. Mathaisel, Cathcart, and Comm (2004, pg. 405) insist that failure to appropriately implement the process of benchmarking may cause other problems in the company. For instance, an example of an improper implementation method is inadequately involving employees throughout the benchmarking process. It should be noted that employees are those tasked with the responsibility of using the data gathered for benchmarking and also offer suggestions for improvement. The other challenge or limitation associated with benchmarking is that there are constraints encompassing the practice that include ethical, legal and trade secrets. To begin with, legal constraints are those that engross patents and rights. Some best-performing companies such as Coca-Cola, for example, may not be easily used as a benchmark because they have their manufacturing process patents. This kind of legal constraint limits other companies to adopt their processes. Companies may also be reluctant to publicise their information as the information may be classified as a trade secret (Boulter, 2003, pg. 530). Benchmarking requires extensive sources of information to be gathered and analyse. In addition, there are private companies that do not present financial information to the public. In other cases, organisations fail to assign benchmarking to qualified and well-informed employees. As such, Fine, and Getkate (2014, pg. 35) conclude that the process fails to impact positively on the business and fails to enable the company achieve the goals set. This is because those who have the responsibility of setting the specific goals do not comprehend all of the processes that are requisite to contribute to the attainment of the goal. Hemming (2004, pg. 104) criticises benchmarking in that; it can be considered as intelligence work on the competition used by spies. Competitors may regard it as unethical practice. This is contrary to the practice as some countries such as Japan have benchmarking incorporated in the management’s role. Japan has realised that benchmarking is a method used for the purposes of staying competitively relevant in the global arena. The country has been known to excel in industries such as electronic and automobile industry; partly due to benchmarking that has raised standards of what they manufacture (Oliver, Dostaler, and Dewberry, 2004, pg. 253). Various business stakeholders in the global scene have equated benchmarking to copycatting. They regard those who implement benchmarking as lacking innovativeness and novelty. Nonetheless, Randall, 2011 (pg. 68) argued that copycatting is connected to the lack of creativity while benchmarking is part of the strategy but it is not a substitute for strategy. Some organisations do not exploit benchmarking because they make use of management by crisis type of management. By this, they hope to correct things when they only go wrong. More so, if their firm is performing well financially, they resist change and ignore competitors. Many organisations perceive benchmarking as an additional cost to the company that does not make the company significant profit. The limitations that arise from benchmarking offers can be attributed to the unsuccessful implementation of the process of benchmarking. To curb the process being termed as unethical benchmarking, it is important for organisations to discover the ethical practices and ways of benchmarking. To avoid legal actions, it is crucial for organisations to agree to the code of conduct. The principle of legality, for instance, will suppress the urge to obtain restricted information such as trade secrets. The information received from competitors that are not public should be made anonymous (Nguyen and Yao, 2009, pg. 695). Employees’ resistance to change can be addressed by formulating plans to change. Hon, Bloom, and Crant, 2014, pg. 920) urged that is imperative for managers of companies to prepare their organisation for change. The organisation will be empowered, through managers, to overcome resistance to change and embrace a culture of flexibility. This will lead to new ways of doing things, and the firm will always adapt to the ever-changing markets and industries. To enable successfully benchmarking, the business entity ought to select a team that is qualified. This prevents errors emanating from employees who are not conversant to benchmarking. Employees responsible for implementing benchmarking should, therefore, be people who are skilled and can influence others to change. Additionally, it is recommended for companies to identify best principles and ideas even in disparate areas. This will avoid employees sitting back because the company is doing fine as many important findings will be made by scrutinising the companies that are absolutely unrelated to the firm (Maleyeff, 2003, pg. 13). Conclusion Benchmarking is the exploration of business best practices that lead to better-quality performance. Benchmarking as a tool can be used to compare and evaluate the business performance of an organisation. Benchmarking may be applied internally and externally in an organisation’s setting. Internal benchmarking involves employees and, therefore, promotes internal competition. External benchmarking goes beyond the organisation’s confinements to even evaluate the overall performance of a company in comparison to the global competitors. Benchmarking has many benefits, and it is important for businesses to conduct it such as to survive in the competition. However, there are criticisms of benchmarking and should be taken to avoid criticism. Some of the ways of addressing benchmarking criticism is to observe the benchmarking code of conduct. More importantly, the principles of legality and confidentiality attend to the issues of unethical practices of benchmarking such as disparaging a competitor’s business to outsiders based on acquired information. Benchmarking has developed into a popularly espoused practice and is used to achieve competitive advantage and is here to stay. References Barber, E., 2004. 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