It is possible sometimes to benchmark against direct competitors, but is usually easier to reach agreement with organizations in the same industry where there is no competition (such as a power distribution company in the UK benchmarking against a similar company in the USA), or with an organization in a different industry which has a similar process to one of your own (such as a manufacturing company studying the customer service operation of an airline). The prime aim is continuous improvement, and it is an essential tool for aiding the drive to achieve world-class performance, and a useful tool as a precursor to business process reengineering. It has some value in competitor analysis, mainly in aiding the recognition of competitive strengths and weaknesses, but ethical considerations, which are important for all types of benchmarking, are even more important here. Codes of conduct have been drafted and published, but the key to successful benchmarking is trust between the organizations involved.
Benchmarking is not just a comparison of performance ratios, although this may be helpful in the ®rst stages of ®nding areas of weakness. It is a detailed comparison of processes.
Benchmarking is not just a comparison of
performance ratios
Internal benchmarking has a value when comparing performance across companies in a group, or between branches. This may help to lift performance, but will be unlikely to lead to world-class performance unless one of the internal units is already a leader in the process.
KarloÈf, B. and OÈstblom, S. (1993). Benchmarking, Wiley, Chichester.
Watson, G. H. (1993) Strategic Benchmarking, Wiley, New York.
See also: business process re-engineering.
A very simple, very useful approach based on ®xed and variable cost analysis which enables the impact of price and volume decisions on pro®t to be charted. In its basic form it enables the user to determine either the volume that has to be sold at a given price in order to breakeven, or the price at which a given volume must be sold to achieve the same effect. It is also possible to use the same concept to examine price/volume relationships at various target levels of pro®t.
The approach is very useful for a simple business, or at simple levels in a complex business. A breakeven analysis for the consolidated operations of a global company would have little value. A breakeven analysis for a new product launch in one trading unit, or for the operation of a focused business within a particular country, would be a very useful approach. The technique facilitates the exploration of sensitivities, and hence the understanding of the business.
It is also known as a pro®ts graph (although graphical presentation is not needed as calculation can be made by formula). Some prefer this alternative title on the basis that businesses aim to make pro®ts not to breakeven.
Anthony, R. N. and Reece, J. S. (1983). Accounting: Text and Cases, 7th edition, chapter 16, Irwin, Homewood, Illinois.
Wilson, R. M. S. and McHugh, G. (1987). Financial Analysis: A Managerial Introduction, chapter 11, Cassell, London.
A form of three-dimensional strategic segmentation analysis, using the axes customer function, customer group and alternative technologies. This enables the organization to plot its own business de®nition, compared with that of competitors, both to understand the current business and plan future strategic moves. In essence, the concept is very little different from other multi-dimensional approaches to segmentation. Abell, (1980)
argues that
. . . even portfolio strategy cannot be discussed until very basic decisions are made about the de®nition of the activity and the competitive arena(s) in which strategy will be implemented. This issue has been lurking in the background in the academic literature up to now. It has, however been of considerable concern to practitioners who have long recognised that contemporary planning methods can only be used once this more fundamental question of `what business(es) are we in?' has been addressed.
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