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Internal benchmarking is when an organisation benchmarks against similar operations within the organisation and is often a starting point for any benchmarking project. Internal benchmarking assumes that there are different work practices within different parts of an organisation and that some departments’ practices may be more efficient and effective than others. It can be particularly useful in large multi-national organisations where the same company in one country may be performing better than a sister company elsewhere. Internal benchmarking also aids in documenting an organisation’s own work processes and can act as a baseline for any further investigations that may be done as competitive, functional or generic benchmarking. The advantages of internal benchmarking are that data can be easily obtained, it is reliable and there are no issues surrounding confidentiality, thus it is easier to gain cooperation of other departments. These factors contribute to making the benchmarking exercise both effective and efficient. However, the practices found within one’s own organisation may not be best practice and care must be taken that any organisational bias does not affect the findings. There may be internal problems if certain departments are unwilling to share information and data because they believe they have an edge over other departments. It may also be difficult to adopt a totally objective comparison through internal benchmarking and cultural differences between departments, customers or companies in different countries for example, may make comparisons more difficult.

(Spendolini, 1992, Zairi and Leonard, 1994, Camp, 1995, Cox and Thompson, 1998, Francis 2003)

TNT Express (UK) are a distribution company with approximately 8,000 staff and 350 locations in the UK who have used internal benchmarking. Performance measurement is widely encouraged within the various depots on things such as invoice queries, credit notes issued, debtor weeks outstanding and sales ledger with the information being published in league tables. There is a culture of competition at TNT Express and so league tables are regarded as the best way to encourage continuous improvement. Within the company good performance is rewarded and crucially, from the perspective of best practice benchmarking, processes producing bad performance are improved through inspiration from the best depots.

Once a depot becomes the benchmark they are given one star per item measured. When a depot achieves five stars they are rewarded with small financial incentives and if they sustain the performance over an unbroken period they are given a further incentive. The use of internal benchmarking has contributed to TNT increasing the proportion of deliveries on time, reduced the volume of copy notes and reduced the number of misroutes. (Zairi, 1998b)

Shorts, an aircraft manufacturer, represent another organisation who introduced internal benchmarking to improve internal work processes and improve cross-functional communication. Benchmarking enabled the best aspects of different business units to be emulated throughout the company. Shorts also used internal benchmarking as a stepping stone to further competitive and generic benchmarking as it helped increase familiarity with the concept within the company. (Zairi, 1998a)

The Nationwide Building Society in the UK began to use internal benchmarking when surveys revealed low customer satisfaction ratings in certain areas of the business and severe gaps in some of the process flows as its branches. Best practices within the organisation were located and catalogued and best practitioner managers were seconded to other branches to help bring about changes. The improvements to the company’s processes resulted in savings of £17 million as well as benefits across the business in operational, financial and strategic areas. (Zairi and Whymark, 2000b)

4.2.3 Competitive

Competitive benchmarking is when products, services, activities and processes are benchmarked against the best of direct competitors in the industry. Ultimately an organisation wants to know its position in relation to its competitors and an understanding of work practices in other organisations can help to improve those work practices which do not measure up. Within an industry, competing organisations may have many things in common, such as the technology used, access to marketing channels, foreign suppliers and so on, and so any lessons learned from competitors can be easily translated from one organisation to another. Competitive benchmarking is easier to carry out when information is readily available, but when it is not then it becomes dependent on the willingness of competitors to share information which may potentially damage their competitive advantage. (Spendolini, 1992, Zairi and Leonard, 1994, Camp, 1995)

Often, the biggest barriers to competitive benchmarking lie within the organisation wishing to carry out the project and the fact they view competitors as untrustworthy when it comes to providing data. Many companies realise however that competitiveness depends on carefully structured co-operation. Co-operation between competitors on issues of safety is a particularly good example of why competitive benchmarking can be beneficial for a whole industry. A drawback of competitive benchmarking is that other organisations may not have practices worth emulating or learning from and therefore care needs to be taken when selecting suitable comparator companies and processes. Benchmarking in this instance will identify the competitive gap but to look for superior processes and innovative ideas, experience from other industries should be sought. With competitive benchmarking, if another organisation’s processes are simply copied then breakthrough actions might not be achieved. (Spendolini, 1992, Zairi and Leonard, 1994, Camp, 1995, Cox and Thompson, 1998, Francis 2003)

Britannia, a charter airline based in the UK, represent an example of an organisation who have begun to benchmark in both an internal and competitive manner. The example also represents some of the concerns that organisations may have over indulging in competitive benchmarking. Britannia introduced benchmarking to its maintenance division when it was realised there was a problem in controlling major costs. Initially, an internal benchmarking database was established to compare current costs to historical costs and this provided a starting point for further benchmarking activity. Britannia considered talking to direct competitors in the UK to be too commercially sensitive so they looked to foreign airlines.

While Britannia recognised that they did not carry out best practice benchmarking by

comparing against “best in class” they claimed they learned valuable lessons from the process. They state one of the reasons for not carrying out best practice benchmarking is because they do not know who the best in class are. In Britannia’s case, internal benchmarking has provided a useful learning experience and a starting point for further benchmarking. (Francis et al., 1999)

Further examples of competitive benchmarking can be seen in the public sector. The Court Services, an executive agency of the Lord Chancellor’s Department in the UK, used competitive benchmarking and found that they focussed on targets rather than those who delivered them and their customers, that there was a lack of communication and that managers needed to improve their leadership skills to inspire and motivate staff. All of the points were taken into consideration and long term strategies were devised along with an action plan. Prince Charles Hospital in Merthyr Tydfil, Wales, used competitive benchmarking to improve the quality of their patient discharge process by comparing processes with four other hospitals to identify best practice. Reorganisation following the benchmarking project saved time for patients and their families and allowed resources to be used more efficiently. (Magd and Curry, 2003) Within the air cargo industry, high growth rates and the development of integrated carriers has meant that the airline/freight forwarder partnership has been unable to keep up as pressure for faster delivery times has increased.

Lobo and Zairi (1999a, b and c) undertook a benchmarking survey which looked at seven airlines and two integrators. Criteria were set up to assess each company in the areas of leadership, strategic quality planning, human resources management, process management, quality results and customer satisfaction. The survey established the leading companies in the different areas and some of the key practices used and offered a starting point for the companies involved to improve their processes.

4.2.4 Functional

Functional benchmarking is when a comparison is made to practices at organisations with similar processes in the same function but outside the industry. With functional benchmarking it is the nature of the actual process or activity which is matched, rather than the organisation’s business. Benchmarking with organisations from another industry overcomes any problems surrounding sharing information with competitors so long as the activity is properly introduced and approached in a professional manner with discipline.

Searching for benchmarking partners to share information within other industries is intensive

because it is in this class of organisations that the most innovative practices are found. By examining practices with a fresh perspective from other industries, new solutions can be found to old problems and new innovative approaches can be developed. New practices found in other industries may also be easier to implement because their discovery is non-threatening and they do not reflect badly on the organisation because they were unknown prior to benchmarking. Functional benchmarking may also lead to two-way partnerships being forged with other organisations, further increasing the opportunities for learning. As functional benchmarking focuses on specific functions, however, then a wider benefit to other areas of the business may not always be seen. Care should be taken when selecting companies as the nature of the comparison can be complex, for example cultural or demographic factors may have an impact. (Camp, 1995, Zairi and Leonard, 1994, Cox and Thompson, 1998, Francis, 2003)

One of the most famous examples of benchmarking is the comparison at Xerox of its practices to those of L.L. Bean, a company who made outdoor clothing and equipment. The example highlights the role of functional benchmarking. Xerox benchmarked against L.L.

Bean because it was found to be a leader in terms of the picking process for assembling customer orders. Although operating in a different industry, L.L. Bean was judged to have a similar process to Xerox because the products handled varied widely in shape, size and handling requirements. Research into other companies as suitable benchmarking partners revealed that L.L. Bean’s order picking process was three times faster than that at Xerox, so they began to benchmark and learn about L.L. Bean’s warehousing and ordering processes.

The comparison allowed Xerox to realise that the items would have to be picked manually and the process could not be automated as had been originally thought. It also highlighted the way L.L. Bean located items within their warehouse to best match the random fashion in which they received orders. This is something which Xerox did not do and which accounted for the productivity differences. (Spendolini, 1992, Camp, 1993 and Camp, 1995)

Kodak use a mixture of functional and competitive benchmarking in a range of areas, for example:

Achieving excellence in Quality Leadership Process deployment – Eastman Chemicals

Achieving ISO 9002 Accreditation – Arkansas Eastman World class packaged goods marketing – Lehn & Fink

• Articulation of the strategic framework – Sterling Pharmaceuticals. Kodak also benchmark with a number of other companies including Toyota, Dulux, Ford, BHP and

Comalcos for specific purposes which range from the concept of “infull, on-time,

accurately” to briefing processes through multi-layered organisations. The benchmarks aid in goal setting and planning. (Zairi, 1996)

Other organisations who have used functional benchmarking include Post Office Counters Limited, who benchmark internally first across their seven regions in the UK, before looking to external best practice organisations. Post Office Counters Limited have developed a database of “best of breed” internal processes, “best of breed” external companies, benchmarking partners and benchmarking studies. Another example, Northern Telecom, had a primary corporate target of achieving the benchmark in customer satisfaction. It embarked on a functional benchmarking project which surveyed 23 companies from a wide range of different industries including aviation, car rental, electrical goods manufacturing and packaging. The survey covered issues of company culture, customer satisfaction policy, customer involvement, communications, organisation and people involvement, impact on performance and measurement of customer satisfaction. The survey responses highlighted a number of areas where Northern Telecom could seek to improve its processes and more in depth work was carried out with three of the companies originally surveyed to develop a new method of working to help improve customer satisfaction levels. (Zairi, 1996)

At IBM, the Havant site chose benchmarking partners from other industries who manufactured similar electrical assembly products, who were recognised for their expertise in areas such as just-in-time production, quality, cost management and feature mix.

Problems were encountered in selecting the partners, a lack of preparedness on the part of the partners and the data used for comparisons. IBM was still able to gather some useful data, however, and the benchmarking exercise helped to improve customer satisfaction as well as preventing complacency within the organisation. (Zairi, 1996)

4.2.5 Generic

With generic benchmarking there is no search for direct comparability, instead an attempt is made to learn from others who have innovative and exemplar processes. The concentration of the benchmarking activity is strictly on the process. The approach is to consider that organisations are run on their processes and that many of these processes must have similar requirements, no matter what type of operation the company performs or the industry it is in.

Selecting benchmarking candidates requires thinking outside of the box and innovation when searching, thus “the process” has to be considered in its broadest sense. A difficulty with generic benchmarking is that without some creativity and willingness to try and adapt new practices, they will be passed off as not readily transferable. In some instances, competing companies from one industry may conduct joint benchmarking projects outside of their industry. This applies to functional as well as generic benchmarking. (Camp, 1995, Francis, 2003)

Zairi and Leonard (1994) state that generic benchmarking is related to the processes at the very heart of a business and that until an organisation has gone through an evolutionary process of understanding and gaining experience from competitive, functional and internal benchmarking then it is unlikely that it’s mind set is capable of maximising the benefit that generic benchmarking can offer.

An example of generic benchmarking can be seen in the Remington division of DuPont, a large US organisation operating in several markets. The team from the Remington division were acting upon customer requirements for “smoother, shinier shells” for ammunition for their leading product, shotguns and rifles. The benchmarking team developed some good candidates in the internal, competitive and functional fields, but decided to concentrate on the “smoother and shinier” aspect and highlighted the manufacturers of lipstick containers as being the leaders. As well as being leaders in terms of smoother and shinier, the lipstick shells were similar in shape to those produced by Remington. The team was then able to benchmark against lipstick case manufacturers to respond to the customers’ requests.

(Camp, 1995)